About This Blog

Ludwig von Mises (1881-1973) was the greatest economist of my time. His greatest works can be accessed here at no charge.

Mises believed that property, freedom and peace are and should be the hallmarks of a satisfying and prosperous society. I agree. Mises proved beyond a shadow of a doubt that the prospect for general and individual prosperity is maximized, indeed, is only possible, if the principle of private property reigns supreme. What's yours is yours. What's mine is mine. When the line between yours and mine is smudged, the door to conflict opens. Without freedom (individual liberty of action) the principle of private property is neutered and the free market, which is the child of property and freedom and the mother of prosperity and satisfaction, cannot exist. Peace is the goal of a prosperous and satisfying society of free individuals, not peace which is purchased by submission to the enemies of property and freedom, but peace which results from the unyielding defense of these principles against all who challenge them.

In this blog I measure American society against the metrics of property, freedom and peace.

Thursday, April 21, 2011

Ellen Brown: A Word About Method

When I was in college a lecturing professor conducted a profound laboratory experiment. Placed on the table in front of him were two one-liter beakers of different colored liquids which were different chemicals, the identity of which I can’t recall. The professor proceeded to pour both one-liter beakers into a single two-liter beaker. To my astonishment, the pouring filled the two-liter beaker to a mark a half-liter short of the brim!
Now we all know that one plus one is two. Therefore, logic tells us, that one liter plus one liter must equal two liters. But not in this case. What is the lesson we can learn from this experiment?
That one plus one is not two?
That experiment trumps abstract theory?
That mathematics is a failed science?
No. If I tried to argue that these are the lessons to be drawn from the professor’s experiment, you would laugh and stop reading. You would know that there must be something else going on, some chemical reaction that masks the abstract, mathematical principle you know must be true: That one plus one is necessarily two!
Like mathematics, economics is an abstract, deductive science. Just as mathematics starts with a self-evidently true premise, i.e., "like things" are quantifiable, and deduces from this premise arithmetical conclusions which must be true as well and apply to all "like things" (if the deductive process is without error), so economics starts with the self-evidently true premise that man acts with purpose, that he strives to obtain particular ends by utilizing means available to him.

The truth of this premise of human action is unassailable and is obviously applicable to all human individuals, for to argue against it is self-contradictory in that argumentation itself is a purposeful action, i.e., seeking the goal of refutation by using the means of argument.

All economic conclusions about human action (the scarcity of means, the interplay of supply and demand, the principle of marginal utility, etc. etc.)  are deduced from this single premise, and, so long as this original premise is true and so long as the deductive process is without error, these conclusions must necessarily be true as well and must necessarily apply to every instance of human action.
The natural sciences -- physics, chemistry, biology, botany and the like -- are differentiated from mathematics and economics by their method. The natural sciences are inductive, a process of reasoning which infers general conclusions from specific observations of particular individuals in a set of "like things." These general conclusions must be true of and applicable to all "like things" in the entire set.

Indeed, the principle of falsification holds that, if any future experimental observations contradict the general conclusion, then that general conclusion is falsified, i.e., proved untrue. Thus, all general conclusions arrived at by the process of inductive reasoning are tentative. 
The method of the natural scientist (called the "scientific method") works only because in Nature there is, as Ludwig von Mises puts it, a “regular concatenation of various observable entities and attributes.” If there were no regularity in Nature, that is, if each atom, each chemical, each bird, each rock and each ounce of water had a mind of its own, i.e., could set goals and could use the means available to it to achieve those goals, then observing the behavior of a solitary rock or an individual ounce of water could tell the scientist nothing about what is generally true of the behavior of all rocks and all water. Controlled experiments in the laboratory would be a useless and futile exercise.  
Of course it is obvious that each individual human being does have a mind of his own. Thus, observing how a particular, individual human being (or a particular group of human beings) acts in a particular situation or circumstance can tell the observing "scientist" nothing about how all human beings would act in the same particular situation or circumstance. Moreover, individual human beings act in the context of history and complex society. No experiment imaginable could study a particular action made by a particular individual at a particular time in history, isolate all possible variables that played in that individual's decision to take that action and ascribe a particular cause or effect to that action.
Yet, this is exactly what Ellen Brown attempts to do.  She isolates a particular moment in the history of a particular culture, analyzes the "facts" available with regard to the actions of particular individuals in that culture relative to their use of money, observes (or, more correctly, speculates) that those particular actions caused certain effects in that culture and concludes that those same actions would cause the same effects in all cultures at any time.

So, she examines the historical record of the grain-banking system of ancient Sumer, the pre-war credit policies of Nazi Germany, the public banking history of North Dakota and the monetary and banking policies of modern Japan. In short, she uses the method of the natural sciences to infer general conclusions about human action, conclusions which she assumes are true and unalterable over the ages.
What Brown fails to realize is that with regard to the actions of human beings there is no "regular concatenation" of events. The actions of individuals in the past occurred in a specific, one-of-a-kind context of that particular culture in that particular day and age. She cannot possibly know all the variables that influenced the decision-making and the actions of various individuals in ancient Sumer, Nazi Germany or even in modern day North Dakota or Japan. And even if she could know these variables and the specific nature of the effects and influences these individual actions had on other individual actors in the culture, she could not possibly duplicate that exact set of variables in some other locale or some other time. All her attempts to do so are foolish. Her historical observations are interesting if they happen to coincide with the truths of deductive economics, and they are totally irrelevant when they contradict these truths.
The only science capable of explaining and predicting human action with regard to the division of labor, direct exchange, indirect exchange, fractional reserve banking, credit expansion, capital formation, capital consumption, deflation and inflation is deductive economics. In fact, it is deductive economic reasoning that makes sense of past economic data. However, it cannot be the other way around; the data from a past time or culture cannot make a certain economic policy of today reasonable. 
Just as a professor's demonstration in a college lecture hall fails to refute the logic of mathematics and the deductive truth that one plus one must be two, so the existence of a communal grainery in ancient Sumer fails to refute the logic of economics and the deductive truths inherent in the premise of purposeful human action.
When historical or experimental economic data appear at first to contradict these abstract truths, the deductive economist assumes that something else must be going on, that something else must be masking the effects of economic principles he knows to be true, as surely as he knows that one plus one must equal two.

Note: For a complete and unabridged discussion of the deductive method of economics vs the inductive method of the natural sciences, see Ludwig von Mises' The Ultimate Foundation of Economic Science. The online version is available free of charge by following the link provided.          

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