by The law of demand — nothing but a useless tautology Mainstream economics is usually considered to be very ‘rigorous’ and ‘precise.’ And yes, indeed, it’s certainly full of ‘rigorous’ and ‘precise’ statements like “the state of the economy will remain the same as long as it doesn’t change.” Although ‘true,’ this is, however — as most other analytical statements — neither particularly interesting nor informative. As is well known, the law of demand is usually tagged with a clause that entails numerous interpretation problems: the ceteris paribus clause. In the strict sense this must thus at least be formulated as follows to be acceptable to the majority of theoreticians: ceteris paribus – that is, all things being equal – the demanded quantity of a
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The law of demand — nothing but a useless tautology
Mainstream economics is usually considered to be very ‘rigorous’ and ‘precise.’ And yes, indeed, it’s certainly full of ‘rigorous’ and ‘precise’ statements like “the state of the economy will remain the same as long as it doesn’t change.” Although ‘true,’ this is, however — as most other analytical statements — neither particularly interesting nor informative.
As is well known, the law of demand is usually tagged with a clause that entails numerous interpretation problems: the ceteris paribus clause. In the strict sense this must thus at least be formulated as follows to be acceptable to the majority of theoreticians: ceteris paribus – that is, all things being equal – the demanded quantity of a consumer good is a monotone-decreasing function of its price …
If the factors that are to be left constant remain undetermined, as not so rarely happens, then the law of demand under question is fully immunized to facts, because every case which initially appears contrary must, in the final analysis, be shown to be compatible with this law. The clause here produces something of an absolute alibi, since, for every apparently deviating behavior, some altered factors can be made responsible. This makes the statement untestable, and its informational content decreases to zero.
One might think that it is in any case possible to avert this situation by specifying the factors that are relevant for the clause. However, this is not the case. In an appropriate interpretation of the clause, the law of demand that comes about will become, for example, an analytic proposition, which is, in fact, true for logical reasons, but which is thus precisely for this reason not informative. This, of course, applies to any interpretation that makes the then-clause of the law of demand under question a logical consequence of its if-clause so that, in this case, an actual logical implication results … Through an explicit interpretation of the ceteris paribus clause, the law of demand is made into a tautology.
Various widespread formulations of the law of demand contain an interpretation of the clause that does not result in a tautology, but that has another weakness. The list of the factors to be held constant includes, among other things, the structure of the needs of the purchasing group in question. This leads to a difficulty connected with the identification of needs. As long as there is no independent test for the constancy of the structures of needs, any law that is formulated in this way has an absolute ‘alibi’. Any apparent counter case can be traced back to a change in the needs, and thus be discounted. Thus, in this form, the law is also immunized against empirical facts. To counter this situation, it is in fact necessary to dig deeper into the problem of needs and preferences; in many cases, however, this is held to be unacceptable, because it would entail crossing the boundaries into social psychology.
In mainstream economics there’s — still — a lot of talk about ‘economic laws.’ The crux of these laws — and regularities — that allegedly do exist in economics, is that they only hold ceteris paribus. That fundamentally means that these laws/regularites 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 at 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 the realm of 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 mathematical proof: 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.