1. Introduction
Those who view theoretical economics as an empirical science – and the majority of modern economists will be included here – will generally come to the conclusion that, in the final analysis, all of the phenomena that it investigates can be traced back to human behavior, to the opinions, decisions, and actions of individuals. The theory speaks of economic subjects, who appear in their capacities as consumers, employees, holders of assets, businessmen, etc. and behave in accord with certain perspectives, which are important to investigate. The issue is thus the action of certain social role players, and economics cuts out a segment of the role structure of society that it views as economically relevant and able to be analysed under reasonably unified theoretical points of view.Footnote 1
Because market phenomena have been the focus of economic thought since the emergence of modern economics, it is primarily market-related roles and role segments of the social structure that are taken into consideration. The conceptual tools of economics have been market oriented from the outset.Footnote 2 Anyone who analyses the logical grammar of economic terminology thus continually runs up against social relationships of a particular nature, namely commercial relationships between individuals and social structures, as they are constituted in market behavior, as basic objects. In light of the way it formulates problems, it is not entirely unwarranted to interpret economics in part as sociology,Footnote 3 and indeed primarily as a sociology of commercial relationships.
Even though it is relatively easy to determine the sociological character of economic problems, it is still not possible to say that theoretical economics has reaped the benefits of research from general sociology or from the closely related discipline of social psychology. Neither is this to be expected as long as theory formation is dominated by neoclassical thought, which channels economic analysis so as to abstract as much as possible from social facts. The field of market relationships, which it thereby aims to get a handle on, then appears to be a relatively autonomous area of social life, which can be dealt with in isolation from these other areas; and strangely, beyond that, the factors that otherwise tend to be drawn on to explain social behavior appear to play no considerable role. To theoretically apprehend market behavior and the commercial relationships of people and social groups, it does not seem to be necessary to dig deeper into motivational or institutional problems. Neither the social milieu of the individuals and groups active in the market, the internal structure of these groups, the cooperation among them, their will-formation, the motivational structures, nor the attitudes or value-orientations of the individuals appear to be relevant for the behavior of economic units, unless they are expressed with sufficient precision and generality in accord with a behavioral maxim: the neoclassical assumption of maximization or other simple reaction functions.
Theoretical economics of the neoclassical variety thus appears quite oddly to combine sociological problems with relatively sociology-free solutions. It appears to be immune to the intrusion of sociological and social-psychological knowledge. How can sense be made of this? Need the results of other social sciences be presumed to be irrelevant for the economy? Or can this peculiarity of economic thinking perhaps be brought into connection with certain idiosyncrasies of the methodological approach that is often affiliated with it? It seems to me that there is much to be said for the latter of these two possibilities. To show this, a few general preliminary comments of a methodological nature are first needed.
2. Reference to reality, informational content and truth
In everyday situations, if, in answer to an inquiry about the weather forecast, one is told that the weather will remain the same as long as it does not change, then one does not normally go away with the impression of having been particularly well informed, although it cannot be denied that the answer refers to an interesting aspect of reality, and, beyond that, it is undoubtedly true. An answer so extremely and obviously lacking in content will indeed normally only be offered as a joke, so it seems moot to take this kind of case into consideration. Nevertheless, it is perhaps worthwhile to relate a few general considerations to a case of this sort, for it particularly clearly displays a matter of fact that can play a certain role in less obvious and less extreme cases. It shows that it is possible to speak about reality, even to make true statements about it, without saying anything about it; in this case, that means, without providing any information.
In statements or sets of statements, it thus may be useful to differentiate very generally between reference to reality, informational content, and truth. For one, we can ask whether and in which way the respective statement or set of statements – for example, a theory – is related to reality;Footnote 4 for another, we can ask whether and to what degree it provides information about it,Footnote 5 and if applicable, which information it contains; finally, we can ask whether this statement or set of statements is ‘true’, that is, in our case, whether it corresponds with the constitution of reality, or more precisely still, with the aspect of reality under consideration. We are not normally interested merely in the truth of a statement, nor merely in its relation to reality; we are fundamentally interested in what it says, that is, in the information that it contains. As our trivial example shows, it is extremely easy to make assertions that are related to an interesting aspect of reality, and that are true, if we are willing to forego information. We need only make statements that are true for reasons of logic – analytic statements, as they are often called.Footnote 6 Given that they preclude no conceivable situation, they have full latitude. They are formulated such that they will conform to anything that can happen in the world. The same applies to those statements that, while not being analytically true, are stipulated so as to possess a certain unlimited ‘alibi’.Footnote 7
This already provides us with the decisive difference from informative statements that provide information about reality by virtue of precluding certain possible matters of fact (situations, events, processes, etc.), and that consequently must be viewed as refuted if these in fact do occur. Information can only be obtained by limiting logical possibilities; and this in principle entails the risk that the respective statement may be exposed as false. It is even possible to say that the risk of failure increases with the informational content, so that precisely those statements that are in some respects most interesting, the nomological statements of the theoretical hard sciences, are most subject to this risk.Footnote 8 The certainty of statements is best obtained at the cost of informational content, for only an absolutely empty and thus uninformative statement can achieve the maximal logical probability.
