The non-existence of economic laws
from Lars Syll
In mainstream economics, there’s — still — a lot of talk about ‘economic laws.’ The crux of these laws — and regularities — that allegedly exist in economics, is that they only hold ceteris paribus. That fundamentally means that these laws/regularities only hold when the right conditions are at hand for giving rise to them. Unfortunately, from an empirical point of view, those conditions are only at hand in artificially closed nomological models purposely designed to give rise to the kind of regular associations that economists want to explain. But, really, since these laws/regularities do not exist outside these ‘socio-economic machines,’ what’s the point in constructing thought experimental models showing these non-existent laws/regularities? When the almost endless list of narrow and specific assumptions necessary to allow the ‘rigorous’ deductions are known to be at odds with reality, what good do these models do?
Deducing laws in theoretical models is of no avail if you cannot show that the models — and the assumptions they build on — are realistic representations of what goes on in real life.
Conclusion? Instead of restricting our methodological endeavours to building ever more rigorous and precise deducible models, we ought to spend much more time improving our methods for choosing models!
Formalistic deductive “Glasperlenspiel” can be very impressive and seductive. But in science it ought to be considered of little or no value to simply make claims about the model and lose sight of reality.
There is a difference between having evidence for some hypothesis and having evidence for the hypothesis relevant for a given purpose. The difference is important because scientific methods tend to be good at addressing hypotheses of a certain kind and not others: scientific methods come with particular applications built into them … The advantage of mathematical modelling is that its method of deriving a result is that of mathemtical prof: the conclusion is guaranteed to hold given the assumptions. However, the evidence generated in this way is valid only in abstract model worlds while we would like to evaluate hypotheses about what happens in economies in the real world … The upshot is that valid evidence does not seem to be enough. What we also need is to evaluate the relevance of the evidence in the context of a given purpose.
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Real-World Economics Review Blog 
So simple, and so correct! “There is no universal law of economics: there is only a multiplicity of historical experiences and imperfect data.” – Thomas Piketty[i]
[i] Piketty, Thomas. Time for Socialism: Dispatches from a World on Fire, 2016-2021. Yale University Press, 2021. P. 42
It is good to improve methods for choosing models. But what happens when there is no good models or theories? Who will build a good theory?
There is one economic law, that is valid: “Money is a unit of a realtive dimension”.
And in my opinion, this economic law is the most unseen one. Should be more recognized.
And of course: It should exist a discussion on the embedding this relativeness into a physical absolut valuation by a physical characteristic.
Why? To answer the question, what – in physical terms – economic growth is coming from. We all use physical products produced by an economic system – without a economic theory telling us the relation between reality and monetary value.
I know, anybody is calculatiing any GDP in monetary units. Its relative, without physical dimension, except the small hinge of the basket of real world goods price observation to adjust the inflation rate to get something like “real” GDP. But that is a fairly loose connection, not at all a real answer to the real world dimension of any economic system.
What if you choose not to call them laws, but tendencies? In that case, they can always be countered by counter-tendencies…
Apart of those arguments, economics cannot ensure the rigor of a STEM discipline, except of resorting to mathematical methods that are per se ipsa formally coherent.
Technically, many theories on economics survived by exploiting the social acceptance of a peer-reviewed journal that pioneered its diffusion. Say, many journals that are currently deemed as “top journals in economics” were born as trivial journals (as it is well-known that economics was poorly considered in respect to engineering, physics, science or the like in the mid-20th century average man’s mind).
We must bear in mind that experts from advanced economies (i.e. the leaders of critical thinking on economics) relied on “democratization” of academic debate on economics to ensure that their studies and manuscripts earned top levels of social acceptance (plus an impressive number of citations). This happened at a cost: only a limited selection of articles do actually deserve high consideration, as the large majority of manuscripts were mainly authored to inflate various strands of economics (while taking advantage of a disturbing system to squeeze the number of the eligible researchers to get employed as full/associate professors).
It is for this reason that economics cannot be considered as a full-fledged discipline, and in the long-run it is destined to turn into a minor discipline (as it happened to several “Mickey Mouse degrees”).
I wholeheartedly agree with Lars, but there’s a flaw in his argument: “Deducing laws in theoretical models is of no avail if you cannot show that the models—and the assumptions they build on—are realistic representations of what goes on in real life.”
The problem is precisely with “representation” and what models do or should do.
If we take Wittgenstein’s view in the Tractatus Logico-Philosophicus, there are two things we should consider:
In his context, talking of “logical form” made sense because his ontology is one of “logical forms” and he was studying the “limits of logic.”
My colleague and I are preparing an article that we will present at the 7th International Conference on Economic Philosophy later this month. We claim that to evaluate economic models, we must shift from “logical form” to “institutional form”.
Central to our argument is the idea that a useful model, to be able to represent some aspect of economic reality, must capture its “institutional form”.
Thus, creating a market model with only one agent or with many identical agents is nonsensical. It’s also nonsensical to create any model that deals with human conduct which neglects chronological time, because everything humans do (producing and consuming goods included) can only ever occur in chronological time. In Wittgenstein’s terms such models doesn’t have enough “mathematical multiplicity”.
When saying that a model is not “realistic” enough, we often overlook the concept of “institutional form”. For instance, a financial market model with two agents holding opposing views about the same asset may not be more “realistic” than a model with two identical agents. However, it does a better job of capturing the “institutional form” of real financial markets, and it does not deny the existence of an independent reality, which is a dear notion to critical realists, which I know that Lars is, and I accept basically without any reservations.