Explaining and Understanding Economic Events by Contrasting Alternatives

Abstract

The author argues that economic theorizing offers normal states of the economy to be used as a contrast for understanding economic events. Starting from a distinction between explanation and understanding and from Haavelmo's contribution, the argument runs through a critical assessment of the concept of tendency, which scientific realism advocates as a substitute for Humean law, and through a reinterpretation of the method used in Sraffa's price equations. It is emphasized that the role of contrasting alternative assigned to a normal state is not undermined by the lack of persistency of economic relations and of the ensuing poor predictive performance.