The Competitiveness of Nations
in a Global Knowledge-Based Economy
October 200
3Frank H. Knight
“What is Truth” in Economics? [1]
The Journal of Political Economy
Vol. 48, No. 1
Feb. 1940, 1-32.
IT SEEMS that a great many
thoughtful people in the world are like Pontius Pilate in that they ask the
question of our title, but “do not wait for an answer.” But a considerable number differ from him in
the interesting respect that instead of asking others the question they
volunteer to give the answer themselves, to others, and to the world, without
waiting to be asked. This leads to the
writing of books of varying character and size, which one suspects are more
interesting on the average to their authors than they are to any considerable
number of readers. And to many of those
who do read them this may be a comforting thought, since it means that books on
methodology probably do not do much damage. The chief reservation would be that they are
most likely to be read and taken seriously by the young.
Mr. Hutchison’s
methodology or philosophy of economics is of a sort which is particularly
irritating to this reviewer, especially because it is so common, among people
who “ought to know better.” The author
is a positivist, i.e., one of those who always think of “science” with a
capital S (if they do not always write it that way) and use it in a context which
conveys instructions to pronounce in the awe-inspired tone chiefly familiar in
public prayer.
1. Review of T. W. Hutchison’s, The
Significance and Basic Postulates of Economic Theory. London: Macmillan &
Co., Ltd., 1938. Pp. x+192.
1
This
emotional pronouncement of value judgments condemning emotion and value
judgments seems to the reviewer a symptom of a defective sense of humor. The attempt to build a social science on these
foundations suggests that the human race, and especially a large proportion of
its “best minds,” having at long last (a very long last) found out that the
objects of nature are not like human beings - are not actuated by love and hate
and caprice and contrariness, and subject to persuasion, cajolery, and threats
- have logically inferred that human beings must be like natural objects, and
so viewed by the seeker of knowledge about them.
We read only
a few pages into Mr. Hutchison’s book before coming to the development of the
all-important distinction between science and philosophy, illustrated by an
example which in fact admirably illustrates the superficiality and dogmatic
oversimplification involved in the author’s own position.
The reason why scientists, unlike philosophers, can
build on and advance their predecessors’ work rather than each being simply
“influenced” by it and starting afresh right from the beginning at the same
problems with some complete new system, is that “scientists” have definite,
agreed, and relatively conclusive criteria for the testing of propositions,
solutions, and theories which “philosophers” do not accept [p. 7].
The meaning,
if it has one, is clearly, “go thou and do likewise.” The illustration is that of two imaginary
economists in an argument as to whether the check system did or did not exist
in present-day Paraguay. If they were
scientific, they might themselves go to Paraguay and investigate. In that case, the argument might be settled by
their actually having a check before them. “Then, having settled the scientific
dispute, they might begin a philosophical dispute... .“
as to whether they had got “the real check-ansich”
or only “the idea or appearance of a check” (p. 8). Now it is surely obvious, without any
reference to transcendental reality, that it would be impossible to assert on
the basis of any printed slip of paper or other object “before them” whether
“the check system” existed or not. One
would certainly have to know the history of the “object,” and the laws and
business usages connected with it. In
fact, it is inadmissible to speak at all of “the” check system, if one is
making any serious pretense to accuracy;
2
and if
one is talking about a check system at all, one is certainly concerned with
purposes aimed at and results achieved as well as with the existence and paths
of motion of printed pieces of paper, or any physical events.
In short,
such a contrast between glorified science and a caricature of philosophy is not
helpful but rather the opposite. But Mr. Hutchison’s conception of science has a specious
plausibility and a strong intellectual appeal, and that is precisely what makes
it dangerous and pernicious and in that sense important, especially (again)
because of its appeal to the young. It is utterly remote from “reality,” in the
“real” sense, in contrast with the artificial and arbitrary use of the word by
positivist philosophers, who at bottom are simply bad metaphysicians. The appeal of this method is
oversimplification which amounts to serious falsification. Where there are or can be “definite, agreed,
and relatively conclusive criteria for the testing of propositions, solutions,
and theories,” there are no very serious intellectual problems, and no
methodological problems whatever. The
problem of truth in Mr. Hutchison’s subject matter is not one of finding such
tests; any tests which can be proposed would rather themselves have to be
tested by the propositions of economic theory as already understood.
Mr. Hutchison
continues: “The scientist proceeds by means of the two inextricably
interconnected activities of empirical investigation and logical analysis, the
one, briefly, being concerned with the behaviour of facts, and the other with the language in which this is to
be discussed” (p. 9). This statement,
like the generalization previously quoted, may pass as a definition of science,
though obviously a restricted, if not an arbitrary, one. If science is so defined, the fraction of human
knowledge which is “scientific” is almost disappearingly
small, and includes no knowledge of human or of social data, or specifically of
economics, and most specifically of economic theory - if the key words
(including “empirical,” “logical,” and “facts”) are taken in the meaning of
ordinary usage.
One who has
read critically so far in the book will be moved to read on with the particular
object of finding out what the author
3
actually
means by such terms as “empirical” and “logical.” He will not have much success. But he will find that Mr. Hutchison does not
stick at all to the principles so emphatically put forward in chapter I - which
fact is on the whole rather to his credit, though it means that he really has
no philosophical position at all. As to
observation, he will be able to discern, on coming to the fifth chapter (the
last in the book except for a conclusion and an appendix) which in some measure
comes to grips with some of the more common and familiar concepts of economics,
that the author has quite dropped his rigorous and “hard-boiled” (dogmatic!)
pose. Speaking of propositions about
such mental attitudes as expectation and the derivation of utility from a
commodity, he simply states that he prefers “the ordinary usage by which
such propositions are regarded as definitely verifiable or falsifiable”
(p. 146; my italics). He finds a “core
of truth in the common-sense ‘comparison of utilities’ [between persons]” (p.
148), and approves of including “welfare economics” in “economic science.” This is a “far cry” from looking for printed
pieces of paper (where even the meaning of the printing is assumed to raise no
questions).
In the few
pages in which the meaning of testing is considered, our author first finds a
“‘conventional’ element” in the tests which “one lays down” (p. 145) and
then apparently asserts that all tests are “purely conventional” (p. 152 also
147, 148, etc., on the “ordinary use of words,” and “how words are in fact
used” [author’s italics]). According
to this theory, a logically or factually wrong statement is on the same level
as a piece of faulty grammar which in no way affects the meaning of what is
said. Certainly no one believes that to
be true. But in the meantime (p. 147) we
also learn that propositions and concepts fulfill the scientific criteria (of
empirical testibility) “if we choose to define
them as doing so, and do not fulfill it if we do not choose” (author’s
italics). Here truth is merely a game in
which the players are free to make any rules they please.
Thus when our
author “gets down to cases,” he seems to abandon entirely his stern insistence
on factual testing and to fall back upon the naïve conceptions of common sense. His philosophical position, in the brave
passages where he professes one,
4
would seem to be that of
“logical positivism”; that is - if one can hope to state a position which he
does not believe to be tenable, acceptably to anyone who does believe in it - knowledge
is (or true propositions are) relative to objects of two sorts: (a) “things,”
such as printed pieces of paper, which can be identified by pointing and
naming, and (b) verbal definitions, which are a pure matter of the use
of language in accord with conventional or arbitrary rules: “Purely theoretical
analysis consists in the manipulation of concepts in accordance with the rules
laid down in their definitions” (p. 30). It is simply assumed that there is
actually no disagreement - that no “test” is ever
necessary or in question - either as to observed facts or as to the meaning and
the truth of any stated inference. One
must suppose that there is never any question even as to whether there is
disagreement or not, or whether rules arbitrarily laid down are actually
followed.
