Sunday, November 7, 2010

Economic methodology

Here are some more thoughts I am working on. It's going to need more research, of course, but after much thought, reading, and integration, this is what I have come up with so far (in rough dot-point form) as to the methodology of the economic science:

- identify the nature of value, the nature of man, and the nature of society
- working from those, and observing key phenomena, identify the context of economics
- use that context to identify instances and characteristics of critical economic entities
- working with more observations and reasoning, continue to identify and refine valid economic concepts of economic actors and economic entities
- figure out what is rational for an individual to do in the economic context in relation to those actors and entities
- with observation of actual people, past and present, use the above to further determine what happens when lots of people actually act in that rational fashion, and attempt to identify principles of economic action
- use observations of deviations from what would normally be expected if people were acting rationally as you thought they should as guides for further questions to be asked and answered in the whole of the above fashion
- continue the above process, adding in more observations as required, in spiral fashion, to identify ever more economic principles and the structure of their interrelationships

As you might imagine, economic method is just scientific method (with due deference for its application to social sciences) applied specifically to the economic context. As to what exactly is the economic context, I have figured that out to my own satisfaction. I have also intended to publish an article on the topic for The Objective Standard for a while now, but I need to research the history of a particular critical point in more detail before I can finalise it. I need to ensconce myself in a good uni library again for a while, which I haven't had time or occasion to do for a long time. It's well overdue.

By the way, from what I have read, the Austrians focus heavily on the fifth there, and within that use almost exclusively deduction. Needless to say I raise an eyebrow at that blinkered methodology. There is nothing inherently wrong with point five, but the problem with the Austrians is that they treat that fifth point as an out of context primary, are highly rationalist in implementing it, and downplay (or worse) the necessary antecedent steps (the failure to be objective in formation of concepts and definitions is likewise common among rationalists). I have mined a fair bit of worthwhile material from the Austrians, particularly Menger and Bohm-Bawerk, and also von Mises, but I am not an Austrian and am not much of a fan of the later ones who came after von Mises.

That's enough for the time being.



  1. As much as I would like to see an inductive approach to economics, the Austrians have pointed out that if you can't experiment, you really can't use empiricism to prove causation. With the cases of anthropology, sociology, political science, and economics, there isn't any way to experiment. If an economy has a downturn after a new policy is enacted, without a predetermined theory explaining the facts, the facts themselves don't offer an interpretation either way as to whether the policy caused the downturn or the downturn happened in spite of the policy.

  2. I raise an eyebrow at the attempt to induce high-level principles directly in single-leaps from perceptual-level observation just as much as I do at the attempt to deduce purely from premisses - jings, I just recently excoriated the free-market-but-pro-FRB community for hanging too much on mere historical data and not examining underlying theory and principles! (FWIW, in a previous breath to that I also excoriated members of the anti-FRB community for getting hyper about fraud and theft - there's a lot of rationalism in that). I am a fan of neither empiricism nor rationalism.

    I don't see the lack of ability to perform controlled experiments in the manner of chemists et al as a barrier to induction. Apart from the fact that there are other alternatives to gathering empirical data (such as, you know, actually asking people what their rationale for action was), a fair part of the induction required is in the form of proper concept-formation to come to a proper understanding of the nature of the critical concepts, such as value, action, rationality, money, capital, and so on. And, I do agree with the idea that a major part of the identification work consists of forming an idea of an Economic Man and asking what in principle he would do - what I reject is the idea of not needing to go out and ask people why they do what they do, of not personally examining the natures of the referents of the concepts employed, and so on, and of not integrating all this together. von Mises and others get a lot right because they are actually less rationalist than they think, and that there is indeed value in the deductive element of asking what Economic Man would find rational to do. The point is not to hang everything on that.

    What's critical is a proper understanding of concept-formation. Purely off the top of my head, your last comment about facts not offering interpretations - as well as being questionable because of its not taking into consideration the spiral-theory of knowledge and induction of the requisite principles to identify the nature of what happened in response to what and why - strikes me as the kind of comment offered by those who say that since reality does not pre-digest information for us we shouldn't bother looking at reality and just invent our own linguistic castles. I should examine this issue in more detail some day, but not today.