Some Principles of Model Construction

Abstract

Though facts provide information, they do not of themselves provide explanations in the scientific sense of the word, as used in Chapter 1. Such explanations of what we observe and the prediction of future events require theories. In order to extract sensible meaning from the apparently jumbled complexity of the ‘real world’, it is necessary to limit the area of enquiry. For this reason, each branch of economic theory attempts to answer a limited number of questions. Why a discipline should choose to ask some questions rather than others is a matter beyond the scope of this book. However, given the dominance of the capitalist system of production and exchange in Europe and North America, and its influence on the use of resources in many other parts of the world, it is not hardly surprising that the Anglo-Saxon tradition in economics has concentrated on analysing the workings of such a system. The questions traditionally asked concern such things as: What is produced? How much is produced? What is the mechanism which distributes this production between the factors of production?, and so on. Such questions were, and still are, asked in fairly general terms and similarly answered at a high level of generality. The theories developed to answer these questions, and other such as, ‘under what conditions is production efficient?’, still provide the basis of traditional courses in economics. It is important to remember that all theory sets out to answer specific questions and so cannot be expected to provide answers to questions that it was not designed to answer. Furthermore, the way in which we apply a theory to a particular problem is most successfully done through the medium of a model.