CARL MENGER: NEOCLASSICAL ECONOMICS AND SCIENTIFIC

METHODOLOGY

Our last intervention was meant to demonstrate that although it is a fallacy to think
that human being can be scientifically determined (in this sense, Heisenbergs
impossibility or indeterminacy theorem in science and Alfred N. Whiteheads
fallacy of misplaced concreteness provide inconfutable demonstrations), it is true
nevertheless that human being has developed materially, which is why inter-
subjectivity is not only possible, but is indeed an ineluctable reality. The notion of
self dissolves the moment we realize that it is an irreducibly human notion that
thereby dissolves the self itself! Arendt comes very close to articulating the
materiality of human experience in the very last paragraphs of her inchoate and
unfinished study of Kants Critique of Judgement although she still clings to the
Kantian perception/imagination, intellect/judgement dichotomies:

In other words: What makes particulars communicable is (a) that in

perceiving a particular we have in the back of our minds (or in the "depths
of our souls") a "schema" whose "shape" is characteristic of many such
particulars and (b) that this schematic shape is in the back of the
minds of many different people. These schematic shapes are products
of the imagination, although "no schema can ever be brought into any
image whatsoever."19 All single agreements or disagreements presuppose
that we are talking about the same thingthat we, who are many, agree,
come together, on something that is one and the same for us all. 4. The
Critique of Judgment deals with reflective judgments as distinguished from
determinant ones. Determinant judgments subsume the particular under a
general rule; reflective judgments, on the contrary, "derive" the rule from
the particular. In the schema, one actually "perceives" some "universal" in
the particular. One sees, as it were, the schema "table" by recognizing the
table as table. Kant hints at this distinction between determinant and
reflective judgments in the Critique of Pure Reason by drawing a
distinction between "subsuming under a concept" and "bringing to a
concept."20 5. Finally, our sensibility seems to need imagination not only
as an aid to knowledge but in order to recognize sameness in the
manifold. As such, it is the condition of all knowledge: the "synthesis of
imagination, prior to apperception, is the ground of the possibility of all
knowledge, especially of experience."21 As
84 PARTONE
such, imagination "determines the sensibility a priori," i.e., it is
inherent in all sense perceptions. Without it, there would be
neither the objectivity of the worldthat it can be knownnor
any possibility of communicationthat we can talk about it.
(Lectures on Kant, pp.83-4).

Whilst she often lingers on the ineffable nature of thought, here Arendt seems finally
to concede though still in Kantian antinomic terms the essential unity of
sensibility and sense, of imagination and perception, of intellect and judgement. Yet,
as our highlights in italic bold clearly manifest, Arendt still sees this human capacity
for judgement as the adventitious attribute of individuals the minds of many
different people and not as a fundamental faculty of human being, that is, of being
human. That Arendt was quite aware of this impasse, as he styles it, is made
explicit by R. Beiner in the interpretative essay appended to the Lectures:

As Kant's Critique of Judgment enabled him to break through some of the

antinomies of the earlier critiques, so she [Arendt] hoped to resolve the
perplexities of thinking and willing by pondering the nature of our capacity
for judging."2 It is not merely that the already completed accounts of two
mental faculties were to be supplemented by a yet-to-be-provided third
but, rather, that those two accounts themselves remain deficient without
the promised synthesis in judging, (R. Beiner, Interpretive Essay, in
Arendt, op.cit., p.89)

As we saw in our analyses on the relation of economic equilibrium to social reality,

antinomies arise from the use of aporetic concepts that seek to crystallize human
reality, to freeze or reify it, to reduce it to the state of a thing that is perpetual and
immutable to something that is not subject to history. And as we saw in our last
section, ultimately the aim of every scientistic reification is to remove thought from
history itself, to present history as ineluctable fate. The antinomy implicit in this
conception is the reason why the word historicism has come to acquire
diametrically opposed meanings in terms of soul and form: - on one side,
historicism stands for the idealist position that the human spirit is entirely free to
operate in its history (Dilthey); on the other side, history is seen as a teleology of the
human spirit (Hegel) or of human needs (Marx) or of race or indeed of matter. (See
the classic miscomprehension of this antinomic opposition in K. Popper, The Poverty
of Historicism where the interdependence of the two poles is jejunely resolved in
favour of individualism. Much more refined is the discussion in RH Carr, What Is
History?)

Indeed, as the theorization of past practice or human actions, as the human appraisal
of these actions, of humani generis res gestae, the sense of history may well be the
epitome of praxis, of the exercise of judgement. Here once again is Arendt:

Here we shall have to concern ourselves, not for the first time,3 with the
concept of history, but we may be able to reflect on the oldest meaning of
this word, which, like so many other terms in our political and
philosophical language, is Greek in origin, derived from historein, "to
inquire in order to tell how it was" legein ta eonta in Herodotus. But the
origin of this verb is in turn Homer (Iliad XVIII), where the noun histr
("historian," as it were) occurs, and that Homeric historian is the judge. If
judgment is our faculty for dealing with the past, the historian is the
inquiring man who by relating it sits in judgment over it. If that is so, we
may reclaim our human dignity, win it back, as it were, from the pseudo-
divinity named History of the modern age, without denying history's
importance but denying its right to be the ultimate judge, (op.cit., p.5)

Thought is imprescindible. Thought is ec-sistence itself because thought is intrinsically

reflective whence comes the illusion that behind thinking there must be a
thinker, an Ego that thinks. Thought is action (cogitare from co-agitare). Impossible
to go beyond it; impossible to en-compass it. But it is equally impossible to oppose
thought to matter because matter itself is a concept, and thought itself cannot but
be material. (On all this, please refer to my The Philosophy of the Flesh.)

Thought must not be confused with Ego-ity: as Nietzsche validly proclaimed, it is

vivo ergo cogito, not cogito ergo sum! Experience comes before knowledge. For Western
thought, however, thought is the Logos - real because rational and rational because
real. It is this identification of reality and rationality (the rational is real and the real
is rational), the ordo et connexio rerum et idearum that Nietzsche combats. Not only is
the world not rational, but the rational is not even real because the real world is a
fable (Nietzsche, Twilight). Nietzsches condemnation of Historicism which he
understands as a form of Platonism - and particularly the Historical School of
Roscher and Knies is precisely not aimed at its inaccuracy, but at its power-lessness
(Ohn-macht) with regard to what it pretends to defend history against - nihilism. (Cf.
Twilight of the Idols, pp.225 ff.) To understand is to com-prehend, to control. By
seeking to understand hermeneutically (Verstehen) historical action, by seeking to
describe it, Historicism ends up circum-scribing it, and therefore making it
vulnerable to scientisation. The Geistes-wissenschaften have this in common with the
Natur-wissenschaften that both make the ideo-graphic already nomo-thetic. But how
can the ideo-graphic trans-cresce into the nomo-thetic? Only if the nomothetic and
the ideographic are defined and understood as antinomic poles! Thus, Historicist
hermeneusis turns into historicist teleology and scientistic determinism (cf. Popper,
who did not even begin to understand the untenability of his open society as a
bulwark against its enemies).

