Archive

Tag Archives: John Maynard Keynes

Paris has 129 deaths and 352 injured people: what can one say ?

Let me refer to Charlie Hebdo, and then proceed with freedom and democracy.

This weblog proposes an improvement in freedom and democracy by the creation of a constitutional Economic Supreme Court (ESC) based in economic science, for each country. This will reduce the possibilities for politicians to manipulate information. This will allow a return to full employment. One likely effect is that the ESCs will exchange information themselves, which will allow co-ordination, and which may cause that the euro might work better without the need of a political union. See the paper Money as gold versus money as water (2013).

In 2012 I reported that Dirk Bezemer disinforms Sweden. Now he disinforms Dutch Parliament.

Before we look at the Bezemer screenshot we need some background.

A short background on money theory 1936-2015

Before you say anything on money, first read this booklet edited by Robert Gordon: Milton Friedman’s Monetary Framework (1975). I side with Don Patinkin that Friedman has highly confused the discussion, apparently by desiring to sound original, but basically (1) using phrases from Keynes’s theory of money, that relies on dynamics and allows flexibility in policy, and (2) not understanding dynamics and advising an Austrian policy of fixed money (gold) anyway. Keynes’s theory distinguishes the motives: transactions, precautionary and speculative store of value. The difference between Friedman’s comparative statics and Keynes’s dynamics is that the latter better deals with uncertainty (obviously from an unknown future).

PM. We must distinguish between the early Keynes of A tract on monetary reform and the later Keynes of the General Theory. The later Keynes did not refer to ideas of others as he should have, see here. The proposal to have an Economic Supreme Court is a generalisation of the General Theory, by bringing economic policy making into the model.

MF's MF

MF on MF

Subsequently:

  • In 1936 Irving Fisher proposed – the “Chicago Plan” – to require banks to have 100% reserve backing for deposits. Banks would provide credit from their own reserves rather than from creating money, and become much more critical about whom to lend to. (Though Fisher didn’t see it that way, for us it is easy to get 100% reserves: the government supplement the difference between the current 4% to the required 100% by merely printing money, get proportional shares, and gradually step out using dividends and selling those shares.)
  • Holland had a Post- Cheque- and Giro-Service (bank) that facilitated the payment and transaction system, and little else. It was merged with other entities into ING Bank.
  • In a working paper at the IMF Jaromir Benes and Michael Kumhof (2012) reconsidered the Chicago Plan. Benes is still at the Fund, Kumhof is now senior research advisor a the Bank of England.
  • Before you start embracing that paper, see whether you have an answer to the criticism by Detlev Schlichter.
  • My own paper Money as gold versus money as water (2013) suggested that transaction deposits and money might as well be managed by the Central Banks, so that the payment system would never be in danger, as was the case in 2008. For the payment system there is no need for bank reserves and deposit insurance. In times of uncertainty, customers always have the option to transfer their funds into deposits in the payment system at the Central Bank. For commercial banks: savings and investments can be matched for their maturities. Investments depend upon unstable expectations, and democratic nations could adapt their constitutions with national Economic Supreme Courts (ESCs) so that the system of ESCs could provide for stability in those expectations.
  • Holland has an initiative to get a new full reserve transactions bank. Their website features some of the same names mentioned below. The problem with the website is that it doesn’t specify the costs of developing and running the software and other investment and operation costs. They require 16,000 people to open an account at EUR 50 to get started, which generates EUR 800,000: but all this money may well be lost to R&D.

Intermediate conclusion: The world should never allow this risk at the payment system like happened in 2008. Having this risk gives too much bargaining power to the banks. Thus a system change is advisable. How should the new system look like ?

A short background on the economic fringe 1936-2015

Enter the economic fringe. I discussed the economic fringe in 2014, and how there were interesting connections from gold bugs to the Wizard of Oz to Ayn Rand’s disciple Alan Greenspan. The fringe is obsessed with money and banks, and rather than studying economics they resort to meetings, petitions, websites, and what have you.

A prime objective of the fringe is to be taken seriously. They avoid economists who speak about censorship of economic science. Instead they will embrace (often defunct) academics who seem to treat them seriously.

