|Peter Boettke|
I greatly appreciate the efforts by Karen Horn and Stefan Kolev, and of course Dan Klein to make this paper available in English translation. It is invaluable to scholars of the Austrian School of Economics and I would argue the broader community of intellectual historians of economics. I also think it is great collaboration to utilize young scholars to engage in such difficult translation projects.
That said, I also have rather strong views on the Methodenstreit. As background, starting in January of my junior year at Grove City College and continuing until I graduated a year and half later, I was the only undergraduate student participating in Sennholz's graduate seminar. The graduate students included visiting scholars from Europe, Latin America and the US, all older than me and more knowledgable than me. And to be honest, more serious about their studies than me at that time. But I was very serious, I just had a lot of other things going on that occupied my attention. During fall of my senior year, Sennholz incentivized me to write op-eds for the college newspaper and the Econ Society newsletter, which represented my first publications. But for Spring of my senior year, I was given the task to studying Max Weber and the Methodenstreit. And I had to present my findings to the group of graduate students. I had earlier that year witnessed my first dissertation defense in the Sennholz program, so I knew that presenting scholarly work could be an intense experience. So for months I read everything I could find on the topic.
It was this background that probably gave me a head start when a year or so later Don Lavoie coaxed me to write a paper for a professional journal on the relationship between Austrian school of economics and the American Institutionalist School and Veblen in particular. That paper, along with Warren Samuels's paper on the same subject, led to a symposium in Research in the History of Economic Thought & Methodology and in many ways kick-started my career. My original paper -- "Evolution and Economics: Austrians as Institutionalists" was followed by a reply to all the discussants -- "Austrian Institutionalism". The position I carved out then, as a senior at GCC and then first-year PhD student, is still basically the position I hold to this day. There are 3 areas of economic science: pure theory, applied theory (or institutionally contingent theory), and economic history (including contemporary history which is public policy). The purpose of theory is to do history -- it is what allows us to produce both an interpretation of the world around us, and render intelligible our past. Theory is our set of eyeglasses, history is the human experience we are reading -- our eyesight is poor, so if we don't use those glasses our reading will be blurred, and if we use the wrong eyeglasses our reading will be distorted. We have to put on the right eyeglasses BEFORE we commence with reading. In some sense, Menger and Mises were not just right, but devastatingly right. There is no "theory less" observation in economic science -- there are readings that are based on articulated and defended theory, and readings based on inarticulate and undefended theory, but theory is always there and always prior to our reading.
There are some significant implications of that for the epistemological problems of the social sciences, but I will leave those aside for this post. What matters is that theory is essential to the scientific enterprise. Now, there is a more subtle issue which is the move from pure theory to applied theory, and in my rendering that move is where all the significant questions in economic science emerge from with respect to applied/empirical analysis. Pure theory is a necessary, but not sufficient component of a theoretical rendering of how the world works and the underlying governing dynamics of that operation. We cannot do without pure theory -- so once again Mises is correct -- but we cannot exhaust all of economic explanation with pure theory. It is not just Theory/History, but pure theory (logic of choice), institutional analysis (situational logic), and history (empirical analysis from natural history to computer simulations). And, when we are in the realm of institutional analysis, the empirically contingent nature of social context of choice and interaction must be recognized. This is why I have always found North's easy depiction of institutions as the formal and informal rules of the game and their enforcement to be perfectly acceptable for the purposes of political economy. There are rules and there are strategies chosen (or best response moves) as individuals strive to do the best that they can given their situation. Note something quick here -- I don't say that individuals achieve the best outcome from their point of view as there are errors of perception and errors of execution, but that they strive to do so. They are purposeful beings, with goals and aspirations, and command of various means to pursue these goals and aspire to a better situation. Rationality in this sense is omnipresent, but the manifestations of rationality are context specific -- just like optimal strategies in a sporting contest, or any other social engagement.
Menger's Principles gives us the pure theory of action and exchange, Bohm-Bawerk's Capital and Interest in his section of Value and Price, allows us to explore the applied theory of price, and Mises's Socialism deploys pure theory and applied theory to engage in an exemplary comparative institutional analysis of the most pressing issue of that time (and perhaps our time).
In Kirzner's preface to the reprint of Mises's The Ultimate Foundations of Economic Science, he explains why for Mises the epistemological status of economic science was so critical to the exercise, and why those who challenged it from the German Historical School to the American Institutionalist to the Instrumental/Positivists had to be challenged. Hayek was in agreement with Mises on this critical point, as is evident from his Counter-Revolution of Science, and I should add as a personal note, so was Don Lavoie, who after his two-pronged attack against socialist planning in 1985 -- Rivalry and Central Planning and National Economic Planning turned his attention to the modern-day Methodenstreit and embraced the post-positivist position of the Growth of Knowledge literature and eventually his own version of philosophical hermeneutics to oppose excessive formalism, excessive aggregation, and naive empiricism, as well as the deconstructionist branch of post-modernism, and offer a renewed philosophical argument for the uniqueness of the social sciences and the critical role of theory in that enterprise. Economics, in Lavoie's hands, as it was in the hands of Menger and Mises, is a human science that begins as it must with the perceptions and aspirations of the choosing individual in a world of scarcity, and move out from that essential building block to discuss the social arena within which these purposive actors interact with others and with nature. The pure logic of choice matters, the situational logic that emerges from placing those choosing individuals within specified social context matters, and the framework forged from examining the logic of choice and situational logic provides the social scientist with a set of eyeglasses for the reading and writing of history (either contemporary or in the past).
We must put on those eyeglasses, it is to me that simple, and that profound in implication for how we do social science. Hayek's later emphasis on highlighting the fundamental complexity of the social world (a point that must be stressed was in fact emphasized by both Menger and Mises) does not substitute for the earlier argument about knowledge from within and the primacy of the human actors purposive action, but actually augments the argument for the uniqueness of the human sciences, or cultural sciences as they were often referred to in the German context. In short, the Austrian school was right in the late 19th century, they were right in the middle of the 20th century, and they are right in the 21st century.
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