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Arno Mong Daastøl,
Utsiktsveien 34, N-1410 Kolbotn, Norway.
Ph./fax: (+47) 66806523, mob. 90024956 email - www.daastol.com
A DESCRIPTION OF MY MASTER THESIS IN ECONOMICS (written 1992):
“Interpretation and generalisation: Empiricism and Rationalism as Traditions of the Methodology of Economics.”
- On the connection between the image of man, the epistemology underlying the method of economic research and economic policy of business and trade demonstrated by the opposition between English liberalism and German neo-mercantilism.by Arno Mong Daastøl, University of Oslo (1992)
- A SHORT META-DESCRIPTION ....
In my thesis I seek to show the coherence between images of man, ethics, methods of research and the economic policy of business and trade.
The key to what I have tried to do is quite in line I think with the intention expressed in Platon`s “Know Thyself”; Our understanding of the thought process structures how we perceive everything else, science, society, economy and nature:
Different conceptions in the end give different politics because different conceptions imply different goals which need different theoretical methods and political measures.
I especially argue that the real and main base of sane economics (and of society) is not needs, egoism and competition as the materialist and nominalist Hobbes meant, but the base is instead the creative mind, trust and co-operation. And the way to understand economics is not mainly by formalising mechanically but rather based on intuition through practical experience, and as a supplement historical analysis and some limited use of quantitative methods. The process of economic betterment can only be understood by understanding the thought process and thereby the conditions of creativeness and for example technical and organisational improvement.
I also argue that the two main traditions within economics: (Aristotelian) “interpretationism” (realist) or (Galilean) generalising (nominalist and rationalist in origin and more nominalist and empirist today) need totally different researchers; the first needs a gifted artist and the second a mechanical calculator -perhaps the best solution would be conciliation in a spirited craftsman. The life-style and life-experience of the researcher should also be offered more attention as it is not irrelevant to the performance of a researcher.
I especially seek to establish the status of economic methodology squeezed between the methodological ideals of humanistic sciences and the natural sciences; interpretation or generalisation -or both? (-A conflict going back to pre-Socratic times as so often is the case.) This in opposition to the post-war discussion of economic method which has been restricted to immanent questions of the nominalist tradition of its empiricist variant discussing on the basis of theory of science developed for physics; Blaug, Boland, Caldwell.
The starting-point of the thesis is the conflict between two opposed national traditions in economic thought until 1918 (1945) -the English (nominalist and rationalist) liberalism and “the American system” developed especially by the German (realist and empiricist) neo-mercantilism -also called the historical school.
I argue by investigating the character of thought and thereby the character of science, especially its method. The determining partition is seen to be the different standpoints in the struggle over the status of universals in late medieval time. By and by the victorious nominalism laid the ground for formalism taking over within scientific thought and method. The consequences are developed especially for the economic science; The conclusion is that the formalism of the (French-Austrian and) English tradition -in contrast to the (in general) German tradition, constricted the perspective and hindered it in seeing relations of fundamental importance for the economy, -in nature and especially in society.
The objection that a sufficient number of dummy variables will make any proposition formally describable misses the point; this strategy of making formal models realistic will be utterly unmanageable as the historist and statistician Wilhelm Roscher wrote (1843) as a criticism of David Ricardo: imagine for example how to make a central political term like “democracy” operative with its manifold connotations, variations and historical backgrounds -a “meaning-term” which Georgescu-Roegen (1971) calls “dialectical” as opposed to “discrete” terms which are possible to formalise to a much larger extent.
The complexity resulting from formalism if supposed to describe even “dialectical” phenomena will perhaps be manageable by a think-tank but not by ordinary economists from situation to situation. The economist`s mind will tend to be more occupied with the technicalities of the model than with the actual phenomena and problems.
As formal methodology hereby tends to make us leave certain (“dialectical”) matters outside the analysis the analysis gets thwarted and therefore is leading in a very non-objective way as opposed to what economists of the formal schools claim for their “precise” method.
I.e.: The main problem of formalism is internalising the externalities.
The thesis is divided in two parts:
First the rationalist and the historist traditions and their particular economists are described. Then two principles of thought philosophically and economically are distilled from this material. They are called rationalist liberalism and historism but are representatives not of the actual real phenomena but are ideal representations of these and so to speak represent the more extreme versions of the two. This is done in order to receive a clearer perspective of the principles of thought involved as well as of the consequences of these.
