Economics and Physics

Physics is Not Logical

Nobel Prize winning New Zealand physicist Ernest Rutherford (1871 – 1937) is reported to have claimed that “all science is either physics or stamp collecting.” He evidently meant that physics is the only real science and everything else that goes under that label is just a collection of facts.

The wiki’s definition of science as “a systematic enterprise that builds and organizes knowledge in the form of testable explanations and predictions about the universe” serves our purposes. Physics is the über-science because it alone provides the ultimate foundation for all explanations related to what the natural world is about.

What makes physics not merely a heap of facts — what distinguishes it from stamp collecting — is that it is organized knowledge. The organization of knowledge is achieved through what are called “theories”. Theories are conjectures (hypotheses) about the nature, structure or working of some aspect of nature. Theories in physics are conjectures about what the physical world is and how it functions.

The brilliant 20th century Austrian-British philosopher of science Karl Popper (1902-1994) argued “that the criterion of the scientific status of a theory is its falsifiability, or refutability, or testability.”[1] He showed that irrefutable theories are not scientific.

When scientific theories pass some falsifiability tests, they do not become established as truth but rather they gain the status which can be labeled “not yet falsified.” In that sense, scientific theories are never apodictic (expressing or of the nature of necessary truth or absolute certainty). Only in mathematics do you come across “truths” that are necessary as they are the result of the application of logic on the given axioms.

Mathematics is logical. Physics is not logical. Whenever I make that claim, the reaction is of shocked disbelief. But only a moment’s reflection clearly shows that it is so.

The Physical World is Intuitive

You don’t have to know physics to make your way around the physical world. For example, catching or throwing a ball does not require knowledge of the physics of ballistics.

Our bodies and brains evolved in a world where the laws of physics applied and therefore we are capable of navigating it without an explicit understanding or knowledge of those laws. We implicitly know them to the degree that is required for survival and reproduction. We “understand” the physical world intuitively.

But — and here’s the kicker — the explicit knowledge of the ultimate foundations of the world we inhabit is extremely hard to gain and appreciate.

Physics is Hard

Even very everyday, ordinary phenomena are hard to explain to the average layperson. To appreciate the ultimate explanations underlying them as discovered by physicists would require years of serious study.

Consider, for instance, the simple phenomenon of star light. Practically all life on earth depends on the light from the local star, the sun. But what makes stars tick was only discovered in the last century. Nobody knew the physics of star light before that.

David Deutsch brilliantly explains that in the first half of the 20th century, physicists figured out all kinds of objects and processes: the nature of the atomic nuclei, nuclear reactions, isotopes, particles of electricity, antimatter particles, neutrinos,  conversion of mass to energy, transmutation of elements, gamma rays, etc., all of which are required to explain the nature of star light.[2]

But why is physics so hard? Because the foundational explanations are in terms of concepts that are alien to our everyday existence. No one has seen unaided an atom, or encountered an electron. We cannot relate to very short distances and durations. We see and experience the macro phenomenon but the micro is entirely unobservable, and neither felt nor experienced.

Humans were completely ignorant of the existence of the fundamental forces until relatively recently in the history of our species. Of course, everyone knew that things fall if unsupported but why things fell had to be explained by Newton and his theory of gravity (published 1687.) What is hard is understanding why the physical world is the way it is in terms of its fundamental forces, and matter and energy.

Of the four fundamental forces — gravity, electromagnetism, the strong and the weak nuclear force — we are only capable of observing the action of gravity. Of course, we don’t have to know any theory of gravity to live our lives; it comes naturally to us. And one can be entirely ignorant of the existence of electromagnetism, the strong and weak nuclear forces and be none the worse for it.

Economics is Easy

The reason for the preceding discussion of physics is to place it in opposition to economics. Physics is a natural science, and concerns itself the formulation of hypotheses, with empirical observations, with predictions which are capable of Popperian falsifiability. Physics is the study of inanimate matter and energy.

