Commentary on Political Economy

Sunday 25 October 2015


I simply could not resist the early posting of this study on Carl Menger, hoping it may benefit and regale our friends. Please note that this is a preliminary sketch and revised editions of this study will be posted soon - so be sure to check updates. Cheers to all.

Our last intervention was meant to demonstrate that although it is a fallacy to think that human being can be scientifically determined (in this sense, Heisenberg’s impossibility or indeterminacy theorem in science and Alfred N. Whitehead’s “fallacy of misplaced concreteness” provide inconfutable demonstrations), it is true nevertheless that human being has developed “materially”, which is why inter-subjectivity is not only possible, but is indeed an ineluctable reality. The notion of “self” dissolves the moment we realize that it is an irreducibly human notion that thereby dissolves the “self” itself! Arendt comes very close to articulating the “materiality” of human experience in the very last paragraphs of her inchoate and unfinished study of Kant’s Critique of Judgement – although she still clings to the Kantian perception/imagination, intellect/judgement dichotomies:

In other words: What makes particulars communicable is (a) that in perceiving a particular we have in the back of our minds (or in the "depths of our souls") a "schema" whose "shape" is characteristic of many such particulars and (b) that this schematic shape is in the back of the minds of many different people. These schematic shapes are products of the imagination, although "no schema can ever be brought into any image whatsoever."19 All single agreements or disagreements presuppose that we are talking about the same thing—that we, who are many, agree, come together, on something that is one and the same for us all. 4. The Critique of Judgment deals with reflective judgments as distinguished from determinant ones. Determinant judgments subsume the particular under a general rule; reflective judgments, on the contrary, "derive" the rule from the particular. In the schema, one actually "perceives" some "universal" in the particular. One sees, as it were, the schema "table" by recognizing the table as table. Kant hints at this distinction between determinant and reflective judgments in the Critique of Pure Reason by drawing a distinction between "subsuming under a concept" and "bringing to a concept."20 5. Finally, our sensibility seems to need imagination not only as an aid to knowledge but in order to recognize sameness in the manifold. As such, it is the condition of all knowledge: the "synthesis of imagination, prior to apperception, is the ground of the possibility of all knowledge, especially of experience."21 As
such, imagination "determines the sensibility a priori," i.e., it is inherent in all sense perceptions. Without it, there would be neither the objectivity of the world—that it can be known—nor any possibility of communication—that we can talk about it. (Lectures on Kant, pp.83-4).

Whilst she often lingers on the ineffable nature of thought, here Arendt seems finally to concede – though still in Kantian antinomic terms – the essential unity of sensibility and sense, of imagination and perception, of intellect and judgement. Yet, as our highlights in italic bold clearly manifest, Arendt still sees this human capacity for judgement as the adventitious attribute of “individuals” – “the minds of many different people” – and not as a fundamental faculty of human being, that is, of being human. That Arendt was quite aware of this “impasse”, as he styles it, is made explicit by R. Beiner in the interpretative essay appended to the Lectures:

As Kant's Critique of Judgment enabled him to break through some of the antinomies of the earlier critiques, so she [Arendt] hoped to resolve the perplexities of thinking and willing by pondering the nature of our capacity for judging."2 It is not merely that the already completed accounts of two mental faculties were to be supplemented by a yet-to-be-provided third but, rather, that those two accounts themselves remain deficient without the promised synthesis in judging, (R. Beiner, Interpretive Essay, in Arendt, op.cit., p.89)

As we saw in our analyses on the relation of economic equilibrium to social reality, antinomies arise from the use of aporetic concepts that seek to crystallize human reality, to freeze or reify it, to reduce it to the state of a “thing” that is perpetual and immutable – to something that is not subject to history. And as we saw in our last section, ultimately the aim of every scientistic reification is to remove thought from history itself, to present history as ineluctable fate. The antinomy implicit in this conception is the reason why the word “historicism” has come to acquire diametrically opposed meanings in terms of “soul” and “form”: - on one side, historicism stands for the idealist position that the human spirit is entirely free to operate in its history (Dilthey); on the other side, history is seen as a teleology of the human spirit (Hegel) or of human needs (Marx) or of race or indeed of “matter”. (See the classic miscomprehension of this antinomic opposition in K. Popper, The Poverty of Historicism where the interdependence of the two poles is jejunely resolved in favour of “individualism”. Much more refined is the discussion in RH Carr, What Is History?)

Indeed, as the theorization of past practice or human actions, as the human appraisal of these actions, of humani generis res gestae, the sense of history may well be the epitome of praxis, of the exercise of judgement. Here once again is Arendt:

Here we shall have to concern ourselves, not for the first time,3 with the concept of history, but we may be able to reflect on the oldest meaning of this word, which, like so many other terms in our political and philosophical language, is Greek in origin, derived from historein, "to inquire in order to tell how it was"— legein ta eonta in Herodotus. But the origin of this verb is in turn Homer (Iliad XVIII), where the noun histör ("historian," as it were) occurs, and that Homeric historian is the judge. If judgment is our faculty for dealing with the past, the historian is the inquiring man who by relating it sits in judgment over it. If that is so, we may reclaim our human dignity, win it back, as it were, from the pseudo-divinity named History of the modern age, without denying history's importance but denying its right to be the ultimate judge, (op.cit., p.5)

Thought is imprescindible. Thought is ec-sistence itself because thought is intrinsically reflective – whence comes the illusion that behind thinking there must be a “thinker”, an Ego that thinks. Thought is action (cogitare from co-agitare). Impossible to go “beyond” it; impossible to en-compass it. But it is equally impossible to oppose thought to matter – because “matter” itself is a concept, and thought itself cannot but be “material”. (On all this, please refer to my “The Philosophy of the Flesh”.)

Thought must not be confused with Ego-ity: as Nietzsche validly proclaimed, it is vivo ergo cogito, not cogito ergo sum! Experience comes before knowledge. For Western thought, however, thought is the Logos - real because rational and rational because real. It is this identification of reality and rationality (the rational is real and the real is rational), the ordo et connexio rerum et idearum that Nietzsche combats. Not only is the world not rational, but the rational is not even real because “the real world is a fable” (Nietzsche, Twilight). Nietzsche’s condemnation of Historicism – which he understands as a form of Platonism - and particularly the Historical School of Roscher and Knies is precisely not aimed at its inaccuracy, but at its power-lessness (Ohn-macht) with regard to what it pretends to defend history against - nihilism. (Cf. Twilight of the Idols, pp.225 ff.) To understand is to com-prehend, to control. By seeking to understand hermeneutically (Verstehen) historical action, by seeking to describe it, Historicism ends up circum-scribing it, and therefore making it vulnerable to scientisation. The Geistes-wissenschaften have this in common with the Natur-wissenschaften – that both make the ideo-graphic already nomo-thetic. But how can the ideo-graphic trans-cresce into the nomo-thetic? Only if the nomothetic and the ideographic are defined and understood as antinomic poles! Thus, Historicist hermeneusis turns into historicist teleology and scientistic determinism (cf. Popper, who did not even begin to understand the untenability of his “open society” as a bulwark against its “enemies”).

The individual is already the general and vice versa because, antinomically, the one implies (begs the question of) the other. (Interesting, in this context, to note Alfred Marshall’s most idiotic notion of market prices being determined by the “scissors” of supply and demand – something that Marx derided repeatedly. It should be obvious to all but the most warped minds that “supply” requires “demand” and vice versa, just as competition requires monopoly, and that therefore one crutch cannot support the other! The epitome of stupidity was of course Say’s Law according to which “supply creates its own demand”!) Indeed, no theory of the general can long fail to de-fine the individual, and vice versa. The historicism that starts with the idiosyncratic ends up understanding it, com-prehending it through the general, through the principles of science. Thus, it loses sight of the only way in which theory and science are possible: - as strategy. By glorifying the in-dividual, the particular, it neglects its antinomic dependence on the general. Science is possible only as reification, not as rationality but as its stultification, that is, as Rationalisierung, only as rigid violent imposition or at the very least as convention (cf. Nietzsche’s brief exposition in Uber Wahrheit und Luge). The contractum unionis implicit in all conventions always has the potential to become a contractum subjectionis - for Hobbes politically and for Nietzsche semiotically. For Nietzsche, historicism ends up as its opposite, as “science”, because it denies the tragicity of ec-sistence, and therefore of thought:

Thucydides, and perhaps Machiavelli’s Principe, are most closely related to me in terms of their unconditional will not to be fooled and to see reason in realitynot in ‘reason’, and even less in ‘morality’… (ToI, p.225)

This is what Nietzsche decried in Roscher who had dared wrongfully to enlist Thucydides – the ultimate muse of tragicity for Nietzsche - in the historicist camp and thereby opened himself up to the stinging critique of a Menger. Reality does not contain or elicit “reason”: for there is no reason outside of reality. There is and there can be no Scholastic ordo et connexio rerum idearumque. But this is far from saying that Nietzsche did not believe that “reason” or “theory” can be applied to “reality”. On the contrary, for Nietzsche “reason” can be imposed on “reality” – but only as a strategy, as a straitjacket, as Eskamotage, as the ante litteram Weberian Rationalisierung! There is no “reality” to which reason can apply or from which it can be deduced: reason is the ultimate “rationalization” of human motives. For Nietzsche, real courage consists in staring down this horrifying ability that human beings possess: to impose a “rational” or rather “methodical” scheme on their violent or at least coercive practices. This is the tragedy of Weberian Verstehen and of all hermeneutics: the tragedy of all historicism: - that it does not understand its own quest and thus it cannot long remain ideo-graphic because its ratio sooner or later will turn nomo-thetic (Windelband, Dilthey). Marx’s own lampooning of “Thukydides-Roscher” in Book 9 of Das Kapital was meant to highlight the inability of this historicism to draw the violent conclusions of capitalist reality – without, for that reason, necessarily enlisting Thucydides amongst the historicists.

Every theory, whether in the physical or in the social sciences, is a strategy: we owe this great realization above all to Nietzsche, though earlier hints of it were already in Cusanus (cf. E. Cassirer’s masterly Individual and Cosmos), in Machiavelli, and then in Vico (La Scienza Nuova). Theory and practice are indissolubly linked and failure to take conscience of this is the dangerous fallacy of all positivism. (To be fair, despite our disagreement with his entire neo-Kantian approach, this is the point of Habermas’s best work from Erkenntnis und Interesse to Theorie und Praxis.) The immediate question for us now is: how does the bourgeoisie use economic theory in practice to preserve and advance its interests? Ultimately, the crucial question must be: what specific “tools” or institutions does the bourgeoisie put in place to preserve its interests, accumulate capital and advance its social hegemony?

Joseph Schumpeter provides a rare insight into this process in his discussion of how Neoclassical economics replaced Classical economics in bourgeois business, academic and political circles as the “scientific paradigm” for theorizing and analysing capitalist society.

That specifically historical spirit which alone turns the collection of facts, which after all is necessary for any school, into something methodologically distinct, did not develop. (Econ. Doctrines, p.166)

Distinguishing between the Historical School and the nascent Neoclassical School, Schumpeter at once draws attention to the insistence of the former on including and canvassing “non-economic elements in the field of economics”. Now, if one considers “the social process as a whole” – something Schumpeter urges us to do later in the very opening sentence of the famous “Chapter 7” of the Theorie that was significantly omitted from the English translation -; if one considers this, it is obvious that whether or not a specific historical fact or “element” is “economic” or “non-economic” is a matter for democratic agreement and not for “scientific” determination. For if indeed economic theory is to be used to guide social policy at all, then it is a matter for democratic consensus to agree as to the likely effect of inclusion or not of specific facts to the formulation of economic theory to guide economic policy.

Schumpeter himself makes clear that economic science must be founded on historical facts and that indeed economic science is a “methodologically distinct” form of historical knowledge:

That specifically historical spirit which alone turns the collection of facts, which after all is necessary for any school, into something methodologically distinct, did not develop. (Econ. Doctrines, p.166)

The crux of the methodological question now becomes vividly clear. The problem with the methodology assumed by the Historical School was not so much that it failed to take account of historical detail – in fact it took too much account of such detail, to the point that it cluttered its research with “non-economic elements”.

With Knies
the matter is somewhat different. His resistance to the splitting up
of the personality into individual 'urges' and to their treatment in
isolation—although we must stress the fact that this does not constitute
the essence of classical economic thought, as Knies thought
—and the emphasis which he places on the vital part played by
non-economic elements even in the field of economics (Heteronomy
of Economics) places him more closely to the genuine historical
school. (p.157)

Now it is clear that once a society becomes detached from “traditional” social forms such as those associated with feudalism and becomes instead focused exclusively on the production of Value, that is the potential control over labour-power, over living labour, which is what happens with rise of capitalism, it is then evident that as the reproduction of a society becomes less autochthonous and localised and is instead more centrally controlled through the development of a strong statal administration and government, what we call “the State” – it is then clear that all those “non-economic elements” associated with “traditional” societies must be eliminated with the object purpose to maximize capitalist production. This is at bottom what Schumpeter and the Austrian School from Menger onwards were driving at. And obviously the various Historical Schools in Germany and Austria stood in the way of such a development – at least from a “methodological” or “scientific” stance, because nothing is more ideologically correct than the imposition of an ideology as “science”.

The question then becomes one of determining how such a “methodology” can be developed out of “that specifically historical spirit”, - how, that is, “the collection of facts” can give rise to a theory that is specifically “economic”. (Schumpeter refers to Weber’s methodological studies in this context close to neo-Kantians.) More specifically, the problem becomes one of how historical facts may be divided not just into “economic” and “non-economic”, but also into what may be called “regularities” and “laws”. In other words, even admitting positivistically that it is possible to isolate “regularities” of an “economic” nature in social life (cf. M. Friedman’s essay), there is still the greatest difficulty in determining whether such “regularities” can be described as “laws”.

For, though they may represent and describe the present reality of social life, it may well be that such regularities do not amount to immutable “laws” of social life but are attributable instead to the particular culture and political form of government that prevails in a given society! The greatest difficulty is of course that not only are these regularities not laws, but they are always subject to change – and above all else therefore the regularities cannot possibly form the foundation of a positive science of economics or of any social science at all!

This is something that even the acutest bourgeois minds in economic theory simply cannot see. Here is the Nobel prize-winner Milton Friedman:

Positive economics is in principle independent of any particular ethical position or normative judgments. As [Neville] Keynes says, it deals with "what is," not with "what ought to be." Its task is to provide a system of generalizations that can be used to make correct predictions about the consequences of any change in circumstances. Its performance is to be judged by the precision, scope, and conformity with experience of the predictions it yields. In short, positive economics is, or can be, an "objective" science, in precisely the same sense as any of the physical sciences. Of course, the fact that economics deals with the interrelations of human beings, and that the investigator is himself part of the subject matter being investigated in a more intimate sense than in the physical sciences, raises special difficulties in achieving objectivity at the same time that it provides the social scientist with a class of data not available to the physical [5] scientist. But neither the one nor the other is, in my view, a fundamental distinction between the two groups of sciences.3 Normative economics and the art of economics, on the other hand, cannot be independent of positive economics. Any policy conclusion necessarily rests on a prediction about the consequences of doing one thing rather than another, a prediction that must be based - implicitly or explicitly - on positive economics. (M. Friedman, “The Methodology of Positive Economics” in Essays in Positive Economics, pp.4-5)

Note Menger’s analogous position:
38 ] BOOK ONE The above contrast is not infrequently characterized, even if in a somewhat different sense, by the separation of the sciences into historical and theoretical. History and the statistics of economy are historical sciences in the above sense; economics is a theoretical science.5 Besides the two above large groups of sciences we must bear in mind here still a third one, the nature of which is essentially different from that of the two previously named: we mean the so-called practical sciences or technologies. The sciences of this type do not make us aware of phenomena, either from the historical point of view or from the theoretical; they do not teach us at all what is. Their problem is rather to determine the basic principles by which, according to the diversity of conditions, efforts of a definite kind can be most suitably pursued. They teach us what the conditions are supposed to be for definite human aims to be achieved. Technologies of this kind in the field of economy are economic policy and the science of finance.

Menger’s classification is to be preferred to Friedman’s because it does not dissect economics into “positive” and “normative” but rather in “theoretical” and “practico-technical” despite his Aristotelian reference to “what is”. (On Menger’s Aristotelianism, see the admirable work of Barry Smith. Whilst Smith’s thesis is certainly applicable to Menger – especially through the influence of Franz Brentano whose work on Aristotle inspired Heidegger, he is wrong about the later Austrian School from Mises onwards, which was clearly premised on neo-Kantian and Machian lines, as we shall see presently.) Both Menger and Friedman seek to divorce economic reality from policy choices, but whereas Menger maintains a continuum between reality and policy, with the latter being merely an application of knowledge about reality, Friedman’s nuanced distinction between normative and positive economics ends up being extremely naïve because it begs the question of how a “positive” economics can presume “to be independent of normative economics”! Either we argue, with Menger, that policy is always a matter of applying positive knowledge either correctly or incorrectly, or else, like Friedman, we introduce a normative sphere of action – but then this sphere must be precluded by the presumed existence of a positive reality!

For Menger no normative or ethical choices are possible in economic theory or policy: policies are either right or wrong depending on the perfection of one’s theory of reality. If indeed it were possible to isolate “positive” economics from the “normative”, then there would be no reason for “normative” economics to exist at all, for the simple reason that once we can isolate what is from what ought to be, then the what is, the real, would be the only option left, “the only thing there is”, because reality understood as “what is”, as “physis”, could never change! Present reality, if it is to be “real” at all, cannot allow of any “normative change” or any change at all – because any “reality” that can be “changed” cannot ever be “really real”! Any attempt to change reality, “what is”, along normative lines would be bound to fail according to Menger if it did not conform with that positive reality! That is why, for Menger, there could never be any “normative” physics as against “positive” physics: there can only be one “scientific” physics. Otherwise, the Hegelian empyrean where the real is rational and the rational real would have been accomplished by now!

But Menger overlooks the fact that whereas it is possible to determine “wrong” and “right” outcomes in experimental physics because of the confined and controlled nature of “experiments” in time and in space, this is simply impossible in society because of the irreproducibility of experimental conditions to a precise “locality” that extend into the indefinite future! Nor can mere “predictability” of outcomes be the sufficient condition for a science, as Menger believed.

The investigation of types and of typical relationships of phenomena is of really immeasurable significance for human life, of no less significance than the cognition of concrete phenomena. Without the knowledge of empirical forms we would not be able to comprehend the myriads of phenomena surrounding us, nor to classify them in our minds; it is the presupposition for a more comprehensive cognition of the real world. Without cognition of the typical relationships we would be deprived not only of a deeper understanding of the real world, as we will show further on, but also, as may be easily seen, of all cognition extending beyond immediate observation, Le., of any prediction and control of things. All human prediction and, indirectly, all arbitrary shaping of things is conditioned by that knowledge which we previously have called general. The statements made here are true of all realms of the world of phe
nomena, and accordingly also of human economy in general and of its social form, "national economy,"2 in particular.

As Weber shows in his methodological studies, there are infinite “predictions” that can be made about the world without this being sufficient to justify their scientific pursuit. Furthermore, the fact that an outcome may be predictable now and for the foreseeable future does not mean that the same outcome will occur once the experiment is repeated indefinitely, which is what a “scientific law” requires – immutability. This is a point astutely made by Leo Strauss in an essay on Socrates and Western science. The presupposition of the “natural” sciences is that their “laws” are “positive” because they are presumed to be “immutable” and therefore “indefinitely repeatable”. There can be no “normative” and “positive” physics – there is only “physics” and that is all! Even when a “change” to a present state of matter is operated by physical scientists, the “laws” that they apply remain the same. The application of physical “laws” to the physical universe does not change the validity of those “laws”. In essence, physical laws make the outcomes of their experiments “deducible”. Yet, experiments are not repeatable indefinitely without transforming the very reality that they are supposed to demonstrate. Therefore, it is obvious that all science, natural and social, is not and cannot be “immutable” but that its experimental outcomes will change with enough “repetitions”.

In fact, even the “laws” of natural science have a questionable “legality” in terms of how scientific knowledge or “truth” is indeed a “will to truth”, Nietzsche’s Wille zum Leben. If scientific “laws” described the “real”, if reality could never be changed, then there would be no room left for science at all – because science, no matter how “immutable” its “laws”, remains a human practice, a praxis, an inter-vention, a mani-pulation! Ultimately, what is important is not the immutability of scientific laws – because these in fact do change: science has a history! What is important is what human beings “do” with such “laws”, and even what they do to discover them!

Not only are “changes” to social reality subject to normative considerations: what is most important of all, the paramount consideration here is that it is impossible to define “what is”, social reality itself, without introducing normative values, “what ought to be”, into that de-finition and into the “scientific” tools to be used in analyzing, assessing and defining social and indeed even physical reality! The mere “observation” of any reality requires an inter-vention on that reality that transforms and changes it. Heisenberg’s Indeterminacy Principle is not an objective notion for the simple reason that it abolishes objectivity – and in doing so it unmasks science as scientificity, which is a practical notion. Science is not “the discovery of truth”; science is a particular way of acting in the world – this is why Nietzsche referred to “the will to Truth”.

First of all, Friedman is arguing that “what is” has greater reason to be than “what ought to be” (cf. Leibniz’s Principle of Sufficient Reason) – he is thus surreptitiously presenting the status quo, the established order, as something that is intrinsically more “scientific” than the “normative” because “what is” is a matter for empeiria, for inquiry and inspection or observation, whereas “what ought to be” is a matter of choice and values. But this is already a normative choice – “what is real is rational” (Savigny, Jhering) – discussed by Schumpeter as “conservative”, against the “what is rational is real” of the Neoclassics. As Weber took pains to point out, every “is” in fact is necessarily filtered through “what ought to be” because, first, we still choose to select one “what is” instead of another and, second, we choose the tools to be used in the “empirical” research. Friedman acknowledges this:

Of course, the fact that economics deals with the interrelations of human beings, and that the investigator is himself part of the subject matter being investigated in a more intimate sense than in the physical sciences, raises special difficulties in achieving objectivity at the same time that it provides the social scientist with a class of data not available to the physical [5] scientist. But neither the one nor the other is, in my view, a fundamental distinction between the two groups of sciences.3

This is a simplistic regurgitation of the Machiavelli-Vico-Bacon line. It is not so much that the social scientist lacks objectivity because of the more “intimate” role with the subject-matter: the problem is rather that the presumed “objectivity” of scientific study is inapplicable once we see science – all science, physical and social – as a human activity! And this is not cured by the Windelbandian distinction between idiographic and nomothetic – as if the size of the population made findings more “objective” or “rational”! If “objectivity” is required, then the size of the sample is categorically irrelevant! That is why the physical sciences never invoke sample size when fixing their “laws”. Still, physical scientists universally refuse to see their “science” as human activity!

Friedman’s error is one to which Menger and Schumpeter and Weber were very alert and they rightly insisted on denouncing it: it makes no sense to think that an individual’s behavior is “idio-syncratic” – meaning “irrational” – whereas the behavior of many individuals becomes more “rational” by reason of the larger numbers. It makes even less sense to associate “irrationality” or “idiosyncrasy” with “freedom”. These are fallacies into which the Old Historical School very easily fell, only to be attacked by the Historical School of Law (Savigny, Jhering) even before Weber (Roscher und Knies). Indeed, as Weber duly pointed out, “rationality” in the sense of “acting in one’s own interest” and not “irrationality” constitutes the true “freedom” of the individual in society. But here already, with Savigny and the Historical School of Law and then Windelband, “rationality” is dictated by numbers, by the nomo-thetic. More correctly, rationality no longer has any substantive value as it always had in all Western metaphysics from Plato onwards. With the Neoclassics, and explicitly with Weber, rationality becomes naked Rationalisierung – a specific methodical exercise of social power aimed at maximizing the accumulation of capital or objectified labour.

Yet Menger fails to see just how problematic this nexus between individual idiosyncrasy or “freedom” and general or typical nomothetic “predictability” is, and then above all how impossible the distinction between “individual or concrete phenomena” and the “typical forms” is, both in terms of the choice of direction of scientific “research” (Weber, Wissenschaft als Beruft) and the choice of application of that “research”. And finally between “laws” and “things”.

(Investigations, p.36)

The investigation of types and of typical relationships of phenomena is of really immeasurable significance for human life, of no less significance than the cognition of concrete phenomena. Without the knowledge of empirical forms we would not be able to comprehend the myriads of phenomena surrounding us, nor to classify them in our minds; it is the presupposition for a more comprehensive cognition of the real world. Without cognition of the typical relationships we would be deprived not only of a deeper understanding of the real world, as we will show further on, but also, as may be easily seen, of all cognition extending beyond immediate observation, Le., of any prediction and control of things. All human prediction and, indirectly, all arbitrary shaping of things is conditioned by that knowledge which we previously have called general. The statements made here are true of all realms of the world of phe
nomena, and accordingly also of human economy in general and of its social form, "national economy,"2 in particular. The phenomena of the latter we also can consider from the above two so thoroughly different points of view; and in the field of economy, also, we will thus have to differentiate on the one hand between individual (concrete) phenomena and their individual (concrete) relationships in time and space, and on the other between types (empirical forms) and their typical relationships (laws in the broadest sense of the word). Also in the field of economy we encounter individual and general knowledge, and correspondingly sciences of the individual aspect of phenomena and sciences of the general aspect. To the former belong history and the statistics of economy, to the latter theoretical economics; for the first two have the task of investigating the individual economic phenomena, even if from different points of view. The latter have the task of investigating the empirical forms and laws (the general nature and general connection) of economic phenomena.4
2 See Appendix I: "The Nature of National Economy." 3 The "individual" is by no means to be confused with the "singular," or, what is the same thing, individual phenomena are by no means to be confused with singular phenomena. For the opposite of "individual" is "generaL" whereas the opposite of a "singular phenomenon" is the "collective phenomenon." A definite nation, a definite state, a concrete economy, an association, a community, etc., are examples of individual phenomena, but by no means of singular phenomena (but of collective phenomena instead); whereas the phenomenal forms of the commodity, of the use value, of the entrepreneur, etc., are indeed general, but not collective phenomena. The fact that the historical sciences of economy represent the individual phenomena of the latter by no means excludes their making us aware of these from the collective point of view. However, the contrast between the investigation and description of the individual and the general aspect of human phenomena is always what distinguishes the historical social sciences from the theoretical. Theoretical economics has the task of investigating the general nature and the general connection of economic phenomena, not of analyzing economic concepts and of drawing the logical conclusions resulting from this analysis. The phenomena, or certain aspects of them, and not their linguistic image, the concepts, are the object of theoretical research in the field of economy. The analysis of the concepts may in an individual case have a certain significance for the presentation of the theoretical knowledge of economy, but the goal of research in the field of theoretical economics can only be the determination of the general nature and the general connection of economic phenomena. It is a sign of the slight understanding, which individual representatives of the historical school in particular have for the aims of theoretical research, when they see only analyses of concepts in investigations into the nature of the commodity, into the nature of economy, the nature of value, of price and similar things, and when they see "the setting up of a system of concepts and judgments" in the striving for an exact theory of economic phenomena (ct. particularly Roscher's Thukydides, p. 27). A number of French economists fall into a similar error when, with an erroneous view of the concepts "theory" and "system," they understand by these terms nothing more than theorems obtained deductively from a priori axioms, or systems of these (cf. particularly J. B. Say, Cours [18521, I, p. 14 ff. Even J. Garnier says "C'est dans Ie sens de doctrine erronnee qu'on prend Ie mot 'systeme' en economie politique." Traite d'Econ. Pol. [1868], p. 648).

Note the similarity between Menger’s “types” and Weber’s “ideal types”. But note also the important distinction: Menger intends “types” to be scientific laws of causation between phenomena in Aristotelian fashion. For Weber instead ideal types are pure Kantian categories where causation is impossible to establish (because phenomena are eventuated by “things in themselves” which are inscrutable). Weber’s world is already Machian: it links phenomena as “sensations”, not as real physical events in a Galilean or Aristotelian manner.

Menger’s key distinction between the individual and the general – from Irrthumer to the Untersuchungen – is aimed at this power of theory to abstract from “concrete phenomena” to “phenomenal forms”, that is to say, from the material social conditions of workers to their ability to produce abstract value, from concrete labour to abstract labour – to which correspond Menger’s concreten Erscheinungen and Erscheinungsformen - measured in “man-hours”, just like “horse-power”. Menger’s astute criticism of the Classical Labour Theory of Value (in the Principles, Appendices C and D on the “nature” and the “measure of value”, respectively) is precisely that “labour” cannot be at once the content or substance of Value, its “nature”, and also its measure, just as a metre is not space and a second is not time! This objection formed the entire basis of Marx’s critique of political economy as the metaphysics of labour – the distinction between concrete or living labour (Arbeit) and its abstract or crystallised form as imposed by capitalists, that is to say, labour-power (Arbeits-kraft). Marx’s critique clearly did not intend labour value to be an absolute but rather a relative quantity in that “socially necessary labour time” can refer to the labour time made “socially necessary” through the political violence of capitalists. Bohm-Bawerk’s critique of Marx will move from this “quantitative” – hence “essentialist” and objectivist – understanding of Value, which Menger was the first to eschew despite his Aristotelian straying.

That he was aware of the role of “theory” in promoting the interests of a particular class, Menger shows by his own critique of Savigny’s Historical School of Law. For Savigny and his school, the “organic” evolution of society is ipso facto rational because it is “spontaneous” – hence the real is rational – whereas for Weber and the Neoclassics scientific rationality requires the jettisoning of atavistic “feudal” institutions in favour of market individualism or methodological individualism as the Neoclassics called it, whereby for them “the rational is real”. Thus, the two aspects of Hegel’s famous dictum are set off against each other.

Weber and Menger are right to insist that what is irrational is the individual-social distinction. Yet neither of them was ever able to reconcile individual content and general form – the concrete and the abstract in social theory. (Refer to Hayek’s “Carl Menger” – individualism presupposes inter-subjectivity and ownership, and both presuppose a social definition of Value, and thus “subjective value” is an oxymoron. Menger’s late sprawling fruitless studies in ethnography and his preoccupation with the theory of money truly expose this “desperation” in his theoretical quest.

But his interests and the scope of the proposed work continued to expand to wider and wider circles. He found it necessary to go far in the study of other disciplines. Philosophy, psychology and ethnography claimed more and more of his time, and the publication of the work was again and again postponed. In 1903 he went so far as to resign from his chair at the comparatively early age of 63 in order to be able to devote himself entirely to his work, Hayek, p.32)

I wish to contest the opinion of those who question the existence of laws of economic behavior by referring to human free will, since their argument would deny economics altogether the status of an exact science. Whether and under what conditions a thing is useful to me, whether and under what conditions it is a good, whether and under what conditions it is an economic good, whether and under what conditions it possesses value for me and how large the measure of this value is for me, whether and under what conditions an economic exchange of goods will take place between two economizing individuals, and the limits within which a price can be established if an exchange does occur—these and many other matters are fully as independent of my will as any law of chemistry is of the will of the practicing chemist. The view adopted by these persons rests, therefore, on an easily discernible error about the proper field of our science. For economic theory is concerned, not with practical rules for economic activity, but with the conditions under which men engage in provident activity directed to the satisfaction of their needs. Economic theory is related to the practical activities of economizing men4 in much the same way that chemistry is related to the operations of the practical chemist. Although reference to freedom of the human will may well be legitimate as an objection to the complete predictability of economic activity, it can never have force as a denial of the conformity to definite laws of phenomena that condition the outcome of the economic activity of men and are entirely independent of the human will. (Principles, Preface, p.48)

Interestingly, Menger includes in the domain of economics the question of “whether” something is “useful”. But then the question of “will” must be included unless we assume that some exchanges must take place and the exchange is pure barter. This “anthropology” is something the other Neoclassics will omit from their “science” because it points to the uncomfortable sphere of use values that are supposedly only “subjective”. Menger thinks in humanistic essentialist or anthropological terms of cause and effect, of “wealth”. By contrast, utility can only be thought of in relative and subjective terms of potential “exchange” – in terms of “marginal utility”. But if these matters of “will” are omitted, the sphere of “whether” and “usefulness” is barred from economics! If they are excluded, then the content of economics is emptied out: economics becomes pure formal mathematics! Marginal utility theory cannot be concerned with use values because they are inscrutable, metaphysical. Yet obviously, the psychological metaphysics of possessive individualism (Macpherson) have to be included or subsumed under the categories of “supply”, “demand”, and therefore “scarcity”, and then “value” and finally, to include money, “price”.

Klein at p.8:
Economics, for Menger, is the study of purposeful human choice, the relationship between means and ends. “All things are subject to the law of cause and effect,” he begins his treatise. “This great principle knows no exception.”2 Jevons and Walras rejected cause and effect in favor of simultaneous determination, the technique of modeling complex relations as systems of simultaneous equations in which no variable “causes” another. Theirs has become the standard approach in contemporary economics, accepted by nearly all economists but the followers of Carl Menger.

Hayek at 17:
It is not the purpose of the present introduction to give a connected outline of Menger’s argument. But there are certain less known, somewhat surprising, aspects of his treatment which deserve special mention. The careful initial investigation of the causal relationship between human needs and the means for their satisfaction, which within the first few pages leads him to the now celebrated distinction between goods of the first, second, third and higher orders, and the now equally familiar concept of complementarity between different goods, is typical of the particular attention which, the widespread impression to the contrary notwithstanding, the Austrian School has always given to the technical structure of production—an attention which finds its clearest systematic expression in the elaborate “vorwerttheoretischer Teil” which precedes the discussion of the theory of value in Wieser’s late work, the Theory of Social Economy, 1914.

Hayek at 19 fn,1:
1Further aspects of Menger’s treatment of the general theory of value which might be mentioned are his persistent emphasis on the necessity to classify the different commodities on economic rather than technical grounds, his distinct anticipation of the Böhm-Bawerkian doctrine of the underestimation of future wants, and his careful analysis of the process by which the accumulation of capital turns gradually more and more of the originally free factors into scarce goods.

Hayek at p.22, fn.2:
2An exception should, perhaps, be made for Hack’s review in the Zeitschrift für die gesamte Staatswissenschaft, 1872, who not only emphasized the excellence of the book and the novelty of its method of approach, but also pointed out as opposed to Menger that the economically relevant relationship between commodities and wants was not that of cause and effect but one of means and end.

Hayek, p17-8:
Even more remarkable is the prominent role which the element of time plays from the very beginning. There is a very general impres
1 8 P rin ciple s o f E c o n o mic s
sion that the earlier representatives of modern economics were inclined to neglect this factor. In so far as the originators of the mathematical exposition of modern equilibrium theory are concerned, this impression is probably justified. Not so with Menger. To him economic activity is essentially planning for the future…

On yet another and a more interesting point in connection with the pure theory of subjective value Menger’s views are remarkably modern. Although he speaks occasionally of value as measurable, his exposition makes it quite clear that by this he means no more than that the value of any one commodity can be expressed by naming another commodity of equal value. Of the figures which he uses to represent the scales of utility he says expressly that they are not intended to represent the absolute, but only the relative importance of the wants, and the very examples he gives when he first introduces them makes it perfectly clear that he thinks of them not as cardinal but as ordinal figures.1 (Hayek, p.19)

If I mean by “supply” the available quantity of a “good” that is “scarce”, then obviously there must be a corresponding “demand”, without which “supply” and “scarcity” would be meaningless. But in this I also have to include the “want” of an “individual”, without which “supply” and “scarcity” would be meaningless. And this “want” has to be of diminishing intensity (Gossen).

Another, perhaps less important but not insignificant instance of Menger’s refusal to condense explanations in a single formula, occurs even earlier in the discussion of the decreasing intensity of individual wants with increasing satisfaction. This physiological fact, [m.e.] which later under the name of “Gossen’s law of the satisfaction of wants” was to assume a somewhat disproportionate position in the exposition of the theory of value, and was even hailed by Wieser as Menger’s main discovery, takes in Menger’s system the more appropriate minor position as one of the factors which enable us to arrange the different individual sensations of want in order of their importance. (Hayek, p.18)

If you could produce something that created higher demand with production, then the law of supply and demand – their antinomic link – would break down (obviously Neoclassics never thought of Apple!).

Hayek in “Carl Menger” traces the “logic” of this chain of thought. The notion of “good” is also meant to eliminate the process of pro-duction from the supply of pro-ducts, which otherwise could not be treated in isolation and abstraction from the process! (How can a pro-duct be distinguished from its pro-duction, also and especially in terms of “ownership”?)

It is obvious that Menger is con-fusing lots of interesting questions here. But Classical economics abstracts from use values by restricting their “supply” to what is pro-duced so that only the partial allocation of the total Value (the quantity of labour) to individual items is measured. This supply is taken to be an exogenous amount dependent of the available quantity of labour and its productivity in various processes of production. This allocation is then called “exchange value” and the question of use value is eliminated. Except that the substance and the measure are fused and confused as “labour” rather than distinguished as living labour and labour-power so that the intensity of labour (the temporal intensity of labour, Marx’s socially necessary labour time, which is not “necessary” at all – it is simply violence) is left to one side. This is how “labour” and “Value” become metaphysical for the Neoclassics.

Whilst defending on one hand the ability of Savigny’s School to draw “principles” from individual facts – the “general” from the “particular” -, Menger criticizes nevertheless the atavism, the conservatism of the school aimed at protecting backward-looking “feudal-aristocratic” interests:

It [Savigny’s Historical School of Law] concluded that the desire for a reform of social and political conditions aroused in all Europe by the French Revolution really meant a failure to
recognize the nature of law, state and society and their "organic origin." It concluded that the "subconscious wisdom" which is manifested in the political institutions which come about organically stands high above meddlesome human wisdom. It concluded that the pioneers of reform ideas accordingly would do less well to trust their own insight and energy than to leave the re-shaping of society to the "historical process of development." And it espoused other such conservative basic principles highly useful to the ruling interests.20 (Investigations, p.91)

But Menger fails to make explicit the kind of “interests” that his “reformed Political Economy” science will be serving. In Die Irrthumer after denouncing the effete “eclecticism” of the Historical School, he makes the litmus test of the new “science” its ability “to serve the economy” in terms of the Resultate to which it leads. This also is a Friedmanite positivist trait – above all, the predictability of policy actions and changes!

In the centre of the discussion there stands the great methodological achievement of C. Menger: Untersuchungen über die Methode der Sozialwissenschaften und der politischen Oekonomie insbesondere. It led people out of the stage of observation and individual arguments and attempted to clarify the struggle about methods by a thorough discussion of principles. In doing so it defended the theoretical position against the misunderstandings to which it had been exposed.1 In this respect there was indeed a great deal to be done. With the specifically historical range of ideas there was closely connected the view that economic theory was not in any way based on the observation of facts but on premises of a dubious character, that it was fundamentally prescientific and was destined to be replaced by a serious investigation of the facts. In consequence it was assumed that the task of science in the field of economic theory was not to develop it further but merely to describe it and to explain its ever-changing systems in historical terms. At

1 The following writers have the same basic approach: Böhm-Bawerk, 'Method in Political Economy', Annals of American Academy, 1; v. Philippovich, Ueber Aufgabe und Methode der Politischen Oekonomie, 1886; Sax, Wesen und Aufgaben der Nationalökonomie, 1884; Dietzel, *Beiträge zur Methodik der Wirtschaftswissenschaften', Conrad`'s ]ahrh. 1884, and other works; Lifschitz, Untersuchungen über die Methodologie der Wirtschaftswissenschaft, 1909. Also the following English writers on methodology: Jevons, 'The Future of Political Economy', Fortnightly Review, 1876, and 'Principles of Science', 1874; Cairnes, The Character and Logical Method of Political Economy, 1875; Keynes, Scope and Method of Political Economy, 1st ed 1891, and article 'Method* in Palgrave's Dictionary. Bagehot's attitude {Economic Studies, ed. 1880) is similar to that of K. Bücher: With these two thinkers theory appears indispensable for an understanding of the events in the modern exchange economy, beyond this, however, it is without any value. Furthermore, we find methodological discussions of a similar character in most of the systematic works, e.g. in A. Wagner, Philippovich, G. Cohn, J. Conrad, Seligman, Marshall and others.

best it might be possible to recognize the establishment and elaboration of a system of conceptions which could be put at the disposal of a science of society as a task of a theoretical nature, though of comparatively secondary importance. It was also believed that it was hardly possible any longer to talk of 'laws' in the field of social science and that at best it might be possible to talk of such regularities as can be discovered by detailed historical and statistical research. These 'regularities' might possibly be termed 'empirical laws'. The term 'theory' became so outlawed that it is today sometimes replaced by that of 'intellectual reproduction' or 'doctrine', in order not to evoke from the start a whole host of prejudices. And even if 'theory' in the sense of generally valid concepts was not regarded as absolutely impossible, the existing theory was considered as wrong in principle. Although Menger opposed these views he recognized at once the necessity of an historical basis for the solution of a great many economic problems and he considered such an historical basis essential for the investigation of individual cases.

Here is where the essence of the methodological debate between the Old Historical School of Roscher and Knies and the Neoclassics really lies. Not only, but it is indeed possible even to distinguish between the Old Historical School and the Young one established by Schmoller, one that became in fact far more closely aligned with the Neoclassics than with its older predecessor in the Methodenstreit. In terms of “being of service to the economy” the aim was amply shared by Schmoller, as Schumpeter points out. Indeed, it can be said that from a purely business standpoint, Schmoller’s research with his Verein fur Sozialpolitik - “social policy”, not “science”! - was far more “useful” to the nascent German capitalist bourgeoisie than the theoretical divagations of a Menger and the nascent Austrian School of Economics! Clearly, the issue was far weightier in terms of the ideological service of the new “science”, in terms of its “principles” against “particulars”, against an “eclecticism” that was liable to raise more questions than it answered about the legitimacy of capitalist enterprise, especially with regard to its “non-economic” repercussions. (Schumpeter himself will seek to address these “extra-economic” repercussions more seriously in his later work, and especially in Capitalism, Socialism and Democracy where the scientificity of capitalism is questioned - and indeed its extinction is even hypothesized.)

Schmoller’s historicism was always going to be saddled with its being “political”, that is, connected to “policies” – whereas the Neoclassics wished to present capitalist practice as pure theory, as “science”.

Schmoller1 retorted in a polemical form which was necessitated by the occasion, but as regards the subject-matter his approach was by no means simply a negative one. Already at this time he recognized not only that some of Menger's critical observations were justified but also how essentially similar the causal nexus in social science and natural science is; he also described the explanation of social phenomena in the form of cause and effect and in the form of laws—for him at this time both coincided—as the aim of scientific effort. Indeed we find even the far-reaching proposition that all perfect science is 'deductive', that is, that the state of ideal perfection is only reached when it has become possible to explain concrete phenomena completely with the help of theoretical premises. This proposition implies the acknowledgment that such a state of the science is possible in principle—even if in actual fact it

1 Zur Methodologie der Staats-und Sozialwissenschaften, Jahrbuch für Gesetzgebung, 1883; comp. also Zur Literaturgeschìchte der StaatsundSozialwissenschaft, 1888, and Wechselnde Theorien undfeststehende Wahrheiten ..., 1897; earlier statements by Schmoller on questions of method can be found in the symposium Grundfragen der Soiialpolitik und Volkswirtschaftslehrey 1898.

should remain unattainable for us. It also implies a complete rejection of the specifically historical belief in the 'incalculable5 and essentially 'irrational' nature of social events.

Note how Schumpeter distinguishes above between “cause and effect” and “economic laws” – suggesting that “the box of tools” contains just “tools of analysis” and not empirical findings of causal relationships – which both Menger and Schmoller did:

He [Schmoller] also described the explanation of social phenomena in the form of cause and effect and in the form of laws—for him at this time both coincided—as the aim of scientific effort.

This is similar to Hayek’s pointing out Menger’s “error” of seeing economic laws as “causational” whereas they are means-ends, science-of-choice, “rational” or “pure logic of choice” relations. This is a clear contrast between the Aristotelianism of Menger and the clearly Neo-Kantian and Machian orientation of the Austrian School from Mises onwards.

The impossible reconciliation of empiricism and formalism reached its apogee with Mises. Of course, Schmoller’s deductionism stands in contrast to Menger’s “generalism” in the sense that the former is purely conceptual whereas Menger meant a theory that is based empirically and is not the mere elucidation of concepts, as he says at p.38 of the Investigations. Schmoller is closer to Roscher’s Thucydides, to historicism; Menger instead preannounces Schumpeter in his insistence on the history/theory distinction. Nevertheless, Schumpeter is right to intimate that historicism will lead to determinism – to “science” even where this science is sheer classification (anatomy as in the Statik) or evolution as in the Dynamik, or indeed formal mathematical identities with no cause-effect temporal nexus as in General Equilibrium.

Schmoller goes further here than most of the theorists would have been prepared to do. In his works on method in the Handwörterbuch der Staatswissenschaften he emphasises the causal and theoretical task of social science even more forcefully. This approach is quite compatible with his view that the theory of social science needs to a large extent an historical 'substructure'. All these statements do not at all reveal an opposition to theory on principle, although of course they do not exclude an opposition to the existing theory. This latter kind of opposition, however, could only be an opposition 'within the theory', because as soon as the historian sets out to obtain general perceptions on the basis of his detailed historical research he would be forced to isolate facts and to arrive at abstractions, that is, he would in fact change into a theorist. It does not matter what these general perceptions are called. As v. Schmoller strikingly remarks, it makes no difference whether we talk of laws or whether we employ a different term for a complex of facts which remains essentially the same whatever name we might give to it. It is true that 'empirical laws', that is the identification of regularities in facts which remain unanalysed, would be possible even without abstractions, but they would, firstly, not be numerous and would, secondly, not tell us very much, they would be 'incomprehensible'. It is interesting to observe how closely representatives of schools, which are usually considered as essentially hostile, approached each other when they came to debate the principles of the matter. Even some of Schmoller's followers, as, e.g. Hasbach1, assumed the attitude which is characterized by the recognition of generally valid

1 *Ein Beitrag zur Methodologie der Nationalökonomie', Schmoller9 s Jahrbücker, 1885, and *Mit welcher Methode werden die Gesetze der theoretischen Oekonomie gefunden', Conrads Jahrbücher, 1894. Yet not all did so. Apart from methodological works of an historical point of view already mentioned we may quote: Grabski, *Zur Erkenntnislehre der volkswirtschaftlichen Erscheinungen', Tübinger Zeitschrift, 1861; Held, *Uber den gegenwärtigen Prinzipienstreit in der Nationalökonomie, Preussische Jahrbücher, 1872; Rümelin, 'Ueber den Begriff des sozialen Gesetzes', Reden und Aufsät^ I, 1875. The points of view of these authors, however, differ from each other.


laws. Gradually this attitude began to prevail until finally in recent times any argumentative hostility to theory died out, and the distinction which had already been stressed by Menger between the perception of the general and the individual was recognized. This distinction was given philosophical support. (Wïndelband: 'nomothetical' and 'ideographic' point of view, Rickert: 'scientific' and 'historical' approach.) This, however, had only very little effect on the contrast which continued to exist between the two methods of work, and it was rather because people became tired of the controversy than because they composed their differences that the quarrel gradually became less bitter.

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