The Significance and Basic Postulates of Economic Theory
- The Significance and Basic Postulates of Economic Theory
Terence W. Hutchison's Significance and Basic Postulates of Economic Theory (1938, reprinted 1965) was the author's first substantial methodological contribution. It was written as a critical reaction on Lionel Robbins' "Essay on the Nature and Significance of Economic Science", that had been published in 1932. In Hutchison's view Robbins' book was excessively deductivist, and attributed insufficient weight to empirical testability. Hutchison's arguments have recently been summarized as follows): [Caldwell, Bruce (1998). "Hutchison, Terence W." in"The Handbook of Economic Methodology", pp. 232-233.]
*Robbins' "propositions of pure theory" are defined within some formal system, but are themselves independent of all facts.
*to gain empirical content, "these propositions must "conceivably" be capable of empirical testing or "be reducible to such propositions" by logical or mathematical deduction ... their truth or falsity, that is, must make some conceivable empirically noticeable difference"): [Hutchison, Terence W.(1935), pp. 9-10, quoted in Caldwell (1998)]
*to this end premises of economic theory need to be turned into empirical synthetic statements, and "ceteris paribus" clauses need to be fully specified,
*the fundamental assumption of economic theory - agents maximize - presumes correct foresight or perfect knowledge, but as the future is uncertain this assumption is typically violated.Therefore Hutchison concludes that applying the method of deduction from some "Fundamental Assumption" or principle is useless, and that instead actual choice behaviour should be the subject of empirical investigation, which would supply a more appropriate basis for economic theorizing.
Though the author was still a young man and virtually unknown in the profession the book received prominent attention, as nobody less than Frank Knight wrote his "'What is Truth' in Economics" (1940) as a - fiercely critical - reply to Hutchison's challenges.
ee also
*Economic methodology
*Lionel Robbins
*Frank Knight
References
* Hutchison, Terence W. (1935). "A Note on Tautologies and the Nature of Economic Theory", 1935, "RES".
* Hutchison, Terence W. (1938). "The Significance and Basic Postulates of Economic Theory", 1938.
* Caldwell, Bruce (1998). "Hutchison, Terence W." in: John Davis, D. Wade Hands and U. Mäki "The Handbook of Economic Methodology".
* Robbins, Lionel (1932, 2nd ed., 1935). "An Essay on the Nature and Significance of Economic Science", London: Macmillan.
* Knight, Frank H. (1940). "'What is Truth in Economics?," "Journal of Political Economy", 48(1), p [http://www.jstor.org/pss/1825908 p. 1] -32.
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