A Critique of Interventionism

Put on the spot by economic criticism, the representatives of the Historical-Realistic School finally appeal to the “facts.” It cannot be denied, they assert, that all the theoreti­cally unsuitable interventions were actually made, and con­tinue to be made. We cannot believe, they contend, that economic practice did not notice this alleged unsuitabil­ity. But interventionist norms survived for hundreds of years, and since the decline of liberalism, the world is ruled again by interventionism. All this is said to be sufficient proof that the system is realizable and successful, and not at all illogical. The rich literature of the Historical-Realistic School on the history of economic policies is said to confirm the doctrines of interventionism.8

The fact that measures have been taken, and continue to be taken, does not prove that they are suitable. It only proves that their sponsors did not recognize their unsuitabil­ity. In fact, contrary to the beliefs of the “empirics,” it is not so easy to comprehend the significance of an economic measure. We cannot understand its significance without an insight into the workings of the whole economy, that is, without a comprehensive theory. The authors of works on economic history, economic descriptions, economic poli­cies, and economic statistics usually proceed much too thoughtlessly. Without the necessary theoretical knowledge they engage in tasks for which they are completely unpre­pared. Whatever the authors of the source material did not discover usually escapes the historians’ attention also. In a discussion of an economic regulation they are rarely in­clined to examine properly and carefully whether the in­tended result was actually achieved, and if it was achieved, whether it was brought about by the regulation or some other factors. They surely lack the ability to perceive all con­comitant effects that, from the point of view of the regula­tors, were desirable or undesirable. Only in monetary his­tory did the better quality of some works stand out. Their authors were equipped with some knowledge of monetary theory (Gresham’s law, quantity theory), and therefore bet­ter understood the work they were to do.

The most important qualification of a researcher into “facts” is complete mastery of economic theory. He must in­terpret the available material in the light of theory. If he does not succeed in this, or it leaves him unsatisfied, he must precisely elaborate the critical point, and formulate the problem that needs to be solved theoretically. Others then may try to solve the task. The failure is his, not that of theory. A theory explains everything. Theories do not fail in individual problems; they fail because of their own short­comings. He who seeks to replace one theory with another must either fit it into the given system, or create a new sys­tem into which it fits. It is wholly unscientific to start with observed “facts” and then announce the failure of “theory” and system. The genius who advances science with new knowledge can gain valuable information from the observa­tion of a minute process, either overlooked or deemed insig­nificant by those before him. His mind is excited over every object. But the inventor replaces the old with the new, not through negation, but with a view toward the whole and the system.

We need not here deal with the deeper epistemological question of conflicting systems. Nor need we discuss a mul­tiplicity of opposing systems. To investigate the problems of interventionism there are, on the one hand, modern economics together with classical theory and, on the other hand, the deniers of system and theory, no matter how care­fully they word their denial of the possibility of theoretical knowledge. Our answer to them is simple: try to create a system of theoretical knowledge that pleases you more than ours. Then we can talk again.

Of course, all the objections raised against theoretical economics are economic “theories.” In fact, the objectors themselves are now writing “economic theories” and giving lectures on “theoretical economics.” But their work is inade­quate because they neglect to weave the individual tenets of their “theory” into a system, a comprehensive theory of cat­allactics. A theoretical tenet becomes a theory only through a system and in a system. It is very easy to discourse on wage, rent, and interest. But we may speak of a theory only where individual statements are linked to a comprehensive explanation of all market phenomena.

In their experiments the natural sciences can eliminate all disturbing influences and observe the consequences of the change of one factor, other conditions being equal. If the re­sult of the experiment cannot be fitted satisfactorily into the given system of theory, it may invite an expansion of the system, or even its replacement by a new one. But he who would conclude from the result of one experiment that there can be no theoretical perception would invite ridicule. The social sciences lack the experiment. They can never observe the consequences of one factor, other conditions being un­changed. And yet, the deniers of system and theory dare to conclude from some “fact” that a theory, or even all theory, has been refuted.

What is there to be said about general statements such as these: “Britain’s industrial supremacy during the eight­eenth and nineteenth centuries was the result of mercantile policies in previous centuries,” or “The rise in real wages during the last decades of the nineteenth century and the early decades of the twentieth century must be credited to labor unions,” or “Land speculation raises rents.” Such statements are believed to be drawn directly from experi­ence. This is not gray theory, they tell us, but fruit from the green tree of life. But they adamantly refuse to listen to a theorist who proposes to examine the various tenets of “practical experience” by thinking them through, and want­ing to unite them into a systematic structure.

All the arguments the Empirical-Realistic School could ad­vance do not replace the lack of a comprehensive theoretical system.

• 8Zwiedineck-Südenhorst, “Mache oder ökonomisches Gesetz” [Control or economic law], Schmoller’s Yearbook, 49th year, p. 278 et seq.