Quotation of the Day…

by Don Boudreaux on August 30, 2011

in Scientism, Seen and Unseen, State of Macro

… is from page 21 of Hayek’s The Trend of Economic Thinking (Vol. 3 of Hayek’s Collected Works); the quotation comes from the 1933 essay after which this volume is named; in the following passage Hayek is discussing the negative reaction by many people in the 19th century to economics:

The attack on economics sprang rather from a dislike of the application of scientific methods to the investigation of social problems.  The existence of a body of reasoning which prevented people from following their first impulsive reactions, and which compelled them to balance indirect effects, which could be seen only by exercising the intellect, against intense feeling caused by the direct observation of concrete suffering, then as now, occasioned intense resentment.

No small part of Keynes’s (and the Keynesians’s) success is due, I believe, to their dressing up in scientific jargon and garb what are, at bottom, little more than ad hoc excuses for people to follow “their first impulsive reactions.”  Keynesians’s pose as scientists – their substitution of scientism for science – masks their rejection of a genuinely scientific approach to the study of the economy.

Be Sociable, Share!

Comments

comments

35 comments    Share Share    Print    Email

{ 35 comments }

indianajim August 30, 2011 at 9:51 am

The veneer of science is found not just in vulgar macro machinations, but in an ever increasing number of mathematical exercises called “models” whose likelihood of ever generating an operational proposition is nil. For any who might be interested, here is a link to a podcast that I did earlier this month with Phil Coelho and Larry White (of Econ Journal Watch) on The Market for Lemmas:

http://econjwatch.org/podcast/the-market-for-lemmas

Economiser August 30, 2011 at 10:45 am

This is so spot-on that it’s scary. Don, this should be a central theme of your 100 best posts book.

DG Lesvic August 30, 2011 at 11:35 am

Economiser,

Don can write any kind of book he wants, but what I hope to see from him is what he does better than anyone else today, and what is most needed, and that is not the psychology, epistemology, and scientific philosophy of a Hayek but the plain and simple economics of a Bastiat.

steve August 30, 2011 at 10:49 am

The economics profession needs a little more humility given its poor track record. Since so much is dependent upon human behavior, it should not be regarded as a pure science, at least not until we can understand and predict irrational behavior.

Steve

vidyohs August 30, 2011 at 11:15 am

Which will be never, as irrational behavior is too random in one individual much less 6+ billion people, who are all irrational to some degree on a regular basis.

Surfisto August 30, 2011 at 11:37 am

I don’t know if any of the economist here would regard it as a pure science. I feel people looking in see it as a science when its beneficial for them.There are some economist that should be more humble just as any professional in any profession. Capitalism and therefore economist have a poor track record, after the crisis, I guess is what this is coming from?

Econforwinners August 30, 2011 at 12:39 pm

Capitalism and economist alike have been thawarted by voter and politician. All encapsulated should admit wrongdoing, yet the populace is not humble enough, nor the politician likely to search unemployment.

Josh S August 30, 2011 at 2:09 pm

Capitalism has a bad track record compared to what, exactly? Feudalism? Communism? Fascism? Give me an example of a society more prosperous than the ones found under capitalism.

kyle8 August 30, 2011 at 11:40 am

A good economist takes into account the irrational behavior of humans, as well as their rational but selfish behavior.

Economist who show little or no humility usually come from those who believe that if government will follow their nostrums then all will be well.

Free market economists, for the most part are a bit more cautious, since we know that we cannot know everything, then we ought not attempt half of the things that people in power do attempt.

DG Lesvic August 30, 2011 at 12:31 pm

Steve,

You don’t know what you’re talking about. You’re confusing the economics profession with economics, the “scientists” with the science. But don’t feel too bad about it, you’re in good company.

There is no “irrational behaviour.” Man must act rationally, he must apply means to ends, and the means he thinks best for the ends aimed at. The ends may be insane, or the means stupid, but they are never irrational. Man never applies means that he himself believes are unsuited to the ends aimed at. However foolishly or insanely, he always acts rationally, applying the means he thinks best to the ends aimed at.

Economics is not a behavioural but a praxeological science, a science not of the motivations for action but only of action itself, asking not why men act as they do but only what is the effect of their actions.

That is the difference between so called Public Choice Economics and real economics, Public Choice about the good or bad intentions of public officials and economics about the road to Hell paved with even the best of intentions.

Economics is not a predictive but explanatory science. It is essential to prediction but is not itself predictive. It enables the forecaster to do his job, but by itself is not sufficient for that purpose. The forecaster needs a thorough grounding in the principles of economics, but must go beyond them, through feeling, judgment, and understanding, into the uncertainties of the future.

Despite the impurites in its name, there is no more pure science than real economics.

