PRELIMINARY REMARKS: Philosopher Hilary Putnam writes in “The Collapse of the Fact/Value Distinction” that there are cases where we can easily and clearly distinguish between facts and values — the objective and the subjective. However, it is wrong to think that we can ALWAYS do so. There are many sentences, especially in economic theories, where the two are “inextricably entangled” .
This is the fourth post in a sequence about Re-Reading Keynes. This post is focused on a single point which has been mentioned, but perhaps not sufficiently emphasized earlier: the entanglement of the economic system with the economic theories about the system. Our purpose in reading Keynes is not directly to understand Keynesian theory — that is, to assess it as an economic theory in isolation, and whether or not it is valid and useful for contemporary affairs. Rather, we want to co-understand Keynesian theory and the historical context in which it was born. This is an exercise in the application of Polanyi’s methodology, which I described in excruciating detail in my paper published in WEA journal Economic Thought recently:
Asad Zaman (2016) ‘The Methodology of Polanyi’s Great Transformation.’ Economic Thought, 5.1, pp. 44-63.
I must confess that I am not very happy with the paper; I was struggling to formulate the ideas, and could not achieve the clarity that I always try for. It is a difficult read, though it expresses very important ideas — laying out the foundations for a radical new methodology which incorporates political, social and historical elements that have been discarded in conventional methodology for economics. One of the key elements of Polanyi’s methodology is the interaction between theories and history — our history generates our experiences of the world, and this experience in understood in the light of theories we generate to try to understand this experience. This obvious fact was ignored & lost due to the positivist fallacy that facts can be understood directly by themselves. The truth is that they can only be understood within the context of a (theoretical) framework. Once we use theories to understand experience, then these theories are used to shape our responses to this experience, and so these theories directly impact on history — history is shaped by theories, and theories are shaped by history. The two are “inextricably entangled.”
A key mistake of logical positivism is the attempt to separate the objective and the subjective — an idea that we have all swallowed in the course of our education. In fact reality is shaped by a complex interaction of the two. When we taste a fruit, the flavor is determined partly by the objective characteristics of the chemicals in the fruit, but also by the characteristics of the taste buds on our tongues, and ALSO by the interpretative apparatus within our brains which interprets the stimuli coming into the brains. To reduce this complex process to the external and objective characteristics of the fruit would be a great mistake. It is this mistake which is embodied in conventional economic methodology. Economists do not understand that they are very much a part of the economic system. How the economic system operates is STRONGLY influenced by the theories propounded by economists. The economy of communist Russia was created under the influence of Marxist theories, and cannot be understood without understanding Marxist theory. The operation of the US economy is strongly influenced by the dominant economic theories. Quantitative Easing, QE, is a brainchild of Bernanke, based on Friedman’s understanding of the Great Depression. QE has strongly affected economic conditions in the USA and throughout the globe. The observer cannot be detached from the system being observed. Just taking this one methodological insight from Polanyi on board is sufficient to completely invalidate the current methodological approach used by economists.
I have a 45 minute video lecture on “The Methodology of Polanyi’s Great Transformation” which attempts to explain these methodological ideas in a more user-friendly way. This is linked below:
WEA Pedagogy Blog 
There is a science of macroeconomics which is more exact and which applies in the more general situations of most countries. Please see my book “Consequential Macroeconomics–Rationalizing About How our Social System Works” which may be obtained for free by sending me your e-address and telling my why you are interested. sent by chesterdh@hotmail.com
As you appreciate, this is a way of opposing the claims in this talk!
Although I am very much in sympathy with your Polanyi argument for seeing things in the context of history, Asad, from what you say in your lecture I think you have been misled by the Hume/Logical Positive account of science, and in any case have not shown any sign of recognising the development of post-Polanyi information science, which is entirely relevant to the possibility of people being misled by theory.
You say that science develops by trying to resolve historical problems, which I agree with, but not that one resolves the problem by telling persuasive causal stories. There are two important points you are missing here.
