Instead  of insisting that all economists must be homogeneous in their 
   approach to theorizing about the economy, why not be more tolerant and 
   recognize that economics is a contested, changing discipline?  =Frederic S. 
   Lee 
 
 
   I feel that if economics is to be a discipline, it should be the job of the 
   disciples to follow some guru on account of the gurus success in the pursuit 
   of  knowledge.  Contest  is of course the sine qua non of all science: 
   everybody is encouraged to ask for factual evidence and to insist on logical 
   validity  of  arguments.  Contesting  without  compelling arguments is 
   indiscipline,  and  much of heterodox economics is sadly undisciplined 
   addition of non-compelling voices in a Tower of Babel.  I say this despite 
   the feeling that I may be more heterodox than many. But I will also defend 
   the devil. 
 
 
   First,  I  reject  tolerance.  I  should  not  tolerate counterfactual 
   propositions; I should not tolerate illogical conclusions. Instead, I think 
   that the first duty of science is to cultivate skepticism, that is, refuse 
   to tolerate any viewpoints unless those stand on their merits of factual 
   evidence and logical validity.  This calls for a homogeneous approach: admit 
   only what is factually correct and logically valid. 
 
 
   Secondly, the contesting must be the everyday work of the scientist, but it 
   must strive to convince others by way of providing compelling evidence and 
   logic. Contesting without compelling arguments is not a path to success. 
 
 
   Science  thrives  by  compulsion  as  it compels the student to accept 
   incontrovertible evidence and irrefutable logic. If we are debating, it is 
   because somebody has failed to compel us and we are pointing out errors of 
   fact  and errors of logic to say why we do not tolerate such powerless 
   arguments. 
 
 
   Here are three examples of my intolerance, all involving choice theory. 
 
 
   1.                   The  most advanced model in microeconomics is the 
   Arrow-Debreu GE Model, and I refuse to regard it as proper economics. Why? I 
   ask: if a biologist wants to model the behavior of an isolated mouse which 
   has n different kinds of insects to catch (produce) and eat (consume) under 
   various risks and uncertainties, then the biologist will write a model that 
   looks  exactly like the Arrow-Debreu Model in which optimization is an 
   expression of conservation of energy. There is no entrepreneurship, no 
   exchange, no market, and no money. In short, the model tells us nothing 
   about the market economy. To become economics, it must cover the market 
   where all things anti-Arrow-Debreu happen: people produce what they do not 
   wish to consume (but to sell), they consume what they do not bother to 
   produce (but they buy). Indeed, merchants buy what they do not consume, and 
   sell what they do not produce. They are not isolated but dependent on others 
   as customers and suppliers, and they add value to what was less valuable by 
   way of exchange.  I conclude that microeconomics as its stands today is a 
   chapter  of  biology, and does not begin to be economics at all. Let a 
   biologist worry about the little fates of the little mice that allocate what 
   they already have. Let me have the excitement of looking at uniquely human 
   enterprise in which they create what did not exist before, add value that 
   was not there, and create new options to bust the earlier constraints. 
 
   My rejection of microeconomics has an institutional message. The autarkic 
   production and consumption activities of isolated Crusoe are of no interest 
   except to a biologist. For economics, the staring point is mans audacity to 
   abrogate natures law of subsistence by forbidding plunder and enforcing 
   payment under exchange. Unless one can explain and model why and how a 
   merchant buys what he does not consume and sells what he does not produce, 
   one is not able to comprehend the market. The market is a social institution 
   in which plunder is forbidden and payment is mandatory. This institution 
   coexists with the state and culture; and one must be able to separate them 
   as well as put each in context of the rest. The barrenness of microeconomics 
   comes from its failure to grasp the smallest bit of real observed phenomenon 
   of  a market. Unless one can identify economic choices distinctly from 
   political and cultural choices, one provides nothing compelling. 
 
   Microeconomics is not economics because it misses the most crucial essence 
   of the market: the interdependence. The Walrasian core of the GE model has n 
   equations in which demand is equal to supply for each good. This must be 
   wrong for a market, but right for autarky. In the market, the demand for X1 
   must be dependent on the demand for X2 if the buyer of X1 is the seller of 
   X2. The simultaneous equation model presumes independence of the equations, 
   and this presumption renders the model one of allocation by a solitary 
   individual who alone produces and consumes all n goods with nobody around. 
   To bring the interdependence in the model, one must show that the buyer of 
   X1 pays with the proceeds of X2 and so on with another set of equations. All 
   enterprising actions are in pursuit of profit, and a genuine model of the 
   economy must allow profit in equilibrium. But autarky is by definition one 
   in which no profit is possible. 
 
