Mainstream Economics is not Scientific

__________________________________________________________________ William Barnett II and Walter Block Mainstream Economics is not Scientific I . Introduction . Precision 1 and consistency are two “ sins ” of which economics , unfortunately , is not guilty . Science requires , inter alia , precision and consistency with respect to its fundamental concepts . One problem of long standing that sets economics apart from the natural sciences is the equivocal and inconsistent use by economists of expressions intended to convey a technical meaning . This , at least ideally , is capable of being changed , and this paper in part is dedicated to helping start up that process . This issue is addressed in section II of our paper . There is also a second problem , at least if “ becoming a science ” means becoming empirically oriented . And that is because the type of economics we advocate , Austrian economics , explicitly rejects the empirical model of such hard sciences as physics , chemistry and biology . This is thus an intractable problem , if we are obligated to remain under the baleful influence 1 This refers to the true precision of scientific language in contradistinction to the spurious precision of incorrectly used mathematics and statistics . William Barnett II is Chase Bank Distinguished Professor of International Business and Professor of Economics , and Walter Block is Harold E . Wirth Eminent Scholar and Professor of Economics , both at the College of Business Administration , Loyola University , New Orleans . of the methodological worldview of the natural sciences . But there is no reason we should be . In section III we made the case for an alternative methodological perspective . We conclude in section IV . II . Consistency and Precision . Consider how a physicist , P , might use the expressions “ energy ” and “ momentum .” First , when not acting qua physicist , he might use them non-technically . For example , in discussing the campaign of some supplicant , S , for political office , P might say , “ S ’ s campaign has a lot of energy ,” or “ S ’ s campaign has momentum ,” intending the same meaning in both cases . Both statements would convey P ’ s intended meaning , within the limits of the natural imprecision necessarily involved in all such matters . The non-technical and interchangeable use of these terms would be taken as just that – “ energy ” and “ momentum ” would not be understood as being used in a scientific sense , each with a specific technical meaning , and they would be taken to intend the same ordinarylanguage message . 2 Second , consider P when acting qua 2 Block ( 2002 , fn . 48 ) refers to “ … a perfectly rational concept in ordinary language , but not in technical economics .” For more on this point see Block ( 1980 , 1999 ). Laissez-Faire , No . 34 ( Marzo 2011 ): 47-59

__________________________________________________________________ physicist . For example during a lecture on classical mechanics in an introductory level class , he might discuss the results of an experiment in terms of the ( kinetic ) energy and ( linear ) momentum of a body under particular conditions . Certainly , in such a case P would use the expressions “ energy ” and “ momentum ” in their technical senses : energy , a scalar with the SI unit , 3 joule (= kilogram•meter 2 / second 2 ), would be given by half the product of the mass and the square of the speed of the body ; and the momentum , a vector with SI unit , newton•second (= kilogram•meter / second ), would be given by the product of the mass and the velocity . P would use these expressions precisely and consistently , and , as they refer to very different concepts , he would not use them interchangeably . Moreover , neither would the specific technical meanings intended by P when using “ energy ” and “ momentum ,” nor their precise and consistent use by P , distinguish him from any other competent physicist . Every competent physicist , acting qua physicist , would intend the identical meaning for “ energy ” and also for “ momentum ” as does P . And , as would P , they would use these expressions precisely and consistently . Now consider how an economist , acting qua economist , might use the term “ monopoly ,” for example , during a lecture on microeconomics in an intermediate level class , assuming he wishes to be consistent with the assigned textbook . 4 Depending upon the book used ( see Table 1 ), students are presented with different concepts of “ monopoly .” 3 For more on the SI units go to http :// physics . nist . gov / cuu / Units / index . html . 4 We choose textbooks to illustrate these problems , rather than articles in peer-reviewed journals , since the former , not the latter , are Table 1 — Uses of the term “ Monopoly ” Frank ( 1991 ), p . 370 Mansfield and Yohe ( 2004 ), p . 356 Nicholson ( 2005 ), p . 651 Varian ( 2006 ), p . 12 Varian ( 2006 ), p . 423 The case of a market served by a single seller with no close substitutes . A monopoly exists whenever there is a single source of supply . An industry in which there is only a single seller of a good . A situation where a market is dominated by a single seller of a product . An industry structure where there is only one firm in the industry . These definitions are not identical in meaning . The definition of Mansfield and Yohe ignores the issue of substitutes , whether close or not , that is essential to Frank ’ s . And , unless the term “ good ” implies that there is no close substitute for any specific good , Nicholson ’ s definition is not the same as Frank ’ s . Then , Varian ’ s first definition differs from his second . Moreover , his first clashes with Frank ’ s , Mansfield and Yohe ’ s , and Nicholson ’ s , because a market “ dominated ” by one firm implies the possibility that other , nondominant firm ’ s exist in the market , contrary to the others ’ claim of a “ single ” seller / source-of-supply / product . Furthermore , the concept of “ close substitute ” is , to say the least , highly imprecise . These definitions are obviously the repository of knowledge in a given field . inconsistent and imprecise , characteristics __________________________________________________________________ Laissez-Faire 48

