Economics in the Twentieth Century

The History of its International Development

Theo Suranyi-Unger, R. A. Seligman, R. A. Seligman

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781134559749
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This book discusses the history of economic theories, drawing largely from periodical literature, which is often hard to obtain. The book is divided into sections along linguistic lines (German, Romance and English speaking countries).

PART ONE

 

PHILOSOPHICAL SOURCES OF THE MOST RECENT ECONOMIC TENDENCIES

PART ONE

PHILOSOPHICAL SOURCES OF THE MOST RECENT ECONOMIC TENDENCIES

THE REAL and important cultural differences which we have noticed even in economics lead us to divide the development of our subject-matter in the last quarter century into three linguistic groups. First of kll, however, we shall try to summarize the philosophical origins of these various tendencies.

At the end of the last century, where our study begins, there was considerably more intercourse between the economists of different nations than there is to-day. The historical school was still the official one: in Germany it dominated most of the universities, and it was respected in many European countries, as well as in America. The appearance of Schmoller’s Outline was hailed by all as a great event. This, however, was to be the last great effort of the historical school, which was no longer able to halt the victorious advance of the newer theoretical tendencies that were reaching their greatest development about this time. Among the Anglo-Saxons the polished theories of Marshall’s Principles were enjoying universal praise 3 Pareto in his Cours had given the Latins an excellent development of Walras’s theories, and the Germans were still powerfully impressed by the works of Bohm-Bawerk. At the very end of the century there appeared in America the best work on the somewhat modified theory of marginal utility: Clark’s Distribution. The criticisms of Veblen and others on the theory of marginal utility were scarcely noticed, and the Vienna school shone in the full glory of its far-reaching influence. Karl Diehl was still devoting himself to the problems of Socialism and Communism, Liefmann was busying himself exclusively with the Cartel, and few suspected that he would soon advance an abstract economic theory. The Swedish engineer Cassel had only just turned his attention toward economics, and a young student, Othmar Spann, now wrote his first work, soon to be published in Schaffle’s Tiibinger Zeitschrift.

The great changes which the last quarter century has seen in economic theory can be in large part traced back to philosophical sources. The war between general philosophical tendencies of recent years is at the bottom of the various economic view-points as well as of the great changes in economic theory and as one or the other prevails or else exerts a greater influence on our science, the economic picture also changes.

I. The Baden School of Philosophy, the Question of Method, and the Philosophy of Values in Economics

Before the birth of the theory of marginal utility, the condition of German economics was such that the historical method, which was already becoming stereotyped, threatened to put an end to all theoretical investigation. The only chance for improvement lay in a renewed attack upon the problem of method. The nature of economics, its tasks and its place in the world of science were all questions which demanded a thorough investigation. A close alliance was accordingly made with the Baden school of Neo-Kantian philosophy which was working upon the same subjects. Windelband had already dealt with the systematization of the sciences; his researches were continued by Rickert and developed with incisive logic. A two-fold division of the sciences was reached, on the basis of which one group seemed to be amenable to the deductive, the other to the inductive method. It was, therefore, the business of economists to decide to which group their science belonged. Thus it happened that German writers on methodology, especially of recent years, have as a rule made use of the philosophical weapons placed at their disposal by the Baden school.

There was, moreover, a second point of contact between the new economics and the Baden school. Windelband already investigates the problem of knowledge with reference to its value as truth, rather than to its psychological origin, and connects epistemology with normative ethics and aesthetics. The idea of value is becoming prominent and idealism again takes precedence over thought. Rickert developed this tendency by his two methods of epistemology: transcendental psychology and transcendental logic. By the first we distinguish truth from error; there is, therefore, a judgment: affirmation or denial, acceptance or refusal. Behind this behavior is a transcendental idealism, which is recognized by the second method as a transcendental value, and appears to the consciousness of the knower an entirely different and independent principle. Consequently the whole dualistic structure of the Baden philosophers rests upon the epistemological theory of value.

The division which the Baden school made between natural and cultural, social and historical sciences has given weight to the theory of transcendental values. For if the aim of the natural sciences is to discover general laws, the cultural sciences can approach their subject, individual phenomena, only on the basis of an acknowledged system of cultural values. This is furnished by the principle of selection, which involves the choice of criteria in determining the particularity or uniqueness of phenomena. It is the eternal values, therefore, which have made possible for us an ordered and systematic knowledge of all external phenomena that are subject to change. They constitute the a priori basis upon which the transcendental idealism of the Baden school rests. Thus every systematic interpretation of the meaning of life starts out from a system of established values which attaches to all goods, or otherwise, in the present or the future, and with regard to which the scientific appraiser takes his own stand. We see here how the whole theory of knowledge resolves itself into a theory of value, and that historians of philosophy are right when they call this Neo-Kantian tendency a critique of values.