   Microeconomics is intolerable because it derails economics. Economics is in 
   practice a study of the economy, and what we really strive is to understand 
   the behavior of economic goods.  Human behavior is relevant in explaining 
   behavior of goods, but only to that extent. Microeconomics sends us to the 
   realms of psychology and anthropology and primatology and keeps us away from 
   the economy.  We want to know about employment, growth, and stability; but 
   micro keeps us away from even raising those questions. So I have decided 
   that a student of economics ought to begin by rejecting microeconomics. 
 
 
   2.                   Next, I also do not tolerate Arrows Impossibility 
   Theorem. In a market, all choices are social choices because the kinds and 
   quantities of every traded good are determined by the social choice of 
   buyers, sellers, and intermediaries together. Those concerned people must be 
   able to agree on the kinds and quantities of what they exchange, and the 
   agreement must not be impossible. The basic game in this agreement is that 
   people must have precisely opposite orders of preference over any given pair 
   of goods they propose to exchange.  They resolve conflicts by agreeing on 
   what is possible to agree without having to agree on what is not possible to 
   agree. Thus if John and Paul are to exchange X for Y, it must be the case 
   that John prefers Y to X while Paul prefers X to Y, so that both of them 
   stand to make net positive gains in utility: John gives up X to get Y which 
   he prefers to X, while Paul gives up Y to get X which he prefers to Y.  The 
   key:  they have to agree only on how much X will fully pay for a given 
   quantum of Y and vice-versa, but they do not have to agree on how much 
   utility the consumer will get from one compared to the other. John ignores 
   what utility Paul gets from consuming X, just as Paul ignores what utility 
   John gets from Y. John also ignores the cost of production of Y because he 
   is not the producer: he cares only about the cost of what he produces, 
   namely, only for X. So John compares the cost of X with the benefit of Y, 
   while Paul compares the cost of Y with the benefit of X.  One cares about 
   what the other ignores and that is why there is no need for them to agree on 
   preferences. 
 
   Society does not need to have a social preference at all: it needs social 
   order  resting  on  agreements, and it lets its individuals have their 
   preferences  in any way they like. The only thing society needs is the 
   agreement on price and payment. 
 
   Microeconomics cannot teach us anything valid about price, and has never 
   even thought about payment. It offers illogical ideas about price, and no 
   ideas about payment. 
 
   Microeconomic  ideas  about price are absurd. First, demand and supply 
   functions are themselves derived from predetermined prices: it is impossible 
   even to conceive of demand without predetermined price. It then proposes 
   that demand and supply together determine price. Demand and supply together 
   determine the quantity of output, but not the price. Price is determined by 
   an  arbitrage  process in which the buyer ignores the marginal cost of 
   production and the seller ignores the marginal benefit of consumption so 
   that  the  price is set above the marginal cost and below the marginal 
   benefit. 
 
   Next,  microeconomics  knows nothing about payments, even though it is 
   mandatory  that  the  buyer must pay the seller. The opposite order of 
   preference  over the exact same pair of goods is the essence of double 
   coincidence, and it is necessary for any trade. It determines what kind of 
   good (including the artificial good called money) may serve as payment. 
   Indeed, if one of the traded goods is money and stands proxy for some other 
   real good, double coincidence still must hold. Thus if John sells wheat (X) 
   for dollars (Y), he must prefer the dollars to the wheat, while Paul must 
   prefer the wheat to the dollars. This is possible because what John can get 
   with the dollars yields higher utility to him than the wheat, while what 
   Paul gets with the same dollars is something which gives lower utility to 
   him than the wheat does. The dollar may be proxy for the same or different 
   goods to two people.  There is no problem if the dollar is a proxy for real 
   good Z such that John prefers Y to Z while Paul prefers Z to Y. But the 
   dollars could represent Z for John but W for Paul. 
 
   We can generalize the opposite order of preference to any number of goods 
   and call it multiple coincidence. Thus suppose that John prefers Y to X and 
   X to Z; Paul prefers Z to Y, and Y to X; and Tim prefers X to Z and Z to Y. 
   In this case, no barter is possible between any two goods, and yet indirect 
   trade is possible so that each gets what gives him the highest level of 
   utility.  Arrow  thinks  that  social choice is impossible because the 
   preferences are incompatible, and yet social choice is not just possible, it 
   happens all the time in the market. Indeed, incompatibility of preference 
   order (otherwise called double coincidence) is necessary for trade to occur. 
 
   My intolerance comes from the undisciplined lapse into irrelevance. No 
   society ever has a problem of choosing one of three goods X, Y and Z for 
   three individuals John, Paul and Tim. In economics, the choice problem 
   involves either allocation or exchange. In allocation, the optimizer must 
   come with a budget, and his decision must be totally isolated from that of 
   anybody else. But Arrow has three people who want something, but no budget. 
   Why is there no budget? As soon as one specifies the budgets of each, one 
   sees that the solution leaps from the tree to the ground and falls flat on 
   its face: John buys as much Y as he can afford; Paul buys as much Z as he 
   can, and Tim buys as much X as he is able to afford. The buying may be 
   replaced by production in the state of autarky. All three goods would be 
   produced  as  per  budgets  devoted to them. And such choices would be 
   individual choices, not social choices at all. 
 
