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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
HISTORICAL BACKGROUND
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.
ECONOMIC POLICY
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.
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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.
NATURE
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