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Methods of Deriving Economic Laws Deductive and Inductive

There me two methods of deriving economic laws or methods of economic analysis:

(l) Deductive method

(2) Inductive method

Deductive Method:

The deductive method is also named as analyticalabstract or prior method. Deduction means reasoning or inference from general to particular. Deductive method draws new conclusions from basic assumptions or from established truths. It is a process of reasoning from certain principles that are assumed true for the analysis of facts. Then results are calculated that can be verified with observed facts. It is called abstract, analytical or priori method. The law of diminishing utility, consumers surplus is framed through deductive method.

Inductive Method:

Induction means reasoning or inference from particular facts to general principles. Inductive method is a process of arranging facts to draw universal laws. This method was used in economics by the German historical school that tried to develop economics from historical research. As per this method economist can collect material to draw generalizations and verifies the conclusions by applying them to subsequent events. This method depends upon statistics The Malthusian theory of population and Engel’s law of family expenditure are based on this method.


The modern economists, however, do not rely on one method to the exclusion of the other. It is realized that theories without facts are barren while facts without theories are meaningless. Which of the two methods is to be used in a particular situation depends on the nature of the inquiry, available resources, needs and preferences of the economy, stage through which the economy is passing and other matters. Thus, true progress in any scientific enquiry can be made only by a wise combination of deduction and induction.

It becomes clear after examining both deductive and inductive methods that they have contained merits as well as demerits. That is why, it is not proper to depend on either of the two, rather they should be used simultaneously so that the merit of the one may cover the demerit of the other. In this way satisfactory results can be achieved.

Alfred Marshall has rightly remarked:

“Inductive and Deductive methods are both needed for scientific thought, as the right and left foot are both needed for walking”.


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