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I somehow stumbled across this short, 3-page article written by Larry Summers, the current Director of the Obama administration's National Economic Council. Summers uses an imaginary field of "ketchup economics" to illustrate the differences between the research of general economists and financial economists (bear in mind that this was published in 1985):

The differences I am discussing may be clarified by considering a field of economics which could but does not exist: ketchup economics. There are two groups of researchers concerned with ketchup economics. Some general econo-mists study the market for ketchup as part of the broader economic system. The other group is comprised of ketchup economists located in Department of Ketchup where they receive much higher salaries than do general economists. Each group has a research program.

General economists are concerned with the fundamental determinants of prices and quantities in the ketchup market. They attempt to examine various factors affecting the supply and demand for ketchup such as the cost of tomatoes, wages, the prices of ketchup substitutes and consumers incomes. They examine a number of different types of data in an effort to explain fluctuations in ketchup prices. The models that are estimated have some successes in explaining price fluctuations but there remain puzzles.

Ketchup economists reject out of hand much of this research on the ketchup market. They believe that the data used is based on almost meaningless accounting information and are quick to point out that concepts such as costs of production vary across firms and are not accurately measurable in any event. They believe that ketchup transactions prices are the only hard data worth studying. Nonetheless ketchup economists have an impressive research program, focusing on the scope for excess opportunities in the ketchup market. They have shown that two quart bottles of ketchup invariably sell for twice as much as one quart bottles of ketchup except for deviations traceable to transactions costs, and that one cannot get a bargain on ketchup by buying and combining ingredi-ents once one takes account of transactions costs. Nor are there gains to be had from storing ketchup, or mixing together different quality ketchups and selling the resulting product. Indeed, most ketchup economists regard the efficiency of the ketchup market as the best established fact in empirical economics.

The parallels should be clear. Financial economists like ketchupal economists work only with hard data and are concerned with the interrelationships between the prices of different financial assets. They ignore what seems to many to be the more important question of what determines the overall level of asset prices. It would surely come as a surprise to a layman to learn that virtually no mainstream research in the field of finance in the last decade has attempted to account for the stock market boom of the 1960s or the spectacular decline in real stock prices during the mid-1970s.

I know, I know - this is a bit dense and academic. But sentences like the bolded one above should ring some bells for readers familiar with this blog, or the wider debate. It is partly the narrowness of the ketchup economist approach that has led some to call for the field of economics to rebuild itself from its roots as a social science, as opposed to a mathematical one.

In Heinz-site it is clear that, eventually, real-world events were going to ketchup with the assumptions made by financial economists. It mustard been pretty embarassing for them when they finally did.