Methodology and Economics

A Critical Introduction

John Pheby

• Publisher: Routledge
• Year: 2015
• ISBN:
  9781317464808
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

The essays in this collection detail the fate of gypsies in the countries of Eastern Europe through the socialist era, and pay special attention to the experience of the Nazi holocaust. The volume includes essays on Czechoslovakia, Yugoslavia, Albania, Hungary and Romania.

1 Inductivism and Deductivism in Economics

This chapter is concerned with two methodological positions, inductivism and deductivism, that have exerted some influence upon the methodology of economists. It should be emphasised immediately that I am not claiming that inductivism and deductivism are practised widely by a majority of economists. Indeed, my representation will be of a somewhat extreme variety of these two positions. However, I believe that consideration of them is helpful for two reasons: firstly, a number of the other methodologies discussed in this book were developed either as a reaction to, or development from, facets contained within inductivism and deductivism. Secondly, these two methodologies have done much to influence the general tone of economic methodology as something hard, rigorous and naturalistic. Consequently, they will hold important implications as to the type of economics we study.

The flavour of this chapter will be historical. However, limitations of space do not permit me to present a comprehensive discussion of the history of economic methodology. Anyone interested in pursuing this is advised to consult Blaug (1980), Caldwell (1982), Klant (1984) and Pribram (1983). My considerations will necessarily be limited to the more explicit manifestations of inductivism and deductivism within economics.

DEDUCTION AND INDUCTION

Before outlining inductivism and deductivism it is necessary to briefly consider the notions of deduction and induction. Deduction originally was, and still is, largely identified with logic and is a form of argument where we use the syllogism. The syllogism relates the premises of an argument to its conclusion. The following is an example:

(1)	Premise:	All men are mortal
	Premise:	Keynes is a man
	Conclusion:	Therefore Keynes is mortal

With this type of deductive reasoning we know that if all the premises are true, and that we have not committed any of the fallacies of deductive reasoning, then our conclusion will also be true. However, logical arguments are not concerned with the truth or falsity of conclusions, instead, such reasoning is interested in the correctness, or validity, of the argument. Consequently, we could have a syllogism that contains both a false premise and conclusion, but is valid in the sense that the conclusion follows from the premises. For example, it is unlikely that the following pertains:

(2) All demand functions are upwardly sloping

There is a demand function for beer

Therefore the demand function for beer is upwardly sloping

Conversely, inductive arguments may have true premises, but we can never be certain that the conclusions derived from them will also be true:

(3) Swan No 100 is white

Swan No 101 is white

Therefore all swans are white

This conclusion is obviously false as we know that black swans can be found in Australia. However, the example does highlight a notable feature of inductive reasoning: it is ampliative. This is because the conclusions drawn from such arguments go beyond the information contained in the premises.

From the above examples we can discern differences between deduction and induction. Deductive arguments tend to move from general to particular statements. In examples (1) and (2) we started with general statements concerning the mortality of men and demand functions and deduced the more particular statements relating to Keynes’ mortality and the demand function for beer. Induction involves reasoning from particular statements towards more general ones. Example (3) refers to two particular observations of white swans from which we draw the more general inference that ‘all swans are white’. Although such clarifications are helpful we should be wary of drawing too fine a distinction between induction and deduction. As Copi (1978, p. 33) points out, the differences noted generally hold well. However, we can devise syllogisms where deductive arguments may involve general statements in both premises and conclusions, and inductive arguments that contain general statements and conclude with a particular one. Also the two methods, although different, should not be regarded, as some economists appear to have believed, as being mutually exclusive.

INDUCTIVISM IN ECONOMICS

What I label as inductivism is a general approach that emphasises observation and systematic empirical work as being the major means of attaining knowledge. It should be emphasised that an important distinction needs to be drawn between inductivism and induction. Inductivism is a broad way of approaching scientific work; induction can and often does play an important part in this programme. However, the use of induction is a necessary but not sufficient condition to be an inductivist. Many economists happily employ induction, particularly in their statistical work, without feeling the need to embrace the complete inductivist package, which as we shall see, subordinates conceptual considerations.

Let us now consider the general methodological approach that we shall label inductivism. As this method is most closely associated with the work of Sir Francis Bacon in the early 1600s, we will outline his approach. Bacon was reacting to the authorities of the Church and Aristotelian deductive logic and he felt particularly strongly about the syllogistic and mathematical way in which deduction was practised. With the syllogism we can never get more out of our arguments than we feed in. Indeed, Bacon argued that many of the deductive philosophers tended to ponder on rather esoteric problems. They were too fond of ‘spinning cobwebs of learning’ with little practical result. Bacon wanted science to bear ‘fruit’ and help mankind generally. Some of the deductivist philosophers actually regarded attempts at rendering science more practical as immoral and degrading.