The nomological hypotheses (laws) characteristic of general theories often have the character of general hypothetical statements (conditional propositions, if–then statements) or they can be brought into this form with no difficulty. It is possible in this case to differentiate between the content of both components of the hypothesis (its if- and its then-clause) and the content of the hypothesis itself, and to determine the following relationship: with an increase in the content of the if-clause of such a statement, the content of the statement itself decreases, while it rises with the increase in the content of the then-clause, both under the presupposition that the content of the respective other component does not change.Footnote 9 This relationship can become important in judging theoretical statements, for example, as will also be shown, for the question of the interpretation of ceteris paribus clauses.
As the informational content of a statement increases, its general testability and verifiability also increase, for with the decrease in the scope of the statement, the possibility to test it increases; the possible strength of the testing increases so that the respective statement (set of statements) can be subject to a higher risk of failure. This also results in an increase in the possibility of verifying it on the basis of facts.Footnote 10 The degree of verification of a statement or a set of statements can be made dependent on the strength and the outcomes of the testing to which it was subject. We are in fact not strictly able to determine the truth of informative statements, especially when these are nomological hypotheses that claim validity for arbitrary spatiotemporal spheres, but we can at least attempt to subject them to a high risk of refutation (Scheiterns) by the facts so that we have some grounds for accepting them for the time being, as long as the results of tests related to them are positive.Footnote 11
If theoretical statements are empirically re-examined, there is a tendency to apply the respective theory in a certain way to concrete situations, and that means, among other things, that one draws relevant logical consequences from them for the respective conditions of the application. Here it is important to know that, in the course of the logical deduction, there can be no increase in the informative content of the statements under question.Footnote 12 Through the process of deduction – that is, through logically permissible transformations – it is never possible to pull more information out of a set of statements than they contain. Consequently, one can be certain that only true conclusions are derived from true premises, presuming of course that there are no breaches in the logic. The logical deduction guarantees to a certain extent the transfer of positive truth value, of the truth, to the derived statements. Besides that, it can be shown relatively simply that the falsity of a deduced statement yields the falsity of at least one of the premises. It is thus possible here to speak of the re-transference of negative truth value.Footnote 13 Practically this means, for example, that it is possible to refute a theory if one is able to refute its consequences. This correlation is continually used in the empirical testing of theories.
3. Model Platonism: the application of conventionalist strategies in economic thinking
3.1. Immunization against experience as a neoclassical tendency
The connections sketched out above are part of the general logic of the sciences and can thus be applied to the social sciences. Above all, with their help, it appears to be possible to illuminate a methodological peculiarity of neoclassical thought in economics, which probably stands in a certain relation to the isolation from sociological and social-psychological knowledge that has been cultivated in this discipline for some time: the model Platonism of pure economics, which comes to expression in attempts to immunize economic statements and sets of statements (models) from experience through the application of conventionalist strategies.Footnote 14 That need by no means be the intention of the respective theoretician, although there is an array of well-known economists who explicitly hold an a priori methodological view or who for one reason or another at least view the empirical examination of economic theory as superfluous.Footnote 15 The neoclassical style of thought – with its emphasis on thought experiments, reflection on the basis of illustrative examples and logically possible extreme cases, its use of model construction as the basis of plausible assumptions, as well as its tendency to decrease the level of abstraction, and similar procedures – appears to have had such a strong influence on economic methodology that even theoreticians who strongly value experience can only free themselves from this methodology with difficulty. Hereby, through conventionalist procedures, theories that certainly entail interesting ideas are often rendered insensitive to the facts and thus rendered useless. In other social sciences, too, model Platonism also may often stand in the way of useful theory formation.Footnote 16 It appears, however, to be fairly certain that because of their methodological tradition, this is a danger to which representatives of the economic sciences succumb especially easily, particularly as long as they remain unconscious of it.
If one tries to gain an impartial overview of the development of economic thought, then, under certain circumstances, one may be impressed by the great number of errors and misunderstandings to which even the most famous and penetrating thinkers succumb. But this stand of things is by no means exceptional or maybe even regrettable. A horrible error can even be more significant for the growth of knowledge than a trivial truth. Science progresses through the gradual elimination of errors from a large offering of rivalling ideas, the truth of which no one can know from the outset. The question of which of the many theoretical schemes will finally prove to be especially productive and will be maintained after empirical investigation cannot be decided a priori. Yet to be useful at all, it is necessary that they are initially formulated so as to be subject to the risk of being revealed as errors. Thus one cannot attempt to preserve them from failure at every price. A theory is scientifically relevant first of all because of its possible explanatory power, its performance, which is coupled with its informational content.
