Neoclassical Economics and Scientific Methodology - by Joseph Belbruno

7/24/2019 Neoclassical Economics and Scientific Methodology - by Joseph Belbruno

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CARL MENGER: NEOCLASSICAL ECONOMICS AND SCIENTIFIC

METHODOLOGY

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, Heisenbergsimpossibility or indeterminacy theorem in science and Alfred N. Whiteheads

fallacy of misplaced concreteness provide inconfutable demonstrations), it is true

nevertheless that human being has developed materially, which is whyinter-

subjectivityis 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 KantsCritique of Judgement although she still clings to the

Kantian perception/imagination, intellect/judgement dichotomies:

In other words: What makes particulars communicable is (a) that inperceiving a particular we have in the back of our minds (or in the "depthsof our souls") a "schema" whose "shape" is characteristic of many suchparticulars and (b) that this schematic shape is in the back of theminds of many dierent people. These schematic shapes are productsof the imagination although "no schema can ever be brought into anyimage whatsoever."! #ll single agreements or disagreements presupposethat 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. %. TheCritique of Judgmentdeals with re&ective 'udgments as distinguished fromdeterminant ones. eterminant 'udgments subsume the particular under ageneral rule re&ective 'udgments on the contrary "derive" the rule fromthe particular. In the schema one actually "perceives" some "universal" inthe particular. *ne sees as it were the schema "table" by recogni+ing thetable as table. ,ant hints at this distinction between determinant andre&ective 'udgments in the Critique of Pure Reason by drawing adistinction between "subsuming under a concept" and "bringing to aconcept."- /. 0inally our sensibility seems to need imagination not onlyas an aid to knowledge but in order to recogni+e sameness in the

manifold. #s such it is the condition of all knowledge: the "synthesis ofimagination prior to apperception is the ground of the possibility of allknowledge especially of e1perience."-!As2% 3#4T*56such, imagination "determines the sensibility a priori," i.e., it isinherent in all sense perceptions. Without it, there would beneither the objectivity of the worldthat it can be knownnorany possibility of communicationthat we can talk about it.(Lectures on Kant pp.278%).

Whilst she often lingers on the ineffable nature of thought, here Arendt seems finallyto concede though still in Kantian antinomic terms the essential unity of


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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 theadventitiousattribute of individuals the minds of many

differentpeople and not as a fundamentalfacultyof humanbeing, that is, ofbeing

human. That Arendt was quite aware of this impasse, as he styles it, is madeexplicit by R. Beiner in the interpretative essay appended to theLectures:

#s ,ant9s Critique of Judgmentenabled him to break through some of theantinomies of the earlier critiues so she ;#rendt< hoped to resolve theperple1ities of thinking and willing by pondering the nature of our capacityfor 'udging."- It is not merely that the already completed accounts of twomental faculties were to be supplemented by a yet8to8be8provided thirdbut rather that those two accounts themselves remain de=cient withoutthe promised synthesis in 'udging (4. >einer Interpretive 6ssay in

#rendt op.cit. p.2)

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 tohistory. And as we saw in our last

section, ultimately the aim of every scientistic reification is to removethoughtfrom

history itself, to present history as ineluctable fate. The antinomy implicit in thisconception 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 Historicismwhere 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, ofhumani generis res gestae, the sense of history may well be the

epitome of praxis, of the exercise of judgement. Here once again is Arendt:

?ere we shall have to concern ourselves not for the =rst time7 with theconcept of history but we may be able to re&ect on the oldest meaning ofthis word which like so many other terms in our political andphilosophical language is @reek in origin derived from historein "to

inuire in order to tell how it was"$ legein ta eontain ?erodotus. >ut theorigin of this verb is in turn ?omer (IliadABIII) where the noun histr


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("historian" as it were) occurs and that ?omeric historian is thejudge. If'udgment is our faculty for dealing with the past the historian is theinuiring man who by relating it sits in 'udgment over it. If that is so wemay reclaim our human dignity win it back as it were from the pseudo8divinity named ?istory of the modern age without denying history9s

importance but denying its right to be the ultimate 'udge (op.cit. p./)

Thought isimprescindible. Thought isec-sistenceitself because thought is intrinsically

reflective whence comes the illusion that behind thinking there must be a

thinker, an Ego that thinks. Thought is action (cogitarefromco-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 isvivo ergo cogito, notcogito ergo sum! Experience comes before knowledge. For Western

thought, however, thought is theLogos- real because rational and rational because

real. It is this identification of reality and rationality (the rational is real and the real

is rational), theordo et connexio rerum et idearumthat 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). Nietzsches 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 itspower-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 upcircum-scribing it, and therefore making it

vulnerable to scientisation. TheGeistes-wissenschaftenhave this in common with the

Natur-wissenschaften that both make theideo-graphic alreadynomo-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

hermeneusisturns into historicist teleology and scientistic determinism (cf. Popper,

who did not even begin to understand the untenability of his open society as abulwark against its enemies).

