Is economics a science or an art?

February 12th, 2008

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Recently, we found this article, Bad Debt: $100 Billion, $400 Billion, Who’s Counting?,

These are not good days for the dominant “who could have known?” school of economics. First, they missed the housing bubble.

Fortunately, the media do not hold economists responsible for their failures.

Being off by 300 percent might be considered a serious problem in other lines of work, but apparently not for economists.

The last sentence is indeed humorous. It is an example of highly precise but inaccurate forecast (see Confusion between precision & accuracy). Thanks to such great flops, economics is often called the “dismal science.” But our question for today is this: Is economics ever a science in the first place? Should it even be ‘scientific’ in the first place?

This question was controversial even in the 1930s. As we quoted Wilhelm R?pk from his 1936 Austrian School classic in our previous article, Why is the market so easily tossed and turned by dribs and drabs of data?,

It was indeed an ingenious idea to apply the principle of nautical astronomy to economic forecasting, but there was one fatal flaw…

Mainstream economists tend to apply the scientific method into the study of economics, using abstract mathematical theories and unrealistic models. In addition, it is being overrun with statistics, to the extreme point of replacing “deductive reasoning entirely by their empirical and statistical method” (see Why is the market so easily tossed and turned by dribs and drabs of data?).

At the heart of what makes us contrarians is our philosophy from the Austrian School of economic thought. At the base of this school of economic thought is praxeology, which is the study of human behaviour. Ludwig von Mises, in Chapter 16 of his economic treatise, Human Action: A Treatise on Economics, wrote that,

The problems of prices and costs have been treated also with mathematical methods. There have even been economists who held that the only appropriate method of dealing with economic problems is the mathematical method and who derided the logical economists [the Austrian School economists] as ?literary? economists.

If this antagonism between the logical and the mathematical economists were merely a disagreement concerning the most adequate procedure to be applied in the study of economics, it would be superfluous to pay attention to it. The better method would prove its preeminence by bringing about better results. It may also be that different varieties of procedure are necessary for the solution of different problems and that for some of them one method is more useful than the other.

However, this is not a dispute about heuristic questions, but a controversy concerning the foundations of economics. The mathematical method must be rejected not only on account of its barrenness. It is an entirely vicious method, starting from false assumptions and leading to fallacious inferences. Its syllogisms are not only sterile; they divert the mind from the study of the real problems and distort the relations between the various phenomena.

The ideas and procedures of the mathematical economists are not uniform. There are three main currents of thought which must be dealt with separately.

The first variety is represented by the statisticians who aim at discovering economic laws from the study of economic experience. They aim to transform economics into a ?quantitative? science. Their program is condensed in the motto of the Econometric Society: Science is measurement.  The fundamental error implied in this reasoning has been shown above…

The second field treated by mathematical economists is that of the relation of prices and costs. In dealing with these problems the mathematical economists disregard the operation of the market process and moreover pretend to abstract from the use of money inherent in all economic calculations.

At this point, we hope we have not bore you with dense philosophy. So, we will stop here. But as you can see by now, we see economics more as an ‘art’ rather than a ‘science’ because we do not believe that economics is a subject that lends itself to a ‘scientific’ study.