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Collection: IHS Studies in Economic Theory
Subject Area: Economics

Economy and Society - Israel M. Kirzner, The Economic Point of View [1960]

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The Economic Point of View: An Essay in the History of Economic Thought, ed. with an Introduction by Laurence S. Moss (Kansas City: Sheed Andrews McMeel, 1976).

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Economy and Society

Many of the ideas mentioned in the preceding sections of this chapter have a bearing on the relationships that have at various times been held to exist between economics and the social sciences generally. The structures of interpersonal patterns of contact that the economist studies in his analysis of the market may, of course, be of interest to the sociologist or the social psychologist from a totally different aspect. And writers who identified the specifically economic aspect of phenomena with the social quality inherent in exchange, the market, and the like, found themselves influenced more or less deeply by their ideas on the nature and methodology of the social sciences as a group.

The social character of the phenomena studied by the economist was recognized early in the history of the discipline. In his definition of political economy J. S. Mill had stressed this aspect to a degree that seems to have escaped later writers.43 Nevertheless, it is true that the emergence of sociological thought in the second half of the nineteenth century brought with it a vastly increased awareness of the contribution that economics can make to the systematic study of society. This in turn made for a “sociological” attitude towards the study of economics itself, which manifested itself in a variety of forms.

At the extreme was the opinion first propounded by Comte, and taken up by later writers, that it was futile to seek for laws in economics apart from the laws of society as a whole. To Comte the recognition of economic affairs as part of the phenomena of society meant that an economic analysis of society that leaves out intellectual, moral, and political factors must be a “metaphysical” subject, created by an “irrational” separation.44 Later writers, especially those of the Historical School, held essentially similar views. In England Ingram and Leslie were stressing the need for turning to the “great science of society” for any valid economic knowledge.45

Carried to the extreme position held by Comte, these ideas meant, not that the social character of economic affairs made possible a fresh means of definition, but that the awareness of this social character led to the denial that there are any specifically economic affairs whatsoever. Phenomena of wealth might indeed be distinguished. But once it is insisted that the derivation of the laws of wealth requires analysis of intellectual, moral, and political factors, then it is at once contended that no specifically economic point of view can be scientifically illuminating at all.

However, awareness of the sociological importance of economics did not, of course, always involve its submersion in a broadly understood sociology.46 Any number of writers at the turn of the century could be cited who diligently pursued the study of economics, but who were fully conscious of its status among the social sciences. Confining our attention strictly to that aspect of the sociological outlook on economics which affected the conception of the nature of the economic point of view, we notice several strands of thought that run through the literature during the present century.

At one level, we observe again Amonn’s insistence on the futility of the search for the nature of economic science in any concepts built on individual activity. There does exist a given pie that the economist studies, but its essence is the structure of the societal relationships that make up economic affairs as we know them in the world and as they have been traditionally studied by the economists from Ricardo on. To attempt to analyze economic affairs by referring them back to the individual is to abstract from their very essence.47 From the point of view of the scope of this essay, this view is primarily of importance as constituting a rejection of the formulations of the economic point of view that we take up in the final chapters. The emphasis on the social aspect has, however, been used by one or two writers to distinguish economics from technology.48

In a somewhat different context, the recognition that economic affairs refer to the actions of men, not in isolation from one another, but within a societal framework, has affected the conception of the economic point of view in respect of the goals of economic activity. Anderson, Haney, Parsons, and Macfie may be taken as examples of the many writers during the past half century who show this influence.49 The stress, at this level of discourse, is not on the social patterns of relationships that emerge during the course of economic activity. Rather, these writers tend to emphasize the fact that the values and motives that affect and inspire economic activity are overwhelmingly conditioned by society as a whole. Whatever the role of individual activity, it is pointed out that values are socially determined and are the product of forces whose explanation must be sought in sociology or social psychology. This trend of thought, too, seems to be significant to our own problem chiefly in its implied rejection of the “atomistically individualistic” conceptions of the economic point of view treated in later chapters.

Finally, in this necessarily brief and fragmentary survey of the sociologically conditioned conception of the economic point of view, we must notice the attempts to “locate” economics within the more general expanse of sociological theory. These attempts have generally been made by writers who were primarily interested in the study of society and intent on defining precisely the nature of the economic point of view, not for its own sake, but in order to have more clearly in focus the separate facets that together make up the complete sociological perspective. Thus, Pareto conceived of economics as an integral part of sociology and believed that the distinctively economic point of view is obtained by a conscious restriction of attention to certain “variables.”50 A complete sociological theory would entail consideration of all the variables that affect action in society. Economics obtains its separate status by deliberate “abstraction” from the “noneconomic” variables and thus becomes a hypothetical subdiscipline within the all-embracing theory of society. The particular criteria that are to determine the “economic” or “noneconomic” nature of any one variable are not here of chief interest. (In fact they reflect the points of view discussed in several of the chapters in this book.) What is of moment is the idea that an economic point of view is possible only as a first and crude abstraction from a more comprehensive and complex theoretical system, viz., the theory of society.

