Archives: August 2009

IQ and the wealth of nations

Jason Richwine reports on Robert Putnam’s reluctant finding that “the more ethnically diverse a community is, the less social capital it possesses” and suggests that our immigration policies should be altered in favor of preferring skilled immigrants with high IQ’s because

higher IQ people appear to be more morally sophisticated, altruistic, and forward-looking. They exhibit higher levels of civic participation, more strongly adhere to middle-class behavioral standards, and cooperate more readily. This evidence, taken as a whole, confirms that intelligence and social capital are strongly related.

From this perspective, contemporary American immigration policies tend to produce the opposite result. The emphasis on family reunification, “human rights”, diversity, and protecting American workers produces a situation where highly educated people face formidable obstacles to (permanently) relocate to the US.  These “dysgenic” effects are further reinforced by the existence of massive entitlement programs which weaken the link between productivity and rewards.

Carl Menger and the exact science of economics

In Significance and Basic Postulates of Economic Theory (1938) Terence W. Hutchison presents a logical-empiricist perspective on economic methodology and takes specific issue with Austrian economists who believe that economic theories cannot and should not be falsified through empirical testing. In the chapter “The Application of Pure Theory” Hutchison criticizes Carl Menger’s view of what constitutes an “exact” science:

Menger contributed a further precision to this concept of economic laws, emphasizing what he and subsequent writers called their exactness, exceptions to them being inconceivable, and that “it involved a misconception of the foundations and postulates of the exact method” to test them empirically…To-day one can hardly help concurring with Schmoller that any worker in a chemical laboratory who proclaimed Menger’s conception of exactness would be ejected forthwith.

He also quotes John Elliott Cairnes on the methodology of economics as saying, “The economist starts with a knowledge of ultimate causes. He is already, at the outset of his enterprise, in the position the physicist only attains after ages of laborious research…”

Hutchison responds to his claim as follows:

It is possibly very encouraging for the economist to hear that compared with the natural scientist the psychological method saves him “ages of laborious research”, but it is curious and a pity that this huge start has not enabled him to formulate any considerable body of reliable prognoses such as the natural sciences have managed to achieve.

Hutchison does not completely dismiss the role of  a-priori reasoning in economics but objects to the idea that such reasoning exhausts the subject of economics. He quotes Ernst Mach on “laws” being “a limitation of what is possible.” If a law does not exclude or forbid any conceivable type of empirical occurrence than it  is not telling us anything about the world and, therefore,  such a science should be considered a pseudo-science. A similar complaint has been raised by Karl Popper about the all-accommodating nature of Marxism. The logical positivist writer Otto Neurath was of the opinion that, historically, metaphysical and anti-positivist thinking go hand in hand with the justification of oppression.

Much ink has been spilled over the question of whether the methods of the natural sciences are suitable for the study of economics. But even after 70 years since the publication of  Hutchison’s classic, economists who  have completely rejected empirical testing have contributed little of substance to the science of economics.