If one looks at the history of science, Aristotle was scientifically classifying the unknowns being newly discovered by travel, and given mass unemployment after changes in land use, Bacon was taking things to bits to see how they work. But in neither case was that the end of the story. Aristotle’s conclusions were written down for posterity, assuming the world as it was. Bacon’s project went looking for new discoveries, assuming people could change things if they knew more, and quite specifically envisaged what we now call an encyclopedia via which future generations could make use of the discoveries of his science.
It follows that most scientific enterprise is APPLYING already existing science, which effectively provides the language in which your stories are concocted (ably assisted, I might add, by Arabic arithmetic algorithms and algebraic variables). This is Kuhn’s “normal” science. His “revolutionary” science is at a more primitive level, like Copernicus inverting Ptolomeic account of the relative motion of the sun and earth, Newton inverting Aristotle’s assumption that motion required force to sustain it, Locke challenging Descartes’ assumption of human memory being the property of a spirit by analysing the use of language, and Einstein later challenging the straight line assumptions of Cartesian coordinate geometry. By then, Logical Positivists had rediscovered Hume’s ‘agreement among admitted experts’ version of “democracy”. Hume (Adam Smith’s mentor) effectively put an end to Locke’s mechanistic line of thought by denying its possibility: a position irrefutable before Shannon showed how switching circuits and flow changes could both convey the same information. The determinism of mechanism doesn’t exist where there is learned freedom to delay changes on flows, highlighting the significance of Harvey (post-Bacon) discovering the circulation of the blood, Volta (post-Smith) the circulation of electricity, and for economics, the circulation of money and what (like blood or electricity) it is carrying.
The second important point you are missing is this. Despite the vast variety of electrical and electronic devices now available (each of which contains applied science in its user handbook), basic electrical theory reduces to the “institutionalising” of Newton’s equations of motion in just four types of component. These are resistors (restricting electrical flows now), inductors (slowing changes magnetically, thereby creating an observable history) , capacitors (storing electrical energy for future use), and interfaces between these and environmental changes (most notably valves – now transistors – interfacing flow resistance in one circuit to electrical potentials in another, but also things like position variable controls, directional aerials, pressure or temperature sensitive resistors, etc. It is not that these characteristic functions are “unentangled” in practice, but they are so in theory if you look at them the right way. As Ken Zimmermann argues, there are an infinity of ways of looking at a house, yet we can and do distinguish all its characteristics in just three orthogonal diagrams: plan, front and side elevations, plus a history of its changes and uses. If science is looking for fixed laws, it is looking for such a universal geometry rather than algebraic variables or countable fixed points; one which works out, as against that based on Occam’s Razor which has economists asserting all you need is the plan of our houses and not their elevations. Fundamental science is in practice retroducing to a coordinate system for the very foundation of science, which is to to be found in the past, present and future and the different manifestations of energy throughout the history of time, as laid bare in the navigation of ships no matter what their destination, and in the corresponding theory of PID control servo systems, where it is up to us to input their objective.
And this is my second point. This history goes through phases as distinct as the coordinate system: from raw energy to particles, from particles to atoms, from atoms to molecules, from a molecular environment to cells containing a local environment, from living cells to humans containing a linguistic as well as physical environment, from humans communicating by means of language and art to human communities communicating via linguistic institutions and communications artefacts like the internet. But even at this level, humans are still physical and biological, their artefacts physical and linguistic and their spherical earthly home a contained environment. This, like our own bodies, will live only so long as it is fed, cared for, protected and “taught” to be self-sustaining by our organising appropriately informative institutions, stripping away inappropriate ones based on mis-perceptions or fraudulent conceptions of money. This is what fails to show up when economists interpret it as an infinite flat earth with them at the middle.
Having on a quick look seen Polanyi providing a Continental slant on what I know through British history, I’m now trying to read it more carefully to take up what you are saying about his methodology. What has truck me in the early pages is the similarity between what he’s saying about a 100 year peace in Europe and the way America has attempted to preserve its internal peace via its Monroe doctrine: https://en.wikipedia.org/wiki/Monroe_Doctrine.