3.2. Remarks on the law of demand
In the area of microeconomics there is an array of examples that can demonstrate the possibilities of model Platonism. For the sphere of consumption goods, the law of demand is an essential component of the theory of consumer market behavior. With this law, a specific procedural pattern of price-dependent demand is not postulated, that is, a certain demand function, but only the general form that such a function ought to have. The quantity of the good demanded by the consumers is namely characterized as a monotone-decreasing function of its price.Footnote 17
The law appears prima facie to predicate a relatively simple and easily testable relationship and thus to have a fair amount of content. However, upon closer examination, this impression fades. As is well known, the law is usually tagged with a clause that entails numerous interpretation problems: the ceteris paribus clause. In the strict sense this must thus at least be formulated as follows to be acceptable to the majority of theoreticians: ceteris paribus – that is, all things being equal – the demanded quantity of a consumer good is a monotone-decreasing function of its price.Footnote 18 The ceteris paribus clause is not a relatively insignificant addition, which might be ignored. Rather, it can be viewed as an integral element of the law of demand itself.Footnote 19 However, that would entail that theoreticians who interpret the clause differently de facto have different laws of demand in mind, maybe even laws that are incompatible with each other. A law tagged with this clause can be viewed as a general hypothetical proposition,Footnote 20 to a certain extent as an always-and-everywhere if–then clause. The ceteris paribus clause would accordingly belong to the if-clause of the respective law of demand; the proposition about the general form of the demand function, by contrast, would belong to the then-clause. The entire law would thus have something of the following schematic structure: If such and such conditions remain the same, then the demand function has such and such a general character.
Here it seems advisable to return to our general observation about the informative content of hypothetical statements. We determined that the content of the then-clause changes in the same direction as the content of the general proposition, and the content of the if-clause changes inversely to it. Bringing this to bear on our law of demand, the consequence is that, under the presumption of the same then-clause, the difference in the informational content in a certain respect depends on a different interpretation of the ceteris paribus clause. If the factors that are to be left constant remain undetermined, as not so rarely happens, then the law of demand under question is fully immunized to facts, because every case which initially appears contrary must, in the final analysis, be shown to be compatible with this law. The clause here produces something of an absolute alibi, since, for every apparently deviating behavior, some altered factors can be made responsible.Footnote 21 This makes the statement untestable, and its informational content decreases to zero. This is a classical case of the use of a conventionalist strategy.
One might think that it is in any case possible to avert this situation by specifying the factors that are relevant for the clause. However, this is not the case. In an appropriate interpretation of the clause, the law of demand that comes about will become, for example, an analytic proposition, which is in fact true for logical reasons, but which is thus precisely for this reason not informative. This of course applies to any interpretation that makes the then-clause of the law of demand under question a logical consequence of its if-clause so that, in this case, an actual logical implication results. One might think that examples of this sort of interpretation must be constructed ad hoc; but that is not necessary. One example of this sort occurred not long ago.Footnote 22 Here, through an explicit interpretation of the ceteris paribus clause, the law of demand is made into a tautology.
Various widespread formulations of the law of demand contain an interpretation of the clause that does not result in a tautology, but that has another weakness. The list of the factors to be held constant includes, among other things, the structure of the needs of the purchasing group in question.Footnote 23 This leads to a difficulty connected with the identification of needs. As long as there is no independent test for the constancy of the structures of needs, any law that is formulated in this way has an absolute ‘alibi’. Any apparent counter case can be traced back to a change in the needs, and thus be discounted. Thus, in this form, the law is also immunized against empirical facts. To counter this situation, it is in fact necessary to dig deeper into the problem of needs and preferences; in many cases, however, this is held to be unacceptable, because it would entail crossing the boundaries into social psychology.Footnote 24
In connection with the law of demand, other questions would of course also be considered, which are connected, for example, with the static character of this law, with the possibility of interpreting it subjectively or objectively, and with its alternative analytic structure. Here the point has only been to illustrate this peculiarity of neoclassical thought.
