27.
Methodology
The proper
methodology--the system of principles, procedures and practices applied to a
branch of knowledge--in the social sciences is to begin with self-evident
axioms regarding the subject to be studied. (Self-evident meaning a proposition must be true since to
deny that proposition one must employ that very proposition itself in the
denial, e.g. the axiom of human action cannot be denied with out carrying out
the action of the denial!)
Economics studies the
actions of human beings transforming nature-given scarce resources into usable
products. The axioms are therefore
that human beings act to pursue ends (or goals) in the face of scarce
resources. Therefore by logical
deduction, one can begin with the undeniable axioms of purposeful human action
and scarcity and proceed. The
procession runs from human action and scarcity to choice; realizing from choice
the truth of opportunity costs and continuing in like fashion to the entire
field of knowledge embodying "economics." By this method, economic truths are ascertained as long as
there is no break in the chain of logical deductive reasoning. This method is appropriate for the
social sciences because in studying human behavior we can understand the motive
driving human beings.
Notice that this
method is inappropriate for the natural sciences which deal with inanimate
objects--inanimate objects pursue no ends. In the natural sciences one does not deduce from axioms the
next truth, but must ascertain truth by empirical studies.
The common mistaken
methodological approach is "positivism" or
"empiricism"--defined as gathering and studying facts. This approach is appropriate for
inanimate objects and conscious-less living matter and is often imitated by
economists in an attempt to gain a similar prestige of "serious
science" as is held by the hard sciences--physics, astronomy, etc.
Among those
championing the free market are the economists of the Chicago School; but the
Chicago School approach in particular is sometimes known as the "open the
horse's mouth and count teeth" method (the empirical approach). While this is quite appropriate for
counting teeth it does not lend itself to the study of goal-directed human
action.
An example: Let's say we want to know if the law of
demand (more will be bought at a lower price and vice versa) is true or
false. The empiricist will watch
actual sales figures to test the law of demand. But of course a lot of factors other than price influence
the quantity demanded. If the
study results in a greater quantity demanded at a higher price do we discard
the law of demand as false or do we know from logical deduction that it must be
true and therefore other factors overwhelmed the influence of the higher
price? As stated by Murray N.
Rothbard in Man, Economy, and State:
... in human action, as contrasted with the
natural sciences, ideas can be refuted only by
other
ideas; events themselves are complex resultants
which need to be interpreted by correct ideas. p. 840
There is no way to
carefully control for all variables in such a study of human behavior, and even
when done "thoroughly" one never knows what one does not know--a
relevant factor may have been overlooked.
Notice further, that the empiricists must have some logic-based theory
to go out and test in the first place--one cannot be a pure empiricist
gathering every conceivable fact and statistic waiting for a theory to reveal
itself. Quoting Rothbard in Individualism
and the Philosophy of the Social Sciences:
The [mental experiment] is the economist's substitute for the natural
scientist's controlled laboratory experiment. Since the relevant
variables of the social world cannot actually be held constant, the
economist holds them constant in his imagination. Using the tool of
verbal logic, he mentally investigates the causal influence of one
variable on another. p. 38
Deduction from axioms
was a common method having been enunciated by John Baptiste Say (Say's Law),
Nassau Senior (capital and value theory), John E. Cairnes (the last of the
classical economists), Carl Menger (marginal utility analysis), and other major
economists over the past 200 years.
This method has been neglected only in the last several decades with the
rush to positivism.
A second aspect of
methodology is the individualist perspective. Since it is individuals who act in pursuit of goals, the
proper method is to study individual human behavior. This
methodological individualism does not preclude group actions; it just reminds
us that ultimately the group is composed of individual human beings acting. (The standard definition of economics
given is the allocation of scarce resources for use in the satisfaction of society's unlimited wants. Notice the collectivist approach in this definition in
contrast to the method described here.)
-
Hayek, F. A.
Individualism and Economic Order,
(Chicago: University of Chicago Press, 1948)
pp. 39 - 91.
-
Hoppe, Hans-Hermann
Praxeology and Economic Science,
(Auburn, Alabama: The Ludwig von Mises Institute, 1988)
pp. 8 - 24.
-
Kirzner, Israel M.
"On the Method of Austrian Economics" in The Foundations of Austrian Economics edited by Edwin G. Dolan,
(Kansas City: Sheed Andrews and McNeel, 1976)
pp. 40 - 51.
-
Littlechild, Stephen C.
The Fallacy of the Mixed Economy,
(San Francisco: The Cato Institute, 1979)
pp. 14 - 20.
-
Rothbard, Murray N.
Individualism and the Philosophy of the Social Sciences,
(San Francisco, California: The Cato Institute, 1978)
pp. 19 - 61.
-
Rothbard, Murray N.
Man, Economy, and State,
(Los Angeles: Nash Publishers, 1970)
pp. 1 - 60, p. 840.
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