If not being in this way allowed to generalise it will never be possible to get a perspective nor find a principle. I would like to underline this: although I do regard my thesis as a hypothesis: in my thesis I did actually start with studying actual individual economists and from there I continued allowing myself to generalise after pointing out where the individual economists did not fit the general tendency or scheme. Having done this; starting with the individual economists and allowing for their individual peculiarities I believe that I have been on safe ground, i.e. having been honest to history and its inhabitants as well as any readers.
I would like to underline that this kind of “methodological generalisation” differs from empirical generalisation of social and natural phenomena; the first develops a theoretical principle and the latter seeks to establish social and natural laws.
The criteria in distilling the different main principles of economic method have to be: 1) that the principles shape a tradition which is to some degree coherent, 2) that it is fairly commonly accepted within a tradition.
The first point is the reason why it was a good idea to restrict my thesis to economic thought before 1930 as this “period” contains more coherent traditions than post-war (1945) economics muster with its mix of rationalist (ethically utilitarian) and liberalist inspired marginalism, (formal) empirically oriented econometrics and the mercantilist (ethically partly deontological) inspired Keynes.
- AND A LITTLE LONGER DESCRIPTION
The thesis discusses the years during which international economic thought was moulded from 1750 to 1930 when the principal dividing lines of economic thought were clearer than today. I have put special weight on the years 1850-1910 when the dominating French and especially English school is met by a German (originally a American- and later an Asian) historist and neo-mercantilist opposition. The German opposition is more interesting than the other oppositions to liberalism as it is not only practically oriented as the others but in addition involve a major and methodological opposition and simultaneously.
I argue that this has its background in other ethical traditions as well as these countries particular economic position and therefore particular economic interests. This led them to follow another kind of economic policy than in the “motherland” of economic science; England. I have dealt with the tradition of economic thought in England, Germany and Norway in the mentioned span of time and re-evaluate the Norwegian tradition: The Norwegian tradition in economics from 1830`s to the 1920`s was most of all influenced by historical ideas born and nurtured in Norway and not imported from Germany as they were brought forward before the historist school originated in Germany.
EPISTEMOLOGY AND METHOD
The thesis is partly oriented towards practical social policy and business and trade policy but is to a higher extent an attempt to discover the presuppositions of mind behind the various standpoints.
In order to bring clarity into the matter I have investigated the effects of the two most determining struggles in philosophical methodology in the years 1200-1800: the struggle over universals and over epistemology. These establish the foundation of different ways of understanding man, reality, science, society and economics.
Universals: General concepts as opposed to individual concepts: chair or horse as opposed to Mahatma Gandhi or Lassie.
Epistemology: Doctrines of the sources of knowledge, the self-reflection of mind.
The determining partition is seen to be the struggle over universals as one goes from seeing connections (actually classification -taxology) in realist manner as an “inner” property based on function and meaning within the whole to seeing connection in nominalist manner more as an “outer” property based on resemblance i.e. more spatial or superficial relations; leading on to formalism and later measurability.
This struggle of economic method is also related to epistemology: which of the two faculties of knowledge is to have precedence; thought or sensation; theory or practical experience. This is contrasted in the two traditions of epistemology: rationalism and empirisism.
I have classified the three main directions in the last century’s struggle over the method of economic research according to these two struggles over the method of philosophy. I have analysed weaknesses and strengths according to this classification and I claim that the only position I can defend is the German historist stand as it unifies rationalism and empirisism in a realist research attitude. This German “ethical-historisism” is somewhat misleadingly named empirisist because of its opposition to English rationalism.
A point worth mentioning is that the German empirical historism is in many ways more rationalist than English rationalistic liberalism in the way that it most certainly believes in the power of man to understand rationally the world and grasp the problems of existence thereby separating itself from English empirisist tradition which turned rather sceptical. And in addition the historist school held the importance of mental matters like competence and morality much higher than the liberalist school. So in a certain meaning -and perhaps the most crucial- historism is the most rationalistic school of the two.
The English liberalist tradition actually had a strong “historist” opposition in England and Ireland, defended formalistic deductive method and is classified as nominalist rationalism. The later positivist econometrics falls outside my span of time but dogmatically inherits a theoretical building from the earlier rationalism. It defends formalistic inductivism -or as the Popperian M.Blaug proposes: formal “adductionism”- and therefore is classified as a nominalist empirisism. These nominalist- and therefore formalist traditions is seen as unpermittably constricting in relation to the field of investigation.
