The Psychology Of Economics

Walter A Weisskopf, Weisskopf, Walter A

• Publisher: Routledge
• Year: 2020
• eBook ISBN: 9781136329326
• Edition: 1
• Topic: Social Sciences
• Subtopic: Social Science Biographies
• Index: Social Sciences

First Published in 1999. This book is a study of psychology and philosopy of social thought, exemplified by the analysis of certain economic ideas. The method is briefly sketched in the first part and then applied in a series of case studies to crucial concepts in economics.

Part I
Introduction

Chapter I

THE APPROACH

DISSATISFACTION with certain aspects of economic theory is as old as the discipline itself. Almost as soon as the classical founders completed their edifice, the antagonists began to undermine the newly erected structure. Economic theorists built a close-knit system of economic laws logically derived from certain philosophical and psychological premises.¹ The heretics tried to puncture this system by criticizing its assumptions and its methods for its lack of realism, its neglect of sociological and political factors, its faulty interpretation of human behaviour; for its use of metaphysical and normative concepts; and for its essentially static and mechanistic approach to economic phenomena. Almost before the ink was dry on Ricardo’s Principles, Sismondi complained that economic science ‘is so speculative that it seems divorced from all practice.’² The criticism of the socialists, nationalists, romanticists, historicists, and institutionalists accompanied the development of orthodox economics.

Professor Mayo has blamed Ricardian economics for the social ailments of our civilization.³ He denounces the ‘chronic divorce’ of economic theory from practice and questions ‘the original clinical and practical adequacy of economic theory’ to the facts it studied. Similarly, the uselessness of economic theory because of its self-imposed limitations is deplored by Professor Walker.⁴ He characterizes the present state of economic theory as ‘theoretic blight’. ‘The familiar features of the concrete world are left out of account altogether or are definitely misrepresented.’ Economists themselves have expressed grave misgivings over the possibilities of the discipline.

After almost two centuries of development economists still do not have anything better to offer than a promise for the future. Meanwhile the optimistic economists are working out their analyses on the simple assumption [of economic rationality] and resolutely refusing to despair of evolving in the future a technique which will allow them to assume the existence of whatever human motives have an influence on the economic sphere.¹

The sad state of economics has frequently been admitted by Professor Knight, one of the outstanding exponents of orthodox economics as well as one of its most penetrating critics. He clearly states that economic theory, based on utilitarian premises, is purely abstract and without content and that the formal principles of economy are without reference to what is to be economized and how.²

It would be possible but superfluous to multiply such critical quotations from old and recent literature ad infinitum. But, in spite of the constant criticism and the admission by economists that much of it is justified, some of the basic assumptions and methods have not been changed. Why did economists retain certain concepts and methods which were considered scientifically inadequate? Why is it that such obviously untenable concepts as omniscience, which human beings do not possess, or equilibrium, which admittedly is never reached, or economic rationality, which, as generally recognized, is not the only motive of human behaviour—why are such concepts and analytic tools still used in economic analysis? One gains the impression that these ideas and methods must fulfil certain psychological requirements and that possibly on this account they are retained in spite of their insufficiency on purely scientific grounds.

This book represents an attempt to answer some of these questions and to explain the function and meaning of some economic ideas with the help of the psychocultural method. In order to explain this approach, some remarks about the nature of science and knowledge are in order. In the form in which it has developed in modern Western civilization, science is a method of acquiring knowledge through factual observation and logic The facts are procured through sensory experience and processed into systems of laws and regularities by logic. The most important results of science have been achieved in the field of the natural sciences, especially in physics. The social sciences, including economics, have been greatly influenced by the outlook of the natural sciences.

For centuries the truth value of science has been an open problem. In various formulations the fight between realism and nominalism has been carried on since the Middle Ages. Whereas realism believes in the fundamental identity of thinking and being, nominalistic or hypothetical thinking negates this identity and repudiates the belief

that the human mind is capable of arriving directly at an insight into the order of the universe; all concepts are held to be purely hypothetical and to be based on assumptions.¹

The trend of modern thought has, since Kant, been away from realism, toward a hypothetical approach. This has made it legitimate to raise the question: On what basis are thought-constructs developed? If they are not reflection of reality, what determines their content?

Attempts have been made to answer this question with the help of the transcendent approach and its most important application, the sociology of knowledge. The extraneous, transcendent, extrinsic method, in distinction from the immanent approach, does not analyse systems of thought from the point of view inherent in the system but from a frame of reference external to it.² The immanent interpretation inquires whether a system of thought is logically consistent and whether its findings are in conformity with observed facts. The transcendent interpretation of thought involves the application of a new frame of reference to systems of thought. It is in itself a system of thought and requires, therefore, certain assumptions which are foreign to the intentional, conscious presuppositions of the system to which they are applied.

