Many disputes have arisen among economists regarding the exclusive—or nearly exclusive—use of one of the two great methodological approaches: induction and deduction. Such exclusivism has often led to exaggerated, flawed, or even false explanations and teachings. Today, most authors advocate combining both approaches. A brief outline of this combination, and the application in economics of more specific methods within induction and deduction, is presented below.
Inductive Methods.
The experimental method consists in provoking the causes of events and their variations. It is highly productive in the physical sciences but is almost impracticable in sciences dealing with human behavior in society, such as economics.
The introspective method seeks to explain observed facts—when they involve human behavior—through analysis of the researcher’s own motives for action. It can certainly assist economic science, but its scope is limited.
The historical method relies on historical evidence. It is a valuable aid in economics; however, the “historical school” attempted to assign it the role of exclusive or dominant method, which is excessive.
The statistical method uses quantitative evidence of facts. It is increasingly employed, though it is limited by the scarcity or unreliability of available statistical data.
Deductive Methods.
The mathematical method uses arithmetic and algebraic procedures. Advocates of “pure economics” defend and apply it rigorously. However, one must recognize that sometimes it is unnecessary (ordinary logic suffices) and other times insufficient or impossible to apply (when dealing with premises or facts that cannot be reduced to numerical form). It is particularly suitable for functional relationships and when combined with statistical data.
Economic Laws
Every science seeks to determine, through its methods of investigation, the regularities present in the facts or phenomena that constitute its subject. The statements expressing such regularities are scientific laws. It follows that economic laws must also exist. But their determination and scope have been interpreted in many different ways, depending on the school of thought. This is because the concept of an economic law is closely linked to the concept of the economy itself. Even within a single orientation, several distinct meanings arise, which will now be clarified.
Before doing so, one meaning must be rejected entirely: that which equates economic laws with physical laws. This is inadmissible because one factor essentially differentiates human phenomena from natural phenomena: the rational will of human beings, which does not operate in nature. There may sometimes be similarity in the regularity with which both types of phenomena appear, but such resemblance is superficial and differs greatly in terms of the probability of strict compliance.
Among the so-called “economic laws,” some may be considered such only by extension—meaning that they have economic consequences, although they actually belong to other disciplines. They may be classified into two groups:
Laws from non-economic sciences, such as Gossen’s laws on the gradual decline of pleasurable satisfaction and the satiation of needs, or Stackelberg’s law on the underestimation of future needs. These laws are clearly psychological.
Laws from disciplines “related to economics” but not economics itself, which deal with technical matters: for example, the law of diminishing productivity of land (agronomy), or the law of increasing returns through the reduction of fixed costs (production-organization techniques, especially in industry).
Economic laws in the proper sense are those concerning the true object of economics: economic relations among human beings. These, in turn, can be divided into two types:
- Empirical laws, which express how people generally behave in their economic interactions—that is, the observable regularities in their conduct, resulting from the unity of human nature and the similarity of the conditions in which such conduct unfolds. These laws are usually established through observation using inductive methods. Examples include the law of supply and demand and various statistical laws.
Some empirical laws may also be derived deductively; the most notable is the law of diminishing marginal utility, the basis of marginal utility theory, which is deduced from Gossen’s psychological law mentioned earlier. It may also be possible to deduce the law of supply and demand. - Normative laws, which are deduced from moral and political principles and indicate how economic activities ought to be conducted to contribute to the common good. Examples include: the law of adapting production to consumption, in accordance with the hierarchy of needs and consumers’ purchasing power; the law of reciprocity in exchange, essential for normal economic progress; and the laws of just price and just wage, which are applications of the previous principle.