IX. The Dangers of Economics

CHAPTER IX THE DANGERS OF ECONOMICS ,, You take for truth only the maddest miracle " The manifest services of the natural sciences, medicine and technology have gradually given rise to a belief in a certain curative effect of science. Occasionally, however, faint signs are to be detected which seem to testify to certain dangers of science and of its doctrines, dangers which always exist when the particular science is misunderstood or wrongly applied. But these signs are usually confined to a narrow sphere which is well guarded by the science. In medicine there is the prohibition of quack practices, in astronomy there is a strict bar on astrology and not infrequently it is forbidden to make prophecies based upon it. Such mistaken applications of scientific knowledge or the formulation of non-scientific proposi tions which laymen are p:rone to take for scientific have always been a source of serious trouble to sciences which suffer from being intentionally misused or whose significance is often completely misunderstood. It has not so far been suggested, however, that economics might also belong to this group of sciences which are protected to a certain extent by legislation.

Economics will probably never be able to acquire such a privileged position and will always have to remain particularly exposed to charlatanism. The purpose here is to examine this situation in somewhat more detail. Such an investigation is the more profitable, since scarcely anything of. the kind has been done, and it casts illuminating sidelights on the most 113 114 THE LIMITS OF ECONOMICS crucial problems of the social sciences. The word " dangers " is used in a double sense 0:£ the dangers to which the science itself is exposed and those which arise out 0:£ it-grossly misunderstood and misin terpreted-for the user. One of the foremost dangers to which a science is subject arises out 0:£ its lack of perfection and com pleteness. This is a condition which must always exist so long as there is still room for any scientific progress, and all empirical sciences will find them selves in this condition since the problems which are brought be:£ore them in the world of reality are never ending. Only a purely a priori deductive science which has nothing to do with experience could theoretically (or so it seems, at least) emerge from this state and could in fact do so if there came a supermind which succeeded in thinking the whole science out right to the very end. For many centuries it looked as though logic had actually achieved this state until suddenly a :£ew decades ago it appeared that even here not all the possibilities were exhausted and so to-day we are witnessing a great process 0:£ reconstruction of the science of logic, a thing that Kant would have thought impossible. The development of modern logic during the last decades will prove to he 0:£ the most far-reaching importance for all sciences even i:£ it has not proved so already. But it has other less con venient consequences: "A universal logic which, on the basis 0:£ a few principles, can provide the solution to all conceivable questions, and of which Leibniz dreamed, cannot exist " (quoted from Karl Menger, " Die Neue Logik" in "Krise und Neuaufbau in den exakten Wiss'enschaften," p. 112, Vienna, 1933).

Consequently, the chance that we can ever reach such DANGERS OF ECONOMICS 115 a condition of rest in any other science, even mathe matics, is exactly nil. Economics, since it is a young science, is lia bIe to chang'es in particularly large measure. Those few authors who deny it the character of an empirical science in their endeavour to lend to it the" higher" value of an a priori science are in a most unenviable difficulty, because, on the one side, they cannot and do not want to deny the progress of theory and, on the other side, they see in it a serious challenge to the validity of the inferences regarding economic policy drawn from that allegedly a priori character. There is every cause, however, for leaving them to their plight. An additional point of importance is that everyone of the authors who adopt this attitude must qll"asi ex definitione be convinced that anything he personally has published on any topic of economic theory must be the last word on the subject. A priori theoretical economics does not exist and even if it did exist it would have nothing to do with the formulation on a scientific basis of economic policy and programmes of economic policy.

Lack of completeness of scientific knowledge entails also the possibility that single statements and axioms n;:tay be mutually inconsistent. So far as concerns theoretical investigation, the discovery of such an inconsistency is always the point of departure for obtaining new know ledge. So far as concerns the practical application of scientific knowledge, the mere suspicion that the prevailing doctrine may contain inconsistencies is a particularly serious hindrance when there are various aims to choose from springing from conflicting interests and in the selection of which the practical possibility of a means has played a 116 THE LIMJTS OF ECONOMICS decisive role. Even more difficult is the case where there is a choice between two or more ends and this choice is governed by the condition that a previously prescribed technical means must be employed in the attainment of such ends. If such a case gives rise to inconsistencies from the scientific point of view, the choice can only be made on the basis of extra scientific factors. There is no doubt that from the theoretical point of view these gaps in completeness are very significant, but upon closer examination they prove in very few cases to involve matters which are of direct interest for the problem of application. Here again we are helped out of the dilemma by the circum stance that economic policy is mostly a matter of dealing with very broad events (with the possible exception of monetary questions in periods of stability).

