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Quotation of the Day…

… is from pages 154-155 of Frank Knight’s 1940 review essay titled “‘What Is Truth’ in Economics?” as this essay is reprinted in Knight’s 1956 collection, On the History and Method of Economics:

Economics and other social sciences deal with knowledge and truth of a different category from that of the natural sciences, truth which is related to sense observation – and ultimately even to logic – in a very different way from that arrived at by the methodology of natural science. But it is still knowledge about reality.

DBx: The fact that economists, with relatively rare exception, cannot conduct controlled laboratory experiments which allow a focus on the behavior of a small handful of variables does not render the knowledge arrived at by economic scholarship – observation, research, and reasoning – unscientific.

Key phenomena that economists must study are human plans formed to achieve ends the details of which are known ultimately only to the individuals who form the plans. These individual plans, in turn, are formed and modified in light of each person’s local knowledge, unique experience, subjective preferences, and expectations. All of these inputs into plan formation and modification are unobservable to outsiders and unquantifiable. And the details that constitute each of these inputs into plans are vast in number and bear complex connections to each other.

For this reason alone (although there are others), to fancy that one can gain an adequate understanding of the workings of the economy merely by carefully observing and measuring the relatively few objective pieces of quantified data that are typically available to economic researchers – “the” unemployment rate, “the” four-digit concentration ratio of this and that industry, “the” Gini coefficient for this and that country, “the” average wage for production and nonsupervisory employees, and the like – is foolish. All such observable empirical facts are the results of vast and complex plan formation and modification and human interactions. Observable facts about the economy have no meaning on their own, and they are not – or ought not to be – the subject-matter of economics. It’s much closer to the truth to say that the subject-matter of economics is – or ought to be – human plan formation and interaction, as well as the tracing out of the unintended consequences of this formation and interaction.