__________________________________________________________________ that are , to say the least , undesirable for scientific work . Table 2 — Uses of the term “ Investment ” Or consider how the same economist , acting qua economist , might use the term “ investment ,” for example , during a lecture on macroeconomics in an intermediate level class , again assuming he wishes to be consistent with the assigned textbook ( see Table 2 ). Again , depending upon the book used , students are presented with different concepts of the relevant term , and again , these definitions are not identical in meaning . Blanchard conflicts with Abel and Bernanke in that he excludes firms ’ holdings of inventories . DeLong and Olney include government creation of infrastructure (“ sometimes ”), which Abel and Bernanke and also Blanchard do not include . And then there is Mankiw who apparently includes all durable goods , including consumer durables , as it is indubitable that they are “ bought for future use .” Moreover , Mankiw ’ s second definition conflicts with his first , unless individuals ’ stocks of consumers ’ goods are considered to be part of their stocks of capital goods , an unusual position for mainstream macroeconomics , 5 and one which is belied by his definition of capital : “ The stock of equipment and structures used in production ” ( Mankiw , 1992 , 504 ). That these definitions are inconsistent and imprecise is clearly evident . Again , consistency and precision , hallmarks of scientific work , are absent . Such examples are but the tip of the iceberg . Mankiw ( 1992 , 504 ), again , provides two different definitions of the same term : “ Capital : 1 . The stock of equipment 5 The authors take the position that investment may be classified as either investment in new capital goods ( i . e ., means of production ) and / or investment in new consumers ’ durable Abel and Bernanke ( 1992 ), p . 733 Blanchard ( 2006 ), p . G-5 DeLong and Olney ( 2006 ), p . 528 Mankiw ( 1992 ), p . 26 Mankiw ( 1992 ), p . 507 Spending for new capital goods , called fixed investment , and increases in firms ’ inventory holdings , called inventory investment . ( Elsewhere [ p . 34 ] they state that residential construction is included in fixed investment along with business structures and equipment .) Purchases of new houses and apartments by people , and purchases of new capital goods ( machines and plants ) by firms . The buildings and goods ( both machines and inventories ) purchased to add to the economy ’ s stock of capital , plus ( sometimes ) government creation of infrastructure , plus residential construction . Investment consists of goods bought for future use . Goods purchased by individuals and firms to add to their stock [ sic ] of capital . and structures used in production . 2 . The funds to finance the accumulation of equipment and structures .” Moreover , the latter is not exactly a paragon of clarity as , when used in finance , “ funds ” refers to money whereas capital is used to refer not only to money , but also to various other goods . financial assets ( e . g . stocks and bonds ). __________________________________________________________________ Laissez-Faire 49

__________________________________________________________________ Any competent economist can , in short order , think of a substantial number of other examples of such inconsistent and imprecise definitions of terms important for scientific work in economics . Until and unless a protracted effort is made by the entire profession to root out such practices , the honorific “ scientific ” will continue to elude us , and rightly so . Nor is this an ideological point we are making . We here only insist on consistency and precision . This is not itself a substantive issue ; rather , it is the precondition for all of our scientific endeavors . III . Methodology . Economics is not a science , at least not on the model of the natural sciences , for other reasons than the imprecision of language . 6 In addition , it is because while physics , chemistry , biology , etc . are indeed empirical sciences , in sharp contrast , economics , at least as practiced by the mainstream , mistakenly attempts to copy 7 , 8 them in this regard . 6 Lest there be any misunderstanding , we do not claim that Austrian economics is free of inconsistency and imprecision of language . 7 Here is a statement written by the second author of this paper : “ Gary Becker was my dissertation advisor at Columbia University . I was awarded the Ph . D . degree in 1972 . My thesis topic was rent control . I was attempting to demonstrate that this law was associated with various indices of housing malfunction ( abandonment , poor quality , etc .), holding constant variables such as income , wealth , unemployment , weather , etc . Most of the time I could show the proper signs on my rent control variable ( my observations were cities , and this variable was based on the number of years a city had controlled rents ), and often with significant t values . However , every once in a while , playing around with independent variables , I would generate the wrong sign for my rent control variable , and , even more embarrassing , sometimes it was statistically significant . Did Gary say ‘ Hey , I ’ ve got this genius student Walter Block who will now overturn everything we economists think we know about rent control ?’ He did not . Instead , he said something to me that sounded like ‘ Block , you moron , run these regressions again until you get it right .’ ( Actually he was always far more polite , but that is the way his criticisms sounded to me at the time .) So , what was ‘ testing ’ what , in this exercise ? Were my equations testing the traditional microeconomic analysis of rent control , according to which demand exceeds supply , creating shortages ? Of course not . It was entirely the other way around : we knew in advance what proper econometric results would look like . Theory , instead , was testing my statistical acuity .” 8 In addition to rent control , the minimum wage serves as evidence that while highly competent neoclassical economists may “ talk ” logical positivism , their “ walk ” is praxeological . To put this in other words , if you scratch a good mainstream dismal scientist , you will find a praxeologist . When two high profile practitioners claimed that the minimum wage law did not create additional unemployment amongst the unskilled ( Krueger , 1993 ; Card and Krueger , 1994 ) what any self-respecting logical positivist should have said was something along the lines of “ Well , maybe sometimes this is true ,” or “ Well , maybe economic law works differently in New Jersey and Pennsylvania ” ( Card and Krueger used data from these jurisdictions ). After all , for the logical positivist , the evidence is the dog , and the theory is only the tail . If , for example , 95 % of empirical research suggests that this type of legislation costs jobs for the unskilled , and 5 % does not , well , then we must conclude that this is true of 95 % of the cases , and false for 5 % of them . Instead , when mainstream economists ( Becker , 1995 ; Burkhauser , Couch and Wittenburg , 1996 ; Deere , Murphy and Welch , different combinations of dependent and 1995 ; Adie and Gallaway , 1995 ; Sowell , __________________________________________________________________ Laissez-Faire 50