Nerdy Science Blog

Economists only say, but never do.
A review on Friedrich’s “The Pretence of Knowledge”

Introduction
Friedrich August von Hayek was a Nobel laureate in Economic Sciences. He dedicated a lecture titled “The Pretence of Knowledge” in memory of Alfred Nobel in 1974. Hayek expressed that he disagreed with the belief of Economic Science being similar to Physical Science. He highlighted that attempted imitation of physical science led to economic errors. This review mainly agrees with Hayek’s point of view in which economists who try to use scientific approaches in economics are biased and ignorant in their studies. However the review also refutes Hayek’s belief that natural science is a cooking recipe and that economics are the same as biology.

Scientific method, as outlined in Figure 1, is a process consisting of problem recognition, formulating hypothesis, designing scientific procedures, data collection and analysing, leading to a conclusion. This process is constantly improved to test the hypothesis. If the conclusion does not match the hypothesis, the constructed hypothesis may need to be altered or improvement of scientific procedures may be required.

Figure 1. Scientific method starts from question and background research. Hypothesis is then constructed, and experiments are designed, test, and refined. Data is then collected and analyzed to draw conclusion. If the conclusion does not validate the hypothesis, hypothesis and experiments will be reconstructed. (Image retrieved from Lawrence, 2009)

Correlation Cause and Effect
Natural science collects measurable and observable data to test the hypothesis. However this approach may not be suitable for economics study. Economics is a complex study of the market, which is built upon numerous individual decisions. Any event may affect how people think, and it is more complex than natural science. These events are often not measurable, and economists who try to use scientific approach to explain the economic phenomenon often make mistakes.

Correlation thinking is often used in the field of economics due to limited measurable data. The positive correlation between total employment and total money expenditure stated by Hayek is a classic example of correlation thinking. This correlation thinking misled people to believe that full employment can be achieved by maintaining appropriate level of total money expenditure. It is important to keep in mind that correlation is not causation. There are other variables that might affect total employment. Economists may use the wrong causation for prediction, which eventually lead to errors in economic policy making. Sometimes it is just a mere coincidence for a ridiculous positive correlation to occur, for example ice cream sales and the number of shark attacks on swimmers are positively co-related (Blastland, 2008).

No cooking recipe in both field of economics or natural sciences
Hayek also mentioned scientific procedures are like cooking recipes, which is different from economics. This is not a correct description. Scientists are always sceptical. They constantly test, improve, and challenge the existing knowledge. These properties make scientists different from economists. The idea of cooking recipes in any discipline of science will only stop it from advancing forward.

Economics study is based on past data
Economists face difficulties in creating experiment to prove the theory. This is different from any discipline of natural science which involves careful design of scientific procedures. The scientific experiment need to have controls to show the difference between test subjects and the control subjects. Some conditions need to be maintained constant and static to eliminate all factors that might affect the result of an experiment. It is the scientists, who break things down to study the subject in a very specialized and specific manner.

Economists do not have the luxury to create experiments and conduct them repeatedly. The quantitative data that economists are able to obtain are limited. As the market involve acts from thousands of individuals, households, and firms, many important facts are easily overlooked and not recorded. In natural science experiments, the data collecting process is crucial. Scientists need to look at collected data as a whole and not omit data which they assume are unimportant. Economists tend to analyse by omitting unimportant or unmeasurable data to come to conclusion to support their believed hypothesis. This bias observation made by economists will lead to wrong correlation and assumption of effect and cause, for example like total employment and aggregate demand. If economists wish to conduct an experiment, it may involve making a new policy and this will eventually affect everyone involved in the economic activity, and it cannot be set back to default to start over again.

Economic science is nowhere near biology
Hayek referred to economic science as biology. He pictured that both biology and economics are made up of large number of variables, and the structure is not dependent on the properties of individual elements. Elements are connected with each other and this relationship affects the complexity of the system, which he called ‘organized complexity’. It is not true that economics are similar to biology.

Biology study also involves the use of scientific method. There is no assumption in the study of biology. Although one element in biology is connected to another individual element, the biological experiment is also carefully designed, tested, and improved with variables and controls to examine the hypothesis. Biology contains many specialized disciplines. Biologists need to ensure that the conducted experiment is perfectly under control to eliminate any wrong results. Biologists do not study a subject as a whole, for example a microbiologist may only involve the study of a species of bacteria E. coli, instead of all E. coli or all bacteria existing in this world. Once a biologist makes a discovery in their specialized field, the discovery is examined by others in the same or different field.. This breakdown study of specialized area cannot be applied in economic studies, as its complexity does not allow economists to study a small area individually like biologists. Most importantly, biology does not imply ‘mere pattern predictions’, which is coined by Hayek for not using specific elements but general attributes to make prediction.

Conclusion
Hayek believed that economists who try to imitate natural science to be advanced in economic study will lead to the erroneous mistake. Economists tend to be bias in collecting data and they are not capable of designing scientific experiments to support their theory. In conclusion, economists can only be theorists, but not scientists. Economists only say, but never do.

References:
Blastland, M. (2008). Just because?. BBC News. Retrieved August 6, 2009, from http://news.bbc.co.uk/2/hi/uk_news/magazine/7592579.stm.

Lawrence, B. (2009). Scientific Method. Retrieved August 1, 2009, from http://home.badc.rl.ac.uk/lawrence/blog/2009/04/16/scientific_method.

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