3.3. The problematic of the quantity theory of money
In the theory of money, quantity theory belongs to the traditional teaching corpus. Recently, it has been displaced by other theories, which tend to be presented as having greater explanatory power. In its classical form, the quantity theory of money declares, for example, that a change in the volume of money is always connected with a change in the level of commodity price in the same direction. Sometimes even a strict proportionality between these two changes has been presumed. Under the common presupposition that the expressions ‘price level’ and ‘amount of money’ are defined independently of one another, ‘naïve’ quantity theory, that is, the claim of the proportionality of both movements, is a rather informative proposition. To test it, a sufficiently precise definition of both factors is required, and, in connection with this, useful indicators for it must be identified. Unfortunately, this theory has not proven to be successful, consequently it has been necessary to resort to a less demanding form of it. In the course of the development of economic thought, this form, too, has been abandoned in favor of what is known as the quantity or exchange equation, which maintains that the product of the amount of money and speed of money flow is identical to the product of the trade volume and the price level. However, as it is normally interpreted, this equation is analytic; thus the transition from the old quantity theory to the equation of exchange results in a tautology, and consequently a decrease in the informational content to zero, something which has by no means been noticed by all theoreticians.Footnote 25 Because the equation is formulated in language of application in one area of economics, it undoubtedly has a reference to reality, something which may well have misled various theoreticians into assuming that it also has informative content. In this way, one might arrive at the view that this is simultaneously a necessary proposition (because of its analyticity) and a content-laden one (because of its relation to reality).Footnote 26
In itself this view is of course very easy to understand, for the difference, for example, between the two following statements appears at a superficial glance to be negligible: ‘Under the assumption that the trade volume and the speed of the money flow remain constant – that is, ceteris paribus – the changes in the amount of money lead to changes in the same direction in the price level’; and ‘Because the trade volume and the speed of the money flow remain constant, changes in the amount of money lead to changes in the price level in the same direction.’ Nonetheless, at issue here is the difference between an analytic proposition and a hypothesis.Footnote 27
In the more recent discussion, the quantity theory of money has tended to be replaced by a conception emerging from Keynesian theory. From a methodological perspective, it is extremely interesting to note the way that this substitution tends to be justified. Given the results of modern philosophy of science, one might expect that matters of fact would play a certain role in this argumentation, unless of course it were possible to demonstrate either a contradiction within quantity theory or a lack of informational content, something which, offhand, is only possible for the degenerate form of this theory, namely the equation of exchange. The content of a nomological hypothesis entails precisely that certain possible matters of fact can be excluded. Thus, for example, in its informative versions, quantity theory precludes quantity booms in which the amount of money in fact increases, but does so at constant or sinking price levels, because the social product correspondingly increases at the same time. In opposition to quantity theory, one could, for example, maintain that there have in fact been such quantity booms in economic history. However, argumentation of this sort is by no means an everyday affair. Rather, one sometimes attempts, with the help of one consideration or another, to prove the preferability of the Keynesian instrument, without thereby committing oneself to a special hypothesis that can be formulated with the help of this instrument.Footnote 28 Here, one can of course rely on the fact that every informative theory, consequently every version of quantity theory under consideration, must allow the construction of logically possible cases with which it is incompatible. The fact that such cases can be formulated with the tools of Keynesian theory is of course not a sufficient basis for refuting quantity theory. The analysis of such cases can only create clarity about the informational content of this theory, not about its (positive or negative) ‘validity’, consequently, for example, its degree of reliability, but not its relative reliability in comparison with other theories.
Let us presume that propositions are formulated with the help of the tools of Keynesianism, which can be shown to have much greater logical scope than a certain version of quantity theory. Such a finding would initially only imply the greater informational content of the latter theory, so it would scantly be possible to draw negative consequences about its comparative usefulness. If the propositions of the rival theory are also formulated in such a manner that they have complete leeway, then this theory will immediately be eliminated as a possible alternative, even if one wants to take the view that it contains the factors relevant for the range of phenomena to be explained.Footnote 29 In any case, a comparison of theoretical conceptions can only show a difference in their informational content and thus in their testability and their reliability. To judge them, it would also be necessary to empirically test them, since without doing that, nothing can be said about their comparative reliability.
It is thus hardly possible to judge quantity theory without going into the historical facts such as those mentioned above, facts, which, however, only appear to lead to the refutation of the theory. Now, of course, one can draw completely different conclusions from such a refutation from those commonly drawn. One can forgo both the tautology and the switch to another sort of tool. Recent research shows namely that it is not possible to preclude a reformulation of quantity theory that does not immunize the theory to experience and that is nevertheless compatible with the relevant facts already known.Footnote 30 That, however, need not make such a theory acceptable.
3.4. Models in the area of growth theory
Other examples of model Platonic constructions are found in the area of growth theory, which, according to the widespread interpretation, is mainly concerned with formulating the conditions for what, in certain respects, is ‘undisturbed’ economic growth.Footnote 31 Thus, often in constructing growth models, equations are postulated, on the basis of some consideration or another that is supposed to explain the conditions of progressive economic equilibrium. Then these equations, under the application of further equations – for example, of definitions for the marginal capital coefficients and for the investment rate – are subjected to certain transformations, from which further equations result. From the interpretation of the results of this operation, one can then gather that it is perhaps necessary to manipulate certain factors such as the investment rate or the capital coefficient in a certain way in order to achieve a progressive equilibrium.Footnote 32 Because the initial equations for the transformations are not definitional equations, but explications of the ‘conditions’ for progressive equilibrium, one might get the impression that one is dealing here with the deduction of practically relevant consequences from content-laden theoretical propositions. That, however, is by no means clear. Under ‘conditions’ one can, on the one hand, namely understand empirical conditions for the occurrence of certain phenomena, which are able to be characterized independently of the respective conditions, but, on the other hand, also the ‘logical conditions’ for some phenomenon or another, which, in this context, are to be understood as including prerequisites, which allow the occurrence of the respective phenomenon to be logically derived without the aid of nomological hypotheses, or without which it cannot be derived. Such ‘conditions’ are in certain respects a part of the statements characterizing the occurrences in question. They ‘define’ the occurrences. It is debatable whether it is efficient in both cases to speak of ‘conditions’ without any further qualification. In any case, the analysis of conditions in the second sense has nothing to do with the formulation of theoretical hypotheses to explain any facts.
