Commentary on Political Economy

Monday 17 October 2011

From Science of Choice to Evolution - Escaping the Vicious Circle of "Economic Science"

Let us summarise what we have argued in the two preceding posts on "The Science of Choice". According to Robbins and Hayek, economics is a "science" because it identifies for us the most "efficient allocation" of "scarce resources" to "alternative uses" so that we may be able to make a "scientific choice". Of course, if our "choice" is to be guided by "science", then it is no "choice" at all - except if we "choose" to bind our "choice" to what "science" alone suggests. But even if we allow this, then economics would amount to "social engineering" in the sense that we are "free to choose" whether to accept "the laws of physics or chemistry" in the pursuit of a specified "use", but if we ignore them, the consequences will be self-defeating so that, in fact, we have no real choice in the matter.

But Robbins and Hayek can retreat to a safer position and argue that "the science of choice" can at least "tell us" which "choices" are the most "efficient allocations of scarce resources to alternative uses" so that at least we may make an "informed choice". But the problem with this "retreat position" is that if we choose to ignore what economic "science" tells us is the most "efficient allocation of scarce resources to alternative uses", our very choice of ignoring the "scientific results" as to the efficiency of alternative allocations will affect the calculation of the "scarcity" of the resources that Robbins and Hayek take as a "given"!! In other words, economics as a "science of choice" is no "science" at all because our "choices" themselves change the calculation of both the "scarce resources" (which "resources" are "scarce" and how "scarce" they are) and the "alternative uses", because these change with the "scarcity" of the "scarce resources" and with the very definition of "what" is a "resource" and what is not!

This is why Friedman was forced to retreat still further in the definition of "economic science" so as to avoid the pitfalls of tautology (self-referentiality). He did so by re-defining economics as a "positive science" - in other words as one that does not "tell" us what to do except to the extent that its "hypotheses" can be tested empirically and so can help us "avoid the wrong choices" purely in terms of "predictability". In effect, this is a fresh version of the Robbins-Hayek position, as we saw, because Friedman assumes that "social reality as it is", even if it could be predicted with any degree of precision by economic "science", is really "what we want it to be"! In other words, Friedman is suggesting that the economic behaviour of "society" is the result of "spontaneous choices" that can be "predicted" and "measured" scientifically.

This position is almost entirely identical with Hayek's notion of "spontaneous order" which he developed in his later years, after he abandoned the notion of a "science of choice" or "pure logic of choice". But as the phrase itself suggests, this is a contradiction in terms, or an oxymoron, because if "society" has an "order", then this cannot be "spontaneous" - and if this "order" is indeed "spontaneous", then it simply cannot be an "order"! Hayek seemed to have a "biologistic" or "organicist" notion of social institutions that came strangely close to Schumpeter's own concept of "economic evolution". These "evolutionary" distractions on the part of economic theoreticians, just like the "institutional" ones of the New Institutional Economics, are always the clearest sign that bourgeois economists are completely at a loss to define the "scientificity" of their discipline! The other, more common, sign is the retreat into the obfuscatory world of complex mathematical equations that - by definition! - are only "formal" identities that cannot ever describe or explain reality in a substantive sense - in terms of human "purpose".

So it is to this "purpose" that we turn next. In focusing on the "fruitfulness" of economics as a "positive science", Friedman was aware that this was the best way to preserve the "neutrality" (hence the "positive" character) of economics as a "science" - and not as a "normative" doctrine advocating "values" and "goals" - and to escape the "circularity" (tautologies) of the Robbins-Hayek concept of "Science of Choice" for economics. Joseph Schumpeter was perfectly aware of these combined difficulties - which is why he tried (like Hayek with his later "evolutionary" concept of "spontaneous order") to overcome them by drawing a conceptual distinction between the "circular flow" of the economy and its "historical evolution or development" (Entwicklung) - its "growth" or trans-crescence. By making this extremely clever distinction, Schumpeter meant to isolate ("to ring-fence", as it were) the "circular and circuitous" part of economics - the part that Friedman described as an "analytical filing system") - from the "causal" or "scientific" part - the one that deals with the "causal factors", with the "direction and purpose" of the economy in terms of "growth" and "development" or "evolution", all terms that do not necessarily suggest a "goal" of economic activity, but at least leave conceptual "room" for these more "historical" aspects of human needs and aspirations. We will look at these soon.

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