Epistemological Problems of Economics

Misunderstandings about the nature and significance of economics are not due exclusively to antipathies arising from political bias against the results of inquiry and the conclusions to be necessarily drawn from them. Epistemology, which for a long time was concerned solely with mathematics and physics, and only later began to turn its attention to biology and history as well, is presented with apparently insuperable difficulties by the logical and methodological singularity of economic theory. These difficulties stem for the most part from an astonishing unfamiliarity with the fundamental elements of economics itself. When a thinker of Bergson’s caliber, whose encyclopedic mastery of modern science is virtually unparalleled, expresses views that show he is a stranger to a basic concept of economics,1  one can well imagine what the present situation is with regard to the dissemination of knowledge of that science.

Under the influence of Mill’s empiricism and psychologism, logic was not prepared for the treatment of the problems that economics presents to it. Moreover, every attempt at a satisfactory solution was frustrated by the inadequacy of the objective theory of value then prevailing in economics. Nevertheless, it is precisely to this epoch that we owe the most valuable contributions to the elucidation of the problems of the scientific theory of economics. For the successful treatment of these questions, Senior, John Stuart Mill, and Cairnes satisfied in the highest degree the most important prerequisite: they themselves were economists. From their discussions, which are set in the framework of the psychologistic logic prevailing at that time, emerged ideas that required only fecundation by a more perfect theory of the laws of thought to lead to entirely different results.

The inadequacy of empiricist logic hampered the endeavors of Carl Menger still more seriously than those of the English thinkers. His brilliant Untersuchungen über die Methode der Sozialwissenschaften is even less satisfactory today than, for example, Cairnes’ book on methodology. This is perhaps due to the fact that Menger wanted to proceed more radically and that, working some decades later, he was in a position to see difficulties that his predecessors had passed over.

Elucidation of the fundamental logical problems of economics did not make the progress that might have been expected from these splendid beginnings. The writings of the adherents of the Historical and the Kathedersozialist Schools in Germany and England and of the American Institutionalists confused, rather than advanced, our knowledge of these matters.2

It is to the investigations of Windelband, Rickert, and Max Weber that we owe the clarification of the logical problems of the historical sciences. To be sure, the very possibility of a universally valid science of human action escaped these thinkers. Living and working in the age of the Historical School, they failed to see that sociology and economics can be and, indeed, are universally valid sciences of human action. But this shortcoming on their part does not vitiate what they accomplished for the logic of the historical sciences. They were impelled to consider these problems by the positivist demand that the traditional historical disciplines?the moral sciences?be repudiated as unscientific and replaced by a science of historical laws. They not only demonstrated the absurdity of this view, but they brought into relief the distinctive logical character of the historical sciences in connection with the doctrine of “understanding,” to the development of which theologians, philologists, and historians had contributed.

No notice was taken?perhaps deliberately?of the fact that the theory of Windelband and Rickert also involves an implicit repudiation of all endeavors to produce an “historical theory” for the political sciences. In their eyes the historical sciences and the nomothetic sciences are logically distinct. A “universal economics,” that is, an empirical theory of economic history that could be derived, as Schmoller thought, from historical data, must appear just as absurd, in their view, as the effort to establish laws of historical development, such as Kurt Breysig, for example, attempted to discover.

In Max Weber’s view also, economics and sociology completely merge into history. Like the latter, they are moral or cultural sciences and make use of the same logical method. Their most important conceptual tool is the ideal type, which possesses the same logical structure in history and in what Max Weber regarded as economics and sociology. But bestowing on ideal types names like “economic style,” “economic system,” or “economic stage” in no way changes their logical status. They still remain the conceptual instrument of historical, and not of theoretical, investigation. The delineation of the characteristic features of a historical period and the understanding of its significance, which ideal types make possible, are indisputably tasks of the historical sciences. The very expression “economic style” is an imitation of the jargon and conceptual apparatus of art history. Thus far, however, no one has thought of calling art history a theoretical science because it classifies the historical data with which it deals into types or “styles” of art.

