==================== HES POSTING ==================== 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 ============ FOOTER TO HES POSTING ============ For information, send the message "info HES" to [log in to unmask]