Continuing from the previous post on The WHY of Crazy Models, I attribute a large portion of the blame to massively wrong theories of knowledge. A little bit of study of epistemology is enough to give anyone a headache. Because of this, instead of investing the time and effort to decipher what the philosophers are saying, the rest of us are willing to take it on faith. No one is aware of the massive amount of damage done by philosophers – most philosophers themselves are unaware the tremendous influence that their failures in the past have had on the real world. Similarly, the non-philosophers are unaware of how deeply their thoughts have been affected by false and obsolete philosophies, now rejected by the philosophers. Keynes summed up the state of affairs nicely in his apt quote: “Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back” – While Keynes thinks that practical men of affairs are slaves of economists, I believe that the economists and social scientists are slaves of defunct philosophers, without realizing this.
In preparing this post, I decided to review the theories of knowledge, to provide a brief sketch of how epistemology went astray, allowing us to create crazy models and to consider them as an advance on knowledge. I found a dismal historical record of one completely bizarre theory of knowledge opposed by another equally bizarre theory, and the conflicting theories are synthesized into yet another monstrosity by yet another big-name philosopher. Reading through this stuff led me to wonder: Did any of these philosophers have children? Anyone who watches a child grow and acquire knowledge would automatically avoid the monstrous mistakes made by these philosophers. A little research turned up the following amazing fact: Hobbes, Locke, Hume, Adam Smith, Descartes, Spinoza, Leibniz, Kant and Bentham all went unmarried. These are all the big names who have shaped Western philosophy in general, and the theory of knowledge in particular. We would all have been much wiser if only mothers, who have intimate knowledge of how children learn, would have been permitted to write about how human beings acquire knowledge, and what counts as knowledge. It is too late to implement this rule as the damage has been done, but perhaps burning the books of philosophers without children and expunging them from our collective memories might help make the world a better place. Sigh!
Coming back to the dreary task at hand, of reviewing blunder after bigger blunder in the theories of knowledge, I should acknowledge that it is impossible to cover centuries of speculative philosophy in a few paragraphs. For a serious book length effort, see Manicas: The History and Philosophy of the Social Sciences. Some quotes from his introduction summarize the points that I wish to make:
- “the very idea of science is contestable“. This is significant because modern European theories of knowledge all originate in the rejection of Christianity in the West. When Europeans realized that masses could be deluded into believing in false Gods, they decided to study intensively what should be counted as knowledge, and how it can be acquired, so as to avoid such mass deceptions in the future. The collective decision was made to take “science” as the model for valid production of knowledge. See my article on “The Deification of Science, and its Disastrous Consequence“ for more details about this.
- “There was, for a very long time, a very stable notion of ‘science’, and that this very stable idea of science has been the point of departure taken for granted by all parties“. All Western theories of knowledge (from the post-Newton era to Kuhn) were based on the starting point that “Western science” is knowledge – how do we develop an epistemology which can prove this?
- “it is only very recently that radically different understandings of the nature of science have become serious alternatives.” T. S. Kuhn is a landmark here, as his historical studies dramatically altered the image of science. Also of great value in this connection is Chapter 1: The Heroic Image of Science in Appleby, Hunt, and Jacob “Telling the Truth About History”.
- “The upshot is the possibility of a thoroughgoing revolution in the received ideas of science, natural and social. … disastrously, the social sciences (are) based on a misconception about what the physical sciences are.” The necessity of inventing a philosophy which makes “science” the only valid source of human knowledge created a hugely distorted theory of knowledge. The social sciences were created on the basis of this misconception, and as a result have fundamentally flawed foundations.
While it is impossible to provide a brief sketch of the twists and turns in Western epistemology, we can identify three flawed schools of thought, which are described below. Amazingly, modern economic methodology is based on accepting the central defects of all three opposing philosophies — this must be seen as a tremendous feat, made possible only by deep ignorance of the philosophical backgrounds. The three schools of thought about human knowledge, together with their flaws, are briefly described below:
- The Rationalist School – (Descartes, Spinoza, Liebniz) – These philosophers wanted to derive all knowledge from reason. Start with incontrovertible hypotheses (axioms) and use logic to derive certain conclusions. Kant noted that one can only get analytic truths by this method. The conclusions are logically contained in the premises, and nothing new can be added. Synthetic truths, which depend on examination of external reality, cannot be deduced from an axiomatic approach.
