Popper and Economic Methodology

Contemporary Challenges

Thomas Boylan, Paschal O'Gorman

• Publisher: Routledge
• Year: 2007
• eBook ISBN: 9781134358502
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This new book, under the impressive editorship of Thomas Boylan and Paschal O'Gorman, explores a number of major themes central to the work of Karl Popper.The tensions that have resulted from Popperian thought are well documented. How can mainstream orthodox economics be falsifiable while privileging its core of rationality as unquestionable? This

1 Popper, economic methodology and contemporary philosophy of science

Thomas A. Boylan and Paschal F. O’Gorman

Introduction

In this chapter our aim is, among other things, to examine Popper’s standing in the literature on economic methodology, in particular, the work that has emerged from the revival of interest in methodology since the demise of logical positivism in which Popper played an important part in subverting from its dominant position of influence. The principal aspects of his philosophy that have preoccupied the attention of economic methodologists are centred arguably in three dimensions of his work, namely falsificationism, his writings on situational analysis, especially the rationality principle, and more recently the reassertion of the centrality of his critical rationalism. Each of these three areas has produced a voluminous corpus of work representing the vibrancy of the methodological debates that Popper’s work has engendered within the economic methodology community. Therefore the first section of this chapter will rehearse, albeit within the constraints of a single chapter, a number of the major interpretations of Popper’s doctrines, in particular, his falsificationism and critical rationalism, that have been discussed by economic methodologists.

Having engaged the central themes in Popperian economic methodology, in the remainder of this chapter we explore other dimensions of the Popperian landscape which are central to the chapters in this volume, namely Popper’s engagement with major themes in twentieth-century philosophy and how this engagement has influenced his methodology of economics. In particular, we focus on the realism/anti-realism debate which was so influential in both pure or general philosophy on the one hand, and in philosophy of science on the other. We argue that Popper’s specific realist stance, which in its own way was quite original, was a major influence on his reflections on economics and the other social sciences, an influence which has not been given sufficient attention in the extant literature. Moreover, we suggest how an anti-realist stance could provide, for both economics and economic methodology, a different development trajectory. But first we examine some of the major contributions to the interpretation of Popper’s philosophy within economic methodology.

Popper and economic methodology

Popper’s influence on methodological thinking in economics has been both significant and deeply challenging. It is almost seventy years since Popper’s work was first invoked by Terence Hutchison in his seminal work on twentieth-century economic methodology (Hutchison 1938). Since then the interpretation of Popper’s philosophy of science, and more specifically its implications for economics, has become an increasingly contested domain with respect to its relative emphasis, status and influence within economic methodology. There are now a number of different ‘Poppers’, or at least different aspects of his work, vying for the attention of economists. Each of them are vigorously defended by their respective advocates and each compete for the accolade of being considered the most suitable ‘Popper’ for adoption as the most appropriate for economics. There is the ‘falsificationist Popper’, the ‘situational analysis Popper’, and the ‘critical rationalist Popper’, all of whom have preoccupied the efforts of economic methodologists over the last thirty-five years.

It has recently been argued that Popper has ‘had a greater impact on postwar economic methodology than any other single philosopher (or philosophical school)’ (Hands 2001: 275–6). While opinions may differ on this particular assessment, there is no disputing the significance of what we elsewhere termed the ‘Popperian Interlude’ between the demise of logical positivism and the emergence of the ‘growth of knowledge’ tradition (Boylan and O’Gorman 1995). Popper has insisted on his role in contributing to the undermining of logical positivism, at least to the extent of sowing the seeds of its destruction (Popper 1976). The destruction of logical positivism was not his principal ambition he has claimed, but rather ‘to point out what seemed to me a number of fundamental mistakes’ (Popper 1976: 88), which supports Passmore’s argument that the dissolution of logical positivism was due to the emergence of fundamental internal difficulties (Passmore 1967, 1968). What followed, which is generally referred to as ‘the growth of knowledge’ tradition, proved extremely attractive to economic methodologists and historians of economic thought. De Marchi has described what attracted economists and economic methodologists to Popper’s philosophy of science:

Quite apart from what he had to say viewed as matters of logical relations and of the properties of statements, he represented an attitude – to be critical. Neither fact nor theory is more than an element in the process of identifying error. This was liberating for economists in a special way. Popper’s balanced insistence on empirical content and on the epistemological priority of theorizing might have been tailored to appeal to practitioners in a discipline where experimentation is difficult and inconclusive and theory seems more solid, yet where numbers are seen to be essential to adopting theory to yield advice for policy making. His stress on methodological conventions – rules of the game – was helpful to a group of social scientists anxious to be useful and to explain themselves to a somewhat reluctant public, yet conscious of the fallibility of their pronouncements. In short, in contrast to much writing in the philosophy of science, Popper’s work was not only accessible to economists but seemed relevant.

(De Marchi 1988: 4 italics in original)

The above account identifies, succinctly and perceptively, a number of the principal attributes that were ‘liberating for economists in a special way’, and economic methodologists and historians of economics were quick to enlist Popper’s philosophy of science.

Among the economic methodologists one of the earliest and consistent advocates of the Popperian programme was Terence Hutchison, whose seminal work, The Significance and Basic Postulates of Economic Theory published in 1938, represented the first systematic introduction of the philosophical ideas of logical positivism and of Popper’s ideas to economists and economic methodology (Coats 1983; Caldwell 1998). The main target of Hutchison’s book was Mises’s a priorism, which would later be extended to include Marx and Marxian economics, by virtue of their rejection of empirical testability and thereby their potential falsifiability. While the work represented in many ways a relatively sophisticated treatment of its topic, it was unambiguous in the central message it wished to convey – namely that economics should be a science and what distinguished science from non-science was the inclusion of propositions that were empirically testable. Demarcation was critical for Hutchison and in a forceful statement of his position he wrote:

If there is any object in pursuing an activity one calls “scientific,” and if the word “science’ is not simply to be a comprehensive cloak for quackery, prejudice, and propaganda, then there must be a definite objective criterion for distinguishing propositions which may be material for science from those that are not, and there must be some effective barrier for excluding expressions of ethical or political passion, poetic emotion or metaphysical speculation from being mixed in with so-called “science.”

(Hutchison 1938: 10)

Throughout his later work Hutchison maintained his commitment to the Popperian programme and further refined his understanding of the Popperian doctrine of falsificationism (Hutchison, 1976, 1977, 1978, 1981). Hutchison was to be joined later by an influential group of writers on economic methodology, which included Blaug (1980a), Boland (1982), and Klant (1984), who adopted, albeit with different emphasis, the Popperian methodological framework to critically evaluate the practice of economists.

A number of the major schools of economics were subjected to a Popperian critique based on the criterion of falsifiability. Continuing the work initiated by Hutchison, the Austrian school, as represented in the work of Mises, and later Marxian political economy were both accused of infallibilism. In the case of Mises, the charge of infallibilism was based on the claim that the axioms of economics, though untestable, were deemed to be true a priori. This dogmatic claim to an a priori, infallibilist basis for economics, where ipso facto its axioms are unfalsifiable, excluded the Misesian system from admission to the domain of science (Blaug 1980a: 91–3). Marxism was also indicted of being guilty of infallibilism, with the difference that this system of ideas has been falsified in contrast to being in principle unfalsifiable (Blaug 1980b; Hutchison 1981). American institutionalists were also criticised for formulating theories that were too easy ‘to verify and virtually impossible to falsify’ (Blaug 1980a: 127). Equilibrium theorising was severely criticised by Hutchison, a critique he later extended to the excessive use of formalism, based on the fact that the empirical content is rendered vacuous by the use of assumptions such as perfect foresight (Hutchison 1938, 1977, 2000). Mainstream economics of the Marshallian partial equilibrium variety was admitted as scientifi c, but the use of immunising stratagems seriously undermined the project. The result was termed by Coddington ‘innocuous falsificationism’ (Coddington 1975: 542), which was more colourfully described by Blaug as ‘playing tennis with the net down’ (Blaug 1980a: 256). Blaug concluded his survey on economic methodology in 1980 by stating that for ‘the most part, the battle for falsificationism has been won in modern economics’, but that the problem ‘now is to persuade economists to take falsificationism seriously’ (Blaug 1980a: 260).

