Investigations into the Method of the Social Sciences

INTRODUCTION

The name of the Austrian economist, Carl Menger, is familiar even to many with but rudimentary knowledge of the history of economics. Menger is repeatedly referred to in the treatises dealing with the development of economic doctrine as one of the independent formulators of the principle of marginal utility, and he is thereby conventionally linked with such men as Jevons, Walras, and John Bates Clark. He is also remembered for the acrimonious “battle of methods” (Methodenstreit) in German-Austrian economics, which, indeed, the volume herewith translated may be said to have initiated.

Evaluations of Menger’s work tend to be decidedly favorable. Not all economists would go so far as Zuckerkandl, who terminates an exposition of Menger with the assertion that among the men who, at the beginning of the sixties of the last century, broke from classical economics and laid the foundations for fruitful new developments Menger per-formed the most comprehensive and most significant services.1 But the generally favorable tone of comment on Menger is unmistakable. A high opinion of him was expectably entertained by Friedrich Wieser, who makes it quite plain, even if we did not know this from other sources, that Menger’s work in its time had very considerable significance for some able young Austrian economists.2 Nor is it surprising that Eugen von Böhm-Bawerk has been referred to as “completely the enthusiastic disciple of Menger.”3 Schumpeter, who so describes Böhm-Bawerk, himself regarded Menger’s work as “masterly,” and if he added that it was “‘simply a descendant from Davanzati’s” he had previously asserted of Menger that “he was a careful thinker who rarely slipped, if ever, and his genius stands out only the more impressively because he lacked the appropriate mathematical tools.”4 Should comment from those of Central European provenience seem likely to be overfavorable to Menger, there are judgments like Frank Knight’s, to the effect that “Carl Menger’s place at the very top among the creators in the development of modern economic thought is secure.”5 Praise is not unqualified. The economists appear well enough agreed that Menger’s work as a pioneering endeavor exhibited numerous crudities, and indeed crudities not always evident in the work of other and comparable pioneers. But the generally friendly tone of comment on Menger which I have noted remains.

Yet it is also noteworthy that this kind of favorable evaluation of Menger is made largely in the light of the work of his youth, the Grundsätze der Volkswirtschaftslehre, translated into English as Principles of Economics in 1950 6 but originally published in 1871, when Menger was thirty-one years old. In 1883, a dozen years after the Grundsätze, Menger published his Untersuchungen über die Methode der Socialwissenschaften und der Politischen Oekonomie insbesondere, now translated as Problems of Economics and Sociology. It is not that commentary has been lacking on this latter work. Schumpeter, again, if with some reservations, characterized it as “one of the significant performances in its field.”7 Friedrich Hayek, who has been greatly influenced by Menger’s thought as set out in the Untersuchungen8 has commented that “the Untersuchungen are hardly less an achievement than the Grundsätze.”9 Another sympathetic student has gone so far as to say with regard to the Untersuchungen that it is a contribution of Menger’s “which entitles him to a rank among the greatest minds in the social sciences at large.”10 This may well overstate the case. But more noteworthy is the circumstance that the statement appears at all in an English-language medium. For English-speaking economists, certainly, the Grundsätze or Principles has been the more important work by far, and it has now been available in translation for over a dozen years. Neither economists nor sociologists working in the English language have paid any notable attention to the Untersuchungen.11 When Hayek wrote on the reverse of the title page of the 1933 London School of Economics reprint of the Untersuchungen that the book “has profoundly affected all the social sciences,” he could hardly have been thinking at any rate of direct influence on the social sciences in the English-speaking world. I am convinced that the book is well worth presenting in English dress. After a lapse of eighty years it merits the chance of a more direct impact on social science in the English-speaking world than it has hitherto had.

Hayek, once again in his evaluation of Menger which I have previously referred to, has given a commentary on the Untersuchungen worth reproducing for the purposes of the present introduction:

In their way the Untersuchungen are hardly less an achievement than the Grundsätze. As a polemic against the claims of the Historical School to an exclusive right to treat economic problems the book can hardly be surpassed. Whether the merits of its positive exposition of the nature of theoretical analysis can be rated as high is, perhaps, not quite certain. If this were, indeed, its main title to fame there might be something in the suggestion occasionally heard among Menger’s admirers that it was unfortunate that he was drawn away from his work on the concrete problems of economics. This is not to mean that what he said on the character of the theoretical or abstract method is not of very great importance or that it had not very great influence. Probably it did more than any other single book to make clear the peculiar character of the scientific method in the social sciences, and it had a very considerable effect on professional “methodologists” among German philosophers. But to me, at any rate, its main interest to the economist in our days seems to lie in the extraordinary insight which is revealed incidentally in the discussion of problems mentioned to exemplify different methods of approach, and in the light shed by his discussion of the development of the concepts with which the social sciences have to work. Discussion of somewhat obsolete views, as that of the organic or perhaps better physiological interpretation of social phenomena, gives him an opportunity for an elucidation of the origin and character of social institutions which might, with advantage, be read by present-day economists and sociologists.12

In this passage Hayek clearly discriminates three major elements in the content of Menger’s Untersuchungen. On the first two of these I shall have little to say, but the third is the element that afforded me the motivation to bring out the present edition of Menger’s book, and about this I shall have much more to say.

The first element is, of course, that aspect of the Untersuchungen which constitutes “a polemic against the claims of the Historical School to an exclusive right to treat economic problems.” Menger’s argument against the historical school appears to me to be on the whole well founded. Certainly, the numerous confusions he pointed to were well worth marking, and in principle it is now very difficult to see how anyone could contend for the scrapping of an analytical or theoretical apparatus in economics in favor of purely historical approaches. Where the historical bias went as far as this, Menger obviously had every right to be extremely critical of it. I am wary in the matter of making a judgment about the actual extent to which the historical bias among German economists went in this direction, and I would rather leave the matter to the treatment of competent historians of economic thought. Schumpeter has averred that the history of the literature bearing on the “battle of methods” (Methodenstreit) heavily involving Menger and Gustav Schmoller is “substantially a history of wasted energies.”13 The judgment seems to me at least too sweeping and too harsh, simply on the evidence of the Untersuchungen, which, if it does nothing else in regard to the historical school, makes some challenging and incisive statements about it. The reader has only to turn the pages of the present volume to find such statements in some quantity.

The second element in the volume which Hayek discriminates is Menger’s “positive exposition of the nature of theoretical analysis.” To the present-day reader, at any rate—whatever impact Menger’s exposition may have had in its time on economists and philosophers concerned with “methodology”—in respect of this element of his work, Menger must appear rather wordy. Why expend so much space in a comparatively short volume on the distinction between the individual and the general? Why make so much of the abstracting character of scientific analysis and point out so insistently what is after all rather obvious, namely, that particular sciences choose for analysis selected aspects of “reality” about which they make statements that must be understood as representing an effort to create special theoretical structures whose merit lies precisely in the circumstance that they do not constitute “reproductions” or “pictures” of empirical phenomena as they exist in full-blown actuality? But, again, it may well be that Menger sensed correctly that he could make a worthwhile pedagogic contribution by his long-winded treatment of these matters. Moreover, even today his distinction between, and exposition of, what he calls the “empirical-realistic” and the “exact” methods of economic investigation has, I venture to say, a certain sharpness and cogency that render it of genuine interest.

But on the third element in Menger’s book that Hayek discriminates, I believe that the latter’s judgment is extremely shrewd. Herein lies much that could be valuable now. When Menger discusses “the organic or perhaps better physiological interpretation of social phenomena” and elucidates “the origin and character of social institutions,” he does indeed, as Hayek puts it, offer materials “which might, with advantage, be read by present-day economists and sociologists.” Herein, too, the reader may find the justification for the change in title I have imposed on Menger’s work, to make it read Problems of Economics and Sociology. And again, herein lies the main ground for my own concern, as a sociologist, with his work. That his work deals with “problems of economics” is perfectly obvious. But it deals, just as unequivocally, with a number of “problems of sociology.” If the problems of sociology with which it deals also run through economics and perhaps, for that matter, still other social sciences, this scarcely reduces the general significance of those problems and hardly lessens their sociological significance in particular. The problems arise in connection with Menger’s preoccupation with “the organic understanding of social phenomena” which he treats in Book III and to which he devotes the most considerable of his appendixes, that on “the organic origin of law and the exact understanding thereof” (Appendix VIII). It is significant that Hayek mentions that Menger desired to write “a comprehensive treatise on the character and methods of the social sciences in general” and that he was much concerned with philosophy, psychology, and ethnography. Hayek also notes interestingly that Menger’s considerable library included not only material in economics but that “its collections on ethnography and philosophy were nearly as rich.”14 Given Menger’s interest in the organic understanding of social phenomena, and the actual content of his treatment of what I may call organic social theory, it is very easy to believe that, had he managed to write his comprehensive treatise and drawn on his rich library resources for it, the treatise would have expanded considerably his ideas on organic theory. What may be called the organic theory of the origin of money (which I shall refer to below), even without the comprehensive treatise, was a favorite topic of Menger’s.15 His recurrence to this topic alone could easily induce one to think that the treatise that was never realized would have dealt with organic theory in detail.

When Menger takes up the organic understanding of social phenomena in Book III of the present volume, it is clear that he has an initial critical concern. He does not wish to be taken in by shallow analogies between biological and social phenomena. Nor is he willing to allow his understanding to be affected by the specious attractiveness or supposed explanatory value in social science of terms such as “organic,” “original,” “natural,” and the like. If metaphors are to be employed, he plainly wants them understood as metaphors and their limitations kept in view. His critical interest is so plain that the reader may even, to begin with, get the impression that he is inclined toward an outright rejection of any work that leans in the direction of “organic” theory. But it is soon evident that this is not so.

Menger poses as “a noteworthy, perhaps the most noteworthy, problem of the social sciences” the problem put by the question: “How can it be that institutions which serve the common welfare and are extremely significant for its development come into being without a common will directed toward establishing them?”16 This is certainly a central question not only for social science generally but for organic social theory in particular. The question was not a novel one. Thus, the German economist Wilhelm Roscher, whose work was of much interest to Menger, had indicated, as a basic concern for political economy, the question of how one could account for the emergence and continuance of “functional” institutions (what Menger might well have called “institutions which serve the common welfare”) which, despite their “functionality,” had not been established on a basis of collectively or jointly agreed upon purpose—just as an analogous question regarding the “fitness” of organisms was a dominant one for biology.17 The echo of the question is plainly audible in Menger’s work. But Menger did not approach the question with some of the distinctive views that evidently handicapped Roscher, such as the “emanationist” view that constrained the latter to look upon the “wonderful harmony” between socially desirable consequences and individual actions in which those consequences were never contemplated as a more or less impenetrable mystery.18 Indeed, it was Menger’s deliberate design to penetrate the “mystery” as far as he was able to do so. Before looking at his efforts in this connection, it is well to obtain some general notion of organic social theory and of Menger’s attitude toward this theory and some of its particulars.

