The Case for a Professional Conception of Economics

Claudio Gutierrez

As it has been shown, a strict definition of economic science in terms of "scarcity" is impossible, because of hopeless circularity between the two indispensable parts of the definiens, that is, between genus and differentia specifica. In other words, because of nonseparability between "scarcity" and the concept of "substitution". Other approaches to a definition of economics are inadequate for a number of reasons also (cf. KIRZNER 60, chapters I-V). The conclusion seems inescapable that the attempt to find a definition of economics is misguided. No wonder! The impossibility of giving a formal definition of a science is parallel to the impossibility of giving a formal support to the theory of that science. The problem of definition of a formal apparatus reduces naturally to the problem of justification of the theory which underlies the function of that apparatus. In the concrete case under study, the problem of the definition of economics reduces itself to the problem of the theory of economic value. But the impossibility of finding a definition is not a dismal situation after all, because some solution of the problem of theory is available and this can double as a solution for the problem of definition. We have found that a definition is not possible, but we can also say that it is not indispensable either. The definition is not possible because we cannot hope to support the formal with the formal. Rather, we have to support the formal with the non formal and, ultimately, with the unformalizable. But the definition is not indispensable because the non-formal tradition which surrounds the described formal tools and makes up the family of professional scientists is there to tell us, in an effective way, what economic science is, not so much by word of mouth but mostly by example. The practitioner of the science must know his formalism and must be tacitly familiar with his non formal assumptions. He must know what he is doing and that he is doing economics. But it would be too much to ask him to articulate or state in rigorous terms all that knowledge.

There was proposed in the last chapter a characterization of the tools and method of economics in terms of the analysis of the concept of "substitution" It was also stated that the problem of definition of economics is parallel to the problem of theory. One could now add that the matter covered in that chapter corresponded to the modelic side of theory because of its being an examination of the operative aspects of it. As we know, that side is not self-sufficient and must rest upon non forma1 foundations, i.e., on the assumptions. In a corresponding way one could say that a necessary complement to the formal conception of economics is the professional conception of it, the latter being, as it were, a parallel-to-the-assumptions side of the problem of "definition". This professional conception will have in the field of "definition," with respect to the formal conception, the same kind of relation that the assumptions have with respect to the models, in the field of theory. That is, it is non formal and at the same time offers all the needed support for the formal or operational aspects. NOTE 1

The main objection for an application of the above concepts to the case of economic methodology stems from the epistemological position of literalism, common ground, as we have seen, of apriorists and positivists. We could best formulate that objection, in a comprehensive fashion, as the literalistic dilemma:

Either economic theory is abstract –result of abstractive operations of the mind upon sheer empirical reality– or it is a priori –the elaboration of something you find in your own mind. You cannot have it both ways.

As an illustration of the two horns of the dilemma we can use the following quotations:

The conditions under which men produce and exchange vary from country to country, and within each country again from generation to generation. Political economy, therefore, cannot be the same for all countries and for all historical epochs. . . . Political economy is therefore essentially a historical science. It deals with material which is historical, that is, constantly changing; it must first investigate the special laws of each individual stage in the evolution of production and exchange, and only when it has completed this investigation will it be able to establish the few quite general laws which hold good for production and exchange in general. . . . (ENGELS 59, pp. 204-205)

What we know about the fundamental categories of action–action, economizing, preferring, the relationship of means and ends, and everything else that, together with these, constitutes the system of human action –is not derived from experience. We conceive all this from within, just as we conceive logical and mathematical truths, a priori, without reference to any experience. . . . (MISES 60, p. 14 )

The dilemma is an objection to the two-leveled conception of economics because it forces upon us a choice between the pure empirical and the pure rational which seems to destroy the possibility of a heuristic creative interaction between the two poles. It is my conviction that the dilemma is unacceptable in itself, and that the creative interplay does exist. But the answer to the challenge of the exclusive alternative cannot, by its very fundamental nature, be straightforward. The prima facie extraordinary force of this dilemma is, I think, the product of a tremendous oversimplification of the problem of knowledge. It is only through a complete rebuilding of the context of the question, of its epistemological surroundings, as it were, that one can be enabled to see that this destructive argument does not hold. In order to answer this objection one has to look all the way into the nature of knowledge in general, and of scientific theory in particular, with special emphasis on the problem of language and the problem of the essence and function of abstraction. Nothing short of this, to my mind, is capable of clearing the ground for a correct posing of the problem of economic knowledge and the "dispelling" of the above exclusive alternative. But all this has been precisely the content of most pages of this study which is conceived as a criticism of the literalistic position. One would have to review those pages to find the complete answer to the literalistic dilemma.