Schmoller goes further here than most of the theorists would have been prepared to do. In his works

on method in theHandwrterbuch der Staatswissenschaftenhe 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


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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.!ven some of

Schmoller's followers as e.g. "asbach# assumed the attitude which is characteri$ed by the

recognition of generally valid

#%& !()(*I +(T,I)! A)+ *!T"(+

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. (Wndelband! "nomothetical" and "ideographic" point of view, #ic$ert!

"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 lessbitter.

Theindividualis already thegeneralandvice versabecause, antinomically, the one

implies (begs the question of) the other. (Interesting, in this context, to note Alfred

Marshalls 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 Says 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 thegeneralcan long fail to de-fine

theindividual, andvice versa.

C. There are no 'social wholes' or 'social organisms'. #ustrian #ristotelianshereby embrace a doctrine of ontological individualism which implies alsoa concomitant methodologicalindividualism according to which all talk ofnations classes =rms and so on is to be treated by the social theorist asan in principle eliminable shorthand for talk of individuals. That it is notentirely inappropriate to conceive individualism in either sense as9#ristotelian9 is seen for e1ample in #ristotle9s own treatment ofknowledge and science in terms of the mental acts states and powers ofindividual human sub'ects. (>. Dmith Eustrian !chool andristotelianism".)

The historicism that starts with theidiosyncraticends up under-standing it, com-

prehending it throughthe general, through the principles of science. Thus, it loses

sight of the only way in which theory and science are possible: - asstrategy. By

glorifying the in-dividual, theparticular, it neglects its antinomic dependence on the

general. Science is possible only as reification, not as rationality but as itsstultification, that is, asRationalisierung, only as rigid violent imposition or at the


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very least as convention (cf. Nietzsches brief exposition inUber Wahrheit und Luge).

Thecontractum unionisimplicit in all conventions always has the potential to become

acontractum subjectionis-for Hobbes politically and for Nietzsche semiotically. For

Nietzsche, historicism ends up as its opposite, as science, because it denies the

tragicityof ec-sistence, and therefore of thought:

Thucydides and perhaps FachiavelliGs Princi#e are most closely relatedto me in terms of their unconditional will not to be fooled and to seereason in realit$H notin reasonG and even less in moralityGJ (ToI p.--/)

This is what Nietzsche decried in Roscher who had dared wrongfully to enlist

Thucydides the ultimate muse oftragicityfor 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 Scholasticordo 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 reasoncanbe imposed on reality but only as a

strategy, as a straitjacket, asEskamotage, as theante litteramWeberianRationalisierung!

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 thetragedyof WeberianVerstehenand 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 itsratiosooner or later will turn nomo-

thetic (Windelband, Dilthey). Marxs own lampooning of Thukydides-Roscher in

Book 9 ofDas Kapitalwas 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 astrategy: we owe

this great realization above all to Nietzsche, though earlier hints of it were already inCusanus (cf. E. Cassirers masterlyIndividual 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

Habermass best work fromErkenntnis und InteressetoTheorie 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?


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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 ofthe former on including and canvassing non-economic elementsin 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 theTheoriethat 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 ofeconomictheory toguideeconomicpolicy.

Schumpeter himself makes clear that economic science must be founded on historical

facts and that indeed economic science is a methodologicallydistinct form of

historical knowledge:

That speci=cally historical spirit which alone turns the collection of facts whichafter all is necessary for any school into something methodologically distinct didnot develop. (6con. octrines p.!KK)

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 ofhistorical detail in fact it tooktoo

muchaccount of such detail, to the point that it cluttered its research with non-

economic elements. Here is Schumpeter:

With ,nies the matter is somewhat diLerent. ?is resistance to the splitting upof the personality into individual 9urges9 and to their treatment in

isolation$although we must stress the fact that this does not constitutethe essence of classical economic thought as ,nies thought$and the emphasis which he places on the vital part played bynon-economic elementseven in the =eld of economics %&eteronom$of conomics( places him more closely to the genuine historicalschool. (p.!/C)

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 theGermany of the Old Historical School, it is then evident that as the reproduction of a


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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 offacts can give rise to a theory that is specifically economic. (Schumpeter refers to

Webers 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 admittingpositivisticallythat it is

possible to isolate regularities of an economic nature in social life (cf. M.

