Investigations into the Method of the Social Sciences

Not only individuals separated from any human contact, but also the members of a nation can exhibit the phenomenon of isolated economies,1 that is, to the extent that they have no traffic in goods with each other, whatever their relations to one another may be otherwise. It scarcely needs to be stated that under such circumstances no “national economy” in the common sense of this word would be present. At any rate, the term “national economy,” if permissible in this case at all, would designate only the summation of individual economies in a nation, in contrast to individual economies as such.

Wherever, on the contrary, members of a nation come into economic communication with each other, the concept of “national economy” already gains a significantly different meaning. To be sure, even here we cannot speak of national economy in the true, strict sense of the word. Such a sense would be present if (as e.g., in the planned institutions of many socialists) its goal were really the greatest completeness possible in the economic situation of satisfaction of the needs of the nation thought of as a unit. It would be present if the nation in its totality (whether directly, or indirectly by means of its functionaries) were really the economic subject; and finally, if the goods available were actually at the disposal of the nation, thought of as a unit. But these are conditions, as scarcely needs to be said, which are not found in present-day national economy. For under our present social conditions the nation is simply not the economic subject (nor are its functionaries). The leaders of the individual and common economies are really the economic subjects. The goal of the latter is on the whole not the meeting of the material needs of the nation in its totality, but the meeting of their material needs or of those of other definite actual or potential persons. Finally, the economic means at hand do not serve to secure the needs of the nation as a unit, but merely those of actual or potential people. What the national economists designate with the expression “national economy,” national economy in the common sense of the word, is by no means a juxtaposition of isolated individual economies. The latter, rather, are closely tied together by traffic with one another. But just as little is what they so designate a national economy in the above strict sense, or per se one economy at all. It is really, on the contrary, a complex, or, if one wishes, an organism of economies (of singular and common economies), but, we repeat, it is not itself an economy. To make use of a popular image, there is here the same relationship as e.g. in a chain which presents a unit consisting of links, without, however, being a link itself. It is the same as in a machine which presents a unit made up of wheels, and so on, without being a wheel itself.2

The beneficial influence which governments in most countries exert or think they exert on economic affairs, also, cannot change this fact in any way. The benefit of the economic efforts of third parties is by no means to be considered per se as an independent economy. The circumstance that individual economies or a complex of them are fostered and benefited by any power, of whatever conceivable kind it may be, does not change these into a unitary economy. The beneficial activity which state governments exert on the economy of the state subjects can thus not be considered a national economy itself, nor can it change a mere complex of individual economies into a national economy in the strict meaning of the word. Moreover, it is, of course, obvious that the beneficial influence of state governments does not have as its aim the protection of the needs of the nation, thought of as an individual economic unit, but only the welfare of that complex of individual economies which is not a national economy in the strict sense of the word.

The activity of state governments aimed at the protection of their own needs (public finance) is without doubt an independent economy. State governments are, in fact, economic. However, the financial economy is always just one member of that complex of individual economies, the totality of which is commonly designated with “national economy,” but is never itself a national economy.

Let us sum up what has been said. The fact that the individual economies in a nation have traffic with each other cannot change the individual economies in a nation into an undivided economy of the nation, into a national economy in the true meaning of the word. Nor can the fact that the rulers in a nation develop an activity aimed at the benefit of the individual economies in their totality. Nor, finally, can the existence of a genuine financial economy in a state. That phenomenon, which is commonly designated by “national economy,” always presents itself to us, rather, merely as an organized complex of individual economies, as a multiplicity of economies joined together into a higher unity which is nevertheless not an economy itself in the strict meaning of the word.

