Front Page Titles (by Subject) The Nature of Economic Science and the Significance of Macroeconomics - The Economic Point of View
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The Nature of Economic Science and the Significance of Macroeconomics - Israel M. Kirzner, The Economic Point of View 
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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The Nature of Economic Science and the Significance of Macroeconomics
In a chapter devoted to the discussion of Professor Robbins' definition of economic science, attention must be paid to the complaint that his formulation excludes from the subject the entire field of the “consideration of the general level of economic activity.”68 In an era in which investigation into the causes of general unemployment of resources has assumed the most prominent place in the work of economic theorists and policy-makers, such a complaint, if well founded, would be a serious limitation on the practical usefulness of Robbins' definition.
The point at issue has been raised by several writers. Robbins' definition is predicated on the necessity, imposed by the scarcity of resources, to economize in order to satisfy most fully alternative human wants. The concept of economy depends on the necessity of comparing alternative ends. This is so because the allocation of resources for any one selected end involves the necessary withdrawal of these resources from possible allocation to another, alternative end. Where, for example in the case of a resource that is a free good, the devotion of the resource to a particular use does not require its withdrawal from an alternative use, no economy is called for and no concept of economic “efficiency” can be applied. What critics of Professor Robbins have pointed out is that the same absence of “economy” that characterizes the use of a free good may quite as certainly characterize the use of a “scarce” resource if there is, for any reason, a demand insufficient to bring the resource into employment. “Efficiency in the use of underemployed scarce resources is as irrelevant as it is in the administration of free resources ... ”69 “The problem of utilizing these [i.e., idle] resources fully is not a matter of deciding whether they should be devoted to use A or use B, but of how they can be used at all.”70
Parallel to the use of this criticism to deny altogether the adequacy of Robbins' definition of economics is the view that the prevalence of idle resources renders inapplicable the conventional economic analysis of which Professor Robbins' formulation is the (correct) definition. It cannot be too strongly emphasized, Barbara Wootton has declared, that the absence of scarcity (through underemployment) of resources “renders inoperative, irrelevant and unreal the whole corpus of economic studies as defined by Professor Robbins and as embodied in the classical analysis and its contemporary elaborations and refinements.”71
The question that is here being raised relates, of course, to the impact that the demand for the reconstruction of economics implicit in Keynes' General Theory must have on the conception of the very nature of economic analysis. On the basis of the “classical” concept of the economy, according to which the idleness of resources could be only a temporary phenomenon of disequilibrium, economic science as defined by Professor Robbins could adequately analyze the economic problems of the real world. In the real world the use of a resource for any one purpose does, in fact, mean its withdrawal from some alternative purpose. But the economics that Barbara Wootton has in mind takes serious account of the Keynesian proposition that resources may be unemployed for reasons other than the fact that too much is asked for their use. This would certainly undermine the whole assumption of scarcity72 and cast a definite shadow on Professor Robbins' definition of economics. It would be inconvenient indeed if the validity of a definition of economics were to be made dependent on the particular view taken of a proposition advanced by an economic theorist, no matter how controversial that proposition might be.
The identification of Robbins' conception of the nature of economic science with “classical” economics and its assumption of full employment must be considered, moreover, from yet another angle. As expounded by Robbins, the analysis of economic affairs proceeds exclusively from the consideration of economizing by individuals. A problem is economic because it involves the necessity for an individual to reconcile his numerous desires with the limited resources available to him. A social problem has an economic aspect only in so far as it affects the conditions in the light of which individuals are constrained to economize. The consideration of the general level of economic activity and the degree of employment of a nation's resources would thus be excluded by definition from an individualistic ends-means economics. Economics, as Professor Robbins conceives it, must, it would seem, remain exclusively a microeconomics.
Despite these misgivings concerning the problems falling within the scope of Robbins' conception of economics, it has been shown by Rivett that it is quite sufficiently elastic to embrace the problems of idle resources. In the relevant sense, it is pointed out, unemployed resources are scarce. While they may be abundant in relation to effective demand, they are most certainly scarce relatively to desire. The doctrine that a deficiency in the effective demand for services is a result of a lack of purchasing power associated with low prices for that factor of production does not necessarily deny that idleness would be removed by sufficiently low prices. “If labor were not scarce relative to demand and were expected never to be scarce again, wages would be nil and ... all labor would soon be employed”73 .
The point is, of course, that it is precisely from the perspective of microeconomics that problems of unemployed resources are most obviously seen to be economic problems in Robbins' sense. If it is an economic problem whether to devote resources to use A or to use B, this is not because the uses A and B are valued, but because they are differently valued. Where the problem is how idle resources can be utilized, not for one or another use, but at all, then society is facing the tragedy of total waste of the means that could be applied to secure desired ends. What seems a resource robbed of its scarcity is clearly a valuable means, which, instead of being allocated to the most prized purpose, has been allocated by a breakdown in the economic system to no end at all. From the point of view of the ends of the members of society, a resource involuntarily idle represents, not a quasi-free good, but scarce means unprofitably withdrawn from a potentially fully-employed economy.
