Investigations into the Method of the Social Sciences

The Relationship of the Exact Orientation of Research in the Field of the Social Sciences to the Realistic-Empirical Orientation

The common element of the two above orientations and their difference.—Why their results are not usually treated separately in scientific presentation.—That the two orientations of research do not refer to different realms of economic phenomena, but each of them tries in principle to make us understand all of economy from the points of view characteristic of it.—Why the exact orientation is predominantly accustomed to strive for the understanding of the more elementary phenomena of economy, the empirical-realistic for the understanding of the more complicated ones.—An opinion on this from Auguste Comte and J. St. Mill.—Relationship in which the guarantees of the truth of the results of the two orientations stand to each other.—Error, that the results of the exact orientation of theoretical research find their criterion in the results of the realistic-empirical orientation.—Examples by which a clearer light is cast on the relationship between the nature and the guarantees of the results of the two orientations of theoretical research in the field of economy.

We should not like to conclude our investigations into the nature of the two above basic orientations of theoretical research in the realm of ethical phenomena without making mention in a few words of the relationship in which they and their results stand to one another. But this is done not only for the sake of the interest which the questions pertinent here have per se for the methodology of our science, but also to prevent from the start a few obvious misunderstandings about the theories presented in the previous section.

The results of the exact orientation of theoretical research and those of the realistic have in common that they teach us the general nature and the general connection of phenomena. For the rest, however, as we have seen, they also exhibit not unessential differences, as far as their formal nature is concerned. In scientific presentation, however, exact and realistic knowledge are seldom treated separately.

The reason for this is essentially a practical one. The theoretical sciences are supposed to provide us with understanding of phenomena, a knowledge of them extending beyond immediate experience, and a certain ability to foresee them. These are purely problems, the solution of which, even if in a different sense, is advanced not only by the results of the exact orientation of theoretical research, but also by those of the realistic orientation. Given this state of affairs it meets practical needs if we group together in presentation all the theoretical knowledge, realistic as well as exact, which has reference to a realm of the world of phenomena (e.g., to economy) and within this group all which refers to specific matters (e.g., value, price of goods, money, etc.). And thus, in fact, the theoretical sciences usually offer us the picture of a presentation combining items of knowledge of partially different formal nature. Physics and chemistry, e.g., exact sciences according to their bases, by no means exclude individual items of knowledge obtained only empirically. On the other hand, physiology, according to its basis a result of realistic research, does not take only realistic knowledge into its sphere of presentation, but also numerous items of exact knowledge. The situation is similar in theoretical economics. This, too, comprises the exact as well as the realistic results of theoretical research. And if, as is self-evident, no obstacle in principle opposes a separate presentation of the two above groups of theoretical knowledge; if, rather, one such presentation can be imagined for the exact results of research (an exact economics), another for pertinent realistic knowledge in general and for the laws of the historical development of economic phenomena, the laws of great numbers, etc., in particular—yet the above-stressed practical interest speaks strongly for a comprehensive presentation of all theoretical truths referring to economic matters. It does this so strongly that such a presentation has actually and everywhere found admission to a greater or lesser extent in the universal presentations of theoretical economics. For example, in price theory not only are the results of exact research treated in a comprehensive presentation, but usually also pertinent empirical laws in general and related laws of development, of great numbers, etc., in particular.

While knowledge from the exact and from the realistic orientation of theoretical research in the field of economy is thus brought together in presentation, writers in the field of national economy still, as stated, follow only practical considerations, clearly without thereby doing away with the distinctive formal character of relevant knowledge.

All this touches only the external relationship between the exact and the realistic results of theoretical social research. Meanwhile the question might arise of the inner relationship of exact and realistic knowledge in the realm of social phenomena in general and of economy in particular. And here we should like to oppose a few widespread errors about the nature of this relationship.

In theoretical economics, as in the theoretical sciences in general, exact and realistic knowledge are the result of orientations of theoretical research differing in certain respects, and accordingly exhibit a variety of formal differences. The field of research is, however, common to both orientations and comprises in each case all of economy. Both the exact and the realistic orientation of theoretical research have the aim of making us understand theoretically all phenomena of economy, each in its way.

