Methodology of Economics

Ludwig von Mises’s methodological apriorism is frequently attributed to the broader Austrian School of economics, of which, of course, Mises was a prominent member. However, there is considerable controversy concerning the meaning of Mises’s various attempts to justify his apriorism. There are prima facie inconsistencies within and across Mises’s methodological writings that engender massive confusion in the secondary literature. This confusion is aggravated by the fact that Mises’s apriorism cannot be straightforwardly interpreted as an artifact of his historical milieu. Indeed, (...) the two prevailing families of interpretation both treat Mises’s apriorism as radically anachronistic, albeit in different senses. According to “extreme” interpretations, Mises’s apriorism reflects an epistemology several decades, if not centuries, beyond its expiration date. According to “moderate” interpretations, however, Mises’s apriorism anticipates ideas that would not appear in the epistemological literature for several decades to come. Finally, there is evidence to suggest that Mises’s actual methodological beliefs are not reflected in his writings, that Mises either obfuscated or exaggerated his methodological position, for whatever reasons, making it seem more radical than it was in fact. I conclude that we have no idea what justification Mises actually intended when he asserted the a priori nature of the fundamental propositions of economics. If this is right, then, whatever method(s) they follow, Austrian economists cannot (deliberately) follow Mises’s apriorism. (shrink)

I argue that much current thinking on externalities—at least among “lay political economists” (but even, on occasion, among professional economists)—is saddled with two analytical errors. The first is what I call coextensivism: the conflation of public goods and externalities. The second error is what I call externality profligacy: the conflation of economic and “social” externalities. The principal dangers presented by these two “dogmas on externalities” are that, while in their grips, we are under-disposed to seek negotiated, market-based solutions (of a (...) broadly Coasean nature) to challenges posed by economic externalities, and over-disposed to seek coercive, state-based solutions (of a broadly Pigouvian nature) to challenges posed by social externalities. (shrink)

I examine the history of the concept of spontaneity in philosophy and the social sciences, particularly as it relates to monetary phenomena. I then offer an argument for the general significance of spontaneity. The essay concludes that scholars across the humanities and social sciences, whatever their (disciplinary, political, ideological, etc.) persuasion, would be well-served to further develop the theory of spontaneity and its social effects.

Economists associated with the Austrian School of Economics are known to deny the value of macroeconomics as descended from the work of John Maynard Keynes and, especially, his followers. Yet, Austrian economists regularly engage in a related scientific activity: theorizing about the causes and consequences of economic fluctuations, i.e., the business cycle. What explains the Austrians’ willingness to engage in theorizing about the business cycle while denying the scientific import of macroeconomics? The present paper argues that the methodological precepts of (...) the School, which have remained largely in place since Carl Menger first pronounced them at the start of the Methodenstreit, justify the kind of business-cycle theorizing that Austrians do and imply the limited scientific value of macroeconomics as descended from Keynes. (shrink)

The article identifies real losses of foreign economic activity of industrial enterprises of Ukraine under the influence of modern challenges. The main purpose of the study is to implement a scientific and methodological approach to assess the impact of modern challenges on the development of foreign economic activity of enterprises. A critical analysis of the content of scientific publications on the studied issues revealed the lack of an integrated approach to establishing the real losses of foreign economic activity of enterprises (...) under the influence of modern challenges. The urgency of solving a certain problem is due to the scale of the impact of modern challenges on the dynamics of foreign economic activity of industrial enterprises, which requires an assessment of such an impact for the further development of measures that will be aimed at minimizing the negative impact of modern challenges. The methodological basis is the system of methods used to obtain the results of the study: theoretical generalization and analytical methods ‒ to clarify scientific approaches in determining the impact of modern challenges on the development of foreign economic activity of enterprises; generalization, grouping and integral evaluation ‒ to determine the level of influence of modern challenges on the development of foreign economic activity of industrial enterprises in 2013‒2021; relative and absolute deviations, coefficient analysis of changes in foreign trade turnover ‒ to establish the volume of losses of foreign economic activity of industrial enterprises of Ukraine under the influence of modern challenges; logical generalization ‒ to obtain conclusions and develop recommendations based on research results. The object of research in the work is the foreign economic activity of enterprises. The article presents the results of assessing the impact of modern challenges on the development of foreign economic activity of industrial enterprises, which became possible due to the developed and implemented author's scientific and methodological approach. Analysis and logical generalization of the results of assessing the impact of modern challenges on the development of foreign economic activity of industrial enterprises became the basis for determining the real volumes of losses of their foreign trade turnover. The results of the study have practical value for the Ministry of Economy of Ukraine and the Entrepreneurship and export promotion office, because they can serve as the basis for developing a program of recommendations for activating the export initiative of industrial enterprises under modern conditions. (shrink)