By contrast, economics studies animate matter — specifically humans.  It is therefore not a natural science. The proper object of study for economics is the individual human being as he goes about his life making a living in the company of other humans. Individuals live in social groups and therefore economics is a social science.

It is a behavioral science in the sense that the object of attention — the “atom” of economics if you will — is the behavior of the individual (which is related to the word indivisible) in the company of other individuals. The most important distinction between the atom of physics and the “atom” of economics is this: the atom of economics — the individual — has a will, its own volition, its own purpose; it chooses, it is rational, is motivated and it acts.

Humans Act

Individuals act purposefully. And that purposeful action is always — without exception — motivated by a sense of dissatisfaction with the prevailing situation. This is really the most profound point. If one did not feel dissatisfied, one would not act. Every action is the result of some perceived unsatisfactory state and the belief that one has the means to make oneself more satisfied.

This bears repetition: all human action is purposeful in the sense that it is aimed at removing some dissatisfaction. If you find an exception to this, you’d have proved something that is a logically impossible. The truth of this proposition is so evident to each of us that it requires no empirical testing. It is a logical necessity. It is apodictic.

Physicists study things that don’t act. Economists study people, and people act. And that makes all the difference

The subject of human action has been brilliantly explored by Ludwig Von Mises in his magnum opus titled — what else — Human Action: A Treatise on Economics (1949).[3]

It’s Humans All the Way Down

Now the final point. Because economics is concerned with human action, and because we are humans, it is easy for us to understand economics from the bottom up, from the fundamentals. The basic explanations of all economic phenomena involve the individual actor, the economic agent. These explanations are based on a small set of axioms, and the truth of these axioms are immediately obvious to us. All we have to do is introspect and we know that the axioms are true.

To restate the argument so far, the fundamental explanations of even the most ordinary physical phenomenon require the understanding of things that are inaccessible to our senses. In contrast to that, the foundations on which the explanation of all economic phenomena rest are known to us because we are the ones that make it all happen. Following our will, we choose our ends and means, and we act. We create the economic world through our actions, individually and collectively. Without us, there would be no economy. And therefore humans are the only thing that matter when we talk about the economy.

The whole economic edifice is constructed out of bricks that are individuals. When it comes to the matter of the economy and economics, it’s people all the way down.[4]

Oops, Humans are Not Bricks

Individuals are not bricks. Although that’s not the most earth-shatteringly amazing statement you’ve ever read, I assure you that the profound implications of that truth are earth-shattering. It explains pretty much all the man made disasters that have ever been inflicted upon humanity. It is also why good economists can not, should not, and do not get into the business of prediction. Predictions are best left to scientists such as physicists, and to pseudo-scientists such as astrologers.

Until the next time, be well, do good work and keep in touch.

(EDIT: Here’s the followup post where I argue that economics is easy.)

References:

1. Science as Falsification. Karl Popper. 1963.
   Further reading: The Logic of Scientific Discovery. First published in German in 1935. English translation first published in 1959.
2. Watch David Deutsch explain what good explanations are:
   
   
   Start at 2:03 minute mark for the star light segment.
   
3. Read more at “Human Action is Purposeful Action” at the Mises Institute.
4. So the story goes that some renowned cosmologist was giving a public talk about the universe. Picture in your mind Carl Sagan going on about the solar system, the billions of stars, and how awesome, big and beautiful the cosmos is.
   During Q&A at the end of the lecture, a little old lady gets up and tells Carl, “Your talk is all very nice and interesting. But what you don’t know is that the earth rests on the back of a giant turtle.”
   Carl is amused and decides to humor the kind lady. “On what does that giant turtle rest?” he asks.
   The lady is unperturbed. “It rest on an even bigger turtle,” she replied.
   Carl is not about to give up. “And do tell on what does that one rest,” says he.
   She calmly replies, “Don’t you worry, young man. It’s turtles all the way down.”