Commentary on Political Economy

Saturday, 29 October 2022


Rationalisierung and Capitalism – Roscher, Menger, Weber


In his first major work on the methodology of the social sciences published in 1902, Max Weber addresses “the logical problems of political economy” intrinsic in the work of his great predecessors of the German Historical School of Economics, Wilhelm Roscher and Karl Knies, and joins the controversy over the “methodological debate” [Methodenstreit] that his two former masters had engaged with another of their pupils, Carl Menger, over the scientific status or less of Political Economy as against History as the foundation of the study of the economic activity of human societies. Ostensibly, the Methodenstreit revolved around the evident apory that arises whenever we try to extract “laws” or scientific rules from historical events such as, for instance, the social production of goods and services – what is broadly known as economics. Like all objects of human knowledge, our generalisations about them can never exactly reproduce their objects: as Joan Robinson famously put it, a one-to-one map of reality does not exist – and if it did, it would be of no use. Weber certainly accepted the relevance of this Fichtean hiatus irrationalis, that is, of the human impossibility to reconcile reason and reality. But, against Roscher and Knies, and in favour of Carl Menger and his Neoclassical theory of marginal utility, he insisted that the Historical Method could not, as an epistemological orientation, yield the kind of approximative scientific Resultate needed for the guidance of social policy, in economics as in many other spheres of social life.

The difficulty with Weber’s reasoning is that the prescription or setting of the methods required for the determination of “laws, rules and regularities” regarding social activity require the dialectical, discursive consensus of those elements of society affected by the drawing of those very “laws, rules and regularities”! Differently put, given that the object of economic science or of political economy aiming to be scientific is to maximise the welfare of society, it stands to reason that any and every scientific claim on their behalf must be scientifically linked to that welfare as a dependent variable of those scientifically-guided principles. The difficulty arises from the obvious reality that welfare itself cannot be determined scientifically or empirically or quantitatively for the unassailable reason that the definition of welfare depends entirely on social and political standards and values and needs amenable only to discursive or consensual decisions on the part of the society concerned – and most certainly not on scientifically objective methods and measures. This is why Roscher refers to the “new and distinct science of Political Economy” as dependent on an “Idealistic Method” – one founded on axiomatic mathematical calculations incompatible with the empirical sociological fact-finding of the Historical Method. What is “idealistic”, as Roscher labels it, about the “scientific method” of economics and of political economy is precisely the fact that their attempts to make welfare mathematically and quantitatively “calculable” can only end up distorting the very notion of welfare – economic and otherwise! The theoretical crux of what came to be known as the Methodenstreit between the German Historical School headed by Roscher and the budding science of Neoclassical Economics based on the theory of marginal utility initiated by his devout student Carl Menger is all here. Of course, Roscher does not explicitly challenge the scientificity of “the Idealistic Method” in terms of the untenability of any claim to the measurability or calculability of welfare. Nor does he offer any proper critique of political economy and its extravagant claims to be able to quantify and calculate welfare whether in terms of causality (as Menger contended initially)or more restrainedly in terms of means and ends (as most other Neoclassical economists established thereafter).

Nevertheless, it is evident that what for Roscher is “idealistic” about political economy (Classical or Neoclassical) is precisely its “formalism”, the incompatibility of the methodical quantitative monetary calculation of welfare and the intrinsically and ineluctably political character of welfare itself. One of two things: either welfare, which is the sole defining object and content (the “Wesen und Inhalt”, as Schumpeter categorised it in his homonymous first work) of economics, is quantifiable – and in that case economics turns into engineering, and is therefore no longer “a distinct science”, losing thus its very raison d’etre; or else it is not so quantifiable because it depends on social values and goals – and in that case economics ceases to be a science and turns into a political activity, it turns into policy. It is signally this formal “contemplative” – hence “idealistic” – character of political economy that Roscher attacks quite justifiably. Economics as the study of production of goods and services for the satisfaction of social needs can be quantified only on condition that the weights and tools and methods of such quantification or calculation as well as the “welfare” intended to be their objective are politically agreed upon by the members of society. Yet this is precisely what the “new, distinct science of Political Economy” emphatically denies! For its exponents and promotors, Neoclassical Political Economy, to the extent that it relates to the maximisation of social welfare, is a science of exchange (General Equilibrium) based on universal human needs and wants – marginal utility – and a science of choice based on the optimal allocation of scarce resources, irrespective of other extraneous considerations such as cultural and moral values that are wholly irrelevant to their satisfaction.

