Philosophy 101, #16: What is Epistemology and why does it matter in economic science?

Epistemology is a branch of philosophy that is concerned with the nature of knowledge. It questions what knowledge is and how it can be acquired:

How can we know something?
What is true?
What is justified belief?
Can we know reality or can we only approximate it?
How should science be conducted?

Attempting to provide a theory of knowledge, epistemologists understand that choosing the right scientific methodologies with which we conduct science matters a lot.

Why should we discuss the epistemological foundations of economic science?

The most immediate answer to this question is that different epistemological foundations lead to different methodologies and different theories, which can lead to different interpretations of real-life phenomena.

Those who are acquainted with scientific methodologies in the field of economics may have heard of the controversies surrounding praxeology – the science of human action which uses a scientific methodology that is pure deduction. Praxeology is a term that is mostly connected to Ludwig von Mises and the Austrian School of Economics. Mises (1966) writes that praxeological propositions are indeed much more “like those of logic and mathematics, a priori”.

Living in an empirical age, many people may be inclined to question the validity of a science that claims to arrive at economic laws from pure deduction whose validity can be established independently from observations. Hence, they may strike the skeptics as being disquietly dogmatic.

Example of two different scientific methodologies and how they lead to different explanations of the same real-life phenomena

Take for example the interpretation of the historical economic event, the Great Depression. Murray Rothbard, because he is working within the context of praxeology, makes use of the praxeological Austrian Business Cycle Theory. This theory focuses on the expansion of the money supply as an explanation of the onset of the ‘boom’ in the 1920’s which eventually resulted in the ‘bust’ in 1929. Milton Friedman and Anna Schwartz in A Monetary History Of The United States (1963), while not applying the ABCT, have focused only on the contraction of the money supply and the resulting higher interest rates in 1928 as the main cause of the Great Depression. Their application of different economic methods has led them to look for different possible historical causes of the Great Depression which has effectively resulted in different accounts of the same historical event. It therefore matters what economic methods are employed in economic research.

For a discussion on the two different economic methodologies, I would like to ask you kindly to watch the following video in which David Friedman (empiricist) and Bob Murphy (praxeologist) are debating which of the two methodologies is superior.