Bacon felt that the conservatism of the Church and deductive philosophy were not the only constraints. There were also the difficulties of our own tendencies to make rash generalisations and anticipate results before a full investigation had been undertaken. He argued that if we were open-minded and cautious in our approach then nature would be more likely to ‘lay herself open to us’. This was not an easy task to accomplish. Bacon appreciated the significance of the so-called subject-object distinction. The object of our investigation could be nature. However, before any understanding of this object can be achieved, the subject (ourselves, as the investigators) needs to interact with it; there is a gap between subject and object that needs to be bridged and a fundamental methodological concern is to ensure that the interaction of the subject and object does not result in distorted results and conclusions.

With this in mind Bacon identified four Idols, (‘phantoms of the mind’) that can interfere with our objectivity when studying nature. He wanted us to purge our minds of these Idols before undertaking any scientific work. The first three of these Idols we were normally unaware of: the Idol of the Tribe relates to our tendency to find an unwarrantable degree of order and regularity in the phenomena that we investigate. This stems particularly from our great desire to find uniformity in things. The second, the Idol of the Den, refers to the peculiarities of our individual characters that can interfere with our analyses. Such peculiarities are what we would today refer to as hang-ups, frustrations and neuroses. The Idol of the Market Place arises from the need, as social animals, to use a common language. The usage of words is often determined by fashions in society and this can result in our language possessing imprecise and ill-defined meanings that could hinder our efforts to develop science. The Idol of the Theatre, unlike the other three, is something that we are aware of and consciously develop. This Idol relates to the misleading information and analyses that we can associate with the dogmas that different schools of thought peddle. It is theatrical in the sense that each school produces a different representation of the imaginary world which they place at the centre of the stage.

Bacon wanted us to purge ourselves of such Idols before we began any systematic investigation. He wanted to ground scientific work in careful observation where we proceeded gradually, in a piecemeal fashion, from our particular observations towards the ultimate establishment of universal laws. It is clear that induction is to play a pivotal role in this. The role accorded to deduction was a very subordinate one.

By approaching our investigation with an open mind and not entertaining any expectations as to the likely results, we may be close to achieving objectivity and purging our minds of some of the Idols. Then we can begin our detailed observation and collection of facts. The primary objective at this stage of the enquiry is to propose a ‘history’ of ‘all the phenomena to be explained’. This fact-gathering process needs to be very carefully conducted, with the facts being very thoroughly checked. After several years the assembly of such ‘histories’ would enable us to develop ‘science’. Having established universal laws, theories and deduction then have a role to play. Bacon felt that until this stage was reached it was possible to divorce facts from theories.

Having completed the first stage, it is necessary to discover the ‘Form’ of the phenomena under investigation. The precise meaning of this term is not clear. It seems that ‘Form’ is likely to be synonymous with ‘cause’. It is at this stage that Bacon’s theory of induction is introduced to discover the ‘Form’. Bacon adopted a type of induction known as eliminative, in contrast to another form, known as enumerative. Enumerative induction is where we gather together a number of particular, and similar, observations and draw some more general conclusion from them. Our example (3) of white swans is a case in point. If we had continued with that example and observed, say, 10 000 white swans then we might have been tempted to draw the conclusion that ‘all swans are white’. Bacon recognised the dangers of such an approach. It is the differences, rather than the similarities, between particular observations that is often more telling. This is where eliminative induction proves helpful. Here we consider the phenomena that we are interested in under a variety of different circumstances in order to assess whether they affect it. If they do not, then we may eliminate such circumstances as having no direct bearing upon our observed regularity. Therefore, if we wish to check whether ‘all swans are white’ we may care to observe swans in different countries (as all native British swans are white), at different times of the year, their habits, etc. Such an approach, when checking on swans in Australia, would immediately render the generalisation false. Therefore, by eliminating factors that appear to have no direct bearing upon explaining the ‘Form’ we can move closer towards establishing the true cause of the phenomena that we are interested in.

Bacon believed that physics was ‘the mother of all the sciences’ and that his method could be applied to all sciences. Furthermore, he felt that we could ultimately determine the ‘Form’ of things with absolute certainty and with almost mechanical ease.

How feasible is such an approach likely to prove? Contemporary philosophers of science have tended to pour scorn on such an approach (see Chalmers, 1982;Hempel, 1966; and Medawar, 1969). The substance of their criticisms is as follows.

Chalmers strikes at the heart of some of the crucial features of the inductivist programme. We have seen how a more objective study can be undertaken once we have purged ourselves of the Idols: Chalmers, in effect, raises doubts as to the possibility of whether this can be achieved. He cites several examples where our viewing of an object is influenced by our previous knowledge, and expectations. One example is an experiment where people were asked to identify playing cards, after studying a pack for a short time. Generally, the subjects correctly identified the cards. However, when anomalous cards (for example, a red Ace of Spades) were introduced, the subjects encountered great difficulty in identifying them. They were influenced by their expectations and previous conceptions of playing cards. This, along with several other examples, leads Chalmers to argue that when we view things they are never impassive sense-data that register on our minds. Such images are strongly influenced by cultural background, anticipation and expectations.