It follows that the already oft-tried rules of thumb, of which we spoke further back, are not particularly exposed to dangers of this sort, a fact which provides an added incentive for being highly suspicious of all revolutionary proposals in economic policy. With respect to such revolutionary proposals, about which we ahall have a few words to say pr~ently, the endeavour should always be to reduce complicated plans and ideas to the simplest possible propositions and in this way to demonstrate what economic axioms lie at the basis of them or-much more frequently with what axioms they conflict. Moreover, it has already been proved that the extra time which may be entailed by more careful analysis and deeper think ing will be amply rewarded. It may be concluded then that there is no need to exaggerate the inner difficulties of economic theory. The world to-day would be much better off if the DANGERS OF ECONOMICS 117 all too numerous individuals who laugh at economIC theory, selecting it as the obj ect of their petty scorn -and among them are many who are responsible for economic policy-were only in the position of being able to work through and understand a serious book on economics. The real difficulties and great dangers confronting economic theory are in fact closely connected with, this deficiency, but they have their roots in a sphere of life which is entirely outside of science and its practice. This is not to say that scientists themselves, as single individuals, merit no share o£ the blame tor the situation about to be described. But if this is the case, it is because they are not merely abstract scientists, but are also, simply in their capacity as human beings, politicians, party members and so on, and do not possess the necessary moral and intellectual qualities sharply to separate these capacities from their scientific sphere. If the will to do this is lacking, then they sin against the fundamental laws of science itself.

The danger on, which we have been commenting is contained in the views and opinions aptly described as the economics of the man in the street, or amateur economics. It may facilitate the understanding of what follows if we pause here to make some further remarks on the special difficulties of economics. Reference has already been made, in Chapter VII, to some of the peculiarities which complicate the study of this science. The greatest difficulty which economics entails for the layman is probably (a) the necessity of submitting to the stringent discipline of difficult analysis,; (b) the large number of relationships and data that have to be considered even i.n the case of the 118 THE LIMITS OF ECONOMICS most elementary and commonplace economic propOSI tion. The large number of possible combinations to which this gives rise makes it very difficult to formulate general laws and rules which are simple and yet some thing more than truisms. There is no doubt that the layman and the practical man is, less capable of taking up such a science, in which the numher of factual things which can be learned is very small, than he is of taking up most of the other sciences. But this is wher,e one of the most characteristic features of economics comes to light. It has a high value in the sense that it applies a special technique of thinking and represents a dis tinctive type of training of the mind. What we are taught by the study of ,economics is not so much con crete statements which can be taken home in black and white as how to tackle a problem and apply tools, which have already been used in similar problems. The emphasis is consequently OD. the technique of thought and analysis. It is, probably, therefore, no mere accident that questions of methodology play an important though admittedly often exaggerated role in economics as, indeed, they do in all other social sciences where the situation is similar. The handling of this method of procedure requires a great deal of practice and skill neither of which can be gained in a short period of time. The person who occupies himself with a science only for amusement and out of general interest will consequently find economic theory a par ticularly unsatisfactory and inhospitable subject, because it does not lead to tangible results until aft.er a long time. A short study of the fundamentals of mechanics or the facts of astronomy, on the other hand, DANGERS OF ECONOMICS 119 is sufficient for a tolerable understanding of the doctrines of these disciplines, although the difficulties of these sciences are not to be underrated.

The other obstacles which are continually cropping up in economics may be classified under two heads: those which are creat,ed consciously or unconsciously by the professionally trained students of the science and those which are created by laymen. We shall consider the first type separately: all the rest fall within the category of lay economics. On the peak of all the possible mistakes which the professional economist can ever commit stands the identification of economic theory with some particular form of applica tion, the use of scientific propositions, which are supposed to contain nothing but pure knowledge, to support the ideas which rule in social groups or classes, in political parties or similar places. The analysis of the whole of this essay is intended to show that economic theory is free from any such association, so that any more explicit negation of misuses of this kind should be unnecessary. To the same category belongs the thesis that a certain economic policy must be associated with a certain form of organization of world affairs, as, for example, that ,economic liberalism pre supposes as an indispensable prerequisit,e the most general political liberalism. This is a thesis which is very frequently advanced by scientists but has never been de facto proven. If such views were advanced by politicians-who consider such a situation as worthy of seeking or as deserving of condemnation-the harm would not be great, but there are economists of high rank who are the first to introduce such id,eas into the political field and so, of course, quite automatically make the science the sport of political interests.

