Ideology and Method in Economics

Philosophy, science and society are all indispensable features of human life. Society cannot dispense with either philosophy or science; nor can science and philosophy dispense with each other. Without philosophy, science loses its social direction; without science, philosophy ceases to be socially relevant. The philosophy and the science which are alive are — like life itself — not only analysable but also indivisible. And like life itself, neither is entirely concrete nor entirely abstract; exclusively material or exclusively intellectual; totally practical or totally theoretical. Such rigid lines of demarcation are false: they have no counterparts in the realm of reality. Only that ‘usefulness’ can be opposed to truth which is no more than a lie; that is, one man’s usefulness at the expense of another. Otherwise, truth itself is useful, just as well as usefulness is true. Both a soulless technology and an immaterial piety have destroyed themselves in the past. They may do the same in the future.

When the dawn of classical political economy broke on the horizon of history human civilisation was on the verge of a great transformation. Only two centuries earlier the European feudal system — described by Adam Smith as a catastrophe which had befallen Europe since the fall of the Roman Empire¹ — had finally begun to collapse under the pressure of domestic and external forces. The gradual development of technology and the expansion of foreign trade had been accompanied by the accumulation of financial capital and the growth — and increasing political autonomy — of townships typified by the establishment of burghs or ‘boroughs’: hence the term ‘bourgeoisie’. Whatever the direction of causation might have been, these developments were paralleled by a rapid increase in the functions and power of the state which — in the countries of northern Europe — received spiritual legitimacy by the collapse of the authority of the Roman Church. The intellectual revolution which concurrently unfolded marked the return of scientific speculation and artistic creation from other-worldly to this-worldly problems: a movement away from metaphysics to physics — from God to man — both in substance and in method.

Positive Economics, as a theory of the logic of neo-classical economic theory, was a post-war invention. By then the claim that economic theory is a positive, as opposed to normative, field of inquiry was already well-established. But this claim is neither the sole methodological criterion, nor the exclusive distinguishing feature of Positive Economics, even though some of its adherents (and critics) seem to believe that a mere distinction between fact and value is sufficient for its methodological requirements. The situation is further complicated by the fact that Positive Economics has now come to connote both the method and the substance of economic theory. In fact, it is intended as a logical positivist interpretation of the method of neo-classical theory. Nevertheless, it has partially confused the criteria of logical positivism in theory; and it has seldom adhered to them in practice. In retrospect this post-war marriage of neo-classical theory with logical positivist philosophy seems somewhat strange. For, if interpreted consistently, the methodology of Positive Economics stands the pre-war theory of economic method on its head. Yet it does so with little or no change in the content and analytical procedure of neo-classical theory which both these views have claimed to describe. More explicitly, if economic method was what von Mises and Robbins had described it to be (although, to Robbins’s credit, the two views were not entirely identical), then it would not be strictly consistent with the rules of logical positivism. This inconsistency between the two views would become very pronounced if we add the rejection by Hayek and Knight of the distinction between fact and value in social and economic knowledge.

Scientific discovery is both a logical and a social process. Therefore sociological, psychological and ideological factors also influence the growth of scientific knowledge. The concept of ideology, in its various meanings, implies that an (extra-rational) frame of mind, may set a limit to our purely logical efforts at understanding the world around us. Likewise, Freudian — and other psychoanalytical — categories are frequently used to show the impact of an individual’s psyche on his mode of behaviour, system of beliefs and methods of evaluation. Thus ideological and psychological theories together emphasise that a man’s social and personal history modify and constrain his ‘purely’ logical view of the problems which confront him. We shall discuss the concept of ideology, and its significance for the progress of economic ideas, in the next chapter. The role of psychological factors will be examined not as a separate category but in conjunction with the sociology of scientific discovery. For the psychological factors themselves may be subdivided into private or individual as opposed to public or social: it would be irrelevant, if not impossible, to generalise about the influence of individual psychology in relation to the growth of public knowledge; on the other hand, the influence of social psychology — i.e. the psychological characteristics shared by a community — cannot be isolated from the social environment on which it is based.

Few issues in the social sciences arouse emotions and controversy as strongly as the application of the concepts of moral judgement and ideological prejudice to the methods and substance of social theory. Yet few concepts are as frequently confused and misconstrued as these two concepts, by a large number of social scientists. These two observations are consistent, not contradictory. For, in general, the greater the confusion about a controversial subject, the stronger the degree of friction, and the heat which this generates.

Any body of scientific knowledge must contain a hard core of fundamental theories. These theories — at least in the first instance — must be products of the process of isolation, abstraction and generalisation. That is, they must be based on simple — and general — hypothetical models of the world of reality which may turn out to be more or less true in their application to concrete, complex — and specific — situations. A scientific theory cannot be the result of a generalisation from ‘direct’ observation: there is no such thing as ‘direct observation’; all observations presuppose hypotheses; empirical generalisations (or ‘laws’) can at best describe, not explain, the phenomena, because, by definition, they cannot establish casual relationships; they are, therefore, of little predictive value because they describe what has been ‘observed’, not what will be. This is true both of direct generalisations from contemporary, and from past ‘observations’; both of empiricism and of historicism. Yet historicism has at least one advantage over empiricism: it cannot claim to be based on ‘direct observation’, and therefore it is more obviously impregnated with interpretive valuations.

Throughout the previous chapters we cited a number of basic economic theories and methods in order to illustrate our arguments, and support our appraisal. In this chapter we shall present some more evidence from the mass of current publications in the learned journals. This is neither a simple nor a pleasant task, since it would inevitably involve a relatively small sample of theoretical articles written by a few contemporary economists. However, these articles have been selected for their contents and methods, which represent the dominant trends in theoretical research and publications. In choosing them there was no prior list of authors or subjects, for we have no quarrel with thinkers, merely with thoughts. The sample consists of two groups of articles. The first group contains some — generally, though not entirely — more substantial articles in terms of length and/or subject-matter than those in the second group; consequently, they have been discussed in greater detail.

This critical study of the foundations of economic knowledge combined an indiscriminate approach to the assessment of ideas and methods with a conscious effort to avoid personal polemics. For we agree with Jevons that ‘in science and philosophy nothing must be held sacred’; and with Popper that ‘in our ignorance we are all equal’. It follows that we should ‘welcome every opinion based on scientific criticism’ (Marx).