The main goal of the article is a further development of the usage of income and comparable approaches to company valuation aimed at defining market capitalization sensitivity to value changing in the conditions of dynamization of internal and external business parameters. The relevance of the researched topic is determined by the importance of establishing the factors influencing the change in company market capitalization based on the synthesis of approaches to company valuation. To obtain the results of the study, the following (...) methods were used: structural and logical analysis – to improve the process approach to company valuation in the context of determining the impact of its change on market capitalization; discounted cash flow method (DCF-model) – to determine the value of the enterprise based on the income approach; comparable companies method – to determine the value of the company on the basis of a market approach; factor analysis method – to assess the impact of changes in value on company market capitalization; generalization and logical analysis – in conclusions building. The results of critical analysis of publications of domestic and foreign scientists on the application of company valuation methods identified the need of improvement the process approach to company valuation in the context of determining the impact of its change on the company market capitalization. To adequately assess company value, the use of a synthesis of income and market approaches is proposed. The implementation of the DCF-model and comparable companies valuation method while valuation of Private Joint-Stock Company “SKF Ukraine” allowed to establish that the greatest impact on the target metric (company market capitalization) has an average industry multiplier EV/EBITDA, terminal growth rate and weighted average cost of capital – 5.9 %, 3.2% and 2.7% respectively. The practical value of the results of the study is determined by the importance of forming a full analytical basis for establishing the attractiveness of the performance of joint-stock companies in the market and consolidating management decisionsin order to increase market capitalization. (shrink)

In this paper I challenge the pernicious aspects of Milton Friedman's methodological outlook that continues to hold sway over mainstream neoclassical economists. I do this by showing how Friedman's own methodological dicta could have been used against him when he famously advanced the expectations critique of the Phillips curve at his presidential address to the American Economic Association. I use this case study to further suggest that psychological and neurophysiological data should not be deemed irrelevant to economic science.

"David Ricardo has been acclaimed - or vilified - for merits he would never have dreamt of, or sins for which he was entirely innocent. Entrenched mythology labels him as a utilitarian economist, an enemy of the working class, an impractical theorist, a scientist with 'no philosophy at all' and the author of a formalist methodological revolution. Exploring a middle ground between theory and biography, this book explores the formative intellectual encounters of a man who came to economic studies via (...) other experiences, thus bridging the gap between the historical Ricardo and the economist's Ricardo. The chapters undertake a thorough analysis of Ricardo's writings in their context, asking who was speaking, what audience was being addressed, with what communicative intentions, using what kind of lexicon and communicative conventions, and starting with what shared knowledge. The work opens in presenting the different religious communities with which Ricardo was in touch. It goes on to describe his education in the leading science of the time - geology - before he turned to the study of political economy. Another chapter discusses five 'philosophers' - students of logic, ethics and politics - with whom he was in touch. From correspondence, manuscripts and publications, the closing chapters reconstruct, firstly, Ricardo's ideas on scientific method, the limits of the 'abstract science' and its application, secondly, his ideas on ethics and politics and their impact on strategies for improving the condition of the working class. This book sheds new light on Ricardian economics, providing an invaluable service to readers of economic methodology, philosophy of economics, the history of economic thought, political thought and philosophy. (shrink)

Behavioural economics has taught us that human agents don't always display consistent, context-independent and stable preferences in their choice behaviour. Can we nevertheless do welfare economics...