In the economic discussion, one can see again and again that the expression ‘condition’ is by no means used in the mentioned empirical sense, but that it is often used in a way that comes closer to the second meaning. In growth theory that even seems to be the normal case.Footnote 33 The initial equations, which explain the named ‘conditions’, are not generally treated as hypotheses or as components of hypothesis, but as mere assumptions,Footnote 34 whose consequences are to be examined. Of course, in the context of growth analysis, the claim can be made without further ado that the concerned equations must be fulfilled if the respective social system is to be considered on the ‘equilibrium path’ of economic growth. However, as long as this equilibrium path in principle cannot be determined independently from the concerned equations, as appears to be the case currently, this statement is immune to all testing against the facts. In fact, one can even usually presume that this equilibrium path ought to be defined with the help of the concerned equations, something that is difficult to recognize since one does not tend to view such equations as fragments of more complex statements. In general, a certain danger in economic thinking seems to me to consist in severing from their contexts the components of possible hypotheses that can easily be formalized and treating them as pure assumptions, whose theoretical role is then difficult to determine. If achieving the equilibrium path is made logically dependent upon fulfilling the concerned conditions, then the statement in question becomes a tautology. To avoid this, by introducing suitable hypotheses, one can of course relate the model to certain independently identifiable conditions.Footnote 35 As long as that does not happen, it is in any case immune to the facts.Footnote 36
3.5. Procedures of model Platonism
It would be possible to multiply the examples of such procedures with no difficulty. Just think about the theories on market forms, market relations, and market behavior that generally tend to be constructed so as to leave open all possibilities, but that nevertheless are expressed in a form that leaves the impression that they are content-laden assertions.Footnote 37 When any behavioral maxims whatsoever appear, they are not formulated and treated as hypotheses, but as assumptions about the possible behavior of economic subjects, whose logical implications are to be examined. Here all sorts of questions come to the fore that have little to do with the informational content, the explanatory power, the prognostic value, or the degree of validity, namely questions of the context of the deduction, the ability to formalize it, and its plausibility.Footnote 38 This also applies, for example, to marginal productivity theory, which long was considered a useful instrument for explaining the functional income distribution. Here often it was not treated as a theory with empirical content, but was developed from the presumptions of profit maximization under certain further presumed conditions, without the question of its content and its validity even arising.Footnote 39
Welfare economics, whose theoretical conceptions and procedures – and in fact both in the Pigovian and in the Paretian versions – display typical traits of neoclassical thought, has created a large area for pure formal controversies and propositional constructs whose empirical relevance is difficult for the impartial observer to recognize.Footnote 40 However, some theoreticians view the reference to the normative character of the teaching as providing a sufficient reason for avoiding statements with empirical content.
It is difficult to completely describe the different sorts of conventionalist strategies that may be used to immunize statements and models to the facts. As already said, here it is by no means necessary that these always be strict tautologies. As I have outlined above, it is possible to use unspecified or correspondingly interpreted ceteris paribus clauses for this, which can, however, in borderline cases lead to a tautology, and which in any case provide the respective statements with an unlimited alibi. Besides that, by more or less explicit statements, it is possible to limit the application of the respective models to the areas in which the presuppositions are met, for example, to the areas of the respectively defined rational behavior. Clearly, it is possible to interpret the ‘presuppositions’ of a theoretical system – that is, in this case, the theoretical statements from which all other statements of the system are deduced – not as hypotheses, but simply as limitations to the area of application of the system in question. Since a relationship to reality is usually ensured by the language used in economic statements, in this case the impression is generated that a content-laden statement about reality is being made, although the system is fully immunized and thus without content. In my view that is often a source of self-deception in pure economic thought. The only assertions that remain in these procedures are related to the logical connections, and they are thus often of a meta-economic (that is meta-linguistic) nature. A further possibility for immunizing theories consists in simply leaving open the area of application of the constructed model so that it is impossible to refute it with counter examples.Footnote 41 This of course is usually done without a complete knowledge of the fatal consequences of such methodological strategies for the usefulness of the theoretical conception in question, but with the view that this is a characteristic of especially highly developed economic procedures: the thinking in models, which, however, among those theoreticians who cultivate neoclassical thought, in essence amounts to a new form of Platonism.Footnote 42
4. Between model Platonism and conceptual realism: fronts in the German method controversy
Neoclassical thought, which is dominant in most areas of economics, combines the tendency toward model Platonism with the tendency to insulate theoretical economics as an autonomous discipline from the basic social sciences, thus above all, from sociology and social psychology. Economics appears to be an object area that can clearly be interpreted and explained without recourse to the results of sociological and social-psychological research.
