How Economists Model the World into Numbers

How Economists Model the World into Numbers

How Economists Model the World into Numbers

How Economists Model the World into Numbers


Economics is dominated by model building, therefore a comprehension of how such models work is vital to understanding the discipline. This book provides a critical analysis of the economist's favourite tool, and as such will be an enlightening read for some, and an intriguing one for others.


Only a further development of the engineering skill of econometrics will help in this respect.

(Tinbergen [1936] 1959:84)

But technique is interesting to technicians (which is what we are, if we are to be of any use to anyone)

(Lucas 1987a: 35)

A separate methodology of models

The practice of economic science is dominated by model building. Therefore, to understand economic practice we must try to apprehend how models function in economic research. The kinds of models discussed in this monograph are the mathematical models built and applied in empirical economic research, particularly in macroeconomics and econometrics. These models are meant as quantitative representations of our world. Their function is to generate numbers to inform us about economic aspects of the world. The central problem of this monograph is the assessment of the reliability of these bodies of knowledge.

In modern economics, it is taken for granted that quantitative expressions of our world are useful and that mathematical representations constitute - even better - knowledge about economic phenomena. This latter belief was explicitly voiced by Irving Fisher (1867-1947), one of the founders of modern economics:

The effort of the economist is to see, to picture the interplay of economic elements. The more clearly cut these elements appear in his vision, the better; the more elements he can grasp and hold in mind at once, the better. The economic world is a misty region. The first explorers used unaided vision. Mathematics is the lantern by which what before was dimly visible now looms up in firm, bold outlines. The old phantasmagoria disappear. We see better. We see also further.

(Fisher [1892] 1925:119) . . .

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