Economic Theory and Social Change

Problems and Revisions

Hasse Ekstedt, Angelo Fusari

• Publisher: Taylor & Francis
• Year: 2010
• eBook ISBN: 9781136948817
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This book is a discourse on modelling Man in a social context. Its focus is on economic main-stream theory in its capacity to handle basic problems such as uncertainty, social dynamics and ethics. The point of departure is a systematic critique of the specific methodology of economics and its axiomatic structure. The ultimate aim is to develop an economic theory for a socially sustainable society.

Economic Theory and Social Change analyses the foundation of economic market theory in relation to its social implications. On rejecting the axiomatic structure of the market theory Hasse Ekstedt and Angelo Fusari analyse the concept of growth and uncertainty with respect to a more realistic modelling of man, The book also addresses central political problems and their potential solutions, including permanent unemployment, distribution of income, the interaction of real and financial growth, money and the credit system.

In seeking objective values to help to obtain a socially sustainable society, the book traces a tentative revision of economic and social thought based on a deepening of some crucial features of modern economies and societies. These features include innovation, the connected flows of uncertainty, entrepreneurship, and their role in fuelling and characterizing economic growth and development. This book will be of interest to postgraduate students and researchers of Economics, particularly to those focussing on Economic Theory and Political Economy.

1
The method of social theory

Suggestions for a shared basic view

Angelo Fusari

Introduction

The growing difficulty of understanding and managing the problems of society, in our age in which a permanent revolution ceaselessly shakes and overturns established institutions and perceptions, brings out a sort of impotence of social thought just when the suffering bound up with adaptation to change would appear to exalt that discipline’s function and importance. To break this impasse, a number of clarifications concerning the procedures of inquiry from which social thought springs are essential.

A capital misunderstanding on the character of social reality undermines social thought and will lead to the proposal of a method addressed to remedy that misunderstanding and make the confrontation among social students easier, hence to increase the fecundity of pluralism and the comparability of social theories, which is essential to the profitableness of research and the cumulative principle of knowledge. Using the proposed approach on method, the way to find general principles – in the presence of rapid social change – and achieve some other specific knowledge will be explored.

In particular, the first three sections dwell on the inappropriateness to social reality of the principal methods in use and point out the growing methodological confusion that afflicts social thought in the present age. The fourth and the fifth sections expound a methodological proposal calibrated on the main characteristics of social reality and give some examples of the way the proposal operates. Finally the sixth section exposes some major implications of the proposal for the analysis of ethic-ideological values, civilizations, and the interpretation of socialhistorical processes.

1.1 The untenable positivist legacy

Misunderstandings that have brought social inquiry to a dead end

The method of inquiry into social reality has been powerfully influenced, in the past three centuries, by the methodological developments in the natural sciences. It may thus be illuminating to examine those developments. Until the sixteenth century the study of the natural world stagnated and was much more backward than the inquiries of social thinkers. The most insightful investigators of natural phenomena were alchemists and sorcerers, who at least regularly performed experiments, conceived though they were for impossible objectives like the discovery of the philosopher’s stone. The great thinkers, for their part, stubbornly dwelt on senseless questions that held out absolutely no possibility of an answer. That is, they were convinced that to understand the natural world one had to penetrate its ‘essence’, its intimate nature and ultimate explanation. They speculated on the reasons why the natural world is what it is. In the late Middle Ages, this field saw the rise of the famous contention between nominalists and realists.

Finally, the great methodologists of the seventeenth century clearly and distinctly established that it is a waste of time to inquire into the essential properties of nature or ask why nature is the way it is. As Man is not the creator of the world, he can never know why the world was made the way we perceive it. In exchange, there arose a much more fruitful, rational procedure of inquiry, one that the nominalists had already foreshadowed: carefully observe the phenomena that occur in nature and, from this observation, seek to derive their laws of motion, if possible expressed in mathematical form, the knowledge of which facilitated Man’s interaction with the natural world.¹ Thus was born the method that we may term ‘observationist’ in that it sought to understand phenomena and to acquire the ability to predict them on the basis of prolonged observation of their manifestation in nature or their experimental reproduction. This radical change in point of view got science out of the blind alley in which it had been trapped by the essentialist-realist method. The road was open for an exponential growth of knowledge that in our own era appears nothing less than explosive.

The enormous success of the observationist method in studying natural phenomena enabled it to overflow into the field of social inquiry. This method’s high water mark came with nineteenth-century positivism, but it remains solidly entrenched even today, especially among economists. And as we shall soon see, observationism in social theory has been resurrected in not properly positivist forms and surfaces here and there, while the anti-positivist reaction has produced a confused, shifting terrain.