Pre-war (1940) economics consists of classicism until the 1890`s and neo-classicism thereafter. Although both rationalist and formalist in fundamental outlook the marginalist revolution of the 1890`s decidedly increased this tendency. Economic man in the strictest sense was generalised without reference to time and place and this permitted a more intensive formalisation of the economic science where “pure theory” was put forward as the essence or jewel of the profession. At the same time this analysis based on economic man was said to be objective and a-ethical whereas the opposite is true as rationality within this tradition was seen as pure egoism or as “enlightened egoism” which amounts to the same in principle. In this way economics developed from a political economy of society into a formal normative decision theory of the unethical individual where a certain human motive was generalised and developed into a deductive system continued in present game theory. In this way economics not only becomes more formal but also more in line with the Hobbesian materialism and nominalism.
A point well worth mentioning concerning the classic “political economy” is that it was political with a most pronounced taint; it is revealing that the only “empirical fact” which was included in this rationalist tradition was Malthus “law” of diminishing returns in agriculture and the opposing increasing growth of population which hold together eventually will lead to hunger. Ricardo supported this stand on both points in his formulation of “the iron law of wages”, whereas the economic counsellor of Abraham Lincoln -Henry C.Carey was opposed to them both. According to the Malthusian view increased wages for the labour class will only lead to a “higher rate of breeding” and therefore to hunger and therefore is inadvisable. On the other hand higher rents or rather tributes to the land holding class will lead to more luxurious consumption and thereby keep the labour class employed. Higher wages will not have this employment effect according to this theory of Malthus.
The economic policy resulting from these presuppositions about the poor creative abilities of man concerning technique and of the breeding instinct of the working class, both very misanthropic and materialist with very little faith in a common ability of man to better his lot through spirited efforts, is a policy very hostile to the working class and its institutions which served to legitimise the upper class` luxury against a starving working class. (This genocidal mentality and its connection to Nietzsche has been traced in literature up to 1939 by John Carey, Oxford 1992)
Although not a theme of my thesis I think I should mention that Malthus` presuppositions are indeed still alive today but now more on the geopolitical level as seen for example with the Club of Rome.
Again Malthus` ideas carry devastating implications for the lower classes but this time in the III world: Today one is focusing more on the population explosion and migration threat than on their common cause which is lack of economic development due to lack of a moral and national control over material and ideal resources. The IMF imposed policy worsens this situation and serves to keep the developing countries out of business and making them no threat to the world-domination of previous industrialised countries. Besides the record of Japan and Taiwan for example should be ample evidence for the fact that population growth go very well along with rapid industrial growth and that the population problem to a large extent “takes care of itself” as long as economic and cultural development is secured through proper national economic policies. (Taiwan: from 3.8 to 0.9 population growth and labour shortage in 40 years). It seems that Malthus and his followers pay attention only to the consumption of the additional mouths to feed and not to the additional hands and minds to work. -Or, this additional work-power and technical improvements are seen to be giving diminishing contributions to the common wealth. However this is a quite materialist and mechanistic view of the work-power which pays little attention to the spiritual efforts potentially available in this young workforce. The issue therefore is not population growth but economic policy. Not being able to see this present economists are still prisoners of the misanthropic thoughts of Malthus (as with the growth models of R. Solow) and also of either the misanthropic or “hallucinatory” thoughts of Ricardo not reflecting on the unequal situations of the trading nations when advising free trade.
Post-war economics -Keynesianism and econometrics- picked up elements from both the preceding schools. From the historist school it got an orientation towards statistics and had in the “mercantilist” spirit of J.M.Keynes an inclination towards “democratising” and stabilising the economy therefore advocating protectionism and encouraging popular basic spending exactly in historist tradition. These protectionist elements of Keynes and especially its connection to neo-mercantilism have later been “filtered” out although Keynes himself was explicit on the matter even in his main writing: “A General Theory..”.
But post-war economics is dominated by the nominalist school in that only facts that can be formalised do count in the most important part of it -the pure theory, and that it is inclined to generalise (“extrapolate” in statistics) instead of “just” interpreting the facts and thereby educating the practically based intuition of the researcher as in the historist tradition.
Calling the English classical / neo-classical tradition rationalist seems according to the reactions on my thesis to need a deeper explication: their main inspiration is British empirisism. How can this be explained?
The English economist`s main inspiration was Newton, -already with Adam Smith according to Mark Blaug (1980). Newton`s main inspiration according to for example E.A.Burtt (1931: “The Metaphysical Foundation of Modern Science”) was Hobbes who (much like Democrit) although a materialist he was also a rationalist system-thinker. The English economists adopted Newton`s deductive system and started (as he did) with axioms. Therefore the system is rationalist and one might therefore rightfully ask whether the Galileo-Newton tradition actually is rationalist as opposed to the (interpretative) empiricism of Aristotle: Galileo on an occasion once said that he really saw no need for an experiment as he knew the outcome already at the outset.