.

steve August 30, 2011 at 10:52 pm

You argue by assertion. I see irrational behavior every day. Man need not act rationally, he may also act emotionally. People act on superstition, fear and blind trust.

Steve

Dan J August 30, 2011 at 11:39 pm

But, man will act on his own best interest and no other living being can tell him/ her what is best or make him/her happy.

DG Lesvic August 31, 2011 at 12:13 am

Steve,

To act irrationally would be to apply means to your ends that you didn’t believe were appropriate to them, that you believed would frustrate rather than further your own ends. It is inconceivable that you would act in that way, that you would act irrationally.

Insanely, yes; foolishly, yes; emotionally, yes; but, irrationally, no.

Invisible Backhand August 30, 2011 at 11:07 am

Such a procedure does not in any way violate the rule, which Professor Robbins has so effectively impressed upon us, that science by itself can never prove what ought to be done.

Hayek, The Trend of Economic Thinking (essay)

DG Lesvic August 30, 2011 at 12:34 pm

He has not impressed it upon me.

Troy Camplin August 30, 2011 at 11:16 am

This pretty much sums up Keynesianism for me. They are the Ptolemaics of economics, dressing up their folk economics in math to give it the appearance of science. (Yes, Ptolemy’s work was the best science of the day, but it’s not the best science of today — Keynesians are modern-day Ptolemists.)

morganovich August 30, 2011 at 11:21 am

i am left wondering what the effect of an alien attack would be on “animal spirits” and consumer confidence.

i mean, what says invest like extra terrestrial war, right? that would sure make me want to sink capital into a factory…

the Keynesians are mostly statists trying to wrap their desire for central control in a false veneer of scientific jargon.

McBrideR August 30, 2011 at 12:05 pm

In his Nobel Award Lecture, Hayek warned of the limitations of the application of physical science methods to economics, basically because of complexity issues. Today some are trying to cope with those complexity issues through statistical methods, but I think the warning of the usefulness of various models’ outputs still applies. I am especially unimpressed with the ability of econimic science to cope with the partially global economy impacts. As far as predicting irrationality goes, I think it is not necessary to give up the premise of rational behavior. What is necessary is to understand that highly diverging experiences and cultures, which result in highly divergent values means that there is no one definition of “rational”. This lack of consensus on what is “best” has been a central point in almost all intellectual attacks on central planning, including Hayek’s.

Troy Camplin August 30, 2011 at 12:10 pm

People forget that “what is rational” is not a one size fits all — it is, rather, “what is rational for me right now under these circumstances given what I know.” And even so, we are driven by a wide variety of instincts and unconscious drives. More often we rationalize rather than reason. Does this negate economics as a science? Not if you’re a Hayekian. But it certainly throws into question the benevolence of those in government — who act on what will benefit them most and give them the most power almost all the time, but who then rationalize such behavior to make them appear altruistic.

DG Lesvic August 30, 2011 at 12:36 pm

Reason is by definition the categories of thought that are universally, eternally, and immutably valid for all who are human like ourselves.

McBrideR August 30, 2011 at 9:27 pm

Not sure who’s definition of reason you are using, but I am more or less willing to accept it. Reason however is a process. Rational is an adjective, a modifier. Two people with different value systems can use the same process of reason, and come to entirely different conclusion as to how to act. In both cases, their actions are rational. Those who place a high value on their personal safety and longevity are not likely to consider skydiving as a rational spare time pursuit. Those who weigh the risks against the thrill and decide that a life of always playing it safe is not worth the time spent is much more likely to take the risk. Both are acting rationally considering their personal benefits. As Jeff notes, it is difficult to know what other’s values would be. So, it is quite difficult to judge what is rational behavior. Game theorist are dealing with this issue in a straight-forward way using statistics. That approach cannot gaurantee the right move in any given case, but it can produce the best strategies and moves, assuming you have a reliable way to get the statistics.

DG Lesvic August 31, 2011 at 12:20 am

Mac,

I agree with what you said about reason.

Game theory is another matter. I don’t know anything about it, but assume that it’s just a fancy term for strategy or odds-making.

And that’s just another issue.

Troy Camplin August 31, 2011 at 11:44 am

No, there are different reasons. There is economic reasoning, scientific reasoning, psychological reasoning, mathematical reasoning, artistic reasoning, etc. And there is reason according to the Scottish Enlightenment philosophers, according to the Continental Enlightenment philosophers, etc. Only by understanding that there are all of these different kinds of reasons can we begin to contemplate the possibility of an Idea of Reason, which is what you are calling reason. I would suggest there are merely family resemblances among these different reasonings such that they are conceptually related — but that there is no such thing as the Form of Reason.