This economic orthodoxy has always stood in contrast to orientations in economic thinking that have attempted to treat economics as a human science, and that, in contrast to neoclassicism and similar approaches, have declared misgivings regarding content and method, such as Marxism, the historical schools, the social law school, and institutionalism. It can hardly be denied that these currents, however one may judge their overall success, have contributed essential elements to the development of economic thought, which, in light of the one-sided orientation of pure economics, were capable of providing a certain counterbalance. If one attempts to acquire a view of the diverse method controversies that have appeared at the frictional interface between the heterodox views and neoclassical economics, it is now difficult to accept the views of one or the other side as a whole. Those, for example, who would like to argue that, in the first German method controversy, Carl Menger advocated the concerns of theoretical thought against pure historicism can hardly avert the objection that the type of theory he advocated and, above all, his methodological approach to theoretical thinking appear extremely questionable from the viewpoint of contemporary philosophy of science. A strong tendency towards apriorism is characteristic of the Austrian school, which then, via Ludwig von Mises and other theoreticians, also had a considerable influence on Anglo-Saxon thought, completely independently of the fact that similar tendencies were long at work here. Some thoughts of Schmoller and his students – especially, for example, Eulenburg – on issues of method are obviously much closer to the views developed in contemporary philosophy of science than are the views of the Austrian school.Footnote 43 However, Schmoller himself unmistakably employs a certain inductivism, which had an adverse effect on the methodological practices of the younger historical school, negatively influencing theory formation. In any case, in light of the results of contemporary philosophy of science, it is not necessary to choose between Mengerian apriorism and Schmollerian inductivism.
The contemporary fronts in the German method controversy have developed under the influence of social-scientific-oriented theoreticians following Max Weber, whose methodological views can largely be traced back to the effects of phenomenological hermeneutic philosophical orientations. Beginning at the turn of the 20th century, these currents in philosophical thinking, especially in German-speaking countries, first had a growing influence on the thinking in the social sciences, which – as sciences of socio-historical reality, orders of life, and interpretations of the world – were contrasted with the natural sciences, and were thought to have a special methodological status.Footnote 44 The economists of this orientation tend to be critical of the model thinking of pure theoreticians, even if they by no means necessarily reject their results and methods. They tend rather to accuse them of absolutizing their ‘partial knowledge’ and of being unwilling to recognize its fragmentary character in view of the ‘cumulative knowledge’ aimed at by society as a whole. The economists oriented on the social sciences and humanities thus combine their anti-naturalistic methodology with the tendency to emphasize holistic social contexts and to argue sociologically. However, upon analyzing the studies that they refer to as ‘theoretical’, one often discovers a purely conceptual discussion, which is supposed to result in clear insights into essential relationships.Footnote 45 Here, too, defining statements and other analytic propositions are viewed as informative and as essential components of a theoretical conception since they are related to reality. Insofar as the scientific research in this area is to have theoretical relevance, in general it is not oriented towards hypotheses, as in the natural sciences, but towards concepts. A wealth of concepts is confused with a wealth of information. Among other things, because the proponents of modeling in pure economics rely on mathematical expressions and forms of reasoning, they are treated as advocates of the natural scientific method and criticized for reputedly not having adequately considered the connection of these methods to objectivity.
We are thus confronted with a formation of fronts in the German method controversy that can be traced back to an array of misunderstandings, without which it would hardly be understandable. One tendency is ‘pure’ economic modeling that largely ignores sociology and that leans toward the model Platonism outlined above; another tendency is a humanistic form of economics, open to sociology, but which cultivates essentialist thinking and thus tends towards conceptual realism. The pure economists have a very understandable aversion to the imprecise, vague, and opaque verbal speculations of the essentialists, who have adopted the dominant questionable philosophical style in Germany since Hegel, while the essentialists are very skeptical of the modelers’ copious use of mathematical expressions and their disinterest in social relationships.