Obviously the fringe doesn’t exist only in Holland but it is a world movement, see this “Positive Money” campaign in the UK and its connections to various other countries. This Positive Money website has a board of advisors with qualified economists Victoria Chick and Richard Werner, but, again, the fringe likes to be taken seriously.

Who wishes a quick introduction into this issue might read Edin Mujagic (in Dutch) or Chris Dillow (in English). Dillow advises state real investment banks, which is also my advice.

Educating the masses on economics: both official and fringe failures

One cannot say that economists, the textbooks and the Central Banks do a very good job in educating people on money and banking.

  • The European System of Central Banks might have warned the population that the creation of the euro without the proper political union was inadvisable.
  • Dutch Wim Duisenberg was happy to become the first president of the ECB instead of killing it.
  • The role of being Cassandra fell upon Bernard Connolly at the EU Commission who wrote The rotten heart of Europe in 1995. He played his role excellently: for like Cassandra people never listened to him.
  • Of course the fringe avoided Connolly too, since this would conflict with their desire to be taken seriously, and dine, drink and dance with the serious people.
  • Author Joris Luyendijk of course tries to educate people in his own journalistic manner – see a book title “This cannot be true”. He is more like a grasshopper, jumping from one topic to another, and see how he can turn his own bewilderment into a bestselling book.
A Dutch petition for a change in money

The Dutch fringe set up a petition for a change in the monetary system. Dutch law requires 40,000 signatures and then Parliament is due to discuss the topic and take a stand. They got more than 100,000 signatures. There was a theatre play about the rotten bank system, that always helps.

Of course, the fringe petition does not refer to my own scientifically based petition that advises to a parliamentary enquiry into the censorship of economic science since 1990 by the directorate of the Dutch CPB: today 14 signatures since the restart in September 2011. The fringe believes that it is an important issue that bank directors can lie to their customers, but it is not important that government directors can lie to the government and the people (or perhaps the fringe thinks that government directors always speak the truth).

(The CPB director who started the censorship in 1990 is Gerrit Zalm, later involved in the DSBank debacle, now CEO at ABN AMRO Bank. I will not try to wonder how the fringe deals with this change in position.)

The session at the House of Parliament

The session at Parliament of October 14 2015 was chaired by Pieter Duisenberg (1967), son of Wim. Parliament has been so kind to make a professional recording of the session. The 2:22 hours youtube video is here. And yes, I watched it all.

Members of the House Committee on Finance participating in this were: P.H. Omtzigt (econometrician), N.P.M. Klein (lawyer), M.L. Thieme (lawyer, only shortly present), H. Nijboer (economist), A.P.C. (Tony) van Dijck (technical management), M.G.J. Harbers (no degree, bit of economics), C.J. Schouten (MSc in business adm), A.Z. Merkies (economist), W. Koolmees (economist), P.J. Duisenberg (economist).

The first part of the session: the fringe

The first part of the session was with: Edgar Wortmann (lawyer, social activist rather than lobbyist), Luuk de Waal Malefijt (programmer, intrigued by bitcoin), George van Houts (actor and playwright) and Martijn Jeroen van der Linden (MSc in business administration and now Ph. D. student at TU Delft on money).

Given the Duisenberg family connection, one is reminded of other possible family connections: same names for euro-parliamentarian 2004-2014 Corien Wortmann-Kool and President of the Parliamentary Assembly of the Council of Europe 2005-2008, Rene van der Linden. Are these family indeed ? It doesn’t matter in itself. It is a small world anyhow. I have had an uncle in Parliament too.

The real question is: working on a Ph. D. on money at TU Delft ? Does the Technical University Delft have the knowledge to supervise a thesis on money ? This must be seriously doubted. Curiously, MJvdL in Parliament suggests that the principles are clear and that details are a matter of policy choice, while the thesis proposal suggests that some issues still require scientific attention and resolution. From the TU Delft website:

“In 2004 Martijn Jeroen van der Linden graduated from Tilburg University where he studied Business Administration. Thereafter he became a management trainee at ING where he mostly worked in the field of strategic management. Since the financial crash of 2008 new economic thinking has become more and more important to him. During the last five years, van der Linden has had various jobs in this field  ─ among others as coordinator of the Dutch platform for a green and social economy, freelance researcher and co-founder of an NGO named ‘Our Money’ (Ons Geld).

