The
Pretence of Knowledge
The
particular occasion of this lecture, combined with the chief practical problem
which economists have to face today, have made the choice of its topic almost
inevitable. On the one hand the still recent establishment of the Nobel
Memorial Prize in Economic Science marks a significant step in the process by
which, in the opinion of the general public, economics has been conceded some
of the dignity and prestige of the physical sciences. On the other hand, the
economists are at this moment called upon to say how to extricate the free
world from the serious threat of accelerating inflation which, it must be admitted,
has been brought about by policies which the majority of economists recommended
and even urged governments to pursue. We have indeed at the moment little cause
for pride: as a profession we have made a mess of things.
It
seems to me that this failure of the economists to guide policy more
successfully is closely connected with their propensity to imitate as closely
as possible the procedures of the brilliantly successful physical sciences - an
attempt which in our field may lead to outright error. It is an approach which
has come to be described as the "scientistic" attitude - an attitude
which, as I defined it some thirty years ago, "is decidedly unscientific
in the true sense of the word, since it involves a mechanical and uncritical
application of habits of thought to fields different from those in which they
have been formed."
1 I want today to begin by explaining how
some of the gravest errors of recent economic policy are a direct consequence
of this scientistic error.
The
theory which has been guiding monetary and financial policy during the last
thirty years, and which I contend is largely the product of such a mistaken
conception of the proper scientific procedure, consists in the assertion that
there exists a simple positive correlation between total employment and the
size of the aggregate demand for goods and services; it leads to the belief
that we can permanently assure full employment by maintaining total money
expenditure at an appropriate level. Among the various theories advanced to
account for extensive unemployment, this is probably the only one in support of
which strong quantitative evidence can be adduced. I nevertheless regard it as
fundamentally false, and to act upon it, as we now experience, as very harmful.
This
brings me to the crucial issue. Unlike the position that exists in the physical
sciences, in economics and other disciplines that deal with essentially complex
phenomena, the aspects of the events to be accounted for about which we can get
quantitative data are necessarily limited and may not include the important
ones. While in the physical sciences it is generally assumed, probably with
good reason, that any important factor which determines the observed events
will itself be directly observable and measurable, in the study of such complex
phenomena as the market, which depend on the actions of many individuals, all
the circumstances which will determine the outcome of a process, for reasons
which I shall explain later, will hardly ever be fully known or measurable. And
while in the physical sciences the investigator will be able to measure what,
on the basis of a prima facie theory, he thinks important, in the social
sciences often that is treated as important which happens to be accessible to
measurement. This is sometimes carried to the point where it is demanded that
our theories must be formulated in such terms that they refer only to
measurable magnitudes.
It
can hardly be denied that such a demand quite arbitrarily limits the facts
which are to be admitted as possible causes of the events which occur in the
real world. This view, which is often quite naively accepted as required by
scientific procedure, has some rather paradoxical consequences. We know: of
course, with regard to the market and similar social structures, a great many
facts which we cannot measure and on which indeed we have only some very
imprecise and general information. And because the effects of these facts in
any particular instance cannot be confirmed by quantitative evidence, they are
simply disregarded by those sworn to admit only what they regard as scientific
evidence: they thereupon happily proceed on the fiction that the factors which
they can measure are the only ones that are relevant.
The
correlation between aggregate demand and total employment, for instance, may
only be approximate, but as it is the only one on which we have
quantitative data, it is accepted as the only causal connection that counts. On
this standard there may thus well exist better "scientific" evidence
for a false theory, which will be accepted because it is more
"scientific", than for a valid explanation, which is rejected because
there is no sufficient quantitative evidence for it.
Let
me illustrate this by a brief sketch of what I regard as the chief actual cause
of extensive unemployment - an account which will also explain why such
unemployment cannot be lastingly cured by the inflationary policies recommended
by the now fashionable theory. This correct explanation appears to me to be the
existence of discrepancies between the distribution of demand among the
different goods and services and the allocation of labour and other resources
among the production of those outputs. We possess a fairly good
"qualitative" knowledge of the forces by which a correspondence
between demand and supply in the different sectors of the economic system is
brought about, of the conditions under which it will be achieved, and of the
factors likely to prevent such an adjustment. The separate steps in the account
of this process rely on facts of everyday experience, and few who take the
trouble to follow the argument will question the validity of the factual
assumptions, or the logical correctness of the conclusions drawn from them. We
have indeed good reason to believe that unemployment indicates that the
structure of relative prices and wages has been distorted (usually by
monopolistic or governmental price fixing), and that to restore equality
between the demand and the supply of labour in all sectors changes of relative
prices and some transfers of labour will be necessary.