- The Empiricist School – (Locke, Berkeley, Hume) – These philosophers thought that our observations (sensory impressions) are the sole source of reliable knowledge. Against them, Kant argued that there are many things we know about external reality (such as causality) which cannot be observed.
- Transcendental Idealism: Kant noted that science was impossible on empiricist or rationalist basis for knowledge. One cannot discover (synthetic) truths about external reality, starting from self-evident axioms and applying deductive logic. Also, many important structures of external reality, essential to science, are not part of the observational data, and indeed, are inherently unobservable. As a solution, he proposed to equip the mind with powers to organize inchoate sense data into a coherent picture of reality.
All three of these philosophies of human knowledge are mistakes. All three mistakes are incorporated in the methodology currently in use in economics. The Rationalist mistake is that a hypothetico-deductive system cannot generate knowledge which is not already contained in the axioms. Thus, such a methodology is incapable for learning from experience. As noted by Manicas, the social sciences are based on a misconception about what the physical sciences are. This (Rationalist) misconception about scientific theory is explicitly stated by Lionel Robbins, the founder of the modern positivist approach to economics:
“The propositions of economic theory, like all scientific theory, are obviously deductions from a series of postulates. And the chief of these postulates are all assumptions involving in some way simple and indisputable facts of experience…” (See past post on Methodology of Modern Economics).
The second mistake is the Empiricist misconception that observables are part of science, while unobservables cannot be. A simple illustration of this is the attempt to reduce preference to choice under the misconception that the invisible preferences of our hearts cannot be part of a scientific theory. For a sketch of Samuelson’s mistake in equating choices with preferences see my post on Foundations of Probability 7. Denial of the existence of uncertainty (as opposed to risk) has been one of the more disastrous consequence of denying the the existence of the underlying preferences (and differentiating them from the choices which are guided by them, but distinct from them). For a detailed explanation of this, see my sequence of posts on the Foundations of Probability .
Denial of the unobservable is the “epistemic fallacy“, or the ostrich fallacy in less polite terms. If I cannot see it, it does not exist. Anyone who reflects on the nature of science will come the realization that scientific theories depend deeply on unobservable objects and effects. Kant realized that scientific theories provided us with knowledge which was neither “empirical” (facts we can perceive by sensory experience) nor “rational” (logical deductions from self-evident axioms). His mistake was a sophisticated version of the epistemic fallacy. He argued that if we cannot observe it, we can ignore it (bad advice for the ostrich). He argued that even if reality has complex unobservable structures, we have no access to these structures. So, the unobservable structures that we imagine to be a part of external reality (like causality, persistence of objects in time and space, and many others) are actually projections of our mind onto the observable reality (It seems that ostriches have read Kant). These complex structures are “ideas” in our minds, and have no correlation with external reality.
This third (Kantian) mistake is manifest in the vast majority of models created by economic theories. Arrow and Debreu imagine a world of consumers and commodities where frictionless trade takes place across time and space. Economists feel free to imagine that we are all engaged in a game with rules and payoffs that they can make up, as long as the outcomes calculated by theoretical means correspond to the observable. The fact that these rules and payoffs exists only in the mind of the theorist, and they have no correspondence to any structures of external reality is of no importance. See Kant’s Blunder for some specific examples.
Philosophers have made substantial progress in their understanding of the nature of science. Bhaskar’s Critical Realism is able to account for two aspects of scientific knowledge which previous philosophies could not. One is the social nature of science, and the second is the depth of discoveries about unobservable objects and effects in external reality. The propagation of knowledge across disciplines in the social sciences appears to take place with enormous lags. Economists are still using methodologies based on philosophies of science which were discarded and forgotten by philosophers a long time ago. Progress in economics requires abandonment of obsolete philosophies, but the task is made much more difficult by the fact that these philosophies are buried in the foundations of how the subject is formulated and presented to students. These are passed on from generation to generation, and remain unexamined, and unquestioned.