Calling the English tradition both rationalist and nominalist seems to be even more puzzling to many as I connect rationalism and nominalism: Traditionally all well known rationalists (Descartes, Spinoza, Leibniz) have been realists so how can I call a tradition in economic thought both rationalist and nominalist? Again the main inspiration of the economists in question was Newton whose main inspiration again was Hobbes who was decidedly a nominalist. The matter dealt with here is natural sciences. Concerning the social sciences the matter is even more clear as Hobbes was a main inspiration of later social- and political views in England especially concerning economics which is the matter here.
Besides; apart from these historical arguments as argued for elsewhere the external attitude that characterises this view is related to materialism and nominalism -for example the social atomism. That atomists in history may have been realists does not contradict this as the matter is a package of attitudes comprising a world-view. The matter is not particular opinions. I would as a proposition rather say that atomists who are realists may have an inconsistent package of thoughts.
EFFECTS OF NOMINALISM
The pseudo Platonist (inverted) and nominalist background is also to blame for instrumentalism -the later misanthropic dominating tendency of viewing theories instrumentally as opposed to the mentioned realist view. Obviously this opposition between nominalism and realism also has a parallel in the struggle between opposite views of society; atomistic or organic in the way that they understand society hold together by “outer” or inner forces: power (Hobbes) or morality (Hegel). Also such a nominalist and atomist view has a parallel in an individualistic method of social research (Hobbes) as opposed to a holistic or more collective method -based on functions and meanings within the whole (Hegel-Marx).
An idealist - as opposed to a materialist method - would focus more on persons rather than structure and therefore make intention instead of correlation the key term. This would however not at all imply a atomistic method as it is usually understood for example with formal economic decision theory. It would rather imply a collectivist method but again not as understood within structuralist methods as these just like the above mentioned methodological individualism involve mechanical relations which in a way can be calculated beforehand. Rather an idealist method would involve on the individual side intentional persons and on the collectivist side intentions and functions within the whole. In this way both aspects are granted influence and the struggle over methodological individualism vs. -collectivism seems to be going on within a materialist world-view and image of man. The focus on persons would decidedly make the social sciences more political and above all more concerned with morality.
Such a idealist person orientation would undoubtedly be taken best care of within an historist method of research.
The demarcation concerning universals (external vs. inner properties) also corresponds to the demarcation between contingent or necessary relations i.e. holism vs atomism; synthetical vs analytical method and the question of whether the world (social and natural) is causally (Galileo) or teleologically (Heraklites-Hegel + David Bohm) structured. This is actually not an opposition as teleology (causa finalis) would include causality (causa efficiens) on a subordinate level as Aristotle claimed. The opposite modern view of science claimed by for example Kant does not give teleology a respectable position. “Pure causality” is therefore a more limiting world-view as seen in history for example with the struggle over the status of the secondary properties of the senses which could not be measured at the time.
THE LIMITED PERSPECTIVE OF FORMALISM
In the thesis I have especially tried to understand and develop the arguments of the historists empirical thought -concerning methodology called “ethical-historism” and concerning politics of business and trade called “neo-mercantilism”. I have done this because it is an almost forgotten tradition, it works well as a contrast to the English tradition and thereby clarifies its viewpoints and besides it shows us the background for method of economic research and economic politics today, for example concerning econometrics (statistics) and Keynesianism (stability and demand).
This conflict between liberalism and historism has been called -by the chairman of International Network for Economic Method (INEM) Daniel R. Fusfeld: “one of the most important methodological debates in the history of economics”. It has something to teach us on philosophy of science for the social sciences in general and economics in particular as well as having a lot to offer on practical economic policy as it was primarily a practically directed mode of thought;
It criticised the rationalist liberals for generalising too much on the basis of a speculative- or at best a narrow empirical foundation instead of sticking to interpreting already known experience as the German historical school did. Therefore Hume`s problem of induction was no problem to them since it only appear to be a problem when you extrapolate what you already know i.e. as you make science nomotetical instead of ideographic. In this way the struggle over economic method is connected to the opposed two traditions of Heraklites-Hegel vs Xenofones-Newton of which the latter is a mix of Eleatic statism and materialism, Pytagorean abstraction and Platonic dualism. This is very broad view but this is not the place to go through such a complicated matter. The generalisation is however, intended to further the awareness of the roots of modern economic theories.
We will find that the struggle over economic method is connected to these ancient theoretical conflicts just as much concerning the questions of whether to take change or equilibrium as the starting point for analysis and partly as for questions concerning the choice of quantitative vs qualitative methods.
