Philosophy of Economics (Methodology) Timeline

1844: John Stuart Mill - On the Definition of Political Economy and the Method of Investigation Proper To It

Economics is the study of social phenomena which occur in the course of human efforts to produce wealth, isolated from other social phenomena.

The only way to make progress in economics is to reason deductively from assumptions which are not entirely realistic. Discrepancies between assumptions and reality are to be rectified after conclusions are reached.

Prediction and control should be goals for economists. However, all that is possible is probabilistic prediction; absolute prediction is not possible.

Economists are at a disadvantage to physical scientists because economists can rarely run experiments.

1862: William Stanley Jevons - A Brief Account of a General Mathematical Theory of Political Economy

Economics is inherently a mathematical discipline because it deals with quantities.

Economists should assume that all economic activity is motivated by a desire to maximize pleasure and minimize pain; consideration of motivations such as morality and compassion should be left to other disciplines.

Articulates the idea economists today refer to as “diminishing marginal utility.”

Attempts to explain essentially all economic activity by deductively reasoning from a basic theory of utility.

1914: Edwin Cannan - Wealth: A Brief Explanation of the Causes of Economic Wealth

Economics is the study of the causes of material welfare (i.e. wealth).

1932: Lionel Robbins - An Essay on the Nature and Significance of Economic Science

Economics is the study of how humans navigate tradeoffs in deploying the limited means available to them (e.g. time) toward acquiring their multiplicity of desired ends (e.g. income, leisure).

1953: Milton Friedman - On The Methodology of Positive Economics

Positive economics is a science.

Prediction is not only possible in economics, it is the metric by which we should evaluate the strength of economic theories.

The realism of economic theories does not matter; only their ability to predict.

Economists are not at a disadvantage to physical sciences due to the inability of economists to run experiments. In fact, the organic experiments conjured up by real-world experience are sometimes as good as controlled lab experiments.

Progress in economics can be used to inform public policy.

1974: Friedrich Hayek - The Pretence of Knowledge

Economists are wrong to imitate the methods of the physical sciences.

The economy is too complex (there are too many variables) for economists to make predictions.

Algebraic techniques are useful in economics, but cannot be used to make predictions.

Inability to access complete data about all the elements of the economy that determine market outcomes inhibit the use of quantitative techniques; many important factors in the economy are unquantifiable.

Our limited ability to understand the economy means it is dangerous to use economics to try to “shape society to our liking.”

1998: Paul Krugman - Two Cheers for Formalism

Looking at what the economics profession rewards – using the John Bates Clark medal as a proxy – indicates that economists value research that is relevant to real-world problems.

This is evidence that the use of mathematics has not made economics out of touch with the real world.

A major explanation for why many non-economists claim economics has become overly mathematical is that these outsiders dislike the conclusions mainstream economics has arrived at.

This is particularly true in relation to issues surrounding globalization.

The use of mathematical techniques is essential to progress in economics.

2000: Robert Sugden - Credible Worlds: The Status of Theoretical Models in Economics

The theoretical models of economists are not simplifications of the real world.

Rather, they constitute counterfactual parallel worlds constructed by economic theorists.

We can use induction to reason about the real world using these counterfactual model worlds.

In other words, if we believe a model world could be real – that is, it is credible – then we can reasonably make inductive inferences from that model.

The confidence we can have in inductive inferences from a particular model increases the more confident we are that the model describes how the real world could be.

2021: Robert Guttmann - The Case Against Homo Economicus

The Homo Economicus model of human decision-making is flawed because it ignores:

1) the role of cognitive biases,

2) the role of time, and

3) the social contexts in which decisions are made.