Monday 13 May 2013

The metaphysical 'law' of Comparative Advantage - an assumption masquerading as a discovery


[If you don't already know what the economic 'law' of Comparative Advantage is, then don't bother reading this.]


What is interesting about Comparative Advantage is that it is a metaphysical assumption and not a discovery. In this it resembles evolution by Natural Selection.

What both Comparative Advantage and Natural Selection do is make a set of assumptions and then state that IF these assumptions hold, THEN such-and-such consequences WILL follow.

Neither are empirically 'true' - rather they are logically true in the sense that IF the assumptions do indeed hold, THEN certain outcomes WILL follow - but strictly this has nothing (and I mean nothing) necessarily to do with what happens in real life, what is empirically observable - what is real, consequential, important in terms of the world.


Because we can never know for sure whether the assumptions of CA (or NS) hold, and even if we could know, there are an open-ended number of other processes at work in the real world, of unknown strength; such that EVEN IF comparative advantage was operating it could easily and often be small, weak, utterly swamped, invisible to observation, insignificant in real terms.


So, Comparative Advantage is only 'true' by definition, but is not the kind of thing which can be tested. It certainly is not always true or important in practice, indeed it cannot be known whether or not CA is applicable in any specific situation.

In other words, CA was not discovered - it was devised; it is not empirical science it is metaphysics (i.e. potentially a framework of science), is is not a finding, it is an assumption.


Yet economists persist is describing CA asif it was a discovery, asif it was testable, asif it is necessarily and empirically applicable and important in all situations!

All that can be said is that when CA is built-into an analysis or investigation, then such-and-such is the consequence of building-it-in.


In principle, since it provides the framework for the subject; Comparative Advantage could never be disproved (nor proved) by anything that ever could be discoverable by economists - just as Natural Selection cannot ever be disproved (nor proved) by anything a biologist might discover.

To treat Comparative Advantage as part of the 'science' of economics is mistaken, a misunderstanding, just plain wrong - Comparative Advantage just is not that kind of a thing!

Comparative stands outside-of economics - it is part of philosophy.



JP said...

we can never know for sure whether the assumptions of CA (or NS) hold

In point of fact we know for sure that the assumptions of CA do NOT hold in the real world. Ian Fletcher's book on Free Trade makes this clear. And yet CA is the basis for any number of evil, destructive policies...

Kevin Nowell said...

All of economics is philosophy. You can't do any real experiment unless you are a sovereign and a sovereign isn't going to change policy just to test an economic theory. So economists are limited to making observations from history and historical data and making derivations from those assumptions. So basically you're complaint is with the entire field of economics and not just one theory.

Bruce Charlton said...

@KN - Yes my complaint is with the entire field of economics;

but no, I don't think it is all philosophy.

There are bits of science in it - potentially (I don't mean in professional economics) - typically at a small scale and local levels, and using experience to test common sense, in a broad brush fashion.

But you are right in the sense that I suppose there is not much worse than doing philosophy while refusing to do philosophy - which is what professional economics does, all the time, more and more...

Bonald said...

A while back, I made a very similar point about natural selection and thermodynamics, but I drew the opposite conclusion.

Rather than conclude that these things are not really science, I decided that science contains more than just empirically falsifiable claims. It also includes the discovery of necessary structures that must appear when certain conditions are met. You might say that such things should be classified as philosophy (your choice) or mathematics (my choice, if I were forced to pick), but to me a definition of science that excludes things like the second law of thermodynamics is obviously too restrictive.

Bruce Charlton said...

@Bonald - Well, if not 'philosophy' it could be called revolutionary science (in Kuhn's terminology) - or perhaps meta-science - or maybe just 'theoretical science'; but it is a very different thing from 'normal science', empirical or problem-solving science.

This distinction is blurred when a new theory enables new problems to be solved - but in this corrupt era of modern science it is easy to think of highly 'successful' new theories/ philosophies that are justifed purely in career terms (grants, jobs, status) - these underlie what I termed Zombie Science.

But the main point was that economic/ biological *data* does not validate but neither can it disprove CA/ NS.