Economics, History and Causation

According to Morck and Yeung (2011):

“Economics and history both strive to understand causation: economics using instrumental variables econometrics and history by weighing the plausibility of alternative narratives.” […] “Economists should therefore consider historians’ approach to inferring causality from detailed context, the plausibility of alternative narratives, external consistency, and recognition that free will makes human decisions intrinsically exogenous.”

In addition:

“[…] Black’s critique of econometrics, his entirely reasonable argument that correlation is not causation, may well have been taken too seriously by economists. As Tufte (2003) equally reasonably points out, ‘Correlation is not causation but it sure is a hint’. More precisely, correlation is a necessary, but not sufficient, condition for causation. This makes tests for correlations in economic data important. Econometric tests for causality may well be much less useful, for they can often be extraordinarily difficult to do well. The progress of economics may well be better served by careful and reliable tests for correlations than by flawed tests asserting or denying causality.”

Source: NBER

Morck, Randall and Bernard Yeung, (2011). “Economics, History and Causation”. Working Paper No. 16678.