Epistemological Problems of Economics

It is completely erroneous to believe that the theories of catallactics can in any way be called into question by the assertion that they are merely “rational schemata.”5  I have already attempted elsewhere to set forth in detail the misunderstandings in regard to the logical character of modern economics that Max Weber fell into.6  As far as Sombart follows in his footsteps, all further comment is unnecessary.

Sombart, however, goes much further than Weber.

The concept of “exchange,” for example, says nothing whatever. It derives its “meaning” exclusively through its relation with the historical context in which the “exchange” takes place. “Exchange” in the primitive economy (silent barter), “exchange” in the handicraft economy, and “exchange” in the capitalist economy are things enormously different from one another.7  Price and price are completely different things from market to market. Price formation in the fair at Vera Cruz in the seventeenth century and in the wheat market on the Chicago Exchange in the year 1930 are two altogether incomparable occurrences.8

Yet even Sombart does not deny that there are universally valid concepts in economics. He distinguishes

three different kinds of economic concepts: 1. The universal-economic primary concepts . . . which are valid for all economic systems; 2. the historical-economic primary concepts . . . which . . . are valid only for a definite economic system; and 3. the subsidiary concepts . . . which are constructed with regard to a definite working idea.9

We need not consider this division in detail here. All that concerns us is the question whether the assignment of the concepts of exchange and price formation to the second group can be justified. Sombart gives no reason for it, unless one wants to see a reason in remarks like the following:

It would be absurd to assign the same tasks to chess-playing and to playing fox and geese. It is equally absurd to construct the same schemata for the self-sufficient household economy of a peasant and the economy of high capitalism.10

Even Sombart did not go so far as to assert that the word “exchange” when used in reference to primitive economy is nothing more than a homonym of the word “exchange” when used in reference to the capitalist economy, or that the word “price” when used in reference to the fair in Vera Cruz in the seventeenth century is nothing more than a homonym of the word “price” when used in reference to the Chicago Exchange in the year 1930; like, for example, “sole” in the sense of a fish and “sole” in the sense of the bottom part of a shoe. He speaks repeatedly of exchange, price, and price formation without further qualification, which would be completely absurd if they required to be distinguished from their homonyms. When he says, “A theory of the formation of markets must precede a theory of price formation,”11 this is itself a proposition valid for all price formation and thus contradicts his assertion: “The concept of, ‘exchange,’ for example, says nothing whatever.” If price formation and price formation really were “two altogether incomparable occurrences,” it would be just as absurd to assert this proposition as, for example, to assert a proposition supposedly valid for all soles—i.e., for all of a certain species of fish and for all bottom parts of shoes. Something, therefore, must be common to both occurrences. In fact, we even learn that there are “requirements of price formation” that arise “from the essential, the mathematical, and the rational conformity to law to which, of course, price formation is also subject.”12

If, however, it is established that unequivocal concepts are connoted by the terms “exchange,” “price,” and “price formation,” then it is of little avail to say that the concept itself involves “things enormously different from one another” and “altogether incomparable occurrences.” Such vague phrases are satisfactory only when their purpose is to point out that identically sounding words are used to express different concepts. But if we have one concept before us, we can proceed in no other way than by first precisely defining that concept and then seeing how far it reaches, what it includes, and what it does not comprehend. Sombart, however, is evidently a stranger to this procedure. He does not ask what exchange and price are. He unconcernedly employs these terms as everyday, unscientific usage presents them.

Fully imbued with the bitter resentment of the school of thought that was worsted in the Methodenstreit and, indeed, in all other scientific respects, Sombart speaks only in terms of contempt of the economic theory of marginal utility. This theory seeks to provide precise definitions for the concepts that he simply picks up as he finds them and makes use of without hesitation. It analyzes them and thereby explicates everything contained in them, purging them of all the unessential elements that imprecise reasoning may have mixed in with them. One cannot think about the concept of exchange without implicitly also thinking about everything that is taught by the economic theory of exchange. There is no exchange that conforms “more” to the law of marginal utility, and none that conforms “less.” There is “exchange,” and there is “nonexchange,” but there are no differences in degrees of exchange. Whoever misunderstands this has not taken the trouble to become acquainted with the work of the economic theory of the last thirty years.

If a traveler from the Germany of “high capitalism,” driven off his course to an island inhabited by primitive tribes, observes the strange behavior of the natives, which is at first incomprehensible and unintelligible to him, and suddenly realizes that they are “exchanging,” then he has “conceived” what is going on there, even though he may be familiar only with the exchange of “high capitalism.” When Sombart calls an occurrence in Vera Cruz in the seventeenth century an “exchange” and speaks of “price formation” in this exchange, he has employed the concepts of exchange and price formation to comprehend the meaning of this occurrence. In both cases the “rational schema” serves to make possible the comprehension of an event that otherwise cannot be grasped at all, either In conception or in understanding. Sombart must make use of this rational schema because otherwise he would be completely at a loss to deal with this event by reasoning. However, he wants to employ the rational schema only up to a certain point, so that he may avoid the inescapable logical consequences of using it, and does not see the significance of his procedure. Yet the “rational schema” is either to be employed or not to be employed. If one has decided to use it, one must accept all the consequences of this step. One must avail oneself of all that is contained in the concept.

