Economic Methods: Perspectives from Eleven Economists

Author: Wang Xiaowei, edited by 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 lies not only in the recent intensifying debates about economic methodology, even in the broader social sciences, but also because, after a century of introducing economics to 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 discuss is not the trendy yet pointless topic of ranking scholars as "first-tier, second-tier, or third-tier," nor making meaningless predictions about 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 empirical summaries 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 the methodology of economic research, and other such issues. This itself demonstrates 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, the popular "Mr. Democracy" and "Mr. Science" had not yet fully transformed the methodology of Chinese scholars in studying people and society. "Mr. Democracy" brought the ideals 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, with no relevance to social sciences. Thus, in the eyes of many, "Mr. Science" was seen as a "technique" rather than a "philosophy," leading to the fact that China still only has "economic wisdom" and "economic thoughts," but no true "economics." "Economic wisdom" and "economic thoughts" are at most the empirical summaries of individuals or groups, not necessarily scientific. The wisdom of the Chinese people is well-known, exemplified by the 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 philosophies and wisdom often do not go beyond the empirical 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 exceptional detail, and from these experiences and observations, he extracted the most profound and 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 found that people exhibit "selective memory" as a behavioral bias: they remember only the experiences they want to see, ignoring those that contradict their wishes. This behavioral bias existed in ancient times and persists today, leading some people to make hasty conclusions about society and the economy or to generalize based on limited observations. Thus, without "logical verification" (e.g., deducing consequences of economic decisions through mathematical logic models) or "data empirical testing," an "economic thought" could be either true or false.
In other words, China has historically been advanced in craft technology and handicrafts, but the Industrial Revolution occurred in Western England rather than China. The reason is that Western countries developed scientific laboratories, 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 empirical summaries. For example, a normal person cannot experience temperatures of a thousand degrees, so they would 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 empirical summary methods 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 deemed unsuitable for "Mr. Science." Over a century after the Self-Strengthening Movement did not change the research methods in Chinese humanistic and social studies, which remained focused on empirical summaries and lacked formal logical verification. When faced with contradictory ideas imported 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 and formal logic, our elite decision-makers in the past century had no choice but to test the ideas of Chinese society itself. What was the cost of letting Chinese society 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 lives of millions or even hundreds of thousands, the catastrophic results should have proven the initial ideas wrong. Yet, decision-makers might not have admitted these mistakes and could have forced the entire society to bear the consequences. Why was Chinese society used as the experiment? The reason is simple: since there was no "social science laboratory" to help us discover the various possible outcomes of decisions (both positive and negative) through empirical and formal logic, we had no choice but to use real society as the experiment. In reality, generations of Chinese elites have been doing just that. This makes one shudder just thinking about it!
So, what does the methodology of "empirical testing plus mathematical logic analysis" as a social science research method represent? 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 certain ideas and deduce the various consequences of economic decisions. This logical analysis is clearly the most cost-effective, requiring no direct experiments on society. Meanwhile, empirical research based on large-sample data is similar to the repeated experiments in physical, chemical, and biological laboratories. The difference between this and case experiments or case studies lies in the former's ability to avoid the randomness of individual cases and prevent 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 with 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 rich cross-national and cross-societal data clearly help us test various ideas and hypotheses about people and society to determine their truthfulness.
Today, databases for the humanities and social sciences have been established for different disciplines and can be easily searched online, a true 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 to identify common patterns, allowing us to avoid the mistakes and lessons learned by other nations and 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 compiling 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 truly represents an exciting era in academic research!
In this sense, what we can learn from the world today is no longer simply copying ideas and concepts, but a formal logical methodology for studying the economy, society, and the state, along with 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, signaling another major shift in the process of modern Chinese thought, and one that is currently underway.
Of course, transforming China's economics 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 the present for China to finally grasp natural science and technology, and we can understand the difficulty of this process. Moreover, given that economics and other social sciences are close to ideology, the task is even more challenging. 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's burden of paying for "mistakes" will gradually diminish until it disappears entirely.