But
when we are asked for quantitative evidence for the particular structure of
prices and wages that would be required in order to assure a smooth continuous
sale of the products and services offered, we must admit that we have no such
information. We know, in other words, the general conditions in which what we
call, somewhat misleadingly, an equilibrium will establish itself: but we never
know what the particular prices or wages are which would exist if the market
were to bring about such an equilibrium. We can merely say what the conditions
are in which we can expect the market to establish prices and wages at which
demand will equal supply. But we can never produce statistical information
which would show how much the prevailing prices and wages deviate from
those which would secure a continuous sale of the current supply of labour.
Though this account of the causes of unemployment is an empirical theory, in
the sense that it might be proved false, e.g. if, with a constant money supply,
a general increase of wages did not lead to unemployment, it is certainly not
the kind of theory which we could use to obtain specific numerical predictions
concerning the rates of wages, or the distribution of labour, to be expected.
Why
should we, however, in economics, have to plead ignorance of the sort of facts
on which, in the case of a physical theory, a scientist would certainly be
expected to give precise information? It is probably not surprising that those
impressed by the example of the physical sciences should find this position
very unsatisfactory and should insist on the standards of proof which they find
there. The reason for this state of affairs is the fact, to which I have
already briefly referred, that the social sciences, like much of biology but
unlike most fields of the physical sciences, have to deal with structures of essential
complexity, i.e. with structures whose characteristic properties can be
exhibited only by models made up of relatively large numbers of variables.
Competition, for instance, is a process which will produce certain results only
if it proceeds among a fairly large number of acting persons.
In
some fields, particularly where problems of a similar kind arise in the
physical sciences, the difficulties can be overcome by using, instead of
specific information about the individual elements, data about the relative
frequency, or the probability, of the occurrence of the various distinctive
properties of the elements. But this is true only where we have to deal with
what has been called by Dr. Warren Weaver (formerly of the Rockefeller
Foundation), with a distinction which ought to be much more widely understood,
"phenomena of unorganized complexity," in contrast to those
"phenomena of organized complexity" with which we have to deal in the
social sciences.
2 Organized complexity here means that the
character of the structures showing it depends not only on the properties of
the individual elements of which they are composed, and the relative frequency
with which they occur, but also on the manner in which the individual elements
are connected with each other. In the explanation of the working of such
structures we can for this reason not replace the information about the
individual elements by statistical information, but require full information
about each element if from our theory we are to derive specific predictions
about individual events. Without such specific information about the individual
elements we shall be confined to what on another occasion I have called mere pattern
predictions - predictions of some of the general attributes of the structures
that will form themselves, but not containing specific statements about the
individual elements of which the structures will be made up.
3
This
is particularly true of our theories accounting for the determination of the
systems of relative prices and wages that will form themselves on a
wellfunctioning market. Into the determination of these prices and wages there
will enter the effects of particular information possessed by every one of the
participants in the market process - a sum of facts which in their totality
cannot be known to the scientific observer, or to any other single brain. It is
indeed the source of the superiority of the market order, and the reason why,
when it is not suppressed by the powers of government, it regularly displaces
other types of order, that in the resulting allocation of resources more of the
knowledge of particular facts will be utilized which exists only dispersed
among uncounted persons, than any one person can possess. But because we, the
observing scientists, can thus never know all the determinants of such an
order, and in consequence also cannot know at which particular structure of
prices and wages demand would everywhere equal supply, we also cannot measure
the deviations from that order; nor can we statistically test our theory that
it is the deviations from that "equilibrium" system of prices and
wages which make it impossible to sell some of the products and services at the
prices at which they are offered.
Before
I continue with my immediate concern, the effects of all this on the employment
policies currently pursued, allow me to define more specifically the inherent
limitations of our numerical knowledge which are so often overlooked. I want to
do this to avoid giving the impression that I generally reject the mathematical
method in economics. I regard it in fact as the great advantage of the
mathematical technique that it allows us to describe, by means of algebraic
equations, the general character of a pattern even where we are ignorant of the
numerical values which will determine its particular manifestation. We could
scarcely have achieved that comprehensive picture of the mutual
interdependencies of the different events in a market without this algebraic
technique. It has led to the illusion, however, that we can use this technique
for the determination and prediction of the numerical values of those
magnitudes; and this has led to a vain search for quantitative or numerical
constants. This happened in spite of the fact that the modern founders of
mathematical economics had no such illusions. It is true that their systems of
equations describing the pattern of a market equilibrium are so framed that if
we were able to fill in all the blanks of the abstract formulae, i.e. if we
knew all the parameters of these equations, we could calculate the prices and
quantities of all commodities and services sold. But, as Vilfredo Pareto, one
of the founders of this theory, clearly stated, its purpose cannot be "to
arrive at a numerical calculation of prices", because, as he said, it
would be "absurd" to assume that we could ascertain all the data.