In February 2014  van der Linden started as a researcher at the EU-project Creating Economic Space for Social Innovation and as a PhD-candidate at TU Delft. His thesis is concerned with the phenomenon of money: its origins, its nature, its design, its technology, its impact on the relations between individuals in society and its ability to empower individuals. The overall aim is to answer the question how the functioning of the monetary system could be improved in terms of equity, freedom, and efficiency.” (Website MJvdL at TU Delft, retrieved November 16 2015)

These are somewhat petty comments: I already encountered Van der Linden as co-ordinator of the Platform DSE in 2011-2014, on which I warned scientists in 2013 about the likely abuse of their credibility for dubious purposes. Sociologist Frans Kerstholt is related to that group, and earlier “reviewed” my book (2004) De Ontketende Kiezer  and later “reviewed” Paul Krugman (2012) End This Depression Now.

But it is more than just petty: A reason to pay attention to this is that the Socalist Party (SP) has a strategy of infiltration. Activists can create actions officially unrelated to the SP, but still generating attention for views expounded by the SP. Parliament may think that they have a discussion with concerned citizens but this may actually be a hazy front for the SP. See my earlier text on the Dutch Taliban.

Having watched the video you might want to look into the position papers of these four speakers, but you might also feel glad that you are no parliamentarian and don’t have to.

A general complaint is that people don’t know enough about the system of money – and guess why. The fringe may also be blamed. A universe of concerned citizens is terrorized by maniaks with agenda’s of their own, intellectual slaves and addicts of some defunct economist.

The second part with scientists: Dirk Bezemer (University of Groningen)

Let us jump to the point where Dirk Bezemer disinforms Parliament. He tells that:

“Money is a form of credit.”

Dirk Bezemer disinforms Parliament, minute 1.42 (Screenshot)

Dirk Bezemer disinforms Dutch Parliament, hour 1:42 (Screenshot)

His example is that he himself writes a note of credit – “You get EUR 10,000 from Dirk Bezemer.” – and then gives this to someone who gives him EUR 10,000 in return. Then he states: “And when that note is accepted in general then it becomes money.”

Why is this disinformative ? Because:

  • The crux of fiat money is that the issuer is not under the obligation to give EUR 10,000. Thus, if someone would have that note, go to Dirk, and offer him the note “You get EUR 10,000 from Dirk Bezemer.” then Dirk would not have to give EUR 10,000, but may offer another note: “You get EUR 10,000 from Dirk Bezemer.” This might be a note of a different date and different handwriting, but it would still be a note and not EUR 10,000.
  • What is correct in Bezemer’s explanation: what turns such notes into money is that they are accepted as payment in general. This doesn’t happen so easily. The European Central Bank makes notes called “euro’s”, and changes euro’s into euro’s. These euro’s are supported by: (a) They are legal payment. When someone offers euro’s to settle a debt, then you cannot legally refuse. (b) They can be used to pay your tax. This explains that euro’s are more common as money than notes “You get EUR 10,000 from Dirk Bezemer.”.
  • Indeed, if the government buys your services for EUR 10,000 and later you pay your taxes with those EUR 10,000, then there is an exchange of credit in the form described by Bezemer. The original EUR 10,000 might be replaced by a note “You get EUR 10,000 from the Government.”, which you then hand in to pay your taxes. Thus, Bezemer might argue that he did not really disinform Dutch Parliament. I would agree with this interpretation if and only if all money is used to pay taxes. When the government buys stuff with notes that are not used to pay taxes then Bezemer’s criterion doesn’t work. I would also require that the members of Parliament would be able to explain the issue in these terms. When they cannot, then they are clearly misinformed. For example, in hour 1:30 Pieter Omtzigt asks what the value foundation of the new form of money would be: gold, foreign currency, real estate, forests ? I am afraid that he didn’t get a clear reply.