Organic social theory is disposed to look upon human institutions as “fit” or “functional” or “serving the common welfare.” When it is uncritical or politically biased or tendentious it moves toward an unqualified affirmation of the excellence of the institutions and powers that be and seeks to exploit analogies between institutions and biological organisms in which the “fitness” and “excellence” of organisms are exclusively stressed. The marvels of adaptation supposed to be found in nature are thus duplicated in society. Leaving aside for the moment the questions of political expediency or interest that this suggests, let it be noted that Menger approached organic theory with a qualified but genuine and, I may add, justified acceptance of its views and propositions. What does he accept? He accepts the notion that there are some social arrangements, institutions, structures, whatever we wish to call them, which “serve the common welfare” or are functional and which at the same time are organic growths, that is, have not been created by human intention but are spontaneous developments. The institution of money is certainly one such institution, in his view. He also accepts the allied notion, nourished by Savigny and Burke among others, that some historic institutions incorporate an unintended or unconscious “wisdom,” wisdom that has descended from the past, and he is accordingly willing to concede that there can be such a thing as hasty or thoughtless planning or reform effort that bungles its job just because of failure to recognize that there is sometimes built-in or implicit “wisdom” (in institutions) exceeding the wisdom that particular planners or reformers can bring to bear at a particular time. Here too there is an organic analogy in that the germ plasm of an organism may be said in a certain sense to carry the “wisdom” that forebears have bequeathed it—through “experiences” that wiped out some. of those very forebears and occasioned survival on the part of others. As regards the social level, a writer on Savigny, who is well aware of the latter’s significance as an opponent of a certain doctrinaire and mechanical rationalism that was one element in the Enlightenment, puts the thesis of the implicit wisdom present in some social arrangements succinctly by saying of Savigny: “‘In the place of the reason that is the possession of the individual he put the reason that belongs to history.”19

Menger, then, is quite willing to concede that there are points of validity, and significant ones, in organic social theory. But it is also quite evident that he has reservations. Thus, he insists that functional institutions can be the product of deliberate reflection and planning, and he writes accordingly of “pragmatic” explanation: explanation occasioned and justified by the existence of “a number of social phenomena which are products of the agreement of members of society, or of positive legislation, results of the purposeful common activity of society thought of as a separate active subject” (p. 145). He is also quite clear on the point that institutions may arise organically and spontaneously and yet be susceptible in the course of their later development to pragmatic modification that enhances their functionality. Given these qualifications, it is not surprising that he holds a resolutely rational outlook on institutions and refuses to accept the unqualifiedly “conservative” conclusions that emerge from the argument of some organic theorists. This last is worth some stress.

Menger notes (p. 91) of the German historical school of jurisprudence that it espoused the thesis that “law is something above the arbitrariness of the individual,” that law is an “organic structure” not to be haphazardly shaped. He notes also that the school derived consequences of an “extremely practical” order from this thesis:

It concluded that the desire for a reform of social and political conditions aroused in all Europe by the French Revolution really meant a failure to recognize the nature of law, state and society and their “organic origin.” It concluded that the “subconscious wisdom” which is manifested in the political institutions which come about organically stands high above meddlesome human wisdom. It concluded that the pioneers of reform ideas accordingly would do less well to trust their own insight and energy than to leave the re-shaping of society to the “historical process of development.” And it espoused other such conservative basic principles highly useful to the ruling interests.20

As if to dispel all possible uncertainty about his own rational outlook on social institutions, Menger comments at the end of his appendix on the organic origin of law (p. 234) that the historical school of jurists had to afford us understanding of “the previously uncomprehended advantages of common law,” yet he adds forthrightly: “But never, and this is the essential point in the matter under review, may science dispense with testing for their suitability those institutions which have come about ‘organically.’ It must, when careful analysis so requires, change and better them according to the measure of scientific insight and the practical experience at hand. No era may renounce this ‘calling.’ ”

The above will serve as a set of indications of the character of organic social theory and of some of Menger’s reactions to it. We are now in a better position to understand his struggle with the question of how it can be the case that functional institutions arise “without a common will directed toward establishing them.” What does he actually contribute to “the theoretical understanding of those social phenomena which are not a product of agreement or of positive legislation, but are unintended results of historical development?” (title of Book III, chap. 2). Let it be remarked first that Menger realized, in the very posing of his question and in the very utilization of a chapter title such as the one I have just repeated, perhaps as clearly as anyone had up to this time, that there are in simple fact “unanticipated consequences of purposive social action.”21 This may be said to be the starting point of his endeavor to explain unintended or unlegislated and at the same time functional institutions. Men act individually in a variety of contexts to achieve a variety of objects, and Menger as an economist is of course especially interested in their economic objects. “Self-interest” on the part of discrete individuals dictates a line or lines of action. As many individuals act, the effects of their action are seen to comprise elements that no single individual ever contemplated and that were never contemplated by individuals acting in concert since there was no concert to begin with. Mandeville and Adam Smith, among others, were already well aware of this. Menger was evidently intrigued by the emergence of unanticipated consequences of individual purposive actions in the sphere of trade and barter, as his preoccupation with the origin of money indicates.

Menger’s view of the origin of money is based on the notions that where barter has come to prevail some commodities will emerge for which there is greater, more constant, more effective demand than for others; that economic agents recognize the advantage of getting to possess such commodities even if they are not the commodities they most immediately want for their own consumption purposes; that economic agents then, in fact, proceed to acquire such commodities and thereby increase their chances of obtaining the items they really desire for consumption purposes at “economic” prices, in virtue of their possession of the most highly salable commodities, which eventually become money. The path leads through cows and cowrie shells and other such items to money in the modern sense. An institution thus arises which no one contemplated, which is exceedingly “useful,” and which, beyond certain historical points, looks inordinately complex and perhaps as if it could not possibly have been unplanned. Men do not begin by “wanting money.” For Menger, that would be a ridiculous notion. They could not “want” what they could not even remotely conceive, nor could an institution due to exist in the future cast back a desire for itself, in full-fledged form, into the past. What individual economic actors want is to do as well in the market as they can. Out of these elements of individual wants (the focus of the “exact” or “atomistic” orientation in economic analysis) the institution of money ultimately develops, unplanned and initially undreamt of.

In the sense that the above indicates, the institution of money is an organic growth. The same holds true of numerous other institutions. The appendix (pp. 223–234) which Menger devotes to law very plainly shows that he held there were ponderable organic elements in the growth of law also. And his brief discussion of the rise of “localities” or communities and states shows that he has an organic outlook on these as well. There is no special need here to discuss his views on these matters from the point of view of a realistic anthropology or history, for, no matter what anthropological or historical detail might reveal about “beginnings” in, say, money or law, such detail would not quite get at what he was concerned with when he considered “‘origins,” and it would not be central to his main objects in any case. Outright “beginnings” or “origins” of arrangements such as those involved in developed systems of money or law are notoriously difficult, if not impossible, to come to. (I pass over the numerous slippery issues that could easily arise here.) Although he was certainly aware of the relevance of ethnographic and historical evidence in his discussions of the rise of money, Menger was obviously mainly desirous of making a “reconstruction” of its rise that should fit well with what he knew of the workings of the self-interest of economic agents. His reconstruction is a very simple derivation from economic “motive” and economic interaction. It is in a special sense “prehistoric” or even nonhistone.22 Also, he is evidently much concerned to make his discussion of the rise of money serve as a kind of paradigm or “model” for the analysis of functional social phenomena that have arisen, not from purposive agreement or legislation, but as remote and uncontemplated outcomes of individual actions originally addressed to aims having nothing to do with the developed phenomena. Again, history and empirical anthropology are not necessarily irrelevant, but they could not provide quite what Menger was alert for.

It should be stressed very strongly that there is nothing in Menger’s work to suggest that the unanticipated consequences of purposive action must move in the direction of what makes for “social welfare.” They merely may move in that direction, and particular cases must be assessed according to particular evidence. It has already been noted that Menger was not receptive to sweeping “practical,” “conservative” conclusions from organic social theory. If there are institutions that may in a sense be regarded as “storing” human wisdom (however unaware those who act out the terms of the institutions may be at some particular time of the freight of wisdom the latter carry), as organisms may be said to “store” a nonhuman, purely biological kind of wisdom, there is again nothing in Menger to suggest that there may not be institutions which “store” foolishness or inepitudes. And institutions may simultaneously be repositories of both wisdom and foolishness. It is the more necessary to say this because one might get from such a study as Hayek’s recent The Constitution of Liberty, which profits greatly from the insights of Menger and from other currents in organic theory, rather too unqualified a reverence for what Hayek calls “that higher, superindividual wisdom which, in a certain sense, the products of spontaneous social growth may possess.”23

Menger’s whole treatment of organic theory, and his effort to answer the question he posed of how it can be that unplanned functional institutions emerge, may be regarded, and I for one would certainly so regard it, as a valuable pioneering effort. But it is in the end not very much more than a sketch. When Menger answers his question about the rise of unplanned functional institutions and points to the fact that out of the pursuit of individual interests “happy” social circumstances may arise, there is still much that he leaves untouched and with which one would have liked to see him concerned. In what follows, I wish to suggest a few lines of analysis that might have been pursued in his work and to indicate the really considerable significance of some of the issues he broached—often of larger significance than he could have known.

It is worth noting that Menger might have made his analysis of how unplanned functional institutions arise sharper and more cogent by giving it a wider context and introducing more sheer conceptual elaboration than he did.24 He did not genuinely realize that his basic question about unplanned functional institutions could have had light thrown upon it by considering it within the general framework of the role of indirection and ignorance in the social and economic realms. There are pertinent hints on this line in his work, certainly, but nothing more.