Schmoller goes further here than most of the theorists would have been prepared to do. In his works
on method in the Handwrterbuch der Staatswissenschaften he emphasises the causal and theoretical
task of social science even more forcefully. This approach is quite compatible with his view that the
theory of social science needs to a large extent an historical 'substructure'. All these statements do not
at all reveal an opposition to theory on principle, although of course they do not exclude an opposition
to the existing theory. This latter kind of opposition, however, could only be an opposition 'within the
theory', because as soon as the historian sets out to obtain general perceptions on the basis of his
detailed historical research he would be forced to isolate facts and to arrive at abstractions, that is, he
would in fact change into a theorist. It does not matter what these general perceptions are called. As v.
Schmoller strikingly remarks, it makes no difference whether we talk of laws or whether we employ a
different term for a complex of facts which remains essentially the same whatever name we might
give to it. It is true that 'empirical laws', that is the identification of regularities in facts which remain
unanalysed, would be possible even without abstractions, but they would, firstly, not be numerous and
would, secondly, not tell us very much, they would be 'incomprehensible'. It is interesting to observe
how closely representatives of schools, which are usually considered as essentially hostile,
approached each other when they came to debate the principles of the matter. Even some of
Schmoller's followers, as, e.g. Hasbach1, assumed the attitude which is characterized by the
recognition of generally valid

1 *Ein Beitrag zur Methodologie der Nationalkonomie', Schmoller9 s Jahrbcker, 1885, and *Mit welcher Methode werden
die Gesetze der theoretischen Oekonomie gefunden', Conrads Jahrbcher, 1894. Yet not all did so. Apart from
methodological works of an historical point of view already mentioned we may quote: Grabski, *Zur Erkenntnislehre der
volkswirtschaftlichen Erscheinungen', Tbinger Zeitschrift, 1861; Held, *Uber den gegenwrtigen Prinzipienstreit in der
Nationalkonomie, Preussische Jahrbcher, 1872; Rmelin, 'Ueber den Begriff des sozialen Gesetzes', Reden und Aufst^ I,
1875. The points of view of these authors, however, differ from each other.

172 ECONOMIC DOCTRINE AND METHOD

laws. Gradually this attitude began to prevail until finally in recent times any argumentative
hostility to theory died out, and the distinction which had already been stressed by Menger between
the perception of the general and the individual was recognized. This distinction was given
philosophical support. (Wndelband: 'nomothetical' and 'ideographic' point of view, Rickert:
'scientific' and 'historical' approach.) This, however, had only very little effect on the contrast which
continued to exist between the two methods of work, and it was rather because people became tired of
the controversy than because they composed their differences that the quarrel gradually became less
bitter.

The individual is already the general and vice versa because, antinomically, the one
implies (begs the question of) the other. (Interesting, in this context, to note Alfred
Marshalls most idiotic notion of market prices being determined by the scissors of
supply and demand something that Marx derided repeatedly. It should be obvious
to all but the most warped minds that supply requires demand and vice versa,
just as competition requires monopoly, and that therefore one crutch cannot support
the other! The epitome of stupidity was of course Says Law according to which
supply creates its own demand! For a recent re-statement, cf. M. Rothbard, Present
State of Austrian Economics.) Indeed, no theory of the general can long fail to de-fine
the individual, and vice versa.

7. There are no 'social wholes' or 'social organisms'. Austrian Aristotelians

hereby embrace a doctrine of ontological individualism, which implies also
a concomitant methodological individualism, according to which all talk of
nations, classes, firms, and so on is to be treated by the social theorist as
an, in principle, eliminable shorthand for talk of individuals. That it is not
entirely inappropriate to conceive individualism in either sense as
'Aristotelian' is seen for example in Aristotle's own treatment of
knowledge and science in terms of the mental acts, states and powers of
individual human subjects. (B. Smith, Austrian School and
Aristotelianism.)
The historicism that starts with the idiosyncratic ends up understanding it, com-
prehending it through the general, through the principles of science. Thus, it loses
sight of the only way in which theory and science are possible: - as strategy. By
glorifying the in-dividual, the particular, it neglects its antinomic dependence on the
general. Science is possible only as reification, not as rationality but as its
stultification, that is, as Rationalisierung, only as rigid violent imposition or at the
very least as convention (cf. Nietzsches brief exposition in Uber Wahrheit und Luge).
The contractum unionis implicit in all conventions always has the potential to become
a contractum subjectionis - for Hobbes politically and for Nietzsche semiotically. For
Nietzsche, historicism ends up as its opposite, as science, because it denies the
tragicity of ec-sistence, and therefore of thought:

Thucydides, and perhaps Machiavellis Principe, are most closely related

to me in terms of their unconditional will not to be fooled and to see
reason in reality not in reason, and even less in morality (ToI, p.225)

This is what Nietzsche decried in Roscher who had dared wrongfully to enlist
Thucydides the ultimate muse of tragicity for Nietzsche - in the historicist camp
and thereby opened himself up to the stinging critique of a Menger. Reality does not
contain or elicit reason: for there is no reason outside of reality. There is and there
can be no Scholastic ordo et connexio rerum idearumque. But this is far from saying that
Nietzsche did not believe that reason or theory can be applied to reality. On
the contrary, for Nietzsche reason can be imposed on reality but only as a
strategy, as a straitjacket, as Eskamotage, as the ante litteram Weberian Rationalisierung!
There is no reality to which reason can apply or from which it can be deduced:
reason is the ultimate rationalization of human motives. For Nietzsche, real
courage consists in staring down this horrifying ability that human beings possess: to
impose a rational or rather methodical scheme on their violent or at least
coercive practices. This is the tragedy of Weberian Verstehen and of all hermeneutics:
the tragedy of all historicism: - that it does not understand its own quest and thus it
cannot long remain ideo-graphic because its ratio sooner or later will turn nomo-
thetic (Windelband, Dilthey). Marxs own lampooning of Thukydides-Roscher in
Book 9 of Das Kapital was meant to highlight the inability of this historicism to draw
the violent conclusions of capitalist reality without, for that reason, necessarily
enlisting Thucydides amongst the historicists.

