Page 76 - Global Political Economy_Understanding The International Economic Order

NEO CLASS ICAL C ONCEP T OF AN ECONO MY
question of whether or not the idea of human capital is a logical
extension of the conventional theory of international trade based on
factor endowments or whether it actually is an ad hoc hypothesis
intended to rescue a theory that is crumbling in the face of contrary
evidence. As Thomas Kuhn demonstrated in The Structure of Scien-
tific Revolutions (1962), scholars andscientists are frequently
strongly temptedto resort to adhoc hypotheses to defenda long-
27
accepted“truth” that has become subject to serious attack. In fact,
use of adhoc hypotheses andof ex post facto redefinitions of impor-
tant terms in a theory makes it difficult to prove a theory or hypothe-
sis wrong. Proponents of a theory whose validity is threatened by
contrary evidence sometimes merely change the terms of the theory
to make it conform to the empirical evidence. Modification of the
meaning of capital in the above example suggests that economists do
change their assumptions in order to make their predictions work. At
the least, the inclusion of human capital significantly enlargedand
modified the content of conventional trade theory.
The predictions of economists are in fact notoriously poor. As some
quip, “Economists have successfully predicted seven of the last five
recessions.” Moreover, a significant portion of the acceptedbody of
economic theory has never been adequately tested. For students of
political economy, the ceteris paribus (other things being equal) ca-
veat offeredby economists is exceptionally significant because politi-
cal factors andsocial institutions do affect the outcome of economic
activities andare rarely equal in their consequences. For this reason
alone, the problem of the validity of the assumptions on which eco-
nomics is based cannot be as easily dismissed as Friedman and other
economists wouldlike.
Economists’ efforts to employ econometrics, the principal mathe-
matical technique/s to test theories against facts, have produced only
moderate success in resolving theoretical controversies. While econo-
metrics has hadmany successes, it has failed to transform economics
into the formal andmathematical science foreseen by Samuelson. Suc-
cessful application of econometrics has been limitedby the lack of
gooddata andthe sheer complexity of the economy. In the harsh
judgment of The Economist, econometric studies have not settled a
single major theoretical dispute. 28 Moreover, many if not most eco-
nomic theories are never submittedto empirical testing. In the ab-

27
Thomas S. Kuhn, The Structure of Scientific Revolutions (Chicago: University of
Chicago Press, 1962).
28
The Economist, 9 May 1987, 68–69.
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