These two orientations of research, accordingly, do not at all complement each other, for instance, by revealing to us the understanding of different fields of economy. Rather, the function of each of them consists in making us understand the total realm of economic phenomena in its characteristic way. Only where one or the other orientation leads to no results, whether because of deficient objective presuppositions or for reasons involved in the technique of research, does one or the other orientation of research dominate in definite fields of economy, and this only as long as this relationship persists.

The more complicated a realm of phenomena is, the more difficult and comprehensive is the task of reducing the phenomena involved to their simplest elements and of investigating the process by which the former are built up from the latter according to laws. So much the more difficult is a full and satisfactory outcome of exact research. Thus it becomes understandable that, just as in the natural sciences, only empirical laws usually appear to us in the field of social research in respect to the complicated phenomena; whereas in respect to the less complicated phenomena of nature and of human life the exact understanding achieves predominant significance. Thence also the well-known fact that the realistic orientation of research is likely to predominate where it is a question of theoretical knowledge which refers to more complicated phenomena of an empirical realm. In respect to less complicated phenomena the exact orientation predominates. Yet in principle both orientations of research are adequate not only for all realms of the world of phenomena, but also for all stages of the complexity of phenomena. When such an excellent thinker as Auguste Comte sets up the requirement that the social sciences should find their laws empirically and thereupon confirm them from the general laws of human nature, obviously lack of clarity in feeling for the above described fact is ultimately at the basis of this view. The same is true when J. Stuart Mill attributes a really decisive significance for social research to this method, which he calls the inverse deductive.

Still another question may claim our interest at this point. It is the question about the relationship to one another in which the guarantees for the truth of the exact and the realistic results of theoretical research in the field of economy stand. It is important for the reason that the underestimation of “exact economics” appearing particularly among German economists is based predominantly on the failure to recognize the true nature of this relationship.

Among economists the opinion often prevails that the empirical laws, “because they are based on experience,” offer better guarantees of truth than those results of exact research which are obtained, as is assumed, only deductively from a priori axioms. Accordingly the latter would have to be modified and corrected by the former in case of a contradiction between the two kinds of scientific knowledge. Exact research appears thus as methodologically more subordinate, and realism, on the contrary, as the better guaranteed road to cognition. This is a view which, as scarcely needs to be noted, touches in its most sensitive spot the position of exact research in the field of political economy. Indeed, it actually implies a negation of its independent value.

The error at the basis of this view is caused by the failure to recognize the nature of the exact orientation of theoretical research, of its relationship to the realistic, and by applying the points of view of the latter to the former.

Nothing is so certain as that the results of the exact orientation of theoretical research appear insufficient and unempirical in the field of economy just as in all the other realms of the world of phenomena, when measured by the standard of realism. This is, however, self-evident, since the results of exact research, and indeed in all realms of the world of phenomena, are true only with certain presuppositions, with presuppositions which in reality do not always apply. Testing the exact theory of economy by the full empirical method is simply a methodological absurdity, a failure to recognize the bases and presuppositions of exact research. At the same time it is a failure to recognize the particular aims which the exact sciences serve. To want to test the pure theory of economy by experience in its full reality is a process analogous to that of the mathematician who wants to correct the principles of geometry by measuring real objects, without reflecting that the latter are indeed not identical with the magnitudes which pure geometry presumes or that every measurement of necessity implies elements of inexactitude. Realism in theoretical research is not something higher than exact orientation, but something different.

The results of realistic orientation stand in an essentially different relationship to the empirical method than those of exact research. The former are based, of course, on the observation of phenomena in their “empirical reality” and complexity, and of course the criterion of their truth is accordingly the empirical method. An empirical law lacks the guarantee of absolute validity a priori, i.e., simply according to its methodological presuppositions. It states certain regularities in the succession and coexistence of phenomena which are by no means necessarily absolute. But bearing this firmly in mind, we note that it must agree with full empirical reality, from the consideration of which it was obtained. To want to transfer this principle to the results of exact research is, however, an absurdity, a failure to recognize the important difference between exact and realistic research. To combat this is the chief task of the preceding investigations.

In stating this we are far from denying that it would be extremely desirable if we could gain exact knowledge which simultaneously agrees with full empirical reality, in the here definitive sense. Or, what is in essence the same thing, it would be desirable if we could gain empirical knowledge which would simultaneously exhibit the advantages of exact knowledge. Human cognition, the prediction and control of phenomena, would be essentially aided and simplified by this. What we are trying to make clear here is, however, that this is not attainable given the actual relationships which the world of real phenomena regularly offers.

