Abstract
I reconsider the paper ‘Methodological Prescriptions in Economics’, Economica, February 1959, by Kurt Klappholz and Joseph Agassi. I criticise the thesis that “there is only one generally applicable methodological rule, and that is the exhortation to be critical […].” I compare the methodology of physics with that of economics, and discuss whether typical economic ‘laws’ are testable hypotheses. I consider whether an approach to economic policy based on welfare economics is biassed. In conclusion, I sketch an approach to economic methodology and suggest some rules of method that may be useful to the working economist.
I am indebted for comments on an earlier draft to Adam Ostaszewski , Sven Rady, Jörn Rothe and Carol Foldes (Carol Hewlett).
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Notes
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In this connection it is amusing to recall Poincaré’s discussion (Poincaré 1905, Ch. IX) of Carlyle’s statement (Past and Present, Ch. 1, book II) that ‘Nothing but facts are of importance. John Lackland passed by here. Here is something that is admirable. Here is a reality for which I would give all the theories in the world.’ Poincaré comments that ‘this is the language of the historian. The physicist (Bacon) would most likely have said ‘John Lackland passed by here. It is all the same to me, for he will not pass this way again.’’ Where does the economist stand on this? Maybe King John’s journey was the one on which he lost his treasure in The Wash, in which case it would be relevant to the economic history of England, and its effect on the money supply might call for discussion. On the other hand this unique event is hardly of significance for the validity of any law of economics.
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However, one apparent error should be noted. K&A assert (p. 61) that ‘a law, to be true, must correctly refer to all the relevant factors (affecting its validity), which must of course be finite in number (since otherwise we could not mention them all).’ This runs counter to the common practice of lumping together in an ‘error’ term a set (possibly infinite) of ‘small’ factors which are assumed collectively to follow a particular statistical distribution. More generally, I am rather persuaded by a remark of Imre Lakatos (made in connection with mathematical theorems) that there is always an infinite number of ‘hidden lemmas’. Be that as it may, I leave the reader to whet his critical teeth on this one.
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Robbins (1945), p. 78–79. To quote Poincaré again, (Poincaré 1902, Ch.IX): ‘L’expérience est la source unique de le verité: elle seule peut nous apprendre quelque chose de nouveau; elle seule peut nous donner la certitude. Voilà deux points que nul ne peut contester.’ Leaving aside whether this assertion is really incontestable, the reason for quoting it in French is that ‘expérience’ can mean either ‘experiment’ or ‘experience’. Given the physical context, the English translation naturally chooses the former rendering. However the quotation from Robbins suggests that, in economics at least, the wider concept is more appropriate for deciding the acceptability of a law.
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‘The law of demand is to the effect that the utility afforded by any increment of any kind of desired object diminishes with increase of the amount possessed’, W.E.Johnson in Palgrave’s Dictionary of Political Economy, quoted in J. N. Keynes (1917), p. 245. Johnson regards this ‘law’ as a psychological datum rather than as a theorem of economics.
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The possibility that the income effects may outweigh the substitution effect, so that demand increases with price, is often presented as paradoxical, but it may be quite natural for some ‘commodities’, e.g. saving or leisure. Thus saving (=demand for future goods) may well fall as the rate of interest rises. Again, demand for leisure (=hours not worked) may well increase if the wage rate (opportunity cost of idleness) falls, i.e. if the supply curve of labour is downward sloping.
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This procedure may be regarded as comparable to the usual interpretation of the results of an experiment which seems to violate the law of conservation of energy, cf. Poincaré (1905), esp. pp. 185 and 159–160, also the articles “Poincaré” and “conventialism” in the Oxford Companion to Philosophy.
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For a brief survey , see J. N. Keynes (1917), Ch. I.
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Compare the discussion by Poincaré (1905), p. 160.
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Foldes, L. (2017). Notes on Revisiting Klappholz and Agassi’s “Methodological Prescriptions in Economics”. In: Bar-Am, N., Gattei, S. (eds) Encouraging Openness. Boston Studies in the Philosophy and History of Science, vol 325. Springer, Cham. https://doi.org/10.1007/978-3-319-57669-5_36
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