Along this line of argument, the historists also criticised the exaggerated (at that time!) formalism within rationalist liberalist economic thought, claiming that it overlooked “non-formalisable” factors and relations of great importance for the economy.
Since the historists took into account a much larger field of factors and the problem of ceteris paribus- and ad-hoc relations was therefore of less relevance to them than to the formalist tradition. They claimed that the rationalist liberals overlooked factors as for instance: the different historically given national institutional and juridical relations -which for example affect political management but really are expressions of the collective mentality of a nation -“Volksgeist” as the German called it, the morality of contracting and of work and informal production such as family-care which constitutes the real foundations of the more formal and therefore more easily measurable production in state and market. Already with the juridical historist school preceding the same school in economics its leading figures Sir Henry Maine and Friedrich von Savigny were especially attentive to this fact.
Concerning political management the morality of the public bureaucracy is especially crucial and even more so within the historist position as they assign the state a much more central role than the liberalists and therefore must pay special attention to prevention of corruption and nepotism -a matter of urgency to the developing countries. Max Weber is most known among the historists in this field. Formalist thought (including Marx as claimed by Horkheimer and R.Bernstein) overlooked to a great extent the importance of education and creative thought; science -and thereby the importance of historically moulded competence materialised in technology that is constantly reshaped. (One could also have added ecology and energy to the list.) The historical school thereby praised the role of social (institutional) factors and therefore the underlying mental factors (thought and morality) for society and the economy. It argued against liberalism claiming the importance of trust and competence established through practically based intuition as a foundation for economic- and social progress as well as for the understanding of these.
Concerning Marx: Although radical politically he was methodologically, epistemologically and concerning the image of man far less radical than the German historists as he was heavily influenced by the present materialism and its effect upon English social thought from which he drew a lot of inspiration.
THE INTERDISCIPLINARY METHOD OF GUSTAV SCHMOLLER
The historists and especially Gustav Schmoller underlined the indivisibility of man and therefore the social sciences. His interdisciplinary approach is radical in the deepest sense: By wiping out the distinctions between the different social sciences he also wiped out the distinction between theoretical and descriptive science. This was the neo-classical marginalist Carl Menger`s main argument against Schmoller since it would rob economics of the possibility of building a “pure theory” as in physics thereby robbing economics of the “scientific precision” of abstraction. However, concerning the analytic method of abstraction, Menger does not seem to pose a critical question of what to generalise or reduce reality to: Exactly what aspects of reality are the central ones. This is crucial as this reveals ones interpretation of what aspects of phenomena that are important in economics or even if this really is an aspect of the phenomena. Menger finds these aspects to be utility maximising and goes on to generalise these abstractions to cover all situations regardless of historical, institutional and mental circumstances. Weber seems to be a victim of the same (neo-Kantian) “Rickertian” flaw.
Menger saw no big difference between the social and natural sciences concerning the method of investigation. -The view of this Austrian is later carried on in the unity of science tradition -the Vienna school. Schmoller was however content with this as his methodological stand was more that of the Aristotelean interpretative empirisism than of Galilean generalising rationalism (extrapolating formalism). Schmoller`s stand can be seen as a disagreement of the unity of science claim claiming instead the autonomy of the social and humanistic sciences but his view could also be seen a general claim of teleology as opposed to causality concerning both the social and natural sciences. The argument between Menger and Schmoller concerning an interdisciplinary method therefore originates from the struggle between the nominalist and realist views of the universals as argued above.
CRITICISM OF HISTORISM
Criticism from the positivist camp that historism is obscurantist and make no allowance for the formulation of laws intended as instruments for social planning may be right but is also due a cultural crash between the German historism and the formalist tradition:
This criticism originate from the nominalist tradition that has dominated since the medieval time. Instead of interpretation of the facts one demanded formalistic deductions: in a qualitative form in the earlier (-1935) rationalist tradition and later in form of statistical proofs in the empirisist tradition (positivism). What the historists could offer however was only historical explanations and intuitions for the future.
Criticism from the rationalist camp that it is too positivist may be right too as historists sometimes let statistics to a large degree dominate over the qualitative analysis. This was especially the case with English historists who were much more influenced by Comtean positivism than the Germans.
This so-called struggle over method in economics lies at the base of -and together with ethical concerns legitimises the different business and trade policies that were carried out in a particularly purified manner in England on the one hand and in Germany/USA on the other. They were respectively one sinking and two rising stars on the economic “vault of heaven”. The connection between method and policy is simple: the German historists observed empirically the misery a free trade policy was causing industrially and socially (unemployment) when inexpensive English goods were bought instead of goods from German infant industry -as the German economy was backward at the time. The motivating force of protectionism was thereby both ethical and egoistic i.e. involving industrial interests the running of which again had high ethical implications. The German economists got a very strong hand in forming the national policy at the time of the historists -probably also because they served to legitimise this policy of Bismarck whose social policy also was intended to keep the socialists without influence. -That several liberalists such as A.Smith were in favour of protectionism of infant industry was too a large extent forgotten in British official policy as it was not a matter of any urgency.
