Economic methods

Author: Wang Xiaowei
Publisher:
Publish Date: 2006-03-26
Features: The collection Economic Methods—Views of Eleven Economists edited by Wang Xiaowei and Song Chengyu gathers methodological works of eleven leading scholars in the field of economics, which holds significant importance. This is not only because debates on economic methodology, and even the entire social sciences, have been heating up in recent years, but also because after a century of translating and introducing economics into China, it is time to ask: apart from economics, is there truly an "economics" in China? If not, how can universal economics develop in China? What I want to say is not the trendy and pointless topic of "who is first, second, or third-rate," nor the meaningless prediction of when Chinese economists will win the Nobel Prize. Like many modern disciplines, there was no "economics" in China before the late Qing Dynasty's Self-Strengthening Movement; at most, there were some economic thoughts or wisdom about the economy, which were simple summaries of experience rather than rigorously proven scientific theories. During the Self-Strengthening Movement, economics and other Western studies began to enter China, with the translation and publication of Adam Smith's The Wealth of Nations by Yan Fu from 1897 to 1902 being a significant milestone. However, this did not mean that "economics" took root in China. The May Fourth New Culture Movement has been going on for over eighty years, and today we are still debating whether political economy or modern economics is mainstream, which is non-mainstream, and what the methodology of economic research is. This itself indicates that economics is still in its preliminary stages in China and has not matured, let alone the prospect of Chinese economists soon dominating the world of economics.
Recall that during the May Fourth period, "Mr. Democracy" and "Mr. Science" were prevalent, but even today, they have not fully changed the methodology of Chinese scholars in studying people and society. "Mr. Democracy" brought the concepts of democracy and freedom, not research methods, while "Mr. Science" was a research methodology, scientific methodology, but it was previously understood as only applicable to the natural sciences and engineering technology, not social sciences. Thus, in the eyes of most people, "Mr. Science" was a "technique," not a "philosophy," so even today China still has "economic wisdom" and "economic thoughts," but no true "economics." "Economic wisdom" and "economic thoughts" are at most the experience summaries of individuals or groups, and may not be scientific. The wisdom of the Chinese people is well-known, with ancient sages like Confucius, Sun Tzu, and Guan Zhong being the best examples. Among them, Guan Zhong's economic thoughts from the Qi Dynasty are still so classic today, a source of pride for the Chinese people. However, traditional humanistic and social concepts and wisdom are often limited to the experience summaries of individuals or local societies. In other words, Confucius had a very rich life experience; he traveled for fourteen years, observing people and things around him with great detail, and from these experiences and observations, he extracted the most brilliant essence. However, the experiences of one person or even a group are inherently limited, and the limitations of transportation technology at the time prevented Confucius from traveling beyond the borders of what is now China. Today, the "samples" he collected were naturally very limited. Moreover, the circumstances of different eras and societies can vary greatly, and the laws observed and experienced in one era or society may not apply to another. Therefore, "economic thoughts" based on personal or local experience may not stand the test of time and environment.
Especially in recent decades, research has found that people generally have the behavioral bias of "selective memory": they remember only the experiences they want to see, ignoring those that contradict their wishes. This behavioral bias existed in ancient times and still exists today, so it is natural for people to make hasty conclusions about society and the economy or to generalize based on limited observations. Therefore, before "logical verification" (such as proving economic models based on mathematical logic) or "data empirical research" is conducted, an "economic thought" could be either truth or falsehood.
In other words, China has traditionally been advanced in craftsmanship and handicrafts, but the Industrial Revolution occurred in Britain rather than China. The reason is that scientific laboratories emerged in the West, allowing researchers to design and create hypothetical experimental conditions beyond their personal experiences or "experience," to repeat experiments multiple times, and to have many people repeat experiments in different places to discover the laws of matter and nature under conditions they could not personally experience. This way, the results of the research can greatly exceed personal experience summaries. For example, a normal person cannot experience temperatures of a thousand degrees, so they would not know how mud would behave at such temperatures. However, in a specially designed laboratory, this is easily simulated and discovered. Scientific laboratories and mathematical logic are the two pillars of scientific methodology, enabling human knowledge to far surpass wisdom based on personal experience.