The phenomenon of what I may call “gain through indirection” in human affairs is a broadly familiar one. It has been effectively noted in discussion of a variety of psychological matters. Philosophers have stressed the hedonistic paradox, the paradox that pleasure or happiness, when sought deliberately and directly, is elusive, but, when put aside as an aim while other goals are pursued, may be indirectly achieved. It is a standard psychiatric recommendation to the psychically impotent that they forget about sexual prowess and become immersed in object-love, on the presumption that desired prowess may come about indirectly by way of love. Students of insomnia25 have developed approaches to sleep that depend heavily on indirection (as through muscle relaxation) and on the insomniac’s “forgetting about” the goal of sleep. In economics, the effort of Böhm-Bowerk, Menger’s disciple, to show the gain through indirection achieved by initial production of goods themselves to be used in further production comes readily to mind.26 This simple example from economics could be bolstered by numerous others, and the psychological illustrations could be multiplied as well. I want only to add now that the same general phenomenon of gain through indirection forces itself on the attention also in numerous unequivocally “sociological” problems. Thus, gain through indirection is constantly suggested, at least implicitly and at least as a problem, in analysis of organizations, which have indirection built into their very structures. Do soldiers perform better when they are directly exhorted to combat an enemy whose undesirable traits or performances are “explained,” or rather when reliance is placed on the additive effect for “victory” if each soldier of many is motivated singly to do his best in taking care of himself and his immediate “buddies?”27

Had it been possible for Menger to think on lines such as these, stressing the very pervasive nature of the problem of gain through indirection, he might have been prompted to go on and seek to tease out the elements of a very general representation of what occurs when individuals engaged in following out economic interests inadvertently also produce “beneficent” social results. Here, I can only indicate most cursorily that he might have provided some useful conceptual tools, involving stress on the already mentioned indirection, on intermediacy, on the attractiveness of intermediates, and on what I may call transmutation mechanisms. Adumbrations of these several notions, perhaps even for the last of them, are already present in Menger’s work.

I have referred to a “very general representation” just above. It is quite true that Menger afforded discussion not only of the rise of money but also of the rise of law and “localities” (communities) and states. However, his net might have been far more widely cast. Analysis of organizations, which could have offered him valuable material for his basic question, has developed only since his day, and I hardly mean to take him to task for not doing what he could not possibly have done. And as an economist he might have had little interest in religion, which also would have offered him pertinent material.28 Yet, organizational analysis and certain kinds of sociological approaches to religion, not to mention other things, allow us to see, at least today, that there are possibilities in the way of tying together in a fashion bearing on Menger’s basic question many more phenomena than he could imagine. As regards indirection, of course Menger saw that when economic agents, in ignorance of the fact that they were so doing, began to lay the foundations of the institution of money, they were beginning to build it in the only way they could—indirectly. But just how did they go about doing so? Again in the only way they could—intermediately. Indirection and intermediacy are substantially the same thing, looked at in somewhat different ways. When, in reading Menger’s several disquisitions on the origin of money, we note that economic agents, as he portrays them, do not aim to produce the fully developed institution of money but instead far more limited ends coincident with individual economic interests and that the compassing of these ends is implicated in a process that ultimately leads to the developed institution, we mark the presence of indirection. But when we shift perspective slightly and direct attention to the way in which the individual actions “causally” construct or build the remote outcome of the developed institution of money, we may stress that the institution is built intermediately, precisely by way of building blocks of action on the basis of economic interest. The notion of intermediacy, too, is implicit in Menger.

We may add at once that the intermediates are intrinsically attractive. Perhaps Menger thought this so obvious that he felt no need to make it quite explicit. But the sheer utilization of a term such as “attractiveness of intermediates” appears helpful, especially for purposes of suggesting the comparability of a number of “economic” and “noneconomic” situations. To Menger it was clear that each individual in a barter situation could be usefully conceived (“usefully” in point of a certain kind of theorizing) to be aiming at objects attractive because they advanced his self-interest. The notion of attractiveness of intermediates may be allowed to alert us to the existence of quite analogous phenomena elsewhere. Among peoples who are unclear or ignorant on the point that sexual intercourse leads ultimately to reproduction, the theorist interested in reproduction of the personnel of societies may conceive of intercourse as an “attractive intermediate” which, more or less unbeknownst to participants in it (alert only to their “interest”), has a distinctive unintended effect. Durkheim’s Australian primitives engaged in totemistic activity, individually absorbing and undertaken as a kind of “sacred” enterprise, not realizing that Durkheim would in effect construe the activity as both intrinsically, in some sense, “attractive” to them and as ultimately bringing about such results (unanticipated by them) as social integration or cohesion.29 Workers in a factory may unwittingly, or at least with indifference, contribute to over-all factory production goals when these are jeopardized, say, by illness, because they are motivated to help the output of ailing fellow-workers: the chance to help a fellow-worker then appears, looking “back” from the over-all output goal, as an attractive intermediate which leads to the latter goal even if the goal is either outside the knowledge or beyond the concern of many of those who aid in achieving it. In all cases of this type the theorist may look “back” from the vantage point of a special outlook and assess the relative attractiveness of intermediates to agents who may not have even the slightest inkling that their action, for the theorist, falls into a kind of “chain” pattern in which they are providing indispensable “links.”

A word should be added about transmutation mechanisms. This term is intended to point more specifically to the precise ways in which individual purposive actions addressed to limited objects can lead on to uncontemplated social effects. The words “lead on,” as just used—however hard they or like words may be to avoid—indeed beg the questions that might be answered by close scrutiny of transmutation mechanisms. Just how do individual purposive actions “lead on”? Transmutation mechanisms operate in the area “between” individually realized goals and uncontemplated outcomes taken or defined as social effects (or, if one will, functional social institutions). Again I am concerned to point out the general character of the problem Menger, perhaps somewhat dimly, recognized in connection with transmutation mechanisms. In connection with the rise of money, Menger had to handle the processes by which individual interests “make” or build into an institution—or certain distinctive economic effects. As he posed the problem, the trans-mutation mechanisms involved were of a rather simple order. But there are cases in which transmutation mechanisms are even more rudimentary. Thus, where individual couples desire and have children but there is no contemplation of the “continuance of the personnel of the society” as a goal or desideratum, conversion from individually realized object to social outcome or effect is dependent on simple additivity. One female after another gives birth, a certain level of births is reached, and (other things equal) “continuance” is ensured by the sum of the individual births. On the market and in organizations, there are also transmutation mechanisms at work far more complex than those Menger had perhaps begun to discern. Again, he was not in a position to see the very pervasive character of the problem he had touched on in this sphere. Once we are aware of the great reach of transmutation mechanisms through ranges of social and economic phenomena, there is at least the chance that by shrewd and far-flung comparison we may begin to build the elements of a useful theory of such mechanisms.

Aside from these conceptual elaborations which I have suggested, and which, I conceive, might well achieve utility because of the suggestion they so easily carry that Menger’s problems were general problems of social science transcending the specifically economic sphere, I should like at this point to make two comments about the whole matter of ignorance, on which Menger touched only very partially if interestingly. First, then, it should be quite clear by now that Menger did in fact and at least touch on ignorance as a problem in economy and society. The economic agents who lay the initial foundations of the institution of money, in Menger’s representation, are plainly unaware that they are doing so. The indirection by which the institution is built up and the intermediacy involved in its building are not planned. A general blueprint of the institution is not aboriginally in anyone’s “mind.” No structure is deliberately built, with indirection, intermediacy, and “attractiveness of intermediates” purposively set up so that some agents “manipulate” others (however “benevolently”) into making the institution. Ignorance that the building is indeed going up is initially universal. Menger was aware that there are situations in which ignorance (ignorance, that is, at least, of outcomes—such as the money institution—toward which action undertaken is due to lead) works more “effectively” toward certain ends than would knowledge of and planning toward those same ends. And his insight has been exploited, as by Hayek.30 (It is clear, incidentally, that the insight is susceptible of indiscriminate exploitation in favor of rather uncritical laissez-faire biases.) But just when or under what circumstances has ignorance been functional in the past or is it functional in the present? It is not enough to illustrate by adducing particular cases where ignorance has been or is functional. We need a theory of ignorance in economy and society that will render a scheme of analysis enabling us to do more than illustrate the functional or dysfunctional character of ignorance in particular circumstances; that will, ideally, by way of example, allow us to say, given certain specific kinds of activity, whether ignorance or knowledge of prospective outcomes is likely to be functional—ignorance or knowledge on whose part, in what measure, in what mixture, and so on. A host of problems is suggested hereby which I shall not even mention. We are very far indeed, at least as yet, from a developed theory of the kind I suggest. And it would be merely silly to “criticize” Menger for not achieving such a theory. But this may again help to suggest that his questionings had even broader significance than he knew.31

The second comment on ignorance I should like to make is that the entire set of notions bearing on “ignorance”—and, for that matter, on “subconscious wisdom,” and the like—needs careful rescrutiny. It is clear that when, in the vein of organic social theory, someone asserts, let us say, that some action based on traditional modes of acting is both “ignorant” and “wise,” an interesting and significant perspective is suggested. This may be roughly represented as follows. As actors pursue their interest they apply such knowledge germane to the solution of their problems as they can discover. The knowledge becomes built into their activity. Its original background in problem-solving is often forgotten, and the behavior founded on knowledge is then passed on from one generation to another simply as normative. That is to say, one must, or is required to, do such and so, and either no explanation is needed or a perfectly adventitious “explanation” is afforded. As bits of “wisdom” are built into heritable biological modes of functioning, so bits of wisdom are analogously represented as built into social institutions. Ignorance and knowledge become mixed or compounded. Hayek again has said some very pertinent things about this mixture or compounding, though he does not so label it, and he has properly stressed that “the result of the experimentation of many generations may embody more experience than any one man possesses”; that under civilization “the individual benefits from more knowledge than he is aware of”; that in view of this heritage of knowledge, built into the actions of individuals even if they themselves do not know that it is, the idea that “all useful institutions” must of necessity be “deliberate contrivances” becomes untenable.32 Actors frequently do “better than they know” merely because they “know” better than they are aware of knowing. But the temptation to weave paradoxes around this kind of insight should be allowed only under careful control. All of this interesting matter, as I suggest, needs careful review. What is the precise value of organic analogies in these premises? Is it genuinely fruitful for social science purposes to construe the term “information” in a very broad sense and allow that both organisms and societies “store” it? What, if any, differentiations is it useful to make in regard to both the “storing” process and the “information”? The critical stance that Menger assumed eighty years ago toward the naïvetés of then current organic theories should certainly encourage us today to beware of facile metaphors, while of course we may remain open to significant efforts at generalizations that bind the organic and the social.

Menger’s sketch of organic theory, sketch though it be, is suggestive in still other directions than those I have indicated. Brief allusion to two I have not referred to thus far may be allowed. At page 152, again in connection with the origin of money, Menger makes the following observation: “The problem which science has to solve here consists in the explanation of a social phenomenon, of a homogeneous way of acting on the part of the members of a community for which public motives are recognizable, but for which in the concrete case individual motives are hard to discern.” Individual motives, on the line of economic self-interest, do not involve envisaging an institution which “serves the common welfare.” Inevitably, the paradox that Mandeville among others had stressed is hereby suggested. Private economic “lusts” or “vices” lead to public “virtues.” In referring to Mandeville’s paradox, Weber had aptly written of “jene Kraft, ‘die stets das Böse will und stets das Gute schafft.’ ”33 Menger’s individual agents, too, act on economic appetites, but unwittingly create the “good” institution of money.34 This is another of the matters that it is easy to believe Menger might have treated in detail in the comprehensive treatise he never completed.