4 Indeed, the chief point was already seen
by those remarkable anticipators of modern economics, the Spanish schoolmen of
the sixteenth century, who emphasized that what they called
pretium
mathematicum, the mathematical price, depended on so many particular
circumstances that it could never be known to man but was known only to God.
5 I sometimes wish that our mathematical
economists would take this to heart. I must confess that I still doubt whether
their search for measurable magnitudes has made significant contributions to
our
theoretical understanding of economic phenomena - as distinct from
their value as a description of particular situations. Nor am I prepared to
accept the excuse that this branch of research is still very young: Sir William
Petty, the founder of econometrics, was after all a somewhat senior colleague
of Sir Isaac Newton in the Royal Society!
There
may be few instances in which the superstition that only measurable magnitudes
can be important has done positive harm in the economic field: but the present
inflation and employment problems are a very serious one. Its effect has been
that what is probably the true cause of extensive unemployment has been
disregarded by the scientistically minded majority of economists, because its
operation could not be confirmed by directly observable relations between
measurable magnitudes, and that an almost exclusive concentration on
quantitatively measurable surface phenomena has produced a policy which has
made matters worse.
It
has, of course, to be readily admitted that the kind of theory which I regard
as the true explanation of unemployment is a theory of somewhat limited content
because it allows us to make only very general predictions of the kind
of events which we must expect in a given situation. But the effects on policy
of the more ambitious constructions have not been very fortunate and I confess
that I prefer true but imperfect knowledge, even if it leaves much indetermined
and unpredictable, to a pretence of exact knowledge that is likely to be false.
The credit which the apparent conformity with recognized scientific standards
can gain for seemingly simple but false theories may, as the present instance
shows, have grave consequences.
In
fact, in the case discussed, the very measures which the dominant
"macro-economic" theory has recommended as a remedy for unemployment,
namely the increase of aggregate demand, have become a cause of a very
extensive misallocation of resources which is likely to make later large-scale
unemployment inevitable. The continuous injection of additional amounts of
money at points of the economic system where it creates a temporary demand
which must cease when the increase of the quantity of money stops or slows
down, together with the expectation of a continuing rise of prices, draws
labour and other resources into employments which can last only so long as the
increase of the quantity of money continues at the same rate - or perhaps even
only so long as it continues to accelerate at a given rate. What this policy
has produced is not so much a level of employment that could not have been
brought about in other ways, as a distribution of employment which cannot be
indefinitely maintained and which after some time can be maintained only by a
rate of inflation which would rapidly lead to a disorganisation of all economic
activity. The fact is that by a mistaken theoretical view we have been led into
a precarious position in which we cannot prevent substantial unemployment from
re-appearing; not because, as this view is sometimes misrepresented, this
unemployment is deliberately brought about as a means to combat inflation, but
because it is now bound to occur as a deeply regrettable but inescapable
consequence of the mistaken policies of the past as soon as inflation ceases to
accelerate.
I
must, however, now leave these problems of immediate practical importance which
I have introduced chiefly as an illustration of the momentous consequences that
may follow from errors concerning abstract problems of the philosophy of
science. There is as much reason to be apprehensive about the long run dangers
created in a much wider field by the uncritical acceptance of assertions which
have the appearance of being scientific as there is with regard to the
problems I have just discussed. What I mainly wanted to bring out by the
topical illustration is that certainly in my field, but I believe also
generally in the sciences of man, what looks superficially like the most
scientific procedure is often the most unscientific, and, beyond this, that in
these fields there are definite limits to what we can expect science to
achieve. This means that to entrust to science - or to deliberate control
according to scientific principles - more than scientific method can achieve
may have deplorable effects. The progress of the natural sciences in modern
times has of course so much exceeded all expectations that any suggestion that
there may be some limits to it is bound to arouse suspicion. Especially all
those will resist such an insight who have hoped that our increasing power of
prediction and control, generally regarded as the characteristic result of
scientific advance, applied to the processes of society, would soon enable us
to mould society entirely to our liking. It is indeed true that, in contrast to
the exhilaration which the discoveries of the physical sciences tend to
produce, the insights which we gain from the study of society more often have a
dampening effect on our aspirations; and it is perhaps not surprising that the
more impetuous younger members of our profession are not always prepared to
accept this. Yet the confidence in the unlimited power of science is only too
often based on a false belief that the scientific method consists in the
application of a ready-made technique, or in imitating the form rather than the
substance of scientific procedure, as if one needed only to follow some cooking
recipes to solve all social problems. It sometimes almost seems as if the
techniques of science were more easily learnt than the thinking that shows us
what the problems are and how to approach them.