Friedmans essay), there is still the greatest difficulty in determining whether such

regularities can be described as laws. For, though they may represent and

describe thepresentreality of social life, it may well be that such regularities do notamount 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 apositivescience 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:

ositive economics is in principle independent of any particularethical position or normative judgments.#s ;5eville< ,eynes says itdeals with "what is" not with "what ought to be." Its task is to provide asystem of generali+ations that can be used to make correct predictionsabout the conseuences of any change in circumstances. Its performanceis to be 'udged by the precision scope and conformity with e1perience ofthe predictions it yields. In short positive economics is or can be an"ob'ective" science in precisely the same sense as any of the physical

sciences. *f course the fact that economics deals with the interrelationsof human beings and that the investigator is himself part of the sub'ect


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matter being investigated in a more intimate sense than in the physicalsciences raises special diMculties in achieving ob'ectivity at the sametime that it provides the social scientist with a class of data not availableto the physical ;/< scientist. >ut neither the one nor the other is in myview a fundamental distinction between the two groups of sciences.7

5ormative economics and the art of economics on the other hand cannotbe independent of positive economics. #ny policy conclusion necessarilyrests on a prediction about the conseuences of doing one thing ratherthan another a prediction that must be based 8 implicitly or e1plicitly 8 onpositive economics. (F. 0riedman EThe Fethodology of 3ositive6conomicsN in ssa$s in Positi)e conomics pp.%8/)

Note Mengers analogous position:

72 < >**, *56 The above contrast is not infreuently characteri+ed even

if in a somewhat diLerent sense by the separation of the sciences intohistoricaland theoretical. ?istory and the statistics of economy arehistorical sciences in the above sense economics is a theoreticalscience./ >esides the two above large groups of sciences we must bear inmind here still a third one the nature of which is essentially diLerent fromthat of the two previously named: we mean the so8called#racticalsciences or technologies. The sciences of this type do not make us awareof phenomena either from the historical point of view or from thetheoretical they do not teach us at all what is. Their problem is rather todetermine the basic principles by which according to the diversity ofconditions eLorts of a de=nite kind can be most suitably pursued. Theyteach us what the conditions are supposed to be for de=nite human aimsto be achieved. Technologies of this kind in the =eld of economy areeconomic policy and the science of =nance.

At p.99:

The common element in the above two methodological problems is tobe found in the circumstance that both practical and theoretical economicsare concerned with the question of whether economic laws which correspond

to a definite developmental stage of economy are also adequatefor developmental phases of it differing from this stage. -hat is not infrequentlyoverlooked here is the decisive circumstance that in the one caseit is a matter of normative laws of rules for human action established bythe state or through custom/. In the other however it is a matter of lawsof phenomena of regularities in the coexistence and the succession of the

phenomena of economy/. That is it is a matter of two completely differentthings and concepts which are 0ust by chance designated by the sameexpression law1/.

*nly the most e1treme scienti=c one8sidedness could assert that theO?#3T64 TW* ; !! parallelisms in national and state life in general andin the development of economy in particular are absolute regularities or

in other words that the development of the phenomena under discussionhere e1hibits a strict conformity to law.%- >ut even if rationally laws of


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nature in the development of ethical phenomena in general and ofeconomy in particular are out of the uestion there still e1ists no doubt inthe mind of anyone at home in history that regularities are actually to beobserved in the development of those phenomena even if not with thepresumed strictness. Their determination8whether they are called laws of

development or mere parallelisms mere regularities of development8is aby no means un'usti=ed task of theoretical research in the realm of humanphenomena and in that of economy in particular.

Both Menger and Friedman seekto divorcepositive economic reality ornecessityfrom

normative policy choices orfreedom, yet at the same time they attempt to maintain a

continuumbetween reality and policy, with the latter being merely anoptional

application of knowledge about reality. This nuanced distinction betweennormative

andpositiveeconomics ends up being extremely nave because it begs the question ofhow 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 isolatewhat isfromwhat ought to be, then thewhat is, thereal,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 ofpractical 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 sciencemerely exposes the degree to which the nature of science is misunderstood. The


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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 ofknowledge. In fact, even the laws of

natural science have a questionable legality in terms of how scientific knowledgeor truth is indeed a will to truth, NietzschesWille 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-ventionon

reality, a mani-pulationofreality 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:allscience has ahistory! What is

important is what human beingsdowith 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 inanalyzing, 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. Heisenbergs 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 bethan what ought to be (cf. Leibnizs 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 whatis instead of another and, second, we choose the tools to be used in the empirical


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research (again, see his essay on Objectivity cited above). Friedman acknowledges

this:

*f course the fact that economics deals with the interrelations of human

beings and that the investigator is himself part of the sub'ect matterbeing investigated in a more intimate sense than in the physical sciencesraises special diMculties in achieving ob'ectivity at the same time that itprovides the social scientist with a class of data not available to thephysical ;/< scientist. >ut neither the one nor the other is in my view afundamental distinction between the two groups of sciences.7

This is a simplistic regurgitation of the Machiavelli-Vico-Bacon line. It is not so much

that the social scientist lacksobjectivitybecause 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 ahuman 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 inexperimental 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 Heisenbergs 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 ofreally immeasurable signi=cance for human life of no less signi=cancethan the cognition of concrete phenomena. Without the knowledge ofempirical forms we would not be able to comprehend the myriads ofphenomena surrounding us nor to classify them in our minds it is thepresupposition for a more comprehensive cognition of the real world.Without cognition of the t$#icalrelationships we would be deprived not

only of a deeper understanding of the real world as we will show furtheron but also as may be easily seen of all cognition e1tending beyond


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immediate observation Pe. of any#redictionand controlof things. #llhuman prediction and indirectly all arbitrary shaping of things isconditioned by that knowledge which we previously have called general.The statements made here are true of all realms of the world of pheO?#3T64 *56 ; 7C

nomena and accordingly also of human economy in general and of itssocial form "national economy"- in particular.

5ote the similarity between FengerGs EtypesN and WeberGs Eideal typesN.>ut note also the important distinction: Fenger intends EtypesN to bescienti=c laws of causation between phenomena in #ristotelian fashion.0or Weber instead ideal types are pure ,antian categories wherecausation is impossible to establish (because phenomena are eventuatedby Ethings in themselvesN which are inscrutable). WeberGs world is alreadyFachian: it links phenomena as EsensationsN not as real physical eventsin a @alilean or #ristotelian manner. (*n FengerGs #ristotelianism see theadmirable work of >arry Dmith. Whilst DmithGs thesis is certainlyapplicable to Fenger H especially through the in&uence of 0ran+ >rentanowhose work on #ristotle inspired ?eidegger he is wrong about the later#ustrian Dchool from Fises onwards which was clearly premised on neo8,antian and Fachian lines as we shall see presently. In any case DmithGsdistinction between E#ristotelian re&ectionismN and E,antianimpositionismN seems super&uous because remember that for ,antintuition does not 'ust im#osethe schemata or categories onthings inthemselves intuition also re*ectsphenomena derived fromthings inthemselvesQ)

As Weber shows in his methodological studies (see the collection,The Methodology of

the Social Sciencesedited 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 isrepeated indefinitely,

which is what a scientific law requires immutability. This is a point astutelymade 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 realitythat they are supposed to demonstrate. Therefore, it is obvious that all science,


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natural and social, is not and cannot be immutable but that its experimental

outcomes will change with enough repetitions.

Mengers key distinction between theindividualand thegeneral from the

Untersuchungento theIrrthumer is aimed at the power of theoryto abstractfrom

concrete phenomena to phenomenal forms,conkreten Erscheinungenand

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 ofpolitical 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.

2In contrast to the absolutism of theory2 says 3nies45 2the historicalconception of political economy is based on the following principle. Thetheory of political economy is also a result of historical development 0ust

as economic conditions of life are. It grows in living connection with thetotal organism of a human and ethno6historical period with and out ofthe conditions of time of space of nationality. It exists together withthem and continues preparing for progressive development. It has itsline of argument in the historical life of the nations and must attribute toits results the character of historical solutions. Too it can present general

laws in the general part of economics in no other way than as historicalexplication andprogressive manifestation of the truth. It can at everystage present itself only as the generali$ation of the truths recogni$ed up393niesPolitische Oekonomie nach geschichtlicher Methode #784/ p. #5 and

#77&/p. &9.

##: ;


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and temporal conditions from which they have emerged. (r in other

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

its historical1/ task must not overlook the connection between the individualphases 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. "owever it has no immediate relationship at all tothose postulates of research which we have called the historical point of

view in theoretical economics ?e. retaining the fact of the development

of economic phenomena in the investigation of the general nature and thegeneral connection of the laws of economy/.