Every theory, whether in the physical or in the social sciences, is a strategy: we owe
this great realization above all to Nietzsche, though earlier hints of it were already in
Cusanus (cf. E. Cassirers masterly Individual and Cosmos), in Machiavelli, and then in
Vico (La Scienza Nuova). Theory and practice are indissolubly linked and failure to
take conscience of this is the dangerous fallacy of all positivism. (To be fair, despite
our disagreement with his entire neo-Kantian approach, this is the point of
Habermass best work from Erkenntnis und Interesse to Theorie und Praxis.) The
immediate question for us now is: how does the bourgeoisie use economic theory in
practice to preserve and advance its interests? Ultimately, the crucial question must
be: what specific tools or institutions does the bourgeoisie put in place to preserve
its interests, accumulate capital and advance its social hegemony?

Joseph Schumpeter provides a rare insight into this process in his discussion of how
Neoclassical economics replaced Classical economics in bourgeois business,
academic and political circles as the scientific paradigm for theorizing and
analysing capitalist society. Distinguishing between the Historical School and the
nascent Neoclassical School, Schumpeter at once draws attention to the insistence of
the former on including and canvassing non-economic elements in the field of
economics. Now, if one considers the social process as a whole something
Schumpeter urges us to do later in the very opening sentence of the famous Chapter
7 of the Theorie that was significantly omitted from the English translation -; if one
considers this, it is obvious that whether or not a specific historical fact or element
is economic or non-economic is a matter for democratic agreement and not for
scientific determination. For if indeed economic theory is to be used to guide social
policy at all, then it is a matter for democratic consensus to agree as to the likely
effect of inclusion or not of specific facts to the formulation of economic theory to
guide economic policy.

Schumpeter himself makes clear that economic science must be founded on historical
facts and that indeed economic science is a methodologically distinct form of
historical knowledge:

That specifically historical spirit which alone turns the collection of facts, which
after all is necessary for any school, into something methodologically distinct, did
not develop. (Econ. Doctrines, p.166)

The crux of the methodological question now becomes vividly clear. The problem
with the methodology assumed by the Historical School was not so much that it
failed to take account of historical detail in fact it took too much account of such
detail, to the point that it cluttered its research with non-economic elements.

With Knies
the matter is somewhat different. His resistance to the splitting up
of the personality into individual 'urges' and to their treatment in
isolationalthough we must stress the fact that this does not constitute
the essence of classical economic thought, as Knies thought
and the emphasis which he places on the vital part played by
non-economic elements even in the field of economics (Heteronomy
of Economics) places him more closely to the genuine historical
school. (p.157)
Now it is clear that once a society becomes detached from traditional social forms
such as those associated with feudalism and becomes instead focused exclusively on
the production of Value, that is the potential control over labour-power, over living
labour, which is what happens with rise of capitalism, it is then evident that as the
reproduction of a society becomes less autochthonous and localised and is instead
more centrally controlled through the development of a strong statal administration
and government, what we call the State it is then clear that all those non-
economic elements associated with traditional societies must be eliminated with
the object purpose to maximize capitalist production. This is at bottom what
Schumpeter and the Austrian School from Menger onwards were driving at. And
obviously the various Historical Schools in Germany and Austria stood in the way of
such a development at least from a methodological or scientific stance, because
nothing is more ideologically correct than the imposition of an ideology as science.

The question then becomes one of determining how such a methodology can be
developed out of that specifically historical spirit, - how, that is, the collection of
facts can give rise to a theory that is specifically economic. (Schumpeter refers to
Webers methodological studies in this context close to neo-Kantians.) More
specifically, the problem becomes one of how historical facts may be divided not just
into economic and non-economic, but also into what may be called
regularities and laws. In other words, even admitting positivistically that it is
possible to isolate regularities of an economic nature in social life (cf. M.
Friedmans essay), there is still the greatest difficulty in determining whether such
regularities can be described as laws. For, though they may represent and
describe the present reality of social life, it may well be that such regularities do not
amount to immutable laws of social life but are attributable instead to the
particular culture and political form of government that prevails in a given society!
The greatest difficulty is of course that not only are these regularities not laws, but
they are always subject to change and above all else therefore the regularities
cannot possibly form the foundation of a positive science of economics or of any
social science at all!

This is something that even the acutest bourgeois minds in economic theory simply
cannot see. Here is the Nobel prize-winner Milton Friedman:

Positive economics is in principle independent of any particular

ethical position or normative judgments. As [Neville] Keynes says, it
deals with "what is," not with "what ought to be." Its task is to provide a
system of generalizations that can be used to make correct predictions
about the consequences of any change in circumstances. Its performance
is to be judged by the precision, scope, and conformity with experience of
the predictions it yields. In short, positive economics is, or can be, an
"objective" science, in precisely the same sense as any of the physical
sciences. Of course, the fact that economics deals with the interrelations
of human beings, and that the investigator is himself part of the subject
matter being investigated in a more intimate sense than in the physical
sciences, raises special difficulties in achieving objectivity at the same
time that it provides the social scientist with a class of data not available
to the physical [5] scientist. But neither the one nor the other is, in my
view, a fundamental distinction between the two groups of sciences.3
Normative economics and the art of economics, on the other hand, cannot
be independent of positive economics. Any policy conclusion necessarily
rests on a prediction about the consequences of doing one thing rather
than another, a prediction that must be based - implicitly or explicitly - on
positive economics. (M. Friedman, The Methodology of Positive
Economics in Essays in Positive Economics, pp.4-5)

Note Mengers analogous position:

38 ] BOOK ONE The above contrast is not infrequently characterized, even
if in a somewhat different sense, by the separation of the sciences into
historical and theoretical. History and the statistics of economy are
historical sciences in the above sense; economics is a theoretical
science.5 Besides the two above large groups of sciences we must bear in
mind here still a third one, the nature of which is essentially different from
that of the two previously named: we mean the so-called practical
sciences or technologies. The sciences of this type do not make us aware
of phenomena, either from the historical point of view or from the
theoretical; they do not teach us at all what is. Their problem is rather to
determine the basic principles by which, according to the diversity of
conditions, efforts of a definite kind can be most suitably pursued. They
teach us what the conditions are supposed to be for definite human aims
to be achieved. Technologies of this kind in the field of economy are
economic policy and the science of finance.

