ends directs or affects actions, one cannot avoid tracing back the effects produced by
action to the point beyond which no analysis of actions can proceed, i.e., to the value
judgments of the individuals and the ends they are aiming at . . . ” Mises (1962)
It is quite telling that the number of government tsars (or czars—U.S. nickname for
special executive branch officials with expanded powers—has increased under Obama
quite considerably: 32 czar positions created so far. (There were 12 such positions
under Roosevelt and only 1 under Reagan or Eisenhower.) The distinction between
macroeconomics and microeconomics reflects modern physics’ distinction between
microscopic physics, which deals with systems on an atomic particles scale, and molar
physics, which deals with systems on a scale appreciable by man’s gross senses. The
evolution that led from macroscopic to microscopic physics progressed from a less
satisfactory to a more satisfactory method of dealing with the phenomena of reality, as
it has been with all other sciences.
In economics the progress has been precisely the opposite. It asserts that microeconomics
is an unsatisfactory way of studying the problems involved and that the substitution
of macroeconomics for microeconomics (ever since Keynes) amounts to the
elimination of an unsatisfactory method by the adoption of a more satisfactory method.
Because the market operates on significantly more extensive information than any participant
can ever possess, a particular economic outcome must depend on vastly more
facts and variables than any scientific observer can ever insert into his models or hypotheses
explaining or predicting the outcomes. Microeconomics therefore accepts
that economists can never achieve a full explanation or an exact prediction of the particular
outcome of a given situation. Microeconomics must be content with only a
pattern prediction. We can only say what kinds of things will not happen and what
kinds of patterns the process will generate, without being able to predict a particular
outcome.
Macroeconomics, contrary to all other sciences of complexity, has replaced indispensable
economic information by statistical figures on aggregates and averages.
These are undoubtedly easier to forecast but also significantly less relevant to scientific
explanation or prediction.4 We cannot validate macroeconomic formulas by simply
filling them with empirical measurements and then using the “results” to explain human
action. Such measurements, if not performed by the very people whose actions
we want to explain, remain wholly uninteresting. All that is relevant in economics is
not how things are or appear to an observer, but how they appear to human beings, to
acting men.
Recall the famous physicist Lord Kelvin insisting: “When you cannot measure,
your knowledge is meager and unsatisfactory.” This may be true for physics—and its
dealing with fundamentally much simpler phenomena—when compared to economics.
Important is not whether one can measure, but if one knows what such measurements
mean and how to interpret them. Striving for pseudo-exactness by imitating methods