Economic Methods (Views of Eleven Economists)

Author: Wang Xiaowei, Song Chengyu
Publisher:
Publish Date: 2006-03-01
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. Its significance is profound. 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 meaningless topic of "who is first, second, or third-rate," nor the futile 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 that time, there were only some economic thoughts or wisdom about the economy—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 spanned over eighty years, and today we are still debating whether political economy or modern economics is mainstream, what constitutes economic research methods, and so on. This itself shows that economics is still in its preliminary stages in China and has not yet 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 Chinese scholars use to study people and society. "Mr. Democracy" brought the concepts of democracy and freedom, not research methods, while "Mr. Science" was the research methodology, scientific methodology, but it was previously understood as only applicable to natural sciences and engineering, not social sciences. Thus, in the eyes of many, "Mr. Science" was seen as a "technique" rather than a "philosophy," and until 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, not necessarily scientific. The wisdom of the Chinese people is well-known, exemplified by ancient sages like Confucius, Sun Tzu, and Guan Zhong over two thousand years ago. Among them, Guan Zhong's economic thoughts from the Qi Dynasty remain as classic as ever, a source of pride for the Chinese people. However, traditional humanistic and social ideas and wisdom often do not go beyond 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 events around him with great detail—and from these experiences and observations, he extracted the most brilliant insights. However, the experiences of one person or even a group are inherently limited. The limitations of transportation technology at the time prevented Confucius from traveling beyond the borders of what is now China, meaning the "samples" he collected were naturally constrained. 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 experiences may not stand the test of time and environment.
Especially in recent decades, research has shown that people generally have the behavioral bias of "selective memory": they remember only the experiences they want to see, ignoring those that contradict their desires. This bias existed in ancient times and persists today, leading some to make hasty conclusions about society and the economy or to generalize based on limited observations. Thus, without "logical verification" (e.g., deducing economic outcomes through mathematical logic models) or "data empirical testing," an "economic thought" could be either true or false.
In other words, China has long been advanced in craft technology and handicrafts, but the Industrial Revolution occurred in Western England 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, repeat experiments multiple times, and even have many people conduct the same experiments in different places to discover the laws of matter and nature under conditions they could never personally experience. This way, research results can far exceed personal experience summaries. For example, normal people cannot experience temperatures of a thousand degrees, so they do not know how soil behaves under such conditions. However, in a specially designed laboratory, this is easily simulated and discovered. Scientific laboratories and mathematical logic are the twin pillars of scientific methodology, enabling human knowledge to far surpass wisdom based on personal experience.
Fortunately, after over 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 fully entered the realm of humanistic and social studies 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 for the body, Western learning for the use," economics, which does not produce weapons or warships, was not considered part of "technique," so it was thought that "Mr. Science" did not apply to it. The over century after the Self-Strengthening Movement did not change the research method of Chinese learning, which remained light on empirical evidence and formal logical verification, still stuck to "experience summaries." When faced with contradictory ideas from the West, we could only choose based on inspiration and needs, especially based on "ideology," rather than conducting our own "data empirical testing plus logical analysis." Without the "social science laboratory" based on empirical evidence and formal logic, our elite decision-makers in the past century had no choice but to test the society itself with their own "ideas of what should be right." What was the cost of letting Chinese society itself serve as the experiment for these ideas? 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 initial ideas were wrong. Yet, decision-makers might not have admitted such mistakes and could have forced the entire society to endure them—why was society itself used as the 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 evidence and formal logic, we had no choice but to use the real society as the experiment. In fact, generations of Chinese elites have been doing just that. It is terrifying to even think about it!
So, what does the research method of "empirical testing 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 role is to test the internal logical consistency of some ideas and deduce the various outcomes of economic decisions. This logical analysis is clearly the lowest cost, requiring no direct experiments on society. Meanwhile, empirical research based on large-sample data is similar to the repeated experiments in physics, chemistry, and biology 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 avoid generalizations based on limited observations. But the question is, how can we collect large-sample data or conduct repeated experiments for issues like institutional mechanisms and policy choices? Fortunately, since World War II, the widespread adoption of computer technology, especially the advent 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 little or no cost. Given the diverse forms of governance, economic systems, and social and cultural environments across different countries today and in the past, the economic and social outcomes of these countries are not identical. These rich cross-national and cross-societal data can clearly help us test various ideas and hypotheses about people and society to determine their truthfulness.
Today, various databases for the humanities and social sciences have been established for different disciplines and can be easily searched online—this is indeed a blessing for modern people. Of course, these historical and empirical data are still far from a reliable, fully repeatable "social science laboratory." However, at least now, it is possible to combine the actual successes and failures of two hundred countries, identify common patterns, and avoid the mistakes and lessons learned by other countries, so that we no longer have to rely on "trial and error" as before. Especially by analyzing the experiences of many sample countries, we can systematically understand the successful experiences of others. For example, Professor Andrei Shleifer of Harvard University and his colleagues have, over the past decade, pioneered a new field of political economy. By collecting quantitative data on politics, law, religion, culture, and economics from over one hundred countries, they have conducted systematic statistical studies 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 copies 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 chapter, heralding another major shift in the process of modern Chinese thought transformation—and it is an ongoing shift.
Of course, transforming China's economic education and research to be fully based on formal logic and data empirical testing rather than ideology is a long process. Consider that it took over a century from the late Qing Dynasty's Self-Strengthening Movement to today for China to finally understand natural science and technology, and we can appreciate the difficulty of this process. Moreover, this is even more challenging for economics and other social sciences, which are close to ideology. Before this process is complete, China's economic and political decisions may still have to rely on "trial and error." But I hope that the Chinese people will bear less and less of the burden of "trial and error" until it disappears entirely.