Actually, the extraneous method, as used, e.g., in the sociology of knowledge, may be considered a special version of hypothetical thinking, the concepts and constructs of which are also supposed to be extraneous to the reality to which they are applied. In both cases the constructs used are taken from ‘outside’ the phenomenon under consideration. They include elements not contained in the object: the hypothetical method is already essentially an extraneous method. Therefore, the difference between hypothetical thought and the extraneous method is not so much a contrast between two different methods as it is a difference in the choice of the frame of reference.

The transcendent method, however, was only one step in the direction of a broader outlook toward systems of thought. In some of the modern social sciences it has been superseded by the holistic approach. Holism requires that the whole be grasped as an entity which is more than, and different from, its parts. The basic experience stems from the feeling of a person of being one and the same, of being an entity of some permanence. The experience of wholeness can also be involved in the contemplation of a work of art. A tree can be grasped as a totality which expresses an underlying pattern; each of its branches and leaves reflects the pattern of the whole. The essence of this experience is summed up in the German concept of Gestalt. The concepts of personality and culture, as used in the modern social sciences, are holistic ones. A person is a Gestalt, a total configuration, the parts of which cannot be understood in isolation; a change in a part necessarily changes the entire character of the whole, and the part, separated from the whole, becomes a different being. Most data in the sciences of man are of such a complex, holistic nature. In contrast to the atomistic world view, which looks for basic, simple units out of which more complex entities are composed, the holistic approach does not try to ‘reduce’ wholes to their parts but to comprehend them as wholes.¹

In this book the attempt is made to approach economic thought from the holistic point of view. We view man as enmeshed in the totality of the universe, of his society, culture, and environment, and within the entity of his own self, as a cosmion, a person. Every element within these entities is interrelated with every other element. The entire network of mutual interrelations cannot be fully grasped by the human mind; and this lack of complete insight and knowledge is an essential of the human situation. Only in rare exceptional moments of intuition can the totality of world and man be perceived. The limitations of the human intellect make it necessary to dissect this totality and to confine one’s self to the uncovering of certain specific and one-sided relations and uniformities. However, the human intellect, aware of this situation, tries forever to transcend its own limits; and the transcendent and, even more so, the holistic method are manifestations of this endeavour.

Within this totality, man is beset with inner conflicts which are unavoidable concomitants of human existence. These conflicts cause tensions which give rise to needs; their satisfaction consists in the elimination of tension. The existential, primeval conflict is founded in the fact that man is part of nature, subject to necessities as a biological organism and a social animal, yet able to transcend nature and society through his consciousness, reason, and spirit. This conflict causes anxiety, and the need arises to ward it off with the help of harmonizing thought-constructs. Inner conflict may be of social origin. The individual depends upon his environment for his livelihood, and he needs social recognition as a prop for his self-respect. The desire to be accepted is one of the most effective motives for social adaptation, of moulding man according to the social ideals of his society. Social acceptance is impaired by impulses which run counter to the value attitudes of the environment. If such impulses arise, the fear of being rejected by society leads to the danger signal of anxiety. This can be alleviated again by intellectual constructs which try to deny the anxiety-creating conflicts.

This discussion of the human situation forms a necessary background for the understanding of socioeconomic thought. The latter deals, consciously or unconsciously, also with general human conflicts but mainly with those caused by the cultural and socioeconomic situation. These conflicts may be brought about by cultural change, such as conflicts between old and new world views and ethical systems. Other conflicts arise between the essential needs of human nature and the specific value-attitude system to which civilization tends to subject individuals.

In order to understand how socioeconomic thought helps in alleviating such conflicts, a functional, instrumental theory of thought has to be developed. Man is confronted with anxiety-creating dichotomies and conflicts; his thinking is a reaction to this situation, an instrument for dealing with these problems of existence. Man could not live without synthesizing and organizing his experiences. In order to make life livable, he has to interpret it in such a way that conflicts are settled by compromise and unbearable factors are eliminated, so that he can live in relative harmony with himself and with his environment. The function of socioeconomic thought is to enable man to live under the socioeconomic conditions under which he is forced to live. The puzzling aspects of economic thought can often be understood from the functional viewpoint. What appears incomprehensible to logic and factual observation may become meaningful in view of the function which th...

Table of contents

• Cover
• Half Title
• Series Page
• Title Page
• Copyright Page
• Preface
• Table of Contents
• Part I Introduction
• Part II Classical Value Theory and Adam Smith
• Part III The Ricardian Theory of Value
• Part IV Male and Female Symbolism in the Thought of Ricardo, Malthus, Engels, and Marx
• Part V Alfred Marshall’s Value and Equilibrium Theory
• Part VI The Disintegration of Economic Rationalism
• Index