There is at least one other such matter. In the context of his discussion of law at page 228, Menger remarks: “What each individual experienced in himself and created from himself at the beginnings of civilization had thus in the opinion of the nation gradually become something objective, something divine standing above human wisdom and human interest.” Unanticipated consequences of purposive individual actions can ultimately build into massive structures—”a world we never made”—whose “atomistic” origins and derivations, as Menger might say, are quite unknown to individual actors. Man faces the product (for a thinker like Marx, typically the “alienated” product) of his own work and fails to recognize his workmanship. The implications of this for social theory are significant. Menger was in an intellectual position to develop at least some of them. It is a pity he did not do so.

Menger’s views, then, have their evident limitations. There were inevitably things he could not see in his time which are rather more easily seen today. His discussion of organic social theory does not leave us with specific enough resources for deciding in numerous particular cases whether some set of social desiderata is best attained “organically” or “pragmatically.” Despite the limitations, his work after the lapse of eighty years remains extraordinarily stimulating, and it seems to me that there can be no doubt that he set out sharply and clearly a number of problems as important in our day as they were in his.

I must, for my part, say something about the present translation. Dr. Nock, as his preface indicates, did the basic work of translating. His manuscript was not in quite final form when he had to leave for an extended stay in Europe early in 1962. I then undertook a final revision. I may well have “meddled” more than I should have done, and if the reader is inclined to think that whatever merits the translation may have are attributable to Dr. Nock and whatever lapses it may show are due to me, I shall not object: the reader is likely enough to be right. At a number of points I have made the translation less literal than Dr. Nock’s original. I sought to clarify several obscurities and may have taken more liberties with Menger’s original than are warranted. Much as I have tried to remain within the framework of Dr. Nock’s intentions as I understood them and much as I have tried to make changes in accord with the spirit of his work, I may not always have succeeded. As one instance of possible discrepancies, I note that Dr. Nock says that he translated “Volkswirthschaft” with “economy,” except where a distinction had to be made clear. He adds that in a few places where Menger wrote of “Wirthschaft” and “Volkswirthschaft,” he, Nock, used “economy” and national economy.” In doing my work of revision, I may not invariably have preserved this practice. (I have not checked every case of possible discrepancy.) But if I have not, I do not believe there has been any real loss in clarity, and I may here and there have achieved a more concise phrasing. As an instance of deliberate change on my part, I have at points rendered as “theoretical” a German term that Dr. Nock correctly translated as “epistemological” because the former word appeared to me to fit the English version better.

Since it was constantly necessary for me, in revising, to recur to the German original, I feel constrained to add my lament to Dr. Nock’s. I agree that Menger is nearly always clear—and even painfully so in that he does insist on “leaving nothing to the reader’s imagination.” But one has one’s bad moments with him even in this matter of clarity. His work abounds in delightful combinations of words such as “without consideration of the above orientation of the same in respect to the above mentioned fact.” Occasionally, at any rate, it is not altogether easy to discover what “the above” (a huge favorite with Menger) refers to. I have admired Dr. Nock’s skill in hounding the interminable “the aboves” to their lairs. In the end, I believe, this translation is an accurate rendering of Menger’s meaning. To have tried to convert it into an elegant or highly polished English version of Menger would, I feel with Dr. Nock, have been a mistake; and, even if it had not been a mistake, it would have confronted us with a virtually endless task.

In the original work, Menger’s notes are numbered consecutively throughout the whole. His practice in this regard has been preserved. Dr. Nock made a number of notes (marked F.J.N.) which appear after Menger’s. I have added some editorial notes of my own (marked L.S.). I have sought to keep these few and brief, and I can only hope that they will be of aid or interest to the reader on a number of points. (It has seemed convenient to indicate both Dr. Nock’s notes and mine with letters of the alphabet.) The substance of what I have wanted to say about Menger appears in this introduction, and I have not sought to cram either incidentals or scholarly detail into my notes. This volume is not intended to be a bibliographer’s delight. It is intended to convey to the reader of English what Menger wrote in German.

A grant from the University Research Board of the University of Illinois to cover costs of typing is gratefully acknowledged.

LOUIS SCHNEIDER

University of Illinois

 

________________

35 See Robert Zuckerkandl, “Karl Menger,” in Zeitschrift für Volkswirtschaft, Sozialpolitik und Verwaltung, XIX (1910), pp. 251–264.

36 Friedrich Wieser, “Karl Menger,” in Neue Oesterreichische Biographie (Vienna: Wiener Drucke, 1923), pp. 84–92.

37 Joseph A. Schumpeter, History of Economic Analysis (New York: Oxford University Press, 1954), p. 845.

38 Ibid., pp. 1085–86, 827.

39 Frank H. Knight, in “Introduction” to Carl Menger, Principles of Economics (Glencoe, Ill.: The Free Press, 1950), translated and edited by James Dingwall and Bert F. Hoselitz, p. 10.

40 See footnote 5.

41 Op. cit., p. 814. n. 11.

42 See especially F. A. Hayek, The Constitution of Liberty (Chicago: University of Chicago Press, 1959), passim.

43 See Hayek’s article, “Carl Menger,” in Economica, n.s., No. 4 (1934), pp. 393–420, at p. 405. This article affords a treatment of Menger and his work that was written as an introduction to the London School of Economics reprint of Menger’s Grundsätze (London School of Economics and Political Science, Series of Reprints of Scarce Tracts in Economics and Political Science, No. 17) in 1934. I have referred to the article in Economica rather than to the introduction with which it is identical simply as a matter of convenience. (I am, incidentally, indebted to the article for a number of useful bibliographic references.) It is also convenient to note here that the London School reprinted Menger’s collected works over the years 1933 to 1936: the Grundsätze, as I have just indicated, as No. 17 in the series named (and as Vol. I of the collected works) in 1934; the Untersuchungen as No. 18 in the series (and Vol. II of the collected works) in 1933; Kleinere Schriften zur Methode und Geschichte der Volkswirtschaftslehre as No. 19 in the series (and Vol. III of the collected works) in 1935; and Schriften über Geldtheorie und Währungspolitik as No. 20 in the series (and Vol. IV of the collected works) in 1936. Volume III, Kleinere Schriften, contains as its first item the incisive lrrthümer des Historismus in der Deutschen Nationalökonomie, which continues discussion of issues broached in the present volume. A bibliography of Menger’s work is afforded in Schriften über Geldtheorie, pp. 324–332.

44 Henri-Simon Bloch, “Carl Menger: The Founder of the Austrian School,” Journal of Political Economy, 48 (June, 1940), p. 433.

45 Albion W. Small is an exception to this assertion. Small’s Origins of Sociology (Chicago: University of Chicago Press, 1924), shows keen and detailed interest in German historical, economic, and sociological thought. It affords a translation of Menger’s preface to the Grundsätze (Origins, pp. 168–171), gives a synopsis of the first chapter of that book (pp. 173–175), and renders a few additional passages from the book into English (pp. 177–180). Small also translated the preface to the Untersuchungen (pp. 180–189; note, however, the qualifications Small states in the last sentence of the footnote on p. 180, referring as he does to “one or two omissions and a few condensations”), rendered chapter, appendix titles, and other passages of this volume into English (pp. 189, 190), and afforded a digest of material from its Book III (pp. 205–219, 307–314). The present translation, however, was done in entire independence of Small’s early translation.

46 Hayek, “Carl Menger,” pp. 405–406.

47 Op.cit., p. 814.

48 Hayek, “Carl Menger,” pp. 415, 419.

49 See his Principles of Economics, pp. 257–271, 315–320; pp. 152–155 of the present volume; and Schriften über Geldtheorie und Währungspolitik, in which the first lengthy article (on “money”) presents an initial section (pp. 3–21) on the origin of generally employed media of exchange. Cf. also the essay “On the Origin of Money” by Menger in The Economic Journal, 2 (June, 1892), pp. 239–255.

50 See p. 146. Note the slightly different translation given to this question of Menger’s in F. A. Hayek, The Counter-Revolution of Science (Glencoe, Ill.: The Free Press, 1952), p. 83.

51 See Max Weber,Gesammelte Aufsätze Zur Wissenschaftslehre, 2nd ed. (Tübingen: J. C. B. Mohr [Paul Siebeck], 1951), p.29.

52 Ibid.,pp.33–37

53 Eduard Müller, Friedrich Karl von Savigny (Leipzig: Wilhelm Weicher, 1906), p. 4.

54 The tone of this is of course unmistakably critical. That Menger had Savigny and his followers very much in mind when he wrote it there can be no doubt. It is of interest that, aside from Menger, others have been inclined to accept what they regard as valid insights of Savigny’s into the organic character, or organic aspect, of law while rejecting the political conclusions he ostensibly drew there from. Thus, William Guthrie, a translator of Savigny (see Savigny’s A Treatise on the Conflict of Laws , tr. William Guthrie), is willing to say (or repeat after his authority, Rudorff) that Savigny’s opponent, Anton F. J. Thibaut, in the famous Savigny-Thibaut controversy, was of “that philosophical school, fed on the theories of the eighteenth century, which believed that law can be produced, of the desired quality and at the shortest notice, on any soil.” Guthrie’s memoir of Savigny also contains the statement that the latter “pointed out, too, the source of the whole agitation for codes, the attempt to rectify the law from above and at one stroke, in the tendency of the time ‘alles zu regieren, und immer mehr regieren zu wollen.’ “ Yet the memoir in which these statements, sympathetic to Savigny and opposed to Thibaut, appear takes Savigny to task specifically in point of his antidemocratic biases. See the “Memoir of Friedrich Carl von Savigny,” in Savigny’s Treatise, pp. 517–549, at pp. 528, 530, 542–543. Also pertinent in this whole connection, and still surprisingly readable, is Small’s account of the Savigny-Thibaut controversy in Origins of Sociology, chap. 2. Small is not insensible of Savigny’s contributions but remarks, with evident critical intent, that Savigny in effect contended that “because influences propagate themselves from generation to generation, and from age to age, therefore, trust in the dynamic power of inertia is the cardinal principle of a sane civic program” and, further, that Savigny’s “refrain was, ‘It must grow!’ This was laissez faire applied to legislation.” Ibid., pp. 49, 55. Cf. also Roscoe Pound’s critical remarks in “The Scope and Purpose of Sociological Jurisprudence,” Harvard Law Review, 24 (June, 1911), pp. 598–604.

55 See Robert K. Merton, “The Unanticipated Consequences of Purposive Social Action,” American Sociological Review, I (1936), pp. 894–904.

56 For a striking contemporary example of a reconstruction quite similar to Menger’s in method, although concerned with very different subject matter, an example replete with both questionable and highly stimulating observations, see Leslie A. White, The Evolution of Culture (New York: McGraw-Hill Book Co., 1959), Chap. 4, “The Transition from Anthropoid Society to Human Society.”