Now, in the
present writer’s opinion, all this is fundamentally misleading and wrong, if
not actual nonsense. The fundamental
propositions and definitions of economics are neither observed nor inferred
from observation in anything like the sense of the generalizations of the
positive natural sciences, or of mathematics, and yet they are in no real sense
arbitrary. They state “facts,” truths
about “reality” - analytical and hence partial truths about “mental” reality,
of course - or else they are really “false.” [2]
Economics and other social sciences deal with
knowledge and truth of a different category from that of the natural sciences,
truth which is related to sense observation - and ultimately even to
2. I must deny that any
conclusion which can claim any sort of logical validity, or even any meaning,
can be drawn from any proposition which is really arbitrary, including
mathematics and formal logic itself. This
will be more fully explained below. Statements
by mathematicians and mathematical logicians which are partly careless
formulation and partly based on error of fact are in my opinion largely
responsible for the prevalence of this untenable view.
As to economics, Mr.
Hutchison approvingly quotes Professor Schumpeter’s statement that Gossen’s law “is not a law of economics... but an assumption,” which is “in principle
arbitrary,” and “we could... make the opposite assumption, and it could not be
called false” (p. 134). I must say
categorically that we could not make the opposite assumption, or any divergent
assumption, and tell the truth or talk sense about economic behavior. The principle referred to as Gossen’s law is a descriptive fact about such behavior,
which is a reality. As Whitehead has
said of natural science, economics is not a fairy story.
5
logic -
in a very different way from that arrived at by the methodology of natural
science. But it is still knowledge about
reality. Its character will be
considered in more detail after a few general observations about the knowledge
problem.
The
starting-point of any discussion in this field is recognition that all
discussion ultimately rests upon statements of fact and principle which are
assumed to be accepted as true and which cannot be defended by argument if they
are denied or questioned. If one begins
with confident and sweeping assertions about “tests,” one is under a
corresponding obligation to make it unambiguously clear what sort of
propositions do and what sort do not need testing and what tests are accepted
as valid and not themselves in need of testing. This follow-up is just what we do not find in
Mr. Hutchison’s essay.
Even the
briefest survey of the problem must recognize at least three types or fields of
knowledge, in contrast with Mr. Hutchison’s two, and the third type, not
considered by him, is by far the most important for the problems of economics
with which he is supposed to be dealing. The three fields are: first, knowledge of “the
external world,” including both the plain man’s knowledge of everyday reality
and the physical scientist’s knowledge of his primary data of observation;
second, the truths of logic and mathematics (the problem here is whether
knowledge of this sort is knowledge about the same objective reality as the
first category or whether it is about thinking or mind - or what is the relation
between the two); third, knowledge of human conduct. It is of course in this last field that
economic problems lie, though, as will be emphasized, they constitute but a
small fraction of that field and only one of several categories which must be
recognized within it, and a still smaller fraction of knowledge about human
“behavior,” if behavior and conduct are most correctly and usefully defined. The subject matter of relevant knowledge of
conduct, in contrast with mechanical response, is primarily human interests - interests
in action, in contrast with the interest in knowledge - and the relation
between interests and action, in our knowledge of both and in action itself.
6
Regarding our
knowledge of the external world, the first fact which calls for emphasis is
that the data of immediate observation cannot be taken on their face, but must
be “tested.” The bare fact that an
individual sees, or thinks that he sees, or reports seeing, a physical object
or event - in everyday life or in a laboratory - by no means establishes that
event as real, or a proposition reporting it as true. In many familiar situations it does not do so
even to the observer himself; he sees the “straight staff bent in the pool”;
and when observing a sleight-of-hand performance everyone knows that what he
“sees” is entirely different from the “reality.” Validity has little relation to vividness in
the impression or fervor in the report. The
“snakes” seen and reported by the sufferer from delirium tremens are probably
by no means inferior in such respects to the observations of the scientific
zoologist.
And a second
fact, of even greater importance, if possible, is that testing observations is
chiefly, and always ultimately, a social activity or phenomenon. This fact makes all knowledge of the world of
sense observation, whether that of the plain man or that of the scientist (not
to mention knowledge of social data), itself a social activity and a social
phenomenon. In addition, it means that
all such knowledge is inseparable from (a) self-knowledge of the knower, and
(b) knowledge of other knowers and of their
knowledge, or of their “minds,” and hence of the nature and conditions of
knowing and thinking as such. The
concrete nature of this testing process is the subject matter of treatises on
scientific method, and it is neither possible nor necessary to discuss it in detail
here. The essential point for our
purposes is that knowledge of external reality presupposes “valid”
intercommunication of mental content, in the sense of knowledge, opinion, or
suggestion, among the members of a knowing group or intellectual community. A conscious, critical social consensus is of
the essence of the idea of objectivity or truth.
Moreover, a
consensus regarding truth is itself by no means a “mere” (undisputed) fact. It rests upon value judgments as to both the
competence and the moral reliability of observers and reporters. (It is no matter of a majority vote!) Without a sense of honor (as well as special
competence) among scientists - if, say,
7
they
were all charlatans - there could be no science. And if ordinary normal human beings habitually
and systematically lied, or talked dream talk (or reported free association),
there would be no possibility of any knowledge, or of the existence of minds or
intelligence. There could be no
“feeling” of truth or of reality; we could never form these notions, or have
any communicable, and hence any intellectual, experience. “We” could not exist at all as minds or
selves. There might, indeed, be animate
beings, or animate objects, making biologically “correct” responses to their
environment and to one another’s physical behavior. But anything that can properly be called
knowledge on the part of any subject is unthinkable apart from self-knowledge
and valid intercommunication with similar (competent and trustworthy) knowing
selves, living, thinking, and acting in and in relation to a common world of
not-self, which is the general object of knowledge. This naturally suggests the question as to how
we do know (imperfectly, of course) the content of one another’s minds, or how
we intercommunicate. This is the problem
of the third field of knowledge. But we
must first make a few observations about the second field.
With respect
to the highly abstract propositions which form the axioms of logic and
mathematics, the essential fact is that all such knowledge is at the same time
knowledge of the external objective world and knowledge, in a special sense, of
the way in which minds work. In the
former aspect it differs from the more concrete knowledge which forms the
content of the sciences only or primarily in the degree of generality or
abstraction. The propositions of
algebra, as well as those of arithmetic (in contrast with those of economic
theory, as we shall see) are verifiable in the crude empirical sense of that
term, to any degree of accuracy which is thought worth the cost, by counting
beans. (The “beans” may be imaginary if
the problem-solver’s memory and imagination have
sufficient power and reliability.) In
fact, most of the content of arithmetic and algebra consists essentially of
“short cuts” or procedures for saving time in computation, as compared with the
prohibitively slow and costly method of getting results
8
by
counting. And the propositions of geometry
are also empirically verifiable, to any worth-while degree of accuracy, by
drawing and measuring figures.
