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Social Liberalism

5. The Methodenstreit

As early as the 1870s Walter Bagehot irrefutably exploded the arguments with which the followers of the Historical School rejected the dependability of “theoretical” inquiries in the field of economics. He called the two methods—the Historical School considered them the only permissible methods—the “all-case method” and the “single-case method.” The former works with induction only, and makes the erroneous assumption that this is the road that usually leads the natural sciences to their findings. Bagehot demon­strated that this road is completely impassable, and that on it no science ever has achieved satisfactory results. The “sin­gle-case method,” which accepts descriptions of concrete historical data only, fails to realize, according to Bagehot, that there can be no economic history and no economic de­scription “unless there was a considerable accumulation of applicable doctrine before existing.”31

The Methodenstreit has long been decided. Never before has a scientific exchange led to such a crushing defeat of one side. Fortunately, this is freely admitted in Economics After the War. In his contribution on business cycle research, which is based on a thorough knowledge of the material, Lowe briefly touches upon the question of method and skill­fully proves the untenableness of the objections empiricists raise against theory. Unfortunately, we must also agree with Lowe where he observes that “the heresy of ‘impartial’ data research, which deprived a whole generation of German scholars of its results,” has recently also intruded itself into American research.32But it is even more regrettable that despite the thorough methodological debates in recent years, we again and again encounter the old, long-refuted errors in German science. Bonn, for instance, praises Bren­tano because in his book on Agricultural Policy he was not con­tent with “describing the skeleton of a system, separated from the flesh of life. He abhored bloodless abstractions, de­ductions of barren concepts, as he encountered them in his youth. He sought the fullness of life.”33

I must admit that I find the term “flesh of life” empty. Bonn’s use of the adjective “bloodless” in connection with the noun “abstraction” appears illogical to me. What is the contrast to “bloodless” abstraction—perhaps “bloody” ab­straction? No science can avoid abstract concepts, and he who abhors them should stay away from science and see whether and how he can go through life without them. When we look at Brentano’s Agricultural Policy we find a number of discussions of rent, land price, cost, et cetera, purely theoretical investigations that obviously work with abstractions and abstract concepts.34Every investigation that in any way touches upon economic questions must “theorize.” True, the empiricist does not know that he is theorizing, as Monsieur Jourdain never knew that he was al­ways speaking prose. And as empiricists are unaware of this, they carelessly adopt theories that are incomplete or even incorrect and avoid thinking them through logically. An explanatory theory can easily be constructed for each “fact,” but only when the individual theories are united into a whole can we determine the value and futility of the “explanation.” But the Historical School rejected it all; it did not want to admit that theories must be thought through and that they must be united into a consistent whole. In eclectic fashion it used pieces of all possible theories and fol­lowed indiscriminately and uncritically now this opinion, now that opinion.

But the Socialists of the Chair not only did not build a sys­tem of their own, they also failed utterly in their critique of modern theoretical economics. The subjective-value theory did not receive the outside critique that is so indispensible for scientific progress. It owes its progress during the last decades to its own initiative, to critiques from its own ranks. This the followers of the Historical School did not even notice. Whenever they speak of modern economics their eyes are glued on 1890, when the achievements of Men­ger and Böhm-Bawerk were generally completed. The theoretical accomplishments in Europe and America since then remain rather foreign to them.

The critique which the champions of academic socialism leveled at theoretical economics proved to be largely irrele­vant and, without apparent reason, not free of personal hatred. As in the writings of Marx and his disciples, a more or less tasteful joke often takes the place of critique. Bren­tano thought it proper to introduce a critique of Böhm-Ba­werk’s Capital and Interest—a critique which, by the way, no one appreciated in the seventeen years since its publication—with the following: “As one of my first-semester students correctly remarked. ...”35 The Russian professor Toto­mianz, an Armenian, writes in his History of Economics and Socialism:

A German critic of the psychological school ironi­cally observes, not without a kernel of truth, that the soil in which the Austrian School grew was the city of Vienna with its numerous students and officers. For a young student seeking the pleasures of life pres­ent goods naturally are more valuable than future goods. Similarly, a dashing officer chronically suffer­ing from lack of cash will pay any interest rate on borrowed money.36

