Lasting errors, prejudices and rediscoveries in science

It is astonishing how prejudices can perpetuate the generalized acceptance of some errors many centuries after they were identified as such. The following examples from astronomy and economics are paradigmatic.

Despite Copernicus demonstration in 1543 that the Earth was not the centre of our solar system, the Ptolemaic geocentric view of the Universe was still widespread at the time (1687) when Newton published his law of universal gravitation. More extraordinary is that today in America one in five Americans still believe that the sun moves around the earth.

Such lasting mistaken beliefs can only be explained by theological prejudices and dogmatism.

Similarly, in economics, the Marxist labour theory of value inspired in David Ricardo´s theory of value was being drafted in 1844 (Economic and Philosophic Manuscripts) while Gossen (1854), Jevons (1862) and Walras (1874) separately developed the marginal theory of value based on utility. This new theory provided a better explanation about the way exchange prices are set in markets and could also incorporate labour in its approach without invoking the Marxist view of labour exploitation. Marx, in the first edition of Das Kapital published in 1867, persists in a labour theory of value based on the idea that “the worker becomes an ever cheaper commodity the more commodities he creates”.

Still today, despite the theoretical and historical discredit of such theory, Marxists and other believers in the labour theory of value persist in such erroneous view of how prices are formed. Again, the survival of such prejudice can only be explained by ideological reasons, this time by their aversion to capitalism.

Although such forms of ideological obscurantism should be avoided by science, it would be ill-advised to discard completely their starting axioms as they may prove useful for new rediscoveries.

For instance, in astronomy, I can postulate that if the universe is infinite then every point in a three-dimensional space can be considered the centre of that universe and thus restate the geocentric view of the earth. Likewise in economics. Since consumption and work cannot be defined respectively as synonymous of utility and disutility (for instance I often derive more pleasure from work than from consumption), I can postulate that no matter how widely defined is utility it is a finite standard insufficient for unequivocal determination of exchange prices. So, a multi-dimensional approach is required to bring in cost of production, neurological and social factors that account for non-rational determinants.

In conclusion science is a continuous process of discovery–error–rediscovery that cannot be prejudiced about past beliefs.

Facebook, popular delusions and capitalism

Today Facebook will close its first sale of shares to the public (IPO) at a record price to an unprecedented retail demand.

In the process it will make the kid who created this popular site (that signed one in every seven human beings) a billionaire beyond his wildest dreams. Will his invention ever return profits that justify valuing his company at such high price (26 times its sales)? Probably not!

As usual, some pundits will protest against such market irrationalities that, from time to time, degenerate into speculative mass delusions of a Ponzi-like kind. Some will even use such episodes to claim that capitalism is rotten and needs to be replaced by a more rational system.

Yet, past manias (tulips, canals, railways, dot.com, etc.) have shown that such episodes are temporary purges providing a peaceful escape to the many frustrations accumulated periodically in all societies.

This was recognized brilliantly by the most quoted critic of unregulated free markets – John Maynard Keynes – in this famous sentence: “It is better that a man should tyrannise over his bank balance than over his fellow-citizens.”

Indeed, the fact that capitalism ends peacefully its own episodes of irrational exuberance is a testimony to the beauty of the capitalist system.

Be prudent but do not blame the system.

La France après Hollande

I often say that democratic socialism is a necessary evil to disillusion naive young people about collectivism and to restrain the nepotism of right wing politicians. The problem is that socialist governments are often a costly affair.

Yet, this time, the election of socialist Mr Hollande in France may bring a positive outcome to offset such costs if he acts on his electoral promises and kills the proposed new European treaty introducing a suicidal fiscal compact for the Euro Area.

Within five years we will be able to judge that and the usual costs of socialism in terms of increased inequality, slower productivity growth, rising inflation, mounting unemployment, more corruption, bigger public spending and debts, etc.

For future reference we summarise here the situation inherited by Mr Hollande:

My bet is that in five years France will be worse off in about ten of these indicators. Still, good luck France and Mr Hollande!