CHAPTER 2

The Scientific Approach

The primary thesis of this volume is that the fundamental principles governing the economic system are purely factual and should therefore be removed from the branch of sociology now designated as economics, and should be reconstituted into a new discipline which, for want of a better term, we may call  economic science . This new branch of knowledge should be handled by scientists by means of the accepted methods of factual science, and should be recognized as an integral part of the scientific field, a subject that is taught in a College of Science, where one exists, rather than a College of Liberal Arts, and is indexed under Science—classification 500—rather than under Sociology—classification 300.

There is no implication here that factual science is basically on a higher level than non-science or that it involves any superior manifestation of human ability. As Joseph Schumpeter puts it, “There should be no susceptibilities concerning “rank” or “dignity” about this; to call a field a science should not spell either a compliment or the reverse.”¹⁶ The argument for transferring the factual aspects of the non-physical subject matter to science is not based on any special abilities that scientists may have, but on the superiority, in application to factual material, of the methods that scientists utilize, methods that are very difficult to fit into the working practices of disciplines that deal mainly with opinions and judgments.

In this connection it should be noted that the special merits of the scientific approach to factual questions are not restricted to those fields of human activity that are primarily factual, they apply to the factual areas of all fields, and they are not applicable to the non-factual sectors of any of these fields, even those that are popularly supposed to lie entirely within the scientific domain. It logically follows that for best results the factual aspects of all fields of activity should be treated by scientists, and through the agency of those scientific methods whose efficacy in dealing with factual matters has been clearly demonstrated. In other words, the conclusion to be drawn from the foregoing discussion is that the factual portions of all branches of human knowledge should be separated from the non-factual remainder and should be turned over to science, just as music, for example, makes no attempt to deal with the fundamentals of sound, upon which all music is based, but leaves such matters in the hands of science as a sub-division of physics.

This brings us to the question as to just what constitutes the scientific method. What is there in the working habits of the scientific profession that is absent in other fields? Curiously enough, even the scientists themselves do not always agree on this point. They do not question that the spectacular results achieved in the physical fields are products of the scientific method, but there is no uniformity in the definition of this method. Most individuals, both within and without the scientific profession, are inclined to associate the term “scientific” with the painstaking, systematic, mathematical approach which characterizes the work of the scientist as he is usually pictured. But even a casual survey of the history of science shows that many brilliant and successful scientists have followed a totally different working procedure, and some important scientific discoveries have originated from intuition or pure chance, with little or no systematic work having been done. Although most scientific studies do follow a rather definite pattern, these historical data show that we must rule out the idea that this pattern is the essence of the scientific method. What, then, is the distinctive feature of science?

The answer to this question is readily accessible to anyone who undertakes research work in both the physical and the non-physical areas. He will find that he can apply the same working procedures in both cases. Whatever his personal technique may be—whether he works slowly and deliberately with meticulous attention to detail, or whether he relies more on intuitive processes to carry him swiftly forward, touching only the high spots as he advances—he can apply his favorite technique equally as well in one field as the other. He will find subject matter of essentially the same nature in both areas. The subject matter customarily treated in non-scientific studies differs substantially from that normally treated in science, but, as will be brought out in the discussion that follows, the same types of subject matter actually exist in both cases, and the differences in the character of the topics generally treated in the two fields are merely the results of selectivity on the part of the investigators. He will find that the results obtained outside the physical fields, where meaningful results do emerge from the investigations, are equally as significant as the physical discoveries. From the standpoint of immediate practical application to present-day problems the results in the economic and political fields, for example, may well be of even more importance than the sensational physical achievements.

Up to this point there is little, if any, distinction that can legitimately be drawn between scientific and non-scientific studies. But there is a very important difference in what happens after the work has been done and some significant results have been obtained. In physical science there is general agreement that the judgments which are passed on new ideas originating from such findings should be based on purely objective criteria, the most important requirement being that these ideas must be consistent with the observed facts. In the non-physical fields, on the other hand, there are no objective tests, which are regarded as authoritative, and acceptance or rejection of any new idea is primarily a matter of personal preference.