We can find contemporary parallels to such liberalist- and neo-mercantilist economic policy since partly Norway and Japan (as well as other South-Asian countries) to a large extent constitute opposite poles and USA and EC may constitute intermediate courses.
A main thought within neo-mercantilist theory is that the economic policy of a country has to be adapted to the stage of development of the country. Therefore one should not as the liberalists generalise one type of economic policy to cover like and unlike. This practical empirical orientation is typical of both mercantilism and neo-mercantilism.
PERVERTING ECONOMIC POLICY
However a transition from mercantilist to liberalist economic policy has often happened as a “natural” development of a country`s economic development. This happens when the power of financial capital groups grow at the expense of productive capital groups within economically expanding countries leading to a liberalist policy. Neo-mercantilism found this morally decadent (just as old-mercantilists would have found it decadent on the matter of national power) as it led to a practical policy that did not pay considerable attention to the productive foundation of a country especially concerning its competence thereby leading to a decline of the economy and thereby the social system of the nation in general. The capitalist was in neo-mercantilism supposed to be a knight of morality and of social culture as well as a profiteer.
Whereas liberalists saw property as a more or less sacred and untouchable institution heavily propagated in their ideology as a defence of the little man against the whims of politicians of the state the historists on the other hand had a much more pragmatic relation to the institution of property which can be observed in the present German constitution. The institution of property is here primarily to serve the common good. One might however ague against historism on a more principal and philosophical ground claiming that private property cannot be reasonably defended. The liberalist John Locke`s classic defence is for example based on a very materialist conception of man and his motivations and besides as in liberal theory in general contains a total and fatal confusion of individuality (more mental) and egoism (more materialist). Antroposophic literature is more critical on this point (for example Hjalmar Hegge, Verlag Freies Geistesleben 1992).
This opposition is of course also clearly related to the different philosophical traditions; individualism in England, collectivism in Germany.
The point is that as capital got “liberated” from the direct ties to production and this kind of capital grew in amount and strength it also grew in political power. If this led to a total liberalist policy the neo-mercantilists saw this as undermining the conditions which were fertile for production and employment and therefore for the whole social system. For example by investing abroad instead of at home because of weaker rights of workers and environment abroad -which by the way the liberalists in theory presupposed as unthinkable because of the capitalists supposed nationalism and suspiciousness of foreign conditions resulting also from another inherited ethical code more absent in modern capitalism. The neo-mercantilists brought this presupposition out in the open. -As W.Churchill pointed out this decline took place in Britain as capital export to America expanded.
What is not included in the thesis but a natural pursuance of it is the following: One might ask why a return to more planned and holistic protectionist policy does not seem to take place when for example the industrial capacity declines as in Britain 100 years ago or in the US. today. The only explanations I can find are that ideology is perhaps the most sluggish matter there is. And besides financial groups may have their say in this matter especially crucial in the case of England since London still is the financial centre of the world.
The co-founder of AAFE -American Association for Economists- F.W. Taussig wrote in 1911 (“Principles of Economics”) that England being the leading industrial country was dependent on exports and therefore pushed on for a liberalist policy in other countries. According to historist arguments this implies refusing other nations the opportunity to develop its industry and culture and instead remain a commodity-exporting country. The logic of economic evolution of short-sighted selfishness is therefore for a nation to pull up the ladder once you have climbed up yourself. The conclusions of this concerning for example the IMF and the III and by now the II world are obvious. The dogma of free trade as a qualification for peace may on this ground be questioned.
A description of traditions of social policy in the mentioned countries on a company level, locally and nationally would be more complex but is to a large extent affected by the general economic policy. This will be seen clearly from the following short characteristics of the goal and method of these two different main traditions of economic thought. The old mercantilism is also characterised in order to see the differences:
Mercantilism: (common-sense pragmatism before economics as a science)
National strength through growth and therefore protection and regulation.
Liberalist rationalism (English liberal individualism in philosophy):
Individual prosperity through material growth, therefore efficiency through competition, mobility and therefore free trade.
Neo-mercantilist empirisism (German collectivism in philosophy):
A morally strong nation through stability and co-operation and therefore protection and regulation.