Some other difficulties for the forma1-professional conception of economics seem to arise with respect to the plurality of levels which is implied in this approach. An objection along this line could take the following form.

The professional or formal conception of economics is systematically ambiguous in its use of the concept of "system," a word that seems to be used alternately and without much warning either as meaning a theoretical framework of analysis, or rather a quasi physical functioning machine, the economy itself. This is especially unfortunate because it seems to preclude the possibility of correctly delimiting the field of action of the economist without resort to circular reasoning. The professional conception seems to characterize economic science as the science which is practiced by those concerned with problems of substitution, and these problems are described as those connected with the functioning of the economic "machine". How can one get out of the circle?

My answer is twofold.

First of all, one would do well in not condemning offhand all circularity in reasoning since, after all, it is on circularity that all kinds of theoretical thinking are based. Even the most rigorous forms of argument, e.g., those present in formal systems of logic, are circular in some sense, since the theorems are somehow present in the axioms and the axioms might be also considered to be somehow present in the theorems. In fact, and in this sense, to be "circular" is the opposite of being inconsistent, as the case of the formal systems of logic would tend to demonstrate. The important thing is to safeguard us against poor or premature circularity, not to eliminate circularity altogether. One has to have a circuit in order for electrical devices to function. But one will do well in avoiding short circuits. Having clarified that, I will readily admit that some kind of circularity is present here. I will contend, though, that it is the "good kind" of circularity, rather than the short-circuited kind.

Secondly, it is convenient to remember that the intention of the present conception is not to build a definition of economics, but rather to show, as it was explained in the beginning of the chapter, that the definition is both impossible and superfluous, and that the problem of characterization of economic subject-matter or economic activity is nothing separate from the problem of justifying economic theory itself. Now, in relation to its own problem, as it has been stated, the "circularity" of the professional approach is not a shortcoming but rather an asset, because it enables us to better understand the meaning of the assumptions by clarifying the models and the function of the models by a correct appreciation of the general sense of the assumptions.

Finally, the presence of two levels of discourse in all this area of investigation is undeniable. It is precisely one of the main points of this essay to stress this distinction, against the temptation of the social scientist not to recognize it. Of course, there are things which exchange for one another with respect to ownership, use or possession by individual or collective persons. They may well be represented by models which form systems of a formal sort. There are also theoretical assumptions which govern the models in a systematic way, comprehensive paradigms or frameworks of interpretation. These two levels are furthermore connected in a twofold way. Not only the latter is represented within the former by means of the tokens of theoretical notions, but also some of the empirical elements of the model, those standing for persons, are understood as capable of entertaining assumptions, The distinction of the two levels is not an obstacle, however, for the recognition that in one of them, the modelic, the functioning of a system of substitution is an operative principle. Neither is it an impediment for saying that around this system an academically organized group of people may be distinguished as the professionals of economics.

A third type of difficulty that should be met is this:

Is this conception really a different interpretation of economics from the conventional one? Or, in other words, is not the literalistic approach equally good as the formal-professional to render satisfactorily all the relevant practical and methodological problems? What is gained by having this new conception?

I will answer in two stages. First, the reasons to have a "new" approach are not clear because the approach has been around for a long while both in literature and in professional practice. The methodological task is now only a matter of removing some inconsistencies from the framework of the science or, better still, from the idea that the scientist has about this framework and its corresponding application. Also, it is a matter of making explicit what many writers have been implying in one or another way in their treatment of several particular methodological problems. My point is that, in fact, no one nowadays sticks to the full implications of an aprioristic definition of economics for example in relation to the singleness of model that it appears to prescribe. On the contrary, a review of the current economic literature leaves the impression of a healthy diversity of models, approaches and angles of attack to economic problems which seems completely at odds with the unitarian and closed outlook one would expect from aprioristic minded practitioners. All kinds of imaginative devices seem to be the order of the day. NOTE 2 The impression one gets from such a review is also that the aprioristic confidence in the predictive power of economics has very much faded away, being replaced by more caution about the results one might expect from the application of theory. This new attitude is seen in the growing use of statistics and the probabilistic method, as against the straight-prediction method cherished by praxeological thinkers. NOTE 3 A possible rejoinder to this argument may be that the discrepancies between the present conception of economics and the aprioristic conception are due to the fact that we have taken the latter in the germinal formulation it has in, for example, Robbins. Yet one can elaborate on this germinal form so that it proves able to cope with novel models and theoretical devices, so that the new finds honorable place within the old. The rejoinder is merciful and plausible enough. The fact is, however, that this method of reconciliation would make the old paradigm indistinguishable from the new and we would have no disagreement left.