Moreover, these distinctions among art styles are based on a systematic classification of works of art undertaken in accordance with the methods of the natural sciences. The method that leads to the differentiation of art styles is not the specific understanding of the moral sciences, but the systematic division of objects of art into classes. Understanding makes reference only to the results of this work of systematizing and schematizing. In the distinctions among economic styles these conditions are lacking. The result of economic activity is always want-satisfaction, which can be judged only subjectively. An economic style does not make its appearance in the form of artifacts that could be classified in the same way as works of art. Economic styles cannot be distinguished, for example, according to the characteristics of the goods produced in the various periods of economic history, as the Gothic style and the Renaissance style are differentiated according to the characteristics of their architecture. Attempts to differentiate economic styles according to economic attitude, economic spirit, and the like, do violence to the facts. They are based not on objectively distinguishable, and therefore rationally incontrovertible, characteristics, but on understanding, which is inseparable from subjective judgment of qualities.

Furthermore, everyone would find it completely absurd if an art historian were to presume to derive laws of style for the art of the present and the future from the relationships discovered among the styles of the past. Yet this is precisely what the adherents of the Historical School presume to do with the economic laws that they purport to discover from the study of history. Even if one were to grant that it is possible to empirically derive laws of economic action applicable within temporal, national, or otherwise delimited historical periods, from the data of economic history, it would still be impermissible to call these laws economics and to treat them as such. No matter how much views about the character and content of economics may differ, there is one point about which unanimity prevails: economics is a theory capable of making assertions about future economic action, about the economic conditions of tomorrow and the day after tomorrow. The concept of theory, in contradistinction to the concept of history, is, and always and universally has been, understood as involving a regularity valid for the future as well as the past.

If the adherents of the Historical School were, in accordance with the logic and epistemology of their program, to confine themselves to speaking only of the economic conditions of the past, and if they were to decline to consider any questions touching on the economic conditions of the future, they could at least spare themselves the reproach of inconsistency. However, they maintain that what they write about and deal with is economics. Moreover, they engage in discussions of economic policy from the standpoint of scientific theory, as if their science, as they themselves conceive it, were in a position to make predictions about the economic conditions of the future.

We are not concerned here with the problems dealt with in the debate over the permissibility of value judgments in science. What is at issue is rather the question whether an adherent of the Historical School has not debarred himself from participating in the discussion of purely scientific problems, apart from all questions concerning the desirability of the ultimate ends being aimed at: whether, for example, he may make predictions about the future effects of a proposed change in currency legislation. Art historians speak of the art and the styles of the past. If they were to undertake to speak of the paintings of the future, no painter would pay any attention to what they said. Yet the economists of the Historical School talk more about the future than about the past. (As far as the historian is concerned, there are fundamentally only the past and the future. The present is but a fleeting instant between the two.) They speak of the effects of free trade and protection and of the consequences of the formation of cartels. They tell us that we must expect a planned economy, autarky, and the like. Has an art historian ever presumed to tell us what art styles the future holds in store for us?

The consistent adherent of the Historical School would have to confine himself to saying: There are, to be sure, a small number of generalizations that apply to all economic conditions.3  But they are so few and insignificant that it is not worth while to dwell on them. The only worthy objects of consideration are the characteristics of changing economic styles that can be ascertained from economic history, and the historical theories relevant to these styles. Science is able to make statements about such matters. But it should be silent about economic conditions in general, and therefore about the economic conditions of tomorrow. For there cannot be an “historical theory” of future economic conditions.

If one classifies economics as one of the moral sciences that make use of the method of historical “understanding,” then one must also adopt the procedure of these sciences. One may, accordingly, write a history of the German economy, or of all economies thus far, in the same way as one writes a history of German literature or of world literature; but one may certainly not write a “universal economics.” Yet even this would be possible, from the point of view of the Historical School, if one were to contrast “universal economics,” understood as universal economic history, to an alleged “special economics” that would deal with individual branches of production. However, the standpoint of the Historical School does not permit economics to be differentiated from economic history.

The purpose of this book is to establish the logical legitimacy of the science that has for its object the universally valid laws of human action, i.e., laws that claim validity without respect to the place, time, race, nationality, or class of the actor. The aim of these investigations is not to draw up the program of a new science, but to show what the science with which we are already acquainted has in view. The area of thought encompassed here is one to which Windelband, Rickert, and Max Weber were strangers. However, if they had been familiar with it, they would certainly not have disputed its logical legitimacy. What is denied is the possibility of deriving a posteriori from historical experience empirical laws of history in general, or of economic history in particular, or “laws” of “economic action” within a definite historical period.