120 THE LIMITS OF ECONOMICS Reference has already be,en made in another con nexion to the -exaggerated expectations, often promoted and acclaimed by professional economists, which are frequently attached to the mere existence of a very modest group of economic theorems. They are men tioned here again only for the sake of completeness. Not the least important factor in leading the general public to expect too much from this science is the unwise and sometimes positively harmful behaviour of many economists who hav,e a ready-made answer for every concrete situation without further reflexion. The public demands more of economic science than the present state, or any conceivable future state of know ledge allows it to give. Then when hopes turn out to be illusory, the mood veers round to the other extreme. There can hardly be any other scienee which is exposed to such oscillations of estimation. But this is a situation which can and should he changed.

The attempt made in this essay to mark out the limits of economic policy renders it necessary to give repeated warnings against all kinds of exaggeration. But only the superficial reader could interpret this procedure as an unqualified denunciation of economic theory or rather of economists. On the contrary, the aim is to secure that economics may be able to hold its own on its own proper territory. This aim would be reached if we could imbue all those who talk and write about economics without understanding any thing about it with the conviction that they understand nothing about it. In other words in rebus economicis people must be brought to the" socratic point." There are, of cours,e, many reasons why it is improbable that this end will be lastingly attained. The existence of amateur economics is consequently of the greatest DANGERS OF ECONOMICS 121 practical importance: it represents the most grievous danger at once for economic science and for economic policy. The danger is especially great in the case of the latter because the circles in which the ideas of amateur economics are current are usually in closer proximity to practical life and political activity than can be said of the prof.essional economists.

In order to isolate what is to be called " pseudo" or amateur economics it is first necessary to know the opinions prevailing among the public as to the defini tion of an "economist." Unfortunately, the public is in this respect very generous. This is particularly true of Anglo-Saxon countries where everybody is called an "economist" who has any chance con nexion with economic affairs and the explanation of economic relationships. A doctor is easily recogniz able, but none of the usual crit,eria (a doctor's degree or published work) suffices with the same infallibility in the cas,e of the economist. Consequently, if " the economists " as a body oft,en enj oy a bad reputation, this is mostly because some quacks or other are taken for the real guardians of the scientific tradition. The celebrated saying (for which Mr. Ramsay MacDonald is supposed to have been responsible and which he is said to have aimed at an English author of inter national repute) that four economists present four and, in the presence of the said person, even five opinions at the same time, casts a dismal light on a lamentable situation. The longer one stands by and allows such ideas to become fixed in the nlinds of the public, the more will confusion correspondingly reign in setting the aims of economic policy. Among" real " economists the differences in the explanation of any given economic situa tion are much smaller than the variety 122 THE LIMITS OF ECONOMICS of cures recommended by the doctors, although the public surrenders to the latter, even one after the other, with complete naIvety and perfect confidenee.

In the esoteric circles of " pure theory " the division between real science and amateur economics is quite clear: the occasional outbursts from outsiders, especially people trained in mathematics and engineer ing, who advance monstrous ideas, does not alter this to any great extent and is not a factor causing any considerable disturbance in the pursuit of the science. In public life where this division is not achieved the existence of amateur economics is the more significant for the reason that it contributes to the setting of the aims of economic policy. I t is not necessary-and will only occur in infrequent cases-that sponsors of economically spurious ideas, and doctrines should deliberately, out of malevolence and self-seeking, make use of seemingly plausible explanations of economic relationships to lend support to economic measures based on these ,explanations in order to secure special advantages for themselves. In general, people who want to iner,ease the amount of purchasing power and yet do not want it to raise costs, who want to give unlimited amounts of credit without jeopardizing the stability of the currency, who want to create new employment without interfering with employment somewhere else, who place restrictions on imports but would like to stimulate exports, who want at all costs to balance trade on a bilateral basis and only to buy from those who buy from them, and all the thousand and one madnesses of that kind, genuinely believe that all thes,e aims can be achieved simultaneously and that there is an unobjectionable way of reaching them.

These people are not malevolent but sim,ply ignorant DANGERS OF ECONOMICS 123 -though, so far as end effects are concerned, it is, of cours-e, the same thing. All amateur economics claims to he what real economics necessarily is: the explanation of connexions between facts. Since then both intention and subject matter are identical, but since there is a disparity of results, the impression is given that" the economists" are to this extent not in agreement. To the public the ideas of amateur economics are much more striking, usually because they contain s.omething akin to magic. (For example: "if only {JJ were being done then all human beings could obtain employm.ent and have an agreeable life," where ultimately {JJ stands for some thing pleasant). Since every person is in some way or other a producer or entrepr,eneur, or is at least con nected with economic affairs, the incentives for all people to occupy themselves with things economic are strong enough never to permit amateur economics. to die out. It may be pr,esumed that the next decades will see an even closer drawing together of the economists than has already taken place in the past decades; but it would be false optimism to believe that amateur economics could meet with anything more than a slight setback. Its persistence is of the most far-reaching importance, hecause, bv putting resistances in the way of the adoption of the measures necessary to reach a given aim, it caus·es a continual deflection of the course of economic policy something akin to the way in which the magnetic needle is deflected by the magnetic pole.