Secondly, I would like to present some concrete reasons why the professional conception of economics should be preferred to the a priori conception. These reasons, I hope, will show that the professional conception is more consistent with actual professional practice, and more fruitful in the way of clarifying the processes theorists, practitioners, and political economists are engaged in.

a) Common usage decides against the aprioristic conception, both in the professional sphere and in ordinary life, when it reputes economic the phenomena related to some kind of circulation of money–witness the pejorative connotations as to what is only economic, in common parlance. The aprioristic conception brands as potentially economic all realms of social reality. The formal-professional tends to stress the basic difference between two distinct orders of reality: the order of what is substitutable, and the order of what is unique. Furthermore, essential to the professional conception is a gradation of meaning in the different applications of the term "substitution," eminently apt for describing means of living, but only by extension applicable to less-physical entities. No such shading is found in the aprioristic conception, at least, not in the usual presentations of it. NOTE 4

b) The aprioristic conception tends to defend itself against refutation by the dubious dialectical resource of distinguishing sharply between "relevance" and "truth": "Of course, if other things do not remain unchanged, the consequences predicted do not necessarily follow. . . ." (ROBBINS 32, p. 112). This is a very short step from self-complacency and unconcern for the development of science. The spuriousness of the distinction has been, I hope, sufficiently demonstrated in the first part of this study and again in the chapter on praxeology. Its main evil is that it forces upon us the oddness of having to talk about relevance in all the cases in which we would want to speak about truth, this last term being reserved, with no sufficient reason, to designate only logical consistency or the necessity of very general and fundamental assumptions. But this literalistic twist is a perversion of the normal time-honored use of the word "truth". To say that what one has to investigate is the relevance of particular "theorems" is nothing substantially different from saying that what one has to investigate is the truth of a hypothesis. NOTE 5 After all, it is –or is it not?– the discovery of truth what is intended as the permanent mission of science. On the other hand, any theoretical formulation is "true" in the weak sense of being logically consistent, self-validating, or "circular." Otherwise, it would not be even thinkable! Of course, a "theory" can be inconsistent, but then it is not a theory at all.

I am thinking, for instance, of the attitude that overinvestment theorists take in relation to the problems of the business cycle (HABERLER 63, pp. 33-72). They assume that the basic principles of utility theory, not enriched by laborious empirical investigation, can suffice directly to give a full account of the concrete phenomena of business life. When their theories are applied and found faulty it is no defense, to my mind, to say that the theory is true, although irrelevant in this particular case –presumably still fully valid, and very relevant, in all the untested cases. I would like to say in this situation that the theory is false, not in the sense that its content, basic principles of economics, are not valid, but in the sense that it is a false modelic representation of reality. One should always distinguish the two roles that a piece of information may play. It is either assumption or model. One has to make sure that assumptions do not take the place of models, perverting, by so doing, the very purpose of a particular science, namely to accurately represent empirical reality.

c) I have no doubt about the politically conservative implications of the aprioristic approach. It is only natural that non-tolerant methodology will tend to associate itself with an intolerant political philosophy, defender –first and foremost– of the status quo. It is argued, contrariwise, that a formal (in the literalistic sense) methodology assures neutrality in the application of economic theory (ROBBINS 32, pp. 132-34). But man is a passionate animal and if, in trying to assure value-neutrality to economic reasoning, we declare economic theory to be unconcerned with non formal matters, passion will enter again through the backdoor, as social injustice and predatory acts infringed on the weak by the powerful. It offers no justification that these acts are done under the pale of contentless, purely formal, "neutral" theory.

An objection may possibly be raised.

The professional conception of economics, it seems, does not necessarily avoid this conservative bias. It can be as "neutral" –insensitive to social problems– the aprioristic conception. Furthermore, it shares with the latter a dangerous formalism that would tend to ignore certain types of problems, e.g., the problems of the external cost of goods –tips, bribes, commercial espionage– as belonging in sociological theory. Sociology, in turn, will not occupy itself with them, because reputing them –rightly– as strict economy.

