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.
Markets and Money