The determination of the circumstances tending to bring about the tragic misallocation (or rather nonallocation) of precious resources must, of course, be one of the principal tasks of a discipline dealing with the way in which the members of society, through the division of labor, concertedly economize the resources at their disposal, with respect to their desired ends.
Economics as a Science of Human Action
We must regard industrial and commercial life, not as a separate and detached region of activity, but as an organic part of our whole personal and social life; and we shall find the clue to the conduct of men in their commercial relations, not in the first instance amongst those characteristics wherein our pursuit of industrial objects differs from our pursuit of pleasure or of learning, or our efforts for some political and social ideal, but rather amongst those underlying principles of conduct and selection wherein they all resemble each other ...
Philip H. Wicksteed
The whole subject matter of conduct ... constitutes a different realm of reality from the external world ...
The first fact to be recorded is that this realm of reality exists or “is there.” This fact cannot be proved or argued or “tested.” If anyone denies that men have interests or that “we” have a considerable amount of valid knowledge about them, economics and all its works will simply be to such a person what the world of color is to the blind man. But there would still be one difference: a man who is physically, ocularly blind may still be rated of normal intelligence and in his right mind.
Frank H. Knight
Thus far we have given an account of a number of different conceptions of economic science, each of which reflects a fundamentally distinct understanding of what is to be meant by the economic point of view. In the present chapter we bring our survey to a close with an exposition of yet another conception of the point of view taken by the economist. In its completest form this definition of economics, by virtue of which the discipline emerges as one of the group of sciences of human action, embraces an entire and unique epistemology of the branches of knowledge commonly subsumed under the cultural and social sciences. As such, the view of economics as a science of human action deserves a close and full discussion in its own right, together with a clear exposition of its points of contact, both of agreement and of conflict, with the views treated in previous chapters.
Such a discussion is all the more in order since it has been long overdue in the methodological literature on economics. The concept of a science of human action, or, to use the term applied by Professor Mises, the praxeological view of economics,1 has been singularly unsuccessful in gaining the degree of attention that, in its significance for economic methodology, it unquestionably deserves. Although isolated aspects of the praxeological point of view have been perfunctorily treated in the literature, little attempt has been made to understand them as integral parts of a complete epistemological system of the social sciences. The result has been a tendency to replace the system as a whole, in the public view, with specific controversial propositions concerning such concepts as apriorism, rationality, and the like. Taken out of context and discussed against the background of radically different epistemological ideas, these propositions could rarely command the serious consideration to which they were entitled. Especially unfortunate has been the consequence that the praxeological view has come to be even more profoundly neglected.
It is therefore the task of the present chapter to outline in some detail the conception of the nature of economic science as viewed from the perspective of praxeology. In addition, an attempt will be made to relate this view to several of the alternative definitions treated in earlier chapters. In particular, its points of contact with that discussed in the previous chapter will require careful examination. It will be shown that, side by side with the emergence of the view of economics as the science concerned with the allocation of scarce means, which culminated in the work of Professor Robbins, there has, for over sixty years, existed a stream of thought that has recognized the praxeological aspect of economics. The view of economics as concerned with scarce means will be seen to take its place naturally as an example of a limited application of praxeological ideas; many of its apparent inadequacies are seen to disappear when it is related explicitly to the broader concepts of a general theory of human action.
Coming at the end of a book setting forth a series of widely diverging views on the nature of the economic in human affairs, the subject of the present chapter throws a revealing light on the sources of this remarkable range of disagreement. The exposition of the praxeological element in social phenomena will help to explain why it so long succeeded in eluding the attention of so many brilliant thinkers. The recurrent and unfortunate identification of this economic aspect with so many of the actual facets of social history with which the praxeological element is intimately connected will gain in intelligibility, it is believed, by an understanding of the nature of social phenomena as viewed from the vantage point of praxeology itself.
[]R. T. Bye, “The Scope and Definition of Economics,” Journal of Political Economy, October, 1939 (Copyright 1939 by the University of Chicago), p. 645.
[]T. Scitovsky, Welfare and Competition (London, 1952), p. 9.
[]R. T. Bye, op. cit., p. 646.
[]B. Wootton, Lament for Economics (New York, 1938), p. 106.
[]See Wootton, op. cit., p. 96; cf. also T. W. Hutchison, Significance and Basic Postulates, p. 135.
[]K. Rivett, “The Definition of Economics,” Economic Record, Vol. XXXI, No. 61 (November, 1955), p. 217.
[]On the term “praxeology,” see A. Espinas, “Les origines de la technologie,” Revue philosophique de la France et de l'étranger, 15th Year, July-December, 1890; L. Mises, Human Action (1949), p. 3; F. A. Hayek, The Counter-Revolution of Science, p. 209, note 20.