The historical development of a science, argues Menger here, must be distinguished

from the content of its scientific advance: whereas the former is doubtless affected by

ideographic or idiosyncratic factors, the latter cannot be so affected by

epistemological definition because what is scientific cannot as such be

determined by idiosyncratic or singular factors. But here Menger clearlymisunderstands and so misrepresents the far more incisive point that Knies was

making in the quotation cited by Menger above. Knies is saying that the theory of

social reality and the social reality itself are effectively one and the same thing in

the sense that, first, our theory of reality is limited by our present historical

conditions, and second and most important, the factors that condition our scientific

search and discovery of reality, whether physical or social, are the same ones that

guide our theoretical understanding of this reality. The fact that this reality is

never perfectly or completely understood is not due to some failure in our research

but to the fact that our scientific research into reality isrealityitself! Reality is ouractivity!Vivo ergo cogito, as Nietzsche instructed us!

Mengers 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 individualto strive for his well-beingis by far the most commonand most powerful. A theory which would teach us to what crystalli$ationsof human activity and what forms of human phenomena actionoriented to the provision of material needs leads on the assumption ofthe free play of that powerful economic impulse uninfluenced by other

impulses and other considerations particularly error or ignorance/@atheory, especially, which would teach us what &uantitative effects would

be produced by a definite &uantity of the influence in question:such atheory simply must provide us with a certain understanding. It cannotprovide understanding of human phenomena in their totality or of a concreteportion thereof but it can provide understanding of one of the mostimportant sides of human life 'The eact 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 ofeconomic humans aimed at the provision of their material needs.!nvestigations p.7%./


15/27

.And "elvetius *andeville

and A. Smith knew 0ust as well as any adherent of the historical school oferman economics that self6interest does not exclusively influence the

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

theory of public spirit1 -hat distinguishes him and his school from ourhistorians is the fact that he neither confused the history of economy withits theory nor even followed one6sidedly that orientation of research

which I designated above with the expression empirical-realistic. )or

finally did he become a victim of the misunderstanding of seeing in theoreticalinvestigations conducted from the point of view of the free play of

human self-interest uninfluenced by other powersthe acknowledgement

of the 2dogma2 of human self6interest as the only actual mainspring of

human actions. p.77/

Mengers empirical-realistic method presumes that there is an under-lying

(literally,sub-stantial) reality that scientific activity actually dis-covers or un-covers or

researchespro-gressivelyover time. But this notion ofProgressis extremely fatuous in

any real epistemological sense because what we discover as we proceed with

scientific research is that this research asactivity- and not any under-lying, essential

reality - is the real essence of science! The insuperable problem with Mengers

specific 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 whoeverfailedto distinguish between

self-interest and other humaninterests; 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 acircuitous 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 fails to identify to any degree whatsoever what makes an individual a

concrete phenomenonand 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


16/27

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 onehand, 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.

- Dee #ppendi1 I: "The 5ature of 5ational 6conomy." 7 The "individual" is by nomeans to be confused with the "singular" or what is the same thing individualphenomena are by no means to be confused with singular phenomena. 0or theopposite of "individual" is "generaP" whereas the opposite of a "singularphenomenon" is the "collective phenomenon." # de=nite nation a de=nite statea concrete economy an association a community etc. are e1amples ofindividual phenomena but by no means of singular phenomena (but of collective

phenomena instead) whereas the phenomenal forms of the commodity of theuse value of the entrepreneur etc. are indeed general but not collectivephenomena. The fact that the historical sciences of economy represent theindividual phenomena of the latter by no means e1cludes their making us awareof these from the collective point of view.

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 purelynumerical. But if individual does

not mean single, if it is to mean, as Menger intends, concrete phenomenon, in

what way can thesingle individualwith 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?

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 areipso factoeconomic: but this assumption 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. And this is what Knies was indicating in the

quotation above.


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Individualism presupposes inter-subjectivity and ownership, and both presuppose a

social definition of Value, - which is consequently why subjective value is an

oxymoron. If you asked Menger 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 quite simply impossible to parcel out social needs intoindividual needs just as it is impossible to dissect social labour into individual

labours!

If you asked Menger - and all bourgeois economists -, whatdeterminesmarket prices,

he would say it is self-interest and specifically economic self-interest. But then, if

you asked him whatmeasuresself-interest, he would say that 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 Mengerstruggled 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:

>ut his interests and the scope of the proposed work continued to e1pandto wider and wider circles. ?e found it necessary to go far in the study ofother disciplines. 3hilosophy psychology and ethnography claimed moreand more of his time and the publication of the work was again and againpostponed. In !7 he went so far as to resign from his chair at the

comparatively early age of K7 in order to be able to devote himselfentirely to his work, Hayek, Carl Menger, Intro. toPrinciples, p.32)