This will
probably not be disputed for the “ordinary” algebra of real numbers and
“ordinary” geometry, the geometry of Euclidean space. When we go beyond these realms the matter may
seem to be otherwise, but a little critical reflection will show that it is a
rather superficial seeming. Propositions
which involve such concepts as imaginary numbers, or non-Euclidean space,
merely represent a higher degree of abstraction; they are still descriptive of
the real world. [3] The
fact that we can hypothetically reverse some axiomatic propositions, such as
that parallel lines never meet, or postulate the opposite, and use the result
in valid reasoning, creates no serious difficulty. We can do this with any proposition with
content, as long as there is no explicit contradiction. There is a difference only in degree, not an
essential difference in kind, between such reasoning and inference from the simplest
hypothesis contrary to fact, such as supposing that an object had been in a
different position or had been moving in a different direction or at a
different velocity than was actually the case, in discussing an automobile
accident or a laboratory experiment.
The apparent
universal necessity, or a priori validity of any proposition which seems
to have it, is far less mysterious than is often represented. It may be true to say that universally necessary
propositions are “forms of thought,” or laws of intelligence or mind; but such
a statement does not mean at all that they are not truths about the real
objective world. Rather the a priori
necessity of any proposition is simply, and in this writer’s view, correctly,
explained by the fact that our minds lack any power of really creative
imagination or original intuitive knowledge of superempirical
reality, and not by the fact that we possess any such powers. Any statement which “must” be true under all
conditions is simply a statement of a fact about the world which is so
universal and fundamental for experience that we cannot “think
3. For a brief and particularly
illuminating discussion of these problems see the essay “Intelligence and
Mathematics,” by Harold Chapman Brown, in the volume Creative Intelligence (New
York: Henry Holt & Co., 1917), pp. 118-75.
9
it
away,” or imagine a situation in which it would not be true. (Mr. Hutchison frequently
refers in a very matter-of-fact way to what is “conceivable”; e.g., pp. 104,
142.) The real mystery (insoluble
to the present writer) is how any mind could imagine, or think it imagined,
that there could be a real contrast between the most general features of
reality as experienced and what a mind living in and formed by it is able to
imagine, or between the fundamental laws of nature and those of thought. The higher the degree of abstraction involved,
the easier it is to regard a proposition as a form of thought rather than as a
fact about the world.
All this must
by no means be taken to imply denial or questioning of the reality of
reasoning, as an activity of mind. But
extremely little light is thrown on the nature of reasoning by the traditional
treatment of formal logic. The heart of
intellectual activity consists in the discernment of similarities and
differences, the conjunction and separation or “concomitant variation” of attributes,
including behavior over time or associated changes in attributes, all of which
is fairly well summed up and indicated in the word “ana1ysis.” [4]
With regard to the relation between deduction and observation, or
intelligence and the senses, in our knowledge of nature, there is not much that
should need to be said. Surely anyone
who has made any progress at all in the study of philosophy, or even in private
reflection about its problems, can be assumed to know that any simple
antithesis between observation and inference is utterly untenable, if not
downright foolish. The question as to
the primary or immediate data of consciousness is perhaps the main perennial,
unsolved and probably unsolvable problem of the theory of knowledge as a whole.
What is observation? and
What is inference? are questions on a par with What is
truth? if they do not simply restate the same
question. It has been a commonplace, at
least since the time of Kant, that ordinary “sense per-
4. It may be suggested that
the nearest we come to creative reasoning is found in “passing to the limit” in
mathematical operations. This operation
seems difficult to classify as between induction and deduction. “Extrapolative” reasoning has something of the
same character, and is especially important in natural science.
10
ception” is very largely an intellectual operation. And since the dawn of modern science, it has
been a matter of arbitrary choice of viewpoint whether what we actually “see”
is things, qualities, or sensations, or even nerve currents. It is also essentially a commonplace that what
we perceive, or are able to perceive, is largely a matter of the “apperceptive mass” - and this involves both expectations
and interests.
It should now
be clear that we cannot separate the discussion of reality from the discussion
of the knowledge of reality, the nature and structure of thinking and the
conditions of its validity, or the workings of “mind” (meaning minds). There are two senses in which a distinction
can be made between propositions about mind or thinking and propositions about
reality. The first relates to “wrong”
thinking, or to doubt or opinion recognized as questionable. This is a matter of degree. To the extent that any proposition or idea is
regarded as false or as affected with uncertainty, its contents are regarded as
subjective, as being in somebody’s mind rather than in the objective world. (In a real sense the theory of knowledge is
the theory of error and illusion.) The
second valid distinction, which is familiar in philosophy and which we have had
more occasion to discuss at length, is connected with
the limits of our power to postulate or to imagine deviations from reality as
known. This also is more or less a
matter of degree. The axioms of algebra
seem “more certain” and unescapable and hence more
mental than those of geometry, and the elementary laws of motion (the nature of
mass and force) do not seem very far from the status of geometry as to
inevitability. Again, the development of
the relativity and quantum theories (discontinuity) has cast doubt on the
reliability of what can or cannot be imagined as a test of truth.
All this is
chiefly a long preliminary to a discussion of the third field of knowledge, in
which lie the methodological problems of economics. The whole subject matter of conduct - interests
and motivation - constitutes a different realm of reality from the external
world, and this fact gives to its problems a different order
11
of
subtlety and complexity than those of the sciences of (unconscious) nature. [5]
The first
fact to be recorded is that this realm of reality exists, or “is there.” This fact cannot be proved or argued or
“tested.” If anyone denies that men have
interests or that “we” have a considerable amount of valid knowledge about
them, economics and all its works will simply be to
such a person what the world of color is to the blind man. But there would still be one difference; a man
who is physically, ocularly blind may still be rated
of normal intelligence and in his right mind.
Second, as to
the manner of our knowing, or the source of knowledge; it is obvious that while
our knowledge (“correct” observation) of physical human behavior and of
correlated changes in the physical objects of nonhuman nature plays a necessary
part in our knowledge of men’s interests, the main source, far more important
than in our knowledge of physical reality, is the same general process of intercommunication
in social intercourse - and especially in that “casual” intercourse, which has
no important direct relation to any “problem,” either of knowledge or of action
- which has been found to play a major role in our knowing of the physical
world.
Mr. Hutchison, like other positivists, pretends that knowledge of people’s minds is an inference, from the observation of their bodies, of their physical behavior. [6] The least critical considera-
5. The reference is to
interest in action, in contrast with the interest in knowing. It goes without saying that theoretical and
practical interests are inseparably connected, though we can talk about them
separately, by abstraction. Our theoretical interest in things as things centers in
classification, which means the discovery of similarities and differences,
including correlation and concomitant variation and probability. The significance of all this for action is
obvious; we “predict” the unknown from the known (both in future time and in
the present) and predict the effect of our actions upon materials. (All action ultimately reduces to moving
matter in space by the use of our muscles.) Yet we unquestionably have purely intellectual
interests which are not reducible to the production of desired modifications in
the course of physical events.
6 “…Having examined by introspection the marginal
utility of different amounts of money income to himself, [the economist]
perceives that this ‘inside experience’ is correlated with a certain ‘external’
behaviour of his as regards money income. He arrives at the conclusion by ‘external’
observation that his ‘external’ behaviour regarding
money is similar, in general, to everyone else’s. He assumes [or
draws the analogy from this, therefore, that everyone else is ‘internally’
similar to himself.