We can largely attribute to the success of value concepts in philosophy the fact that economists adhere so persistently to a theory of value as the foundation of all economic theory. Proponents of the theory of marginal utility invest it with a kind of tabu, so that no one dares question it, and they assign to it considerably more importance than do the exponents of newer economic tendencies, as far as these are still influenced by values.

We meet of late increasingly frequent attempts to connect abstract-deductive theories, especially the philosophy of marginal utility, with the idealistic and pragmatic positivism of Hans Vaihinger. The assumption is made that the theory of marginal utility works with the same fictions that Vaihinger emphasized in his Philosofhie des Als-Ob (Berlin 1911), in developing the connection between science and being. This, however, seems to be a serious error. Perhaps Vaihinger himself is partly responsible when he quotes the authority of Adam Smith and the latter’s apparent fiction of pure egoism. According to Vaihinger, all modern economics owes its origin to this fiction. Historical research, however, has proved more than once that the matter is not so simple with Adam Smith. Vaihinger is no economist and we ought not to blame him too severely. Even the younger economists seek at most to posit new hypotheses which correspond to reality, and which may be verified by it. Nevertheless, it is not their intention to play around with fictions, which are obviously not a picture of reality and do not even intend to be. A popular attack on the theory of marginal utility is to accuse it of unreality; but the argument does not seem to rest on firm ground. On the other hand, if some young writers purposely select Vaihinger’s philosophy as a basis for their economic theories, it is easy to predict certain failure for the attempt. A conscious “Fictionism” will never discover a satisfactory path to reality, especially in our field. Thus the first and most important demand which we make of every economic theory remains unfulfilled.

Hugo Miinsterberg, who had been influenced by other philosophical tendencies as well, brought the value criticism of the Baden school to America, and developed it to bold conclusions in his comprehensive Philosofhie der Werte (Leipsic, 1909).

Reality, for him, consists of perception which in turn consists in pointing out values of existence and of relationship. Values exhibit, however, not a mere imperative, but at the same time a superindividual will, which is independent of pleasure or pain and is founded, in final analysis, on the “self-assertion of the world.” In this way Miinsterberg’s epistemology, as well as his ethics and aesthetics, is merged in a theory of values; and, in addition, logic and metaphysics share the same fate. There are two main fields in his system of values: life-values, which are given directly, and cultural values, which are created. Each of these main categories includes the four subsidiary groups of logical, aesthetic, ethical and metaphysical values, which appear respectively as values of existence and relation, values of joy and beauty, values of development and performance, values of God and belief. Over and above this hierarchy of values is the original striving of the spirit, a super-individual fact of which all particular values are to be regarded as the formal expressions.

These ideas of Miinsterberg succeeded in directing attention in America to the general problem of values. In this way this attitude, which had already been stressed by Clark and Seligman among others, penetrated even further into American economic theory. The same result was attained by the theories of the more recent American sociology, which is both biologically evolutionary and psychologically voluntaristic (Lester F. Ward, F. H. Giddings, C. H. Cooley), and which directly influenced certain young economists who are attempting to bring about an extension of the concept of economic values, and to put it in its proper place in the hierarchy of the other, more general, values. It is partly on this basis that B. M. Anderson Jr. attempted to reform current economic theories of value. Later on we shall see how other students, for example Dibblee, Perry and Usher, have been stimulated by him to similar researches.

2. The Philosophical Bases of “Value-less” Economics

The difference between what is and what should be, based on the concept of value, and especially the preparatory work of Rickert formed the starting-point of the important debate concerning the possibility of scientific value judgments in economics, which began at the turn of the century with Max Weber, and remained as one of the chief topics of German discussion until the war. It seems to be definitely established that Max Weber was closely connected to the Baden school. This we shall explain more fully later.

Starting from entirely different premises, French students reached methodological conclusions which were closely related to those of Weber. In contrast to the epistemological psychology which we have just noticed among the followers of the Baden school and which, as it is well known, has been adopted by numerous Latin scholars, fimile Durkheim offers a strongly objective conception of sociology.

He notices an essential difference between social and psychic phenomena, and vigorously denies the possibility of the psychic functions discovering the laws of social life independently, through purely rational and deductive thinking. Durkheim wishes to separate sociology as sharply as possible from philosophy, hoping thereby to expel all those elements of deduction which give to sociology, when it forms part of a general philosophical pattern, at once a certain direction and some kind of a special character, whether it be spiritualistic, positivistic, evolutionary or what not. By logically developing this postulate, he desires to exclude from sociology all practical norms which contain, however vaguely or indirectly, a flavor of idealism. Sociology should be neither individualistic nor collectivistic, neither conservative nor progressive, but should endeavor, with as few premises as possible, to attain an objective knowledge of social phenomena as they appear in their causal relationships. Contrary to Max Weber, who works out the principle of causality, the only possible viewpoint in social studies from the angle of a rationalist, Durkheim sees in it an empirical postulate. This attitude leads him to choose a purely inductive method, through whose development or transformation he seeks the perfection of social research.