Mengers classification is to be preferred to Friedmans because it does not dissect

economics into positive and normative but rather in theoretical and practico-
technical despite his Aristotelian reference to what is. Both Menger and Friedman
seek to divorce economic reality from policy choices, but whereas Menger maintains
a continuum between reality and policy, with the latter being merely an application
of knowledge about reality, Friedmans nuanced distinction between normative and
positive economics ends up being extremely nave because it begs the question of
how a positive economics can presume to be independent of normative
economics! Either we argue, with Menger, that policy is always a matter of applying
positive knowledge correctly or incorrectly, or else, like Friedman, we introduce a
normative sphere of action but then this sphere must be precluded by the
presumed existence of a positive reality!
For Menger no normative or ethical choices are possible in economic theory or policy:
policies are either right or wrong depending on the perfection of ones theory of
reality. If indeed it were possible to isolate positive economics from the
normative, then there would be no reason for normative economics to exist at
all, for the simple reason that once we can isolate what is from what ought to be, then
the what is, the real, would be the only option left, the only thing there is, because
reality understood as what is, as physis, could never change! Present reality, if it
is to be real at all, cannot allow of any normative change or any change at all
because any reality that can be changed cannot ever be really real! Any
attempt to change reality, what is, along normative lines would be bound to fail
according to Menger if it did not conform with that positive reality! That is why, for
Menger, there could never be any normative physics as against positive physics:
there can only be one scientific physics. Otherwise, the Hegelian empyrean where
the real is rational and the rational is real would have been accomplished by now!

But Menger overlooks the fact that whereas it is possible to determine wrong and
right, or rather correct and incorrect or true and false outcomes in
experimental physics because of the confined and controlled nature of
experiments in time and in space, this is simply impossible in society because of
the irreproducibility of experimental conditions to a precise locality that extend
into the indefinite future! Nor can mere predictability of outcomes be the sufficient
condition for a science, as Menger believed.

The investigation of types and of typical relationships of phenomena is of

really immeasurable significance for human life, of no less significance
than the cognition of concrete phenomena. Without the knowledge of
empirical forms we would not be able to comprehend the myriads of
phenomena surrounding us, nor to classify them in our minds; it is the
presupposition for a more comprehensive cognition of the real world.
Without cognition of the typical relationships we would be deprived not
only of a deeper understanding of the real world, as we will show further
on, but also, as may be easily seen, of all cognition extending beyond
immediate observation, Le., of any prediction and control of things. All
human prediction and, indirectly, all arbitrary shaping of things is
conditioned by that knowledge which we previously have called general.
The statements made here are true of all realms of the world of phe
CHAPTER ONE [ 37
nomena, and accordingly also of human economy in general and of its
social form, "national economy,"2 in particular.

As Weber shows in his methodological studies (see the collection, The Methodology of
the Social Sciences edited by Edward Shils, and particularly the essay on Objectivity
in the Social Sciences), there are infinite predictions that can be made about the
world without this being sufficient to justify their scientific pursuit. Furthermore, the
fact that an outcome may be predictable now and for the foreseeable future does not
mean that the same outcome will occur once the experiment is repeated indefinitely,
which is what a scientific law requires immutability. This is a point astutely
made by Leo Strauss in an essay on Socrates and Western science. The
presupposition of the natural sciences is that their laws are positive because
they are presumed to be immutable and therefore indefinitely repeatable. There
can be no normative and positive physics there is only physics and that is
all! Even when a change to a present state of matter is operated by physical
scientists, the laws that they apply remain the same. The application of physical
laws to the physical universe does not change the validity of those laws. In
essence, physical laws make the outcomes of their experiments deducible. Yet,
experiments are not repeatable indefinitely without transforming the very reality
that they are supposed to demonstrate. Therefore, it is obvious that all science,
natural and social, is not and cannot be immutable but that its experimental
outcomes will change with enough repetitions.

In fact, even the laws of natural science have a questionable legality in terms of
how scientific knowledge or truth is indeed a will to truth, Nietzsches Wille zum
Leben. If scientific laws described the real, if reality could never be changed, then
there would be no room left for science at all because science, no matter how
immutable its laws, remains a human practice, a praxis, an inter-vention, a mani-
pulation! Ultimately, what is important is not the immutability of scientific laws
because these in fact do change: science has a history! What is important is what
human beings do with such laws, and even what they do to discover them!

Not only are changes to social reality subject to normative considerations: what
is most important of all, the paramount consideration here is that it is impossible
to define what is, social reality itself, without introducing normative values,
what ought to be, into that de-finition and into the scientific tools to be used in
analyzing, assessing and defining social and indeed even physical reality! The mere
observation of any reality requires an inter-vention on that reality that
transforms and changes it. Heisenbergs Indeterminacy Principle is not an objective
notion for the simple reason that it abolishes objectivity and in doing so it
unmasks science as scientificity, which is a practical notion. Science is not the
discovery of truth; science is a particular way of acting in the world this is why
Nietzsche referred to the will to Truth.

First of all, Friedman is arguing that what is has greater reason to be than what
ought to be (cf. Leibnizs Principle of Sufficient Reason) he is thus surreptitiously
presenting the status quo, the established order, as something that is intrinsically
more scientific than the normative because what is is a matter for empeiria, for
inquiry and inspection or observation, whereas what ought to be is a matter of
choice and values. But this is already a normative choice what is real is rational
(Savigny, Jhering) discussed by Schumpeter as conservative, against the what is
rational is real of the Neoclassics. As Weber took pains to point out, every is in
fact is necessarily filtered through what ought to be because, first, we still choose
to select one what is instead of another and, second, we choose the tools to be used
in the empirical research (again, see his essay on Objectivity cited above).
Friedman acknowledges this:

Of course, the fact that economics deals with the interrelations of human
beings, and that the investigator is himself part of the subject matter
being investigated in a more intimate sense than in the physical sciences,
raises special difficulties in achieving objectivity at the same time that it
provides the social scientist with a class of data not available to the
physical [5] scientist. But neither the one nor the other is, in my view, a
fundamental distinction between the two groups of sciences.3

This is a simplistic regurgitation of the Machiavelli-Vico-Bacon line. It is not so much

that the social scientist lacks objectivity because of the more intimate role with the
subject-matter: the problem is rather that the presumed objectivity of scientific
study is inapplicable once we see science all science, physical and social as a
human activity! And this is not cured by the Windelbandian distinction between
idiographic and nomothetic as if the size of the population made findings more
objective or rational! If objectivity is required, then the size of the sample is
categorically irrelevant! That is why the physical sciences never invoke sample size
when fixing their laws. Still, physical scientists universally refuse to see their
science as human activity!