“We again leave on one side
the difficulty as to how this ‘internal’ assumption could conceivably be
tested. This is connected with the
crudity of the distinction between ‘inside’ and ‘outside’ experience. At this stage we want simply to emphasise the more obvious point that our economist cannot
get any general results by introspection alone, but only by observation of
‘external’ behaviour (which may be so delicate as
tone of voice, or facial expression), spoken and written words, etc., but which
(to continue with this crude and misleading distinction) must be ‘external,’
whether further inferences or analogies as to the ‘inner’ experience are drawn
or not” (p. 139).
And again: “Ordinarily, if
one asks people how they know that a man gets utility out of a commodity, or...
know that one man gets more utility... than another... one will probably
receive as an answer something to the effect that ‘This man regularly spends a
greater percentage of his income on this commodity than the other,’ or ‘When I
asked them how they liked this commodity this man exclaimed in one way, the
other in another way.’ That is what
is called in ordinary language ‘one man getting more utility
out of a commodity than another’” (see pp. 147-48; his italics. This statement might be labeled as a warning,
to philosophers and others, as to the kind of thing a philosopher is likely to
say under the urge to establish some theory which is far simpler than the
facts; of a certainty, no one thinks that in speaking of an experience of
enjoyment he means “exclaiming” or any physical act.)
On p. 143 Mr. Hutchison
enters an express denial that his analysis of “introspection” is in any way to
be confused with doctrines of solipsism or behaviorism, and says that he makes
no assertion about the reality of consciousness, or the existence or
nonexistence of anything. The clear
meaning is that he has no philosophical position, and no theory of knowledge
which is of any use in doubtful cases, where alone a theory is of any
significance. The bare fact that Mr.
Hutchison completely ignores intercommunication, while he makes all inferred or
deduced truth a matter of “convention,” means that the final precipitate is
mostly confusion.]
HHC: [bracketed] displayed on page 13 of original.
12
tion of the alleged process of “inference” by which
we are supposed to learn of the content of others’ minds through observation of
their physical behavior would show that it is so different from the inferences
either of inductive science or of logic and mathematics that a different word
should certainly be used. Cooley has
used the phrase “sympathetic introspection,” which, loose and “literary” as it
is, goes deeper into the realities than the positivistic “simplism.”
With
reference to a given moment, it may be allowable to say that one “infers”
another’s thought or feeling from, say, uttered sounds and facial expression. But no brute fact is more familiar than the
psychological datum that one does not hear or see much
13
more
than one understands. What we
immediately, consciously, apprehend is the “meaning,” and if called upon to
reproduce the physical facts we should do so chiefly by “deduction” from the remembered
meaning, not from any direct recall of sense data. Surely no one thinks that from any conceivable
knowledge of the physical world it would be possible to predict what interests
intelligent beings living in it would have, even if all conceivable knowledge
of human psychology be thrown in.
What is
really in question is the nature of intelligence, which can only be discussed
by considering the process by which intelligence is built up in the individual,
or by which an intelligent individual comes into existence. “We” undeniably live in a world where
intelligence is the property of human beings who are born, live through a
common life-cycle and die - both as biological units and as minds. And they are certainly born completely
ignorant, without minds, and acquire knowledge and intelligence by a process
about which the developed intelligence knows and can say a good deal. [7] Under the conditions of
the only world we know anything about, knowledge and intelligence are
completely “unthinkable” apart from a continuing and developing social process
of learning. This necessarily involves
for the learner intercommunication with other selves, including large numbers
of selves who know (have learned) vastly more than himself and all of whom live
in and react to a world of not-self, about which they habitually
intercommunicate. Thus our knowledge of
the world and our knowledge of one another and of “mind” in general form
inseparable bodies of knowledge which must be studied in relation to one
another, if we are to know anything about any of them, or to talk sense about
them. All are to be accounted for
“genetically” in terms of a twofold historical evolution, in the individual and
in the race.
7. Whether it is possible for
human beings to conceive or imagine an immortal mind, which never learns but is
eternally omniscient or at least eternally knows all that it ever knows (or to
imagine a community of such minds) is a question which need not be argued here.
The reader will be correct in inferring
that the writer is very doubtful about it.
14
Among the
citations with which Mr. Hutchison prefaces his fifth chapter (and specifically
its first section, on “The ‘Psychological Method,’ “is the following from Wieser:
“We can observe natural phenomena only from outside,
but ourselves from within.” The
employment of this inner observation is the psychological method, “which finds
for us in common economic experience all the most important facts of economy…
It finds that certain acts take place in our consciousness with a feeling of
necessity… What a huge advantage for the natural scientist if the organic and
inorganic world clearly informed him of its laws, and why should we neglect
such assistance?” [p. 132].
This position
our author proceeds to annihilate-as nearly as one can tell what he means - or
at least to ridicule. In the present
writer’s opinion it is essentially sound, though the analysis is admittedly not
carried very far in a philosophical sense, by Wieser
or by most of those who advocate it.
Observing
from within must be interpreted in the light of the social-mental,
intercommunicative character of all thinking, already insisted upon. It is obvious that knowledge based on such
“observation” is intuitive in a special sense as compared with any knowledge of
nature, or even with the very highest abstractions ordinarily treated as
logical axioms or general forms of valid thinking as such. It is not conceivably possible to “verify” any
proposition about “economic” behavior by any “empirical” procedure, if the key
words of this statement are defined as they must be defined to be used with
relevance and precision. To form the
idea of economy or economizing, one must first know that the end of an action
is in general more or less different from its empirical result. Economy involves an intention or intended
result, which is not amenable to observation in any admissible use of that
term.
As to the
content, or “basic postulates,” of economics, it is surely indisputable, to
begin with, that the first of these postulates is the reality of economizing,
or economic behavior, the general meaning of which is known to any possible participant
in any economic discussion – “intuitively,” in the sense already indicated. To repeat, it is not possible by any
observation of any act to tell whether or in what degree it is “economic”;
indeed, the subject
15
himself
rarely knows even approximately, until a considerable time afterward, and never
very accurately. (The contrast with
mathematical axioms may again be called to mind.) All discussion of economics assumes (and it is
certainly “true”) that every rational and competent mind knows (a) that some
behavior involves the apportionment or allocation of means limited in supply
among alternative modes of use in realizing ends; (b) that given modes
of apportionment achieve in different “degrees” for any subject some general
end which is a common denominator of comparison; and (c) that there is
some one “ideal” apportionment which would achieve the general end in a
“maximum” degree, conditioned by the quantity of means available to the subject
and the terms of allocation presented by the facts of his given situation. [8]
We surely
“know” these propositions better, more confidently and certainly, than we know
the truth of any statement about any concrete physical fact or event, whether
reported by someone else or made by ourselves on the basis of our own
experience, and fully as certainly as we know the truth of any axiom of mathematics
or of logic. We know them in the same
way that one knows
8. This is one aspect of the
intuitive or common-sense notion of economizing. The term refers also,
and perhaps primarily, in everyday usage, to the more or less “correct”
manipulation of the means employed. This
manipulative aspect of economic behavior is treated in the sciences which make
up the general body of technology, with which economics is not directly
concerned. Everyday usage,
and everyday thinking, are much confused as to the relation between
economy in the allocative sense and “technical
efficiency.” In brief, the difference is
that the choice between technical processes is not affected by the principle of
diminishing efficiency, and consequently does not give rise to apportioning and
proportioning; the correct choice is one of all or none.