Most disinformative is, of course, that Bezemer doesn’t inform Parliament about the censorship of economic science since 1990 by the directorate of the Dutch CPB, which I informed him about. Can you imagine: an economic scientist, who doesn’t protest against censorship ? In a democracy, with free speech ? An academic with academic freedom ? Not telling Parliament that this censorship should stop ?

The second part with scientists: Klaas van Egmond (University of Utrecht)

Klaas van Egmond (1946) is an engineer in food technology, who turned to environmental issues, became head of the National Planning Agency for Nature and Environment in 2004-2008 (and actually its precursor since 1989), and must be a professor emeritus but apparently with a new professorship ? His position paper is here.

I am sorry to say that he doesn’t really have strong credentials in economics.

  • The eye-opener may be that Van Egmond (hour 1:08 and 1:44-1:47) uses the Fisher equation of exchange P Y = M V, but confuses the level growth (ΔV) of the money stock M with the level growth Δ(P Y) of gross GDP. A kind interpretation is that he takes a priori that velocity V = 1, but of course one must use the empirical value of V. This point was spotted by Parliamentarian Pieter Omtzigt but not taken up by the others. In my estimate ≈ 2 (see Money as gold versus money as water). In particular, in hour 2:05-2:08, Van Egmond holds that “if GDP growth is 1.5% then 1.5% of GDP must be added to the money stock” (my translation). And, using that Dutch GDP is EUR 600 bn: “if you desire 2% inflation then you can spend another EUR 12 billion” (my translation). However, if V = 2 then seigniorage is only EUR 6 billion. He suggests that the government could use seigniorage to cover government expenditure, but Money as gold versus money as water shows that seigniorage will be required to finance the payments system (people, buildings, computers). Van Egmond states the same confusion in his position paper (in Dutch).
Point 3 in the position paper by Van Egmond (Dutch original)

Point 3 in the position paper by Van Egmond & De Vries (Dutch original)

  • Van Egmond (hour 1:06) explains the 2007+ crisis from a co-ordination failure. I tend to agree. What we saw is that non-economists like politicians or deluded bureaucrats, also those turned academics, like Van Egmond started meddling in a system that they had no training for. This however is not the analysis that Van Egmond presents.
  • Van Egmond (hour 1:05) praises Dirk Bezemer for his article No one saw this coming (2009), and gives the wrong summary: “how it could be that economists didn’t see the crisis coming” while in fact Bezemer states that some economists saw it coming. His paper debunks statements by officials like Alan Greenspan that nobody saw it coming.
  • Van Egmond also misses my criticism on Bezemer, to the effect that Bezemer focuses on Hyman Minsky but doesn’t mention my protest against the censorship of economic science since 1990 by the directorate of the Dutch Central Planning Bureau.
  • Van Egmond apparently never really understood Roefie Hueting’s analysis on environmentally sustainable national income, see here – while Van Egmond was head of that national environmental agency.
  • Van Egmond has a book that also discusses the relationship between economics and religion, and given his lack of knowlegde of economics, one would hope that he at least knows something about religion: but then it would be less interesting from a scientific point of view.
The second part with scientists: commercial banking and the supervisors

We also have Teunis Brosens (ING Bank, mentioned above), Jan Marc Berk (DNB, European System of Central Banks) and Reinier Pollmann (AFM, supervisor of financial markets).

Their comments are defensive. More like Public Relations. Explaining what current policy is and why it should work. Increase capital and liquidity requirements, within the framework of European competition (going as slow as the weakest partner to prevent unfair competition). Berk allows for the option of a transactions money bank, like the earlier Postbank, but warns that it must have an earnings model to be viable. They all warn that people are short of memory and will tend to switch to the risky banks that promise higher returns.

Their testimonies are inadequate. That they are guardians of the current system should not turn them into protectors of the current system. The proper reply would be that some elements are useful to look into, and require scientific testing. See Money as gold versus money as water. Parliament should insist that the regulatory bodies do research in these alternative schemes. The world should not put itself at the risk to the payment system as in 2008, and thus these supervisors should design a sound alternative.

