1. Professor Wright on Methodology-A Rejoinder
Author(s): Nicholas Kaldor
Source: The Economic Journal, Vol. 65, No. 257 (Mar., 1955), pp. 157-159
Published by: Blackwell Publishing for the Royal Economic Society
Stable URL: http://www.jstor.org/stable/2227473
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2. 1955] PROFESSOR WRIGHT ON METHODOLOGY-A REJOINDER 157
without harming the rest. Or it might be said that those who suffer
from the removal of the social organization from the maximum of
ophelimity could, if they were allowed to reach the maximum position,
pay a sum such that everyone would be better off with the new or-
ganization. It was thus that, in the past, the redemption of certain
seigneurialrights was to the advantage of both serfsand landlords."
The idea is introduced in a parenthetical, almost underhand way, with
the result that it has escaped attention for many years. Pareto offers no
solution to the problems of interpretationwhich immediately arise, nor did
he incorporatethe idea into his general formulation. Whatever the reasons
for this, they can hardly have been that he was unaware of the interest and
importance of this novel criterionof economic policy.
DAVID POLE
Cardif.
PROFESSOR WRIGHT ON METHODOLOGY-A REJOINDER
IN the September issue of the ECONOMIC JOURNAL 1 ProfessorMcCord
Wright takes me to task " for not distinguishing sufficientlyin his paper 2
between a possibleand a truestory. I submit, however, that one of the most
fundamental principles of scientific business-cycleanalysis is that it is never
enough merely to show ways in which a cyclical movement couldoccur-
granted certain assumptions. The problem is to find out empiricallyand
historicallywhich one of these possible storieshas empiricallyoccurredand is
mostlikely to recur" (pp. 622-33. Italics in the original, except the second
" empirically"). If ProfessorWright can "'find out empirically" which of
a seriesof alternativehypotheses" has empiricallyoccurred" and thusselect
the " true story " and not merely a " possiblestory" he is a better man than
the restof us. No scientist (certainlynot in the naturalsciences)would claim
to be able to provethe correctnessof an hypothesisby empiricalobservation.
The most that empirical observation can do is to disprove a theory, by
showing that it fails to account for the observedphenomena, or else showing
that it is based on demonstrablyfalse assumptions. An hypothesis can be
rejectedalso in favourof a simplerone, if the latter accountsfor the observed
phenomena equally well. But in neither case could it be claimed that the
hypothesisfinally chosen represents" thetruth " or " reality."
The purposeof my cyclical model was to show that given elastic expecta-
tions-i.e., a state of affairswhere " the facts of the existingsituation enterin
a sensedisproportionatelyinto the formation of long term expectations" 3-
a cyclical movementis bound to follow, at any rateif thereis net savingin the
community when production is at its maximum level. I further intended
to show that the same assumptionsmay,but not necessarilywill, generate a
trend. The model was also intended to throw light on the factors which
1 Pp. 622-5. 2 ECONOMICJOURNAL, March 1954, PP. 53-71.
3 Keynes, GeneralTheory,p. 148.

3. 158 THE ECONOMIC JOURNAL [MARCH
determine the length of the cycle and of its various phases. I hoped it was
obvious that the examples chosen were of a purely expositorycharacterand
that the necessaryassumptionswere stated in an extreme form in order to
emphasisethe essentialfeatures.
I can readily believe that it is alwayspossibleto introducesuch additional
assumptionsinto any particular " model " as would destroy the "a priori
necessity" of its conclusions. But if these assumptionsare merely chosen at
random (without any regard to their relevance to actual situations) they do
not prove anything for or against an hypothesis. Scientific hypotheses are
invented in order to account for the phenomena actually observed, not in
order to demonstrate that there " ain't no such animal." Of course I
would agree with ProfessorWright (if this is what he really intended to say)
that such simple analytical models should merely be regarded as a starting
point; and they shouldserveas a guide to, and not a substitutefor, empirical
research.'
