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In his recent editorial, Tim Alborn describes himself as an outsider to
HES, apparently because he is not an economist. If I understand him
correctly, he would like to "historicize" "economics." That is, he would
like to trace the history of the word -- to trace it "back to the times
and places when people actually used the term." As an example, he traces
the late 19th century and early 20th century British usage, particularly
that of the people in England at the time when Marshall and Keynes were
staking out their professional domain vis-a-vis the popular business
press "The Economist." I would like to share with you a totally
different approach to the study of economics. As seasoned members of
this list might expect, it is an approach that focuses on the concept of
economics as _a set of invariant ideas_ as opposed to a word that may
have different meanings in different contexts and at different periods
of time.
In recent months, I have again been reading through Ludwig von Mises's
_Human Action_. Mises presented an image of the history of economic
thought that differs markedly from the usual HES history. Here I will
describe this and provide some embellishment. I will try to be brief but
the complexity of the subject requires some elaboration.
According to Mises, economics began with Cantillon, Hume, and Smith,
who recognized MARKET INTERDEPENDENCE and who tried to explain it
in a way that no previous scholars had done. Their explanations were
based on the assumption that market participants act in their self
interests. They saw market interdependence as a kind of order, or
regularity of interdependent markets and prices. This order was the
outcome of the separate actions of numerous market participants, each
pursuing his own interest. This, Mises believed, was the beginning of a
_new science_ of economics and ultimately of a new science of human
action and interaction, which he, writing in the mid 20th century,
labeled praxeology.
Let me digress from Mises for a moment and mention what most readers on
this list know quite well. It is the influence of Malthus's _Principle
of Population_ on the early work of Darwin and Wallace in the study of
the origin and evolution of species. Malthus's principle of population
may not at first seem like it was part of economics, as conceived by
Mises. It appears to be dominated by the animal instincts of a need to
procreate and of a need to eat. However, the idea of competition was
taken from economics (i.e., from economics, as defined by Mises). One
might argue that the evolutionists learned the concept of competition
from Malthus who, in turn, learned it from the early economists, who had
studied human interaction and its consequences. The evolutionists went
on to apply the idea to non-human beings. Competition among non-human
beings obviously has a meaning that is different from that used in
economics (and also in war and politics). In economics, it refers to
interaction among individuals who we assume have the capacity to choose
(to _act_, in Mises's terms).
Getting back to economics, the first major revolution, as Mises saw it,
was that of the subjective theory of price. Jevons and Menger especially
but also Walras explained market interdependence by referring to the
self-interested actions of many individuals. Thus, they followed the
earlier classical economists in this. However, their insight was to
recognize that all market participants ultimately aimed at the
satisfaction of the subjective wants of consumers, though not
intentionally, and in the case of resource supply, not directly. (Mises
believed that this insight was the consequence of economists having
solved the "paradox of value" -- why the price of diamonds is higher
than the price of water, although water is more highly valued by
consumers.)
The "revolutionary" thinking was most evident in the Austrian writings
of Menger, Bohm Bawerk, and Weiser. It later came to be reflected in the
work of J. B. Clark and P. Wicksteed. But as I have recently discovered,
there is a chapter in the history that Mises did not write. The early
Austrian theory of value immigrated quickly to the U.S. The early 1890s
saw the publication of numerous papers on the subject. The result of
this seems to have been the emergence of three post-revolutionaries: F.
Hawley, F. Fetter, and H. Davenport. Mises (and other neo-Austrians who
followed him, with minor exceptions) have only recognized Fetter. But
Fetter was the least important of the three in my view. The contribution
of Hawley and Davenport to this history was that they redefined the
concept of the entrepreneur. In their hands, the entrepreneur became a
characteristic of all market participants, the driving force of the
market, a _function_ that represents all of the action that is properly
called "economic." To these two Americans, the study of market
interdependence was the study of entrepreneurship, the aim of which was
to earn profit. This aim could be accomplished only if actions had the
goal, at least indirectly, of satisfying consumer wants. In addition to
a desire for gain, some _person_ had to estimate the potential for gain
from alternative uses of the possible factors of production, someone had
to arrange a set of commitments before individuals would cooperate in a
joint undertaking, someone had to take charge, and someone had to bear
the uncertainty associated with possible error or with changes that
result from the complexity of the problem of predicting how other people
(consumers and other suppliers) will act. All actors, even employees and
savers, act entrepreneurially, Davenport said. However, the actions of
the entrepreneurship that ultimately adopted the role of the employers
were, with some exceptions, more important. F. Knight later emphasized
some of these characteristics -- especially the requirement that
entrepreneurship must appraise factors and bear intersubjective
uncertainty.
American economists were the most acute observers and writers on the
entrepreneur. However, they did not realize the full _methodological_
implications of the notion that the market interdependence is entirely
the consequence of _entrepreneurship_. Perhaps they would have, if
their voices had not been drowned out by the empiricists,
mathematicians, and institutionalists. In any case, the first person to
recognize the methodological implications was Mises. But this is getting
too close to the present. So I will quit.
My aim in this brief essay has been to try to point out that economics
is a distinct subject. It is distinct from natural science and
evolutionary biology. It developed during the same time frame as natural
science. But it differs from it by virtue of its assumptions that,
unlike the phenomena of natural science, the phenomena of economics --
the human actors -- can choose. Because of this, its methods are, at
some level, different from the methods of natural science. Economics
also helped to launch evolutionary biology, which is the study of
phenomena that do not choose yet form interdependent orders. It follows
that when we study the history of economics (as a set of ideas and not
as a word), we must study the use of methods that are not used in
natural science or in evolutionary biology. Further contemplation will
show that the methods that are unique to economics (and the study of
action generally) can be derived from the assumption that human beings
can choose.
I could go on to make a case that the ideas of the early economists
later led to the development of sociology and political science. I could
also discuss the propensity of professional economists to disregard the
subjectivist revolution and to emulate the natural sciences and, of
late, evolutionary biology. And I could say more about why modern
professional historians of economics have chosen to ignore the distinct
character of economics. But this is enough for now.
Selected References
Clark, J. B. (1899a). The Distribution of Wealth: A Theory of Wages,
Interest and Profits. Macmillan, New York.
Davenport, Herbert J. (1914). Economics of Enterprise. Macmillan, New
York.
Fetter, Frank, Economic Principles, Vol. 1, New York: Century Co., 1915.
Hawley, F.B. (1900) Enterprise and Profit. Quarterly Journal of
Economics. November.
Knight, F. (1921), Risk, Uncertainty, and Profit, New York: Houghton
Mifflin.
Malthus, Thomas R., Essay in Population, 1798.
Menger, Carl (1871, German). Principles of Economics. Translated by
James Dingwall and Bert Hoselitz (1981). New York University Press, New
York.
von Mises, Ludwig (1966). Human Action: A Treatise on Economics. Henry
Regnery Company, Chicago.
Wicksteed, Philip D., The Common Sense of Political Economy, London:
Land Humphries, 1933.(originally published in 1910)
--
Pat Gunning
http://www.showtower.com.tw/~gunning/welcome
http://web.nchulc.edu.tw/~gunning/pat/welcome
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