Economics, History, Theory and Ideology

Article by Alex Martin. Edited by Helen Doherty. Additional Research by Liz Goodwin. Erroneous Epistemology 

I keep threatening to write a piece on how The Simpsons saved the universe, and in particular why the episode ‘Lisa the Iconoclast’ (season 7 episode 16) is essential viewing for any fans of history or laughing. But the temptation of the theme History and ideology was just a little too much for me. I am convinced that a lot of the world we live in is derived from a paradigm that has been deduced from a fusion of an erroneous epistemology of economics and a poor theory of history. This paradigm is derived from a school of thought that became prominent during the 19th century mainly due to a reaction to the deductive reasoning of Economists such as Adam Smith, and the rise of biological determinism. 

The Historical School 

They are called the Historical school and believe that economics is a science which examines the utilization of limited resources which may be put to different uses in order to satisfy human needs, their concept of economics claims that economists ought to examine decisions, all of which are both rational and based on constraint and maximization. The central character of this economic and social process is essentially a passive being, acting and reacting to a given set of circumstances. The knowledge and information that this character has is constant. This when aggregated gives an equilibrium which by a third party can be measured and an objective cost of the economic actions can be given. This objective measurable cost of decisions leads to the conclusion that the economists most desirable goal is to predict the outcome of future decisions and offer methods of improving the outcome. Notable economists and social scientists of this ilk include: Herbert Spencer, Karl Marx, Gustav Van Schmoller, John Maynard Keynes, Milton Friedman and Max Weber. 

The Forces of History 

This range of thinkers represents a large cross section of the political and economic spectrum, from the ideological father of communism to the greatest proponent of Thatcher’s monetarism. History fits in here in a much neater way; when time is applied to this model, the decisions that people make can more or less be boiled down to the constraints that are applied to them. E.g. the limited supply of oil is a constraint to how the resource of oil can be used, this forces people to react to this: rationing oil, using alternatives, monopolising oil, going to war for oil etc. This model can be applied further to more abstract principles; e.g. education, without a universality of education the average intelligence and knowledge of people will be dampened, leading to oppression from the well educated. These factors are then roughly referred to as the forces of history. However, as I have already hinted I believe this model to be flawed; it rejects free will, emphasis large impersonal almost mythical social forces, places too much stock in determinism (to the extent where it almost embraces fatalism,) over emphasizes the material and can often render very unsatisfactory conclusions. 

The Austrian School 

An alternative view of economics is available called the Austrian School; instead of examining the decisions human action is examined. Economics is the study of the dynamic process of human action where the central social and economic characters are entrepreneurs who consciously think and solve problems. The information available to these characters is subjective and changes. Thus value and price are in constant flux as it is subjective value that is the determining factor of price. As the process of human action is dynamic and subjective at no point is equilibrium reached. Hence as nothing is fixed permanent or totally measureable predictions about the future are impossible, since what will happen depends on future entrepreneurial information which has not yet been created. Only qualitative and hypothetical pattern forecasts are appropriate. Those who ascribe to this school of thought are fewer and less well known and are commonly called the Austrian School: Ludwig Von Mises, Frederick Hayek, Joseph Schumpeter, Murray Rothbard and Carl Menger. 

The Methodenstreit 

These economists and thinkers, in particular Carl Menger, engaged in what was called at the time the Methodenstreit, (literally meaning debate over methods), a debate over epistemology, and the academic inquiry is framed or pursued, in the late 1880s and early 1890s between the Austrian School, led by Carl Menger, and the Historical School, led by Gustav von Schmoller. On an intellectual level the Methodenstreit was a question of whether there could be a science, apart from history, which could explain the dynamics of human action. Politically there were overtones of a conflict between the classical liberalism of the Austrian School and the welfare state advocated by the Historical School. For a compacted comedy rap that explains this in surprising philosophical accuracy and fake moustaches go here: http://www.econstories.tv/home.html. 

Human Action Imposed on Time 

The implications for history are just as profound; when the past is applied this model (a model that rejects most attempts at modelling) human action is viewed as organic and issues and events are harder to file down into large sweeping forces of history. Take for example the limited supply of oil when viewed from a materialist perspective it is an issue of scarcity, allocation and maximization, it is part of one of the forces of history, however, from the human subjective view, the economic supply of oil was doubled in 1885 when Karl Friedrich Benz invented the carburettor (something that doubles the efficiency of the internal combustion engine), and increased further with other inventions. 

The Phenomena of Football and Marriage 

Furthermore this paradigm has many more implications; firstly history and economics become closer in terms of subject matter and focus. Ludwig von Mises described economics as a study ‘not about things, tangible material objects. It is about men, their meanings and actions good commodities and wealth and all other elements of conduct are not elements of nature; they are elements of human meaning and conduct. He who wants to deal with them must not look at the external world. He must search for them in the meaning of acting men.’ A definition that for me would apply to history very well, for example I highly recommend Literature and the Economics of Liberty: Spontaneous Order in Culture, by Paul Cantor, for an Austrian perspective on literary theory. Also society is often viewed by historians influenced, by the Historical School, as an independent entity, made up of individuals, similar to the Hobbesian metaphor of an organism. 

However, this metaphor denies the agency of those involved, as the body’s various parts operate without conscious thought unlike members of society. Society is the unconscious result of many individual conscious actions. However, individuals often choose to take the same action: going to a football game, marrying, voting etc these events should be taken as social phenomena and ought to be the focus of study for many historians.

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