For those who took falsificationism seriously, problems quickly emerged with respect to the possibility of implementing the Popperian programme of falsificationism in economics. For Blaug and Hutchison, who must be counted as among the most committed advocates of falsificationism, the difficulties associated with pursuing Popper’s prescriptivist methodology were acknowledged (Blaug 1980a; Hutchison 1981). This has given rise to a burgeoning literature which contains both a critical response to the Popperian programme of falsificationism and, more recently, a reinterpretation of the place of falsification within the Popperian tradition itself. The critical strand of this literature has produced a number of stringent interrogations of the falsificationist programme in economics. These included objections to the principle of testability of economic theories based on the impossibility of testing all the models that could conceivably be articulated to represent any particular theory (Papandreou 1958; Boland 1977). Additional objections were raised against the testability of assumptions in economics which included the problem of large numbers of initial conditions that are liable to change and in many cases are not independently observable, or the absence of truly general laws to be falsified (Machlup 1955; Melitz 1965; Robbins 1979). Further criticisms of the falsificationist programme were identified arising from the problems of attempting to falsify a single hypothesis due to the implications of the Duhem-Quine thesis (Cross 1982, 1984), while Salanti (1987) argued against the adoption of either Popperian fallibilism or falsificationism as providing a proper epistemological or methodological basis for economics.

In 1991 Caldwell undertook an extensive and penetrating examination of Popper’s contribution to economic methodology (Caldwell 1991). Here we will concentrate on Caldwell’s re-examination of the critique of falsification and its application to economics. Caldwell, as he described himself, was ‘a frequent and persistent critic of falsifi cationism’ (Caldwell 1981, 1982, 1984, 1985, 1986). However, at the outset of this important re-assessment of Popper’s contribution to economic methodology, Caldwell conceded that one of his major arguments against falsifi cationism, if not wrong, was seriously incomplete. Caldwell’s error, he conceded, was to argue that falsificationism was an inappropriate methodology for economics because most economic theories could not be conclusively falsified, and proceeded to buttress this line of criticism by invoking the various obstacles to achieving clear cut tests of theories in economics. But Popper had anticipated the central thrust of this objection, as noted by Blaug (1984) and Hausman (1985). The Popperian response was essentially that every science, because of the Duhem-Quine thesis and related problems, and not just economics, has difficulties with delivering unambiguous refutations. Notwithstanding these difficulties for Popperians, the principle of testing should be retained and when a refutation occurred, the response should not be recourse to the use of immunising stratagems in any subsequent theory modification. This explained for Caldwell the centrality of the analysis of ad hoc theory changes and immunising stratagems in Popper’s methodology. If unambiguous tests of hypotheses cannot be achieved, the critical requirement must be to ensure that our hypotheses are not further protected by adjustments designed to immunise them from falsification. Given this Popperian response, Caldwell argued that it is not an effective argument against falsificationism to argue solely that unambiguous tests of hypotheses are difficult to achieve or that decisive refutations are rare. This is the norm rather than the exception. The argument, Caldwell now insists, must be redirected against ‘Popper’s insistence that nevertheless refutations should be taken seriously, and that when one occurs, certain theory adjustments are forbidden’ (Caldwell 1991: 7, italics in original). On this interpretation the focus of attention for critics of falsificationism should be Popper’s position on the role of immunising stratagems.