The normal function of organisms is conditioned by the function

of their parts organs/ and these in turn are conditioned

by the combination of the parts to form a higher unit or by

the normal function of the other organs.6A similar observation

about social phenomena.6(rganisms exhibit a purposefulness

of their parts in respect to the function of the whole

unit a purposefulness which is not the result of human calculation

however.6Analogous observation about social phenomena.6

The idea of an anatomical6physiological orientation

of research in the realm of the social sciences results as amethodological consequence of these analogies between socialstructures and natural organisms. "eadings to Bart 4 of CInvestigationsD/

Schmoller# retorted in a polemical form which was necessitated by the occasion but as regards the

sub0ect6matter his approach was by no means simply a negative one.*lready at this time he

recognized not only that some of Menger"s critical observations were +ustified but also how

essentially similar the causal neus in social science and natural science is he also described the

eplanation 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 farreaching

proposition that all perfect science is "deductive", that is, that the state of ideal perfection is only

reached when it has become possible to eplain concrete phenomena completely with the help of


18/27

theoretical premises. This proposition implies the ac$nowledgment that such a state of the science

is possible in principle-even if in actual fact it

"IST(,IA? S"((? A)+ *A,I)A? ETI?ITF #%#

should remain unattainable for us. It also implies a complete re+ection of the specifically historical

belief in the "incalculable/ and essentially "irrational" nature of social events.

The aim of all scientific activity, of what Nietzsche called with awesome

perspicacity the will to Truth, is to arrive at the total deducibility of life: that is,

that state of ideal perfection where it becomes possible to explain concrete

phenomena completely with the help of theoretical premises. To explain.and,

most important,to predict! Schumpeter meaningfully leaves out the necessary

corollary to the state of ideal perfection that scientific activity is truly aimed at

not least in the field of economic science. The true aim of scientific truth is to

remove the normative sphere from human action. Either science is perfect and

impervious to the sphere of choice and ethics to values -, or else it is imperfect andcannot be science at all! If science is perfect deduction or calculation, no room can

be left for history in the field of science. This is precisely what Schumpeter says in

the quotation above: This implies a complete rejection of the specifically historical belief in

the incalculable and essentially irrational nature of social events.

For it makes no sense to think that an individuals behavior is idio-syncratic

meaning irrational whereas the behavior of many individuals becomes morerational 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 ones 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 thenomo-thetic. More correctly,rationality no longer has anysubstantive ethical valuein terms of practical human

action as it always had in all Western metaphysics from Plato onwards. With the

Neoclassics, and explicitly with Weber, rationality becomes nakedRationalisierung a

specificmethodicaland therefore rational rational because methodical! -

exercise of social power aimed at maximizing the accumulation of capital or

objectified labour.

Menger fails to see just how problematic this nexus between individual idiosyncrasyor freedom and general or typical nomothetic predictability is, and then above


19/27

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 Beruf) and the choice of application of that research. And

finally between laws and things.

Weber and Menger are right to insist that what is irrational is the individual-social

distinction. Yet neither of them was ever able to reconcileindividualcontent and

generalform the concrete and the abstract in social theory.

I wish to contest the opinion of those who uestion the e1istence of lawsof economic behavior by referring to human free will since their argumentwould deny economics altogether the status of an e1act science. Whetherand under what conditions a thing is usefulto me whether and underwhat conditions it is a good whether and under what conditions it is an

economic good whether and under what conditions it possesses )alueforme and how large the measureof this value is for me whether and underwhat conditions an economic e+changeof goods will take place betweentwo economi+ing individuals and the limits within which a#ricecan beestablished if an e1change does occur$these and many other matters arefully as independent of my will as any law of chemistry is of the will of thepracticing chemist. The view adopted by these persons rests thereforeon an easily discernible error about the proper =eld of our science. 0oreconomic theory is concerned not with practical rules for economicacti)it$ but with the conditionsunder which men engage in providentactivity directed to the satisfaction of their needs. 6conomic theory isrelated to the practical activities of economi+ing men% in much the sameway that chemistry is related to the operations of the practical chemist.lthough reference to freedom of the human will ma$ well ,e legitimateas an o,jection to the complete predictability of economic activity-it can ne)er ha)e force as a denial of the conformity to de!nite lawsof phenomena that condition the outcome of the economicactivity of men and are entirely independent of the human will.(Princi#les 3reface p.%2)

Menger wisely draws a distinction, then, between thecomplete predictabilityof

economic activity, which would in fact turn economic theory into a perfect

science, and the conformity to definite laws of phenomena that condition the

outcome of the economic activity. In other words, what makes economic science

consistent with free human activity is the fact that science cannot entirely predict or

determine human choices, but it can specify the conditions of those choices or

activity. But given that scientific activity, by definition, will never reach this state of

ideal perfection, of complete predictability, it is utterly evident that science

can never be science because it must always and everywhere remain scientific

activity. There can never be, therefore, what Hayek and Robbins were aiming at

when they described economics as thescienceofchoice for the simply devastating


20/27

reason that perfect science leaves us no choice, and imperfect science itself can only

be a choice, an activity! Thus, scientific choice is either a pleonasm a petitio

principii -, or else it is an oxymoron a contradictio in adjecto. Economics then

becomes the choice of the science of choice that is, a normative and political

decision to apply a specific method prescribed by economists to the choice ofsocial policy!

