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What is the Inductive Method of Economics?

What is the Inductive Method of Economics - ilearnlot

The Inductive Method: Induction “is the process of reasoning from a part to the whole, from particulars to generals or from the individual to the universal.” This article explains the Inductive Method of Economics; Bacon described it as “an ascending process” in which facts are collected, arranged and then general conclusions are drawn. Also learn the Methods of Economics.

Here are explaining and learn, What is the Inductive Method of Economics? Steps, Merits, and Demerits.

The inductive method was employed in economics by the German Historical School which sought to develop economics wholly from historical research. The historical or inductive method expects the economist to be primarily an economic historian who should first collect material, draw generalizations, and verify the conclusions by applying them to subsequent events. For this, it uses statistical methods. Engel’s Law of Family Expenditure and the Malthusian Theory of Population have been derived from inductive reasoning.

The inductive method involves the following steps:
The Problem:

In order to arrive at a generalization concerning an economic phenomenon, the problem should properly select and clearly stated.


The second step is the collection, enumeration, classification, and analysis of data by using appropriate statistical techniques.


Data are using to make the observation about particular facts concerning the problem.


On the basis of observation, generalization is logically deriving which establishes a general truth from particular facts.

Thus induction is the process in which we arrive at a generalization on the basis of particular observing facts. Also learn, Explain is What is Economics? Meaning and Definition of Criticisms!

The best example of inductive reasoning in economics is the formulation of the generalization of diminishing returns. When a Scottish farmer found that in the cultivation of his field an increase in the amount of labor and capital spent on it was bringing in less than proportionate returns year after year, an economist observing such instances in the case of a number of other farms, and then he is arriving at the generalization that is known as the Law of Diminishing Returns.

Merits of the Inductive Method:

The chief merits of this method are as follows:


The inductive method is realistic because it is based on facts and explains to them as they actually are. It is concrete and synthetic because it deals with the subject as a whole and does not divide it into component parts artificially

Future Inquiries:

Induction helps in future inquiries. By discovering and providing general principles, induction helps future investigations. Once a generalization is establishing, it becomes the starting point of future inquiries.

Statistical Method:

The inductive method makes use of the statistical method. This has made significant improvements in the application of induction for analyzing economic problems of the wide range. In particular, the collection of data by governmental and private agencies or macro variables, like national income, general prices, consumption, saving, total employment, etc., has increased the value of this method and helping governments to formulate economic policies pertaining to the removal of poverty, inequalities, underdevelopment, etc.


The inductive method is dynamic. In this, changing economic phenomena can analyze on the basis of experiences, conclusions can draw, and appropriate remedial measures can take. Thus, induction suggests new problems to pure theory for their solution from time to time.


A generalization drawn under the inductive method is often historical-relative in economics. Since it is drawn from a particular historical situation, it cannot apply to all situations unless they are exactly similar. For instance, India and America differ in their factor endowments. Therefore, it would be wrong to apply the industrial policy which was following in America in the late nineteenth century to present-day India. Thus, the inductive method has the merit of applying generalizations only to related situations or phenomena.

Demerits of Inductive Method:

However, the inductive method is not without its weaknesses which are discussing below.

Misinterpretation of Data:

Induction relies on statistical numbers for analysis that “can misuse and misinterpret when the assumptions which are requiring 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 using 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, analyses, 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 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. Also, What is Demand? Meaning and Definition.

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.”

What is the Inductive Method of Economics - ilearnlot
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Nageshwar Das

Nageshwar Das

Nageshwar Das, BBA graduation with Finance and Marketing specialization, and CEO, Web Developer, & Admin in

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