It is essential to understand
that the concept of “physical” efficiency, as usually employed, is a
misconception. It would be valid only in
a case where only one physically described and measured result is in question,
and where at the same time the means employed are at once limited and available
for no other use. Such cases are
certainly rare in reality; means are usually economized in any particular use
because they are valuable for other uses. According to the most elementary laws of
physical science, all the matter and energy which go into any reaction always
come out of it quantitatively unchanged, so that efficiency as physically
measured is always 100 per cent, which is to say that the conception is without
meaning. Any efficiency measurable as a
percentage involves evaluation of alternative possible results, the relative
usefulness of the output alternative to any given result constituting the “real
cost” of the latter.
16
he is writing sentences and not simply making dark markings
on a white surface-or is reading versus seeing such marks - by living in the
world “with” other intelligent beings; we neither know them a priori nor
by one-sided deduction from data of sense observation. [9]
A major
problem in connection with the basic postulates of economics, and one which
surely calls for notice in any serious philosophical discussion of its
methodology (but which is not mentioned in Mr. Hutchison’s volume), arises out
of the habitual practice and usage in economic literature of treating the distinguishing
fact about goods and services - the fact that they are the subject of economic
decision - as a measurable quality in the things themselves. As every student knows, one of the first questions
raised in modern philosophy, in connection especially
with the transmission theory of vision, was that of what “qualities” really
inhere in the object, and which ones are in the mind of the observer. It is a familiar observation or remark that
values (or some of them) are “tertiary qualities” - on the line of the famous
distinction made by Locke between the primary and secondary. Closely connected with this topic is the
vitally important matter of quantity and measurement.
The quantity
or degree of variable attributes is fundamental for the interest in action, and
the concept or feeling of objectivity itself, as against subjectivity, has come
for the modern mind to be closely connected with the possibility of
measurement, and the accuracy attainable. This fact has also greatly influenced our notions
of what constitutes “science,” especially in English usage.
9. The best illustration of
apportionment and of the maximizing of desired results through correct
apportionment is undoubtedly the individual’s expenditure of a given money
income in the purchase of “want-satisfying goods or services” (in general and
accurate terms, exclusively services) available to him in a perfect market at
given prices; but the principle can perfectly well be illustrated from a Crusoe
economy.
For the purpose of the
present discussion, the conception of economic activity may be limited to
“stationary conditions,” i.e., behavior relative to given wants, resources, and
technical knowledge. Whether or in what
cases activity deliberately aimed at changing any of these given conditions is
“economic,” is a question which raises issues of a higher order of difficulty
than those in question here.
17
(It is much
less true in French.) Economic theory
deals with interests as abstract magnitudes (intensities) and hence “naturally”
considers them as inhering in the objects of interest, as attributes, and, also
as measurable, which two considerations yield the f amiliar
notion of “utility.” This way of
thinking is doubtless due in part to the fact that utilities receive a kind of
measurement through the process of competitive exchange in the market, and in
part it is due simply to the intellectual craving for objectification of any
subject matter under discussion. Measurement
and measurability present problems which cry for discussion, for it is obvious
that measuring has a very different meaning in connection with different kinds
of variables. The facts which are
relevant for economic concepts present a paradox. On the one hand, there is certainly no
question of measuring utility as an objective quality of a good or service, and
we apparently do not measure any sensation or feeling as such. For example, a thermometer does not measure
temperature as felt, but an inferential or theoretical “objective” state of things
which is supposedly the uniform basis of the variable temperature sensation. [10]
On the other
hand, it is indisputable that in the thinking of civilized man choices are very
largely a matter of quantitative
10. The saying
often quoted from Lord Kelvin (though the substance, I believe, is much older)
that “where you cannot measure your knowledge is meagre
and unsatisfactory,” as applied in mental and social science, is misleading and
pernicious. This is another way of
saying that these sciences are not sciences in the sense of physical science,
and cannot attempt to be such, without forfeiting their proper nature and
function. Insistence on a concretely
quantitative economics means the use of statistics of physical magnitudes,
whose economic meaning and significance is uncertain and dubious. (Even “wheat” is approximately homogeneous
only if measured in economic terms.) And
a similar statement would apply even more to other social sciences. In this field, the Kelvin dictum very largely
means in practice, “if you cannot measure, measure
anyhow!” That is, one either performs
some other operation and calls it measurement or measures something else
instead of what is ostensibly under discussion, and usually not
a social phenomena. To call
averaging estimates, or guesses, measurement seems to be merely embezzling a
word for its prestige value. And it
might be pointed out also that in the field of human interests and
relationships much of our most important knowledge is inherently nonquantitative, and could not conceivably be put in quantitative
form without being destroyed. Perhaps we
do not “know” that our friends really are our friends; in any case an attempt
to measure their friendship would hardly make the knowledge either more certain
or more “satisfactory”!
18
comparison.
Apart from this fact, there can be no
discussion of economics, for the concept of economy or economizing, or the
synonymous term, “efficiency,” literally loses its meaning. Yet, a level of satisfaction, being a mental
fact, is not measurable, in the sense in which any physical magnitude is
measured. The question whether, or sense
in which, the “general economic result,” or “that which the individual strives
to maximize,” is a quantity, has been much under discussion since Edgeworth introduced the distinction between cardinal and
ordinal magnitudes, and especially of late, since Messrs. Hicks and Alien
published their “Reconsideration of the Theory of Value,” [11] embodying the indifference-map approach. In the present writer’s opinion, the magnitude
in question is quantitative in the sense in which any subjective state is
quantitative and in very nearly the same sense as any objective quality for
which we have no accepted technique of measurement, and which must consequently
be estimated. (The indifference curve
corresponds to the use of the zero method in physical measurements.) The main point seems to be that in the absence
of any technique of measurement, there is no clear differentiation between a
subjective state and an objective quality, and the reference of an experience
to the external world or to the mind is shifting and largely arbitrary. This may explain the somewhat anomalous fact
that in literary usage the economic result which we attempt to maximize is
commonly referred to as “utility,” rather than as “satisfaction,” though the
former term means a quality of things and the usage makes grammar swear at
logic.
But this is
not the end of the paradox. The most embarrassing
fact (which is indisputably a fact) is that actual exchange values certaint;y do not measure the
satisfaction intensities (or “psychic income,” or whatever it may be called)
with which economic theory deals. These
are “hypothetical” - such as would be realized
11. See Economica, February and May, 1934. In reply to this, Dr. Oskar
Lange defended “The Determinateness of the Utility Function” (Review of
Economic Studies, I [1933-34] 218-25), and a notable series of discussions
have followed, chiefly in these two journals. See also Professor J. R. Hicks’s
Value and Capital (Oxford, 1939).
19
by the
“economic man,” who is postulated as knowing definitely and accurately all the
facts and magnitudes, knowledge of which would influence his behavior in any
way. These begin with his own tastes and
the consequent psychological or subjective effects of consuming given
quantities of any commodity, in comparison with all other commodities, and also
with all other possibilities, including “leisure,” or the nonpecuniary
values obtainable from the use of any resource outside the market organization.
Perhaps the most interesting
epistemological datum for economic theory is that we actually both know (everybody
who understands the meaning of the proposition knows) that maximum efficiency
is (would be) achieved through ideal allocation of allocable resources (that
allocation which makes total return a maximum by making the marginal increment
of return from the same small unit of the resource equal in all alternative
modes of use) and also know that no individual achieves this maximum (or the
chances are infinity to one against it). This divergence arises because ignorance,
error,” and “prejudice” in innumerable forms affect real choices.