Sustainable Finance Lab at Utrecht University

A major source for all this nonsense is the Sustainable Finance Lab (SFL) at Utrecht University, an initiative in 2010 by said Klaas van Egmond, and “prof. dr.” Herman Wijffels (CEO of Rabobank in 1999) and Peter Blom (CEO Triodos Bank since 1997). These three observed the role of the banks in the 2007+ crisis and found in Utrecht University a willing victim for their potpourri of confusion, distraction, religion, self-importance, and need for attention and recognition. Nothing more wonderful than a honorary Ph. D. degree and professorship. The academic environment apparently doesn’t require a financial statement where the money comes from.

Originally, sustainability was intended for environmental sustainability only. Given the popularity of the phrase “sustainable” (Dutch “duurzaam”) suddenly everything had to be called that way. For this reason Roefie Hueting nowadays speaks about environmental sustainabilityto emphasize what the idea is really about. Herman Wijffels supports Hueting but also distracts from Hueting by this SFL and by lobbying for the banking sector in the mean time – see this criticism (in Dutch) how Wijffels saves the banks (higher reserves) and destroys the economy (less lending for investments).

Earlier, I have warned about this Sustainable Finance Lab too (in Dutch) and informed them about this warning. Obviously, they didn’t reply. They now continue to misinform Dutch Parliament, as they did their students.

It may be useful to reproduce the current list of members of the SFL, to track the disinformation from one to the other to the outside world. They are all economists except when stated differently: Harald Benink, Dirk Bezemer, Peter Blom (economist, banker, no scientist), Arnoud Boot, Klaas van Egmond (no economist), Ewald Engelen (no economist), Marleen Janssen Groesbeek (unknown background, journalist ?), Arjo Klamer (economist, parttime elderman for the Socialist Party), Clemens Kool, Karen Maas, Mark Sanders (economist, also with the “scientific bureau” of party D66, confused on voting and Kenneth Arrow’s Impossibility Theorem, see here how D66 misinforms Nick Clegg and the Liberal Democrats in the UK), Hans Schenk, Esther-Mirjam Sent (thesis done with Kenneth Arrow, mathematician), Irene van Staveren, Rens van Tilburg, Bert de Vries (unknown background), Francis Weyzig, Herman Wijffels (economist, banker, no scientist).

None of these scientists apparently looked at the paper Money as gold versus money as water. There was a newspaper report that stated that they had consulted 70 experts on full reserve banking – and I grant that I am no expert on this but merely wrote that paper – see my email to Charlotte van Dixhoorn.

There is also the paper by Van Egmond & De Vries (2015), “Dynamics of a sustainable financial-economic system”, that mentions only these two authors, who apparently are already at advanged age. Are there no Ph.D. students who collect the data, run the software and produce the graphics ? Page 4 states: “The model builds on work done by Godley and Lavoie (2007),Hallegatte et al. (2008), Yamaguchi (2010), Van Dixhoorn (2013) and others.” but when there are in-house collaborators working on the model then one would expect co-authors.

The UK connection: Positive Money (site designed by Luuk de Waal Malefijt)

One of the references by Van Egmond & De Vries is to Jackson & Dyson 2012:

“Andrew Jackson holds a BSc in Economics and a MSc in Development Economics from the University of Sussex, and is currently studying for a PhD at the University of Surrey. He is a co-author of the book “Where Does Money Come From? A guide to the UK monetary and banking system” with Josh Ryan-Collins and Tony Greenham from the New Economics Foundation, and Professor Richard Werner from the University of Southampton.”

  • Ben Dyson appears to have no degree. Under the heading “BSC, Development Economics” he clarifies that he doesn’t have a BSc:

“Completed the first two years of a degree at SOAS. Shortly after completing the final exams of the second year a business opportunity came up that was too good to miss so I withdrew from the course and moved into the business start-up world.”

Another statement at the Guardian is that he studied money for four years: but this then likely was self-study. There is nothing wrong with self-study, but try to avoid the confusion about it. In academic study the purpose is also to develop an open mind.