Sombart alleges that only he—and, of course, his supporters?should be considered theorists “in the true sense.” The others—the “manufacturers of rational schemata”—can be styled “theorists” only in quotation marks.13  He reproaches these “theorists” with three deficiencies. In the first place, the majority of them have not “correctly grasped the meaning, of the schemata they have developed, owing to their own lack of real theoretical education.” They “considered them natural laws and, using them as a basis, constructed a system after the pattern of the natural sciences.”14  Inasmuch as in German philosophy, following Kant’s precedent, nomothetic science was equated with natural science, those who maintained the feasibility of a science of human action aiming at universally valid cognition had to classify this science as a natural science.15  But this did not influence the character and content of the scientific investigations they carried on.

The second fault that Sombart finds with the “theorists” is that they have produced “much too many and often much too complicated means of production”​—Sombart labels “schemata” as “means of production”—the use of which is “Impossible, and which are more of a hindrance than a help to the process of production (like, for example, a tractor on a farm for which it is not suited).”16  The metaphorical language that Sombart uses here diverts attention from the only important point at issue: either the theory is correct or it is incorrect. There cannot be too much of a correct theory. If the theory is correct, then neither can it also be “too complicated.” Whoever finds it so has only to replace it with a correct, yet simpler, theory. But Sombart does not attempt this at all. On the contrary. In another passage he reproaches the “theory” with being too simple: “Actual relationships can be so involved, and frequently are so involved, that a schema affords but little help.”17

Sombart’s third criticism of the “theorists” is that they have “frequently constructed inappropriate schemata, that is to say, means of production with which nothing can be done, machines that do not operate.” In this category he classes “in great part the theory of marginal utility, the very modest cognitive value of which has already been realized. However, this is not the place to substantiate this view more thoroughly.”18  Thus, the “theory” is incorrect because it is incorrect, and because one has already realized this fact. Sombart has yet to produce the substantiation of this assertion. He makes a value judgment concerning the theory of marginal utility. He himself has aptly pointed out what is to be thought of such value judgments.19

I have so often explained what political and economic ideals motivated the hostile view of theory taken by the interventionists and the socialists that I need not repeat my observations on this point.20  Moreover, an historical explanation enables us to understand the error involved here exclusively from an aspect that must appear as accidental when viewed from the standpoint of theoretical investigation. We can grasp Sombart’s misconception only on the basis of a strict logical examination of his reasoning.

In the case of no other opponent of catallactics are the political motives of this hostility so clearly evident as they are in that of Sombart. The frank acceptance of modem economic theory would fit much better than its rejection into the system of philosophy that he expounds in his most recent work. Nevertheless, a fiery temperament and a feeling of obligation to his own past convictions again and again make him unfaithful to his intention of conducting an investigation neutral with regard to value judgments. Sombart believes he has understood our “economic epoch” with its “economic system”—”modern capitalism”—from within. Can one who styles the age “whose culmination we are first experiencing” as the age “of means that are employed without sense and whose abundant and elaborate use finally imperceptibly becomes an end in itself”21  really make such a claim? Does not the fact that Sombart himself again and again calls rationalization the essence of this age stand in the most radical contradiction with it? Rationalism means the precise weighing of means and ends.

Sombart, of course, is enthusiastic about the Middle Ages. He holds the values that, in his opinion, were current during that era in particularly high esteem, Men, he thinks, have since then shifted their field of vision from the “eternal values to the things of this world.”22  Sombart finds this reprehensible. But can one say that, for this reason, means are employed “without sense”? They are?we do not wish to examine the matter further?employed perhaps in a different sense, but certainly not “without sense.” Even if it were true that their “abundant and elaborate use” has become an “end in itself,” a science neutral with regard to value judgments, which understands, but does not prescribe, would not be warranted in denying the “sense” of this end. It can judge the employment of means in the light of their expediency, i.e., from the point of view of their suitability for attaining the end that those who employ them want to attain; but it can never sit in judgment on the ends themselves.

In spite of the best of intentions, the inquirer who scorns the intellectual help that the “rational schemata” of economic theory can give him is all too prone to make valuations and to assume the role of a judge.

• 5Cf. Sombart, Die drei Nationalökonomien, p. 259.
• 66Cf. above pp. 75 ff. What has been said concerning the erroneous identification of “rational” and “correct” action (above all, on pp. 93 ff.) also contains the reply to Sombart’s arguments, Die drei Nationalökonomien, p. 261.
• 7Cf. Sombart, op. cit., p. 211.
• 8Op. cit., p. 305.
• 9Op. cit., p. 247.
• 10Op. cit., p. 301.
• 11Op. cit., p. 305.
• 12Ibid.
• 13Sombart, op. cit., p. 303.
• 14Ibid.
• 15Cf. above p. 118.
• 16Cf. Sombart, loc. cit., p. 303.
• 17Op. cit., p. 301.
• 18Op. cit., p. 304.
• 19Op. cit., pp. 289 f.
• 20Cf. above, p. 69; further, my Kritik des Interventionismus, pp. 24 ff., 68 ff.
• 21Cf. Sombart, Die drei Nationalökonomien, p. 87.
• 22<em>Op. cit</em>., p. 85.