This tendency in economic policy is quite inde pendent of all value concepts since it concerns only the defectiveness of the understanding or of the will to understand, and it is as inherent in any conceivable economic system as are the tendencies which were set 124 THE LIMITS OF ECONOMICS forth in another place, tendencies which all work in the same direction, mutually s.trengthening each other. This trend, whatever outward show it may make of reason and reHexion, is essentially irrational. That is no doubt the reason why it has recently received such a strong upward impulse. Another important factor is that the application of amateur economic opinions and catchwords (largely the latter), quite apart from their effect on economic policy, exercise the same kind of influence on the data as the application of true propositions about economic relationships. It can to-day no longer be questioned that in the sphere of social life knowledge once expressed is liable to shift the bases of that same know ledge, just as even in physics an experiment sometimes changes the bases of the experiment itself. This is a fact which has become of great scientific import. So, for example, amateur economics may be misled into interpreting the phenom,ena of an ordinary economic depression as the break-up of the economic system or " the end of capitalism" whereas in reality they are perhaps only the usual features of the downward phase of the trade cycle, but should this view ,find acceptance, it is bound to happen that a stone really will be knocked out of the foundation of the economic system which is being indicted. Even if the effect is not so far-reaching as this, it will at least lead to aggravation of the crisis or protraction of the depression. Every belief of mankind, whether true or untrue, whether correct or false, helps to shape the social world, since the latter is ultimately made up of human behaviour, and human beings act according to their opinion of how they ought to act. The investigation of these factors is not as yet at a very advanced stage and presents an DANGERS OF ECONOMICS 1.25 important field for research which has close links with psychology and modern logic. It may be mentioned further that not only the persistence of amateur economics, but above all its powerful influence and driving force present a considerable hindrance to the mediation of economic knowledge and to its handing on to the rising generation. This hindrance adds itself, poss.essed of mythical force, to thos,e which were enumerated previously and which are rooted in the very heart of economic policy.

We must now turn from this general description of amateur economics to a description of the specific characteristics by which it is recognizable. There are predominantly two of these: its methodological character, and its manner of manifestation. Let us take the first of thes,e. To go into the specific content of amateur economics more than is absolutely essential would take us even further outside the scope of this essay than to go into the details of economic theory. In any case the hopeless confusion of the mass of pro positions, assertions and claims of amateur economics is sufficient to prevent it. Yet it may be said that a book setting out the main body of "doctrines" of amat,eur economics would probably be the best seller of all the publications that have ,ever had anything at all to do with economic matters. Unfortunately, the majority of readers would give the praise that is due to such a collection without noticing that it dealt with quack science. It would he similar to the way people were deceived a few years ago when someone collected together in a museum all the rubbish imaginable with the intention of shocking the public. The visitors were for the most part wildly enthusiastic to acquire the various works of " art "! A museum of this kind does 126 THE LI~ITS OF ECONOMICS not take long to arrange if only one sets about the work with a little skill, but a seriously intended collection of amateur economics would at once come up against a serious and characteristic difficulty which upsets the whole apple-cart. The individual propositions would have to be interconnected with each other, harmonize with each other and accordingly be free from incon sistencies. Now this is-if they make any attempt to conform to the facts-ex definitione impossible, for the result could not be anything else than economic theory.

Freedom from inconsistency is therefore unattainable in the sphere of amateur economics, and it follows that an application of these doctrines to economic policy can never give freedom from inconsistencies either. Amateur economics receives with this its condemna tion., and it is imperative that all possible means should be used to defeat this pseudo-science and those who propagate it. On the burial of amateur economics there depends perhaps the whole material welfare, and together with it ultimat,ely a good deal of th~ cultural and spiritual welfare, of peoples. This is justification enough for strong words, but perhaps the caU8e is best serv·ed by sobriety. So much :£or the methodological side of the question. If we turn to consider the practical aspect, we find that here also, as soon as any sort 0:£ application of amateur economics is attempted, the crucial point arises when we come to criticize the internal con sistency of amateur economics with its premisses, a criticism which, as such, is 0:£ course completely con clusive. It is essential that it should appear to have this consistency and that is why all its statements have to be alleged to possess such a precision that every question relevant to~ or significant for economic DANGERS OF ECONOMICS 127 policy can always be answered. There is no problem which amateur economics does not claim to be able to solve. In contrast to this, anyone who is intellec tually honest will often find himself in the position of having to say: "For this or that situation we do not yet know of any solution, or any given solution carries with ita certain degr'ee of uncertainty. "