Consequently, it would be completely amiss to want to read into the results of these investigations a condemnation of theories which assign to the moral or cultural sciences that make use of the historical method the cognition of the historical, the unique, the nonrepeatable, the individual, and the irrational, and which consider historical understanding as the distinctive method of these sciences and the construction of ideal types as their most important conceptual instrument. The method employed by the moral and cultural sciences is not in question here. On the contrary, my criticism is leveled only against the impermissible confusion of methods and the conceptual vagueness involved in the assumption—which abandons the insights that we owe to the inquiries of Windelband, Rickert, and Max Weber—that it is possible to derive “theoretical” knowledge from historical experience. What is under attack here is the doctrine that would have us believe, on the one hand, that historical data can be approached without any theory of action, and, on the other hand, that an empirical theory of action can be derived by induction from the data of history.

Every type of descriptive economics and economic statistics falls under the heading of historical research. They too apprise us only of the past, albeit the most recent past. From the point of view of empirical science, the present immediately becomes past. The cognitive value of such inquiries does not consist in the possibility of deriving from them teachings that could be formulated as theoretical propositions. Whoever fails to realize this is unable to grasp the meaning and logical character of historical research.

One would also completely misunderstand the intention of the following investigations if one were to regard them as an intrusion into the alleged conflict between history and empirical science, on the one hand, and pure and abstract theory, on the other. All theory is necessarily pure and abstract. Both theory and history are equally legitimate, and both are equally indispensable. The logical contrast between them is in no sense an opposition. The goal of my analysis is, rather, to distinguish aprioristic theory from history and empirical science and to demonstrate the absurdity of the endeavors of the Historical and the Institutionalist Schools to reconcile the logically incompatible. Such endeavors are inconsistent with the aims of historical research precisely because they seek to draw from the past practical applications for the present and the future, even if only to the extent of denying that the propositions of the universally valid theory are applicable to the present and the future.

The virtue of historical inquiry does not lie in the derivation of laws. Its cognitive value is not to be sought in the possibility of its providing direct practical applications for our action. It deals only with the past; it can never turn toward the future. History makes one wise, but not competent to solve concrete problems. The psuedo-historical discipline that today calls itself sociology is essentially an interpretation of historical events and a proclamation of allegedly inevitable future developments in the sense of the absurd Marxian metaphysics of progress. This metaphysics seeks to secure itself against the strictures of scientific sociology on the one hand and of historical investigation on the other by its pretension to view things “sociologically,” and not economically, historically, or in some other way that would be exposed to “nonsociological” criticism. The proponents of the pseudo-historical discipline that calls itself “the economic aspects of the sciences of the state” and the adherents of the Institutionalist School protect themselves from the economists’ critique of their interventionist program by citing the relativity of all the economic knowledge that they purport to have acquired through the presuppositionless treatment of economic history. Both seek to substitute the irrational for logic and discursive reasoning.

In order to examine the legitimacy of all these objections, it seemed to me imperative not only to demonstrate positively the logical character of the propositions of economics and sociology, but also to evaluate critically the teachings of a few representatives of historicism, empiricism, and irrationalism. This, of necessity, determined the outward form of my work. It is divided into a number of independent essays which, with the exception of the first and most comprehensive, were published previously.4  From the outset, however, they were conceived and planned as parts of a whole, and they have been given further unity by means of various revisions, especially in the case of the second investigation. Furthermore, I considered it essential to reformulate, in this context, several basic ideas of economic theory in order to free them of the inconsistencies and confusions that had generally attached to them in previous presentations. I thought it pertinent also to expose the psychological factors that nourish the opposition to the acceptance of economic theory. And finally, I was convinced of the necessity of showing, by way of example, what relation does subsist between historical and economic conditions and what problems would certainly have to be taken into consideration by a school that sought, in turning to history, not a pretext for rejecting theoretical results that are unacceptable to it for political reasons, but a means of furthering knowledge. A certain amount of repetition has been inevitable in my treatment of these topics, since the arguments against the possibility of a universally valid economic theory, although stated in various forms, are, in the last analysis, all rooted in the same errors.

