General Economics: Its Character And Contents

(a) The Sociological Framework of General Economics. ¹ As we have seen, economic sociology and in particular historical and ethnological knowledge of social institutions progressed most satisfactorily during the period under survey. But the general economics on which I am going to report now was but little affected by these developments. Its institutional framework was left practically untouched, that is to say, it was left in the shape in which it had been thrown by the English ‘classics’ and in particular by J. S. Mill. Nations remained amorphous agglomerations of individuals. Social classes were not living and fighting entities but were mere labels affixed to economic functions (or functional categories). Nor were the individuals themselves living and fighting beings: they continued to be mere clotheslines on which to hang propositions of economic logic. And, with improving rigor of presentation, these clothes-lines stood out even more visibly than they had in the works of the preceding period. ² Critics sneered. They saw that all this was poor sociology and even poorer psychology. Like their predecessors in the first half of the nineteenth century, they failed to see that, for a limited range of problems, this was at the same time sound methodology. Owing to the importance of the problems of interpretation involved, I shall digress for a moment in order to make, once more, an attempt at clarification.

The Marxists especially but also others accused the marginal utility theorists of psychologism, that is to say, of entirely missing the true problem of economics, which is to analyze the objective facts of the social process of production, and of substituting the completely secondary problems of the psychological reactions or subjective attitudes of individuals to those objective facts (see, e.g., K. Kautsky's remark on the Austrian school, p. xix of his preface to the first volume of Marx's Theorien über den Mehrwert, 1905-10). The Austrians and other groups, with all their misplaced emphasis upon ‘psychological’ magnitudes, had only themselves to blame for this mistaken objection, which can be disposed of, so far as the objectors were Marxists, by pointing out that the ‘new’ theories were hardly more psychological than was that of Marx, who never hesitated to appeal to capitalists' psychology (e.g., in the matter of accumulation) whenever he felt it convenient to do so. In addition, however, an increasing number of critics objected not indeed to psychology per se, but to the hedonistic or otherwise unsound psychology from which economic theorists were supposed to derive their propositions. These objections will be briefly noticed in another place (see below, ch. 7). Here, we are concerned with three other sources of criticism or misunderstanding which, for purposes of identification, we shall label Political, Sociological, and Methodological Individualism.

By Political Individualism we mean simply a laissez-faire attitude in matters of economic policy, the attitude that was dubbed Smithianism or Manchesterism in Germany. Economists who built their theoretical structures from assumptions about the behavior of individual households and firms were under suspicion of recommending the results of the free interplay of individual self-interests which they described. In the eyes of the critics, this suspicion seemed verified by the facts that many of those theorists actually were economic liberals in that sense and that some, for example, Pareto in the first stage of his career, did harness their theory into the service of an ultra-liberal policy. But this meant no more than that, like everyone else, the laissez-faire men among the theorists of the period indulged in the bad habit of giving vent to their political preferences whenever practical applications were under discussion. As has been pointed out, however, the majority no longer adhered to unqualified laissez-faire. It moved with the times. The English and the Austrians accepted Sozialpolitik and progressive taxation. Marshall professed to be in sympathy with the ultimate aims of socialism, though he expressed himself in so patronizing a way as to evoke nothing but irritation. Walras is best described as a semi-socialist, Wicksell as a bourgeois radical. More important, however, is it to realize that the political liberalism, so far as actually espoused by the theorists of the period, had nothing to do with their marginal utility theories. Marxists no doubt believed that these had been excogitated for purposes of social apologetics. But the ‘new’ theories emerged as a purely analytic affair without reference to practical questions. And there was nothing in them to serve apologetics any better than had the older theories. In fact, the contrary would be easier to maintain (compare, e.g., the equalitarian implications of the ‘law’ of decreasing marginal utility); and it was ‘bourgeois’ economists who developed, during that period, the rational theory of the socialist economy (see below, ch. 7, sec. 5); it was Marshall, Edgeworth, and Wicksell who reduced the doctrine that free and perfect competition maximizes satisfaction for all to the level of an innocuous tautology. ³

By Sociological Individualism we mean the view, widely held in the seventeenth and eighteenth centuries, that the self-governing individual constitutes the ultimate unit of the social sciences; and that all social phenomena resolve themselves into decisions and actions of individuals that need not or cannot be further analyzed in terms of superindividual factors. This view is, of course, untenable so far as it implies a theory of the social process. From this, however, it does not follow that, for the special purposes of a particular set of investigations, it is never admissible to start from the given behavior of individuals without going into the factors that formed this behavior. A housewife's behavior on the market may be analyzed without going into the factors that formed it. An attempt to do so may be suggested by considerations of division of labor between different social disciplines and need not imply any theory about the theme of Society and Individual. In this case we speak of Methodological Individualism. How does this concept apply to the actual procedure of the general economics of that time?

On the one hand, it is true that the formative influences of environments, group attitudes, group valuations, and so on were not taken into account in any other way than they had been by J. S. Mill, ⁴ and that this was one of the reasons why, in conscious contrast, the historical school should have emphasized ‘ethical’ aspects as much as it did. Marshall, who did more in this direction than any other of the leading theorists, still remained within established tradition. It is also true that the failure of theorists to go further than this made itself felt—as it does now—in their treatment of a number of problems that are nevertheless ‘purely economic,’ On the other hand, however, it may be shown that, within the range of the problems that primarily interested them, that is within the range of the problems that come within the logic of economic mechanisms, the procedure of the theorists of that period may be defended as methodological individualism, and that their results, so far as they went, were not substantially impaired by the limitations that are inherent in this approach.