Both of the
facts just mentioned, the partial conformity of conduct to economic principles
and the fact that conformity can only be partial, are really known with “absolute
certainty” - in the sense already explained, that we are unable to think away
the fact of deliberate activity of the sort described. If conformity were perfect, the behavior in
question would cease to be either “economic” or deliberate, and would become a
mere mechanical response to a stimulus situation, which is a categorically
different matter. [13]
12. The economic subject would
in many cases have to have perfect foreknowledge, as well as perfect knowledge.
This foreknowledge might even have to
extend to the infinite future, and, as Mr. Hutchison very properly emphasizes
(p. 97), it is logically impossible for two individuals to have perfect
foresight of each other’s actions and to act upon it. More accurately, this is possible only if the
activities of both are preconcerted.
13. The known imperfection of
correspondence between motive and result is further proof that we do not infer
the former from the latter. Apparently
it cannot be too often repeated that conduct cannot be interpreted in terms of
positive categories. The phenomenal
sequences of positive science cannot in any sense be problem-solving, while
this is the most important fact about human conduct. Consequently any attempt to universalize
positive categories involves denying the [reality
of the notion of a problem or solution, or question or answer. Of course it also involves denying the
meaning of denial and asserts that illusion and error are themselves illusion
and error. Limitations of the economic
character of choice, in favor of factors still further removed from positive
“factuality,” will be considered presently. ]
HHC: [bracketed] displayed on page 21 of original.
20
Superficially
considered, economic knowledge presents a certain parallelism with our knowledge
that a perfect circle has certain properties, but that no empirical circle is
perfect (or we could not know it if it were). But there is first the categorical difference
already mentioned, that one can investigate empirically the imperfections of
the circle, to practically any degree of accuracy worth the trouble, while this
is possible for economic behavior only within the narrowest limits at best, and
in a completely different sense of the word “empirical” - so different as to
make it essentially a different word, if it is used at all. Methodologically considered, economics is a
highly abstract “concrete deductive” science, similar to geometry or to
mathematical mechanics; but in addition its data are intuitive in a far higher
or purer sense than is true of mathematics itself (cf. above, p. 8). A closer parallel to the economic case from
the physical world would be that of a law of physics involving a time sequence
in phenomena, such as the law that the orbit of a body moving in a
gravitational field is one of the conic sections.
The vital
difference between the economic law of a maximum and the conic-section
principle is that in connection with the former we have two independent sources
of information, if not in fact three, which should be distinguished, and they
do not agree. We know something about
economic behavior and its motives in the same general way that we know about
orbits and the “forces” which lie behind them, i.e., through sense observation
and inference from observed behavior, in the physical sense. Motive in this connection is closely analogous
to physical force. [14] We
also, however, know about motive through the general process of
intercommunication between our own minds and other minds,
14. Force also - as every
student or thoughtful person knows - is “metaphysical” and repugnant to the
scientific intellect, and serious efforts have been made to build the theory of
mechanics without it (without success!).
21
which
is the fundamental basis of all knowledge, whether of the world or of mind
(meaning human minds, primarily normal), and the basis of intelligence itself. The first difficulty of scientific method in
economics is that the two main sources of information inherently disagree. Motives as inferred from their “effects” and
motives as known directly by “internal observation” do not accurately
correspond. (This fact is a condition of
the existence of motivated behavior or conduct.) Perhaps it is more accurate to say that we
know directly about the failure to correspond itself - due to error, prejudice,
etc. - through the primary source or medium of knowledge, intercommunication. But if we raise the question of “testing” our
knowledge of motivation in any particular case by an ad hoc investigation,
in the only sense in which this is possible, it would appear that we bring in a
third source of knowledge which probably ought to be distinguished from the
general knowledge of mind derived from social intercourse. This is explicit questioning with answers based
on explicit and critical introspection on the part of the economic subject
making the choice.
We come now
to another, and if possible even more essential, item in connection with the
discussion of the basic concepts in economics - -especially with reference to
the positive or factual character of its data - which is entirely ignored by
Mr. Hutchison. In the demarcation of
economics, the interests of the individual (or those of the state, for the
economics of totalitarian collectivism) are regularly and properly taken as factual
data. It is usually made explicitly clear
that in economics as a science no question is raised as to the “validity” of
the “actual” scale of preferences of the economic subject. And our own discussion so far has accepted
this view that preferences themselves are simply facts, the only question being
as to how these facts are known. It must
now be emphasized that this position is possible only for a treatment limited
to the character of “pure” economics, completely divorced from any
consideration of criticism or guidance of social action. In so far as any treatment of economics makes
explicit reference to the merits of any social policy, some theory of value,
beyond factual preference, is necessarily involved. This is just as true for
22
rigorous
laisser-faire individualism as it is for any form or degree of interference or
“control.” Individualism, as a subject
of approval or disapproval, is a social policy and an ethical category.
Moreover, a
really thoroughgoing laisser-faire individualism, accepting individual
preferences as absolutely final, not only has never been either practiced in or
advocated for any “society” (a political concept) but is even theoretically
impossible under any conditions fundamentally like those of the real world. For, in a world in which individuals grow old
and die and are replaced by new units who are born as “infants” and are
necessarily reared and educated in the society in which they are to live and
function as members, it is merely absurd to treat the individual as a datum for
purposes of decisions regarding social policy. Any change in policy will affect the kind of
individuals of which society in future time will be composed,
and not merely the relations between individuals, and these consequences cannot
be ignored. And it is a fact to be kept
in mind and recognized as a condition of talking sense about human interests,
that everyone, habitually and inevitably, makes a distinction, which is vital,
however vague it may be, between personal preferences and values assumed to be
objective. (This means imperative but
not absolute.) The social assertion of
an individual preference itself rests on such a judgment of value; it is
essentially a “right” in so far as it has any significance whatever. [15] No discussion of group
action can be carried on in propositions which merely state what “I want.”
15. Mr. Hutchison appends to his
book an eight-page discussion of economic policy, in the form of a destructive
criticism of “Some Postulates of Economic Liberalism.” It contains many good points, and is
characteristically notable for the citations in the footnotes. It certainly
overstates vastly any claim ever seriously made on behalf of “classical
economics” in alleging its position to be “that Economic Science quite
definitely demonstrates that a Liberal, capitalist, laissez-faire economic
policy leads to maximum returns for the community or to greater returns than
any collectively planned economic policy” (p. 177). (And Professor von Mises
would hardly be generally accepted as “the leader of contemporary Economic
Liberalism,” unless this means the academic opponent of socialism most
conspicuous for the extremism of his position.)
The main defects of the
Appendix seem to the reviewer to be two: First, the author does not recognize the
obvious reservation for any defense of economic individualism (in addition to
frictional limitations) that even in so far as the system “works” in accord
with its theory, individuals - which really means families – [share in the social product on the basis of
productive capacity furnished (as measured by its sale value) which is perhaps
never defended as having any close correspondence with ideal ethical desert,
particularly for the dependent members of the family unit. More generally, he also takes the individual
as a datum and completely fails to recognize the point emphasized in our text
above: that any approval or disapproval of any social policy must rest on
ethical value judgments of some sort. (Also, as will be presently observed,
human-social interests and values are at best only to a very limited extent
covered by the conception of economic efficiency, even in the broadest possible
definition.)