The Herman Daly connection

Herman Daly (1938) is also on the board of advisors of Positive Money. The book Modernising Money has a preface by him.  Daly had a BA in economics at Rice 1960 and proceeded directly to a Ph. D. in 1967 under Nicholas Georgescu-Roegen (NGR) (1906-1994). NGR was a mathematician who proceeded with statistics, and, perhaps because of the application of his statistics to economics, could become professor of economics at Vanderbilt: whence Daly’s thesis is counted as “economics” but it need not be economics in reality.

Economist Roefie Hueting (1929) explains that his economic analysis on the environment isn’t understood by Herman Daly, which is a pity since Daly worked at the department for the environment of the World Bank in 1988-1994. Libb Thims suggests that NGR and Daly have a wrong concept of thermodynamics as well: but I have not looked into this. We see a similar kind of confusion with Robert Costanza, who has a background in architecture and environmental system engineering, but who switched to what is called “ecological economics” but which quite surely need not be economics at all, but which may be an application of hoped-for notions of thermodynamics.

Daly solidly affirms the proposals in Mondernising Money, and has no criticism at all, which is the role of a much appreciated advisor:

“Money ranks with fire and the wheel as an invention without which the modern world would be unimaginable. Unfortunately, out-of-control money now injures more people than both out-of-control fires and wheels. Loss of control stems from the privilege enjoyed by the private banking sector of creating money from nothing and lending it at interest in the form of demand deposits. This power derives from the current design of the banking system, and can be corrected by moving to a system where new money can only be created by a public body, working in the public interest. This is simple to state, but difficult to bring about. Andrew Jackson and Ben Dyson do a fine job of explaining the malfunctioning present banking system, and showing the clear institutional reforms necessary for a sound monetary system. The main ideas go back to the leading economic thinkers of 50 to 75 years ago, including Irving Fisher, Frank Knight and Frederick Soddy. This book revives and modernises these ideas, and shows with clarity and in detail why they must be a key part of economic reform today.” (Herman Daly, preface)

Conclusion

We don’t see much science but a circus. We can only hope – for there is no guarantee – that Dutch Parliament distinguishes sense from nonsense.

Advertisements

The earlier discussion on Stellan Ohlsson brought up the issue of abstraction. It appears useful to say a bit more on terminology.

An unfortunate confusion at wikipedia

Wikipedia – no source but a portal – on abstraction creates a confusion:

  1. Correct is: “Conceptual abstractions may be formed by filtering the information content of a concept or an observable phenomenon, selecting only the aspects which are relevant for a particular purpose.” Thus there is a distinction between abstract and concrete.
  2. Confused is: “For example, abstracting a leather soccer ball to the more general idea of a ball selects only the information on general ball attributes and behavior, eliminating the other characteristics of that particular ball.” However, the distinction between abstract and concrete is something else than the distinction between general and particular.
  3. Hopelessly confused is: “Abstraction involves induction of ideas or the synthesis of particular facts into one general theory about something. (…) Bacon used and promoted induction as an abstraction tool, and it countered the ancient deductive-thinking approach that had dominated the intellectual world since the times of Greek philosophers like Thales, Anaximander, and Aristotle.” This is hopelessly confused since abstraction and generalisation (with possible induction) are quite different. (And please correct for what Bacon suggested.)

A way to resolve such confusion is to put the categories in a table and look for examples for the separate cells. This is done in the table below.

In the last row, the football itself would be a particular object, but the first statement refers to the abstract notion of roundness. Mathematically only an abstract circle can be abstractly round, but the statement is not fully mathematical. To make the statement concrete, we can refer to statistical measurements, like the FIFA standards.

The general statement All people are mortal comes with the particular Socrates is mortal. One can make the issue more concrete by referring to say the people currently alive. When Larry Page would succeed in transferring his mind onto the Google supercomputer network, we may start a philosophical or legal discussion whether he still lives. Mutatis mutandis for Vladimir Putin, who seems to hope that his collaboration with China will give him access to the Chinese supercomputers.

