Rhetoric and Economics
By Stuart Birks
For the Professional Development Day for Economics Teachers,
Massey University, Palmerston North
19 November 2008
Modern economics relies heavily on the assumption that people are rational. This
includes a requirement that people’s decisions are based on logic. Adam Smith,
sometimes referred to as “the father of modern economics”, gave a series of lectures
on rhetoric in 1762 and 1763 (Smith, 1963). This was not remarkable at the time.
Smith reflected a long tradition (dating back to classical Greece) where both logic and
rhetoric were considered central to a good education. Briefly, we could consider logic
to be concerned with proof, whereas rhetoric is concerned with persuasion. When
describing the rhetoric of political debate, whereby policy decisions are made, Smith
used the term ‘deliberative eloquence’.1 People are not necessarily swayed by
detailed, technical, logical arguments. It is more likely that they would be persuaded
by simple points and rhetorical techniques such as humour, the use of analogy, or
appeals to authority or to emotion.
If people behaved in a logical way, there would be no such area as rhetoric. Hence a
straight application of economics involves the use of approaches which deny the
existence of a fundamental component of the phenomena being analysed. There is an
additional problem. Although it may be desirable to consider economics as being
entirely logical, there is a body of literature about the rhetoric of economics which has
some validity. A longstanding advocate of this perspective is Deirdre McCloskey
(McCloskey, 1998), and support has been given by others including Arjo Klamer
(Klamer, 2007). In a discussion on the structure of argumentation, Klamer refers to
gaps in the reasoning:
Gaps between the theoretical and empirical arguments have not been bridged,
policy implications do not necessarily follow and methodological arguments are,
for the most part, seriously flawed. (Klamer, 2007, p. 106)
Economic theory, if correctly formulated, should be internally logical. Hence, we
should be satisfied with the internal validity of the theory, so that, given the stated
assumptions, the conclusions follow. In addition, empirical analysis should meet our
requirements in terms of the estimation techniques and the statistical tests used to
determine the results. However, these are only components in the process of analysis
of real world events. There is still scope for three types of logical errors. Consider the
following diagram:
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He also described ‘judicial eloquence’, or methods of persuasion in court.
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Theory
B
Empirical
analysis
A
C
Real world
A type-A error arises when theoretical results are assumed to be directly applicable
to the real world.
A type-B error can arise due to data problems, or difficulties specifying and
estimating relationships and functional forms that match the theory.
A type-C error occurs when incorrect conclusions are drawn from statistical results,
either through a misinterpretation of the meaning of the results, or a failure to
consider additional, relevant policy dimensions.
Such possible errors occur repeatedly. Type-A errors are particularly topical at the
present time, so here are two illustrations.
The information prepared for the public on Paul Krugman’s award of the Prize in
Economic Sciences states that the model he developed shows that foreign trade
between identical countries “will arise”, intra-industry trade “will occur”, and
consumers “will benefit” (The Royal Swedish Academy of Sciences, 2008). Models
can show what will happen within the model, or what will happen if the world
behaves “as if” in the model, but they do not show what will happen in the real world.
On 23 October in the US, the former chairman of the Federal Reserve, Alan
Greenspan, appeared before the House Oversight and Government Affairs
Committee, where he read a statement (Greenspan, 2008) and answered questions.
Here is an extract from an exchange between him and the chairman of the committee,
Rep. Henry Waxman:
WAXMAN: The question I have for you is, you had an ideology. You had a belief
that free competitive [sic] and this is your statement, 'I do have an ideology that
free, competitive markets are by far the unrivalled way to organize economies. We
tried regulation. None meaningfully worked.' That was your quote. You had the
authority to prevent irresponsible lending practices that led to the subprime
mortgage crisis. You were advised to do so by many others. And now the whole
economy is paying the price. Do you feel that your ideology pushed you to make
decisions that you wish you had not made?
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GREENSPAN: Well remember that what an ideology is is a conceptual
framework with the way people deal with reality. Everyone has one. To exist, you
need an ideology. The question is whether it is accurate or not. And what I'm
saying to you is yes, I've found a flaw, I don't know how significant or permanent
it is, but I've been very distressed by that fact...
WAXMAN: You found a flaw in the reality...
GREENSPAN: Flaw in the model that I perceived as the critical functioning
structure that defines how the world works.
WAXMAN: In other words, you found that your view of the world, your ideology
was not right.
GREENSPAN: Precisely.
(James, 2008)
Greenspan was treating his chosen theoretical perspective as if it were representative
of the real world. There was a rhetorical leap, and a leap of faith at that, given that he
considered it his ideology.
This is a cautionary tale. Economists have been warned against such errors. Sir Roy
Harrod, 70 years ago, said, “[E]conomists, even the most theoretical, have been prone
to give advice on the basis of theory” (Harrod, 1938, p. 387). However, when they do
this:
They must say good-bye for ever to the claims to certainty which they could make
so long as they remained within the confines of their geometrical system. From
being one of the most exact, albeit narrowly circumscribed, sciences, economics
of necessity becomes one of the most conjectural. (Harrod, 1938, p. 388)
Greenspan, A. (2008). Testimony to the Committee of Government Oversight and
Reform, October 23. Retrieved 24 October 2008, from
http://oversight.house.gov/documents/20081023100438.pdf
Harrod, R. F. (1938). Scope and Method of Economics. The Economic Journal,
48(191), 383-412.
James, F. (2008, 23 October). Greenspan: Money mess rocked his world. Retrieved
24 October 2008, from
http://www.swamppolitics.com/news/politics/blog/2008/10/greenspan_money
_mess_rocked_hi.html
Klamer, A. (2007). Speaking of economics: how to get in the conversation. New
York: Routledge.
McCloskey, D. N. (1998). The rhetoric of economics (2nd ed.). Madison, Wis.:
University of Wisconsin Press.
Smith, A. (1963). Lectures on rhetoric and belles lettres: delivered in the University
of Glasgow by Adam Smith, reported by a student in 1762-63. London:
Nelson.
The Royal Swedish Academy of Sciences. (2008). The Prize in Economic Sciences
2008: Information for the public [Electronic Version]. Retrieved 10 November
2008 from
http://nobelprize.org/nobel_prizes/economics/laureates/2008/info.pdf
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