The neo-mercantilist type of economic policy was intended to be developed multilaterally into an international system of agreements. Therefore it is somewhat misleading to call this theory nationalist even though it did have such practical results as power-ridden governments and interest groups meddled in and “polluted” the original idea going back to a unilateral old-mercantilism and “ad-hoc mercantilism” as especially in the US today despite its free flow claims. This results in newspaper headings like “The ugly face of protectionism” which is equalled not with sound nationalism but with imperialism and eventually racism whereas the opposite may actually be true as mentioned above.
ETHICS AND POLITICS
In the neo-mercantilist thought stability was wished for in order to create security since for labourer and businessman alike a safe income can be more important than growth. Stability is important in order to secure and develop trust between people and to society in general. Stability is needed to make people know each other in order to care for each other. Stability is thereby a foundation of morality and thereby a foundation of society and the economy. Not mentioned in historist literature I believe is the view that trust and therefore morality and development in the long run can only be maintained in small societies and that federalism therefore is the best solution politically. This is claimed by anarchist leaders like Pjotr Krapotkin and also indirectly by the institutional economist Mancur Olson (1965 pp.62-3).
The historical school came to value stability highly through the results of their historical method; historical analysis of processes of alteration; they presupposed -and observed empirically, change and wanted stability. Liberalism on the other hand studied pure theoretical models (“rational”; actually originated from Pythagorean- and Christian normative metaphysics of numbers and harmony) of equilibrium; they tacitly presupposed the factors promoting stability and wanted change (mobility).
MONOPOLIES AND VOLUNTARY CORPORATISM
Liberalist policy logically and ironically led to monopolies which undermined the very crucial mechanism of liberalist theory; competition. Opposed to this the neo-mercantilists often (not willing to generalise) saw monopolies as a means of achieving stability -and efficiency especially concerning grand projects and therefore promoted co-operation between companies, between companies and banks and between companies and the state -just as in present south-east Asia which resembles more mercantilism than neo-mercantilism since they pay less interest to morality than to short term material growth and growth of national power. The destructive consequences of this can be seen in the corruption and tax cheats in Japan and in the labour conflicts in Korea. They have not paid enough respect to keeping the mental and moral foundation of their growth intact. Instead they have acted just like the Europeans 100-200 years earlier who ate of the moral seed-corn without replacing it.
Neo-mercantilism was a forerunner of later corporatism involving co-operation and agreements between the different parts of the economic system in order to secure stability and mutual responsibility and care. However, such policy did not involve co-operation by force as with fascist ideology, but rather voluntariness as for example trade unions generally were highly respected by the historists. Neo-mercantilism was also strongly occupied with material growth but held that moral and social stability were prerequisites of this growth and consequently that liberalism undermined material prosperity in the long run. However moral was the main motivation of their economic policy since a certain level of prosperity was seen as securing a higher moral level and therefore was wanted.
THE MORAL ECONOMICS OF ANTON MARTIN SCHWEIGAARD
The economist who has influenced Norwegian policy the most -Anton Martin Schweigaard from Kragerø, Norway (1808-1870), constitute a clear example of this line of thinking. Schweigaard wanted economics to state its goal not as the highest obtainable production but instead as the highest obtainable welfare. He stated that the supposition of “economic man” went into bankruptcy as soon as this distinction was made. His views on the fundamental connection between goals and means in economic policy are simply exemplary in their clarity. He stated that although the first moral (!) rule in economics was “learn to furnish yourself with the means for the satisfaction of your needs” the second was “learn to dispense with” these needs. He was very aware of the importance of morality as well as of technical and organisational competence in production. Still he was called prophet of materialism by contemporary cultural persons which should remind us of the degree to which the moral awareness has changed in 130 years. His advocating for free-trade contrasts with usual historist policy but resulted from his detest of Norway becoming industrialised. He wanted to protect nature and people from the degrading industry and wished instead to create an economy based on exports of raw-materials just as F.List advised for such wishes. Although Schweigaard first of all was a practical and pragmatic man with immense influence on Norwegian policy in general he was also a most profound social thinker who do not at all deserve the oblivion he has been granted among economists. As has been said about the contemporary Norwegian sociologist Eiliv Sundt and the philosopher Marcus Jacob Monrad; had he written in a more common European language his writings would surely have been regarded as true classic literature.
HOLISM, PATRIARCHALISM AND SCIENTIFIC ETHICAL PARTIALITY
On the other hand neo-mercantilism never reached such moral highs in practice since different interest groups obstructed the completion of such a holistic and thereby moral policy as for instance in Russia prior to the 1. World War. A central issue of historism is therefore the political and organisational question of how to enforce a holistic policy -therefore involving the morality of the bureaucracy as well as of the parliamentary parties and involving the formal organisational structure of national decision making. An acute problem in all democratic countries today. The task may in the short run be easier in a dictatorship as Korea used to be. On the other hand, economic development may be said to have brought democracy to Taiwan..
