Exploring the Foundations of Economic Science: A Rational Approach
The principles of economics often seem complex and abstract. However, the core of economic theory lies in the observable behaviors and interactions within a market. This article seeks to elucidate the fundamental concepts of economic science, rooted in the principle of hypothesis non fingo'I contrive no hypotheses'and demonstrates how observation alone can explain all economic phenomena.
Observation Over Hypothesis
Philosophy, particularly the branch of ontology, advocates the principle 'never make hypothesis, never imagine what exists' but instead rely on observation. This principle holds just as true for economics as it does for other sciences. Newton's phrase 'hypotheses non fingo' encapsulates the idea that scientists should accept facts as they are and focus on understanding their implications, rather than hypothesizing about their origins.
A Small Bit of Economics
Let's consider a simple market scenario: John sells x to Ken, who pays with y. While this example is specific, it illustrates a general principle of exchange. Understanding this exchange allows us to explore a series of questions that critically examine the reasoning behind the observed economic behavior.
Questions and Analysis
Why does John sell x rather than consume it? What drives John to sell x (could it be z or y?), and why not buy x or more or less x? These questions delve into the motivations of market participants.
Ken pays John with y rather than robbing him. Why does this happen, and why not produce x instead? These nuances explore the complex interactions and decisions within the economy. The exchange of x and y requires that both John and Ken prefer the opposite goods; there is no dispute about this preference order within the market.
The Importance of Rational Choice
The key principle in economics is the maximization of utility, or benefit. John sells x because the benefit he receives from selling it is greater than the benefit of consuming it. This leads to a critical assessment of Marshall's theory on producer behavior, which posits that producers aim to minimize costs. In reality, producers like John are more concerned with maximizing the utility of their choices, rather than just minimizing costs.
Similarly, Ken buys x because the cost of purchasing it from John is lower than the cost of producing it himself. The decision to buy rather than produce is based on economic efficiency and cost-benefit analysis. This concept is further reinforced by the understanding that participants in the market are not identical; they have different costs and resources, leading to a unique and diverse economic landscape.
No Assumptions, No Complexities
The Foundations of Economic Science by the author builds a robust explanation of economic phenomena without making any assumptions. The book, available for free, provides a clear and logical framework for understanding the fundamental aspects of economics. Unlike hypothesis-laden theories, this approach relies solely on observed behaviors to explain economic interactions.
Conclusion
In essence, economics does not require complex assumptions. By focusing on observable behaviors and rational choices, we can explain and predict economic phenomena. The principle of hypotheses non fingo encourages us to trust the observed data and derive conclusions from it. This approach simplifies economic theory, making it more accessible and understandable.