BOOK REVIEW

Mark Blaug, The Methodology of Economics. Or how economists explain. Second edition. Cambridge surveys of economic literature, Cambridge University Press, Cambridge 1992, xxviii + 286 pp., $13.95 (paper).

The central message of this book can be summarized in two statements. First, economic theories must be confronted with empirical evidence as the final arbiter of truth. Secondly, this confrontation should follow the rules o fa falsificationist philosophy of science, as laid out by Popper and Lakatos.

The book does not primarily deal with "how economists explain", as the subtitle suggests. The focus is rather on how economists should test their theories.

After two well-written introductory chapters on modem philosophy of science, the author spends three chapters on the history of economic methodology. Nine chapters are devoted to a run-down of various economic theories, such as the theory of consumer behaviour, general equilibrium theory etc. Two final chapters are spent on the meaning of economic rationality and on some general conclusions about the state of modem economics.

In the historical part, Professor Blaug tracks the r61e of the a priori in his discipline. He traces one origin of the apriorist tradition to Adam Smith, whose philosophy of science can perhaps be most clearly seen from The Principles which Lead and Direct Philosophical Enquiries, Illustrated by the History of Astronomy. In that book, Smith strongly emphasized the advantage of being able to explain different phenomena by a single familiar principle such as gravity. To Smith, this elegance seems to have been al least as important as the capacity to make accurate predictions. According to Blaug, Smith showed the same attitude in his writings on economics, and so did many of his followers.

Blaug gives a series of astonishingly anti-empiricist quotations from leading economists. John Elliot Caimes, in his Character and Logical Method o/'Political Economy (1875), maintained that the premises of polit- ical economy are non-hypothetical, since they are based on "indubitable t;acts of human nature and the world". Hence, "[t]he economist starts with a

Erkennmis 45: 129--131, 1996. (C)~ 1996 Kluwer Academic Publishers Printed in the Netherlands'.

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knowledge of ultimate causes. He is already at the outset of his enterprise, in the position which the physicist only obtains alter ages of laborious research."

This non-empirical attitude can be found "in Senior, in Mill, in Cairnes, and even in Jevons." Although these authors acknowledged the need to compare economic theories to reality, they used such comparisons less to determine whether economic theories should be rejected or not than to establish "the boundaries of application of theories deemed to be obviously true." As late as in 1949, the leading libertarian economist Ludwig yon Mises said that the theorems of economics "are not open to any verification or falsification on the ground of experience." Instead, the ultimate yardstick of an economic theorem's correctness or incorrectness is solely "'reason unaided by experience."

Such frank expressions of economic apriorism are not common today, but according to Blaug, tile change is rhetorical rather than substantial. There is nothing wrong with the methodological tenets stated in the l]rst chapter of most economic textbooks. What is wrong is that so many econo- mists do not practice what they teach. Instead of letting their theories be thlsified, they employ various "immunizing stratagems". Most importanl of these is the habit to blame all divergences between theory and data on cereHs paribus clauses with unspecified ce,'era. Ahhough much empirical work is being done in economics, most of it is not constructed to attempt to refute testable predictions. Blaug's run-down of modem economic the- ories provides ample exemplification of this gloomy picture of tile state o!" economic science.

tie is particularly critical of general equilibrium theory. Its empirical relevance is dubitable, and a number of economists working with it have expressed unusually aprioristic and anti-faJsificationist sentiments. The theory is, at least in the eyes of some beholders, so beautitill that trix ialities like empirical facts are not allowed to topple it. Blaug correctly points ow that although this field does not engage a large number of economists, it is "the most prestigious economics of all" that sets standards l'or other fields of economics.

In my view, though, Blaug overshoots the mark when he equates the mathematical sophistication ("mathematical pyrotechnics") of this and some other economic theories with their lack of empirical contents. For all that we know, theories that are more true to empirical reality may require more rather than less complex mathematics.

The apriori of economic apriorism is neither philosophically nor polit- ically uncontroversial. It includes views of the driving fbrces of human behaviour and of the nature of rationality that have often been criticized

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by moral philosophers. Blaug's criticism is in a sense more radical, since he is critical of the non-empirical terms in which both adherents and oppo- nents have been discussing the basic assumptions of mainstream economic theory.

It is unfortunate that experimental economics is not covered in the book. The interpretation of economic experiments and, in particular, the deter- mination of their relevance to full-sized economies, gives rise to a whole series of methodological issues that are much in need of a thorough discus-- sion. In this context, a falsificationist laces the problem of determining how realistic economic experiments must be in order to be capable of falsifying economic theories.

Blaug has succeeded in showing that empirical testing of theories has a much too weak r61e in present-day economic science. However, he does not show that this testing must have the specific form of falsificationism. The verificationism that he repeatedly rejects is to some extent a straw man, and no serious attention is paid to other empiricist theories of sci- ence (such as decision-theoretical approaches that require the evidence for and against a hypothesis to be weighed against each other). Nevertheless. this is an important book that can hopefully contribute to attracting more philosophers of science to the problems of economic science.

Manuscript received September 29. 199

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