Where does this American fascination with economic data come from? Our late mentor Dr. Kurt Richebacher was highly critical of American economists (most of them) for being ignorant of theory and addicted to economic data. The addiction to data comes from the belief that the economy is a machine which can be operated smoothly and efficiently, provided you get accurate readings from all your dials, meters, bells and whistles.
Ironically, this reduction of a complex economy to a massive pile of spreadsheets and economic data has its roots in an obscure group of German economists called the Historicists. Dr. Kurt would be embarrassed. The most forceful advocate for the Historicists was Gustav von Schmoller. What did the Historicists believe?
The Historicists didn't believe in general, universal economic laws. They criticised classical economists like Adam Smith and David Ricardo for making broad statements about human behaviour and the nature of markets. Economics, they said, was not an exercise in deductive reason, where you could start with a general principle (each man always acts in his own self interest) and then analyze particulars.
Nope. The Historicists claimed economies had to be analyzed on a nation by nation basis, with emphasis on the different circumstances in each place at each particular time in history. It was inductive and empirical, which led, we reckon, to the habit of accumulating massive amounts of data and sifting through it to find patterns and trends that could, a) tell you what happened and, b) what might happen next.
Today, of course, we have massive amounts of economic data and willful ignorance of the basic axioms of wealth. You cannot measure some of the most important things in life. How much utility does a wheel of cheese have? How badly can a heart be broken? What is the price of a happy marriage? Not all of human behaviour can be reduced to a number or a price.
And there are some general axioms worth remembering that seem to always be true in all places at all times. You cannot get rich by spending more than save. Nations don't become powerful consuming more than they produce. Debt is not wealth. War is not peace. Freedom is not slavery. And ignorance is not strength.
Besides, who really cares about the economic data a month to month basis? We've known for years that debt-based wealth-whether in the UK, the US, or Australia-is the road to ruin. Some people are just now finding out how far along that road we are. We're very far indeed.
Dan Denning
The Daily Reckoning Australia
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About the Author
Dan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). He began his financial publishing career in 1997 and has covered financial markets form Baltimore, Paris, London and, beginning in 2005 Melbourne. He’s the editor of The Daily Reckoning Australia and the Publisher of Port Phillip Publishing.
Comment by Marc on 7 February 2008:
Principles instead of empiricism? Heresy! And, you really ought to credit "1984".
Comment by mike on 7 February 2008:
...i put three capfuls of vodka in a wine glass and started reading this article...i re-read the article before i noticed that the vodka was half gone....so it seems it must have evaporated....in the spirit of adam smith and david ricardo....the solution to this problem would be.... drink first...then read.....however, von schmollen says it should next time be that i will pour just six capfuls to start and then read etc etc...and all will balance ....except ok...maybe i did sip a little bit of vodka before i noticed that i hadn't had any to begin with.......however... schmollen's approach seems worth a try...
Comment by Pier Johnson on 7 February 2008:
Folks do not understand economics and economy.
Economics is the rhetorical logic that justifies the Home Law Rule by those holding power.
Economy is the map (picture) that happens from the Home Law Rule.
The only measures that count are these:
[1] ratio of notes and coins outstanding to total goods for sale
[2] rate of change of ratio of notes and coins outstanding to total goods for sale
[3] exchange ratio between unfettered currencies and your home currency
[4] rate paid to Money for its interest to rent cash to those in power controlling a government with unfettered currencies
Everything else is fake or meaningless -- everything.
David Ricardo and Adam Smith belong in a Hall of Shame along with most others -- John Stuart Mill, Karl Marx, John Maynard Keynes, Milton Friedman, Thomas Robert Malthus, William Stanley Jevons.
Smith was a plagiarist and bureaucrat approving meddler. Ricardo was dumb.
The guy you most want to know is Richard Cantillon.
Some of the others are Jean-Baptiste Say, Ludwig von Mises, Murray N. Rothbard, Anne Robert Jacques Turgot, Frdric Bastiat, G.L.S. Shackle.