Both Roscher’s German Historical School and its Neoclassical counterpart headed by Menger were obliquely aware of the conflicting political goals and interests upon which their opposing theories were founded. Yet neither theoretician had sufficient critical insight to recognize the practical and political origins of their diatribe.

Here is Roscher:

The isolation of the theory of Political Economy is peculiar to our own day. In more remote times, we find this study confounded with the other moral sciences, of which it was an integral part. When the genius of Adam Smith gave it its distinct character, he did not desire to separate it from those branches of knowledge without which it could only remain a bleached plant from the absence of the sunlight of ethics…

We may allow those who make Political Economy simply a piece of arithmetic to ignore these retrospective studies and their importance; for mathematics has little to do with history. But it is otherwise with the life of nations. These would discover whence they come, in order to learn whither they are tending. (W. Roscher, “Preliminary Essay on the Historical Method”, PPE, p.25)

For Roscher, political economy cannot theorise the economic activity of human societies by reducing the complex social relations involved to “simply a piece of arithmetic”, that is, to abstract, formal mathematical rules – to formulae - that have no substantive content in terms of the needs and wants of those societies – needs and wants that cannot be reduced to quantifiable entities and variables because they contain “the sunlight of ethics” without which those social relations – yes, even the “social relations of production” – have and make very little sense. Even the founder of Political Economy, Adam Smith, Roscher insists, had warned that the market equilibrium schemata he had theorised in The Wealth of Nations had to be richly supplemented by his adroit qualifications in The Theory of Moral Sentiments. Again, what Roscher fails to see here is that, in reality if not in intention, Smith’s general market equilibrium schemata traced in The Wealth did not so much describe human society but rather they prescribed the institutional shape and order that a society had to follow if it wished to become a capitalist market society. The mathematical or “arithmetic” scheme of Classical Political Economy was ab initio a “project”, a prescription, a guide, for the establishment of a capitalist marketplace society capable of being reduced to measurable entities, not a photograph or portrait of an eternal, immutable social reality. Regardless of whether or not Political Economy claimed to describe an invariant human nature, in reality its “laws of economics” reflected simply the power and violence of the bourgeoisie in reducing living labour to dead abstract, and therefore measurable, labour.

For his part, and from the opposing viewpoint of Political Economy, Menger can detect the ideological bases of Roscher’s Historical Method, in the guise of its predecessor in Savigny’s Historical School of Law; but he fails to observe the far more ideological refoundation of social structures by the capitalist bourgeoisie supplanting the old aristocratic absolutist feudal social order and mode of production. Here is Menger:

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)

Menger is right to indict the vested interests of the German Junker or landed aristocracy behind the promotion of “organic”, autochthonous economic practices and social values championed by the various German Historical Schools. At the same time, however, he fails to remove the ideological veil of his own “science of economics”, the theory of marginal utility, which only served to hide the project of domination of the bourgeoisie over all of society.

Of course, by failing to address the epochal implications of the violent generalisation of commodity production and exchange operated by the rapid and seemingly unstoppable spread of capitalist industry and enterprise, Roscher’s objection to the scientific claims of Neoclassical Theory on behalf of his “Historical Method” were destined to be defeated by the insurgent “Idealistic Method” espoused and developed by the capitalist bourgeoisie and its ideologues. The Methodenstreit entirely elides this crucial point: it deflects the essential political conflict between the two standpoints into a sterile debate on the correct “scientific method” to be applied to capitalist industry and enterprise. Roscher and his German Historical School never perceived that however invalid the claims of Neoclassical Theory were from a proper historical and anthropological scientific standpoint, it would be the very violent political imposition of a mode of production and social system founded on the measurement and “calculability” of human living labour in monetary terms that would seal the imminent triumph of both capitalist industry and of its ideological rationalisation in Neoclassical Political Economy espoused by Carl Menger and the Austrian School that he founded. Tersely put, it may be said that the rationalisation of capitalism – its scientistic justification – had to pass through the Rationalisierung of human living labour by means of the violent imposition of the “labour market” – the transmutation of living labour into dead abstract labour on which the “exact calculation”(Weber’s “exakte Kalkulation”)  of monetary profit occurs in capitalist industry.

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