Models and economics

23 Feb, 2018 at 23:10 | Posted in Economics | 4 Comments

Economics is a science of thinking in terms of models joined to the art of choosing models which are relevant to the contemporary world. It is compelled to be this, because, unlike the typical natural science, the material to which it is applied is, in too many respects, not homogeneous through time. The object of a model is to segregate the semi-permanent or relatively constant factors from those which are transitory or fluctuating so as to develop a logical way of thinking about the latter, and of understanding the time sequences to which they give rise in particular cases … Good economists are scarce because the gift for using “vigilant observation” to choose good models, although it does not require a highly specialised intellectual technique, appears to be a very rare one.

John Maynard Keynes (letter to Harrod, 1938)


  1. This is the arrogance of Keynes speaking, substituting narcissism for method. Not his most attractive or ultimately persuasive quality for some.

    • Keynes was a practical economist, that is, he wanted to understand macroeconomic systems in the context of policy making. There is no option but to deal with the real world. This is not a matter for narcissism per se, not to say that Keynes was not being hubristic in this moment. He may well have been. It might be said “intellectual technique”/”method” is a euphemism for making things up. Hardly the means by which reality is managed.

  2. The fact that one needs to model the economy in order to understand how it runs is a revelation in itself for some! Many economists did not get even this far before making pronouncements about the nature of it. In fact without a model which has well defined parts, one cannot begin to properly understand what is possible and what is actually going on. So modeling is a vital part of this job of understanding.

    Such a model inevitably has connected parts and as such it qualifies as being a system and this also helps to reduce it to an understandable arrangement. Its construction requires some logical presentation and subsequent analysis and so we can begin to see of what our previous pseudo-science can be turned into when it is more properly represented.

  3. “Thus it is fortunate that the workers,though unconsciously ,are instinctively more reasonable economists than the Classical school, in as
    much as they resist reductions of money-wages,which are seldom or never of an all-around character, even though the existing real equivalent of these wages exceeds
    the marginal disutility of the existing employment; where as
    they do not resist reductions of real wages, which are associated with increases in
    aggregate employment and leave relative money-wages unchanged, unless the reduction proceeds so far as to threaten a reduction of the real wage below the
    marginal disutility of the existing volume of employment.”
    J.M., Keynes,1964.The General Theory of Employment Interest and Money.Chapter 2 pp. 14–15

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