A lot of silliness in the last few days from Krugman, Williamson & Rosenberg on the scientific standing of economics and the role of tautological equilibrium constructs in the explanatory strategy of that science.
The simple and outstanding fact of the matter is that this issue has been resolved by Hayek — and the evident fact that Misters Krugman, Williamson & Rosenberg are for all intents and purposes unaware of Hayek’s work on the matter doesn’t count in the least as a counter argument.
Here is Hayek’s resolution of the puzzle:
Economics provides a contingent, bottom-up causal explanatory mechanism for the design-like order of the over-all coordination of economic plans — i.e. open-ended learning and changes in rival understandings and judgments by individuals in the context of changing local conditions and relative prices.
The explanatory form is similar in many ways to Darwinian biology. And note well, any design-like order without a designer raises the question: what sort of causal mechanism produced that order if it was not the direct, designed and made product of a designing mind?
Both economics and Darwinian biology provide empirical, contingent, causal mechanisms which are contingent because we can imagine alternative — though implausible — rival mechanisms, e.g. (1) Martians put everything in place and created the order we see; (2) a massive act of pure change with no underlying causal mechanism at all; (3) God created the design-like order we see; (4) humans or nature itself are pre-programmed like ants to do exactly the things they do; (5) etc.
Hayek also explained the role of the tautological equilibrium construct. It has several, some of these closely echoed earlier by Marshall, Mises, Knight, and other giants of economic science.
The first role is this — the equilibrium construct allows us to perceive the design-like order in the coordination of economic plans. In other words, the equilibrium construct plays a central role in providing us with a perception of a pattern that gives rise to the problem of design-like order without a designer.
The second role is equally significant: by screening off what a tautological logical or math construct cannot include — open-ended learning and changes in understanding and judgment — the equilibrium construct isolates the contingent causal mechanism at the heart of economic explanation, i.e. open-ended learning or discovery and changes in rival understandings and judgments in the the context of changing local conditions and relative prices. It is learning and changes in rival understanding of the relative relational significance of things which allows Hayek’s famous understanding of market prices as signals to function.
So that is the skin and bones of the core of Hayek’s resolution of the puzzle of making sense of economics as a contingent, causal explanatory endeavor and a true gem within the kingdom of science with a status very similar to Darwinian biology, providing a remarkable window on a causal mechanism capable of producing true marvels of design-like order.
But it is one half of the coin.
The other half of the coin is perhaps equally significant. Because Hayek — along with Popper, Menger, Wittgenstein, Kyle, Kuhn and others — blew apart the justificationalist / demostrative knowledge tradition and the various images of “science”, “math” and “knowledge” this tradition metastasized into in the 19th and 20th centuries. Hayek’s started first with Mach and the brain — showing that that Hume / Mach empiricism, associationism, and phenomenalistic positivism more particularly — were incompatible with any imaginable classificatory mechanism of neural network connections in the brain.
Hayek came to be aware that much if not most of science did not involve making and justifying Laplacean predictions of particular events according to simple 2-variable relations or 2-variable linear equations. And the image of an individual’s “knowledge” as existing in the form of fully articulated, fully public, deductive structures was fallacious and incompatible with what we know about the primacy of motor control in the brain and the significance for communication and cooperation of shared and acquired common patterns of going on together in the world. Like Kuhn, Hayek came to see that we don’t make sense of science by looking at completed formal constructs in a textbook, we make sense of science by re-calling to mind the problem raising patterns that generate inquiry, and by looking at what the embodies elements of the inquirer bring to table in perceiving those patterns and in providing solutions to them. This later aspect is particularly significant in the case of a human science like economics, where the inquirer directly embodies many of the elements essential both in seeing the problem and in grasping the character of the explanatory elements exploited. The Kantian or Hilbertian or Tractarian demand descending from the justificational / demonstrative tradition of Euclid and Aristotle that all knowledge should have a public, fully articulated and justified formal or mathematical structure was fatally ill-founded on a false understanding of the well-spring of symbolic significant in embodied structures of mind and shared, imitation-acquired common practices or ways of going on together.
Hayek coined and Popper adopted the term “scientism” to label all of the false images of science and knowledge which social scientists, philosophers and even natural scientists sought to impose on those thinking about the nature of “science” and “knowledge” or how to produce science or knowledge in any special field. Eventually, Hayek convinced Popper that his own “falsifiability” criterion of “science” was falsified by the example of Darwinian biology, economics, global brain science, and by other sciences involving what Hayek called “essentially complex phenomena” where only patterns could be explain via causal mechanisms involving innumerable, functionally-defined, or open-ended causal components, and no “falsifiable” particular predictions at a particular places in space and time could be made.
It’s easy to document the dramatic role of the false images of “science” and “knowledge” across the course of the development of economics over the last 150 years: from Pareto, Schumpeter, and Schumpeter’s student Samuelson’s attempt to build economics on the image of Mach account of science and knowledge, to the influence of the the Hilbert program and Bourbakist school of mathematical formalism, to the direct plagiarism and aping of 19th century energy mechanics by Walras and others, to the Peirce, Popper and Carnap inspired “testability and instrumental utility criterion” of “science” of Friedman and Lipsey, it is easy to document an unstinting 150 years of scientism in the profession of economics.
I’ll add more tomorrow. For now, see also my notes on Rosenberg’s conversation with Roberts on the nature of economic explanation.