Tuesday, August 3, 2010

Deductive Logic versus Empirical Studies, in Historical Perspective

Recently, I  posted a note referencing Elizabeth Warren's dissing of deductive logic in the field of economics and her support for empirical evidence to find truth. The debate over deductive logic versus empirical studies is not new. Richard Ebeling in his book, Political Economy, Public Policy and Monetary Economics, puts the debate in historical perspective:

Part of [Ludwig von] Mises’ “impatience” with much of the economic policy discussions in the years following World War I had to do with the intellectual environment in the German- speaking world in which he lived at this time. For decades before and then after the war, the German Historical School dominated these discussions.

They rejected the idea of a general theory of economic decision- making and conduct that would be universal and applicable to all individuals at all times and in all places. For them any and all economic theory was period specific.

They insisted that any supposed “laws” of economics set forth by the British Classical Economists in the early years of the nineteenth century might have had validity for the Great Britain of the 1820s. But there could be no a priori justification to assume that any such “laws” would be or were relevant to the Germany of the 1870s or 1890s.

Particularly some leaders of the German Historical School such as Gustav von Schmoller insisted that the first task of any “real” political- economic study was for detailed historical and statistical investigation of the social and political institutions of a nation, people, or Volk. From such studies there might be derived insights into various “laws” of the economic relationships between the members of that nation during a particular period of time. Such laws could claim no universality, either across nations and people or even for the same nation at different historical moments. All claims of such universality were really only rationalizations by British political economists to further the commercial and trading interests of their own country over other nations.

The German historicists asserted that there were no “laws of economics” from which might be deduced an understanding of how markets work in general, and what consequences would follow from various types of government intervention and regulation of the citizens’ affairs. All matters of policy were to be determined and decided on the basis of pragmatism, expediency, and the opportunism of what seemed to serve the changing interests of the nation- state at a particular time.

Thus, Mises’ sometimes strident insistence on the universal and “apodictic certainty” of economic theory was an attempt to fight back against an approach that was essentially “anti- economics.” Often the Historicists seemed to be offering merely rationales and justifications for various implicit nationalist and ideological goals in Germany, and the government policies considered useful to advance them. They helped to lay the groundwork for an historical chain of events that finally culminated in the triumph of Hitler and the Nazi movement in the 1930s.
So where does Warren stand on this debate? Does she believe in logic, or somehow overruling empirical "studies"? Here she is in her own words:
They [my law school students] were smart and sophisticated in their arguments, but the bottom line was that they "proved" the fact of lower costs deductively by appling [sic]what they saw as immutable economic principles.

When I pointed out that this lovely conversation was all about theory and not fact, they were resistant. So I reversed and asked what the plaintiff might offer as proof to show that the justice was wrong. Much silence followed.

I finally filled in the blanks, suggesting some empirical tests--ticket prices for companies that do/don't use such clauses, changes in pricing before/after such clauses are used, evaulation [sic] of whether cost is large enough to be reflected in price, etc. They got the idea and had some good suggestions

What struck me, and the reason I bring it to this group, is how these very bright students seemed to believe that deductive logic produced a "fact" that they could not or would not challenge. Perhaps my class was abberational [sic], but it made me wonder about how we are educating our students, both before and during law school. Is it all about deduction, with nothing left over for reality?

I speculate that my contracts class includes several future law teachers and future policy makers, many future community leaders and a lot of future voters. If the deductive logic of economics is all-controling [sic], then empirical work--indeed, empirical questions--will always remain at the intellectual and political margins.

The class reminded me that empirical scholarship is important, but empirical teaching may be more important. These students are our future.
Ultimately, the belief that somehow empirical studies can overrule deductive logic is a belief that perhaps somehow by empirical study we can prove that two plus two may equal in some cases five or six. It has always been a seductive view held by those who support state interventions.

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