We have already stressed in another place3 how important the above distinction is for the proper understanding of economic phenomena. It is one thing if the economic phenomena of socially organized humans are considered in a way completely inadequate to reality, as a result of the unitary activity of the nation as such, and as a result of application of its disposable means—and are interpreted in the light of this fiction. It is another thing if these same phenomena, in accordance with reality, are construed as the result of numerous individual efforts, as the outcome of the endeavors of economic agents (actual or potential) bound together by their commerce. For in the first case the phenomena of human economy in its present-day social form will, to be sure, present themselves to us under the extremely simple image of phenomena of an individual economy, and their interpretation in this view will offer no sort of noteworthy difficulties. In the latter case, however, we will be confronted with a social structure, differing from the individual economy, and just as involved as it is hard to interpret. In the first case, namely, we have before us a familiar phenomenon which is essentially analogous to the individual economy and hence very clear to our understanding. In the latter case the incomparably more complicated and more difficult goal of economic research is “the explanation of the complicated phenomena of human economy in their present-day social form through the efforts and relationships of the individual economies connected by their commerce with each other.”

It is clear, however, that the above simplification deprives our science of any true value, because it is based on a thoroughly inadmissible fiction. And scholars in the field of political economy will be compelled of necessity to comprehend and solve the problems of the science in that complexity in which they are actually offered to us by experience. Natura rerum subtilis can also be said of human economy in its social form. But how foolish to want to simplify the science in contrast to the nature of things by an inadmissible fiction, to want to view a complex of economies as a large individual economy. How foolish to do this, instead of examining the real phenomena of human economy in their actual complication, i.e., instead of reducing them to their factors of individual economy and thus striving for understanding of them—an understanding which, to be sure, is not easy. Certainly, the problems of science can thus be simplified extraordinarily—but only at the price of complete success.

Adam Smith and his school have neglected to reduce the complicated phenomena of human economy in general, and in particular of its social form, “national economy,” to the efforts of individual economies, as would be in accordance with the real state of affairs. They have neglected to teach us to understand them theoretically as the result of individual efforts. Their endeavors have been aimed, rather, and, to be sure, subconsciously for the most part, at making us understand them theoretically from the point of view of the “national economy” fiction. On the other hand, the historical school of German economists follows this erroneous conception consciously. It is even inclined to see in it an incomparable deepening of our science. It is clear, however, that under the sway of the fiction discussed here a theoretical understanding of the phenomena of “national economy” adequate to reality is not attainable. Also, the slight value of the prevailing theories of economics finds its explanation in no small measure in the above erroneous basic view of the nature of the present-day social form of human economy.

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4 The concept of economy is taken in too broad a sense by a number of writers on national economy. Some of them conceive of every activity aimed at the satisfaction of human needs (body movement! looking at works of art! etc.) as an economic act; others so conceive the consumption of goods, along with production and distribution as such. In truth only the premeditative activity of humans aimed at the indirect or direct satisfaction of their material needs is to be considered as economic, while the acts of the actual consumption of goods do not in themselves come under this concept.

5 The majority of contemporary economists differentiate very sharply between “private economy” and “national economy.” Their error is thus by no means based on a confusion of these two phenomena. It is to be found, rather, in the fact that “national economy” is not to be viewed as a complex of individual economies, but is to be viewed itself as a large individual economy in which the “nation” is to represent the needing, economic, and consuming subject.

But in this an evident error is present. Because several persons who have up to now been isolated economically and continue to pursue their individual economic aims and efforts start trafficking in goods with each other (and thus really only undertake to pursue their individual interests more suitably than before), their previous isolated economies do not change into one common economy, nor is a new one added to these. Rather, the previously isolated economies hereby merely undergo organization. They do sacrifice their character as isolated economies but not their character as singular economies. The latter would be the case only if each economic subject gave up his individual economic aims and efforts, his economy, that is, and if the fullest possible satisfaction of the needs of all members of society were to become the common goal of all economic subjects. Only in this event would the individual economies under discussion here disappear and a common economy take their place. On the other hand, a new economy, and, indeed, a common economy would be added to the previous individual economies if the economic subjects were to organize just a part of their economic effort in the previously mentioned fashion of a common economy and their singular economy were to remain in respect to the rest of their effort. Moreover, it is self-evident that, within the circle of persons under discussion, only some portion of such persons can construct comprehensive common economies. What at present is called national economy is an organizing of individual and common economies of the most varied kinds, but is not a national economy in the true sense of the word, nor is it, in its totality, one economy (cf. on this E. Cohn, “Gemeinbedürfniss und Gemeinwirtschaft” in the Tübinger Zeitschr. [18811, p. 478 ff.).