Neither does the scientist lose one iota of his prestige by making such an admission, for every man is at liberty to test his whole chain of reasoning and to follow out the results of such a statement into the most refined ramifications of economic theory-even if it is an incomplete system Qf knowledge, as it seems to be to the critical eye. An amateur 'economist, however, who is on any single occasion misled into admitting that there is something he does not know, immediately provokes douhts which swallow up one by on'e all the propositions of his system of doctrines and opinions. That is why it is absolutely necessary to assert completeness. For science, on the other hand, there is no such obligation to assert completeness, certainly not when the incompleteness of scientific know ledge is admitted from the outset. Any system of amateur economics would of course have to helong to the same sphere of explanation, the same level of know ledge, as economic theory, which means that they would both have to be of the same level of abstraction.

Reference may be made here to an interesting similarity with the view explained and refuted earlier in this book, which asserts that economic theory is identical with a definite form of economic policy. We called this conception the "policy of the rigid systems " under which there fall those systems of economic liberalism and "scientific socialism" that 128 THE LIMITS OF ECONOMICS are conceived in this way (not all of them are so conceived). In this one point there is complete affinity between amateur economics and the concept of the rigid systems of economic policy. Apart trom the necessity arising ou.t ot the historical development of economic theory, these two systems ot economic policy must on purely methodological grounds postulate the gapless completeness or their theses. This is in the last analysis only another way or looking at the concept ot the rigid systems: If doubts as to the complete ness were to arise, ir it were conceivable that the liberal or socialist politician working on this basis might decide either for A or for B or C or ror one eventuality after the other, then the basic axiom would become open to attack. It is important to emphasize that this limitation on the system is independent or all ideas and conceptions ot social value or interences ther'efrom. On the other hand, it must be pointed out that, as should by now be fairly obvious, there is a close formal similarity to programmes based on valu.e judgments. Such programmes must indeed in all cases be " complete." A party programme, or a political idea, which lays claim to covering a particular sphere of social life must be prepared lor all possi bilities that may arise in this sphere. In value con cepts this is always possible. No matter how little socialism or liberalism can be regarded as corollaries of the applica tion of " the " science of economics nota bene, apparently the same science for both-they are none the less feasible as value systems and as such they cease to be exposed to the paradoxes which were pointed out earlier on. In that case it is indeed logical for them to claim, or to let themselves be presumed to have an answer to everything, and always DANGERS OF ECONOMICS 129 to have had such an answer ever since they have existed. These answers are value judgments and there fore of a political nature. They can be accepted or refuted, but never do they spring from an explana tion of facts and of logical relationships.

We have now explained the methodological position of amateur economics and hava demonstra ted its untenability. For this purpose it was unnecessary to go very deeply into its content. It consists of nothing else than economic sophistry, half-truths, or at best platitudes. It is the playground and the Mecca of all the pseudo-intellectuals, it is the demi-monde of economics. This fact would be of very little import ance if it were not :for the circumstance that ama teu! economics holds sway over a large section of the press, of politics, and so of the whole of public life. Highly respected people, full of honourable intentions and keen endeavour, work untiringly, and without being conscious of what they are doing, to win new ground for it and to keep it from dying out. But it is neces sary, even at the risk of hurting feelings and injuring vanities, to expose the protagonists of this pseudo doctrine unrestrainedly . We shall now turn our atten tion to the second of the characteristics mentioned above, namely the way in which amateur economics finds expression.

Ama teur economists are to be found scattered over all spheres of public life, but there is a preponder ating group with :fairly well-marked characteristics. The trouble is not that amateur economists have an influence on the framing of economic policy-every na tion gets the economic policy which it deserves and :lesires-but what is so iniquitous is the attitude which these people take up against impassionate .. K 130 THE LIMITS OF ECONOMICS unbiased, scientific treatment of all questions. How lightly they cast aside explanations that are too complicated for them or which are disagreeable ~o them practically, as "theory"! This is the most pernicious and at the same time most ridiculous expres sion of condemnation that is used in economic life. And what are these people in reality? Quacks who hawk patent medicines, " pseudo-scientific bravados" who present their own interests in the name of the community, who bring out the oldest junk of amateur economics, and, if they think it is time, hang a new label on it in the hope of thereby doing better business.

