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What is the Deductive Method of Economic Law?

Updated on May 31, 2014

Introduction

Deductive method is typically known as analytical, abstract or a priori technique. Deduction starts and continues from the generic to the specific whereas induction progresses from the specific to the broad. According to Gee Wilson, “By deduction in logic is meant reasoning or inference from the general to the particular or from the universal to the individual. Induction is the process of reasoning from a part to the whole, from particular to general or from the individual to the universal.” Prof. Boulding names this method as “intellectual experimentation.”

Forms of Deductive Reasoning

There is a couple of deductive reasoning:

• Mathematical
• Non-mathematical

The classical economists adopted the non-mathematical type of deduction, while Pareto, Cournot and Edgeworth have substantially applied the mathematical deductive strategy in their research. Of the two, the second is emphatically gaining popularity.

So how exactly does deductive method work?

Under deductive process, some assumptions, speculations or postulates are designed. As per those assumptions, few testable hypotheses are framed. The hypotheses are consequently validated against the identified data. The hypotheses validated by the data is regarded as tentative theories. In case a theory so constructed remains valid during the test of time, it gets to be a law similar to the law of diminishing returns, law of demand and so on.

Let us demonstrate deductive reasoning by a plain illustration. Consider the widely accepted law of diminishing marginal utility. It basically claims that the higher the consumption of a particular commodity the lesser is its marginal utility. With this straightforward self-explanatory law, several inferences could be drafted by deductive reasoning. The first inference is that affluent folks gain little bit of utility from money when compared with the poor folks. The second inference is that the wealthy people are able to endure more of the tax burden. Likewise, the law of demand is also designed in line with the law of diminishing marginal utility. The higher the price of a commodity, the lesser will be the demand from people; therefore, people would purchase more of a commodity only if the price is decreased. In the same manner, numerous extra studies can be accomplished.

Advantages of Deductive Method

The following are the major benefits of the deductive method of economics:

Absence of Bias

Deduction absolutely does not provide chance to the researcher, or investigator to manipulate the outcome with his own desire or discrimination. Quite simply, deductive evaluation is independent, unprejudiced and honest.

Lack of Restricted Experiments

It is not practical for the economists to carry out restricted experiments in a laboratory. The research in physical sciences like physics and chemistry are accurate. On the other hand, research in economics is not just a complex assignment but also a deceptive one. The facts essential to the research are not simply obtainable and are inadequate though obtainable. Therefore, the successive ideal alternative is to pursue deductive reasoning.

Efficiency

The deductive approach is incredibly simple and easy to adopt since it avoids the trouble of acquiring data that could be a complex process. From a handful of fundamental details of human behavior, you can actually draw several economic laws. For instance, as per the law of diminishing marginal utility, the utility of money for the wealthy persons is less than the utility of money for the poor. Thus, in an effort to attain equality in income, progressive tax system is proposed. Needless to say, the principle of progressive taxation is deduced from the law of diminishing utility by means of deductive reasoning.

Universal Application

The theories based on deductive analysis seem to be more broadly applicable than the theories in line with induction. The theories determined by deductive process are relevant to almost all locations and always. As an example, the law of diminishing returns and the law of equimarginal utility are relevant to almost all persons as well as to all places.

Complementary

It is usually argued that deductive research is interrelated to inductive analysis. In case inductive method is unable to produce good results, the deductive method needs to rescue us. The method of deduction is beyond comparison when performed under appropriate checks, the strongest tool of discovery ever wielded by human intelligence.

Prediction

Deductive method is furthermore beneficial to create predictions regarding the near future. You can speculate what effects will probably follow under some given circumstances. For instance, if the price of a product declines, you can easily guess that there could be a higher demand for that product and also the supply of the same product may decrease.

Accuracy

In addition, deductive method delivers accurate and straightforward outcomes because it incorporates the application of logic and mathematics. Deductive process is furthermore referred to as the mathematical method. These days, an economist with expertise in econometrics has the capacity to create inferences in a short span of time thereby making analogies along with other generalizations and theories.

Convenience

The deductive method is a lot more ideal in that complicated economic incident in which cause and effect are inextricably combined. It is with the aid of reasoning only, some appropriate findings can be accomplished regarding human behavior.

Cons of Deductive Method

Regardless of its numerous good points, this technique is afflicted with several weak spots as well. The primary attack on this technique was levied by the Historical School, which prospered in Germany. The blunders of the classical economists were not in the method, but their defective ideas. As per the Historical School of Economics, theories without facts are baseless. As a result, Professor A.P. Lerner termed deductive method as “armchair” method and advised that it needs to be carefully protected against its failings.

Abstraction

In deduction, you can find an excessive amount of abstraction. It is extremely challenging for average folks to adhere to this method. You will need an excellent volume of knowledge in logic and abstraction, which not all newbie might possess. Consequently, theoretical models with minor empirical material are labeled “intellectual toys” possessing absolutely no link to actuality.

Lack of Credibility

The deductive method relies upon assumptions. Ceteris Paribus is assumed all through the process of reasoning. Classical economists formulated their theories on defective premises. As an example, they considered that self-interest by itself encourages human behavior. This is certainly not correct. Human behavior is influenced by social and economic circumstances as well.

Dogmatism

The adherents of deductive analysis state that economic laws are universal and endless in their practical application. That makes economics dogmatic.

Harmful

Deductive method depending on incorrect ideas is destructive when universal validity is declared for such generalizations. As an illustration, J.B. Say’s well-known law of market claims universal validity. The law claims “supply creates its own demand.” As a result, there should not be over-production on the market. If the authorities structures policies by looking at this law, it might turn to be regrettable. Because supply never creates its own demand. If that occurs, there will not be a problem of depression.

© 2012 Sundaram Ponnusamy

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