Professor Parsons, who in his earlier writings had embraced this conceptual framework for the “location” of economics, has more recently espoused a somewhat different idea.51 The new view sees the “economy” as a subsystem of society. The theory of social systems in general will apply to the economy as a special case. The basic variables operative in the economy, (as well as in all special-case subsystems of society) are the same variables as govern the theory of social systems generally. The economy is that subsystem of society which is distinguished by its adaptive function, i.e., that function of any social system which relates to its control of the environment for the purpose of attaining goals.

This view of the matter places the economic point of view even more firmly in a position subordinate to general sociological theory. Economic theory becomes a special case of sociological theory and is conceived, indeed, as providing a mirror that reflects, mutatis mutandis, the propositions of such a theory. The more interesting and important implications of this approach for economics reach beyond the scope of this enquiry. For us it is sufficient to have noticed yet another conception of the economic point of view, one that shares with those noticed in this section the characteristic of leaning heavily on the social aspect of economic affairs, and thus indirectly on the ideas of exchange discussed at length at the beginning of this chapter.

5

Economic Affairs, Money, and Measurement

In love or war or politics, or religion, or morals it is impossible to foretell how mankind will act,...But once place a man’s ear within the ring of pounds, shillings, and pence, and his conduct can be counted on to the greatest nicety.

Robert Lowe

Money may not be the root of all evil, but it is the root of economic science.

Wesley C. Mitchell

The first comprehensive system of economic theory...drew implicitly the borderline between what is to be considered economic and what extra-economic along the line which separates action calculated in monetary terms from other action.

Ludwig Mises

Running through the literature dealing with the problem of uniquely identifying economic affairs there has been a recurrent tendency to introduce the phenomenon of money as the distinctive feature. The present chapter outlines the different views that have at various times seen the use of money as the criterion of the economic.

[[43]]For J. S. Mill's emphasis on the social character of economic affairs, see his Essays on Some Unsettled Questions of Political Economy, pp. 133, 135, 137, 140. Amonn, in his sharply critical review of Mill's position (Objekt und Grundbegriffe, 1st ed., pp. 35–36), does not seem to take notice of these passages. Gehrig (in an essay introducing his 1922 edition of Hildebrand's Die Nationalökonomie der Gegenwart und Zukunft, p. 1x), ascribes it to the credit of the “new” economists to have first recognized the social character of their discipline.

[[44]]See Comte's Cours de philosophie positive (2nd ed., 1864), IV, 194 f.; see also the works cited above, ch. I, n. 24.

[[45]]On this see above, ch. II, n. 48. Compare Parsons' view that Marshall's conception of economics turned it into an “encyclopedic sociology,” so that any separate identity of economic theory as a discipline is destroyed. (See, e.g., T. Parsons, The Structure of Social Action [Glencoe, 1949], p. 173.)

[[46]]See, e.g., A. Amonn, Objekt und Grundbegriffe (1st ed.), p. 154 n.

[[47]]It comes as not altogether a shock to discover at least one writer who advanced a view precisely opposed to that of Amonn. A. Schor (in his dissertation Die rein ökonomische Kategorie in der Wirtschaft [Königsberg, 1903]) can find the purely economic aspect of affairs only by abstracting completely from the social element.

[[48]]R. T. Bye, “The Scope and Definition of Economics,” Journal of Political Economy, October, 1939, p. 625; J. F. Hayford, “The Relation of Engineering to Economics,” Journal of Political Economy, January, 1917, p. 59.

[[49]]See above n. 42. See also B. M. Anderson, Social Value (Cambridge, 1911); L. H. Haney, “The Social Point of View in Economics,” Quarterly Journal of Economics, 1913; T. Parsons, “Some Reflections on ‘The Nature and Significance of Economics,’” Quarterly Journal of Economics, May, 1934, pp. 518 f.; Alec L. Macfie, Economic Efficiency and Social Welfare (London, 1943). The justification for what might seem the perfunctory treatment of the matters touched on in this paragraph must be that, important as they are in other connections, they have far less relevance—and that of a chiefly negative character—for our own discussion.

[[50]]On this, see Talcott Parsons and Neil J. Smelser, Economy and Society (Glencoe, 1956), p. 6.

[[51]]Ibid., Parsons and Smelser ascribe the original suggestion to Professor W. W. Rostow. See also P. A. Sorokin, Society, Culture and Personality (New York, 1947), pp. 7 f.