Second, he evades the main
issue in formally declining to discuss “the relations of democratic authority
and of experts to the general public” (p. 181), which in our view is wholly,
and not merely “largely,” as he says, “a political
issue” and is virtually the whole issue in the problem of collectivism. But previously (p. 180) he has practically
begged the question for collectivism by stating that its experts would be
“chosen and dismissable by those who hired them,”
implying that this would be true in the sense significant for the individuals
whose lives would be regulated by these experts. Moreover, his entire discussion relates
explicitly to a “social-democratic Utopia,” which experience and abstract
reasoning both indicate is impossible - a practical contradiction in terms.]
HHC: [bracketed] displayed on page 24 of original.
23
But the value
judgment has also a more immediate significance for the discussion of social
policy. Judgments of value are also
facts, data, and data of supreme importance. Social discussion has not only to be relative
to some ideal of what policy ought to be, in the judgment of the parties to it;
it also has to make a categorical distinction between what the individual
members of any society affected by policy at the moment regard as right, or as
rights, and what they, as individuals or as groups, sects, or whatnot, merely
want. It is an indubitable fact that
every normal individual makes this distinction in his own thinking with
reference both to his interests and conduct and to those of other persons; and
the fact that he usually does not, in the opinion of others, make it very
accurately - especially in the sense that he tends to erect nearly every
interest or wish of any importance into a right - by no means implies either
that the distinction can be ignored or that it is possible to discuss group
policy or the behavior of individuals in groups without recognizing that there
is a valid though unprecise distinction.
The economic
view is only one aspect of motivation and is usually severely limited in
various directions by a number of other
24
aspects.
Activities conform only in part, and usually in a rather limited degree, if rigorously
examined, to the economic principle that the motive is to realize given ends in
the maximum degree possible with given means. The value of an action to the individual is
only in part a function of the result achieved or to be achieved. To begin
with, it is typical that the value is connected with the achievement of a result,
and yet not dependent on any value in the result itself. Perhaps the simplest illustration is that a
“good” game must be good for the defeated party, whose efforts are frustrated
and fail, as well as for the winner, while even for the winner the concrete
result - the score made in whatever form - is of no significance when achieved.
This is as clear in the case of
solitaire as in a competitive game. (The
positivist might well ponder the fact that no objective definition can be given
of “work” and “play,” fundamental as the concepts are in any discussion of
economics or of conduct in general.)
In addition,
we all know that we generally do not know at all accurately what we want, and in considerable measure act to find out. And our interests are to a considerable extent
explorative in a more intrinsic sense; the motive of action is in part
curiosity as to what the result will be, and hence depends on partial ignorance
of the result when the action is performed. It is undoubtedly a general principle that
ends are more or less defined in the process of realization, and that the
interest and value in an action centers in this redefinition as well as in the
achievement of any result given in anticipation.
The role of
the value judgment in individual motivation constitutes a more serious
limitation on the economic view of motivation. One commonly wants to do the “right” thing,
without knowing what it is, in contrast with wanting to do any given thing. In this case the problem in action is to
decide upon an end, upon what to want, as well as to achieve one’s desire. And “rightness” has a variety of meanings; we
want to be right in a mere conventional meaning and also in several “real”
senses - aesthetically, intellectually, and morally. And the economic aspect of behavior
25
itself has
its own quality of rightness, beyond mere desire; it is within limits a “matter
of principle”; “waste is sin.” [16]
We have
indicated only a part of the plurality of categories necessary for the
interpretation of economic behavior. The
same concrete behavior phenomena form the subject matter of all the social
sciences, including psychology, and may be considered by the physical and
biological sciences as well. A serious
analysis of “social phenomena,” oriented to the methodological controversies
which have been rife in recent years (and more or less since the development of
the Historical School), would have to be based on a quite complicated
pluralism. The main
types of categories in terms of which any human act would have to be explained
may be suggested by the following summary classification. This could be greatly expanded, and all the
categories apply to virtually every conscious human action. It is particularly to be emphasized that even
at the lowest factual level, truth and knowledge are
inseparably related, not only to interests but to values. Truth itself is a value.
I. Positivistic.
(Causal laws in the sense of phenomenal uniformity, in contrast with motivation
as an efficient cause, i.e., excluding deliberation and problem-solving; if
consciousness is recognized, it is treated as“epiphenomenal.”)
1. Physical causality, or behaviorism. To be applied as a matter of course, as far as
it can be, as far as it can yield answers to our questions. Measurement and correlation
(statistics).
2. Historical
causality. Linguistics is the type of a
social science using the historical or institutional method, but it is also
valid to a considerable extent for other departments of social behavior,
including the “economic.” (There is
usually little question of deliberately changing a mode of institutional
behavior, as the case of language adequately illustrates; also “observation” of
meanings is a special problem.)
2a. Biological
interpretation, involving such essentially teleological concepts as competitive
struggle and adaptation - as applied to plant or unconscious life - is an
intermediate or hybrid category.
II. Motivated, or deliberately problem-solving action. (Both
“problem” and “solution” seem to be indefinable, doubtless the most important indefinables of our thinking.)
16. For a full discussion of
this theme of the value judgment inherent in the notion of economy itself, cf.
the admirable essay by Alex L. Macfie, The Nature
of Economy and Value (London: Macmillan & Co., Ltd., 1937).
26
1. Economic
behavior. A subject uses given means to
realize given ends, only the procedure being problematical. (Taken in the strict sense, this applies only
to “stationary conditions,” but all deliberative behavior is economic “in so
far as,” and in the sense that, ends and means are given and the problem is
that of procedure.)
2. Action
in which the motive is abstract or social, such as interest in action or power
as such, achievement, curiosity, conformity (to fashion or to law),
distinction, co-operation, competition (“victory”), etc., but where no value
judgment is involved.
3. Action in
which the evaluation of the end is the main deliberative problem. This category includes intellectual,
aesthetic, and ethical activity, or the pursuit of the proverbial trio, “the
true, the beautiful, and the good.”
The
positivist who would seriously try to be consistent and thoroughgoing would
have to stick strictly to the realm of physical causality (uniformity of
sequence) and deny the relevance of any other categories of interpretation. As we have seen, the validity of the notion of
economy itself, or any interpretation of behavior in terms of motives, depends
on the factor of error or uncertainty in numerous forms. But all such considerations - all conception
of any process as problem-solving in any sense-are excluded by the
preconceptions of positivism, are rejected as unreal, transcendental, or
mystical.
It would
hardly seem to call for argument that the methodology of economic theory should
be worked out in relation to the function performed by the science or discipline
in the education of the individual - the reason, apart from intellectual
curiosity or general culture, on account of which most students will be
interested in it. The first fact for
emphasis regarding the relation between economic theory and action or conduct
is that the activities for which it should furnish guidance are those of the
citizen and statesman, not those of the individual as a wirtschaftender
Mensch. Its
practical problems are those of social policy. And the first requisite for “talking sense”
about social policy is to avoid the nearly universal error of regarding the
problem as in any sense closely parallel in form to the
scientific-technological problem of using means to realize ends. The social problem,
and the only problem
27
which
should properly be called social, is that of establishing a social consensus on
matters of policy.