Fortunately, after more than a century of effort following the Self-Strengthening Movement, "Mr. Science" has taken root in the natural sciences and technology in China. Generations of scientists and engineers have made outstanding contributions to China, which is undeniable. However, "Mr. Science" has not yet truly entered the humanistic and social research in China, and economic research has not fundamentally moved beyond the "experience summary" method that existed even in the time of Guan Zhong. Especially under the guidance of "Chinese learning as the essence, Western learning as the application," economics, which does not produce weapons or warships, was naturally not considered part of "technique," so people thought "Mr. Science" was not applicable to it. The more than a century after the Self-Strengthening Movement did not change the research method of Chinese learning, which was still based on experience summaries and light on empirical research and formal logical verification. When faced with contradictory ideas from the West, we could only choose based on inspiration and needs, especially based on "ideology," and could not conduct our own "data empirical research plus logical analysis." Without the "social science laboratory" based on empirical research and formal logic, our elite decision-makers in the past century had no choice but to test the concepts of Chinese society itself. What was the cost of letting Chinese society itself serve as the experiment for one concept after another? The cost was continuous revolutions and the resulting social turmoil. Moreover, in fact, even when an experiment led to the loss of life of millions or even hundreds of thousands of people, these catastrophic results should have been enough to prove that the original concept was wrong. However, the decision-makers might not have admitted this mistake and could have forced the entire society to suffer the consequences. Why was society itself used as an experiment? The reason is simple: since there was no "social science laboratory" to help us discover the various possible outcomes of a decision (both positive and negative) through empirical research and formal logic, we had no choice but to use the real society as an experiment. In fact, generations of Chinese elites have been doing exactly this. It is terrifying to even think about it!
So, what does the research method of "empirical research plus mathematical logical analysis" represent in the social sciences? In fact, economic model research based on mathematical logic corresponds to "theoretical physics," "theoretical chemistry," and "mathematical biology." Its function is to test the internal logical consistency of some concepts and to deduce the various outcomes of economic decisions. This logical analysis is clearly the lowest cost, requiring no direct experiments with society. Meanwhile, empirical research based on large-sample data is similar to the repeated experiment research in physical, chemical, and biological laboratories. The difference between the former and case experiments or case studies lies in the ability of the former to avoid the randomness of individual cases and to prevent generalizations based on limited observations. But the question is, how can large-sample data be collected or repeated experiments conducted for issues like institutional mechanisms and policy choices? Fortunately, since World War II, the widespread adoption of computer technology, especially the emergence of the internet, has allowed researchers to input the historical and current experience data of nearly two hundred countries into computers, forming databases that are available to researchers worldwide at low or no cost for social science and economic research.
Since the forms of government and economic systems of countries around the world today and in the past are various, and their social and cultural environments are also different, the economic and social outcomes are not the same. These rich cross-national and cross-societal data can clearly help us test various ideas and hypotheses about people and society to judge their truthfulness. Today, various databases for the humanities and social sciences established for different disciplines can be easily searched for on the internet, which is truly a blessing for modern people. Of course, these historical and empirical data are still far from a reliable, fully repeatable "social science laboratory," but at least now it is possible to combine the actual successes and failures of two hundred countries to identify common patterns, allowing us to avoid the mistakes and lessons learned by other countries and no longer have to "test the waters" ourselves as before.
Especially, by analyzing the experiences of many sample countries, we can systematically understand the successful experiences of other countries. For example, Andrei Shleifer, a professor at Harvard University, and his colleagues have developed a completely new field of political economy in the past decade by collecting quantitative data on politics, law, religion, culture, and economics from over one hundred countries. They have conducted systematic statistical research on many old and new theories in political economy, revitalizing the field after years of stagnation. This is truly an exciting era for academic research!
In this sense, what we can learn from the world today is no longer simple copying of ideas and concepts, but a formal logical methodology for studying the economy, society, and the state, as well as cross-national databases that can help us falsify hypotheses. This means that the integration of Chinese and world social sciences is opening a new page, signaling another major transformation in the process of modern Chinese thought, and one that is currently underway.
Of course, transforming China's economic education and research to be completely based on formal logic and data empirical research rather than ideology is a long process. Consider that it took more than a century from the late Qing Dynasty's Self-Strengthening Movement to today to finally understand natural science and technology, and we can understand the difficulty of this process. Moreover, this is close to ideology, and economics and other social sciences are even more so. Before this process is completed, China's economic and political decisions may still have to continue to rely on "" ( is a Chinese idiom meaning "to cross the river by feeling the stones," referring to trial and error). But I hope that the Chinese people will bear the burden of "trial and error" less and less, until it completely disappears.