In principle the universal validity of the propositions of economics is no longer disputed even by the adherents of the Historical School. They have had to abandon this maxim of historicism. They confine themselves to restricting to a very narrow range the phenomena that such propositions could explain. And they consider these propositions so self-evident and commonplace that they regard it as unnecessary for any science to deal with them. On the other hand, this school maintains?and in this lies its empiricism?that economic laws applicable to particular historical periods can be derived from the data of economic history. Yet whatever the proponents of historicism exhibit in the way of such laws proves, on closer examination, to be the characterization of particular periods of history and their economic usages and to require, therefore, the specific understanding of the past. Thus far they have not succeeded in establishing a single thesis that would have the same logical status as the propositions of the universally valid theory. According to the Historical School, the laws of the universally valid theory are applicable only to the capitalism of the liberal era. Nevertheless, these laws enable us to grasp conceptually, under a single principle, the process by which the value of money changed in ancient Athens and in the “early capitalism” of the sixteenth century. A proposition essentially different from the laws of the universally valid theory that would also enable us to do this has yet to be adduced.

Accordingly, one is at a loss to understand why the adherents of the Historical School carefully avoid coming to grips directly with the teachings of the universally valid theory, why they persistently decline to undertake any general treatment of it,5  and why they still stubbornly cling to such inappropriate designations as economics and economic theory for their historical arguments. The explanation can be found only when it is observed that political, and not scientific, considerations are decisive here: one combats economics because one knows no other way to protect an untenable political program against unfavorable criticism that employs the findings of science. The Historical School in Europe and the Institutionalist School in America are the harbingers of the ruinous economic policy that has brought the world to its present condition and will undoubtedly destroy modern culture if it continues to prevail.

These political considerations are not treated in this book, which concerns itself with the problems in their fundamental significance, quite apart from all politics. Perhaps, however, in an age that turns its back upon everything that does not, at first glance, appear to be immediately useful, it is not out of place to point out that abstract problems of logic and methodology have a close bearing on the life of every individual and on the fate of our entire culture. And it may be no less important to call attention to the fact that no problem of economics or sociology, even if it appears quite simple to superficial consideration, can be fully mastered without reverting to the logical foundations of the science of human action.

Ludwig von Mises
Vienna, January, 1933

• 1Bergson on exchange: et l’on ne peut le pratiquer sans s’à-tre demandé si les deux objects échangés sont bien de même valeur, c’est-dire échangeables contre un même troisieme. (Bergson, Les deux sources de la morale et de la religion (Paris, 1932), p. 68.
• 2Not until this book was already at the printer’s did the volume devoted to Werner Sombart, presented in honor of his seventieth birthday by Schmollers Jarbuch (56th Yearbook, Volume 6) come into my hands. The first part is devoted to the treatment of the problem of “Theory and History.” In discussing questions of logic and methodology, the articles in this volume make use of the traditional arguments of historicism and empiricism and pass over in silence the arguments against the view of the Historical School. This is true also of the most important contribution, that of Spiethoff (”Die Allgemeine Volkswirtschaftslehre als geschichtliche Theorie”), which is a brilliant presentation of the methodology of the school. Like the other contributors, Spietlioff comes to grips only with the ideas of the adherents of the Historical School; he does not even seem to be acquainted with Robbin’s important work. Spiethoff says: “The theory of the capitalist market economy starts from the idea that individuals are guided by selfish motives. We know that charity is practiced as well, and that still other motives are operative, but we regard this as so insignificant in the aggregate as to be unessential . . .” (p. 900). This shows that Spiethoff’s conception of the theory is far indeed from what modern subjectivist economics teaches. He still views the status controversiae as it presented itself in the eighties and nineties of the last century. He fails to see that from the point of view of economics, what is significant is not the economy, but the economic action of men. The universally valid aprioristic theory is not, as he thinks, an “unreal construction,” though it is certainly a conceptual construction. There can be no theory other than an aprioristic and universally valid theory (i.e., a theory claiming validity independent of place, time, nationality, race, and the like), because human reasoning is unable to derive theoretical propositions from historical experience. All this escapes him entirely. In the investigations of this book the views of Spiethoff and the Historical School are critically examined in detail and rejected.
• 3Consistent historicism, however, would not even have to grant this much.
• 4I am indebted to the publishing house of Duncker and Humblot for permission to print the essays published in the 183rd volume of the publications of the Verein für Sozialpolitik
• 5The fact that Sombart calls Gossen “the brilliant idiot” can hardly be regarded as a sufficient critique. Cf. Sombart, Die drei Nationalökonomien (Munich, 1930), p. 4