Монографія розкриває нове вирішення важливого науково-прикладного завдання, що полягає у поглибленні існуючих, розробленні й обґрунтуванні нових науково-методичних положень щодо формування інноваційної моделі розвитку України та її регіонів на основі реалізації підприємницького чиннику – активізації підприємницької ініціативи, розвитку інноваційної активності на регіональному рівні, підтримки розвитку підприємництва шляхом підвищення ефективності державної інноваційної політики. Поглиблено теоретичні засади концепцій інноватики та підприємництва, методологію дослідження підприємництва в контексті формування інноваційної моделі економіки України та її регіонів. Проаналізовано розвиток підприємництва та інноваційних процесів у регіонах України. Запропоновано (...) комплекс рішень з активізації підприємницької ініціативи та розвитку інноваційної моделі економіки України та її регіонів. Видання розраховане на наукових працівників, викладачів вищих навчальних закладів, спеціалістів у сфері національної та регіональної економіки. (shrink)

Despite the conclusions from the contemporary philosophy of science, many economists cherish the ideal of positive science. Therefore, value-free economics is still the central paradigm in economics. The first aim of the paper is to investigate economics' axiomatic assumptions from an epistemological perspective. The critical analysis of the literature shows that the positive-normative dichotomy is exaggerated. Moreover, value-free economics is based on normative foundations that have a negative impact on individuals and society. The paper's second aim is to show that (...) economics' normativity is not a problem because the discussion concerning values is possible and unavoidable. In this context, Weber and other methodologists are investigated. The conclusion of the paper is that science can thrive without strict methodological rules thanks to institutional mechanisms. Therefore, economists could learn from artists who accept the world without absolute rules. This perspective opens the possibility for methodological pluralism and normative approaches. (shrink)

The books’ goal is to answer the question: Do the weaknesses of value-free economics imply the need for a paradigm shift? The author synthesizes criticisms from different perspectives (descriptive and methodological). Special attention is paid to choices over time, because in this area value-free economics has the most problems. In that context, the enriched concept of multiple self is proposed and investigated. However, it is not enough to present the criticisms towards value-free economics. For scientists, a bad paradigm is better (...) than no paradigm. Therefore, the author considers whether value-based economics with normative approaches such as economics of happiness, capability approach, libertarian paternalism, and the concept of multiple self can be the alternative paradigm for value-free economics. This book is essential reading to everyone interested in the current state of economics as a discipline. (shrink)

The goal of this article is to show that instrumental rationality and utility that have been used in economics for many years does not work well. What is presented in the article is how significant the influence of utilitarianism has been on economics and why the economists get rid of humans’ goals and motivations. It is shown in the article that the human who decides in present is absolutely different from the human who decides over time. Many economists neglected this (...) problem because they wanted to have an effective and simple model. Becker’s economic method is presented as a dead end to which economics has been brought to. It is impossible to connect different selves of one human being by using the utility measure. The works of Schelling and J.S. Mill are used to explain this impossibility. The conclusion of this article is that instrumental rationality and utility have affected economics significantly. But, this simplified view on human nature is no longer valid. Hence, economics needs to think not only about the means but also about the human goals. Economics needs to rebuff relativism and show people how to achieve well-being. If we want to help people with their self-governance, we will have to choose reason over emotions. (shrink)

The paper considers the significance of F. A. Hayek’s writings on the study of complex phenomena for the study of the very complex phenom- ena of Hayek’s own life and career. It is argued that the methodological principle which Hayek recommended for the investigation of complex phenomena is applicable to explanations of his own intellectual develop- ment. Indeed, it is argued that the extent to which a Hayek scholar re- spects this principle in their attempts to explain Hayek’s life and (...) career is the first criterion by which such attempts should be evaluated. As Hayek himself might have put it, an explanation of some part of his career that neglects its inherent complexity is “probably merely of necessity false” (Hayek, [1964] 2014, 263). (shrink)

Economics, as the volume editors Ivan Boldyrev and Ekaterina Svetlova submit, does not merely describe or explain, but also actively shapes—“performs”—the economy. This is how we may understand the performativity-of-economics thesis: Economists shape markets either directly, through the design of theories and policies based on them; or indirectly, through shaping cognitive infrastructures that economic agents use to make economic calculations, buy, and sell.