When ProfessorWright says that the model suffersfrom a "logical weak-
ness" in that business men's expectations would not be elastic (in the
above sense) in a purely static or stationaryworld, he shows a complete mis-
understandingof the purposeof an analytical tool. A " static " model of the
trade cycle is not intended to " explain " non-existingphenomenaof a purely
imaginary world: the purposeof the static abstraction,here and elsewhere,
is to enable us to isolate the relevant factors from the irrelevant ones in the
worldas it exists. If it can be shown that it is the existence of elastic expecta-
tions, and not economic growth as such, or technical innovation, etc.,
which is responsiblefor the generation of cyclical movements, it is perfectly
legitimate from a methodological point of view to do this by assuming a
particular state of expectationsin a static framework-without being called
upon to say whether that assumption is " realistic " in that particular
imaginarysituation. (Realism is only a meaningful attribute when applied
to reality, not unreality.)2
The same kind of misunderstanding underlies also his criticism of my
numerical examples. I would agree, of course,that under the strictassump-
tions of the numerical example, it is only as a resultof a chance constellation
of the various parameters that the cyclical movement takes the form of a
" short cycle " of a simple pattern (meaning by a " short cycle " one where
only a fraction, and not the whole, of the capital stock is renewed in each
boom). But since, as I show later, more realistic assumptions concerning
service-liferemove this particularproblem, I cannot see the inconsistencyin
1 My remark that it would not be worth while to introduce certain additional assumptions into
the model " at the present state of knowledge " (which seems to have been misunderstood by
Wright) referred to our knowledge of the facts of the real world, not to our knowledge of altemative
trade-cycle models. It merely intended to say that it is not worth while to introduce " complica-
tions " at random until we know which particular " complications " are relevant.
2 That I am myself very much aware of the connection between the elasticity of expectations and
" dynamic " change is shown by the more extended treatment of the problem of expectations in my
" Speculation and Economic Stability," Review of EconomicStudies, Vol. VII (October 1939),
particularly pp. 9-12.

4. 1955] DEPRECIATION, REPLACEMENTAND REGULAR GROWTH 159
using-deliberately-the rightfigures to produce the required results in an
expositoryexample.'
ProfessorWright'sstricturesthusfailto reveal (tome at anyrate) the " in-
ternalinconsistency" orthe "logical weakness"whichhe claims-which do-es
not exclude, of course, the possibilitythat hisown model of the trade cycle is
far superiorto mine, or anyone else's. I can assurehim that it was not my
intention " to omit all rival accounts " on purpose, or to claim " exclusive
validity" 2 for my theory; and if I had not taken account of his own work
on the subject this possibly may only have been because I was not familiar
with his books-a defect which I can see I must speedily remedy.
NICHOLAS KALDOR
King'sCollege,
Cambridge.
DEPRECIATION, REPLACEMENT AND REGULAR GROWTH
THEeconomic professioncertainlywill be gratefulto ProfessorDomar for
having drawn attention (in " Depreciation, Replacement and Growth,"
ECONOMIC JOURNAL, March 1953) to the consequences of the replacement
lag, which were well known to practice but rather neglected in economic
theory except in a famous passage in the GeneralTheory. As Domar
remarkshimself,the subjectneed not be tied to modelssuchasthosepresented
in his paper. Indeed, in the revision of the Harrod-Domar model of a
regularly progressiveeconomy, in Sections III and IV of the paper, certain
shortcomingsof Domar's approach become apparent; I referto the implicit
assumptionthat, asin the oldermodel, the regularlyprogressiveeconomy, in
which replacement lags behind depreciation, will necessarily follow an
exponential time path. Formally, the problem is not attackedby Domar in
its full generality; and from the economic angle a discussionof a most im-
1 I thought I had met ProfessorWright'sstricturesconcerning the initial build-up of the capital stock
in the footnote to p. 59 of my paper, where I pointed out that it is only when over-lapping between
building and scrapping periods is completely avoided that there will be a " short cycle " which, in
the example chosen, meant booms and slumps alternating at five-yearly intervals (though I failed to
make explicit that over-lapping could notbe avoided if the initial build-up of the stock was a con-
tinuous process). Otherwise the assumption of a rigidly fixed and uniform service-life will lead to
" long cycles " which imply, in terms of the same example, alternating booms and slumps of fifteen
years each, when the service-life is twenty-five years; fifteen years of boom followed by twenty years
of slump, when the service-life is thirty years and so on. The reason for selecting " the short cycle "
of the example was that the fluctuations in the actual world are undoubtedly short cycles (in this
particular sense) since only a fraction of the outstanding stock of capital is renewed during each boom,
whilst the inevitable over-lapping of scrapping and building periods (as a result of the " echo ")
which prevents cycles from being " short " is only an acute problem (as Wright agrees) under the
artificial assumption of a fixed and uniform service-life. (I completely fail to follow Professor
Wright's own arithmetic either in the case of my original example or in the case of his assumption
of a thirty-year service-life-but since the correctness or otherwise of his arithmetic is without
significance to the points at issue, I do not wish to pursue this further here.)
2 Italics in the original.