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. Of course, marginal utility theory cannot be concerned with use valuesbecause it claims that they are inscrutable, metaphysical entities. Mengers

empirical-realistic method reasons 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 marginalutility.

But if these matters of will are omitted, the sphere of whether and usefulness

is barred from economics! If they are excluded from economics inquiry, then the

contentof economics is emptied out: economics becomes pure exchange, pure formal

mathematical relations whereby there is nochangein theexchange! Economics then

becomes a study not of use values or technical pro-duction but a mere tool (cf.Schumpeter adopting Joan Robinsons box of tools definition of economics)

indicating what prices may signify in terms of inscrutable and unknowable, wholly

subjective utilities. Mengers subjectivism thus needs to be distinguished from the

pure self-interest of neoclassical economic analysis.

Note how Schumpeter distinguishes, in a quotation given above, between cause and

effect and economic laws suggesting that the box of tools contains just tools

of analysis and not empirical findings ofcausal 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 Hayeks pointing out Mengers error of seeing economic laws as

causational whereas they are means-ends, science-of-choice, rational or pure

logic of choice relations:

-. #n e1ception should perhaps be made for ?ackGs review in theeitschrift f/r die gesamte !taatswissenschaft !2C- who not onlyemphasi+ed the e1cellence of the book ;FengerGs 3rinciples< and the


21/27

novelty of its method of approach but also pointed out as opposed toenger that the economically relevant relationship betweencommodities and wants was not that of cause and eect but oneof means and end.(?ayek at p.-- fn.-)

Thus, Hayek like Schumpeter draws a clear contrast between the Aristotelianism of

Menger and the clearly Neo-Kantian and Machian orientation of the Austrian School

from Mises onwards. This vital distinction wholly eludes Peter Klein in his

introduction to thePrincipleswhere he confuses these two very different approaches:

6conomics for Fenger is the study of purposeful human choice therelationshi# ,etween means and ends ;m.e.


22/27

dependent of the availablequantityof 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-powerrespectively so that the intensity of labour (the temporal intensity oflabour, Marxs socially necessary labour time, which is not necessary at all it is

simply violence) is left to one side. This mistaken identification by the Classical

economists of the substance and measure of value in labour is the reason why

labour and Value become metaphysical entities for the Neoclassics.

Mengers astute criticism of the Classical Labour Theory of Value (in thePrinciples,

Appendices C and D on the nature and the measure of value, respectively) is

precisely that labour cannot be at once the content orsubstanceof Value, its

nature, and also itsmeasure, just as a metre is not space and a second is not time something that nearly every physicist (cf. Stephen Hawking) fails to understand! This

objection formed the entire basis of Marxscritiqueof 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). (On Marxs discovery of theDoppelcharakterof labour in capitalism, the

fundamental work is M. Tronti,Operai e Capitale.) Marxs critique clearly did not

intend labour value to be anabsolutebut rather arelativequantity in that socially

necessary labour time can refer to the labour time made socially necessary

through the political violence of capitalists. Bohm-Bawerks critique of Marx willmove from this quantitative hence essentialist and objectivist

misunderstanding of Marxs critique of Value, which Menger was the first to eschew

despite hisAristotelianstraying.

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?)


23/27

Hayek at 17:

It is not the purpose of the present introduction to give a connected outline of

Mengers 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, whichwithin 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 productionan attention which finds its clearest

systematic expression in the elaboratevorwerttheoretischer Teilwhich precedes the

discussion of the theory of value in Wiesers late work, theTheory of Social Economy,

1914.

Hayek, p17-8:6ven more remarkable is the prominent role which the element of timeplays from the very beginning. There is a very general impres! 2 3 rin ciple s o f 6 c o n o mic ssion that the earlier representatives of modern economics were inclined toneglect this factor. In so far as the originators of the mathematicale1position of modern euilibrium theory are concerned this impression isprobably 'usti=ed. 5ot so with Fenger. To him economic activity isessentially planning for the futureJ

Hayek at 19 fn,1:

1Further aspects of Mengers 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 Bhm-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.