This is in no
sense a scientific-technical or manipulative problem, unless we consider
“society” under the form of a dictatorship over which the dictator is
proprietor as well as sovereign, and as an enterprise which is to be managed
solely in his interest. And even then
the manipulative problem would be categorically different in form from that
presented by the effort of human beings to exploit the objects and forces of
nature. The manipulation - or “control,”
in the only proper sense of that word - of human beings (by other human beings)
is almost entirely immoral and to be prevented; and when it is accomplished it
is through such processes as coercion or persuasion, or especially deception,
none of which has any meaning in connection with the control of natural objects
by men. (The higher animals, especially
those domesticated, are in an intermediate position.) If society is in any sense democratic or free,
its problems are problems of group decision and group self-determination, in
connection with which control is a misleading term.
The social
action which the study of economics has as its function to guide, or at least
to illuminate, is essentially that of making “rules of the game,” in the shape
of law, for economic relationships. The
concrete form of such rules will be overwhelmingly that of taxes, or of
prohibitions of particular lines of activity, subject to penalties. Consequently, the problem of prediction which
is set for economics as a science may be said to be that of the individual
reaction, as consumer or producer, to price data, or more specifically, to
price changes. The problem of the role
of general economic theory in such prediction is, then, to show what can be
inferred from the general principles or axioms of diminishing utility and
diminishing (technical) returns, both of which may be viewed as particular
cases of the more inclusive principle of substitution.
The
limitations of the possibility of prediction need all possible emphasis if the
theory is not to be misused, and they are quite drastic. In the first place, it is evident that only
the direction of
28
the
response, i.e., whether a given activity will be increased or decreased, can
possibly be inferred from theory alone. The
amount of response to a change of given magnitude (except reduction from the
actual volume to zero) can in the nature of the case be known only from
empirical-historical data stating the facts of past reactions to various price
situations, or, conceivably, from answers by individuals to hypothetical
questions.
And there are
two other important reservations to be emphasized - in addition to the
principle of caeteris paribus, which
should hardly need to be mentioned. (It
should hardly be necessary to remind any educated person that the effect of any
one cause must be considered apart from the possible effects of other causes which
may be operating at the same time.) The
first of the two important reservations is that the individual’s satisfaction
function or indifference-map must be assumed to remain the same during and
after the change. (This obviously might
be included under caeteris paribus.) The second reservation is that a person
rarely acts exclusively on the basis of a satisfaction function. This means two things: (a) that the motivation
is not purely economic, and (b) that the choice is not free from error. Both are excluded from the notion of behaving
“rationally,” in the economic sense.
The
assumption of a stable satisfaction function is of course highly unreliable,
but it has predictive value, in the absence of any discoverable reason for
believing that it has changed. The point
is important particularly because of the difference between predicting human
behavior and predicting the behavior of physical objects under changed
conditions, in that the latter neither behave irrationally or sentimentally,
nor make mistakes, nor “change their minds” (and more or less correspondingly
their reaction patterns), as human beings are notoriously liable to do. This trait of human beings, in contrast with
physical things, whose responses reflect an inner nature which is either invariant
or changes only for objectively discoverable reasons, is admittedly
embarrassing to the economist as a scientist, but there does not seem to be
anything that he can do about it. It is
particularly to be noted that change of mind upsets any positivistic prediction
29
on the
basis of observation of previous behavior to the same extent as it does
predictions based on inference from the abstract economic 1aws. [17]
Economic
positivists and empiricists have apparently given little thought to the manner in
which we actually predict human behavior in everyday experience. The “law of large numbers” is applicable where
large numbers of human beings behave individually in fairly standardized
situations - the case of “insurable” contingencies or risks. In the prediction of individual behavior -
one’s own or that of an acquaintance or of a stranger - concrete records of
past performance play a relatively small role in comparison with more subtle
bases of insight into character and personality. If one wanted to predict the answer which an
individual would get to an assigned simple problem in arithmetic, the first and
principal basis would be to work the problem and see what is
the “right” answer; and the next step would presumably be to inquire
into his “competence.” But arithmetic,
be it noted, is the science of “right” answers, not a statistical study of
those which men actually get. Where
large numbers of human beings act as groups, and not individually, the basis of
prediction is “social psychology,” which even more than that of individuals is
a matter of insight and interpretation, in contrast with statistical extrapolation.
In short: The
formal principles of economic theory can never carry anyone very far toward the
prediction or technical control of the corresponding economic behavior. But such a result, by any method, is both
utterly abhorrent to all humane thinking, and
17. A more fundamental weakness
of inductive prediction in economics is that empirical (i.e., statistical) data
never present anything like an exhaustive analysis of phenomenal sequences down
to really elementary components, and the correlation of and extrapolation from
composite magnitudes or series never can be very reliable. The real unit would be an invariant and
measurable human trait, either an interest or a response independent of
interests, a reflex. Mention of the
effort and high-grade intellectual energy which has been expended in attempting
to predict the course of various statistical economic series - and specifically
the prices on the organized stock and produce exchanges - should be a sufficient
reminder of the difficulties and limitations inherent in such projects;
analytical studies of “forecasting” make it doubtful whether the results (so
far) are much better than random guesses.
30
self-contradictory.
The intelligent application of these
principles is a first step, and chiefly significant negatively rather than positively,
for showing what is “wrong” rather than what is “right,” in an existing
situation and in any proposed line of action.
Concrete and positive answers to questions in the field of economic
science or policy depend in the first place on judgments of value and as to
procedure on a broad, general education in the cultural sense, and on “insight”
into human nature and social values, rather than on the findings of any
possible positive science. From this
point of view the need is for an interpretative study (verstehende
Wissenschaft) which, however, would need to go
far beyond any possible boundaries of economics and should include the
humanities as well as the entire field of the social disciplines. However, a sound investigation of problems
recognized as economic, and of proposed lines of social action, would yield
results surprising to the critics, as to the proportion of such questions which
could practically be settled on the basis of a reasonable interpretation and
application of sound economic theory.
All this
negatively critical discussion of Mr. Hutchison’s “position” does not imply
that a student may not derive much useful education, in economics and in wider
fields, from the study of his book. It
is a very “learned” work, citing and quoting extensively, and hence is valuable
as an introduction to the literature of its field. Its fallacies are rather those of omission - what
it excludes rather than what it contains. But the exclusion is itself positive, not to
say dogmatic; and in the reviewer’s opinion its study ought to be accompanied
by adequate warning of its limitations. It is perhaps the chief merit of the work
that, as we have pointed out, the author ends up by virtually abandoning the
“criteria” on which at first he lays so much emphasis.
From the very
nature of conduct as problem-solving, and from the character of human problems,
even at the level of relative simplicity considered in economic theory - and
because no problem is purely economic except by abstraction from other and more
important features of concrete human interests - it follows that
31
“criteria”
apply only superficially to statements about conduct. The limited part or aspect of human problems
which can be treated in the form of positive science is the subject matter of
the positive natural sciences, long since separated out and recognized as such
- by abstraction from the complexity and waywardness of reality as a whole. [18] These sciences, indeed,
include all the natural sciences of man and, specifically, all the branches of
“sociology,” in so far as their votaries have succeeded in developing these as
positive sciences. In the nature of the
case again, the limits to the development of positive sciences of human
behavior are to be determined by “trying,” and not by “theorizing.” But there cannot possibly be any boundary
with any degree of definiteness between the spheres of “determinateness” and of
“freedom.”
18. An ultimate limit to
scientific explanation is of course set by the fact that the explanation of
mental process is itself a mental process, so that any exhaustive explanation
would have to explain both itself and the explainer. This not only starts a regress to infinity,
but contradicts the nature of thinking as an activity.
32
The Competitiveness of Nations
in a Global Knowledge-Based Economy
October 200
3