Economic Theory and Data
The Role of Theory and Data
Stone’s approach was that economics is an empirical science:
It seems to me that the development of a science requires attention to both facts and theories and I agree with Marshall that economic theory is as mischievous an imposter when it claims to be economics proper as is mere crude unanalysed history. I cannot imagine why anyone should think otherwise or why economists should tend to put theorists on a pedestal. The real difficulty is to combine the two so that theory can be used to interpret facts and facts can show what has to be interpreted (Stone quoted in Pesaran 1991: 89).
Stone made his own approach to data and theory clear in his proposals for the research to be undertaken under his direction at the foundation of the DAE. He proposed that the research should concentrate on the ‘three tasks of applied economics: the work of observation, i.e. the discovery and preparation of data; the theoretical appraisal of problems, i.e. the framing of hypotheses in a form suitable for quantitative testing; and the development of statistical methods appropriate to the special problems of economic data’. He added: ‘I do not believe that applied economics can be fruitfully developed without a synthesis of all the three types of study ... The most successful observational work is done under the guidance of theoretical ideas’. However, ‘the reformulation of theory to provide hypotheses for quantitative testing is in a very rudimentary state’.[1] The great achievement of the Department, and Stone’s own work on the behaviour of consumer demand, was in such a reformulation and testing.
Later he stated his own position in relation to others in the field:
Practitioners [of economics] can be grouped into three types: the speculative, the active and the inquisitive. The speculative look at the machine and try to interpret its workings from the signals it emits; the active do not like the way it appears to work, and devise improvements; the inquisitive try to take it to bits and see how it actually works ... If I were inclined to speculation, I would talk about advances in theory. If I were an activist I might talk about welfare economics or taxation policy or Keynes or perhaps even Marx. Being merely one of the inquisitive ones,
I shall talk about the areas I have enquired into and the tools I have used for the purpose: more specifically about quantitative analysis, economic dynamics and what, for want of a better term, I shall call social econometrics [179: 723].
- [1] Note by Stone dated 13 June 1945, in the E.A.G. Robinson Papers, Marshall Library, CambridgUniversity: Box 36.