   Next, I have already given the exchange solution. The problem was that John 
   had X but he preferred Y to X; Paul had Y but he preferred Z  to Y; and Tim 
   had Z but he preferred X to Z. Society made arrangements such that John 
   would give up X and get Y; Paul gives up Y for Z and Tim gives up Z for X. 
   It is absolutely possible. To say that it is impossible is counter-factual, 
   and I do not tolerate counter-factual claims. Arrows impossibility theorem 
   means that trade is impossible, and for that absurd claim, I do not tolerate 
   it. 
 
   In politics, the people must already belong to a society that has been 
   formed as one. If John, Paul and Tim are members of one economic household, 
   it is not open to economics to ask how they figure out who speaks on behalf 
   of all. This explanation must be left to anthropology and political science, 
   not to economics. Some kind of power structure and some kind of cultural 
   norms may govern the internal decision process, which involves neither 
   allocation nor exchange but something very different: security in politics 
   and acceptance in culture. 
 
 
   Politics uses the formula: from each according to ability to each according 
   to need, with each different political regime having its own definition of 
   what constitutes ability and what constitutes need. This is based on the 
   exercise of power.  If there is a power stalemate, then the solution is to 
   elect a parliament: John elects Y, Paul elects Z and Tim elects X so that 
   the parliament of X, Y and Z carries on the unfinished business of exploring 
   some  common  ground.  If the whole polity needs one President, and no 
   candidate has the required strength of support, the solution is primeval: 
   send them back to the voters with a reworked agenda so one of them emerges 
   as the most popular. To say that choice is impossible is intolerable. 
 
 
   3.                  I have no tolerance for incompetence either. Why would I 
   presume the consumer to have a given income already earned and to face 
   prices already predetermined?  If the consumer John is to buy Y at all, he 
   must sell X in order to earn the income, which cannot be taken as given, but 
   must depend on his success as a seller: how much can he sell and at what 
   price?  His  income is dependent on his customers income and the price 
   bargains for his product. And why should he not exercise his power to choose 
   the price in a bargain? It is simpler to show that John is at once a buyer 
   and a seller. He sells X to several customers in the amounts X1, X2, .. Xn, 
   and he buys a basket of goods from several suppliers in amounts Y1, Y2, 
   ..Yn. So I should show all his sales in a row and all his purchases in a 
   column.  And  then  add  the  sales and purchases of all other related 
   individuals in the same exchange table. With such a table, looking exactly 
   like Leontiefs input-output table, I can describe the sales and purchases of 
   all individual and all goods. I can keep track of all individuals who never 
   represent one another and yet I can find all aggregates. I see absolutely no 
   reason  to split this table for micro and macro, but both must be done 
   together in one go. I surely never need a representative individual, but I 
   can gladly admit all the individuals with all the differences they can have. 
 
 
   With an exchange table of all goods, we can fuse micro, macro, trade and 
   monetary theory all in one inseparable compact model, all in one go. Why 
   should I settle for the incompetence of trade theory which has no money, and 
   for monetary theory which has no trade? Is there any real indirect trade 
   without money, and is there any money without trade? I reject all trade 
   models that do not show the use of money as a necessary means of payment in 
   indirect trade just as I reject all models of money that do not show money 
   as  a  necessary means of payment in indirect trade. Yes, I reject ALL 
   existing models of trade and money on account of incompetence. And the 
   reason is simple: I can have money and trade together. I reject incompetent 
   micro that begs the question, just as I reject macro that does not even have 
   a question. That is because I can have both micro and macro together in one 
   and the same breath. So I do not tolerate Debreu for supposing that a grand 
   unified theory of the economy is out of reach: no, it is firmly in our 
   grips. It is not just unified, it is inseparable. 
 
 
   What we need most is a sense of purpose: are we trying to learn something or 
   are we merely canvassing our views that we have not bothered to test against 
   factual evidence and logical validity? The guru of whose disciple we ought 
   to be is the abstract principle of compulsion: compel with incontrovertible 
   facts  and irrefutable logic both applied to the same universal set of 
   realities.  Thus if I say <the buyer pays the seller>, I must mean that 
   every buyer everywhere and at all times pays the seller, no exceptions. 
 
 
   Le us throw away microeconomics, macroeconomics, trade theory and monetary 
   theory and have some economics about the economy. 
 
 
   My opinions are now left open for slaughter: please kill them. 
 
 
   Mohammad Gani