The
conflict between what in its present mood the public expects science to achieve
in satisfaction of popular hopes and what is really in its power is a serious
matter because, even if the true scientists should all recognize the
limitations of what they can do in the field of human affairs, so long as the
public expects more there will always be some who will pretend, and perhaps
honestly believe, that they can do more to meet popular demands than is really
in their power. It is often difficult enough for the expert, and certainly in
many instances impossible for the layman, to distinguish between legitimate and
illegitimate claims advanced in the name of science. The enormous publicity
recently given by the media to a report pronouncing in the name of science on
The
Limits to Growth, and the silence of the same media about the devastating
criticism this report has received from the competent experts
6, must make one feel somewhat apprehensive
about the use to which the prestige of science can be put. But it is by no
means only in the field of economics that far-reaching claims are made on behalf
of a more scientific direction of all human activities and the desirability of
replacing spontaneous processes by "conscious human control". If I am
not mistaken, psychology, psychiatry and some branches of sociology, not to
speak about the so-called philosophy of history, are even more affected by what
I have called the scientistic prejudice, and by specious claims of what science
can achieve.
7
If
we are to safeguard the reputation of science, and to prevent the arrogation of
knowledge based on a superficial similarity of procedure with that of the
physical sciences, much effort will have to be directed toward debunking such
arrogations, some of which have by now become the vested interests of
established university departments. We cannot be grateful enough to such modern
philosophers of science as Sir Karl Popper for giving us a test by which we can
distinguish between what we may accept as scientific and what not - a test
which I am sure some doctrines now widely accepted as scientific would not
pass. There are some special problems, however, in connection with those
essentially complex phenomena of which social structures are so important an
instance, which make me wish to restate in conclusion in more general terms the
reasons why in these fields not only are there only absolute obstacles to the
prediction of specific events, but why to act as if we possessed scientific
knowledge enabling us to transcend them may itself become a serious obstacle to
the advance of the human intellect.
The
chief point we must remember is that the great and rapid advance of the
physical sciences took place in fields where it proved that explanation and
prediction could be based on laws which accounted for the observed phenomena as
functions of comparatively few variables - either particular facts or relative
frequencies of events. This may even be the ultimate reason why we single out
these realms as "physical" in contrast to those more highly organized
structures which I have here called essentially complex phenomena. There is no
reason why the position must be the same in the latter as in the former fields.
The difficulties which we encounter in the latter are not, as one might at
first suspect, difficulties about formulating theories for the explanation of
the observed events - although they cause also special difficulties about
testing proposed explanations and therefore about eliminating bad theories. They
are due to the chief problem which arises when we apply our theories to any
particular situation in the real world. A theory of essentially complex
phenomena must refer to a large number of particular facts; and to derive a
prediction from it, or to test it, we have to ascertain all these particular
facts. Once we succeeded in this there should be no particular difficulty about
deriving testable predictions - with the help of modern computers it should be
easy enough to insert these data into the appropriate blanks of the theoretical
formulae and to derive a prediction. The real difficulty, to the solution of
which science has little to contribute, and which is sometimes indeed
insoluble, consists in the ascertainment of the particular facts.
A
simple example will show the nature of this difficulty. Consider some ball game
played by a few people of approximately equal skill. If we knew a few
particular facts in addition to our general knowledge of the ability of the
individual players, such as their state of attention, their perceptions and the
state of their hearts, lungs, muscles etc. at each moment of the game, we could
probably predict the outcome. Indeed, if we were familiar both with the game
and the teams we should probably have a fairly shrewd idea on what the outcome
will depend. But we shall of course not be able to ascertain those facts and in
consequence the result of the game will be outside the range of the
scientifically predictable, however well we may know what effects particular
events would have on the result of the game. This does not mean that we can
make no predictions at all about the course of such a game. If we know the
rules of the different games we shall, in watching one, very soon know which
game is being played and what kinds of actions we can expect and what kind not.
But our capacity to predict will be confined to such general characteristics of
the events to be expected and not include the capacity of predicting particular
individual events.
