Beyond Positive Economics?

It is a signal honour to be invited to be President of Section F in the 150th anniversary year of the British Association. I don’t fool myself that the Association’s return to its foundation city had nothing to do with the invitation. But my kind of economist sees the subject as concerned with adaptation to, or exploitation of, previously unforeseen opportunities: and that is also how I viewed this invitation.

The purpose of the series of lectures of which this is the first is not to attempt to destroy or reject the notion of a positive economics, or to deny that important insights have emerged from the exposure of ‘mainstream’ (neo-classical) economics to positivist ideas. Rather, it is to argue that a new kind of positivism is now needed, if the subject is not to become increasingly sterile, and divided between ever more sophisticated but practically unhelpful mathematical modelling on the one hand, and an unsatisfying institutionalism or unsupported conceptualisation on the other. The essential reason for this division lies in the growing importance of the inadequacies of the underlying behavioural model (the set of propositions concerning man acting in his ‘economic environment’,) used by economists; and allied with this a natural reluctance to accept the obsolescence of a considerable stock of intellectual capital, particularly as the kind of new model that is needed lends itself easily neither to mathematical exposition nor to econometric sophistication. Its claims rest more upon relevance than upon formal beauty, at least for the present.

A question faces every one at almost every hour: what will the sequel be, if I do this, or if I do this? Whence can the answer to that question come, what form will it take, what force will it have, how will the questioner make use of it? The question admits of no escape, for even to sit silent and motionless is to take a course of action. What resources are at hand to help answer it? The individual has a conception of the technology of nature and of the capacities and propensities of human nature. Thus he has notions of the sort of thing that can take place. But when he sets himself to choose a course of action out of many which seem open to him, he may implicitly assume himself to be making history, on however small a scale, in some sense other than mere passive obedience to the play of all-pervasive causes. He may assume that his act of choice is in some respects an absolute origination, something not wholly implicit in antecedents, he may deem his thoughts to be not entirely determinate, but able to come in part ex nihilo. If choice can be of this kind, I shall call such an act of choice a beginning. It is a taking-place in some respects uncaused, yet it can help to shape its sequel. It is then an uncaused cause. A beginning in this sense is out of reach of foreknowledge. We cannot know in our present whether or when a beginning, a choice in part uncaused, may occur in time-to-come, or what may be its character.

My first duty is to relate the topic of my paper to the general theme of ‘Beyond Positive Economics?’ around which all the papers of Section F are organised.

It is not the first time that economic science finds itself in difficulty. It was in difficulty when interventionist theories and policies of the sixteenth and seventeenth centuries seemed to have outlived their usefulness; when the physiocrats proved their case against intervention only by assuming that industry was unproductive; when Adam Smith corrected that mistake but left a legacy of unresolved problems; when Ricardo tried but failed to produce a clear and logically faultless theory of value and distribution; when J. S. Mill attempted to draw socialist rabbits out of purely Liberal silk hats; when Marx tried to prove the inevitability of the proletarian revolution through the science of political economy; when Marshall saw nearly all the basic faults of neo-classical economics but did not make them sufficiently explicit; when Keynes argued his case against hoarding so well as to undermine the significance of long-term accumulation.

Since the time of Adam Smith, economists have often paused to reflect on the methodology of economics, or to consider the general character of either the social or the natural sciences. These reflections have also sometimes had a connection with their work as economists. As someone with a particular interest in these matters, and in their history, I would like to be able to think that such reflections had played a major role in the development of economics. But here, as elsewhere, Adam Smith is someone from whom we can learn. For while, in his brilliant essay on the history of astronomy,¹ Smith produced some very interesting ideas on the philosophy of science — ideas which have led some people to regard him as a precursor either of Popper or of Kuhn — it is highly debatable whether these ideas had any influence on his work as an economist.

Generally speaking, historians are loath to report on current or very recent movements, and the very sound reasons for this disinclination will soon become clear to readers of this chapter. In examining the nature of and reasons for the revival of subjectivism in economics the obvious strategy is to begin by defining the subject and then proceed to trace its origins, development and pre-revival decline; but unfortunately this is much easier said than done. Quite apart from the problem of definition, which will be considered later, the origins of subjectivism in economics go back at least as far as the medieval Scholastics, perhaps even to the Greeks, and its subsequent history has been complex as well as protracted. As it is obviously impossible to cover all this ground in the time allotted, an arbitrary choice of starting-point is unavoidable.

Although there is no intention, here or elsewhere in this volume, to develop an extended critique of conventional microeconomic analysis, it is appropriate to begin by indicating the problems which seem to provide the opportunity for a new approach. These problems are associated with the concepts of equilibrium and production.

Uncertainty is endemic, in economic affairs no less than in other fields of human endeavour. Uncertainty intrudes heavily into decision-making, which is characterised by partial knowledge; irremediable unforeknowledge; and the exercise of hunch and judgement.

Present-day positive economic theory essentially views the world as being a relatively simple place, certainly in relation to the decision-making capabilities of the human beings who populate that world: however complex the decision problem facing the individual, he or she always takes the best decision with respect to that problem.

The aims of this paper are both critical and constructive, in keeping with the general theme of the conference. It will be argued that positive economics, as it is conventionally practised, is particularly weak in the area of consumer theory because its methodology prevents it from generating any practically applicable results. This will be followed by an attempt to show that it is possible to go ‘beyond positive economics’ with a subjectivist analysis of consumer behaviour which can actually be used by economists in industry when, for example, they are called upon to advise on appropriate strategies for launching new products in oligopolistic markets.

In the title suggested for this paper by the Recorder of Section F the most significant component seems to be the question mark at the end: ‘… Progress?’