Like all other human institutions, the existing scientific organization is imperfect, and it moves slowly and erratically toward its defined goal rather than smoothly and swiftly, but because the facts of observation are, at least in principle, accepted as the ultimate authority, there is a definite mechanism in operation whereby the areas of disagreement are continually narrowed, and the accepted body of thought in the physical field is enabled to move ever closer to the ultimate truth. In the non-physical fields, where objective tests are lacking, as matters now stand, there are no means by which the relative merits of conflicting ideas can be evaluated on any consistent basis, or by which correct answers can be recognized as such if they do appear. Consequently, the gains in those fields are limited to those produced by trial and error, and whatever progress is made by reason of one action that proves successful is all too often nullified by ill-advised measures that act in the opposite direction. Sustained forward progress similar to that in the physical field is impossible without an effective means of separating the false from the genuine.

Here is the essential feature of the scientific procedure: the real difference between science and non-science. Physical science has been established as a permanent and ever-growing body of knowledge not because scientists are more competent than other human beings, or because there are any superior investigative methods applicable only to physical phenomena, or because the field in which scientists work is any more amenable to logical treatment. It has acquired this status because physical science alone among the major branches of human knowledge has set up objective tests by which the relative merits of conflicting ideas can be judged, and confines itself to subject matter that can be thus tested; that is, to purely factual subject matter.

The essential characteristic of the scientific method is that the process of study and investigation is always directed toward the objective of meeting the ultimate test of comparison with the observed facts. On this basis, only factual subject matter can be taken into consideration and only logical and mathematical reasoning can be utilized in treating it. Emotional judgments and wishful thinking are barred. Wherever the term “scientific methods” is used in the discussion in this volume it refers to methods, which meet the foregoing requirements, irrespective of whether the work is mathematical or non-mathematical, exact or approximate, general or specific, valid or invalid. It is not necessary to meet the acid test of factual comparison in order to qualify as scientific. Much of the work of science fails to pass the test, and is discarded. A great deal more is simply work in progress that has not yet reached the point where it is ready to face a rigid evaluation. The feature that it must have in order to be classified as scientific is that the work must be aimed at passing the factual test.

Because of the existence of a criterion of validity and its general acceptance as the ultimate authority, controversies and differences of opinion do not go on forever in physical science as they do elsewhere. In each case a decision is eventually reached as to which explanation is true, and this truth is then incorporated into the accepted body of knowledge. As defined by the scientific profession, “truth” is taken to be synonymous with agreement with observation and measurement. On this basis, anything that is in full agreement with the observed facts is true, within the limits to which the correlation has been carried, anything that approaches full agreement is a close approximation to the truth, anything that conflicts with the results of authentic observations is not true, and anything that cannot be adequately tested by means of the comparisons currently available is merely hypothesis.* (It should be understood that the expression “results of observation” as used in this connection refers only to actual measurements and qualitative observations, and does not include inferences drawn therefrom or theories formulated to explain the factual findings, unless those theories are validated independently.)

This test of validity does not necessarily arrive at an immediate and unequivocal answer in every case, inasmuch as a concept or theory does not normally explain all of the facts within its scope of application, and even if it did, the factual observations and measurements are not infallible. However, the mere existence of an accepted method of test centers the attention of the scientific profession on any unresolved question and keeps the issue in the limelight until sufficient additional information has been accumulated to enable reaching a firm decision one way or the other. As a consequence, the areas of dispute are limited, and in essence the workers in the field of physical science speak with a single voice. It is not necessary for the student of science or engineering to look at the name of the author of his textbook. With very minor exceptions he finds the same information in any text, which he may consult.

As a consequence of the methods by which it is obtained and verified, scientific knowledge is permanent. Once a law of science is definitely established it is good forever. We may find as a consequence of more accurate or more extensive observations that the field to which the law is applicable is more limited than was thought originally, but this does not alter the validity of the law in its proper sphere, and the new information represents an extension of knowledge, not a revision. Theories and concepts may be revised, but not knowledge. As Lecomte du Nouy points out, “Science has never had to retract an affirmation based on facts that are well established within accurately defined limits.”¹⁷

