The Ultimate Foundation of Economic Science

5. On Some Popular Errors Concerning the Scope and Method of Economics

1. John Neville Keynes, The Scope and Method of Political Economy (London, 1891), p. 165. chapter 5 On Some Popular Errors Concerning the Scope and Method of Economics 1 The Research Fable The popular ideas concerning the methods the economists employ or ought to employ in the pursuit of their studies are fashioned by the belief that the methods of the natural sciences are also adequate for the study of human action. This fable is supported by the usage that mistakes economic history for economics. A historian, whether he deals with what is called general history or with economic history, has to study and to analyze the available records. He must embark upon research. Although the research activities of a historian are epistemologically and methodologically different from those of a physicist or a biologist, there is no harm in employing for all of them the same appellation, viz., research. Research is not only time-consuming. It is also more or less expensive. But economics is not history. Economics is a branch of praxeology, the aprioristic theory of human action. The economist does not base his theoriesuponhistoricalresearch,butupontheoreticalthinkinglikethat of the logician or the mathematician. Although history is, like all other sciences,atthebackgroundofhisstudies,hedoesnotlearndirectlyfrom history. It is, on the contrary, economic history that needs to be interpreted with the aid of the theories developed by economics. The reason is obvious, as has been pointed out already. The historian can never derive theorems about cause and effect from the analysis of the material available. Historical experience is not laboratory experience . It is experience of complex phenomena, of the outcome of the joint operation of various forces. This shows why it is wrong to contend that “it is from observation that even deductive economics obtains its ultimate premises.”1 What we can the study of motives  67 “observe” is always only complex phenomena. What economic history, observation, or experience can tell us is facts like these: Over a definite period of the past the miner John in the coal mines of the X company in the village of Y earned p dollars for a working day of n hours. There is no way that would lead from the assemblage of such and similar data to any theory concerning the factors determining the height of wage rates. There are plenty of institutions for alleged economic research. They collect various materials, comment in a more or less arbitrary way upon the events to which these materials refer, and are even bold enough to make, on the ground of this knowledge about the past, prognostications concerning the future course of business affairs. Considering forecasting the future as their main objective, they call the series of data collected “tools.” Considering the elaboration of plans for governmental action as their most eminent pursuit, they aspire to the role of an “economic general staff” assisting the supreme commander of the nation’s economic effort. Competing with the research institutes of the natural sciences for government and foundation grants, they call their offices “laboratories” and their methods “experimental.” Their effort may be highly appreciated from some points of view. But it is not economics. It is economic history of the recent past. 2 The Study of Motives Public opinion still labors under the failure of classical economics to come to grips with the problem of value. Unable to solve the apparent paradox of valuation, the classical economists could not trace the chain of market transactions back to the consumer, but were forced to start their reasoning from the actions of the businessman, for whom the valuations of the buyers are a given fact. The conduct of the businessman in his capacity as a merchant serving the public is pertinently described by the formula: Buy in the cheapest and sell in the dearest market . The second part of this formula refers to the conduct of the buyers whose valuations determine the height of the prices they are prepared to pay for the merchandise. But nothing is said about the process that sets up these valuations. They are looked upon as given data. If one accepts this oversimplified formula, it is certainly possible to distinguish between businesslike conduct (falsely termed economic or rational conduct) and conduct determined by other considerations than those of business (falsely termed uneconomic or irrational conduct). But this mode of classification does not make any sense if we apply it to the behavior...