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Bonus Quotation of the Day…

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… is from page 270 of the 2014 collection, The Market and Other Orders [2] (Bruce Caldwell, ed.), of some of F.A. Hayek’s essays on spontaneous-ordering forces; specifically, it’s from Hayek’s profound 1964 article “The Theory of Complex Phenomena” (footnote deleted; the Joseph Schumpeter quotation used by Hayek is from page 241 of his posthumously published 1954 History of Economic Analysis [3]):

Schumpeter well described the task of economic theory when he wrote that “the economic life of a non-socialist society consists of millions of relations or flows between individual firms and households. We can establish certain theorems about them, but we can never observe all of them.” To this must be added that most of the phenomena in which we [as economists] are interested, such as competition, could not occur at all unless the number of distinct elements involved were fairly large, and that the overall pattern that will form itself is determined by the significantly different behaviour of the different individuals so that the obstacle of obtaining the relevant data cannot be overcome by treating them as members of a statistical collective.

For this reason economic theory is confined to describing kinds of patterns which will appear if certain general conditions are satisfied, but can rarely if ever derive from this knowledge any predictions of specific phenomena.

DBx: Human society and ‘the’ economy are in their details astonishingly complex. Also, many of the details which affect observable economic phenomena – economic phenomena such as prices, unemployment rates, current-account deficits, and the number of tons of a certain kind of steel produced in Ohio in 2019 – are unobservable and unquantifiable. These significant details are human beliefs (whether correct or incorrect), desires, expectations, and other mental phenomena which are real but cannot be observed or measured.

This inability to observe and measure these phenomena does not mean that the social scientist must ignore them. Quite the opposite. Because these phenomena have very real consequences, it is highly unscientific to ignore these subjective phenomena.