57 The Constitution of Liberty, p. 110.

58 Some of the material that follows is drawn from a paper of mine, entitled “The Role of the Category of Ignorance in Sociological Theory: An Exploratory Statement,” American Sociological Review (August, 1962), pp. 492–508.

59 Notably Edmund Jacobson, in his Progressive Relaxation (Chicago: University of Chicago Press, 1929).

60 See Böhm-Bowerk’s Positive Theory of Capital (New York: G. E. Stechert and Co., 1923).

61 See Samuel A. Stouffer et al., The American Soldier (Princeton: Princeton University Press, 1949), Vol. 2, Chap. 3.

62 See the article referred to in footnote 24.

63 See Emile Durkheim, The Elementary Forms of the Religious Life (New York: Macmillan Company, 1926).

64 See The Constitution of Liberty, passim.

65 There are of course numerous problems for a democracy posed by analysis of the role of ignorance in economic and social life, problems that cannot be touched upon here.

66 Ibid., pp. 62, 22, 21.

67 Op. cit., p. 33. Social theory is also well acquainted with the paradox in which there appears rather that power that constantly seeks the “good” and constantly achieves the “bad.” A fine example is provided in Robert K. Merton’s Science, Technology and Society in Seventeenth Century England, Osiris 4 (Bruges: Saint Catherine Press, Ltd., 1938), pp. 360–632.

68 Once more, the basic notion involved is not necessarily limited to thought about the specifically economic sphere. Thus, in the course of a discussion of Turgot’s historical views, Manuel writes: “If Providence was a source of goodness, why the long chronicle of wars and devastations, the spectacle of crimes and barbarities perpetrated throughout the ages? The answer is common to most eighteenth-century philosophers of history—in this respect Turgot’s concept is only one offshoot of a general theme. Without the impetus of the aggressive, evil passions, without the ambitions of individuals, the ‘leading strings’ of nature, there would have been no progress in the early stages of history and man would have been doomed to peace and mediocrity.” Frank E. Manuel, The Prophets of Paris (Cambridge: Harvard University Press, 1962), pp. 46–47.