The observationist method rests on the idea of the ‘spontaneous phenomenon and spontaneous order’ and that reality operates rationally and with regularity. That is, one observes what occurs spontaneously (or, what amounts to the same thing, what occurs by experimental reproduction) and tries to understand it. Hence the application of this method to social inquiry implies the idea of a social spontaneous order and the acceptance of existing reality, although scholars are for the most part unaware of this implication. The positivist version of observationism also needs the repetitiveness and regularity of the observed phenomena, that imply the stationary motion and hence vegetativity of social order. But the non-positivist observationism (social evolutionism, Weber’s method, neo-Austrian thought) disregards the hypothesis of repetition of phenomena. These topics require some further deepening.

The observationist method entails a radical misrepresentation of the nature of social reality, which in its constituent forms is the contrary of the natural world. However, the distinction between nature and society is methodologically important for reasons quite different from those adduced, in various modulations, by Dilthey and hermeneutics, Rickert and Weber (that emphasize respectively, erlebnis and the role of intuition, value relation and orientation towards individual phenomena). Nature is not the work of Man. Instead, society is; in a way, therefore, social thinking must adopt the standpoint that until the sixteenth century imprisoned natural science in a dead end: why is the world what it is? In fact this question and the inquiry on values and ends, which are senseless with reference to the natural world, are appropriate to the social world, this being a product of human activity. An example may help to clarify this important point.

Predation is largely diffused among animal species. Lotka-Volterra’s predator–prey system gives a mathematical representation of the phenomenon and the natural scientist can feel gratified by that representation. But let us suppose the existence of a human society based on predation, i.e. operating according to Lotka-Volterra’s model. In this case, the social scientist cannot feel gratified just by that model. He must ask himself if it is possible to organize society in a way less cruel and more open to creativity and development, for instance, one based on cooperation or solidarity. But the transition from predation to cooperation implies the entry of a new and completely different universe, with new values and institutions, and this violates the hypothesis of repetitiveness. In sum, even if we are analysing a repetitive society, for example of closed quasi-stationary society, as soon as we refuse to accept the given reality and its values and suppose the transition to an open dynamic society, we implicitly reject the hypothesis of repetitiveness. Therefore, such a hypothesis is not only inappropriate to a modern dynamic society; more generally, it is inappropriate at full length to the study of society, being senseless in social analysis to limit oneself to accept the factual situation and to disregard values and ends.

Social reality is much more highly subject than nature to non-repetitive change as a consequence of the steadily increasing constructive, creative, innovative action of human beings. This makes the observationist standpoint, insofar as it requires a stable frame of reference, deceptive in the extreme, ever more incapable of truly explaining human society.² Social reality, being a human product, allows a deeper penetration by human intelligence than the natural world if, mistrusting mere observation, we allow ourselves to be guided by methods appropriate to social inquiry. We shall see that some contemporary schools of thought underline the need of a social ontology, consisting ‘in a theoretical description of the nature and constitution of social reality’ (Ardebili 2003: 11). But, as far as we know, nobody has provided so far a satisfactory and appropriate methodological development of this important statement. Three centuries ago Giambattista Vico had polemicized with the method that was then coming to the fore. He said:

One marvels at the fact that all the philosophers have insistently sought the knowledge of this natural world, of which, God having created it, He only has knowledge. And they neglected to meditate upon this world of nations, or world of civil society, of which, because men made it, men could obtain true knowledge.

(Vico 1987: 107–8)

We must therefore inquire why Man has made social systems the way they are, why they are plagued by inefficiencies or replete with virtues, how to intervene to reconstruct or modify them so that they respond more satisfactorily to human intentions.

Besides, the method of social sciences must include creative phenomena, not to explain them, this being impossible by definition, but simply to take them into account. This is, for instance, the viewpoint of social economics, which bears on how social reality is constructed at the hands of Man and on the way to intervene and orient it in the fashion that one deems or that proves to be most fruitful. Economic and social sciences must take great care to distinguish the aspect of ‘choice–possibility–creativity’ from that of ‘necessity’ i.e. imposed in the given situation by impelling reasons of efficiency and rational organization. Inquiry into human society must concern, at once, the interpretative and the normative aspect, being and doing, and integrate both aspects in a unitarian methodology, and must lead to the edification of a ‘science of the constitution, organization and change of social systems’ whose dictates can and should guide social thought and action, for instance the analyses and proposals of social economics, and give this discipline the instruments for controlling them. In short, while it is senseless with respect to the natural (given) world, investigation based on alternative hypotheses is completely justified when the object is society and may also help the understanding of historical processes. But let us proceed step by step.

An instructive borderline position of positivism: Popper’s method

One might object to the foregoing argument that the observationist viewpoint implies human intervention in nature based on the knowledge acquired and directed to influencing it, so that some kind of interventionism is also compatible with the application of this method to social reality as well. Yet this point does not eliminate but rather highlights the great difference between the two realms of knowledge. That is, intervention in the natural world is interactive, in that the laws of nature remain external to Man, who interacts with them; while intervention in social reality is constituent, in that social systems are constructed by Man, even though in doing so Man must obviously take a number of conditioning factors into account, including natural reality.