Jeff August 30, 2011 at 1:58 pm

No human, unless mentally defective behaves irrationally. Every decision has a rational basis for the person making it. The problem has always been that the “observer” (economist) doesn’t have the same information as the supposed irrational person.
One difficulty for economists is that it is very difficult to actually run experiments where 2 choices are made against the exact same situation which would allow for a comparison of the outputs to determine a winner/loser.

DG Lesvic August 30, 2011 at 4:23 pm

Jeff,

The economics replicates the controlled laboratory experiments of the physical and chemical sciences by means of the imaginary construction of an unchanging universe into which he introduces the single factor of change to be analyzed.

McBrideR August 30, 2011 at 9:36 pm

Jeff – This quarter’s issue of the Journal of Economic Perspectives has a symposium on Field Experimentation. It is available on-line free.

DG – Huh? It is not at all clear to me what you are trying to say. If I understand the intent correctly, you would seem to be asking for an impossible construct.

Dan J August 31, 2011 at 12:58 am

Stand in the elevator facing the back wall….. Provoke a behavioral change from a known norm.

Wally August 31, 2011 at 1:27 am

You’re going to have a hard time convincing physical scientists that anything imagined are true experiments, as opposed to yet more model predictions.

DG Lesvic August 31, 2011 at 12:31 am

“The specific method of economics is the method of imaginary constructions.”

“There is no means of studying the complex phenomena of action other than first to abstract from change altogether, then to introduce an isolated factor provoking change, and utlimately to analuyze its effects under the assumption that other things remain equal.”

Ludwig von Mises

Dan J August 31, 2011 at 1:35 am

Imaginary constructs?

Isn’t this how we are getting all of this ridiculous ‘progressive’ crap?

They imagine an idea will work and then implement it thru the power of govt.

DG Lesvic August 31, 2011 at 2:48 am

Dan,

Here is my essay, The Chicago School of Superstition, which consists mostly of quotations from Ludwig von Mises, the greatest economist who ever lived — by far.

The Chicago School of Superstition

Milton Friedman’s empiricism is like that of ballplayers not changing their socks so long as they keep getting hits. While, to Friedman, the test of a theory is how it works out in practice, to the man he read out of the science, Ludwig von Mises, such tests can never be conclusive, for there is always the question of whether concurring events are cause and effect or coincidence.

“The question whether there is any connection between them can only be answered by” a theory “established beforehand on the ground of aprioristic reasoning…If there were no economic theory…economic facts would be nothing more than…unconnected data open to any arbitrary interpretation.”

Theories of human action “are, like…logic and mathematics, a priori…not subject to verification or falsification on the ground of experience and facts…both logically and temporally antecedent to any comprehension of historical facts…a necessary requirement of any intellectual grasp of historical events. Without them we should not be able to see in the course of events anything else than kaleidoscopic change and chaotic muddle.”

“There is no means of studying the complex phenomena of action other than first to abstract from change altogether, then to introduce an isolated factor provoking change, and ultimately to analyze its effects under the assumption that other things remain equal.”

“Action and reason are congeneric and homogenous…two different aspects of the same thing. That reason has the power to make clear through pure ratiocination the essential features of action is a consequence of the fact that action is an offshoot of reason…Logical thinking and real life are not two separate orbits. Logic is for man the only means to master the problems of reality. What is contradictory in theory is no less contradictory in reality.”

No self-respecting sophist is ever without “the facts.” But they don’t prove an economic theorem any more than the presence of doctors at an illness proves that they caused it. Since they are all complex, “Every historical experience is open to various interpretations and is in fact interpreted in different ways…History can neither prove nor disprove any general statement.”

That is not to rule out empiricism altogether. For the basic premises of economic theory are derived from observation. But the theory itself is antecedent to all other historical facts.

DG Lesvic August 31, 2011 at 2:58 am

Examples of the basic premises or axioms derived from observation:

the disutility of labor, the variety of resources, the goods on the shelves.

The proposition that quantity demand goes down as price goes up, ceteris paribus, i.e., all other things remaining the same, cannot be observed, for, as Mises explained, “Nobody ever was or ever will be in a position to observe a change in one of the market data ceteris paribus.”

Fred August 31, 2011 at 9:06 am

Scientific method: hypothesis->experiment->data->conclusion

Hypothesis: Government spending helps the economy
Experiment: QE1, QE2
Data: The economy still sucks
Conclusion: If Keynesian economics was based on science, the hypothesis would need to be reexamined. But since this is not science, and the hypothesis is irrefutable, obviously we need QE3 (and 4 and 5 and 6…).

DG Lesvic August 31, 2011 at 11:33 am

That is not the scientific method in economics.

Since they are all complex, “Every historical experience is open to various interpretations and is in fact interpreted in different ways…History can neither prove nor disprove any general statement.”

Mises

Amazed September 12, 2011 at 6:30 pm

And yet, “… there is no more pure science than real economics.”

Previous post:

Next post: