Commentary on Political Economy

Friday 6 November 2015

Carl Menger and the Epistemological Problems of Neoclassical Economics

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”).

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


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.

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”! For a recent re-statement, cf. M. Rothbard, Present State of Austrian Economics.) Indeed, no theory of the general can long fail to de-fine the individual, and vice versa.

7. There are no 'social wholes' or 'social organisms'. Austrian Aristotelians hereby embrace a doctrine of ontological individualism, which implies also a concomitant methodological individualism, according to which all talk of nations, classes, firms, and so on is to be treated by the social theorist as an, in principle, eliminable shorthand for talk of individuals. That it is not entirely inappropriate to conceive individualism in either sense as 'Aristotelian' is seen for example in Aristotle's own treatment of knowledge and science in terms of the mental acts, states and powers of individual human subjects. (B. Smith, “Austrian School and Aristotelianism”.)

The historicism that starts with the idiosyncratic ends up under-standing 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. 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 Old Historical School of Roscher and Knies 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”. Here is Schumpeter:

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 the rise of capitalism, most rapidly in the Germany of the Old Historical School, 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 that 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.

At p.99:

The common element in the above two methodological problems is to

be found in the circumstance that both practical and theoretical economics

are concerned with the question of whether economic laws which correspond

to a definite developmental stage of economy are also adequate

for developmental phases of it differing from this stage. What is not infrequently

overlooked here is the decisive circumstance that in the one case

it is a matter of normative laws (of rules for human action established by

the state or through custom). In the other, however, it is a matter of laws

of phenomena (of regularities in the coexistence and the succession of the

phenomena of economy). That is, it is a matter of two completely different

things and concepts which are just by chance designated by the same

expression (law!).

Only the most extreme scientific one-sidedness could assert that the

CHAPTER TWO [ 119 parallelisms in national and state life in general and in the development of economy in particular are absolute regularities, or, in other words, that the development of the phenomena under discussion here exhibits a strict conformity to law.42 But even if rationally laws of nature in the development of ethical phenomena in general and of economy in particular are out of the question, there still exists no doubt in the mind of anyone at home in history that regularities are actually to be observed in the development of those phenomena, even if not with the presumed strictness. Their determination-whether they are called laws of development or mere parallelisms, mere regularities of development-is a by no means unjustified task of theoretical research in the realm of human phenomena and in that of economy in particular.

Both Menger and Friedman seek to divorce positive economic reality or necessity from normative policy choices or freedom, yet at the same time they attempt to maintain a continuum between reality and policy, with the latter being merely an optional application of knowledge about reality. This 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”! For either we argue that policy is always a matter of applying positive knowledge correctly or incorrectly, or else, like Friedman and Menger, we introduce a normative sphere of action – but then this sphere must be precluded to us by the presumed existence of a positive 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 and it would already point the way to whatever “changes” we intended to apply as future policy! 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 Friedman and Menger if it did not conform with that positive reality!

For a normative economics to exist beyond the positive we must allow for a sphere of practical action that is instructed scientifically by “positive economics” and yet cannot be determined by this positive economics for the simple reason that the latter is still an “imperfect” science.

But the existence of such a sphere of the unknown, the acknowledgement of “imperfect science” and the realm of practical action, of decision-making, that it opens up should alert us to the fact that all science – natural and social – is “imperfect”. Thus, the attempt by social science to imitate physical or natural science merely exposes the degree to which the nature of “science” is misunderstood. The fact that there is no “normative physics” as against “positive physics” does not show that physics is a “more perfect science” than economics: instead, it shows that neither physics nor economics can ever be “sciences” in a positive sense that eliminates human action from their sphere of knowledge. 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 or trans-formed, 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 on “reality”, a mani-pulation of “reality” – which therefore is not “real” at all in the sense of “immutable”! Ultimately, what is important is not the immutability of scientific laws – because these in fact do change: all science has a history! What is important is what human beings do with such “laws”, and even what they do to discover them!

"In contrast to the absolutism of theory," says Knies,39 "the historical

conception of political economy is based on the following principle. The

theory of political economy is also a result of historical development just

as economic conditions of life are. It grows, in living connection with the

total organism of a human and ethno-historical period, with and out of

the conditions of time, of space, of nationality. It exists together with

them and continues preparing for progressive development. It has its

line of argument in the historical life of the nations, and must attribute to

its results the character of historical solutions. Too, it can present general

laws in the general part of economics in no other way than as historical

explication and progressive manifestation of the truth. It can at every

stage present itself only as the generalization of the truths recognized up

39 Knies, Politische Oekonomie nach geschichtlicher Methode (1853), p. 19 and

(1882), p. 24.

116 ] BOOK TWO

to this definite point of development, and cannot be declared absolutely

self-contained according to sum or formulation. Furthermore, the absolutism

of the theory, where it has obtained validity at one stage of historical

development presents itself only as a child of this time and designates

a definite stage in the historical development of political economy."

The error which is the basis of the above conception of the nature of

the historical orientation of research in the field of theoretical economics

is clear. The individual phases of development of our science can be

understood historically, to be sure, only in connection with the spatial

and temporal conditions from which they have emerged. Or in other

words: a literary history of our science with a correct comprehension of

its (historical!) task must not overlook the connection between the individual

phases of its development and spatial and temporal conditions.

This is, however, a postulate of every literary history, even one of the

exact natural sciences, of chemistry and physics, indeed, of any writing

of history in general. However, it has no immediate relationship at all to

those postulates of research which we have called the historical point of

view in theoretical economics (Le., retaining the fact of the development

of economic phenomena in the investigation of the general nature and the

general connection of the laws of economy).

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 scientific activity as “the will to Truth”.

First of all, Friedman and Menger are arguing that “what is” has greater reason to be than “what ought to be” (cf. Leibniz’s Principle of Sufficient Reason) – they are 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 – a matter of scientific necessity-, whereas “what ought to be” is a matter of choice and values – a matter of freedom. 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 (again, see his essay on “Objectivity” cited above). 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!

But Menger overlooks the fact that whereas it is possible to determine “wrong” and “right”, or rather “correct” and “incorrect” or “true” and “false” 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! This is because where human beings are concerned, the application of Heisenberg’s Indeterminacy Principle applies not just at the atomic level but indeed at the epistemological level – in the sense that any “prediction” of the effects of “scientific” social policy is itself subject to “normative” appraisal!

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.

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. (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. In any case, Smith’s distinction between “Aristotelian reflectionism” and “Kantian impositionism” seems superfluous because remember that for Kant intuition does not just impose the schemata or categories on things in themselves, intuition also reflects phenomena derived from things in themselves!)

As Weber shows in his methodological studies (see the collection, The Methodology of the Social Sciences edited by Edward Shils, and particularly the essay on “Objectivity in the Social Sciences”), 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”.

Menger’s key distinction between the individual and the general – from the Untersuchungen to the Irrthumer – is aimed at this power of theory to abstract from “concrete phenomena” to “phenomenal forms”, conkreten Erscheinungen and Erscheinungs-formen. Here again is the Kantian dichotomy between intuition and categories which is the origin of the Lukacsian “antinomies of bourgeois thought”. What Menger never explains is why the concrete phenomenon should start from the individual intended as “a single human being” as the foundation of “the science of political economy” rather than, say, from a community or a class – because the very notion of “individual” contains already a discrete “choice” of category that will determine the content of the “phenomenal forms”. Far from being a “scientific” foundation, the “choice” of the single human being as the epistemological foundation or “concrete phenomenon” or “individual” as the foundation for the “general”, as the concrete basis from which abstract laws of economics are to be derived, is indeed a wholly partial and unfounded one – again, from a “scientific” or “objective” perspective.

Menger’s confusion of these elementary matters is quite evident in this passage as is also the causational or aetiological approach to “the exact theory of political economy”:

Among human efforts those which are aimed at the anticipation and

provision of material (economic) needs are by far the most common and

most important. In the same way, among human impulses that which

impels each individual to strive for his well-being is by far the most common

and most powerful. A theory which would teach us to what crystallizations

of human activity and what forms of human phenomena action

oriented to the provision of material needs leads, on the assumption of

the free play of that powerful economic impulse, uninfluenced by other

impulses and other considerations (particularly error or ignorance); a

theory, especially, which would teach us what quantitative effects would

be produced by a definite quantity of the influence in question: such a

theory simply must provide us with a certain understanding. It cannot

provide understanding of human phenomena in their totality or of a concrete

portion thereof, but it can provide understanding of one of the most

important sides of human life. “The exact theory of political economy" is

a theory of this kind, a theory which teaches us to follow and understand

in an exact way the manifestations of human self-interest in the efforts of

economic humans aimed at the provision of their material needs. (Investigations, p.87.)


And Helvetius, Mandeville,

and A. Smith knew just as well as any adherent of the historical school of

German economics that self-interest does not exclusively influence the

phenomena of human life. If the last of these had only written his own

theory of public spirit! What distinguishes him and his school from our

historians is the fact that he neither confused the history of economy with

its theory nor even followed one-sidedly that orientation of research

which I designated above with the expression empirical-realistic. Nor,

finally, did he become a victim of the misunderstanding of seeing in theoretical

investigations conducted from the point of view of the free play of

human self-interest uninfluenced by other powers the acknowledgement

of the "dogma" of human self-interest as the only actual mainspring of

human actions. (p.88)

The insuperable problem with Menger’s argument is, of course, that it is quite impossible to identify “individual self-interest” in any way whatsoever, and certainly not in the “quantitative” sense that he clearly intends – as a determinant of market prices, still less as a determinant of value. The problem is not that Adam Smith or whoever failed to distinguish between self-interest and other human interests; the problem is that it is impossible to make such a distinction - and therefore their attempts to put economic inquiry on solid “scientific” and non-political or non-ethical grounds were doomed from the start! The distinction between “positive” and “normative” proves once again to be most elusive for bourgeois science.

Indeed, Menger is so confused about these conceptual relations that he is forced to defend his isolation of the single human being as the “individual” of economic theory by presenting it as the ready-made “individual concrete phenomenon” on which the “phenomenic forms” of economic theory” are based! This is clearly a circuitous definition in which the “individual” as against the “singular” is what lends itself to theorizing through the “typical” and, vice versa, the typical is what is yielded by the theoretical analysis of the individual! The two concepts – the individual and the typical – hold each other up like two drunken sailors leaning against a lamp-post!

Menger is confusedly aware of this, which is why he hastens to distinguish between “single” and “collective” phenomena – again to stress that “individual” does not mean “single” as distinct from “collective” – that, in other words, the scientific foundation of political economy cannot be purely numerical. But if “individual” does not mean “single”, if it is to mean, as Menger intends, “concrete phenomenon”, in what way can the single individual with which he starts his “science” be or represent the “concrete phenomenon” on which the phenomenic forms of “the exact theory of political economy” are to be erected?

Menger fails to identify to any degree whatsoever what makes an individual a concrete phenomenon and what makes it only a “singular phenomenon”. Similarly, he makes us none the wiser about the distinction between individual and general, concrete phenomenon and phenomenic forms. It is quite obvious in the passage below that Menger bases his distinctions on vague notions of “history” and “theory”. But we cannot identify this difference if we simply define “individual” and “general” or “typical” or “form” with “theory”, and “singular” and “concrete phenomenon” with “history”. Indeed, as this long passage illustrates quite conclusively, Menger seems to think that a simple distinction between singular and collective, on one hand, and concrete phenomenon or individual and typical on the other is sufficient to clarify his overall methodological aim of isolating the general from the individual.

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.

But this is precisely the error into which Menger has fallen. For, in selecting the single human being as the theoretical basis or “individual” from which his “general” is to be derived, he has failed to specify what makes a single human being “individual” rather than just “singular”! The only factor that he can identify is “human self-interest”. But any student of human history and human affairs should know that “human self-interest” is simply impossible to define and to theorise for “economic” purposes! Furthermore, Menger simply assumes, quite unjustifiably, that human “material needs” are ipso facto “economic”: but this is entirely wrong! If by “economic” we mean “exchange of goods by different legal owners”, it is clear that this is both practically and historically a much narrower area of “human material needs” and of human activity.

(Refer to Hayek’s “Carl Menger” for a clear pointer to this: – individualism presupposes inter-subjectivity and ownership, and both presuppose a social definition of Value, and thus “subjective value” is an oxymoron.

And if you asked him what makes self-interest “economic”, he would say that it is “material needs”. But material needs are not and cannot be confined to “individuals” because it is impossible and idiotic in the extreme to parcel out “social labour” into “individual labours”!

If you asked Menger - and all bourgeois economists -, what determines market prices, he would say it is self-interest and specifically “economic” self-interest. But then, if you asked him what measures self-interest, he would say it is market prices!

The identification and measurement of “self-interest”, at least in a causative or aetiological and then even axiological sense (in terms of the ethical claim of producers to products) is the “anthropological” conundrum with which Menger struggled most of his later life: his burgeoning yet fruitless studies in ethnography and his preoccupation with the theory of money truly expose this “desperation” in his theoretical quest, as Hayek attests:

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)

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