This book with such a profound critique of Böhm-Bawerk’s theory first appeared in the Russian language. Rist wrote an introduction to the French edition, Loria to the Italian edi­tion, and Masaryk to the Czech edition. In his introduction to the German edition, Herkner acclaims the work for being “popular and perceptual.” All significant and fruitful thoughts in Great Britain, France, Germany, Austria, Bel­gium, Italy, Russia, and America find “loving and understanding consideration” with Totomianz. He shows “re­markable ability to do justice to such different minds as Fourier, Ruskin, Marx, Rodbertus, Schmoller, Menger, and Gide.”37This Herkner judgment is all the stranger as he is very familiar with the history of economic thought.38

In the Methodenstreit the Brentano wing of the Empirical-Realistic School acted more prudently than the followers of Schmoller. We must give personal credit to Brentano who, a generation earlier, leveled sharp criticism at the School’s research in economic history.

Many a writer of no more than excerpts from eco­nomic documents believes he has written an eco­nomic treatise. But when the excerpt is completed the economic analysis is just beginning. Its content must then be analyzed and transformed to a picture full of life, and the lesson must be drawn from this researched passage of life. It is not enough to be diligent in the preparation of excerpts from docu­ments. It takes the power of intuition, combination, sagacity, and the most important scientific gift: the ability to recognize the common element in the multiplicity of phenomena. When this is lacking we gain nothing but uninteresting details. ... This kind of economic historical analysis is utterly worthless for economics.39

And bearing in mind the etatist bias in the works of the Schmoller School, Brentano calls it an aberration “to confuse enthusiastic excerpts from archives with economic investigations and research.40

  • 31. Bagehot, “The Postulates of English Political Economy,” in Works, edited by Russell Barrington, London, 1915, vol. VII, p. 100-104.
  • 32. Löwe, “Der gegenwärtige Stand der Konjunkturforschung in Deutschland” [The present state of business cycle research in Germany], vol. II, p. 365 et seq.
  • 33. Bonn, “Geleitwort: Lujo Brentano als Wirtschaftspolitiker” [Preface: Lujo Brentano as economic politician], vol. I, p. 4.
  • 34. See Brentano, Agrarpolitik [Agricultural policy], Stuttgart, 1897, pp. 60 et seq., 83 et seq.
  • 35. Brentano, Konkrete Grundbedingungen der Volkswirtschaft [Concrete conditions of economy], Leipzig, 1924, p. 113.
  • 36. V. Totomianz, Geschichte der Nationalökonomie und des Socialismus [History of economics and socialism], Jena, 1925, p. 152. Even if we disregard this critique of Böhm-Bawerk, the Totomianz effort is wholly unsatisfactory and mistaken. He states, for instance, on p. 146: “While Menger’s achievement mainly was the devel­opment of a new methodology, the two other representatives of the Austrian School, Böhm-Bawerk and Wieser, built a sagacious psychological value theory.” We must conclude from this statement that Menger contributed less to the develop­ment of the new value theory than Böhm-Bawerk and Wieser, which is not at all correct. Totomianz introduces his discussion of the marginal utility theory with the following statement: “The economy consists of economic goods. These goods re­late in a certain way to human well-being. This relationship is expressed in two different grades or stages: the lower stage and the higher stage. We are dealing with the higher stage when the economic good is not only useful, but also neces­sary for well-being, so that its possession or loss entails a loss of consumption or enjoyment.” His discussion of other economists is not better. As I do not read Rus­sian, I cannot determine whether this nonsense must be charged to the Russian original or to the German translation.
  • 37. Ibid., p. 7 et seq.
  • 38. See Herkner, Die Geschichte der Nationalökonomie, Festschrift für Lujo Brentano zum siebzigsten Geburtstag [History of economics, Festschrift for Lujo Brentano in honor of his seventieth birthday], Munich and Leipzig, 1916, p. 223-35.
  • 39. Emphasis added. Brentano, “Über den grundherrlichen Charakter des hausindustriellen Leinengewerbes in Schlesien” [On the manorial character of the linen home industry in Silesia], Journal for Social and Economic History, vol. I, 1893, p. 319 et seq.
  • 40. Ibid., p. 322.
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