Since it is a question here of an error deeply rooted among the German economists and at the same time of a subject about which vagueness frequently exists even in the theoretical investigations of the best foreign writers, the relationship between the results of exact and of realistic research in the field of our science may be elucidated by an example. This, indeed, will be one which will at the same time explain the causes of the confusion which prevails in the respect considered.

Exact research in the realm of the phenomena of price teaches us, for example, that the increase in need for a certain item of goods appearing in a definite trade area can under certain circumstances lead to a price increase which can be determined exactly according to measure (whether the increase in demand is the result of population growth or of the greater intensity with which the need for the item concerned appears among the individual economic subjects).1 Those presuppositions which automatically result from any orderly presentation of theoretical economics are: (1) that all the economic subjects considered here strive to protect their economic interest fully; (2) that in the price struggle they are not in error about the economic goal to be pursued nor about the pertinent measures for reaching it; (3) that the economic situation, as far as it is of influence on price formation, is not unknown to them; (4) that no external force impairing their economic freedom (the pursuit of their economic interests) is exerted on them.

There is scarcely need to remark that the above presuppositions in real economy all hold only in rare cases and that therefore as a rule real prices deviate more or less from economic ones (those corresponding to the economic situation). In the practice of economy people in fact endeavor only rarely to protect their economic interests completely. Many sorts of considerations, above all, indifference to economic interests of lesser significance, good will toward others, etc., cause them in their economic activity not to protect their economic interests at all in some cases, in some cases incompletely. They are, furthermore, vague and in error concerning the economic means to attain their economic goals; indeed, they are often vague and in error concerning these goals themselves. Also the economic situation, on the basis of which they develop their economic activity, is often insufficiently or incompletely known to them. Finally their economic freedom is not infrequently impaired by various kinds of relationships. A definite economic situation brings to light precisely economic prices of goods only in the rarest cases. Real prices are, rather, more or less different from the economic.

But if this is correct it is also clear at the same time that in the above typical case the real increase in need for an item of goods will not necessarily have as a result a real increase of prices corresponding exactly to the thus changed economic situation; indeed, there are circumstances in which it will not result in an increase at all. Accordingly, the law that the increased need for an item results in an increase of prices, and indeed that a definite measure of the increase of need also results in an increase in prices determined according to its measure, is not true—is unempirical, when tested by reality in its full complexity. But what else does this prove than that the results of exact research do not happen to find their criterion in experience in the above sense? The above law is true in spite of all this, absolutely true, and of the greatest significance for the theoretical understanding of price phenomena, as soon as it is merely considered from the point of view which is adequate for exact research. If one considers it from the point of view of realistic research, then, to be sure, one gets into contradictions. The error in this case, however, lies not in the law but in the wrong way of considering it.

If we now attempt to obtain an analogous law of price phenomena considered from the realistic point of view, there is probably no one experienced in economic matters who needs the special remark that this law is apparently very similar to that which is the result of exact research. It is an observation known to all that the increase of demand for an item regularly (even if not always) results in an increase in its price. This “empirical” law, however, in spite of its superficial similarity, exhibits a fundamental difference from the one previously presented, a difference that is all the more instructive as the superficial similarity of the two laws under discussion here causes it to be overlooked only too easily in cursory observation. The exact law states that with definite presuppositions an increase in need, definite by measure, must be followed by an increase in prices just as definite by measure. The empirical law states that an increase in need as a rule is actually followed by one in real prices, and, to be sure, an increase which as a rule stands in a certain relationship to the increase in need, even if this relationship by no means can be determined in an exact way. The first law holds true for all times and all nations which exhibit a traffic in goods. The latter allows exceptions even with one definite nation, and for each market is easily a different one to be determined only by observation, as far as the measure of the effects of demand on prices is concerned.

We have intentionally chosen an example in which an exact and an empirical law of economy show a superficial similarity just to present by this the fundamental difference between the two categories of theoretical knowledge under discussion here. It would, however, be easy to show that in numerous other cases the exact laws and the analogous empirical laws also show differences just in their superficial form. And it is accordingly clear that these laws must not be confused with each other, much less be tested from the same points of view.

