Applied Economics - J.N. Keynes Discussion

J.N. Keynes Discussion

J.N. Keynes was perhaps the first to use the phrase “applied economics”. He noted that the "English School" (J.S.Mill, J.E. Cairnes, and N.W. Senior) believed that political economy was a positive, abstract, deductive science; and that this school made a clear distinction “between political economy itself and its applications to practice" (1917, 12). This School thought that a general body of theory could be established through abstract reasoning – not relying on a wide knowledge of economic facts. From this point of view applying this theory involved making allowances for some of the factors ignored in building the abstract theories. Keynes wrote about applying the political economies hypothetical laws to interpreting and explaining of “concrete industrial facts." The issue of conceptual distinction between political economy as a science (involving formulating laws which govern the production and distribution of wealth) and political economy as an art (using the laws to tackle practical problems).

Whilst noting the rival view of the historical economists, who believed that the goals being pursued by policy makers and the means to pursue them were an integral part of the science of economics J.N Keynes believed in the desirability of the "English School's" distinction between the discovery of principles and their application (1917, 54).

Indeed it was he who proposed using the phrase “applied economics” instead of “the art of political economy”. Keynes further discussed the uses of the phrases applied political economy and applied economics noting three different uses:

1. in the sense suggested in the text ;
2. to designate the application of economic theory to the interpretation and explanation of particular economic phenomena, without any necessary reference however, to the solution of practical questions;
3. to mark off the more concrete and specialized portions of economic doctrine from those more abstract doctrines that are held to pervade all economic reasoning. (1917, 58–59)