The scourge of math

Guest Columns by Sauvik Chakraverti,

The Newindpress on Sunday, 2007-2008

The scourge of math

The other day, I brightened up reading a newspaper story, which said that with liberalisation, Economics courses are being exceedingly sought after in Indian universities. However, I was immensely saddened to read that admissions are being granted only to those with proven abilities in advanced math. Actually, the great economists who advocated free markets – Adam Smith, Jean-Baptiste Say, Frederic Bastiat, Carl Menger, Ludwig von Mises, Friedrich Hayek, Murray Rothbard, Peter Bauer – never used math. Indeed, they strongly opposed and openly ridiculed mathematical analyses of economic events.

The rise of mathematics and statistics in Economics rests on the idea that the methods of physics should be used in the social sciences. However, the two are completely different. Physicists can experiment and, when they do, find ‘constants’ in Nature (like the force of gravity), which they can accurately measure. These ‘constants’ then allow for accurate predictions.

Unlike them, economists cannot experiment, and there are therefore no ‘constants’ in Economics. The laws of Economics indicate ‘tendencies’: they are ‘if this – then that’ laws, whose predictions are qualitative, and not quantitative. There is no scope for measurement just as there is no scope for experiments.

Take, for example, the law of demand, which says that, for any given supply, if demand increases, price will rise too. No mathematician can actually measure the ‘elasticity of the demand curve’ and correctly predict the future price after a given surge in demand. Both measurement and prediction are doomed to failure as the matter is an ‘extremely complex phenomenon’ affected by many, many forces, including many ‘non-economic’ ones.

The future price of French wine is also affected by the results of negotiations at the WTO – a non-economic factor. If these negotiations succeed, and French wine can be freely sold all over the world, and a demand surge is expected, the fact remains that none of the other innumerable variables that enter the scene, from the weather in southern France to tastes and preferences in India, can be measured.

If any mathematical economist could actually predict the price of French wine next year, he could get extremely rich by buying it this year. But the truth is that all of them are poor, employed in government bureaus (and universities), from where they feebly attempt to predict ‘growth rates’ (as though an economy is a ‘living organism’). Yet, they fail even at predicting government expenditure for the next year: a variable that should be under their employer’s direct control.

The London magazine, The Economist, conducted an experiment recently in which 16 garbage collectors and 16 econometrists were asked to predict growth and inflation for the next year. The embarrassing result was that the garbage collectors fared better, armed with nothing but intuitive reason, than professional econometrists with all their sophisticated mathematical models and fast computers.

This should come as no surprise to those economists who have for long been asking their colleagues to reject math as their method. The tragedy is that, while the idea of ‘quantitative economics’ is being abandoned all over the world, it continues to rule Indian academia, wherein most professors are government employees. For them, government planning of the economy (and not free markets) is the main object of study.

Planners use statistics while allocating resources. P C Mahalanobis, who masterminded Nehru’s Second Five Year Plan, was a statistician. Statistics and mathematics are the tools of ‘central economic planning’. But statistics are only historical records of economic events. If accurate, their interpretation requires sound economic theory. As Jean-Baptiste Say put it: ‘‘The study of statistics may gratify curiosity, but it can never be productive of advantage when it does not indicate the origin and consequences of the facts it has collected; and by indicating the origin and consequences, it at once becomes the science of political economy.’’

The subject of Economics needs to exit the fictional nonexistent world constructed by the mental gymnastics of statistical and mathematical models, and return to the individual, the ‘forgotten Man of the social sciences’, and see how he acts in a given social reality. That is, the method of Economics needs to be ‘subjective’ and ‘individualistic’: a study of human action. Economists need to theorise on how the individual acts in the market process. Maths and stats are of some use as tools in examining historical events, but that is all. The body of economic theory must be based on logically developed axioms, thereafter, adding the element of time to make ‘process analysis’ of the market.

I see no hope of a fundamental change in the academic orientation of the teaching and study of Economics in India as long as the socialist Indian state conducts most of this education. A school of Economics in the private sector is the only answer to this sorry state of affairs, whose biggest victims are really the students. Some of the brightest minds that leave school are attracted to the study of Economics. Today, with the millstones of math and stats around their necks, they slog a lot but understand little. They are victims of socialist education, as their teachers are the intellectual bodyguards of socialism and central economic planning. If liberal economics is to be studied and taught here, it will require private effort.

The other great tragedy is that the rocket science of mathematical and statistical Economics is comprehensible only to the rocket scientists themselves: the intelligent layman cannot comprehend an iota of what is written in their books and journals. When laymen fail to understand Economics, they can scarcely vote intelligently. Yet, every human being needs a good economy to survive in. Failure to understand how the economy works means failure as democratic citizens. Fortunately, there are some good books available today for the education of laymen. These are available from both Liberty Institute as well as the Centre for Civil Society.

The writer is the author of Antidote: Essays Against the Socialist Indian State, and its sequel, Antidote 2: For Liberal Governance. He can be contacted at sauvikc@epmltd.com