Economic Policy and Epistēmē

Classical economists claimed they had discovered nature’s socio-economic laws—that is, universal laws of nature with the same status as those of physics. They assumed also that what was ‘natural’ was also good.[19] This moral assumption persists throughout economics. It is assumed implicitly that the capitalist market system is ‘natural’ and therefore good—despite the fact that the capitalist system is clearly a social and historical artefact. As we have already seen, this silly assumption flows from the Enlightenment’s attempt to secularise God, along with the medieval concept of natural law, combined with an attempt to avoid moral responsibility for our institutions and conduct. Therefore, it is taken for granted by economists and economic policy analysts that economic policy analysis involves the search for—and the application of—unqualified, authoritative, universal, scientific laws and principles capable of providing unique, definitive and good answers to our policy questions.[20] As we saw earlier, this approach to policy analysis—this resort to epistēmē—has deep roots extending back beyond the Enlightenment to Christian transcendentalism and then to the central doctrine in Plato’s philosophy: his ‘Theory of Forms’. This transcendentalism was revived and reinforced by the Enlightenment’s search for certain, ahistorical, positive knowledge. Aristotle warned us, however, that not all knowledge was of this type—nor could we have this theoretical certainty in every field. He made a distinction between epistēmē—or theoretical grasp—and phronēsis—or practical wisdom. In particular, Aristotle argued that the good had no universal form and, consequently, judgements about what was good for society and the individual had always to respect the detailed circumstances of the particular case.

Practical knowledge does not require a prior grasp of definitions, general principles and axioms, as in the realm of theory. Rather, it depends on accumulated experience of particular situations and this practical experience leads to a kind of wisdom— phronēsis— different from the abstract stories of theoretical science. Practical knowledge differs from epistēmē in that it is concrete, temporal and presumptive and might not hold true universally but only typically. Importantly, it involves judgement or wisdom. In contrast, theoretical statements can make universal claims that hold true at any time or place only if they are as idealised as the axioms or theorems of Greek geometry. At best, very little, if any, knowledge is capable of approaching the exacting demands required of epistēmē. Conservative political philosopher Oakeshott shared Aristotle’s emphasis on phronēsis in his later works, in which he was highly critical of utopian rationalist projects in politics and stressed the importance of tradition and the practical knowledge it gives us.[21] This emphasis is reinforced by Michael Polanyi’s insight that most of the knowledge by which we get by in the world is tacit, rather than consciously known, and is acquired through experience.[22] One important consequence is that what counts as convincing evidence in practical matters differs from what counts in epistēmē. In particular, it legitimises reliance in policy analysis on accumulated experience, policy learning and anecdotal information rather than reliance on theoretical arguments.

Consequently, any reform of contemporary policy analysis needs to acknowledge that public policy decisions involve phronēsis rather than epistēmē. Despite the many warnings above, it is Plato’s dream of epistēmē—as revived by the Enlightenment—that is privileged in contemporary economic policy debates in the form of the theoretical speculative stories of neoclassical economics, whereas the practical economic learning of the business person, consumer and policy administrator is dismissed arrogantly as anecdotal, unscientific and irrelevant.