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Essay: Logical Positivism and its Applicability in Economics

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  • Published: 1 February 2018*
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The logical positivism movement aimed at constructing a firmer foundation and clarity in the field of philosophy and growth of scientific knowledge. This movement was characterized by the ideology that a statement is only meaningful if it can be empirically verifiable in principle. Namely, the verifiability principle. Likewise, its demarcation criterion rule was to accept only analytic and synthetic a posteriori assertions. Propositions which are true by definition, e.g. “3+3=6”, are called analytic. Conversely, propositions which need to be validated by empirical research, e.g. “my boyfriend’s rabbit is aggressive”, are named synthetic a posteriori.

Haavelmo was an economist whose work was of substantial value for the field of econometrics. He tried to explain how laws could be formulated and verified outside the setting of the laboratory. Furthermore, with solely passive observations at hand, a distinction between potential and factual influences ought to be made in order to judge the degree of persistence of a relationship during a period of time. Having only passive observations restrict the spectator to factors which have a factual influence, and thus omitting the other several potential factors which influence the relationship being tested. Haavelmo’s work is in line with the confirmationism approach, which states that laws preferably express probabilistic knowledge, rather than certain knowledge about the universe.

Popper supported the idea that the growth of human knowledge can be achieved through the process of falsification. Namely, science is a series of conjecture and refutation, instead of confirmation. For Popper, science disconfirms on the contrary of pseudo-science, which tries to confirm. Since the process of confirming a theory is often open to ambiguity and simpler than the process of falsifying it, the only authentic test of a theory is the one attempting to falsify it. Conclusively, a statement or theory could be categorized as scientific exclusively if it could, in principle, be proven false (a theory often precedes observation; thus, a theory is first created and subsequently, tried to be falsified).

The applicability of the logical positivism in economics is uncertain. For instance, Hume’s problem of induction states that it is uncertain and risky to affirm that future unobserved events will resemble the past persistently. Thus, generalized statements perchance to be untruthful. Consequently, terms (e.g. terms in an equation) have to be independently operationalized in observational terms. However, often these terms have more than one approach of operation in observational terms in a social science (e.g. in the field of economics, inflation is calculated employing the consumer price index as well as the producer price index, and the above-mentioned produce different rates of inflation in the short run. Therefore, they are at best partial interpretations of the term inflation).

Specially in economics, which deals with several variables and individuals, it is often unethical, costly or even impossible to perform experiments in a laboratory (e.g. environment which the ceteris paribus can be applied). Haavelmo’s “Probability Approach” deals with these issues by acknowledging that one is often only able to monitor experiments as they happen in the open air, and unable to control any of the variables. Thus, he aims to measuring the experiments by means of probabilities rather than exact values.

Popper’s view is not applicable to social sciences (e.g. economics), since in social sciences individuals have the ability to take advantage of a law by changing their behaviour, and consequently the law no longer applies. From his perspective, laws are fundamentally and principally not existent in social sciences. For instance, Marx’s work stated that workers revolution is inevitable, but in case the workers fail to do so, they were unable to see the true situation. Popper is contrary to this because Marx’s theory is beyond the bounds of possibility to be proven wrong, and therefore can be classified as a pseudo-science.

Economics is a social science in which several variables and individuals play a fundamental role in it. It is inconceivable to control all these factors in a ceteris paribus environment. Therefore, experiments, and thus relationships between variables, are better accessed by means of probabilities rather than exact values. Accordingly, I believe that growth in economic knowledge is achievable by the use of Haavelmo’s “Probability Approach”, which is aligned with the confirmationism approach. In this view, laws express probabilistic knowledge instead of certain knowledge about the world.

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