Friedmans error is one to which Menger and Schumpeter and Weber were very alert
and they rightly insisted on denouncing it: it makes no sense to think that an
individuals behavior is idio-syncratic meaning irrational whereas the
behavior of many individuals becomes more rational by reason of the larger
numbers. It makes even less sense to associate irrationality or idiosyncrasy with
freedom. These are fallacies into which the Old Historical School very easily fell,
only to be attacked by the Historical School of Law (Savigny, Jhering) even before
Weber (Roscher und Knies). Indeed, as Weber duly pointed out, rationality in the
sense of acting in ones own interest and not irrationality constitutes the true
freedom of the individual in society. But here already, with Savigny and the
Historical School of Law and then Windelband, rationality is dictated by numbers,
by the nomo-thetic. More correctly, rationality no longer has any substantive value as
it always had in all Western metaphysics from Plato onwards. With the Neoclassics,
and explicitly with Weber, rationality becomes naked Rationalisierung a specific
methodical exercise of social power aimed at maximizing the accumulation of capital
or objectified labour.

Yet Menger fails to see just how problematic this nexus between individual
idiosyncrasy or freedom and general or typical nomothetic predictability is, and
then above all how impossible the distinction between individual or concrete
phenomena and the typical forms is, both in terms of the choice of direction of
scientific research (Weber, Wissenschaft als Beruf) and the choice of application of
that research. And finally between laws and things. Indeed, as this long
passage illustrates quite conclusively, Menger seems to think that a simple distinction
between individual and collective, on one hand, and concrete and typical on the
other is sufficient to clarify his overall methodological aim of isolating the general
from the individual!

(Investigations, p.36)

The investigation of types and of typical relationships of phenomena is of

really immeasurable significance for human life, of no less significance
than the cognition of concrete phenomena. Without the knowledge of
empirical forms we would not be able to comprehend the myriads of
phenomena surrounding us, nor to classify them in our minds; it is the
presupposition for a more comprehensive cognition of the real world.
Without cognition of the typical relationships we would be deprived not
only of a deeper understanding of the real world, as we will show further
on, but also, as may be easily seen, of all cognition extending beyond
immediate observation, Le., of any prediction and control of things. All
human prediction and, indirectly, all arbitrary shaping of things is
conditioned by that knowledge which we previously have called general.
The statements made here are true of all realms of the world of phe
CHAPTER ONE [ 37
nomena, and accordingly also of human economy in general and of its
social form, "national economy,"2 in particular. The phenomena of the
latter we also can consider from the above two so thoroughly different
points of view; and in the field of economy, also, we will thus have to
differentiate on the one hand between individual (concrete) phenomena
and their individual (concrete) relationships in time and space, and on the
other between types (empirical forms) and their typical relationships (laws
in the broadest sense of the word). Also in the field of economy we
encounter individual and general knowledge, and correspondingly
sciences of the individual aspect of phenomena and sciences of
the general aspect. To the former belong history and the
statistics of economy, to the latter theoretical economics; for the
first two have the task of investigating the individual economic
phenomena, even if from different points of view. The latter have
the task of investigating the empirical forms and laws (the
general nature and general connection) of economic
phenomena.4
2 See Appendix I: "The Nature of National Economy." 3 The "individual" is by no
means to be confused with the "singular," or, what is the same thing, individual
phenomena are by no means to be confused with singular phenomena. For the
opposite of "individual" is "generaL" whereas the opposite of a "singular
phenomenon" is the "collective phenomenon." A definite nation, a definite state,
a concrete economy, an association, a community, etc., are examples of
individual phenomena, but by no means of singular phenomena (but of collective
phenomena instead); whereas the phenomenal forms of the commodity, of the
use value, of the entrepreneur, etc., are indeed general, but not collective
phenomena. The fact that the historical sciences of economy represent the
individual phenomena of the latter by no means excludes their making us aware
of these from the collective point of view. However, the contrast between the
investigation and description of the individual and the general aspect of
human phenomena is always what distinguishes the historical social
sciences from the theoretical. Theoretical economics has the task of
investigating the general nature and the general connection of
economic phenomena, not of analyzing economic concepts and of
drawing the logical conclusions resulting from this analysis. The
phenomena, or certain aspects of them, and not their linguistic image,
the concepts, are the object of theoretical research in the field of
economy. The analysis of the concepts may in an individual case have a
certain significance for the presentation of the theoretical knowledge of
economy, but the goal of research in the field of theoretical economics
can only be the determination of the general nature and the general
connection of economic phenomena. It is a sign of the slight
understanding, which individual representatives of the historical school
in particular have for the aims of theoretical research, when they see
only analyses of concepts in investigations into the nature of the
commodity, into the nature of economy, the nature of value, of price
and similar things, and when they see "the setting up of a system of
concepts and judgments" in the striving for an exact theory of economic
phenomena (ct. particularly Roscher's Thukydides, p. 27). A number of
French economists fall into a similar error when, with an erroneous view
of the concepts "theory" and "system," they understand by these terms
nothing more than theorems obtained deductively from a priori axioms,
or systems of these (cf. particularly J. B. Say, Cours [18521, I, p. 14 ff. Even J.
Garnier says "C'est dans Ie sens de doctrine erronnee qu'on prend Ie mot
'systeme' en economie politique." Traite d'Econ. Pol. [1868], p. 648).

Note the similarity between Mengers types and Webers ideal types. But note
also the important distinction: Menger intends types to be scientific laws of
causation between phenomena in Aristotelian fashion. For Weber instead ideal types
are pure Kantian categories where causation is impossible to establish (because
phenomena are eventuated by things in themselves which are inscrutable).
Webers world is already Machian: it links phenomena as sensations, not as real
physical events in a Galilean or Aristotelian manner.

Mengers key distinction between the individual and the general from Irrthumer to
the Untersuchungen is aimed at this power of theory to abstract from concrete
phenomena to phenomenal forms, that is to say, from the material social
conditions of workers to their ability to produce abstract value, from concrete labour to
abstract labour to which correspond Mengers conkreten Erscheinungen and
Erscheinungsformen - measured in man-hours, just like horse-power. Mengers
astute criticism of the Classical Labour Theory of Value (in the Principles, Appendices
C and D on the nature and the measure of value, respectively) is precisely that
labour cannot be at once the content or substance of Value, its nature, and also
its measure, just as a metre is not space and a second is not time! This objection
formed the entire basis of Marxs critique of political economy as the metaphysics of
labour the distinction between concrete or living labour (Arbeit) and its abstract or
crystallised form as imposed by capitalists, that is to say, labour-power (Arbeits-kraft).
(On this discovery of the Doppelcharakter of labour in capitalism, the fundamental
work is M. Tronti, Operai e Capitale.) Marxs critique clearly did not intend labour
value to be an absolute but rather a relative quantity in that socially necessary labour
time can refer to the labour time made socially necessary through the political
violence of capitalists. Bohm-Bawerks critique of Marx will move from this
quantitative hence essentialist and objectivist misunderstanding of his
critique of Value, which Menger was the first to eschew despite his Aristotelian
straying.

