The Fundamental Flaw of 'Mainstream Economics'

Monday, 19 October 2015

Hugo Salinas Price

Francis Bacon, an Englishman, was born in 1561 and died in 1626.

Bacon's thinking had a profound influence upon the development of Western civilization, because he founded what is known as the scientific method. All the scientific advances of mankind up to the present day, are based on this method, which is - in a few words - controlled experimentation upon things of the natural (physical) world in order to arrive at a truth. He was the first to outline the bases of the methodology to discover physical truths.

In contrast to his way of approaching reality, we have the example of alchemy, the forerunner of chemistry. For the alchemist, there was not a clear separation between the physical and the spiritual properties of matter. Thus, the alchemist was typically fascinated by the possibility of manipulating the spiritual properties of metals, in order to transmute a metal of very low value, such as lead, into the metal of highest possible value, gold. Infinite riches would be the prize for discovering that method. The processes were mysterious and thought to be hidden in codes provided by earlier alchemists. Even the great physicist, Sir Isaac Newton (1642 -1726) still dabbled in alchemy, while doing his enormous work in astronomy.

Logicians tell us that the process of arriving at a truth through prior experimentation is inductive reasoning, where the mind is led into the truth through experiment. If you put a fresh egg into boiling water for, say, 12 minutes, your egg will be a hard-boiled egg. Repeat this experiment as many times as you want, and you have a physical law: "Fresh egg boiled for 12 minutes produces hard-boiled egg." Such is Physics. The truth expressed by the aforementioned Law is arrived at through induction.

The huge and unquestioned successes which the world has enjoyed through the application of the scientific method founded by Francis Bacon have led to an overvaluation of the scientific method and to its abuse. For while this method is the correct method for the investigation of the natural world and knowledge of its characteristics, both down to the sub-atomic level and up to the level of knowing what the landscape of Pluto looks like, it is not the only scientific method of acquiring knowledge.

The other method of acquiring scientific knowledge is not based on prior experimentation and is not based on induction.

I do not know what to call this alternative method of acquiring scientific knowledge - perhaps an indication of the more humble position which it enjoys, in our highly materialistic world.

However, there exist examples of this alternative method of acquiring scientific knowledge: One of them is Logic and another is Mathematics.

Logic is not born of experience and experimentation. It is inborn in the human being. Where Bacon's scientific method reveals truths a posteriori, that is to say, after experimentation, Logic is a priori - inborn in us, and exists in us before experience. The same holds for Mathematics: the science of number is independent of prior experience.

The truths derived from Logic and from Mathematics are a priori, and all further truths arrived at in Logic and in Mathematics are arrived at by an intellectual process which is different from that applied in Bacon's scientific method: they are arrived at by deduction, and not by induction.

There is a third field in which scientific knowledge is obtained through deduction. I refer to Economics. Economics is the study of the Logic of Human Action. It is an a priori science, whose postulates are arrived at through a deductive process from the initial a priori truth - a truth within each human being - that human beings act; from which we deduce that human beings choose, from which we deduce that the human being prefers one thing to another. From which I deduce that the reader is preferring to read this article rather than doing something else with his time. And so on and so forth.

Thus Economics is the study of conscious human behavior.

Such is the hold which Bacon's scientific method for the study of the natural world exerts upon mankind, that in our day all "mainstream economists" are trained to study human events through the methodology of induction, which is by its nature based on experiment. This is highly unfortunate, for induction through experiment is logically inapplicable in the field of human events, because controlled experiment, the foundation of Bacon's scientific method, is impossible when studying how humans behave. Atoms have no choice, they must always behave in the same manner under similar conditions. Planets have no choice, they follow their orbits without fail. On the other hand, human choice, whether individual or collective, varies from instant to instant. You, the reader, have the choice to continue reading, or not, for instance.

All true Economics is based on an undeniable fact: humans act, from which we deduce another undeniable fact: humans choose . True Economics applies a different methodology - the methodology of deduction - to the study of human affairs; this methodology is radically different from the methodology which is appropriate for the study of the natural world.

All the present woes, uncertainty, unjustified speculation and enrichment of a few to the detriment of whole nations, the utter madness of ZIRP and now NIRP, the call for the banning of cash, and so on and so forth, all the anomalies which now plague our world are due to the false methodology upon which "mainstream economics" operates.

The High Priests of the Fed and the ECB, of the Central Banks of China, of Russia, of the whole world in fact, are doing nothing more than experimenting upon mankind. They are "Sorcerer's Apprentices" and attempt one policy after another, hoping that the next experiment will provide the success they wish for. They are all looking at numbers, at graphs, at percentages of change, at trend-lines, at the results of prior experiments in past years, attempting to derive some knowledge of what they must do. But a posteriori information is useless - it only can show what happened in the past, and not what they desperately need: scientific certainty of what they must do now to achieve the ends which they seek.

"Mainstream Economics" functions on the basis of an inappropriate method. The inductive method cannot apply in the realm of human affairs, where each situation, individual or collective, is unique and not repeatable; no matter how well-intentioned "mainstream economists" may be, their methodology - induction - must fail to solve the problems they face.

In order to de-throne these impostors, it would seem advisable to undercut their presumptuous airs with the argument that they really do not know what they are doing, because they are basing their policies on the wrong methodology and cannot possible achieve any success. This argument attacks the very foundation upon which "Mainstream Economics" has built its castle.

The most influential and prestigious universities of the world, such as Stanford, Princeton, Yale, Harvard, MIT, and the London School of Economics, are all training would-be economists in the wrong methodology:
in the scientific method which is applicable to the natural world, induction through experimentation, which is, however, utterly useless and counter-productive when applied in the realm of human behavior, where only deduction from a priori knowledge, as taught by the New Austrian School of Economics, is the correct methodology. All we can expect from these young men and women who will graduate from their studies as "accredited economists" will have to be further chaos and disorder, and further breakdown of prosperity, which will end in the complete impoverishment of humanity.

For more on this subject and the misguided efforts of "Mainstream Economics" I refer to you Ludwig von Mises' fascinating book, "Epístemological Problems of Economics" and to the work of Professor Antal E. Fekete, founder of the New Austrian School of Economics, whose work can be found at www.professorfekete.com.