Epistemological Problems of Economics

Rationalism brought about two revolutionary changes in the sciences of human action. Into history, which had hitherto been the only science of human action, it introduced the critical method. It freed that science from its naive attachment to what had been handed down in the chronicles and historical works of the past and taught it not only to draw upon new sources?documents, inscriptions, and the like?but to subject all sources to critical scrutiny. What the science of history thereby gained can never be lost again, nor has its value ever been contested. Even the attempts undertaken in recent times to “intuit” history cannot do without the critical method. History can be investigated only on the basis of sources, and no one will seriously want to question the fact that its subject matter must be approached critically. The only question that can raise uncertainty is not whether, but how sources are to be analyzed and criticized.

The other great accomplishment of rationalism was the construction of a theoretical science of human action, i.e., a science that aims at the ascertainment of universally valid laws of human conduct. All that this science owes to August Comte is its name. Its foundations had been laid in the eighteenth century. What the thinkers of the eighteenth and the early nineteenth centuries strove to develop above all was economics, which is up to the present the best elaborated branch of sociology. However, they also sought to provide the basis for a system of thought extending beyond the relatively narrow sphere of economic theory and embracing the whole of sociology.1

The fundamental admissibility and possibility of sociology was challenged in the second half of the nineteenth century. To many the idea was intolerable that there can be laws of human action independent of the historical milieu. Accordingly, they considered history as the only science competent to take human action as its cognitive object. This attack upon sociology’s right to exist was leveled almost exclusively against economics. Its critics did not realize that economics is only a branch of a more comprehensive science extending beyond its domain, but exhibiting the same logical character. Later, when sociology became better known in Germany and all its branches came under attack, the fact went unnoticed that it makes the same claim to universal validity for its statements as economics does. For in the meanwhile the treatment of the problem by Windelband, Rickert, and Max Weber had set it in a new light, as a result of which the logical character of sociology had come to be viewed differently.

The rejection of sociology and economics was also motivated, perhaps even above all else, by political considerations. For a goodly number, like Schmoller, Brentano, and Hasbach, for example, these were indeed decisive.2  Many wished to support political and economic programs which, had they been subjected to examination by the methods of economic theory, would have been shown to be quite senseless, not in terms of a different scale of value, but precisely from the point of view of the goals that their advocates hoped to achieve by means of them. Interventionism could appear as a suitable policy for attaining these goals only to one who ignored all the arguments of economics. To everyone else it had to be evident that such a policy is inexpedient.3  In the speech of May 2, 1879, before the Reichstag with which Bismarck sought to justify his financial and economic program, he asserted that he set no greater store by science in regard to all these questions than in regard to any other judgment on organic institutions, that the abstract theories of science in this respect left him completely cold, and that he judged “according to the experience familiar to US.”4  The Historical-Realist School, in treating of the economic aspects of political science, proclaimed the same view, with more words, but scarcely with better arguments. In any case, however, there were also unbiased objections in the debate over the scientific character of sociology. The following discussions deal only with these.

There are two different ways of setting methodological and epistemological investigations upon a secure foundation. One can attempt to reach solid ground by undertaking to deal directly with the ultimate problems of epistemology. This procedure would no doubt be the best if it offered any promise of success, so that one could hope to find truly firm ground at that deep level. However, one can also take another path, by starting from the definite concepts and propositions of science and verifying their logical character. It is evident that cognition of the ultimate foundations of our knowledge can never be attained in this manner. But neither does the first way offer such a possibility. On the other hand, the second way protects us from the fate that has befallen most investigations that have been concerned with the methodological and epistemological questions of economics in recent years. These investigations became so badly bogged down in the difficulty of the ultimate problems of epistemology that they never reached the point where they could deal with the logical problems of sociology, which are comparatively easier to solve. The ultimate problems pose difficulties that are not to be mastered with the limited means of the human mind.

The scope of the following discussions is, from the outset, much more narrowly circumscribed. We do not propose to treat of the ultimate questions of cognition. All that will be undertaken here is to explain what sociology is and with what claim to validity it constructs its concepts and arrives at its conclusions. The fact that we shall be primarily concerned with economic theory requires no special justification. It is that branch of sociology which has thus far received fullest development and has attained the greatest systematic precision. The logical character of a science is studied to greatest advantage in its most highly developed branches. In the following discussions the starting point will not be, as is regrettably the practice in many works on methodology and epistemology, the formulation given to the problems and their solutions by the classical economists, which is logically unsatisfactory, but, of course, the present state of the theory.5

• 1Kracauer, Soziologie als Wissenschaft (Dresden, 1922), pp. 20ff.
• 2Cf. Pohle, Die gegenwärtige Krisis in der deutschen Volkswirtschaftslehre (2nd ed.; Leipzig, 1921), pp. 86 ff., 116 ff.
• 3Cf. my Kritik des Interventionismus, pp. 2 ff., 57 ff.
• 4Fürst Bismarcks Reden, ed. by Stein, VII, 202.
• 5Even Menger does not start from the modern statements of subjectivist economics in his famous Untersuchungen über die Methode der Sozialwissenschaften, but from the system, the methodology, and the logic of classical economics. The transition from the classical to the modern system did not take place all at once, but gradually. It took a long time until its effects were felt in all branches of economic thought, and still a longer time before the significance of the revolution that had taken place was fully appreciated. Only to the retrospective gaze of the historian of economic thought do the years in which Menger, Jevons, and Walras brought forth their theories appear as the beginning of a new era in the history of our science.