Монографія розкриває нове вирішення важливого науково-прикладного завдання, що полягає у поглибленні існуючих, розробленні й обґрунтуванні нових науково-методичних положень управління стратегічними можливостями машинобудівних підприємств на основі комплексного діагностування стратегічних можливостей, врахування ступеня загрози кризового стану, обґрунтування пріоритетності їх використання в процесі реалізації стратегії розвитку машинобудівних підприємств. Здійснено теоретико-методичне обґрунтування стратегічних можливостей підприємства та розкрито концептуальні засади управління ними. Досліджено стратегічні можливості машинобудівних підприємств України та стан управління ними. Розроблено напрямки удосконалення підходів в управлінні стратегічними можливостями машинобудівних підприємств. Видання розраховане на наукових (...) працівників, викладачів вищих навчальних закладів, спеціалістів у сфері економіки та управління підприємствами. (shrink)

Whatever F.A. Hayek meant by “knowledge” could not have been the justified true belief conception common in the Western intellectual tradition from at least the time of Plato onward. In this brief note, I aim to uncover and succinctly state Hayek’s unique definition of knowledge.

F.A. Hayek essentially quit economic theory and gave up the phenomena of industrial fluctuations as an explicit object of theoretical investigation following the publication of his last work in technical economics, 1941’s The Pure Theory of Capital. Nonetheless, several of Hayek’s more methodologically-oriented writings bear important implications for economic phenomena, especially those of industrial fluctuations. Decisions (usually, for Hayek, of a political nature) taken on the basis of a “pretence” of knowledge impede the operation of the price system’s belief-coordinating function (...) and thereby contribute to episodes of economic disequilibrium. Moreover, this later account – which I call Hayek’s epistemic theory of industrial fluctuations – implies certain aspects of his earlier theory. The two accounts are connected in virtue of the role that ignorance and the limits of human knowledge play in each. Indeed, it turns out that – substantively, if not methodologically – Hayek’s early theory of the cycle is a special case of the more general epistemic account. (shrink)

F.A. Hayek argued that the sciences of complex phenomena, including (perhaps especially) economics, are limited to incomplete “explanations of the principle” and “pattern predictions.” According to Hayek, these disciplines suffer from (what I call) a data problem, i.e., the hopelessness of populating theoretical models with data adequate to full explanations and precise predictions. In Hayek’s terms, explanations in these fields are always a matter of “degree.” However, Hayek’s methodology implies a distinct theory problem: theoretical models of complex phenomena may be (...) underspecified so that, even were all the data available, a full explanation could not be inferred from the model. Where the sciences of complex phenomena are subject to both the data and theory problems, explanations and predictions will be of even lesser “predictive degree.” The paper also considers how to interpret Hayek’s claim that pattern predictions are falsifiable. (shrink)

In the wake of the global financial crisis of 2008, the greatest economic disaster since the Great Depression, the cover story of the July 18th 2009 issue of The Economist, entitled “What went wrong with economics,” opened with an unequivocally incriminating statement: “Of all the economic bubbles that have been pricked, few have burst more spectacularly than the reputation of economics itself.” In the months surrounding this indictment, many influential economists, including several Nobel laureates, were drawn to the same embarrassing (...) conclusion. Despite the existence of a handful of Cassandras, economists, as a group, had failed to foresee the crash. This short essay reviews the criticisms addressed to modern economic theory in the immediate aftermath of the crash. Overall, the main issues raised by critics were that (a) economists versed in the dominant models in macroeconomics and finance have been blinded to the possibility that we live in an uncertain and complex world; and (b) that the content of current economics education has sidelined many of the relevant insights to be found in the history of the discipline. This has led the critics to call for changes in the institutional structure of discipline, with a particular emphasis on the promotion of interdisciplinarity, and theoretical and methodological pluralism. (shrink)

Hedonism is a basic problem in society, especially in Indonesia. There are several negative impacts produced by hedonism such as poverty, debt problems, and social conflict. With an income level that does not match one's level of spending, this can cause an imbalance in one's financial condition. The economic theory of Marxism—which was pioneered by Karl Marx through one of his books entitled The capital—helps us to understand more about logical considerations when consuming and maximizing utility to fulfill the collective (...) interest. Capitalism creates a quite radical push in one's consumption activity, where by analysis Law Diminishing Marginal Utility, capitalists will easily make new innovations so that they can produce new commodities that are deliberately positioned as commodities needed by society. Debt to Income Ratio which is one of the ratios to measure the liability and income of entities can be used as a step to prevent or slow down the development of a culture of hedonism and raise collective awareness in the midst of a fairly chaotic capitalist system. (shrink)