making the move from physics to finance

Les Schaffer schaffer at optonline.net
Wed Sep 24 17:28:00 MDT 2003


Julio wrote, early last week:

> I haven't read the entire Keen's book, so I don't know if he says
> this, but general equilibrium is not as crucial to "market
> fundamentalism" as it used to be.

why do you say that?

> If Keen doesn't mention the devastating impact of the DSM theorem,
> then he's behind 30 years in his critique of conventional economics.

Keen mentions this theorem several times throughout the book, as well
as its consequences for things like supply and demand and equilibrium
theory.

> But, at face value, as it appears in Debreu's and Arrow's papers, it
> is a purely logical or mathematical construct.  As such, all it
> really says is: "IF the world looked like the assumptions X, THEN
> the conclusions Y would hold."  Since people have not pointed to
> major flaws in the logic, then what is the problem with that
> statement?

the problem is how its used, right?

look, i love building theoretical models. some apply more closely to
the reality being studied than others. occasionally, for sharpening
the mind, one constructs something that has almost no practical value,
though in some intuitive way one can relate it to other things worked
on in the past.

i first saw Debreu's book in the bookstore and i thumbed quickly
through it. as i drove home, i prayed silently to myself, please dear
god, don't let this work be awarded with a Nobel Prize, of all
things. Sure enough, when i get home i crack Keen's book looking for
comments on Debreu, and i read his work is considered central to a
whole mathematical trend in economics.

> Matheconomists don't dispute that general equilibrium is an
> abstraction or even an idealization or distortion of the real world.
> Such critique is not persuasive.

to the extent that economists and suits tell us such-and-so is
dictated by the laws of supply and demand, your argument don't wash. i
think if you follow the news and TV reports across a long span of
time, the number one form of economic argument is the law of supply
and demand. its used to explain so much. and it's ties to the also
questional theory of equilibrium make it, in my mind, a candidate
target for a clear rebuttal, not for professional economists, but to
the person trying to figure out "what the fuck is going on around
here?".

> Debreu proves that in his idealized "market economy" [snip] the
> distribution of goods [snip] turns out the same outcome as in a
> perfect communist society.

i need to better understand debreu's work first before i can reply to
this.


les schaffer



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