- Introduction and Motivation
The deeply and fundamentally flawed nature of modern economic theory arises from two problems. The root cause is a fundamental misconception about the nature of methodology. The secondary cause is major mistakes in the application of this wrong methodology. The second flaw can be fixed by replacing the axioms and the methods of analysis while working within the same wrong methodological framework. Heterodox economists have been content to work in this way. This does create useful alternatives, since even a fundamentally flawed methodological framework can lead to useful truths if applied skillfully. However, failure to understand and remedy the root cause leads to serious weaknesses in the alternatives offered, which is one of the reasons why heterodoxy has been unable to create a successful alternative paradigm.
In a series of posts, I would like to explain the fundamental methodological flaw, so as to clear the path to building a genuine alternative to modern economic theory. The first step is to understand why the entire project of “Social Science” is misconceived. The term Social Science embodies the idea that we can fruitfully apply scientific methodology to the study of human beings and society. This is a fundamental methodological mistake. I have made this point in several papers, but unfortunately, they are all quite complex, reflecting my own rather long and tortuous intellectual journey in arriving at this insight. Now I think I can provide a fairly simple and straightforward explanation, in a sequence of steps. The first step is to understand the nature of science and scientific methodology.
- What is Scientific Methodology?
The standard current understanding of scientific methodology is based on positivist ideas, and is deeply mistaken. Even after the collapse of positivism, this understanding has not been revised. The best route to a correct understanding is to look at the historical origins of the scientific method. The first science to develop among the Greeks was Euclidean geometry, with its axiomatic method. It was natural that when the Greeks turned to study of nature, they would attempt to apply this same successful methodology to develop the natural sciences. This was done, but proved to be highly unsuccessful. Let us understand how the axiomatic method would work in the context of natural sciences.
We would start with axioms which were dead certain, and then use logical deduction to build on these solid foundations. Unfortunately, no dead certainties of an axiomatic type can be found for the natural sciences. Many such foundations were proposed, and logic was used to build superstructures upon them, but all such approaches proved to be wrong. Nature is amazingly complex, and our intuitions frequently lead us astray. Just think of all the quantum phenomena for a simple illustration. That the Earth is the center of the universe was patently obvious to all, and used as a central axiom. Aristotle used logic to conclude that heavy stones would fall faster than light ones. Two different schools of thought used logic to prove the opposite contentions about vision. One set of axioms led to the conclusion that light emanating from the eyes hits objects, while the other set of axioms led to reverse conclusion that light emanating from the object hits our eyes. The conflict could not be resolved on logical grounds for a thousand years.
Why did Aristotle not pick up two stones and drop them from a steep cliff to assess the validity of his theory? It is very important to understand the answer to this question, since Aristotle was one of the smartest men on the planet. His writings are still studied at universities after thousands of years. To answer this question, consider a parallel question. All of us have studies the Pythagorean theorem. Did anyone draw a triangle to assess whether or not it is true? Once something is logically proven, empirical confirmation is not required. Indeed, if we draw a triangle, and it violates the Pythagorean theorem, we would correctly attribute it to mistakes in measurement, drawing or other unknown causes. We would not start to doubt the Pythagorean theorem, even if we could not figure out why our drawn triangle fails to satisfy the theorem. To those who did not understand the proof which convinced us, our acts would appear like an act of faith – a firm belief which cannot be dis-lodged even by witnessing contradictory empirical evidence. The axiomatic-deductive methodology of Euclidean Geometry leads to certainty. Empirical observations cannot either confirm or disconfirm logical truths.
In an era where science dominates the scene, it is difficult for us to understand the pre-scientific mindset. It seems obvious and natural that we should use experiments and observation to settle scientific questions. So it is important to begin by understanding that the original Greek idea that appropriate scientific methodology should be axiomatic/deductive like geometry, is based on a perfectly sound and coherent logic, which is internally consistent, and provides a reasonable framework for viewing the world we live in. It just didn’t happen to work out, but this does not mean that their logic was wrong. [Just as the collapse of Russia does not mean that Marxist theories are wrong].
The deep and fundamental problems with the idea of using observations and experiments to build science are almost obvious, and retain their validity today. Suppose that I deduce a scientific law after making a sequence of observations all of which fall into the same pattern – how can I be sure that this law will retain its validity tomorrow? The inherent uncertainty of the scientific method is famously illustrated by the Black Swan. Even though all observed swans in Europe are white, black swans were discovered later in Australia. Large numbers of conjectured scientific laws were later proven false by observations. There are no cases on the record of a mathematical law which was shown to be observationally wrong. Even after a century of experience with regression models to find empirical regularities, we routinely obtain wrong results. For example, in the case of export led-growth, we can find published papers which use regression to prove all of the four possible results. Exports cause growth, growth causes exports, there is bidirectional causality, and there is no causal relation between the two.
Just as a discovered empirical pattern need not persist, so a discovered contradiction may not actually contradict. For example, if Aristotle dropped two stones from a mountaintop, and a chance strong wind created differential speeds of falling, or the shape of the stones created different types of air resistance, the observational failure would not reflect on the logical proof. Just as we would not bother to check the calculations of someone who claimed to find a counterexample to Fermats Last Theorem, so empirical reports of a failure of a physical law which could be proven by an axiomatic deductive methodology would not be relevant evidence.
CONCLUSION: The axiomatic-deductive method leads to certainties. The observational-experimental methods of science do not. This is why the Greeks preferred the former to the latter, and correctly did not trust the latter. This is why the development of the scientific method was delayed for a thousand years. The success of the method is rather surprising given that certainty is not achieved at any point in the chain of reasoning. We are always working with guesses about what might be the causes of observed patterns, and even the observed patterns are guesses.
Subsequent steps in understanding why scientific methodology cannot be used to study humans and societies will be posted later.
PS (added in response to a comment): The first step taken here is to describe the pre-scientific methodology of the Greeks, and explain its virtues, and why these virtues created an obstacle to the emergence of the scientific method. What the scientific method is, and how it emerged, will be described in the next post.