At the present time the world is living through a rare feast of these things, and the happy condition in which it finds itself corresponds throughout to the material and moral worth of the ideas that are promul gated, and the usefulness of the measures that are adopted. No better proof is needed of how completely uneconomic the policy has been in the last decade than the actual course of events. All the authority of the men responsible for it is destroyed: the ground gives way under their feet. But a particularly bad influence continues to be exerted by certain practical men, among these "economic politicians," who have managed their own firms so badly that they apparently infer the right from their business failures to discuss economic policy more than ever. It must be emphasized that the voices which were raised against this economic regime were few in number and lost in weight by the fact that those who opposed it had no powerful support other than reason behind them.

The worst circumstance was, however, that for many years past. in fact ever since the war, the ruling DANGERS OF ECONOMICS 131 administration has been so weak that the natural limitations which would otherwise have stood in the way of these pseudo-economic politicians have been entirely broken through. The higher authority o£ State purposes was not detectable because the State was misused in order to besto'w momentary privileges on particular individuals. It may not be out of place to emphasize at this juncture that ,economic policy is in the overwhelming majority of cases politics in the real s,ense, that is, that it adopts aims and methods which are dependent on extra-economic determinants. This is a fact which is unduly neglected inconsiderations of economic policy with the evil consequence that purely political activi ties-as, for example, the giving of a bonus to certain groups for the purpos,e of gaining the country's support for the government in office-are "explained" in terms of economic policy. It is entirely mistaken to try and attach such events to economic categories in any other sense than to describe that this or that effect resul ts from such measures. I t is a particularly bad mistake to call attention to the politico-economic grounds for such acts which are probably thoroughly justifiable politically. The purpose of justifying and giving reasons for them in this way is usually to hide the inner political intentions. In order not to let the real political Inotive become too noticeable, all kinds of embellishments are sought and the specious argu m,ents which are advanced often give rise to a strange medley of ideas which could only deceive pedants.

Here we cannot do more than remark how interesting these facts are from the sociological point of view. The probability that there will ever be any decisive change in these things is very small. Consequently, it 132 THE LIMITS OF ECONOMICS should be the duty of everybody who is engaged in describing and analysing economic policy, everybody who writes or reads economic history, to take account of this factor and not to take things m.ore seriously than they are intended. To do the latter would give a higher degree of determinacy to the economic process than is warranted and attribute a higher measure of rationality to economic conduct than belongs to it. The history of economic policy is thus inseparable from political history. There is, of course, no " scientific" basis for condemning the control exerted over the economic system by politics because it is the right of human beings to arrange their lives as they think they ought and can. Any other attitude would involve a definition of what is meant by " social value" and this goes beyond the confines of pur,e science.

There are, finally, two further fundamental state ments which we are now in a position to make. The first relat,es to the degree of determinacy of economic policy and of the propositions concerning economic policy, and the second to the problem of the replace ment of theoretical economics by other categories, either logical systems, or the learnings of experience, or autocratic decision. The first proposition is one of considerable import ance, but although it has not yet been stated explicitly, we shall not need to devote much space to it since it follows automatically from the analysis of the preced ing chapters. The process of discovering that the deter minacy of the -economic system is much less than the quantitative systems with which other sciences have to deal (e.g., mechanics, chemistry, even medicine) is sure to break more new ground in the next few years. Anybody who is thoroughly conversant with the latest DANGERS OF ECONOMICS 133 developments of theory will not fail to find tendencies towards this. already, even if somewhat veiled, in a number of the newer scientific theorems. The whole of the foregoing exposition provides a series of strik ing examples of this. But even if the position were lllore favourable, we should still have to conclude that no proposition of economic policy can ever be more, or even as defini tive in what it affirms as the most formal propositions of economic theory.

This axiom is of decisive importance both theore tically and practically: it is the culmination of the whole problem of application and corroborates the statement that economic policy is an " art," and this indeed in something more than the narrower sense that the application of ·economic theory is all along associated with a process of filling up gaps. The validity of the strictest economic theorems is always dependent on the exact perception of the data, the rigorous adherence to them, and as complete an isola tion as possible of the event under observation from all those other events with which it is in reality bound up. In the case of economic policy, no matter what the sphere, these same conditions can never be fulfilled to satisfaction. Consequently, propositions concerning economic policy must diverge from the degree of det,er minacy of theoretical axioms, at least to the extent that they are removed from these indispensable and most favourable pre-conditions. This is almost invari ably in large measure the case.

