Ambiguity and Antinomy

Chapter 1, Section 5: Ambiguity and Antinomy

A theory that explains phenomena must have the possibility to be refuted by facts. This is the motto for all empirical sciences. In preceding paragraphs I have repeated tirelessly that, theories like tautology that cannot be wrong have no chance to be refuted and thus cannot explain anything. In addition to tautology, there are four more occasions that make a theory impossible to  be refuted. Two of them will be discussed here, and the other two in the next section.

Firstly I will talk about something that I once amusingly called "Coase second theorem". In his startling masterpiece published in 1960 (the well-known Coase theorem comes from this paper), Coase proposed a philosophical principle that seemed commonsense but nobody had ever mentioned explicitly. After he had made every attempt to understand A. C. Pigou's economic analysis while still didn't get it, Coase wrote: "ambiguous thought can never be proved right or wrong."

Yes, ambiguous concept or analysis cannot be unambiguously wrong, so they cannot be unambiguously refuted by facts. For a theory to to be refutable, a prerequisite is : the theory must clearly show its possibility to be wrong. That "when it rains there must be clouds" is possible to be wrong (but it never is); that "in spring flowers flourish" can be wrong (it never is either). However, if we are ambiguous about what is cloud or when is spring, how can a statement be judged right or wrong?

In economics, ambiguous concepts are plenty, and theories impossible to be unambiguously refuted come and go without an end. Karl Marx's Capital can be an example. What exactly is residual value? Some scholars say it rent, some say interest, some say profit, while some others say there is no such a thing at all. Nobody can make it clear. Marx defined "residual value" as capitalists' remaining after wages are paid, but other production costs have not been deducted yet, how could the residual be deemed a gain from exploiting workers? Another concept capital in it was ambiguous as well. Only until the thirties of last century did the latter receive a clear explanation from Fisher (see Volume 2 of this book).

Nobody has ever attempted to validate Marx's theory against facts. It's not surprising at the time China didn't do that, but why didn't western scholars do that either? The answer is: an ambiguous theory is impossible to be testified. Unfortunately, alike theories that cannot be wrong tend to be taken as absolute by those blind followers.

Ambiguous concepts or theories, of course, don't come from Marx exclusively. The talent D. Ricardo, who was before Marx and had great influence on him, didn't discriminate capital and cost very well that his analysis on wage and rent is therefore very hard to understand. Another modern master F. H. Knight, of whom five students won Nobel Prize in Economics, was taken by ambiguity as well. He discriminated risk and uncertainty, between which we can find no difference at all.

Keynes' General Theory is not unambiguous as well, so for some important parts of it nobody can claim they are confirmed. The founder of the utility theory J. Bentham subjectively viewed utility as happiness, but no body knows what it exactly indicates. Afterwards, Alchian asked the question "what is utility" and soon became well-known. Bentham's utility theory was ambiguous and could not be confirmed by facts; but since Alchian there have been a lot of confirmation studies. (That as a disciple of Alchian, I don't use this concept is another story.)

Because ambiguous concepts or theories are impossible to be proven right or wrong, they don't have explanation power. Another type of theories unable to be refuted, are those meaningless. The meaninglessness here doesn't mean no content, which is for tautology; instead it's due to antinomy, the logical inconsistency in statements of a theory. When there is antinomy, people cannot understand what the statements actually conclude, therefore they can only be deemed meaningless.

Let's have some examples. If I say "there are black spots on a totally white wall", this is a sentence with content and unambiguity, but "black spots" and "totally white" are contradictory to each other and thus meaningless. If there can be black spots on a totally white wall, then logic can prove wall equals God. (The reasoning behind it is neither trivial nor economics related so omitted here.) Contradicted statements can have contents, can be unambiguous, but can't be meaningful.

In economics, antinomic theories can be found everywhere. Same as tautologies, antimonies are hard to spot. My dissertation, Theory of Share Tenancy, overthrew all predecessors' views and pinpointed their contradictions. For example, C. Issawi's theory assumed each individual fights for his own interest, but he wrote as well: "in this writing I assume inexplicitly that:  landlords don't make prompt response to economic gains and won't try to enlarge their gains by increasing their investment." If this is not contradiction, what would be? Another example, when Marshall did his analysis on tenancy, he was fully aware fix tenancy was more profitable than share tenancy, though, he didn't allow fix tenancy chosen by landlords.

Such contradicted analyses can be found in many economists' works. W. Baumol said a monopoly maximizes its sales instead of profit, but his theory didn't allow an enterprise to exchange minor sales loss for large profit gain. J. Hicks pointed out, when one's income increases, his demand for certain goods may decrease. This is correct. But when he did the analysis, it was assumed the world has only two types of goods, and in that world, the income increase will not lead to a demand decrease of any of them. Any science has the problems of antinomies; economics is no exception. Immediate contradictions are easy to spot, but indirect ones, those that have gone through one or more layers of inferences, sometimes escape masters.