Economic Certainties

By: Gabriel Rise
Submitted: 2007-01-17 16:25:25
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If we attempt to classify what we are in the habit of naming our thought about price phenomena, we shall find that our views may be put into three categories which we may call economic certainties, economic probabilities, and economic dreams. Into the first category we put those theorems about which we are absolutely certain; into the second, those rules that may be followed with the prospect of their being true on the average; and into the third, those products of our wishful thinking which bear so many resemblances to our dreams. The differences in the nature of our three groups of theories will be more easily apprehended if we state at once that the criterion of "truth" varies from category to category.

The criterion of truth in economic certainties is logical consistency with definitely formulated axioms, postulates, and conventions; the criterion of truth in economic probabilities is relative frequency of occurrence in empirical data; the criterion of truth in economic dreams is their conformity with our sentiments, wishes, and interests. Logical truth to the rational economist; empirical truth to the practical economist; and intuitive, wishful, or revealed truth to the utopian economist: to the synthetic economist it means empirically verified rational truth. But, as a matter of fact, is there such a thing as an economic certainty? The reply may be given bluntly: There are undoubtedly economic certainties, and their systematic presentation constitutes rational or pure economics. Our first category, then, is made up of the theorems of rational economics.

But what, precisely, is the meaning of "certain" when the word is applied to economic theorems? It means in rational economics exactly what it means in mathematics and in the rational parts of the natural sciences, namely, logical consistency with definitely formulated axioms, postulates, and conventions. The criterion of truth in rational or pure economics is logical consistency. The certainties of the pure, or rational, economist may or may not be practically useful. Since his immediate goal is truth in the sense of logical consistency with his axioms, postulates and conventions, and since he himself determines what premises shall be his point of departure, his sheer skill in deduction and fertility in improvising hypotheses may lead him further and further afield in his theoretical Elysium.

There is danger that the "certain" may be separated more and more from the "real" with the interposition of accumulating hypotheses. This is exactly what has occurred in the development of pure, mathematical economics. The fundamental hypothesis of the science--that each factor in the economic process seeks a maximum net gain- has been distorted, technically the consideration of the incessant change of all economic factors with the flow of time has been theoretically reserved until a first approximation shall have been made in which time does not figure among the variables; the world, of economic realities has been replaced by the specifications of the static state. In this realm of logical certainties pure theory has been carried to a stage in which the ensemble of the interrelated factors is presented in a system of simultaneous equations.

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