It might seem as though this situation were only disadvantageous to the application of economic theory and that some substitute must take its place. Brief consideration shows that it would be no better for any other sort of economic policy based not on economic 134 THE LIMITS OF ECONOMICS theory but, say, on amateur economics. This is under the assumption that the theorems of economic policy are built up on the basis of experience and that no other experience is obtainable than is available to the economist. This assumption accords with the facts. The" practical man" can then, theoretically, have no advantage over the theoretician, however much he may behave as if he could. The whole world of facts and practical activity is just as well open to the theoretician for his perception, his notice, and his study, whereas the opposite is not necessarily true. Of course, whether the theoreticians always make the effort to obtain the necessary experienee is another question and there is no doubt that many of them have seriously sinned in this respect and continue to do so because it involves endless occupation with a never-ending process. To be fair, howey-er, we ought always to place only the best protagonists of the various camps and viewpoints opposite each other.

This brings us to a complaint that is continually being raised by the practical man and the political world against theoretical economics-the accusation of " doctrinairism." This apparently means nothing else than a rigid adherence to propositions of economic theory and their continual repetition whenever theore ticians are called upon to pronounce on matters of economic policy. This may seem to be a sign that the theoretical economists are unable to keep pace with the march of time. The practical business man is caught up in the How of events and is constantly having to adapt himself to new data. The economic politician is likewise always confronted by new problems and the whole of his activity or inactivity is overshadowed by the vagaries of politics. It is psychologically very DANGERS OF ECONOMICS 135 understandable that both should be rather displeased always to hear the same things from the side of the economic scientist. These are things which, neverthe less, do not betray a lack of adaptability as the prevail ing opinion contends, but actually give ,expression to immutable fundamentals, and what is a monstrous event for the practical man often represents for science only a typical illustration of a much more general phenomenon. An inflation, for instance, means a colossal disturbance of the whole existence of all those vvhom it affects, whereas for the theoretician it is unlikely to contain anything interesting from the standpoint of new knowledge. Consequently, he can do no more than repeat in the most appropriate way the statements previously formulated about inflations, even if this should get on the nerves of those who hear them repeated-it is not often that they understand them!

When protectionism and autarky are the fashion of the time, it may be very disagreeable to be told repeatedly that these policies lead to impoverishment and misery. People would like to hear something " new" for a change, and this is one of the reasons why amateur economics finds such willing ears every where. If it then becomes obvious in the course of time, that a new turn must be given to economic policy, there takes place in practical circles an avowed change of attitude, an exchange of the old-fashioned theories for the new. This has the appearance of " new learning,'? but is, however, very seldom any thing to be learned . Meanwhile, economic theory remains unchanged. This particular accusation of dogmatism is thus unjustifted. It is evidence only of discomfort in face of facts which are inconvenient at 136 THE LIMITS OF ECONOMICS the moment, or else it covers up a feeling of inferiority which it is hoped in this way to remove.

There remains now the question of the possibility of finding a substitute for economics. It is easy enoug h to assert that economic theory has shown itself to be too narrow and altogether inadequate for the enormous tasks entrusted to it, and that for purposes of economic policy something must be put in its place. But what else is there or could there be? Amateur economics has already been ruled out as a possible substitute for economic science and cannot therefore provide the answer to this question. Amateur economics would only be a conceivable substitute if it could attain to a systematic structure of propositions about economics, and its dismissal-precisely :£or the reason that it cannot establish any sort of coherence between its single "axioms" or propositions and runs hopelessly aground with the mere attempt at doing so-means that anything else that there is to t~ke the place of economics would consist in a series of disjointed fragments. This would be tantamount to complete anarchy in our reasoning, knowledge and conduct of life. Consequently, these possibilities are to be rejected as impracticable. There is no such thing as a body of knowledge separate from and co existent with the science. The axioms 0:£ the practical man, which often contain much that is intuitively correct, are only not always dressed in the forms really appropriate to them: by this is meant, not, of course, any cloak of learning that should be hung on them, but their logical formulation. This is a matter of the technical details of the apparatus of thinking of the science and does not need to be considered further here. There can of course exist, alongside the science, DANGERS OF ECONOMICS 137 beliefs and opinions which are not based, and do not need to be based, on reasons, argunlents, inferences, and logical sequences, but only on other antecedent statements of beliefs. To try and deduce rational politico-economic propositions from such a source is, however , absurd.