As much as these two styles of thinking differ in details, for example, regarding their views of the theoretical autonomy of economic thought and their inclusion of social factors, the use of mathematical or verbal expressions, the significance of models, etc., they share a common distinctive element of importance, which understandably is thus hardly emphasized in their method controversy: namely, the methodological apriorism, which largely dominates their theoretical methods. Problems of the information content, the empirical testability, and the confirmation of theories hardly play a role in this controversy in German-speaking countries. In light of these circumstances, it may be difficult for some economists who are not directly involved in this controversy to be convinced of the need to decide in favor of one or the other of these tendencies. From the perspective of the modern philosophy of science, for example, the confirmation of the concerned theories could be viewed as an essential argument, but both model Platonism and conceptual realism tend to immunize the theoretical conceptions under question to facts, consequently they by no means have the opportunity to be confirmed. Why should a proponent of pure economics be prepared to consider the verbal speculations about the essence of the economy and of society in his model constructions if the relevance of these thoughts for his work cannot be shown? He will readily be able to content himself with his ‘partial knowledge’ if the relevance of the problem of the abstraction from social facts cannot be clearly shown on the basis of his models. The same of course applies to the proponents of a form of social economics that aims at essentialist thinking and ‘complete knowledge’. Platonic constructions will hardly be able to convince him that a form of pure economics that abstracts from non-economic factors can be a successful undertaking. The a prioristic basic tendency characteristic of both approaches results in a solidification of the positions that can only be redressed by referring back to it as the fundamental weakness of both positions, and bringing the methodologically decisive question into play from there.
It is important above all to dispel the impression that these two tendencies are the only alternatives available. The formation of fronts in the German method controversy appears to feed into the grave misunderstanding that one has to choose between a model Platonism with mathematical tendencies, which ignores sociology, and a sociologically oriented conceptual realism, which tends towards verbal speculation. It is thus important first of all to recognize that considering sociological knowledge by no means requires one to assume the methodological conception of the essentialist thinkers. Modern sociology has long disassociated itself from studies of the essence of society, the state, or social structures, which was typical of earlier work; and, in connection with social psychology, by applying natural scientific methods, it has procured an array of useful results, also of a theoretical nature, which may at least be of some relevance in explaining economic phenomena. On the other hand, the application of mathematical expressions and mathematical deductions need not be connected with the attempt to immunize the models in question to the facts with the help of relevant strategies and simultaneously to insulate economics from sociological insights. There is no set of problems in the empirical sciences, not even in the social science disciplines, for which it makes sense to immunize theory formation a priori to possible objections that emerge on the basis of relationships to the facts. However, neither is there an economic problem, except of a purely formal character, in relation to which one could say a priori that it could be solved, without the incorporation of social factors that have not yet been taken into consideration. In the final analysis, this means that it is impossible, on the basis of the way it formulates problems, to decide in advance on the theoretical autonomy of economic thinking.Footnote 46
5. Overcoming neoclassicism by sociologizing economic thought
However, perhaps it is worthwhile to dwell a bit longer on the strange fact that precisely the economic thinkers closest to the neoclassical tradition, who tend towards model Platonism, are at the same time the most tempted to insulate economic thought from knowledge of the social sciences and to defend the theoretical autonomy of economics. It is possible that this connection is not coincidental. Economics is essentially concerned with theoretically penetrating and explaining aspects of a particular area of social life. The way economic facts are presented has often led to the impression that it is concerned with an ‘astronomy of the movement of goods’,Footnote 47 but in the end hardly anyone can doubt that this movement of goods is steered by human behavior and that it is necessary to refer back to human behavior in order to explain it. However, what is seen less often is the sociological character of microeconomic terminology, which focuses on ascertaining the exchange relationships between persons and social groups, thus between certain, i.e., social, relationships constituted by reciprocal behavior. The central idea of economic thought is in a fundamental sense a sociological one: namely, that the production and distribution of goods regulates itself quasi-automatically by a system of commercial relationships between the people and groups of a society, flanked by a judicial sanctioning mechanism, in a way that is relevant to satisfying the needs of the individuals concerned. It is thus concerned with the analysis of certain effects of processes in a subdomain of society that is organized by the market. In this, an attempt is made to trace all relevant processes back to the decisions of economic subjects that follow certain maxims. In neoclassical thought these maxims are usually formulated as maximization assumptions, whereby the object maximized can differ. However, in order to make the money flow and the flow of goods comprehensible, other reaction functions, which can be postulated ad hoc, can readily be substituted for maximization assumptions.