*n yet another and a more interesting point in connection with the puretheory of sub'ective value FengerGs views are remarkably modern.

Although he speaks occasionally of value as measurable,hise1position makes it uite clear that by this he means no more than thatthe value of any one commodity can be e1pressed by naming anothercommodity of eual value. *f the =gures which he uses to represent thescales of utility he says e1pressly that they are not intended to represent

the absolute but only the relative importance of the wants and the verye1amples he gives when he =rst introduces them makes it perfectly clear


24/27

that he thinks of them not as cardinal but as ordinal =gures.! (?ayekp.!)

The huge advantage of defining one commodity by means of another or of other

commodities, which is what neoclassical economics does, is that this obviates the

need for bourgeois economists to define with any precision or at all what a

commodity really is what constitutes a good. Similarly, referring to the relativeimportance of wants is a way of doing away with any definition of wants and of

self-interest, and indeed of economic or material needs. Ultimately, the beauty

of relative value or subjective value is that it eliminates the need to identify

human and economic need in any guise! It simply empties economics of any

substance or content and delivers the study of the capitalist economy to the naked

positive reality of the so-called marketplace.

Schmollers 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.

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).

#nother perhaps less important but not insigni=cant instance of FengerGsrefusal to condense e1planations in a single formula occurs even earlierin the discussion of the decreasing intensity of individual wants withincreasing satisfaction. Thisphysiological fact ;m.e.< which later underthe name of E@ossenGs law of the satisfaction of wantsN was to assume asomewhat disproportionate position in the e1position of the theory ofvalue and was even hailed by Wieser as FengerGs main discovery takesin FengerGs system the more appropriate minor position as one of the


25/27

factors which enable us to arrange the diLerent individual sensations ofwant in order of their importance. (?ayek p.!2)

If you could produce something that created higher demand with production, then

the law of supply and demand their antinomic link would break down (obviouslyNeoclassics never thought of Apple iPhones!).

The impossible reconciliation of empiricism and formalism reached its apogee with

Mises. Of course, Schmollersdeductionismstands in contrast to Mengersgeneralism in the sense that the former is purely conceptual whereas Menger

meant a theory that is empirical-realistic and is not the mere elucidation of

concepts, as he says at p.38 of theInvestigations. Schmoller is closer to Roschers

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 theStatik) or evolution as in the

Dynamik, or indeed formal mathematical identities with no cause-effect temporal

nexus as in General Equilibrium.

That he was aware of the role of theory in promoting the interests of a particular

class, Menger shows by his own critique of Savignys Historical School of Law. For

Savigny and his school, the organic evolution of society isipso factorational

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 ormethodological individualismas the

Neoclassics called it, whereby for them the rational is real. Thus, the two aspects of

Hegels famous dictum are set off against each other.

Whilst defending on one hand the ability of Savignys 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 ;DavignyGs ?istorical Dchool of Paw< concluded that the desire for areform of social and political conditions aroused in all 6urope by the0rench 4evolution really meant a failure to

I5T4*OTI*5 ;


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recogni+e the nature of law state and society and their "organic origin." Itconcluded that the "subconscious wisdom" which is manifested in thepolitical institutions which come about organically stands high abovemeddlesome human wisdom. It concluded that the pioneers of reformideas accordingly would do less well to trust their own insight and energy

than to leave the re8shaping of society to the "historical process ofdevelopment."And it espoused other such conservative basic

principles highly useful to the ruling interests.- (In)estigationsp.!)

But Menger fails to make explicit the kind of interests that his reformed Political

Economy science will be serving. InDie Irrthumerafter denouncing the effete

Eklektizismus of the Historical School, he makes the litmus test of the new science

its ability to serve the economy in terms of theResultateto which it leads. This also

is a Friedmanite positivist trait above all, thepredictabilityof policy actions andchanges!

In the centre of the discussion there stands the great methodological achievement of . *enger>

%ntersuchungen &ber die Methode der So'ialwissenschaften 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.# In this respect there

was indeed a great deal to be done. -ith 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 itsever6changing systems in historical terms. At

!()(*I +(T,I)! A)+ *!T"(+

best it might be possible to recogni$e 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 pre0udices. 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

*enger opposed these views he recogni$ed 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 theMethodenstreit. 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, Schmollers


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research with hisVerein 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 theideologicalservice of the new science, in

terms of its principles against particulars, against an eclecticism that wasliable 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 inCapitalism, Socialism and Democracywhere the

scientificity of capitalism is questioned - and indeed its extinction is even

hypothesized.)

Documents

Neoclassical Economics and Scientific Methodology - by Joseph Belbruno