Category (mistake) Abstract Concrete
General The general theory of relativity All people living on Earth in 2015 are mortal
Particular The football that I hold is round The football satisfies FIFA standards
The complex relation between abstract and general

The former table obscures that the relation between abstract and general still causes some questions. Science (Σ) and philosophy (Φ) strive to find universal theories – indeed, a new word in this discussion. Science also strives to get the facts right, which means focusing on details. However, such details basically relate to those universals.

The following table looks at theories (Θ) only. The labels in the cells are used in the subsequent discussion.

The suggestion is that general theories tend to move into the abstract direction, so that they become universal by (abstract) definition. Thus universal is another word for abstract definition.

A definition can be nonsensical, but Σ strives to eliminate the nonsense, and officially Φ has the same objective. A sensible definition can be relevant or not, depending upon your modeling target.

(Θ) Aspects of scientific theories (Σ) Science (Φ) Philosophy
(A) Abstract definition (developed mathematically or not) (AΣ) Empirical theory. For example law of conservation of energy, economics Y = C + S, Van Hiele levels of insight (AΦ) Metaphysics
(G) General (GΣ) Statistics (GΦ) Problem of induction
(R) Relation between (A) and (G) (RΣ) (a) Standards per field,
(b) Statistical testing of GΣ,
(c) Definition & Reality practice
(RΦ) (a) Traditional epistemology,
(b) Popper,
(c) Definition & Reality theory

Let us redo some of the definitions that we hoped to see at wikipedia but didn’t find there.

Abstraction is to leave out elements. Abstractions may be developed as models for the relevant branch of science. The Van Hiele levels of insight show how understanding can grow.

A general theory applies to more cases, and intends to enumerate them. Albert Einstein distinguished the special and the general theory of relativity. Inspired by this approach, John Maynard Keynes‘s General Theory provides an umbrella for classical equilibrium (theory of clearing markets) and expectational equilibrium (confirmation of expectations doesn’t generate information for change, causing the question of dynamic stability). This General Theory does not integrate the two cases, but merely distinguishes statics and its comparative statics from dynamics as different approaches to discuss economic developments.

Abstraction (A) is clearly different from enumeration (G). It is not impossible that the enumeration concerns items that are abstract themselves again. But it suffices to assume that this need not be the case. A general theory may concern the enumeration of many particular cases. It would be statistics (GΣ) to collect all these cases, and there arises the problem of induction (GΦ) whether all swans indeed will be white.

Having both A and G causes the question how they relate to each other. This question is studied by R.

This used to be discussed by traditional epistemology (RΦ(a)). An example is Aristotle. If I understand Aristotle correctly, he used the term physics for the issues of observations (GΣ) and metaphysics for theory (AΦ & GΦ). I presume that Aristotle was not quite unaware of the special status of AΣ, but I don’t know whether he said anything on this.

Some RΦ(a) neglect Σ and only look at the relation between GΦ and AΦ. It is the price of specialisation.

Specialisation in focus is also by statistical testing (RΣ(b)) that only looks at statistical formulations of general theories (GΣ).

The falsification theory by Karl Popper may be seen as a philosophical translation (RΦ(b)) of this statistical approach (RΣ(b)). Only those theories can receive Popper’s label “scientific” that are formulated in such manner that they can be falsified. A black swan will negate the theory that all swans are white. (1) One of Popper’s problems is the issue of measurement error, encountered in RΣ(b), with the question how one is to determine sample size and level of confidence. Philosophy may only be relevant if it becomes statistics again. (2) A second problem for Popper is that AΣ is commonly seen as scientific, and that only their relevance can be falsified. Conservation of energy might be relevant for Keynes’s theory, but not necessarily conversely.

The Definition & Reality methodology consists of theory (RΦ(c)) and practice (RΣ(c)). The practice is that scientists strive to move from the particular to AΣ. The theory is why and how. A possible intermediate stage is G but at times direct abstraction from concreteness might work too. See the discussion on Stellan Ohlsson again.

Conclusions

Apparently there exist some confusing notions about abstraction. These can however be clarified, see the above.

The Van Hiele theory of levels of insight is a major way to understand how abstraction works.

Paradoxically, his theory is maltreated by some researchers who don’t understand how abstraction works. It might be that they first must appreciate the theory before they can appreciate it.