The limited value of economic theory

31 Jul, 2020 at 11:08 | Posted in Economics | 2 Comments

225px-allais_pn_maurice-24x30-2001bSubmission to observed or experimental data is the golden rule which dominates any scientific discipline. Any theory whatever, if it is not verified by empirical evidence, has no scientific value and should be rejected.

Maurice Allais

Formalistic deductive ‘Glasperlenspiel’ can be very impressive and seductive. But in the realm of science, it ought to be considered of little or no value to simply make claims about a model and lose sight of reality.

In mainstream economics, empirical evidence still only plays a minor role and models largely function as a substitute for empirical evidence.

To have valid evidence is not enough. What economics needs is sound evidence. The premises of a valid argument do not have to be true, but a sound argument, on the other hand, is not only valid but builds on premises that are true. Aiming only for validity, without soundness, is setting the economics aspiration level too low for developing a realist and relevant science.

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  1. And then of course there’s the world of the politically correct, where citing empirical evidence that conflicts with PC beliefs constitutes “hate speech” and can result in arrest.

  2. I like Maurice Allais: he said money creation by private banks is a form of counterfeiting. But private bankers are in no danger of having their “counterfeiting” activities curtailed because they control the brains of politicians: in particular Tony Blair who according to Gordon Brown was all smiles for bankers and other millionaires, but had little time for boring bureaucrats like bank regulators.


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