Historicism and Positivism
The final thing the Swiss researchers did, which invalidated their study even further, was that they resorted to both historicism and positivism when identifying their already-discovered correlation between social awareness and the Bitcoin price.
Historicism is actually an anti-economics school of thought, which rejects the analysis of human action and replaces the economist with the historian. According to this school, there is no universal law of human action that brings all economic truths into existence. The supporters of historicism believe that the entirety of the human population, or society, moves as a collective through historical periods towards a final state of civilization. Instead of economic laws that derive from human action, each historical period has its own set of economic laws, which worked to bring about that particular state of affairs. Then, in a marveling display of logical gymnastics, the followers of historicism state that the historian can take the economic laws that are exclusive to the preceding historical periods and use them to predict the future economic state of society.
The Swiss research team used the fallacious doctrine of historicism in their study—although, whether or not they did so knowingly cannot be determined. They identified that the connection between social awareness and Bitcoin price did not appear until one of the later “time windows,” which they themselves arbitrarily laid out:
Recent findings indicate that the driving forces behind Bitcoin prices changed since its invention , motivating our decomposition of the study period into characteristic time windows, each of which corresponds to a distinct bubble.
They then went on to say that they could use the same tools that allowed them to “discover” their correlation to identify future Bitcoin price fluctuations. However, if these “driving forces” were not constant in all of the arbitrarily defined time windows, then the Swiss researchers are terribly mistaken to assume that they will be constant from this point forward. This type of thinking is the damning flaw in the doctrine of historicism; the followers of this school say that there is no universal, economic law, but then they proceed to make predictions about future historical periods based on the individual economic laws of preceding periods, which of course are only valid within their respective time frames. While it is entirely possible to provide a much more in-depth refutation of historicism, it simply is not necessary for our purposes because the researchers’ use of historicism satisfactorily contradicts itself. As stated above, they recognized that their “driving forces” were not the same throughout their various time windows, then they assumed that they would cease changing and remain constant, allowing them to predict future Bitcoin market activity.
One of the more obvious flaws in the researchers’ methodology is their use of positivism, the attempt to remove human action from consideration and analyze markets based purely on empirical data and mathematical models. We have discussed this economic methodology at length elsewhere, so all we will say her is this: positivism is invalid for the simple fact that it does not consider human action when analyzing economic activities. There exists a methodological dualism between the natural sciences and the social sciences because the two branches study qualitatively different specimens. Natural sciences observe the behavior of particles that have no known source of action; as far as we are aware, the objects of natural science are completely unmotivated. Therefore, we can only record their past behaviors and use statistics to determine the likelihood of their future actions.
The social sciences, on the other hand, study the actions of human beings. We are well aware of the source of human action—it is a combination of the scarcity of goods and the human desire to remove felt uneasiness. Since we know the source of human action, and we know that humans are governed by the rules of logic, we must deductively analyze human action. We simply cannot remove humans from the equation and partake in an empirical analysis of economic activity—doing so does not yield any useful information. For a more at length discussion on empirical economics, you can read this article.
Thus concludes part one of our two-part series on Bitcoin in the mainstream. In the second part, we will keep our critique of the Swiss Bitcoin study in mind while we examine where the mainstream economic community at large stands in terms of their understanding of Bitcoin. Once we complete that examination, we will turn our focus towards the layman population, the average, everyday people, and look at where they stand in terms of Bitcoin knowledge.