Those who apply to the results of the exact orientation of theoretical research in the field of economy the standard of empirical realism and its theoretical results overlook one really decisive circumstance. This is that exact economics by nature has to make us aware of the laws holding for an analytically or abstractly conceived economic world,2 whereas empirical-realistic economics has to make us aware of the regularities in the succession and coexistence of the real phenomena of human economy (which, indeed, in their “full empirical reality” also contain numerous elements not emergent from an abstract economic world!).

To want to look for the criterion of the guarantees of the exact laws of economy in their congruence with its empirical laws signifies a failure to recognize the most elementary principles of scientific methodology. Such a procedure would be comparable to that of a natural scientist who wants to test and rectify the laws of physics, chemistry, and mechanics by the empirical laws of natural phenomena; or even that of one who wants to test and rectify the results of the exact research of a Newton, Lavoisier, or Helmholtz by rules for farmers, surely extremely useful in their own way, as they are found in writings intended for country folk—just because they are usually based on experience of very long standing!

______________________

3 Cf. my Grundsätze der Volkswirthschaftslehre, I, p. 172 ff.

4 Menger’s actual phrasing is Gesetze der Wirthschaftlichkeit, which might be translated as “laws of economicity” if there were such a word as “economicity.” Several lines below, where the translation reads, “not emergent from an abstract economic world,” Menger’s crucial term is Unwirthschaftlichkeit (“noneconomicity”). I have noted three other instances of the use of Wirthschaftlichkeit in the special sense of reference to a “pure” economic realm governed by exclusively economic laws without contamination by any “noneconomic” phenomena. One of these occurs at p. 250, where reference is made to “the principle of economic reality.” Another occurs at p. 212, where Menger is translated as writing “abstract economic reality.” And the third occurs at p. 218, where Menger is again translated as writing “abstract economic reality.” With so convenient a usage of Wirthschaftlichkeit even Menger can be concise. L.S.

• 1The concept of spontaneous order was not original with Menger, but he is unquestionably one of its major developers and expositors. The “tradition of spontaneous order” in social thought, as Norman Barry has shown, is both long and rich. Yet if one name from each of the last three centuries could be chosen to exemplify the tradition, the names would be: Adam Smith, Carl Menger, and Friedrich A. Hayek. Before Smith there were noteworthy contributions to nonintentionalist social theory by Bernard Mandeville, David Hume, and Adam Ferguson. Smith is well known today for his simile likening spontaneous social ordering forces to an “invisible hand,” of course, and for his explanation of how the division of labor is promoted by market forces stemming from the pursuit of self-interest. Between Smith and Menger valuable applications or extensions of the spontaneous-order concept were made by the French economistes Frederic Bastiat and Gustave de Molinari, by the British free banking advocates Thomas Hodgskin and Samuel Bailey, and by the sociologist Herbert Spencer.
• 2c Menger’s actual phrasing is Gesetze der Wirthschaftlichkeit, which might be translated as “laws of economicity” if there were such a word as “economicity.” Several lines below, where the translation reads, “not emergent from an abstract economic world,” Menger’s crucial term is Unwirthschaftlichkeit (“noneconomicity”). I have noted three other instances of the use of Wirthschaftlichkeit in the special sense of reference to a “pure” economic realm governed by exclusively economic laws without contamination by any “noneconomic” phenomena. One of these occurs at p. 250, where reference is made to “the principle of economic reality.” Another occurs at p. 212, where Menger is translated as writing “abstract economic reality.” And the third occurs at p. 218, where Menger is again translated as writing “abstract economic reality.” With so convenient a usage of Wirthschaftlichkeit even Menger can be concise. L.S.
• 3Norman Barry, “The Tradition of Spontaneous Order,” Literature of Liberty 5 (Summer 1982), pp. 7–58.
• 4Those who apply to the results of the exact orientation of theoretical research in the field of economy the standard of empirical realism and its theoretical results overlook one really decisive circumstance. This is that exact economics by nature has to make us aware of the laws holding for an analytically or abstractly conceived economic world,c whereas empirical-realistic economics has to make us aware of the regularities in the succession and coexistence of the real phenomena of human economy (which, indeed, in their “full empirical reality” also contain numerous elements not emergent from an abstract economic world!).