Being permanent, scientific knowledge is cumulative. Each bit of information gathered in the ceaseless search for the truth adds to the total. It may refute erroneous conceptions where the facts were not accessible previously, or it may point out hitherto unsuspected limits to the area in which certain accepted principles are valid, but it does not overthrow any laws that have once been definitely established. Science is not vulnerable to the kind of an indictment made of economics by Franklin D. Roosevelt: that it changes its laws every five years.¹⁸

It is true that there is considerable variation in the details of the methods and procedures utilized by scientists, but these variations are not very significant. We might compare the selection of methods to the selection of a travel route. If we start from New York for some unidentified destination, which we cannot recognize when and if we get there, one route is as good as another. But once we have specified that our objective is Chicago, we put ourselves in a position where we are able to determine the relative merits of different routes. We must still admit that we can reach our destination by any one of many paths, and it is therefore incorrect to speak of the route from New York to Chicago, but we can see that certain routes are shorter and more advantageous than others. Just as the bulk of the traffic between these two cities will follow these more efficient routes, the great bulk of the research and experimental work in the physical sciences follows the pattern which experience has demonstrated to be the most efficient.

In the course of developing this most efficient pattern, it has become apparent that there are some very substantial advantages to be gained by functional specialization. Application of any kind of knowledge to human advantage involves three different operations, each of which requires a different type of treatment in order to secure the best results, and each of which calls for quite different talents on the part of those who perform the tasks. Let us consider the building of a bridge, for example. First, we need a great deal of basic information. We must know just what stresses are generated by the various factors that affect the structure—its own weight, traffic, winds, etc. We must know just how the various materials of construction resist these stresses. We must know the strength of the available materials under different conditions, and the means whereby we can take full advantage of that strength, and so on. This is the province of the pure scientist.

Next on the scene is the engineer, the practitioner of applied science, who extracts from his handbooks and other sources the particular portions of the information developed by the specialists in pure science that apply to the project at hand, and with the benefit of this information determines just what can be done to accomplish the desired objective. He then proceeds to devise practical methods of procedure, utilizing that ingenuity which has given the engineering profession its name. Finally he evaluates the advantages and disadvantages of the different alternatives and makes recommendations as to the course to be followed.

In the last step, these reports and recommendations are reviewed by a third group, a non-scientific group that we may call the decision-makers. These individuals—corporation executives, government officials, others responsible for the general direction of the operations involved, or in major matters, the general public itself—make the final decisions between alternatives. Science takes an impartial attitude toward the final decision. The pure scientists normally have no connection with it al all, and the engineers recognize an obligation to present the alternatives in an unbiased manner. The only concern of the scientists of either the pure or applied branches, as scientists, is that all of the known facts which have a bearing on the situation be recognized in their true light and that these facts be given due consideration in arriving at a decision.

One of the first essentials in applying factual scientific methods to the non-scientific fields is to separate these distinct, and frequently conflicting, functions, as a preoccupation with the question of what ought to be done, a question of opinion and judgment with strong emotional overtones, to the exclusion of the question of what can be done, a question of cold-blooded and unemotional fact, is one of the principal factors that has made economics a branch of sociology rather than a branch of science.

Of course, the scientific process does not always operate in a strictly scientific manner. Scientists are also members of the general public, and they do not always distinguish clearly between their different roles in the social organization, but in general the procedure for handling those activities which lie within the domain of physical science effectively separates the determination of what can be done and how it can be accomplished from the decision-making process itself. This has the very valuable result of confining the ultimate decision to a selection from among effective and feasible alternatives, rather than leaving it wide open, as in most non-scientific areas, where all too often the final decision favors a program which cannot possibly operate in the intended manner, and would not produce the desired result even if it were operable.

It will no doubt come as a surprise to most readers to be told that outside the realm of physical science there is no accepted method of separating the true from the false. If he gives any consideration at all to the matter, the average layman probably assumes that conflict with the observed facts automatically stamps a proposition as untrue regardless of the classification into which it falls. But even a brief survey is sufficient to show that this is not the case. Religious, political, sociological, economic, and other non-scientific writings are full of diametrically opposite statements about matters which are subject to observation or measurement, but such conflicts in those areas cannot be resolved by appeal to the facts because the facts are not accepted as the superior authority. This is obvious in the case of religion. An observed fact which conflicts with a religious doctrine is meaningless, so far as the adherents of that religion are concerned, since the religious doctrine is by definition superior to physical manifestations such as those subject to observation, and the inferior cannot overrule the superior.