With the focus of analysis now directed to Popper’s analysis of immunising stratagems, Caldwell identified three sets of objections, which provided a schematic and perceptive overview by an economic methodologist of the problems associated with Popper’s doctrine of falsificationism. The first he termed the ‘philosopher’s objection’, which contained a number of different lines of criticism. These included the argument that ‘Popper never makes clear why, if tests results are always so ambiguous, scientists should adopt his prescriptions to avoid ad hoc theory adjustments’ (Caldwell 1991: 8, italics in original). Popper’s strident anti-inductivism was also seen as a problem. It implied that even in the case of recurring confi rmations, these will not be allowed to carry any ‘evidential weight’. The empirical data cannot be used to support theories, only to refute. For Caldwell the arguments emerging under the heading of the ‘philosopher’s objection’ implied that the Popperian programme was inadequate as both an epistemological and methodological basis for a satisfactory philosophy of science. At the epistemological level, Popper’s anti-inductivism ruled out any analysis of how evidence might support theories, while at the methodological level, Caldwell argued, pursuit of Popper’s prescriptions could lead to very unsatisfactory results, including the rejection of true theories.

Caldwell’s second category of critique he termed the ‘historian’s objection’, which challenged the advocates of the Popperian position to provide examples of its successful application within a particular science. Popper’s response to this challenge was contained in his later writings where he argued against the need to test his falsificationist methodology against the history of science, precisely because it is a prescriptivist doctrine. Notwithstanding his position on this issue, Popper provided an extended list of examples of refutations from the history of science, albeit exclusively from the realm of natural science, and argued for the superiority of refutability as a theory of science in explaining the historical evolution of science (Popper 1983a). With respect to the social sciences, however, it was argued that Popper offered no examples of historical refutability. Within economics, proponents of falsification have not observed Popper’s dictum against the need to test falsificationism against the history of economics. This is hardly surprising, as noted by Caldwell, since two of the leading proponents of falsificationism, Hutchison and Blaug, are distinguished historians of economic thought. But Caldwell is not convinced by the specific examples produced by either Hutchison or Blaug. His comment on Hutchison’s examples is that they ‘do not accord well with the falsificationist image of a theory being subjected to a decisive refuting test’, while Blaug in ‘developing his examples’ has moved away ‘from Popper and into the camp of the erstwhile Popperian, Imre Lakatos’ (Caldwell 1991: 9–10). The central issue in question here is the tension between the capacity of prescriptive methodologies to provide a descriptively adequate framework that will assist intellectual historians to interpret the historical development of the different disciplines. For the critics of falsificationism in economics, the issues identified by Caldwell under the rubric of the ‘historian’s objection’ represent a challenging array of unresolved issues.

Caldwell’s final category of critique he labelled the ‘economic methodologist’s objection’. The central issue here is that within economics there are ‘good reasons’ for rejecting Popper’s arguments against immunising stratagems. Caldwell refers to the earlier work of Popper (1945, 1957, 1963), along with some later work (1976, 1983b), which he regards as the main corpus of Popper’s writings on what he considered to be the most appropriate method for the social sciences, namely, the method of situational logic or situational analysis.¹ The basic tenet of this method is that the explanation of social behaviour must be sought in the ‘situation’ in which individuals fi nd themselves. Given the objective situation there will be a unique response which follows from the ‘logic’ of the situation. The resulting observed action is then explained as a ‘rational’ or ‘logical’ response to the objective situational environment in which the individuals found themselves. This type of explanation is underlain by the rationality principle which states that people act in a way appropriate to their situation (Popper 1983b). What Caldwell argued as his central thesis against Popper’s prohibitions on immunising stratagems was that ‘the actual methodology followed in much of economics may best...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contributors
• Preface
• Introduction
• 1 Popper, Economic Methodology and Contemporary Philosophy of Science
• 2 Situational Analysis and Popper’s Three World Thesis
• 3 Challenging Popperian Rationality
• 4 Popper and Social Explanation
• 5 Metaphysics and Growth Through Criticism
• 6 Conjectures on a Constructive Approach to Induction
• 7 Demystifying Induction and Falsification