(On Mengers Aristotelianism, see the admirable work of Barry Smith. Whilst Smiths
thesis is certainly applicable to Menger especially through the influence of Franz
Brentano whose work on Aristotle inspired Heidegger, he is wrong about the later
Austrian School from Mises onwards, which was clearly premised on neo-Kantian
and Machian lines, as we shall see presently. In any case, Smiths distinction between
Aristotelian reflectionism and Kantian impositionism seems superfluous because
remember that for Kant intuition does not just impose the schemata or categories on
things in themselves, intuition also reflects phenomena derived from things in
themselves!)

(Refer to Hayeks Carl Menger for a clear pointer to this: individualism

presupposes inter-subjectivity and ownership, and both presuppose a social
definition of Value, and thus subjective value is an oxymoron. Mengers confusion
of these elementary matters is quite evident in this passage as is also the causational
approach to the exact theory of political economy:

Among human efforts those which are aimed at the anticipation and
provision of material (economic) needs are by far the most common and
most important. In the same way, among human impulses that which
impels each individual to strive for his well being is by far the most common
and most powerful. A theory which would teach us to what crystallizations
of human activity and what forms of human phenomena action
oriented to the provision of material needs leads, on the assumption of
the free play of that powerful economic impulse, uninfluenced by other
impulses and other considerations (particularly error or ignorance); a
theory, especially, which would teach us what quantitative effects would
be produced by a definite quantity of the influence in question: such a
theory simply must provide us with a certain understanding. It cannot
provide understanding of human phenomena in their totality or of a concrete
portion thereof, but it can provide understanding of one of the most
important sides of human life. The exact theory of political economy" is
a theory of this kind, a theory which teaches us to follow and understand
in an exact way the manifestations of human self-interest in the efforts of
economic humans aimed at the provision of their material needs. (Investigations, p.87.)

Hayek in Carl Menger traces the logic of this chain of thought. The notion of
good is also meant to eliminate the process of pro-duction from the supply of pro-
ducts, which otherwise could not be treated in isolation and abstraction from the
process! (How can a pro-duct be distinguished from its pro-duction, also and
especially in terms of ownership?)

On yet another and a more interesting point in connection with the pure
theory of subjective value Mengers views are remarkably modern.
Although he speaks occasionally of value as measurable, his
exposition makes it quite clear that by this he means no more than that
the value of any one commodity can be expressed by naming another
commodity of equal value. Of the figures which he uses to represent the
scales of utility he says expressly that they are not intended to represent
the absolute, but only the relative importance of the wants, and the very
examples he gives when he first introduces them makes it perfectly clear
that he thinks of them not as cardinal but as ordinal figures.1 (Hayek,
p.19)

It is obvious that Menger is con-fusing lots of interesting questions here. But

Classical economics abstracts from use values by restricting their supply to what is
pro-duced so that only the partial allocation of the total Value (the quantity of
labour) to individual items is measured. This supply is taken to be an exogenous
amount dependent of the available quantity of labour and its productivity in
various processes of production. This allocation is then called exchange value and
the question of use value is eliminated. Except that the substance and the measure
are fused and confused as labour rather than distinguished as living labour and
labour-power so that the intensity of labour (the temporal intensity of labour, Marxs
socially necessary labour time, which is not necessary at all it is simply violence)
is left to one side. This is how labour and Value become metaphysical for the
Neoclassics.
And Helvetius, Mandeville,
and A. Smith knew just as well as any adherent of the historical school of
German economics that self-interest does not exclusively influence the
phenomena of human life. If the last of these had only written his own
theory of public spirit! What distinguishes him and his school from our
historians is the fact that he neither confused the history of economy with
its theory nor even followed one-sidedly that orientation of research
which I designated above with the expression empirical-realistic. Nor,
finally, did he become a victim of the misunderstanding of seeing in theoretical
investigations conducted from the point of view of the free play of
human self-interest uninfluenced by other powers the acknowledgement
of the "dogma" of human self-interest as the only actual mainspring of
human actions. (p.88)

The insuperable problem with Mengers argument is, of course, that it is quite
impossible to identify individual self-interest in any way whatsoever, and certainly
not in the quantitative sense that he clearly intends as a determinant of market
prices, still less as a determinant of value. If you asked Menger what determines
market prices, he would say it is self-interest. But then, if you asked him what
measures self-interest, he would say it is market prices! The identification and
measurement of self-interest, at least in a causative or aetiological and then even
axiological sense (in terms of the ethical claim of producers to products) is the
anthropological conundrum with which Menger struggled most of his later life:
his burgeoning yet fruitless studies in ethnography and his preoccupation with the
theory of money truly expose this desperation in his theoretical quest, as Hayek
attests:

But his interests and the scope of the proposed work continued to expand
to wider and wider circles. He found it necessary to go far in the study of
other disciplines. Philosophy, psychology and ethnography claimed more
and more of his time, and the publication of the work was again and again
postponed. In 1903 he went so far as to resign from his chair at the
comparatively early age of 63 in order to be able to devote himself
entirely to his work, Hayek, p.32)

If I mean by supply the available quantity of a good that is scarce, then

obviously there must be a corresponding demand, without which supply and
scarcity would be meaningless. But in this I also have to include the want of an
individual, without which supply and scarcity would be meaningless. And
this want has to be of diminishing intensity (Gossen).

Another, perhaps less important but not insignificant instance of Mengers

refusal to condense explanations in a single formula, occurs even earlier
in the discussion of the decreasing intensity of individual wants with
increasing satisfaction. This physiological fact, [m.e.] which later under
the name of Gossens law of the satisfaction of wants was to assume a
somewhat disproportionate position in the exposition of the theory of
value, and was even hailed by Wieser as Mengers main discovery, takes
in Mengers system the more appropriate minor position as one of the
factors which enable us to arrange the different individual sensations of
want in order of their importance. (Hayek, p.18)

If you could produce something that created higher demand with production, then
the law of supply and demand their antinomic link would break down (obviously
Neoclassics never thought of Apple!).

That he was aware of the role of theory in promoting the interests of a particular
class, Menger shows by his own critique of Savignys Historical School of Law. For
Savigny and his school, the organic evolution of society is ipso facto rational
because it is spontaneous hence the real is rational whereas for Weber and the
Neoclassics scientific rationality requires the jettisoning of atavistic feudal
institutions in favour of market individualism or methodological individualism as the
Neoclassics called it, whereby for them the rational is real. Thus, the two aspects of
Hegels famous dictum are set off against each other.