Reference to the work of Karl Popper will help us clear up these questions. Popper’s methodological propositions, in fact, mark a sort of borderline position of empiricism that helps us to discern the methodological turnaround that is needed in social thought. It also provides a good example of the way in which the observationist stance can be brought forth again in forms that are positivist not in an inductive sense but that are nonetheless highly misleading for the study of social reality. Popper is known as a deductivist. He holds that theories are nothing but conjectures, guesses and, as such, not verifiable. But he adds that they can be subjected to severe critical checks, attempts to falsify them relying on events and experiments. This conjecturalist approach helped sow the seeds of incommensurabilism in the epistemological discussion conducted by the works of Hanson, Kuhn and Michael Polanyi. Indeed, it helped drive Popper’s student Feyerabend to methodological anarchism. But Popper himself, fine rationalist that he was, did not accept any such conclusion. He escaped by combining a deductive method based on hypotheses relying on the creativeness and intuition of the scholar with checks of theory via falsification, a particularly exigent form of observationism.³

The two-fold methodological approach suggested by Popper, of conjecturalism combined with the principle of falsification, can be deemed appropriate or at least useful to inquiries into the natural world. For as that world is not the work of Man, it is sensible and perhaps even essential to investigate it by beginning with guesswork. Society, however, is the work of Man. This fact places the social scientist on a terrain which, as noted, is well suited to penetration by the human mind; it is the creation of the mind itself, so the scholar can thus do better than mere guesswork, all the more so in that, as we shall see, the initial hypotheses in social science are generally founded on rather definite knowledge. However, this advantage is offset by a series of difficulties, consisting in the fact that social science must come to grips with the enormous and increasing changeableness of human society owing to the constructive, inventive activity of men and women, resulting in accelerating social change. The point is that the pace of social change makes the principle of falsification utterly unreliable, practically meaningless, in social inquiry. For in this case the falsifying phenomena are very frequent; the speed of change vaporizes the methodological usefulness of the principle of falsification, like all sorts of observationism.

In any case, one must recognize the great shrewdness of Popper’s references to social theory. As far as I know Popper has been the most able in his efforts to adapt the positivist method, in its guise of the principle of falsification, to the analysis of social reality in order to extract what little that approach has to teach us in this field. Significantly, however, his teaching (Popper’s ‘piecemeal technique’) does not go beyond limited capability for intervention, closely resembling Man’s interactive intervention in the natural world. Truth to tell, Popper is careful to point out that the operational capability of his piecemeal mechanics is not limited in principle and can range from no intervention at all to very far-reaching action. But the fact remains that inherently the observationist approach does not allow far-reaching intervention but only modest interactive adjustments, while as we shall see the point as far as human societies are concerned is to identify the pillars upon which they must be erected and determine how they must be rebuilt or adapted when this is required by the sedimentation of significant innovation implying a substantial transformation of the general conditions of development.

In The Poverty of Historicism Popper writes that ‘in general the social sciences should not be looking for a Newton or a Darwin but for a Galileo or a Pasteur’, but in a footnote he recognizes that mathematical economics shows that at least one of the social sciences has already had its Newtonian revolution. The allusion is to general economic equilibrium theory. If Popper had been more familiar with social theory and social reality, he would have realized that that revolution was one of the most unrealistic and useless ever spawned by social thought. But this has only marginal importance in our present framework. The point is not to substitute Galileo or Pasteur for Newton and Darwin; the problem is to remove social inquiry from the observationist approach of all those great natural scientists in order for social thought to be able to develop and advance. For the observationist method is unsuited to social reality, which throws its analyses off target or, at the very most, and with all the many stratagems noted by Popper, allows quite modest gains in knowledge despite great investigative effort.

Some significant steps in the transition from positivism to methodological pluralism. The contributions of the Polanyi brothers

The Polanyi brothers’ investigation embraces very distant topics that, directly or indirectly, gave rise to some different but crucial methodological questions. Their results and proposals mark in two different ways the beginning of the current crisis of social thought: the first through a misleading mixture of the organizational and observational perspective; the second through a deep, original and more direct analysis of method that contributed to opening the door to the so-called epistemological revolution of the second half of the last century and hence to the rise of the present inconclusive and improper pluralism in social thought as stimulated by the absence, in this field, of a general and shared methodological foundation.

A basic contrad...

Table of contents

• Routledge frontiers of political economy
• Contents
• Illustrations
• Preface
• Acknowledgements
• Introduction
• 1 The method of social theory
• 2 Homo OEconomicus versus Homo Politicus1
• 3 The axiological–normative question in economics and social sciences
• 4 On time and ethics
• 5 Innovation, uncertainty, entrepreneurship
• 6 From invisible hand to perpetuum mobile
• 7 Uncertainty, money and labour demand
• 8 Towards a non-capitalist market system
• Appendix
• Notes
• Bibliography
• Subject index
• Name index