Based on the research results of other social sciences, above all sociology and social psychology, we know today that the action and decisions of those performing social roles are dependent on facts that by no means have a ‘pure economic’ character, that is, factors that cannot be captured with the tools of neoclassical thought and its derivatives. These are above all factors of a dispositional nature, such as motive structures, attitudes, value orientations, etc., as well as the respective social context of the behavior concerned, also aside from the field of commercial relationships, especially insofar as it is defined by the existing institutions.Footnote 48 There is a good deal of research showing the importance of particular standards, social norms, and their institutionalization and internalization, as well as of the reference groups and other factors for the action of members of society.Footnote 49
It is extremely unlikely that all of these results are without significance for the action of people in the economic domain of society.Footnote 50 The significance of the factors concerned does not appear to be limited to special areas of society. The models of the pure theoreticians tend not to incorporate such factors. Rather, here reaction functions tend to be postulated that are obviously supposed to be completely or at least predominantly independent from the dispositional characteristics of the individuals concerned and from all non-commercial components of the social environment.Footnote 51
The economy, the system of market relationships between members of society, is viewed as a relatively closed network of forces, as a system, which indeed receives a certain external impetus, but functions independently of factors such as those mentioned above, which cannot be ascertained with economic tools. Here, the money flows and flows of goods in a commercialized industrial society run through nearly all social structures that could be found, and all members of society participate in the commercial processes in one way or another through the individual structural roles that steer these flows. If one gains clarity about these relationships, then one can begin to understand why the models constructed with the help of simple behavioral assumptions by neoclassical oriented theoreticians must be immunized against experience in one way or another if their failure is to be avoided. It is not by chance that the attempts of some proponents of pure economics to achieve autonomous theory formation tend to be translated methodologically into model Platonism: the immunization from the influence of non-economic factors leads to the immunization from experience in general. It appears that the diagnosis of the fundamental methodological weakness of the neoclassical way of thinking must lead to an aversion to sociology. By contrast, regardless of all methodological differences, all heterodox currents in economics characteristically share one element: the accentuation of the significance of social factors for economic relationships and the consciousness of the fact that the social domain analyzed by pure economics is embedded in a more comprehensive social complex that cannot be abstracted away from with no further ado if useful explanations are being sought. The methodological weakness of these currents should not prevent one from seeing what is, in my view, the decisive point, which generally tends to be buried amidst an array of irrelevant arguments about subordinate problems or pseudo-problems, such as those about the applicability of mathematical expressions, the usage of certain types of terms, the question of the preferability of generalizing or pointedly emphasizing abstraction, etc.
If the results of the research conducted in the social sciences thus far are correct, the behavior of those who assume economic roles, which one generally attempts to explain with the help of simple maximization assumptions or ad hoc constructed reaction functions, is de facto dependent on the motivational and institutional structures that underlie this behavior, and which, for their part, also have a quasi-invariable character.Footnote 52 They are built upon and change in reference to learning and generally all kinds of social processes – in which social factors play an important role. There can hardly be any doubt that the ‘style’ of social life and economic activity are subject to more or less slow historical change.Footnote 53 This, however, is by no means a sufficient reason for limiting theoretical analysis in the social sciences to the formation and application of ‘style-related’ quasi-theories, as is sometimes suggested; but it does perhaps provide an occasion for posing the question of the extent to which, for example, existing theoretical conceptions today in fact grasp quasi-invariances, dependent on our cultural milieu, or limited to a more limited specific socio-temporal domain.Footnote 54 The fact that this question has some justification specifically with regard to economic theories appears to me to result very clearly from findings of Max Weber's research, as well as from the other historical, sociological and social-psychological studies in the wake of his research.
Like all theoretical tools, the conceptual apparatus that tends to be used in economic analyses is selective in a very specific manner; it embodies a perspective characteristic of economic thinking, which is related to the problem and influences the way it is formulated.Footnote 55 The extent to which the factors emphasized by the economic tools are in fact relevant for explaining economic facts can only be determined in reference to how the theories constructed with their help in fact stand up. To confirm theories, it is more important to test them in new areas of application than to continually retest them in the same area.Footnote 56 For social scientific theories, and thus also for economic ones, it is extremely important to vary the socio-cultural area in which testing is carried out. It follows from this that the general relevance of the economic conceptual apparatus can best be tested by applying economic theories to socio-cultural areas that they were not designed for, for example, to developing countries. In investigations in areas like these, one continually finds that it is necessary to refer back to factors that are not considered in the conceptual apparatus of theoretical economics,Footnote 57 but that are accessible to sociological and social-psychological research. It appears to me that we have no reason to ignore these issues in economic theory formation. They can give us occasion to suppose that we have thus far very often dealt with quasi-invariances in economics that can only be relativized by referring back to deeper-lying factors. Model Platonism of the neoclassical variety is, however, a useful means to temporarily sidestep this consequence; I believe that I have shown the price this entails above.
In my view, it should not have only been possible for us to have learned from Max Weber that the dominant style of economic activity in many parts of the world is a social product, that it has a traceable historical development, and that it may be subject to great alterations in the future. It should also have been possible for us to have drawn the obvious consequence of his studies for theory formation; namely that it will only lead to general insights if it penetrates behind the quasi-invariances of the economic style that began with the industrial economy. Changing economic studies in accord with these insights would require a decisive shift in theoretical perspective, a shift that would perhaps resemble traditionally heterodox currents of economic thought more than the pure economics of the neoclassical variety.
which can be transformed with the help of a suitable definition into 
(whereby i is the investment quote and c the marginal capital co-efficient) – as a fragment of a general hypothetical proposition of the form 
, and in fact, in this case, as the then-clause of such a proposition. The then-clause could then include the empirical conditions necessary for the basic equation so that the whole proposition becomes a hypothesis. In this case, however, a logical relationship between Qx and Rx cannot exist.