Whilst defending on one hand the ability of Savignys School to draw principles
from individual facts the general from the particular -, Menger criticizes
nevertheless the atavism, the conservatism of the school aimed at protecting
backward-looking feudal-aristocratic interests:

It [Savignys Historical School of Law] concluded that the desire for a

reform of social and political conditions aroused in all Europe by the
French Revolution really meant a failure to
INTRODUCTION [9]
recognize the nature of law, state and society and their "organic origin." It
concluded that the "subconscious wisdom" which is manifested in the
political institutions which come about organically stands high above
meddlesome human wisdom. It concluded that the pioneers of reform
ideas accordingly would do less well to trust their own insight and energy
than to leave the re-shaping of society to the "historical process of
development." And it espoused other such conservative basic
principles highly useful to the ruling interests.20 (Investigations,
p.91)

But Menger fails to make explicit the kind of interests that his reformed Political
Economy science will be serving. In Die Irrthumer after denouncing the effete
Eklectizismus of the Historical School, he makes the litmus test of the new
science its ability to serve the economy in terms of the Resultate to which it leads.
This also is a Friedmanite positivist trait above all, the predictability of policy actions
and changes!
In the centre of the discussion there stands the great methodological achievement of C. Menger:
Untersuchungen ber die Methode der Sozialwissenschaften und der politischen Oekonomie
insbesondere. It led people out of the stage of observation and individual arguments and attempted to
clarify the struggle about methods by a thorough discussion of principles. In doing so it defended the
theoretical position against the misunderstandings to which it had been exposed.1 In this respect there
was indeed a great deal to be done. With the specifically historical range of ideas there was closely
connected the view that economic theory was not in any way based on the observation of facts but on
premises of a dubious character, that it was fundamentally prescientific and was destined to be
replaced by a serious investigation of the facts. In consequence it was assumed that the task of science
in the field of economic theory was not to develop it further but merely to describe it and to explain its
ever-changing systems in historical terms. At

1 The following writers have the same basic approach: Bhm-Bawerk, 'Method in Political Economy', Annals of American
Academy, 1; v. Philippovich, Ueber Aufgabe und Methode der Politischen Oekonomie, 1886; Sax, Wesen und Aufgaben der
Nationalkonomie, 1884; Dietzel, *Beitrge zur Methodik der Wirtschaftswissenschaften', Conrad`'s ]ahrh. 1884, and other
works; Lifschitz, Untersuchungen ber die Methodologie der Wirtschaftswissenschaft, 1909. Also the following English
writers on methodology: Jevons, 'The Future of Political Economy', Fortnightly Review, 1876, and 'Principles of Science',
1874; Cairnes, The Character and Logical Method of Political Economy, 1875; Keynes, Scope and Method of Political
Economy, 1st ed 1891, and article 'Method* in Palgrave's Dictionary. Bagehot's attitude {Economic Studies, ed. 1880) is
similar to that of K. Bcher: With these two thinkers theory appears indispensable for an understanding of the events in the
modern exchange economy, beyond this, however, it is without any value. Furthermore, we find methodological discussions
of a similar character in most of the systematic works, e.g. in A. Wagner, Philippovich, G. Cohn, J. Conrad, Seligman,
Marshall and others.

ECONOMIC DOCTRINE AND METHOD

best it might be possible to recognize the establishment and elaboration of a system of conceptions
which could be put at the disposal of a science of society as a task of a theoretical nature, though of
comparatively secondary importance. It was also believed that it was hardly possible any longer to
talk of 'laws' in the field of social science and that at best it might be possible to talk of such
regularities as can be discovered by detailed historical and statistical research. These 'regularities'
might possibly be termed 'empirical laws'. The term 'theory' became so outlawed that it is today
sometimes replaced by that of 'intellectual reproduction' or 'doctrine', in order not to evoke from the
start a whole host of prejudices. And even if 'theory' in the sense of generally valid concepts was not
regarded as absolutely impossible, the existing theory was considered as wrong in principle. Although
Menger opposed these views he recognized at once the necessity of an historical basis for the solution
of a great many economic problems and he considered such an historical basis essential for the
investigation of individual cases.

Here is where the essence of the methodological debate between the Old Historical
School of Roscher and Knies and the Neoclassics really lies. Not only, but it is indeed
possible even to distinguish between the Old Historical School and the Young one
established by Schmoller, one that became in fact far more closely aligned with the
Neoclassics than with its older predecessor in the Methodenstreit. In terms of being
of service to the economy the aim was amply shared by Schmoller, as Schumpeter
points out. Indeed, it can be said that from a purely business standpoint, Schmollers
research with his Verein fur Sozialpolitik - social policy, not science! - was far more
useful to the nascent German capitalist bourgeoisie than the theoretical
divagations of a Menger and the nascent Austrian School of Economics! Clearly, the
issue was far weightier in terms of the ideological service of the new science, in
terms of its principles against particulars, against an eclecticism that was
liable to raise more questions than it answered about the legitimacy of capitalist
enterprise, especially with regard to its non-economic repercussions. (Schumpeter
himself will seek to address these extra-economic repercussions more seriously in
his later work, and especially in Capitalism, Socialism and Democracy where the
scientificity of capitalism is questioned - and indeed its extinction is even
hypothesized.)

Schmollers historicism was always going to be saddled with its being political,
that is, connected to policies whereas the Neoclassics wished to present capitalist
practice as pure theory, as science.

Schmoller1 retorted in a polemical form which was necessitated by the occasion, but as regards the
subject-matter his approach was by no means simply a negative one. Already at this time he
recognized not only that some of Menger's critical observations were justified but also how
essentially similar the causal nexus in social science and natural science is; he also described the
explanation of social phenomena in the form of cause and effect and in the form of lawsfor him
at this time both coincidedas the aim of scientific effort. Indeed we find even the far-reaching
proposition that all perfect science is 'deductive', that is, that the state of ideal perfection is only
reached when it has become possible to explain concrete phenomena completely with the help of
theoretical premises. This proposition implies the acknowledgment that such a state of the science
is possible in principleeven if in actual fact it

1 Zur Methodologie der Staats-und Sozialwissenschaften, Jahrbuch fr Gesetzgebung, 1883; comp. also Zur
Literaturgeschchte der StaatsundSozialwissenschaft, 1888, and Wechselnde Theorien undfeststehende Wahrheiten ..., 1897;
earlier statements by Schmoller on questions of method can be found in the symposium Grundfragen der Soiialpolitik und
Volkswirtschaftslehrey 1898.

HISTORICAL SCHOOL AND MARGINAL UTILITY 171

should remain unattainable for us. It also implies a complete rejection of the specifically historical
belief in the 'incalculable5 and essentially 'irrational' nature of social events.