• 1Beside the present work the only examples that come to mind of works translated into English after eighty years are both classics: Richard Cantillon, Essai sur la Nature du Commerce en General (1752) in 1933, and Hermann Heinrich Gossen, Entwickelung der Gesetze des Menschlichen Verkehrs (1845) in 1983.
• 2Carl Menger, Problems of Economics and Sociology (Urbana: University of Illinois Press, 1963). The present title attempts to render literally the wording of the original German title.
• 3For specific evidence consult the Social Science Citation Index for various recent years. A brief selected bibliography of the doctrine-historical literature on Menger up to 1981, compiled by Richard Ebeling, appears in Carl Menger, Principles of Economics (New York: New York University Press, 1981), p. 10.
• 4Friedrich A. Hayek, Law, Legislation and Liberty, volume 1, Rules and Order (Chicago: University of Chicago Press, 1973), p. 147 n. 5. The index of this volume lists six references to Menger; all of them are to the Investigations.
• 5L. M. Lachmann, The Legacy of Max Weber (Berkeley: The Glendessary Press, 1971), esp. pp. 55–60. In these pages Lachmann also criticizes the deterministic arguments made by Menger in the Investigations. We return to this below.
• 6Gerald P. O’Driscoll and Mario J. Rizzo, The Economics of Time and Ignorance (Oxford: Basil Blackwell, 1985), p. 20.
• 7Ludwig von Mises, Human Action, 3rd rev. ed. (Chicago: Henry Regnery, 1966), pp. 1–117. Ludwig M. Lachmann, “Ludwig von Mises and the Extension of Subjectivism,” in Israel M. Kirzner, ed., Method, Process, and Austrian Economics: Essays in Honor of Ludwig von Mises (Lexington, MA: Lexington Books, 1982), p. 32, states that Mises “saw in Menger’s distinction between ‘exact laws’ and empirical regularities the pivot of Austrian methodology,” but unfortunately provides no reference to textual evidence of this. I could not find in Mises’s writings any comment on this aspect of the Investigations.
• 8F. A. Hayek, “Carl Menger,” reprinted as the introduction to the 1981 edition of Menger, Principles of Economics, p. 12.
• 9There is no need to relate here the doctrinal history of Austrian methodology generally. I have tried to do that elsewhere: Lawrence H. White, The Methodology of the Austrian School Economists (Auburn: Ludwig von Mises Institute of Auburn University, 1984).
• 10A rather detailed account of the debate that ensued—the famed Methodenstreit—is offered by Samuel Bostaph, “The Methodological Debate Between Carl Menger and the German Historicists,” Atlantic Economic Journal 6 (September 1978): 3–16.
• 11But for an argument against what the author sees as an antitheoretical streak in some recent writers see George A. Selgin, “Praxeology and Understanding,” unpublished ms. (New York University, 1983).
• 12For a neo-Austrian statement on the role of modern empirical methods see Mario J. Rizzo, “Praxeology and Econometrics: A Critique of Positivist Economics,” in Louis M. Spadaro, ed., New Directions in Austrian Economics (Kansas City: Sheed Andrews and McMeel, 1978), pp. 51–52.
• 13See Bruce Caldwell, Beyond Positivism: Economic Methodology in the Twentieth Century (Boston: Allen & Unwin, 1982).
• 14Mises, Human Action, p. 355; Hayek, The Counter-Revolution of Science (Glencoe, IL: The Free Press, 1952), pp. 38–39. These passages are juxtaposed with Menger’s in White, The Methodology of the Austrian School Economists, pp. 19–24.
• 15This has been usefully pointed out by T. W. Hutchison, The Politics and Philosophy of Economics: Marxians, Keynesians and Austrians (New York: New York University Press, 1981), pp. 187–189. Hutchison evidently considers methodological monism to Menger’s credit, as he labels “rather pretentious” Menger’s claim that social scientists have an advantage in apprehending ultimate elements. Hutchison devotes a chapter (an earlier version of which appeared in J. R. Hicks and W. Weber, Carl Menger and the Austrian School of Economics (Oxford: Oxford University Press, 1973) to a critical exegesis of the Investigations. He offers evaluations of the book’s strengths and weaknesses opposite in many respects to those offered by the present introduction.
• 16E.g., Mark Blaug, The Methodology of Economics (Cambridge: Cambridge University Press, 1980), pp. 46–49. Blaug, unlike Menger, clearly distinguishes between techniques of investigation (here natural and social sciences obviously differ, e.g., in the use of laboratory experiments) and standards of theory acceptance (here the methodological monist says they should not differ).
• 17In particular, Imre Lakatos has written: “All scientific research programmes may be characterized by their ‘hard core’…. This ‘core’ is ‘irrefutable’ by the methodological decision of its protagonists: anomalies must lead to changes only in the ‘protective’ belt of auxiliary, ‘observational’ hypothesis and initial conditions.” Lakatos, “Falsification and the Methodology of Scientific Research Programmes,” in Imre Lakatos and Alan Musgrave, eds., Criticism and the Growth of Knowledge (London: Cambridge University Press, 1970), p. 133. Lakatos (ibid, pp. 128–130) gives an example from chemistry that fits neatly Menger’s conception of exact theory prevailing over attempted refutation by observation of actual (non-pure) elements. For a comparison of Lakatos with Mises see Mario J. Rizzo, “Mises and Lakatos: A Reformulation of Austrian Methodology,” in Israel M. Kirzner, ed., Method, Process, and Austrian Economics: Essays in Honor of Ludwig von Mises (Lexington, MA: D.C. Heath, 1982), pp. 53–73. Mises, as noted already, held that the core propositions of economics are not falsifiable.
• 18See Ludwig von Mises, Epistemological Problems of Economics (New York: New York University Press, 1981), p. 124 n. 5, for the statement that Menger’s Investigations defends classical rather than modern economics. This is cited and endorsed by Ludwig M. Lachmann, “The Significance of the Austrian School of Economics in the History of Ideas,” in Capital, Expectations, and the Market Process, ed. Walter E. Grinder (Kansas City: Sheed Andrews and McMeel, 1977), p. 48. It was Lionel Robbins’s The Nature and Significance of Economic Science [2nd ed. (London: Macmillan, 1935)] which, borrowing from Mises and other Austrians, decisively broadened modern economists’ conception of their discipline from that of a science of material welfare to that of a science of allocative behavior generally. On this see Israel M. Kirzner, The Economic Point of View, 2nd. ed. (Kansas City: Sheed and Ward, 1976), ch. 6. Kirzner (ibid., eh. 7) points out that Mises’s conception of economics as a science of human action is broader still.
• 19Mises has criticized Menger’s views on this in detailed fashion in Epistemological Problems of Economics, pp. 171–174.
• 20The locus classicus here is Milton Friedman, “The Methodology of Positive Economics,” in Essays in Positive Economics (Chicago: University of Chicago Press, 1953), esp. pp. 7, 41.
• 21Quoted in William Jaffé, “Unpublished Papers and Letters of Leon Walras,” Journal of Political Economy 43 (April 1935), p. 200.
• 22For a recent reconstruction of the methodological case for this approach see Don Lavoie, “The Interpretative Dimension of Economics: Science, Hermeneutics, and Praxeology,” Center for the Study of Market Processes Working Paper 1985–15.
• 23Norman Barry, “The Tradition of Spontaneous Order,” Literature of Liberty 5 (Summer 1982), pp. 7–58.
• 24On Hodgskin and Bailey see Lawrence H. White, Free Banking in Britain (Cambridge: Cambridge University Press, 1984). On the rest see Norman Barry, op cit.
• 25On Adam Smith and Edmund Bruke as like-thinking “antirationalist” individualists see F. A. Hayek, “Individualism: True and False,” in Individualism and Economic Order (Chicago: Gateway Edition, 1972), pp. 4–13.
• 26Philosopher Robert Nozick offers Menger’s theory (as retold by Mises) as a paradigmatic example of what he calls an “invisible-hand explanation”: Nozick, Anarchy, State, and Utopia (New York: Basic Books, 1974), p. 18. Nozick points out that such explanations are satisfying because they economize on the knowledge that must be attributed to the mind of any agent in the theory.
• 27Lawrence H. White, “Competitive Payments Systems and the Unit of Account,” American Economic Review 74 (September 1984), pp. 703–706. Menger’s theory continues to have the greatest relevance because of the prevalence of “one-sided rationalism and pragmatism” among economists spinning out visions of ideal monetary systems without inquiring into the problem of having the public adopt a new means of payment.
• 28Menger’s discussion of the primitive state as sometimes organically formed, and of “the modern state” as partly the result of organic factors indicates that he does not use “organic” to mean “free of coercive influences” but rather “not the result of one deliberate overall plan.” Still less does he signal an approval of all organic institutions and a condemnation of all pragmatic ones. The present-day term “spontaneous” is sometimes ambiguous between these two meanings, and often carries a favorable connotation.
• 29The relevant literature here is vast, but includes Friedrich A. Hayek, The Road to Serfdom (Chicago: University of Chicago Press, 1944); Ludwig von Mises, Planning for Freedom, 3rd ed. (South Holland, IL: Libertarian Press, 1974), chs. 1–2; and Murray N. Rothbard, Power and Market (Menlo Park, CA: Institute for Humane Studies, 1970), chs. 3–5.
• 30See The Constitution of Liberty, passim.
• 31There are of course numerous problems for a democracy posed by analysis of the role of ignorance in economic and social life, problems that cannot be touched upon here.
• 32Ibid., pp. 62, 22, 21.
• 33Op. cit., p. 33. Social theory is also well acquainted with the paradox in which there appears rather that power that constantly seeks the “good” and constantly achieves the “bad.” A fine example is provided in Robert K. Merton’s Science, Technology and Society in Seventeenth Century England, Osiris 4 (Bruges: Saint Catherine Press, Ltd., 1938), pp. 360–632.
• 34Once more, the basic notion involved is not necessarily limited to thought about the specifically economic sphere. Thus, in the course of a discussion of Turgot’s historical views, Manuel writes: “If Providence was a source of goodness, why the long chronicle of wars and devastations, the spectacle of crimes and barbarities perpetrated throughout the ages? The answer is common to most eighteenth-century philosophers of history—in this respect Turgot’s concept is only one offshoot of a general theme. Without the impetus of the aggressive, evil passions, without the ambitions of individuals, the ‘leading strings’ of nature, there would have been no progress in the early stages of history and man would have been doomed to peace and mediocrity.” Frank E. Manuel, The Prophets of Paris (Cambridge: Harvard University Press, 1962), pp. 46–47.
• 35It is a rare book in economics that deserves to be translated into English as much as eighty years after its initial publication. The book that actually receives such attention after so many years almost ipso facto qualifies as a classic. Carl Menger’s Untersuchungen uber die Methode der Socialwissenschaften und der Politischen Oekonomie Insbesondere of 1883 clearly merited the translation that it finally received in 1963 (under the title Problems of Economics and Sociology), for there is no doubt about its preeminence as a treatment of vital methodological issues in economics. When this translation fell out of print in recent years, the Institute for Humane Studies and the New York University Press became naturally eager to reissue it as part of their series of Studies in Economic Theory. This series includes the 1981 edition of Menger’s only other book-length work, Principles of Economics, which was first published in 1871. Thus the Investigations takes its well-deserved place alongside the Principles as a classic of economic thought enjoying a second century of life in a new language.
• 36It is a rare book in economics that deserves to be translated into English as much as eighty years after its initial publication. The book that actually receives such attention after so many years almost ipso facto qualifies as a classic. Carl Menger’s Untersuchungen uber die Methode der Socialwissenschaften und der Politischen Oekonomie Insbesondere of 1883 clearly merited the translation that it finally received in 1963 (under the title Problems of Economics and Sociology), for there is no doubt about its preeminence as a treatment of vital methodological issues in economics. When this translation fell out of print in recent years, the Institute for Humane Studies and the New York University Press became naturally eager to reissue it as part of their series of Studies in Economic Theory. This series includes the 1981 edition of Menger’s only other book-length work, Principles of Economics, which was first published in 1871. Thus the Investigations takes its well-deserved place alongside the Principles as a classic of economic thought enjoying a second century of life in a new language.
• 37The republication of the Investigations today is especially appropriate in light of the interest that economists have recently been taking in this work, in the writings of Carl Menger generally, and (still more generally) in the ideas of the Austrian School of Economics he founded. In his introduction to the 1963 edition of this work Louis Schneider wrote (p. 3): “Neither economists nor sociologists working in the English language have paid any notable attention to the Untersuchungen.” Since that edition appeared the situation has noticeably changed. The Investigations has been garnering numerous citations each year by authors in major economics journals, at a rate only slightly slower than that of the Principles. Citations to these and to Menger’s other works are by no means found exclusively in articles concerned with the history of economic thought.
• 38Much more evidence of Mengerian scholarship appears outside the narrow confines of the journals, in recent books and monographs by members and critics of the modern Austrian School. The direct influence of Menger’s Investigations on F. A. Hayek, noted by Schneider (pp. 12, 16) with particular regard to The Constitution of Liberty, continues to be evident in Hayek’s more recent Law, Legislation, and Liberty, particularly the first volume of this triology. In criticizing the view that such social institutions as law, language, money, and markets were deliberately designed or rationally constructed, Hayek comments that the Investigations “contains still the best earlier treatment of these problems.”
• 39Menger’s insight into the spontaneous character of economic and social orders has also had an unmistakable importance for other “Austrian” economists. Ludwig M. Lachmann, the second prominent elder statesman of the Austrian School, has pointed out the impact of the Investigations on the thought of the great sociologist Max Weber, whose views on institutions Lachmann endeavors to develop in The Legacy of Max Weber. The younger economists Gerald P. O’Driscoll, Jr. and Mario J. Rizzo, in a very recent restatement and extension of Austrian economics, enunciate a research program derived in part explicitly from the Investigations. Menger (p. 146) considered it “perhaps the most noteworthy . . . problem of the social sciences” to ask: “How can it be that institutions which serve the common welfare and are extremely significant for its development come into being without a common will directed toward establishing them?” Menger and his heirs have, of course, offered answers that describe ways in which individual self-seeking actions can coalesce. In light of this O’Driscoll and Rizzo rephrase the question a bit more programatically: “More precisely, our self-imposed question is: How can individuals acting in the world of everyday life unintentionally produce existing institutions or, more generally, the overall pattern of social interactions?” Thus Menger’s research agenda, put forth in the Investigations, lives on.
• 40Menger’s insight into the spontaneous character of economic and social orders has also had an unmistakable importance for other “Austrian” economists. Ludwig M. Lachmann, the second prominent elder statesman of the Austrian School, has pointed out the impact of the Investigations on the thought of the great sociologist Max Weber, whose views on institutions Lachmann endeavors to develop in The Legacy of Max Weber. The younger economists Gerald P. O’Driscoll, Jr. and Mario J. Rizzo, in a very recent restatement and extension of Austrian economics, enunciate a research program derived in part explicitly from the Investigations. Menger (p. 146) considered it “perhaps the most noteworthy . . . problem of the social sciences” to ask: “How can it be that institutions which serve the common welfare and are extremely significant for its development come into being without a common will directed toward establishing them?” Menger and his heirs have, of course, offered answers that describe ways in which individual self-seeking actions can coalesce. In light of this O’Driscoll and Rizzo rephrase the question a bit more programatically: “More precisely, our self-imposed question is: How can individuals acting in the world of everyday life unintentionally produce existing institutions or, more generally, the overall pattern of social interactions?” Thus Menger’s research agenda, put forth in the Investigations, lives on.
