Reprint of the original, first published in 1869.

There is an increasingly widespread belief, both within and outside the discipline, that modern economics is irrelevant to the understanding of the real world. Economics and Reality traces this irrelevance to the failure of economists to match their methods with their subject, showing that formal, mathematical models are unsuitable to the social realities economists purport to address. Tony Lawson examines the various ways in which mainstream economics is rooted in positivist philosophy and examines the problems this causes. It focuses on (...) human agency, social structure and their interaction and explores how the understanding of this social phenomena can be used to transform the nature of economic practice. Economics and Reality concludes by showing how this newly transformed economics might set about shaping economic policy. (shrink)

Interpretation, in the sense relevant to hermeneutics, is an attempt to make clear, to make sense of an object of study. This object must, therefore, be a text or a text-analogue, which in some way is confused, incomplete, cloudy, seemingly contradictory--in one way or another, unclear. The interpretation aims to bring to light an underlying coherence or sense.

Economics today cannot predict the likely outcome of specific events any better than it could in the time of Adam Smith. This is Alexander Rosenberg's controversial challenge to the scientific status of economics. Rosenberg explains that the defining characteristic of any science is predictive improvability--the capacity to create more precise forecasts by evaluating the success of earlier predictions--and he forcefully argues that because economics has not been able to increase its predictive power for over two centuries, it is not a (...) science. (shrink)

What is the correct concept behind measures of inflation? Does money cause business activity or is it the other way around? Shall we stimulate growth by raising aggregate demand or rather by lowering taxes and thereby providing incentives to produce? Policy-relevant questions such as these are of immediate and obvious importance to the welfare of societies. The standard approach in dealing with them is to build a model, based on economic theory, answer the question for the model world and then (...) apply the results to economic phenomena outside. Data come in, if at all, only in testing a limited number of the model's consequences. Despite some critical voices, economic methodology too has by and large subscribed to a "theory first" approach to applied economics. Error in Economics systematically develops an alternative to the theory-based orthodoxy. It places the methodical study of evidence at the centre of the scientific enterprise and thus provides a foundation for a methodology of evidence-based economics. But the book does not stop at the truism that claims should be based on the best available evidence. Rather, detailed studies in the areas of measurement, causal inference and policy analysis show what it means for a claim to be evidence-based in the context of a concrete case. The examples discussed concern topics as diverse as consumer price indices, radio spectrum auctions, the transmission mechanism, natural experiments on minimum wages and the evaluation of counterfactuals for policy. Error in Economics is essential reading for economic methodologists, philosophers of science and anyone interested in how claims about socio-economic matters are validated. (shrink)

That some propositions are testable, while others are not, was a fundamental idea in the philosophical program known as logical empiricism. That program is now widely thought to be defunct. Quine’s (1953) “Two Dogmas of Empiricism” and Hempel’s (1950) “Problems and Changes in the Empiricist Criterion of Meaning” are among its most notable epitaphs. Yet, as we know from Mark Twain’s comment on an obituary that he once had the pleasure of reading about himself, the report of a death can (...) be an exaggeration. The research program that began in Vienna and Berlin continues, even though many of the specific formulations that came out of those circles are flawed and need to be replaced. (shrink)

The 1994 US spectrum auction is now a paradigmatic case of the successful use of microeconomic theory for policy-making. We use a detailed analysis of it to review standard accounts in philosophy of science of how idealized models are connected to messy reality. We show that in order to understand what made the design of the spectrum auction successful, a new such account is required, and we present it here. Of especial interest is the light this sheds on the issue (...) of progress in economics. In particular, it enables us to get clear on exactly what has been progressing, and on exactly what theory has – and has not – contributed to that. This in turn has important implications for just what it is about economic theory that we should value. (shrink)

The paper presents a further articulation and defence of the view on prediction and accommodation that I have proposed earlier. It operates by analysing two accounts of the issue-by Patrick Maher and by Marc Lange-that, at least at first sight, appear to be rivals to my own. Maher claims that the time-order of theory and evidence may be important in terms of degree of confirmation, while that claim is explicitly denied in my account. I argue, however, that when his account (...) is analysed, Maher reveals no scientifically significant way in which the time-order counts, and that indeed his view is in the end best regarded as a less than optimally formulated version of my own. Lange has also responded to Maher by arguing that the apparent relevance of temporal considerations is merely apparent: what is really involved, according to Lange, is whether or not a hypothesis constitutes an "arbitrary conjunction." I argue that Lange's suggestion fails: the correct analysis of his and Maher's examples is that provided by my account. (shrink)

Can purely predictive models be useful in investigating causal systems? I argue ‘yes’. Moreover, in many cases not only are they useful, they are essential. The alternative is to stick to models or mechanisms drawn from well-understood theory. But a necessary condition for explanation is empirical success, and in many cases in social and field sciences such success can only be achieved by purely predictive models, not by ones drawn from theory. Alas, the attempt to use theory to achieve explanation (...) or insight without empirical success therefore fails, leaving us with the worst of both worlds – neither prediction nor explanation. Best go with empirical success by any means necessary. I support these methodological claims via case studies of two impressive feats of predictive modelling: opinion polling of political elections, and weather forecasting. (shrink)

Julian Reiss correctly identified a trilemma about economic models: we cannot maintain that they are false, but nevertheless explain and that only true accounts explain. In this reply we give reasons to reject the second premise ? that economic models explain. Intuitions to the contrary should be distrusted.

Gregor Betz explores the following questions: Where are the limits of economics, in particular the limits of economic foreknowledge? Are macroeconomic forecasts credible predictions or mere prophecies and what would this imply for the way economic policy decisions are taken? Is rational economic decision making possible without forecasting at all?