Weber and Menger are right to insist that what is irrational is the individual-social
distinction. Yet neither of them was ever able to reconcile individual content and
general form the concrete and the abstract in social theory.

I wish to contest the opinion of those who question the existence of laws
of economic behavior by referring to human free will, since their argument
would deny economics altogether the status of an exact science. Whether
and under what conditions a thing is useful to me, whether and under
what conditions it is a good, whether and under what conditions it is an
economic good, whether and under what conditions it possesses value for
me and how large the measure of this value is for me, whether and under
what conditions an economic exchange of goods will take place between
two economizing individuals, and the limits within which a price can be
established if an exchange does occurthese and many other matters are
fully as independent of my will as any law of chemistry is of the will of the
practicing chemist. The view adopted by these persons rests, therefore,
on an easily discernible error about the proper field of our science. For
economic theory is concerned, not with practical rules for economic
activity, but with the conditions under which men engage in provident
activity directed to the satisfaction of their needs. Economic theory is
related to the practical activities of economizing men4 in much the same
way that chemistry is related to the operations of the practical chemist.
Although reference to freedom of the human will may well be legitimate
as an objection to the complete predictability of economic activity, it can
never have force as a denial of the conformity to definite laws of
phenomena that condition the outcome of the economic activity of men
and are entirely independent of the human will. (Principles, Preface, p.48)

Interestingly, Menger includes in the domain of economics the question of whether

something is useful. But then the question of will must be included unless we
assume that some exchanges must take place and the exchange is pure barter. This
anthropology is something the other Neoclassics will omit from their science
because it points to the uncomfortable sphere of use values that are supposedly only
subjective. Menger thinks in humanistic essentialist or anthropological terms of
cause and effect, of wealth. By contrast, utility can only be thought of in relative
and subjective terms of potential exchange in terms of marginal utility. But if
these matters of will are omitted, the sphere of whether and usefulness is
barred from economics! If they are excluded, then the content of economics is
emptied out: economics becomes pure formal mathematics! Marginal utility theory
cannot be concerned with use values because they are inscrutable, metaphysical. Yet
obviously, the psychological metaphysics of possessive individualism (cf. CB
Macpherson) have to be included or subsumed under the categories of supply,
demand, and therefore scarcity, and then value and finally, to include money,
price.

Note how Schumpeter distinguishes above between cause and effect and
economic laws suggesting that the box of tools contains just tools of analysis
and not empirical findings of causal relationships which both Menger and
Schmoller did:

He [Schmoller] also described the explanation of social phenomena in the form of cause and effect
and in the form of lawsfor him at this time both coincidedas the aim of scientific effort.

This is similar to Hayeks pointing out Mengers error of seeing economic laws
as causational whereas they are means-ends, science-of-choice, rational or
pure logic of choice relations. This is a clear contrast between the
Aristotelianism of Menger and the clearly Neo-Kantian and Machian orientation
of the Austrian School from Mises onwards.

Hayek at p.22, fn.2:

2An exception should, perhaps, be made for Hacks review in the Zeitschrift fr die
gesamte Staatswissenschaft, 1872, who not only emphasized the excellence of the book
and the novelty of its method of approach, but also pointed out as opposed to
Menger that the economically relevant relationship between commodities and
wants was not that of cause and effect but one of means and end.

Klein confuses these two different approaches to the general, that is, causation on
one side and mere regularity or empirical laws on the other, at p.8:

Economics, for Menger, is the study of purposeful human choice, the relationship
between means and ends [m.e.]. All things are subject to the law of cause and effect, he
begins his treatise. This great principle knows no exception.2 Jevons and Walras
rejected cause and effect in favor of simultaneous determination, the technique of
modeling complex relations as systems of simultaneous equations in which no
variable causes another. Theirs has become the standard approach in
contemporary economics, accepted by nearly all economists but the followers of Carl
Menger.

The mathematical approach of Jevons and Walras is based more on a neo-Kantian

formalism of equivalence or indifference, so that actual use values and quantities are
irrelevant, only ratios of exchange measurable ultimately by a numeraire are possible.
All exchange ratios or prices are relative and can be fixed only at equilibrium,
which is not a point in time but a pure mathematical entity.

Hayek, p17-8:
Even more remarkable is the prominent role which the element of time
plays from the very beginning. There is a very general impres
1 8 P rin ciple s o f E c o n o mic s
sion that the earlier representatives of modern economics were inclined to
neglect this factor. In so far as the originators of the mathematical
exposition of modern equilibrium theory are concerned, this impression is
probably justified. Not so with Menger. To him economic activity is
essentially planning for the future

Economics then becomes a study not of use values or technical pro-duction but a
mere tool indicating what prices may signify in terms of inscrutable and
unknowable, wholly subjective utilities. Mengers subjectivism thus needs to be
distinguished from the pure self-interest of GE analysis.

Hayek at 17:
It is not the purpose of the present introduction to give a connected outline of
Mengers argument. But there are certain less known, somewhat surprising, aspects
of his treatment which deserve special mention. The careful initial investigation of
the causal relationship between human needs and the means for their satisfaction, which
within the first few pages leads him to the now celebrated distinction between goods
of the first, second, third and higher orders, and the now equally familiar concept of
complementarity between different goods, is typical of the particular attention which,
the widespread impression to the contrary notwithstanding, the Austrian School has always
given to the technical structure of productionan attention which finds its clearest
systematic expression in the elaborate vorwerttheoretischer Teil which precedes the
discussion of the theory of value in Wiesers late work, the Theory of Social Economy,
1914.

Hayek at 19 fn,1:
1Further aspects of Mengers treatment of the general theory of value which might
be mentioned are his persistent emphasis on the necessity to classify the different
commodities on economic rather than technical grounds, his distinct anticipation of
the Bhm-Bawerkian doctrine of the underestimation of future wants, and his careful
analysis of the process by which the accumulation of capital turns gradually more
and more of the originally free factors into scarce goods.

The impossible reconciliation of empiricism and formalism reached its apogee with
Mises. Of course, Schmollers deductionism stands in contrast to Mengers
generalism in the sense that the former is purely conceptual whereas Menger
meant a theory that is empirical-realistic and is not the mere elucidation of
concepts, as he says at p.38 of the Investigations. Schmoller is closer to Roschers
Thucydides, to historicism; Menger instead preannounces Schumpeter in his
insistence on the history/theory distinction. Nevertheless, Schumpeter is right to
intimate that historicism will lead to determinism to science even where this
science is sheer classification (anatomy as in the Statik) or evolution as in the
Dynamik, or indeed formal mathematical identities with no cause-effect temporal
nexus as in General Equilibrium.