The historist tradition was originally paternalistic or conservative but became as time passed more critical of authorities. It changed in the same way sociology did because of the withering away of the old society it originated from. In the industrial society the nobility, church and guilds had lost power and were not able to defend the individual against whims of the state and the market; the only viable force was the labour union movement and its opposition with the employers.
Historism never saw itself as being neutral whether in a scientific, political or ethical way nor denied to take a stand in these struggles as the liberalist tradition claimed it did. But involving themselves as they did they stressed very strongly the awareness of being partial:
Although historism changed as pointed out above its ethical engagement however placed it all the time in opposition to liberalist laissez-faire politics for example concerning the rights of the unions and the wage-formation. The “Methodenstreit” therefore involves a conflict between opposite ethical foundations of economic policy; goal- and means-oriented.
The liberalists were utilitarians and therefore goal oriented -the goal justifies the mean to put it squarely: On the question on permitting poverty to be a means of growth they meant that (a Norwegian saying) “rain on the clergyman will drip on the bell-ringer” thereby allowing greater cleavages in income and fortune within a population and between nations -a “trickling down” argument still alive with Reaganism and Thatcherism. This promotes a general lack of trust between people in general and in particular between the different social classes -a lesson still not learned for example in Korea. This undermines economic and social development and a cultural and individual refinement necessary for economic development.
The historists on the other hand were ethically more rule-oriented and defended unemployment dole, sick-leave, unions, minimum wages -that this was not always carried out in practice does not weaken their argument. The historists were in this way initiators of the welfare state and also of the co-operative system in different settings; Japan as well as Scandinavia.
In the thesis I comment the role of nature in economics and seek to explain ignorance of untreated nature in the rationalist tradition partly as a result of a lacking ability to incorporate untreated nature into a formalist mode of thinking: formalist economics was focused on pricing which is possible with untreated nature only in a very hap-haphazardious way -although it today partly pretends to be doing so in a “precise” way. Also responsible was an irresponsible and unmoral attitude of conquest towards nature and its inhabitants. Already Plato was horrified by the results of this.
It should be noticed however that the liberal rationalist tradition was not totally ignorant of nature as both Malthus and Ricardo (1800-1830) paid close attention to the falling growth of agricultural output and Jevons later (1890`s) paid close attention to the falling reservoir of coal-energy. In both cases attention therefore is paid to the limiting effects of nature for economic growth. Pigou addressed the problems of pollution in the 1920`s for other economic activities and not for nature and the following repercussion on economic system. Although it is not totally correct to say that the liberal rationalist tradition ignored nature one can however say that over all the attention was scarce and when not scarce it was not an attention to untreated nature.
Corresponding to its treatment of social relations formalism was never able to understand the importance of nature (ecology) to the economy or the importance of economy for nature (ecology) or the repercussions of this on the economy. This is only excusable to a degree as knowledge on the matter of ecology maid its way already in the last part of the 19th century. As ecology partly is possible to describe formally although as mentioned in a superficial way and this is being done to an increasing degree in our time within mainstream economics I have concentrated my energy in bringing to the front the mental foundation of the economic system concerning social- and especially ethical matters as well as the foundation in competence that has to be maintained in order to make the system work for the common good. This is also a pre-requisition for a more decent attitude to nature and its inhabitants.
On the other side historism did not pay much respect to nature either.
SUMMING UP AND INSPIRATIONS
Summing up I would say that the formalist tradition in economics led many relations to be put aside as “external” as compared to the factors one usually took into consideration within the models. A result of this way of thinking is that it never managed to internalise these externalities. This was -and still is, the main problem of formalism today especially acute when it comes to my main interest in economics: morality.
The problem or danger of historism was on the “rational” side a danger of falling into obscurantism and on the “empirical” side a danger of falling into positivism -blinding oneself with narrow statistical details and technicalities instead of occupying itself with for example morality.
In total I would defend most parts of historism against liberalism but admit post-war economics a place in the sun to the degree that it has learnt from the historist school stressing stability and an empirical attitude. But formalist it still is.
My wells of inspiration - in addition to historical material and especially the historist movement, has been the mathematician and economist Georgescu-Roegen, highly respected by “green” and “institutional” economists. Besides I have learnt a lot from philosophers and economists within the antroposophic tradition who just reforward much of the spirit of the German historisism and Hegel.
June 6th 1993