Techniques of Model Building and Scientific Progress

Lucas as one of the “founding fathers” of NCM sees progress in economics as an entirely technical matter: mathematical and statistical methods improve over time; and he often pities previous economists for not being equipped with modern computational capabili­ties.

A “theory” is not a collection of assertions about the behavior of the actual economy but rather an explicit set of instructions for building a parallel or analogue system-a mechanical, imitation economy. A “good” model, from this point of view, will not be exactly more “real” than a poor one, but will provide better imitations. Of course, what one means by a “better imitation” will depend on the particular questions to which one wishes answers. (Lucas 1980: 697)

Thus scientific progress depends on the growth of technical abilities to construct models, but also on the changes of questions posed. This is very similar to Keynes’s (1938 [1987]: 296-7, original emphasis) view:

Economics is a branch of logic, a way of thinking... One cannot get very far except by devis­ing new and improved models... Progress in economics consists almost entirely in a progres­sive improvement in the choice of models.... Economics is a science of thinking in terms of models joined with the art of choosing models which are relevant to the contemporary world. It is compelled to be this, because, unlike the typical natural science, the material to which it is applied is, in too many respects, not homogeneous through time... Economics is essentially a moral science and not a natural science. That is to say, it employs introspection and judgement of value.

Thus it is all the more astonishing that both authors do not at agree on issues such as macroeconomic market failures and the need for stabilisation policies. The conclusion is that progress in model-building techniques hardly suffices to understand paradigm shifts in economics. Here, views on the conception of the world do not seem to converge. However, this is hard to concede among rational-expectation believers.

Peter Spahn

See also:

Milton Friedman (I); Robert E. Lucas (I); Macroeconomics (III); Monetarism (II).