Merits and Demerits : Inductive Methods of Economic Analysis


Inductive methods which is also called empirical method was adopted by the “Historical School of Economists”. It involves the process of reasoning from particular facts to general principle. This type of reasoning flows from facts to theory. First, we collect information and facts and then move towards providing evidence using economic theory and facts. This method formulates principles using the sub-methods- Observations, Experimentations, Statistical methods.

Merits of Inductive Methods of Economic Analysis
  • Helps in future inquiries: Inductive method acts as -a guide for future inquiries. It helps in future investigation through discovery and evidence of general principles.
  • More realistic : This method is more realistic as it is based on facts. It explains the facts without any distortion.
  • Concrete and synthetic : This method is more concrete and synthetic since it deals with the subject as a whole without dividing it into various components.
  • Related to time and place : This method helps us to draw generalizations on the basis of a particular historical situation. So the generalization relates to a particular time and place. Therefore there arises no practical difficulty in applying the conclusions for solving certain economic problems.
  • More accurate : This method provides scope for the adoption of statistical methods. Statistical methods are useful for studying matters relating to national income, inflation, savings and investment. The conclusions drawn from such methods are more accurate.
  • Valuable to Government: This method is of great value to the Government. The government by adopting this method can solve complex economic problems.
  • Dynamic method: This method involves observation) and analysis of facts from historical origin. As economic phenomena vary according to time, their nature, causes, and effects can be effectively studied under this method. Hence this method is described as a dynamic one.
  • Complimentary: This method is considered as complementary to the deductive analysis of economic phenomena. The conclusions drawn by the deductive method can be verified by this method. This helps us to get accurate and definite information regarding economic phenomena.

Demerits of Inductive Methods of Economic Analysis
Misinterpretation of Data

Induction relies on statistical numbers for analysis that “can misuse and misinterpret when the assumptions which are required for their use are forgotten.”

 Uncertain Conclusions

Boulding points out that “statistical information can only give us propositions whose truth is more or less probable it can never give us certainty.”

Lacks Concreteness

Definitions, sources, and methods used in statistical analysis differ from investigator to investigator even for the same problem, as for instance in the case of national income accounts. Thus, statistical techniques lack concreteness.

Costly Method

The inductive method is not only time-consuming but also costly. It involves detailed and painstaking processes of collection, classification, analysis, and interpretation of data on the part of trained and expert investigators and analysts.

Difficult to Prove Hypothesis

Again the use of statistics in induction cannot prove a hypothesis. It can only show that the hypothesis is not inconsistent with the known facts. In reality, the collection of data is not illuminating unless it is related to a hypothesis.

Controlled Experimentation not Possible in Economics

Besides the statistical method, the other method used in induction is of controlled experimentation. This method is extremely useful in natural and physical sciences which deal with the matter. But unlike the natural sciences, there is little scope for experimentation in economics because economics deals with human behavior which differs from person to person and from place to place.

Further, economic phenomena are very complex as they relate to the man who does not act rationally. Some of his actions are also bound by the legal and social institutions of the society in which he lives. Thus, the scope of controlled experiments in inductive economics is very little. As pointed Out by Friendman, “The absence of controlled experiments in economics renders the weeding out of unsuccessful hypo-these slow and difficult.”


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