6 See p. 93 ff.

• 1The concept of economy is taken in too broad a sense by a number of writers on national economy. Some of them conceive of every activity aimed at the satisfaction of human needs (body movement! looking at works of art! etc.) as an economic act; others so conceive the consumption of goods, along with production and distribution as such. In truth only the premeditative activity of humans aimed at the indirect or direct satisfaction of their material needs is to be considered as economic, while the acts of the actual consumption of goods do not in themselves come under this concept.
• 2The majority of contemporary economists differentiate very sharply between “private economy” and “national economy.” Their error is thus by no means based on a confusion of these two phenomena. It is to be found, rather, in the fact that “national economy” is not to be viewed as a complex of individual economies, but is to be viewed itself as a large individual economy in which the “nation” is to represent the needing, economic, and consuming subject.
• 3See p. 93 ff.
• 4Not only individuals separated from any human contact, but also the members of a nation can exhibit the phenomenon of isolated economies, that is, to the extent that they have no traffic in goods with each other, whatever their relations to one another may be otherwise. It scarcely needs to be stated that under such circumstances no “national economy” in the common sense of this word would be present. At any rate, the term “national economy,” if permissible in this case at all, would designate only the summation of individual economies in a nation, in contrast to individual economies as such.
• 5Wherever, on the contrary, members of a nation come into economic communication with each other, the concept of “national economy” already gains a significantly different meaning. To be sure, even here we cannot speak of national economy in the true, strict sense of the word. Such a sense would be present if (as e.g., in the planned institutions of many socialists) its goal were really the greatest completeness possible in the economic situation of satisfaction of the needs of the nation thought of as a unit. It would be present if the nation in its totality (whether directly, or indirectly by means of its functionaries) were really the economic subject; and finally, if the goods available were actually at the disposal of the nation, thought of as a unit. But these are conditions, as scarcely needs to be said, which are not found in present-day national economy. For under our present social conditions the nation is simply not the economic subject (nor are its functionaries). The leaders of the individual and common economies are really the economic subjects. The goal of the latter is on the whole not the meeting of the material needs of the nation in its totality, but the meeting of their material needs or of those of other definite actual or potential persons. Finally, the economic means at hand do not serve to secure the needs of the nation as a unit, but merely those of actual or potential people. What the national economists designate with the expression “national economy,” national economy in the common sense of the word, is by no means a juxtaposition of isolated individual economies. The latter, rather, are closely tied together by traffic with one another. But just as little is what they so designate a national economy in the above strict sense, or per se one economy at all. It is really, on the contrary, a complex, or, if one wishes, an organism of economies (of singular and common economies), but, we repeat, it is not itself an economy. To make use of a popular image, there is here the same relationship as e.g. in a chain which presents a unit consisting of links, without, however, being a link itself. It is the same as in a machine which presents a unit made up of wheels, and so on, without being a wheel itself.
• 6We have already stressed in another place how important the above distinction is for the proper understanding of economic phenomena. It is one thing if the economic phenomena of socially organized humans are considered in a way completely inadequate to reality, as a result of the unitary activity of the nation as such, and as a result of application of its disposable means—and are interpreted in the light of this fiction. It is another thing if these same phenomena, in accordance with reality, are construed as the result of numerous individual efforts, as the outcome of the endeavors of economic agents (actual or potential) bound together by their commerce. For in the first case the phenomena of human economy in its present-day social form will, to be sure, present themselves to us under the extremely simple image of phenomena of an individual economy, and their interpretation in this view will offer no sort of noteworthy difficulties. In the latter case, however, we will be confronted with a social structure, differing from the individual economy, and just as involved as it is hard to interpret. In the first case, namely, we have before us a familiar phenomenon which is essentially analogous to the individual economy and hence very clear to our understanding. In the latter case the incomparably more complicated and more difficult goal of economic research is “the explanation of the complicated phenomena of human economy in their present-day social form through the efforts and relationships of the individual economies connected by their commerce with each other.”