Durkheim’s adherents, the enthusiastic circle of the Annee Sociologique, which he edited, tried to apply the leader’s views to the separate social sciences and to make these views conform to the peculiarities of each discipline. Frangois Simiand was especially successful in carrying out this work. Not only did he develop his economic researches, which were inductive, sociological and methodologically free from value judgments, but he indicated it in practice by his thorough investigation of highly important economic problems. It is certainly owing only to the rationalistic and mathematical dispositions of the French mind that Simiand’s valuable thoughts have found, at least up to the present time, but scant response.

We can mention only briefly here the Italian idealistic philosopher, Benedetto Croce who, by postulating Hegelian dialectics purged of the misuses of later followers and by settling his score with the historical materialism of Marx—thus in an entirely different way from that of Weber and Simiand—reached the demand that in economics a sharp distinction must be drawn between the purely economic and the moral effects.

3. The Marburg School of Philosophy; Cassel and Liefmann

In its rejection of epistemological psychology, Durkheim’s sociology resembles that of the Marburg school; after the Baden school the most important development of Neo-Kantianism in Germany. It was founded by Hermann Cohen, after whose death it was continued by Paul Natorp and Ernest Cassirer.

Like the Baden thinkers, this school starts by rejecting Kant’s “thing in itself.” On the other hand, it teaches that it is not the business of philosophy to investigate the growth of the perceptions of each individual, but rather to explain the immanent and logical conditions of scientific experience. Therefore they are concerned not so much with systematically developing an independent theory of knowledge, as with scientifically analysing the logic of the functional relations which govern scientific thought. In their choice of a scientific ideal they follow Kant: the only sciences which can give us true knowledge are the natural sciences which can be treated mathematically; consequently they disclose a strong leaning toward the methods of mathematics. They thereby formulate general laws which are not transcendent, but transcendental. These they do not deduce from a priori major premises, but always remain within the domain of thought, of which they conccive the relationship of subject and object as a subsidiary corollary. Thus the Marburg philosophers attain a monistic and logical idealism and set themselves the task of discovering the principles of uniformity as well as their various manifestations in the realm of the logical sciences. Evidently this point of view can be of use only in sciences which are already more or less fixed in their method, and it is only when they build upon such foundations that the methods of the Marburg school can produce results.

This is the maturity which economics has reached in the eyes of those students who ignore methodological disputes and concentrate on the logical and mathematical developments of the science. Cassel shows the influence of the Marburg school when he criticizes the theory of marginal utility as barren and empty and throws overboard as well the whole theory of value which had led to so much quibbling. His explanation of all economic phenomena is the unitary principle of scarcity upon which he tries to build, with the help of his objective attitude, a purely logical structure of economics. Cassel was also influenced by positivistic and pragmatic theory as well as by the realism of Alois Riehl and Oswald Klilpe, and endeavored to reject from economic theory all the traditional elements which, in his opinion, did not further the knowledge of the logical and partly mathematical relations of real economic phenomena.

Liefmann tries to found his purely psychical economics on the results of the Baden school and expressly quotes Windelband, Rickert, Munsterberg and Max Weber as his authority. In reality he owes much to the Marburg school. Even here we notice a certain eclectic trait for which his economic system has often been blamed. He rejects the theory of value for very much the same reasons as Cassel and endeavors also to build his system upon a principle of unity: his law of psychic returns. By theory he understands a systematic explanation of the object of experience under discussion on the basis of its correct principle of identity e. g.—in dealing with economics—on the basis of a comparison between profits and costs. He does not miss an opportunity of blaming other economists who quarrel over questions of method instead of dealing with the real problem of their science—but he is often guilty of the same fault. Apart from these rather formal influences of the Marburg school, the purely psychic structure of his system can be traced back to the influence of the Baden philosophers. Even the pragmatic-realistic trait which we noticed in Cassel can be found in Liefmann. He purposely and consistently retains the “money-veil,” and considers the real subject-matter of economics to consist in the phenomena of money economy.

4. Comte, Spencer, and the Theory of Economic Equilibrium

We shall deal later with the further influences which the Marburg school has exerted on the most recent developments of German economics. For the present we shall follow the strongly marked realism and pragmatism of both Cassel and Liefmann, which lead us to recent Latin and Anglo-Saxon economics. The positivism of Auguste Comte, which had influenced the formal methodology of the German historical school as well as of the few followers of Durkheim and Simiand, left a deep impression on the following generation in respect to the contents and aims of economic theory. Comte wished to rid sociology of metaphysics and to make of it an exact and positive science, based on sense experiences and concerned with a limited number of social relationships. In the same way subsequent Latin and Anglo-Saxon economists concerned themselves...