Nevertheless, intuition evidently plays a stupen dously important role in the field or economic policy. This follows from the fact that an enormous number of politico-economic schemes are drawn up off-hand by the strangest people and, since these schemes have no rational justification, their only justification must be an intuitive one. In the present age Qf contempt for reason it may be possible to create an impression in this way, but even intellectual lies ultilnately have " short legs," and those or our generation will sooner or later meet their end. Furthermore, it might be useful to watch more closely to see whom it is that Providence is alleged to select as the possessors of such a great gift of intuitive insight into the interconnexions of things, which reveal them selves only very laboriously to serious scientific work and research. . . . Intuition in economic policy-let us assume it for the moment, however absurd it may be-could, hovv ever, only be connected, like all intuition, with the acquisition of knowledge. An intuitive insight is not even achieved, as knowledge usually is, through logical processes, but is obtained by a spontaneous act which evades logic or rational thinkin_g. This irra tional process must, however, be in some way obtained from the same world which is opposed to the irrational; it must be related to the same scientific and practical knowledge as is embodied in economic policy. Conse138 THE LIMITS OF ECONOMICS quently, the intuitive judgments must take the form of propositions which avail themselves of the expressions of the ordinary terminology of knowledge and cogni tion and use the instruments of logic, the, schema of hypothesis llnd conclusion. Intuition is thus " denatured,'? so to speak, and its content is exposed to criticism. It is not necessary to go far in order to recognize that here also there is no gap through which amateur economics or any similar ps,eudo-science could slip in. Apart from economic theory, there is nothing, absolutely nothing, that has anything to do with reasoning about economic affairs. At all events, "intuitive economic policy" is no alternative.

Recognition of the exclusiveness of economics, of its unchang'eable monopoly position, and its application in the sense outlined here are the necessary prelude to the scientific epoch of economic policy. Nobody can be the possessor of superior knowledge, and apart from what we can know there is only chaotic belief and opinion, both of which fall out of the discussion by reason of their inadequacy, as demonstrated above. And if somebody claims to know something, this must either already be contained in economic science or can. be incorporated into that science; but apart from it and separate from it there can be no other knowledge. It is, as has already been remarked, very conceivable -and it happens more frequently, unfortunately, than is desirable-that the science does not yet know many things or may never be able to explain them; but what science cannot know, nobody and nothing can. This conclusion is not a very comforting one but is ineluctable.

If, looking back, the conclusion is that the proba bility of the realization of an economic policy which DANGERS OF ECONOMICS 139 is systematically and rationally conceived-by which is meant not a " planned economy" but an economic policy in which there is harmony between the motive, means and result of any single measure, and all the lneasures are in harmony with each other-is extremely small, the only inference that remains to be dra"wn, and which immediately forces itself upon us, is that every effort must be made to promote the study of economic theory, with emphasis on the theory. The road is steep and stony, but there is no other way. How necessary is the study and developm"ent of economic theory was made clear in the preceding exposition, which indicated the narrowness of the limits within which we are moving to-day and the ungratifying state of current economic affairs as they present themselves to the contemporary onlooker.

What has been described here is the situation regard ing rationality in economic policy as it really is. A procedure which is based on the facts, instead of reflect ing the things that are most desirable, is to-day all too often interpreted as pessimism because it is difficult in these times to get people to acknowledge the facts. In conclusion, it may be remarked that the assistance which economic science is already capable of affording in matters of practical policy has up till now been only very infrequently turned to account. It is first of all necessary, therefore, to make adequate use of the already available possibilities and to secure their full development. Of course, the recommenda tion is not that the scientist should construct pro grammes-for that is the task of the practician-but that the programmes formulated should be submitted to the scientists for their critical examination so that they may have the opportunity of saying what science allows them to say.

140 THE LIMITS OF ECONOMICS The warning against such programme-making can not be too often emphasized. Programmes should never be put :forward in the name of science. But, still, this does not exclude the independent personal co-operation of the scientist. Another source of con siderable danger is also to be :found in those pro grammes which are drawn up in general terms without direct connexion with any concrete historical motive. A good example is provided by the various " norms of monetary policy." There are a large variety of such pseudo-programmes, ranging from the plan for stabilizing the general price level, or for stabilizing single prices or groups of prices, to " neutral money." The study o:f monetary theory is uncongenial, apart :from other grounds, :for the very reason that explana tion and pseudo-application are so often intermingled. The more the economist keeps :free from such things the greater will be the effectiveness of his analysis and the greater the respect he will command if ever he takes part in public affairs and makes proposals which link up with general value concepts.

At this point we rev-ert to the problem of the control of science over pol'l:cy, a subject which was, so far as economic theory is, concerned, already touched upon by Alfred ~farshall. There are some further concluding remarks to be devoted to this topic in the course of which a short excursion must be made into the influence of the form of government and State adminis tration on the specific direction of economic policy.