Also, whenever we make an observation statement it is, by necessity, made in language that usually presupposes some theory. This is important because it implies the need for some theoretical construction before we can frame sufficiently precise observation statements for our empirical work. Therefore, the barring of all hypotheses, and the divorce between fact and theory, is untenable.

Hempel (1966, pp. 11–12) raises a number of questions regarding the practicality of adopting an inductivist procedure. Firstly, we could never collect ‘all’ the facts relating to the subject that we are interested in. He feels that this should more appropriately be ‘all the relevant’ facts. However, to what are they relevant? This would suggest that we have some problem, or tentative hypothesis, in mind to help shape what is relevant, but such devices are clearly ruled out in an inductivist programme at such an early stage of investigation.

A similar point can be made when we have to clarify and organise ‘all’ the facts. Let us imagine the way that we might choose to conduct a piece of economic research: I might be interested in the reasons for the West Midlands economy experiencing the highest rate of increase in unemployment in the UK between 1978 and 1982. Do I set out to interview and obtain information from ‘all’ the firms who are still in business or have gone bankrupt? Unless I wish to spend several years on such a task I am unlikely to adopt such an approach. Instead, I could resort to using some data that has already been gathered (by the West Midlands County Council), supplement this with some of my own questionnaire information and construct an input-output table. Having done this, by no means straightforward, task, I am in a position to check inter-industry linkages and multiplier effects. This enables me to form a clearer view of how the different sections of the West Midlands economy interrelate and which ones have particularly damaging multiplier feedback effects. It could be that my initial suspicions as to the traditional reliance of the West Midlands economy upon sectors vulnerable to import penetration and changing technology, such as the car, motorcycle, components, engineering and steel industries, is borne out. Now the approach I would have adopted would be anathema to any self-respecting inductivist. I am using a lot of secondary data, entertaining hypotheses and framing the input–output table in such a way that it fulfils certain theoretical requirements. Added to this there are some severe limitations associated with any construction of input-output tables. However, I would venture to suggest that in a few months I would have possibly obtained some useful insights into the problem of West Midlands unemployment before an inductivist has even interviewed his/her first 10000 companies!

Medawar (1969, p. 40–1) raises some broader issues concerning inductivism. It does not provide us with an adequate theory of incentives. Why should we select to study one class of phenomena at the expense of some other? Failure to deal with such questions renders inductivism an unnecessarily restrictive method. Also we find that inductivists place too much emphasis on verification. This is not a straightforward business. Normally, scientific work encounters difficulties but rather than drop such work immediately we are more likely to adjust and refine it. Medawar also believes that insufficient scope is allowed by inductivists for the role that luck can play in the development of theories. Finally, he believes that experimentation should be used more for critical purposes than merely to generate information.

THE PROBLEM OF INDUCTION

The Problem of Induction is a difficulty that holds implications for empirical investigation generally, even for those who do not subscribe to an inductivist methodology. This problem was first raised by David Hume in the eighteenth century. He was pondering whether inductive evidence can go beyond the available evidence in order to predict future events. Past evidence, he argued, can tell us about past experience only. If we wish to go beyond this we are on dubious ground. He considered this (Hume, 1975, pp. 33–4) in relation to the nourishment he received from bread. In the past bread had nourished him, would it therefore continue to do so? The answer is not necessarily yes (especially if he contracted ergotism!). Hume’s conception of this difficulty was cast in a very logical manner. He considered one way around the difficulty that could have been placed in the following syllogism:

Bread has always nourished me in the past

What has always obtained in the past will obtain in the future

Therefore Bread will continue to nourish me

It is the second premise of the argument that raises problems. For it is effectively an appeal to the Principle of the Uniformity of Nature. This states that a generalisation, or law, that has held in the past will continue to do so. If this were the case we could justify inductive reasoning to predict into the future. But can we? We cannot because appeals to the Principle of the Uniformity of Nature result in us using an inductively derived concept to justify induction. This is a circular argument and therefore invalid. Consequently, the Problem of Induction arises from our inability to provide rational grounds for using inductive inferences that go beyond the evidence available. In a sens...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• Acknowledgements
• Foreword
• 1 Inductivism and Deductivism in Economics
• 2 Falsification and Economics
• 3 Kuhn and Economics
• 4 Lakatos and Economics
• 5 Laudan and the Problems of Progress
• 6 Instrumentalism and Economics
• 7 Austrian Methodology
• 8 Marx's Method
• Conclusion
• Bibliography
• Name Index
• Subject Index