June 24, 2018 Reading Time: 4 minutes

Paul Heyne (1931-2000), who taught for most of his career at the University of Washington, was one of the 20th century’s greatest teachers of economics. He excelled in the classroom, in popular writings, in public lectures, and in his indispensable textbook, The Economic Way of Thinking.

Paul made economics relevant and, hence, interesting. And perhaps the single best piece of advice that he offered to his fellow economists is to tell what he called “plausible stories.”

Far too many professional economists today ignore this advice, even when teaching an introductory class to freshmen. Indeed, wrongly thinking it to be hostile to scientific rigor, they hold this advice in contempt. In their admirable quest to be scientific, most economists not-so-admirably mistake what looks like science for actual science.

Science and Anti-Science

Is the math extensive and advanced?  Are the data all quantified, abundant, and rigorously processed with the latest econometric techniques? Do the articles and books written by economists resemble articles and books written by physicists?

Calling it “scientism,” F.A. Hayek criticized as unscientific this attempt by economists to mimic the physical sciences. It is unscientific, argued Hayek, merely to assume that methods that work well in one branch of scientific inquiry are appropriate for other branches. Surely some objective inquiry into the actual usefulness of different methods of inquiry is necessary in order to discover which method or methods work best in economics.

My own take on economic methods is deeply influenced by Hayek. It is influenced also by Deirdre McCloskey who insists that whatever methods work to further our understanding are legitimate methods. And that which furthers understanding differs from person to person no less than from subject to subject.

Different economists pursuing different investigations will find different methods most useful. A paper filled with equations is sometimes appropriate – but not always. Likewise a book chock full of highly processed quantitative data. And likewise verbal stories.

Although verbal stories have nothing of the appearance of Science, they are a legitimate and scientific method of gaining – and of sharing – understanding. In fact, for some purposes, verbal stories are by far the method that works best.

Consider Leonard Read’s famous story “I, Pencil.” In unassuming prose, Read revealed the surprising though indisputable truth that the amount of knowledge necessary to make an ordinary commercial-grade pencil is inconceivably greater than is the amount of knowledge that can be comprehended by a single individual or by a committee of even the most genius of individuals. (In 1776, Adam Smith told a similar, although much shorter, story about an ordinary woolen coat.)

Equations and Stories

Try to imagine conveying this truth using mostly equations. It’s difficult – actually, for me it’s impossible. A mathematician, of course, could easily scribble a series of equations that conveys to other mathematicians the understanding that the number of bits of knowledge required to make a pencil is mind-bogglingly large as well as scattered across an almost equally large number of human beings.

This mathematician might also have the tools and skills to demonstrate mathematically that when these bits of knowledge are acted upon in just the right way – and in just the right temporal sequence – that one result will be that particular combination of inputs that we call “pencils.”

The Marvelous Market

But even for that small handful of people who can understand these equations, any such mathematical demonstration would, by itself, convey nothing of the marvelousness of the market processes that daily supply humanity with pencils. Conveying this marvelousness is possible only by supplementing these equations with a verbal explanation of the salient features of this reality, as in, for example, “We are amply supplied with pencils despite the fact no one knows, no one has ever known, and no one could possibly know all that must be known to produce something as seemingly simple and as common as a pencil!  Isn’t that marvelous?!”

The verbal story continues:

“By using market prices as both signals and incentives for what to produce and how best to produce it, each person – each worker, each input owner, each entrepreneur – seeking mostly his or her own economic betterment, acts in ways that are coordinated precisely and productively with the actions of hundreds of millions of strangers. How marvelous is that?!  And the astonishing but undeniable result is a steady supply of pencils, each one available for an amount of money that an ordinary American worker today earns in about three seconds! Oh, and of course, what’s true for the meek pencil is doubly or triply true for really complex goods and services such as Toyota Camrys, iPhones, and the electrification of our homes.”

What a story!

Yet notice this: all the explanatory work is done by the verbal explanation and not by the equations. The equations are superfluous. Even without them, the economically informed storyteller conveys to others a truth as startling as it is vital. But with only the equations, very little, if any, insight is conveyed.

Contemplation as Production

Leonard Read’s long-time secretary, Jeanette Brown, told me that Read one day in 1958 squirreled himself away, alone in his office at the Foundation for Economic Education, and for hours did nothing but contemplate a pencil. This contemplation – combined with Read’s extensive reading of great economics texts – is what Jeanette believes to be the source of Read’s insight as told in “I Pencil.”  

If Jeanette is correct – as to me she seems to be – in what way is Read’s pondering a pencil and thereby discovering the insights that he shared in “I, Pencil” less deserving of the label “scientific inquiry” than is, say, an astronomer pondering the night sky through a telescope and thereby discovering a previously unknown star?

Both inquiries uncover truths that are objective in the sense that they can be conveyed to other people, each of whom is free not only to challenge or to accept the claimed truths, but also to use those truths as tools in the search for other truths.

Economics, when done well, is the telling of such stories. The stories told are not fantasies or fictional. They are, a Paul Heyne said, plausible. And they are fascinating!

Donald J. Boudreaux

Donald J. Boudreaux

Donald J. Boudreaux is a senior fellow with American Institute for Economic Research and with the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at George Mason University; a Mercatus Center Board Member; and a professor of economics and former economics-department chair at George Mason University. He is the author of the books The Essential Hayek, Globalization, Hypocrites and Half-Wits, and his articles appear in such publications as the Wall Street Journal, New York Times, US News & World Report as well as numerous scholarly journals. He writes a blog called Cafe Hayek and a regular column on economics for the Pittsburgh Tribune-Review. Boudreaux earned a PhD in economics from Auburn University and a law degree from the University of Virginia.

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