John Maynard Keynes: Letter to Roy Harrod, July 4, 1938:
Tilton, Firle, Lewes.
4 July 1938
My dear Roy,
There is no doubt that your Presidential Address [to the British Economic Associaton] which I have sent to the printer [for the next issue of the Economic Journal], is very interesting; and it will provoke plenty of thought. Indeed it is much the best Presidential Address for many years. I am very glad to print it in full; but I would remind you that it will take considerably over an hour to read at a reasonable pace.
Sections III and IV I like without reserve. But in sections I and II, although I agree with nearly all your detail and your treatment within your own chosen terrain, I am not so clear that you have chosen or planned your terrain rightly.
It seems to me that economics is a branch of logic, a way of thinking; and that you do not repel sufficiently firmly attempts à la Schultz to turn it into a pseudo-natural-science. One can make some quite worthwhile progress merely by using your axioms and maxims. But one cannot get very far except by devising new and improved models. This requires, as you say, "a vigilant observation of the actual working of our system". Progress in economics consists almost entirely in a progressive improvement in the choice of models. The grave fault of the later classical school, exemplified by Pigou, has been to overwork a too-simple or out-of-date model, and in not seeing that progress lay in improving the model; whilst Marshall often confused his models, for the devising of which he had great genius, by wanting to be realistic and by being unnecessarily ashamed of lean and abstract outlines.
But it is of the essence of a model that one does not fill in real values for the variable functions. To do so would make it useless as a model. For as soon as this is done, the model loses its generality and its value as a mode of thought. That is why Clapham with his empty boxes was barking up the wrong tree and why Schultz's results, if he ever gets any, are not very interesting (for we know beforehand that they will not be applicable to future cases). The object of statistical study is not so much to fill in missing variables with a view to prediction, as to test the relevance and validity of the model.
Economics is a science of thinking in terms of models joined to the art of choosing models which are relevant to the contemporary world.
It is compelled to be this, because, unlike the typical natural science, the material to which it is applied is, in too many respects, not homogeneous through time. The object of a model is to segregate the semi-permanent or relatively constant factors from those which are transitory or fluctuating so as to develop a logical way of thinking about the latter, and of understanding the time sequences to which they give rise in particular cases.
Good economists are scarce because the gift for using "vigilant observation" to choose good models, although it does not require a highly specialised intellectual technique, appears to be a very rare one.
In the second place, as against Robbins, economics is essentially a moral science and not a natural science. That is to say, it employs introspection and judgments of value.
I must stop writing. I do not expect you differ much from the above reflections, which show the lines along which your paper has set me thinking.