The same attitude carries over into the other non-scientific fields to such an extent that many observers have been constrained to comment upon it. What has been said about economics is particularly appropriate to the present discussion. “No political or economic program, no matter how absurd, can, in the eyes of its supporters be contradicted by experience,”¹⁹ says L. von Mises. Keynes points out that “In the field of economic and political philosophy there are not many who are influenced by new theories after they are twenty-five or thirty years of age,” and he remarks, “One recurs to the analogy between the sway of the classical school of economic theory and that of certain religions.”²⁰

As a result of this prevailing attitude there is no recognized method whereby valid ideas in these non-scientific fields can be separated from those that are not valid. A theory once proposed can never be definitely discarded. As long as it has an emotional appeal to someone it is given serious consideration, and has a certain degree of respectability. The originators of these theories do not submit their conclusions to the test of comparison with the facts, nor do they organize their activities with a view to passing such a test. This point has not gone unrecognized in professional economic circles. For instance Professor Douglas Hague made this significant admission, “I support Joan Robinson’s claim that the great obstacle to applying scientific method in the social sciences “is that we have not yet established an agreed standard for the disproof of an hypothesis.”²¹ Ernest Nagel makes this comment:

It is also generally acknowledged that in the social sciences there is nothing quite like the almost complete unanimity commonly found among competent workers in the natural sciences as to what are matters of established fact, what are the reasonably satisfactory explanations (if any) for the assumed facts, and what are some of the valid procedures in sound inquiry… In contrast, the social sciences often produce the impression that they are a battleground for interminably warring schools of thought, and that even subject matter which has been under intensive and prolonged study remains at the unsettled periphery of research.²²

In economics, these weaknesses of theory and practice are so obvious and of such long standing that they have become a “cause of anxiety” in professional circles, according to a news report of a meeting of the American Economic Association. Speakers at this meeting, the reporter says, were disturbed by “the inability of economists to arrive at a deeper and more reliable understanding of the functioning of national economies (despite the continuous increase in the elegance and complexity of economic analysis) or to discover workable solutions for the key problems of the day.”²³ Some members of the profession have arrived at the conclusion that these shortcomings are impossible to overcome. Knight, for instance, renounces all hope of the kind of success enjoyed by physical science. “I must say,” he tells us, “that prediction or control, or both, do not and cannot apply in a literal sense in social science.”²⁴

Such appraisals of the present status of economics coming from within the economic profession itself confirm the contention of this work that a basic change in methods and procedures will be necessary before satisfactory progress toward our economic objectives can be made. If this were some field of abstract knowledge on the order of paleontology or non-Euclidean geometry, we might well view the situation with equanimity, and leave matters in the hands of the profession immediately concerned, trusting in the principle that the right will prevail in the long run. But in a matter so vital to our personal welfare we cannot afford to take this philosophic long-range view. The present-day comforts and conveniences of which we are deprived by the inefficient utilization of our facilities under the handicap of unrealistic theories and policies are gone forever.

One of the conspicuous features of economic theory as it now stands is its fragmentation. In general, economic thought has developed independently in the various areas involved, without any kind of a common denominator, and as a result the theories in the different areas not only lack the mutual support that would be achieved by a better integration or continuity of the theoretical framework, but are actually contradictory in many cases. For example, James Tobin reports that “The intellectual gulf between economists” theory of the values of goods and services and their theories of the value of money is well known and periodically deplored.”²⁵ This is only one of many such contradictions.

Because of this lack of a comprehensive basic theory, the theoretical viewpoint of the modern economist is a mixture of valid ideas and concepts with others that are totally or partially wrong, each individual economist having his own special assortment. And since the economic profession as a whole has no better criterion of validity than the individual, it all too frequently happens that the valid ideas of an economic theorist are the ones that are rejected, while the economic community embraces the erroneous theories wholeheartedly. For instance, Keynes’ appraisal of the results achieved by wage bargaining between workers and employers, which are essentially correct, is rejected by most economists, while his concept of the multiplier, which is completely erroneous, is almost universally accepted.