This
corresponds to what I have called earlier the mere pattern predictions to which
we are increasingly confined as we penetrate from the realm in which relatively
simple laws prevail into the range of phenomena where organized complexity
rules. As we advance we find more and more frequently that we can in fact
ascertain only some but not all the particular circumstances which determine
the outcome of a given process; and in consequence we are able to predict only
some but not all the properties of the result we have to expect. Often all that
we shall be able to predict will be some abstract characteristic of the pattern
that will appear - relations between kinds of elements about which individually
we know very little. Yet, as I am anxious to repeat, we will still achieve
predictions which can be falsified and which therefore are of empirical
significance.
Of
course, compared with the precise predictions we have learnt to expect in the
physical sciences, this sort of mere pattern predictions is a second best with
which one does not like to have to be content. Yet the danger of which I want
to warn is precisely the belief that in order to have a claim to be accepted as
scientific it is necessary to achieve more. This way lies charlatanism and
worse. To act on the belief that we possess the knowledge and the power which
enable us to shape the processes of society entirely to our liking, knowledge
which in fact we do not possess, is likely to make us do much harm. In
the physical sciences there may be little objection to trying to do the
impossible; one might even feel that one ought not to discourage the
over-confident because their experiments may after all produce some new
insights. But in the social field the erroneous belief that the exercise of
some power would have beneficial consequences is likely to lead to a new power
to coerce other men being conferred on some authority. Even if such power is
not in itself bad, its exercise is likely to impede the functioning of those
spontaneous ordering forces by which, without understanding them, man is in
fact so largely assisted in the pursuit of his aims. We are only beginning to
understand on how subtle a communication system the functioning of an advanced
industrial society is based - a communications system which we call the market
and which turns out to be a more efficient mechanism for digesting dispersed
information than any that man has deliberately designed.
If
man is not to do more harm than good in his efforts to improve the social
order, he will have to learn that in this, as in all other fields where
essential complexity of an organized kind prevails, he cannot acquire the full
knowledge which would make mastery of the events possible. He will therefore
have to use what knowledge he can achieve, not to shape the results as the
craftsman shapes his handiwork, but rather to cultivate a growth by providing
the appropriate environment, in the manner in which the gardener does this for
his plants. There is danger in the exuberant feeling of ever growing power
which the advance of the physical sciences has engendered and which tempts man
to try, "dizzy with success", to use a characteristic phrase of early
communism, to subject not only our natural but also our human environment to
the control of a human will. The recognition of the insuperable limits to his
knowledge ought indeed to teach the student of society a lesson of humility
which should guard him against becoming an accomplice in men's fatal striving
to control society - a striving which makes him not only a tyrant over his
fellows, but which may well make him the destroyer of a civilization which no
brain has designed but which has grown from the free efforts of millions of
individuals.
1. "Scientism and the Study of Society",
Economica,
vol. IX, no. 35, August 1942, reprinted in
The Counter-Revolution of Science,
Glencoe, Ill., 1952, p. 15 of this reprint.
2. Warren Weaver, "A Quarter Century in the Natural
Sciences",
The Rockefeller Foundation Annual Report 1958, chapter
I, "Science and Complexity".
3. See my essay "The Theory of Complex Phenomena" in
The
Critical Approach to Science and Philosophy. Essays in Honor of K.R. Popper,
ed. M. Bunge, New York 1964, and reprinted (with additions) in my
Studies in
Philosophy, Politics and Economics, London and Chicago 1967.
4. V. Pareto,
Manuel d'économie politique, 2nd. ed., Paris
1927, pp. 223-4.
5. See, e.g., Luis Molina,
De iustitia et iure, Cologne
1596-1600, tom. II, disp. 347, no. 3, and particularly Johannes de Lugo,
Disputationum
de iustitia et iure tomus secundus, Lyon 1642, disp. 26, sect. 4, no. 40.
6. See
The Limits to Growth: A Report of the Club of Rome's
Project on the Predicament of Mankind, New York 1972; for a systematic
examination of this by a competent economist cf. Wilfred Beckerman,
In
Defence of Economic Growth, London 1974, and, for a list of earlier
criticisms by experts, Gottfried Haberler,
Economic Growth and Stability,
Los Angeles 1974, who rightly calls their effect "devastating".
7. I have given some illustrations of these tendencies in other
fields in my inaugural lecture as Visiting Professor at the University of
Salzburg,
Die Irrtümer des Konstruktivismus und die Grundlagen legitimer
Kritik gesellschaftlicher Gebilde, Munich 1970, now reissued for the Walter
Eucken Institute, at Freiburg i.Brg. by J.C.B. Mohr, Tübingen 1975.
From
Nobel Lectures, Economics 1969-1980, Editor
Assar Lindbeck, World Scientific Publishing Co., Singapore, 1992