This objection does no harm, although it is well conceived. The professional conception precisely emphasizes the role of the background, training and responsibility of the scientist in the methodological consideration of his science. This applies to the attitude of the scientist about classification of problems and organization of particular procedures within his own discipline. So, the social sensitivity of the professional –again we have to rely on the sense of responsibility of the scientist–will always be determinant in the application of theoretical models to the problems of social policy and specific questions of social concern. In particular, unorthodox phenomena like external cost, or social cost, which will tend to be overlooked in the aprioristic approach as only "conditions" under which economizing takes place, will be strikingly noticeable in the professional conception. It makes the ethical and practical training of the scientist an essential category in the characterization of his own discipline. No case of no-man's land will present itself. The aprioristic approach makes for sharp boundaries among the sciences. Not so the professional conception. A rigid departmentalization has no place in it. It does allow for the common use of particular models and concepts by different social sciences and always assures professional treatment of borderline cases that could not be adequately "plugged" in the conventional divisions of aprioristic classifications of the sciences.

d) Finally, the professional conception will not commit the scientist to the single use of particular models. It will encourage one to look for as many as can be found use for, and to apply with much flexibility an array of such models to different theoretical and practical problems. Contrariwise, the aprioristic tendency has shown itself committed, if not in theory at least in practice, to a single model, the one very aptly analyzed by A. Lowe as the "extremum principle". NOTE 6 This is nothing but the most primitive model that is possible under the assumptions of utility theory, with no complications arising from the interposition of less-general, more empirically founded, hypotheses. Thus it is fair to consider this model, as we did before, as the assumptions taking up for themselves the role of the models. Trying to solve all the problems of economic theory by means of this single model is characteristic of the classics of this approach. They always try to reduce to a very minimum the interposition of research-originated laws. the "few auxiliary hypotheses" of praxeology. All this against the plurality of theoretical resources that the professional conception will induce us to employ. Witness, again, the sharp contrast between the contemporary treatment of monetary problems or of the problems of the cycle. They offer a multiplicity of models, considered operating simultaneously or alternatively. The "classical" monetary theorist, on the other hand, tries to explain everything by means of unsophisticated derivations from basic utility theory with single-minded determination.

One could reply that diversity of models is also possible in the aprioristic view. They would function within the general theory to explain different empirical conditions of economizing, e.g., "monopoly," "competitive conditions," "cartels," etc. These apply the basic theory--causal principles-to different types of situations. All this is true. Still, the tendency is, as explained above, to conceive of these types "after the image and similarity" of the fundamental assumptions, with no interposition of broad empirical laws that would give positive content to these theoretical generalities. The types are the result of a "transcendental deduction" more than functional devices appropriate for the empirical development of the science. To the extent that this remark is not applicable to a particular "aprioristic" then, and by my definitions, he is not as aprioristic as he thinks he is.

What bothers me the most in the writers of these aprioristic tendencies is a characteristic two-faced attitude in their methodological strategy. When they are examining the foundations of their theoretical edifice, they take all pains to show that their scheme is completely general and capable of accounting for all kinds of situations and empirical conditions. Yet when they are not examining those foundations but explicitly trying to solve some specific problem, they reason as if no more tools were available than the plain, straight application of the most general principles of theory. I think this unfortunate situation is possible among very able people only because they have an insufficient comprehension of the nature of formalism, its uses and its limits. This tends to cause a misguided appreciation of intellectual simplicity. When problems seem very complicated, we call upon the clear world of ideas to be saved from the roughness of daily life. Yet complexity arising from the very hardness of the problems facing us must be respected. It should not be taken as an excuse to seek refuge in "simpler theory" and condemn empirical reality to the irrationality of the "historically given." Social science could fare much better than that. It might not give us "all the light" we expect to receive–which science does?–but the failure of "absolute knowledge" must not make us disparage the "relative knowledge" we may still prove able to conceive. Formalism may be said to be the "clear" section of the knowledge we can possess. It will always be accompanied by that other, "obscure," knowledge implicit in our tacit assumptions.

Formalism must, to be a useful device, remain under the full command of the person of the theorizer. This control is hardly guaranteed by the "transcendental deduction" of the praxeological approach, which is an unknowing process of dialectical retro-definition, as we have seen. The result of such an approach can only be the artificial simplification of the intellectual resources of economics, much of the same sort as that mystification arising from positivist linguistic rigidities: loss of heuristic momentum and premature closure of the active conceptual ingredients of the science. An aprioristic conception seems to go against the idea of the developing reality of an open science, a science in the making, which economics undoubtedly is and should continue to be. It is to the clear benefit of such a science to use, as the professional concept encourages to do, a multiplicity of formal approaches. It is also to its profit to use broad experimentation of methods. The professional must be aware both of their limits and of their potentialities, so that he contributes to the progress of this, the still less than exact although most rigorous of the social sciences.