We in the United States, by virtue of many factors, some for which we can take credit and others that are largely fortuitous, have been able to develop the world’s most efficient economic system. It is now our responsibility to make that system work smoothly, and to devise whatever improvements are required to keep it abreast of changing conditions. The socio-economists have thus far been unable to provide us with the information and theoretical background that we need in order to carry out this responsibility, but we cannot justify accepting this defeat as final. We have at our disposal more efficient methods than those which have thus far been applied to the task, and the primarily purpose of this present work is to demonstrate that by the use of these methods we can accomplish our objectives.

This is the background against which the proposal for the establishment of an independent economic science is being advanced in this work. The questions that need to be answered—questions as to how the economic system operates, what causes the various difficulties to which it is now subject, what measures are required in order to overcome those difficulties, and so on—are purely factual questions. The methods described and utilized herein, those that the scientists call “scientific,” are unquestionably the most efficient means thus far devised for handling matters of a factual nature, and it is the contention of this volume that inasmuch as the need for improvements in the handling of these economic questions is obvious and acute, the mere existence of more efficient and powerful techniques is a strong argument for applying them to the factual aspects of economics.

This suggestion does not conflict with the objectives of those who agree with Alvin Hansen that “Economics… must in a sense, become a branch of moral philosophy.”²⁶ On the contrary, splitting the present mass of diverse material into a factual economic science and a socio-economics would strengthen their position, so far as the portion of the subject matter remaining in the sociological classification is concerned. It is the attempt to apply “economic ethics” to matters of cold and impersonal fact that creates confusion and impedes progress in the economic field.

Unquestionably, the most important economic problem now facing the United States is the matter of unemployment, not only because employment is the originating force in the economy, but also because elimination, or at least reduction, of unemployment is a prerequisite for solution of many other economic and social problems. The analysis of the operation of the economic system carried out on the scientific basis described in the foregoing pages has revealed, however, that employment is governed by a set of natural laws and principles that are independent of those that govern the operation of the exchange system. The entire employment discussion, including the definition of the employment laws and principles, has therefore been separated from the remainder of this report of the results of the investigation, and was published in 1976 under the title The Road to Full Employment.

The mere fact that the employment problem can be disassociated from the other aspects of economic life, and subjected to independent analysis, is a clear indication of the vast difference between the findings of this factual scientific study and the conclusions that have previously been reached by orthodox economic methods. Present-day economics regards unemployment and inflation as merely two aspects of the same thing. In fact, almost all of the proposals for improvement of the economic situation that are currently in vogue, aside from those which would make work at public expense, or attempt to solve the job problem by reducing the labor force, plan to accomplish their objective indirectly through inflationary stimulation of business activity.

We know how to reduce unemployment by raising aggregate demand, but we do not know how to do so without creating unacceptable levels of inflation.^{27 (Heilbroner and Thurow)}

A critical investigation of the employment situation by means of the scientific methods and procedures outlined in the previous pages shows that these authors and their colleagues are totally—and we may say, tragically—wrong in this respect. The scientific analysis carried out in this work reveals that employment and business stability are fundamentally separate, and are governed by different principles. There is no necessary connection between the two. In general, the high level of business activity that results from inflation favors a high level of employment, and unfavorable business conditions are normally accompanied by increased unemployment, but the relation is indirect, and, except during the extremes of the business fluctuations, is uncertain. A large amount of employment may exist when business is enjoying a substantial degree of prosperity, and prices are rising, as experience has clearly demonstrated. Conversely, our analysis shows that it would be entirely possible to maintain full productive employment during the worst business depression, if the appropriate actions were taken.

The dilemma that the nation now faces, according to the almost unanimous judgment of the economists, the necessity of choosing between the twin evils of inflation or unemployment, is thus wholly imaginary. Factual analysis shows that the current stage of the business cycle is not the determinant of the amount of unemployment, as accepted economic theory asserts; it is merely one of many factors that affect the true determinant. As brought out in The Road to Full Employment, there are many possible economic actions that have the same effect on employment as the inflationary price rise that the economists now regard as the only weapon in their arsenal, and since most of these alternatives have no inflationary effects, the employment program can be completely independent of the business stabilization program. With the help of the information provided by a factual economic science we can have both full productive employment and business stability.