• 41The Investigations has clearly had direct and important bearing, and an indirect influence conveyed through the writings of Hayek and Lachmann, on the writings of the Austrian School of today. Yet in many respects the School has outgrown or rejected Menger’s methodological outlook, and it cannot be said that current Austrian methodological views derive predominantly from Carl Menger. Much of Menger’s argument has been filtered out, as it were, particularly by the writings of Ludwig von Mises in the midtwentieth century. It is noteworthy that the early chapters of Mises’s influential treatise Human Action, which discuss methodology, contain not a single reference to Menger’s Investigations. Hayek could say of the Austrian School in 1934 that, with respect to theoretical analysis, “its fundamental ideas belong fully and wholly to Carl Menger.” No one could say the same today with respect to methodology.
• 42The Investigations has clearly had direct and important bearing, and an indirect influence conveyed through the writings of Hayek and Lachmann, on the writings of the Austrian School of today. Yet in many respects the School has outgrown or rejected Menger’s methodological outlook, and it cannot be said that current Austrian methodological views derive predominantly from Carl Menger. Much of Menger’s argument has been filtered out, as it were, particularly by the writings of Ludwig von Mises in the midtwentieth century. It is noteworthy that the early chapters of Mises’s influential treatise Human Action, which discuss methodology, contain not a single reference to Menger’s Investigations. Hayek could say of the Austrian School in 1934 that, with respect to theoretical analysis, “its fundamental ideas belong fully and wholly to Carl Menger.” No one could say the same today with respect to methodology.
• 43The distinctness of the Austrian tradition in economics is correctly attributed to the consistency with which members of the school have employed a common method of analysis, namely one rooted in subjectivism. Yet the defense of this method—the explicit methodology of the school’s members—has rarely been alike from one writer to the next. It should therefore not be surprising that from a modern Austrian standpoint the Investigations receives a somewhat mixed review.
• 44As Menger indicates in his Preface, the Investigations was originally written for the sake of German economists of the late nineteenth century. It was intended to be a methodological house-cleaning, to clear away in particular the antitheoretical attitudes of the dominant Historical School. For this reason three of four sections (“Books”) of the work have “Historical” in their titles and focus on the proper role of history in economic studies. Books Two and Four are particularly oriented in such a then-topical way that the modern reader will naturally take greater interest in Menger’s more sweeping statements than in the details of his argument against particular historicist doctrines. In the present state of economics antitheoretical historicism is an annoyance occasionally encountered rather than a reigning orthodoxy demanding to be overthrown. This state of affairs is of course due to the success of the “neoclassical” tradition in theoretical economics which Menger’s own Principles helped to launch. Nonetheless it is the rare page of the present work that does not have several sentences worth underlining today. It is a measure of Menger’s stature as a social scientist that what might have been solely a tract for his times holds so many passages of enduring importance.
• 45As Menger indicates in his Preface, the Investigations was originally written for the sake of German economists of the late nineteenth century. It was intended to be a methodological house-cleaning, to clear away in particular the antitheoretical attitudes of the dominant Historical School. For this reason three of four sections (“Books”) of the work have “Historical” in their titles and focus on the proper role of history in economic studies. Books Two and Four are particularly oriented in such a then-topical way that the modern reader will naturally take greater interest in Menger’s more sweeping statements than in the details of his argument against particular historicist doctrines. In the present state of economics antitheoretical historicism is an annoyance occasionally encountered rather than a reigning orthodoxy demanding to be overthrown. This state of affairs is of course due to the success of the “neoclassical” tradition in theoretical economics which Menger’s own Principles helped to launch. Nonetheless it is the rare page of the present work that does not have several sentences worth underlining today. It is a measure of Menger’s stature as a social scientist that what might have been solely a tract for his times holds so many passages of enduring importance.
• 46Menger nonetheless anticipates Mises’s argument that the validity of rigorous theoretical reasoning cannot be tested by historical-empirical methods. Menger puts it wonderfully (p. 70): “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….”In order not to misinterpret such a statement it is necessary to keep in mind that the (logical) validity of a economic theorem is distinct from its (empirical) applicability in any specific case. Neither Menger nor Mises argues that historical-empirical evidence is irrelevant when considering whether a particular pure economic theory actually pertains to a specified concrete event.
• 47A second theme running through the Investigations, important from a modern perspective, concerns the similarities and contrasts between the social sciences (economics in particular) and the natural sciences. The decades since Menger wrote have seen the rise to dominance of a positivist methodology, now losing ground but by no means dislodged, that upholds the supposedly “hard” natural sciences as a model for economics to emulate. In one very perceptive passage (p. 142 n. 51) Menger contrasts the subjectivism possible in the social sciences to the objectivism necessary in the natural sciences. The economic theorist has immediate familiarity with the constitutive element of economic phenomena, namely planned human action. Physicists looking for the ultimate building blocks of matter and physical phenomena must deal at the frontier with elementary “particles” (Menger calls them “atoms”) and forces of a hypothetical nature. The natural scientist, then, stands ouside the object of study and knows the complex whole more immediately than the elements, whereas the social scientist has an inside perspective and apprehends the elements more immediately than the patterns or structures they comprise. Both Mises and Hayek have elaborated this Mengerian thame.
• 48A second theme running through the Investigations, important from a modern perspective, concerns the similarities and contrasts between the social sciences (economics in particular) and the natural sciences. The decades since Menger wrote have seen the rise to dominance of a positivist methodology, now losing ground but by no means dislodged, that upholds the supposedly “hard” natural sciences as a model for economics to emulate. In one very perceptive passage (p. 142 n. 51) Menger contrasts the subjectivism possible in the social sciences to the objectivism necessary in the natural sciences. The economic theorist has immediate familiarity with the constitutive element of economic phenomena, namely planned human action. Physicists looking for the ultimate building blocks of matter and physical phenomena must deal at the frontier with elementary “particles” (Menger calls them “atoms”) and forces of a hypothetical nature. The natural scientist, then, stands ouside the object of study and knows the complex whole more immediately than the elements, whereas the social scientist has an inside perspective and apprehends the elements more immediately than the patterns or structures they comprise. Both Mises and Hayek have elaborated this Mengerian thame.
• 49Menger does not draw from this insight the conclusion reached by Mises and Hayek that a basic distinction exists between the methods of inquiry and validation appropriate to social science and those appropriate to natural science. But this is not because, like some economists, he sees empiricism or positivism or falsificationism as the only proper method for both social science and natural science. Instead he argues (p. 59 n. 18) that both the search for empirical regularities and the formulation of non-empirical, non-falsifiable (“exact”) theories are methods common to both economics and such natural science fields as chemistry. In viewing theoretical research in every field as having a non-empirical proposition at its core, Menger’s position bears some resemblance to that of modern philosophers of science.
• 50Menger does not draw from this insight the conclusion reached by Mises and Hayek that a basic distinction exists between the methods of inquiry and validation appropriate to social science and those appropriate to natural science. But this is not because, like some economists, he sees empiricism or positivism or falsificationism as the only proper method for both social science and natural science. Instead he argues (p. 59 n. 18) that both the search for empirical regularities and the formulation of non-empirical, non-falsifiable (“exact”) theories are methods common to both economics and such natural science fields as chemistry. In viewing theoretical research in every field as having a non-empirical proposition at its core, Menger’s position bears some resemblance to that of modern philosophers of science.
• 51Menger does not draw from this insight the conclusion reached by Mises and Hayek that a basic distinction exists between the methods of inquiry and validation appropriate to social science and those appropriate to natural science. But this is not because, like some economists, he sees empiricism or positivism or falsificationism as the only proper method for both social science and natural science. Instead he argues (p. 59 n. 18) that both the search for empirical regularities and the formulation of non-empirical, non-falsifiable (“exact”) theories are methods common to both economics and such natural science fields as chemistry. In viewing theoretical research in every field as having a non-empirical proposition at its core, Menger’s position bears some resemblance to that of modern philosophers of science.
• 52With regard to the specific content of the core proposition of economics, however, Menger’s view is not nearly so modern. In claiming (p. 88) that economic theory is limited to the realm of “the efforts of economic humans aimed at the provision of their material needs,” Menger seems wedded to a late Classical, or at any rate needlessly narrow, view of the scope and method of economics. On a properly broad view of economics as the study of ends-seeking activity of all sorts, it becomes clear that the “Pure Logic of Choice,” as Hayek has called the core of economic theory, does not need to ascribe a “definite volitional orientation,” i.e., a special set of concrete ends, to the agents it studies. Still less does pure economic analysis rest, as Menger believes it does (p. 216), on the assumption that “the ultimate goal of all human economy is … to cover our direct material needs” or in other words that economic behavior is physiologically determined. Without this idea Menger’s distinction between “economic” and “other” sources of human action breaks down. Yet we should not too harshly criticize Menger for what amounts to a failure to see all the implications of the subjective approach to economics he himself pioneered. We who intellectually stand on the shoulders of those who stood on his shoulders quite naturally see a wider horizon for economics.
• 53With regard to the specific content of the core proposition of economics, however, Menger’s view is not nearly so modern. In claiming (p. 88) that economic theory is limited to the realm of “the efforts of economic humans aimed at the provision of their material needs,” Menger seems wedded to a late Classical, or at any rate needlessly narrow, view of the scope and method of economics. On a properly broad view of economics as the study of ends-seeking activity of all sorts, it becomes clear that the “Pure Logic of Choice,” as Hayek has called the core of economic theory, does not need to ascribe a “definite volitional orientation,” i.e., a special set of concrete ends, to the agents it studies. Still less does pure economic analysis rest, as Menger believes it does (p. 216), on the assumption that “the ultimate goal of all human economy is … to cover our direct material needs” or in other words that economic behavior is physiologically determined. Without this idea Menger’s distinction between “economic” and “other” sources of human action breaks down. Yet we should not too harshly criticize Menger for what amounts to a failure to see all the implications of the subjective approach to economics he himself pioneered. We who intellectually stand on the shoulders of those who stood on his shoulders quite naturally see a wider horizon for economics.
• 54We see in this passage just quoted an “essentialist” outlook quite contrary to the “instrumentalist” outlook officially more popular among neoclassical economists today, which says that the falsity of assumptions does not matter. (Significantly, instrumentalism is particularly preferred by those who espouse a hard-natural-science model for economics.) The ultimate goal of science for the instrumentalist is prediction, which enables control. Menger recognizes prediction-and-control as one goal of economic science (p. 36), but not as the exclusive goal: “Theoretical economics has the task of presenting not merely the laws’ of economic phenomena to us, but also their ‘general nature.’ (p. 198) Menger later, in a letter to Leon Walras, defended nonmathematical methods of economic theorizing as the only way to study “the nature of economic phenomena . . . (e.g., the nature of value, rent, profit, the division of labor, bimetallism, etc.).” An emphasis on essentialist understanding and explanation through verbal methods has been characteristic of the Austrian School from Menger down to the present. With respect to essentialism Menger’s methodological views are very much alive in modern Austrian economics.
• 55We see in this passage just quoted an “essentialist” outlook quite contrary to the “instrumentalist” outlook officially more popular among neoclassical economists today, which says that the falsity of assumptions does not matter. (Significantly, instrumentalism is particularly preferred by those who espouse a hard-natural-science model for economics.) The ultimate goal of science for the instrumentalist is prediction, which enables control. Menger recognizes prediction-and-control as one goal of economic science (p. 36), but not as the exclusive goal: “Theoretical economics has the task of presenting not merely the laws’ of economic phenomena to us, but also their ‘general nature.’ (p. 198) Menger later, in a letter to Leon Walras, defended nonmathematical methods of economic theorizing as the only way to study “the nature of economic phenomena . . . (e.g., the nature of value, rent, profit, the division of labor, bimetallism, etc.).” An emphasis on essentialist understanding and explanation through verbal methods has been characteristic of the Austrian School from Menger down to the present. With respect to essentialism Menger’s methodological views are very much alive in modern Austrian economics.
• 56We see in this passage just quoted an “essentialist” outlook quite contrary to the “instrumentalist” outlook officially more popular among neoclassical economists today, which says that the falsity of assumptions does not matter. (Significantly, instrumentalism is particularly preferred by those who espouse a hard-natural-science model for economics.) The ultimate goal of science for the instrumentalist is prediction, which enables control. Menger recognizes prediction-and-control as one goal of economic science (p. 36), but not as the exclusive goal: “Theoretical economics has the task of presenting not merely the laws’ of economic phenomena to us, but also their ‘general nature.’ (p. 198) Menger later, in a letter to Leon Walras, defended nonmathematical methods of economic theorizing as the only way to study “the nature of economic phenomena . . . (e.g., the nature of value, rent, profit, the division of labor, bimetallism, etc.).” An emphasis on essentialist understanding and explanation through verbal methods has been characteristic of the Austrian School from Menger down to the present. With respect to essentialism Menger’s methodological views are very much alive in modern Austrian economics.
• 57The 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.
• 58The 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.
• 59Menger expresses an indebtedness to none of these earlier writers, however, not even Smith. On the contrary, he actually accuses Adam Smith “and his closest followers” of holding the opinion “that the institutions of economy are always the intended product of the common will of society as such, results of expressed agreement of members of society or of positive legislation,” and of holding this opinion so closely that “the broad realm of unintentionally created social structures remains closed to their theoretical comprehension.” (p. 172) Accounting for this unsympathetic interpretation if not monumental misunderstanding of Smith is difficult. Given that Menger goes on to praise the teachings of Edmund Burke as against the “one-sided rationalism and pragmatism of the Anglo-French Age of Enlightenment,” it would make more sense for Menger’s target to be Jeremy Bentham than Adam Smith. Perhaps the key lies with Menger’s apparent affinity in policy matters for Burkean conservatism rather than the “one-sided rationalistic liberalism, the not infrequently impetuous effort to do away with what exists” that he associates with Smith and his followers (p. 177).
• 60To exemplify the concept of a spontaneously evolved social institution Menger restates his own theory of the origin of money (pp. 152–155). This marvelous theory shows that the use of certain goods as money is not originally invented by the state or adopted by a conscious social agreement, but is arrived at through a natural convergence of self-seeking actions in a market setting. The same approach can be extended to explain the origins of advanced monetary institutions such as coinage, banknotes, checks, and clearinghouses. Menger identifies several other major institutions as undesigned or “organic” in origin: language, law, morals, trade customs, professionalism, cities, and tribes (or primitive “states”). He does not fall into the error of regarding all existing institutions as undesigned, however. He recognizes quite explicitly (p. 157) that “legislative compulsion not infrequently encroaches upon [an institution’s] ‘organic’ developmental process and thus accelerates or modifies the results,” and points to modern monetary, market, legal, and state systems as the results of mixtures of “organic” and “positive” forces.
• 61To exemplify the concept of a spontaneously evolved social institution Menger restates his own theory of the origin of money (pp. 152–155). This marvelous theory shows that the use of certain goods as money is not originally invented by the state or adopted by a conscious social agreement, but is arrived at through a natural convergence of self-seeking actions in a market setting. The same approach can be extended to explain the origins of advanced monetary institutions such as coinage, banknotes, checks, and clearinghouses. Menger identifies several other major institutions as undesigned or “organic” in origin: language, law, morals, trade customs, professionalism, cities, and tribes (or primitive “states”). He does not fall into the error of regarding all existing institutions as undesigned, however. He recognizes quite explicitly (p. 157) that “legislative compulsion not infrequently encroaches upon [an institution’s] ‘organic’ developmental process and thus accelerates or modifies the results,” and points to modern monetary, market, legal, and state systems as the results of mixtures of “organic” and “positive” forces.
• 62To exemplify the concept of a spontaneously evolved social institution Menger restates his own theory of the origin of money (pp. 152–155). This marvelous theory shows that the use of certain goods as money is not originally invented by the state or adopted by a conscious social agreement, but is arrived at through a natural convergence of self-seeking actions in a market setting. The same approach can be extended to explain the origins of advanced monetary institutions such as coinage, banknotes, checks, and clearinghouses. Menger identifies several other major institutions as undesigned or “organic” in origin: language, law, morals, trade customs, professionalism, cities, and tribes (or primitive “states”). He does not fall into the error of regarding all existing institutions as undesigned, however. He recognizes quite explicitly (p. 157) that “legislative compulsion not infrequently encroaches upon [an institution’s] ‘organic’ developmental process and thus accelerates or modifies the results,” and points to modern monetary, market, legal, and state systems as the results of mixtures of “organic” and “positive” forces.
• 63The Mengerian research program, then, calls upon social scientists, and economists in particular, to unravel the “pragmatic” or designed-order strands in current institutions from the “organic” or spontaneous-order strands. The ways in which legislative compulsion modifies institutions require especially sensitive study, as the actual results of intervention are typically not those ostensibly intended. Piecemeal interventions often fail to achieve their stated aims, and give rise to more encompassing measures. The attempt to legislate an overall design for an institution usually creates unforeseen incentive structures such that the pursuit of individual purposes generates an outcome not attributable purely to the lawmakers’ intention. Modern monetary institutions, particularly central banks, may again serve as a case in point. It would be just as naive to regard the actual functioning of the Federal Reserve System as having been comprehensively designed as it would be to regard the system as the spontaneous outgrowth of free market forces.
• 64Aside from these conceptual elaborations which I have suggested, and which, I conceive, might well achieve utility because of the suggestion they so easily carry that Menger’s problems were general problems of social science transcending the specifically economic sphere, I should like at this point to make two comments about the whole matter of ignorance, on which Menger touched only very partially if interestingly. First, then, it should be quite clear by now that Menger did in fact and at least touch on ignorance as a problem in economy and society. The economic agents who lay the initial foundations of the institution of money, in Menger’s representation, are plainly unaware that they are doing so. The indirection by which the institution is built up and the intermediacy involved in its building are not planned. A general blueprint of the institution is not aboriginally in anyone’s “mind.” No structure is deliberately built, with indirection, intermediacy, and “attractiveness of intermediates” purposively set up so that some agents “manipulate” others (however “benevolently”) into making the institution. Ignorance that the building is indeed going up is initially universal. Menger was aware that there are situations in which ignorance (ignorance, that is, at least, of outcomes—such as the money institution—toward which action undertaken is due to lead) works more “effectively” toward certain ends than would knowledge of and planning toward those same ends. And his insight has been exploited, as by Hayek. (It is clear, incidentally, that the insight is susceptible of indiscriminate exploitation in favor of rather uncritical laissez-faire biases.) But just when or under what circumstances has ignorance been functional in the past or is it functional in the present? It is not enough to illustrate by adducing particular cases where ignorance has been or is functional. We need a theory of ignorance in economy and society that will render a scheme of analysis enabling us to do more than illustrate the functional or dysfunctional character of ignorance in particular circumstances; that will, ideally, by way of example, allow us to say, given certain specific kinds of activity, whether ignorance or knowledge of prospective outcomes is likely to be functional—ignorance or knowledge on whose part, in what measure, in what mixture, and so on. A host of problems is suggested hereby which I shall not even mention. We are very far indeed, at least as yet, from a developed theory of the kind I suggest. And it would be merely silly to “criticize” Menger for not achieving such a theory. But this may again help to suggest that his questionings had even broader significance than he knew.
• 65Aside from these conceptual elaborations which I have suggested, and which, I conceive, might well achieve utility because of the suggestion they so easily carry that Menger’s problems were general problems of social science transcending the specifically economic sphere, I should like at this point to make two comments about the whole matter of ignorance, on which Menger touched only very partially if interestingly. First, then, it should be quite clear by now that Menger did in fact and at least touch on ignorance as a problem in economy and society. The economic agents who lay the initial foundations of the institution of money, in Menger’s representation, are plainly unaware that they are doing so. The indirection by which the institution is built up and the intermediacy involved in its building are not planned. A general blueprint of the institution is not aboriginally in anyone’s “mind.” No structure is deliberately built, with indirection, intermediacy, and “attractiveness of intermediates” purposively set up so that some agents “manipulate” others (however “benevolently”) into making the institution. Ignorance that the building is indeed going up is initially universal. Menger was aware that there are situations in which ignorance (ignorance, that is, at least, of outcomes—such as the money institution—toward which action undertaken is due to lead) works more “effectively” toward certain ends than would knowledge of and planning toward those same ends. And his insight has been exploited, as by Hayek. (It is clear, incidentally, that the insight is susceptible of indiscriminate exploitation in favor of rather uncritical laissez-faire biases.) But just when or under what circumstances has ignorance been functional in the past or is it functional in the present? It is not enough to illustrate by adducing particular cases where ignorance has been or is functional. We need a theory of ignorance in economy and society that will render a scheme of analysis enabling us to do more than illustrate the functional or dysfunctional character of ignorance in particular circumstances; that will, ideally, by way of example, allow us to say, given certain specific kinds of activity, whether ignorance or knowledge of prospective outcomes is likely to be functional—ignorance or knowledge on whose part, in what measure, in what mixture, and so on. A host of problems is suggested hereby which I shall not even mention. We are very far indeed, at least as yet, from a developed theory of the kind I suggest. And it would be merely silly to “criticize” Menger for not achieving such a theory. But this may again help to suggest that his questionings had even broader significance than he knew.
• 66The second comment on ignorance I should like to make is that the entire set of notions bearing on “ignorance”—and, for that matter, on “subconscious wisdom,” and the like—needs careful rescrutiny. It is clear that when, in the vein of organic social theory, someone asserts, let us say, that some action based on traditional modes of acting is both “ignorant” and “wise,” an interesting and significant perspective is suggested. This may be roughly represented as follows. As actors pursue their interest they apply such knowledge germane to the solution of their problems as they can discover. The knowledge becomes built into their activity. Its original background in problem-solving is often forgotten, and the behavior founded on knowledge is then passed on from one generation to another simply as normative. That is to say, one must, or is required to, do such and so, and either no explanation is needed or a perfectly adventitious “explanation” is afforded. As bits of “wisdom” are built into heritable biological modes of functioning, so bits of wisdom are analogously represented as built into social institutions. Ignorance and knowledge become mixed or compounded. Hayek again has said some very pertinent things about this mixture or compounding, though he does not so label it, and he has properly stressed that “the result of the experimentation of many generations may embody more experience than any one man possesses”; that under civilization “the individual benefits from more knowledge than he is aware of”; that in view of this heritage of knowledge, built into the actions of individuals even if they themselves do not know that it is, the idea that “all useful institutions” must of necessity be “deliberate contrivances” becomes untenable. Actors frequently do “better than they know” merely because they “know” better than they are aware of knowing. But the temptation to weave paradoxes around this kind of insight should be allowed only under careful control. All of this interesting matter, as I suggest, needs careful review. What is the precise value of organic analogies in these premises? Is it genuinely fruitful for social science purposes to construe the term “information” in a very broad sense and allow that both organisms and societies “store” it? What, if any, differentiations is it useful to make in regard to both the “storing” process and the “information”? The critical stance that Menger assumed eighty years ago toward the naïvetés of then current organic theories should certainly encourage us today to beware of facile metaphors, while of course we may remain open to significant efforts at generalizations that bind the organic and the social.
• 67Menger’s sketch of organic theory, sketch though it be, is suggestive in still other directions than those I have indicated. Brief allusion to two I have not referred to thus far may be allowed. At page 152, again in connection with the origin of money, Menger makes the following observation: “The problem which science has to solve here consists in the explanation of a social phenomenon, of a homogeneous way of acting on the part of the members of a community for which public motives are recognizable, but for which in the concrete case individual motives are hard to discern.” Individual motives, on the line of economic self-interest, do not involve envisaging an institution which “serves the common welfare.” Inevitably, the paradox that Mandeville among others had stressed is hereby suggested. Private economic “lusts” or “vices” lead to public “virtues.” In referring to Mandeville’s paradox, Weber had aptly written of “jene Kraft, ‘die stets das Böse will und stets das Gute schafft.’ ” Menger’s individual agents, too, act on economic appetites, but unwittingly create the “good” institution of money. This is another of the matters that it is easy to believe Menger might have treated in detail in the comprehensive treatise he never completed.
• 68Menger’s sketch of organic theory, sketch though it be, is suggestive in still other directions than those I have indicated. Brief allusion to two I have not referred to thus far may be allowed. At page 152, again in connection with the origin of money, Menger makes the following observation: “The problem which science has to solve here consists in the explanation of a social phenomenon, of a homogeneous way of acting on the part of the members of a community for which public motives are recognizable, but for which in the concrete case individual motives are hard to discern.” Individual motives, on the line of economic self-interest, do not involve envisaging an institution which “serves the common welfare.” Inevitably, the paradox that Mandeville among others had stressed is hereby suggested. Private economic “lusts” or “vices” lead to public “virtues.” In referring to Mandeville’s paradox, Weber had aptly written of “jene Kraft, ‘die stets das Böse will und stets das Gute schafft.’ ” Menger’s individual agents, too, act on economic appetites, but unwittingly create the “good” institution of money. This is another of the matters that it is easy to believe Menger might have treated in detail in the comprehensive treatise he never completed.