Although these ideas had already found expression in the writings of Knies, Hildebrand, and Roscher, there was nothing like the discussion which was provoked by them when the newer Historical school, at a much later period, again brought them to public notice. The publication of Karl Menger’s work, Untersuchungen über die Methode der Socialwissenschaften, in 1883—a classic both in style and matter—ushered in a new era of active polemics. This remarkable work, in which the author undertakes the defence of pure political economy against the attacks of the German Historical school, was received with some amount of ill-feeling by the members of that school,[824] and it caused a general searching of hearts during the next few years. We must try to bring out the essential elements in the discussion, and contrast the arguments advanced by the Historians with the replies offered by their critics.
Broadly speaking, three charges are levelled at the Classical writers. (i) It is pointed out that their belief in the universality of their doctrines is not easily justified. (ii) Their psychology is said to be too crude, based as it is simply upon egoism. (iii) Their use, or rather abuse, of the deductive method is said to be wholly unjustifiable. We will review these charges seriatim.
The Historians held that the greatest sin committed by Smith and his followers was the inordinate stress which they laid upon the universality of their doctrines. Hildebrand applies the term “universalism” to this feature of their teaching, while Knies refers to it as “absolutism” or “perpetualism.” The belief of the Anglo-French school, according to their version of it, was that the economic laws which they had formulated were operative everywhere and at all times, and that the system of political economy founded upon them was universal in its application. The Historians, on the other hand, maintained that these laws, so far from being categorically imperative, should be regarded always as being subject to change in both theory and practice.
First with regard to practice. A uniform code of economic legislation cannot be indifferently applied to all countries at all epochs of their history. An attempt must be made to adapt it to the varied conditions of time and place. The statesman’s art consists in adapting principles to meet new demands and in inventing solutions for new problems. But, as Menger points out, this obvious principle, which was by no means a new one, would have met with the approval of Smith and Say, and even of Ricardo himself;[825] although they occasionally forgot it, perhaps, especially when judging the institutions of the past or when advocating the universal adoption of laissez-faire.
The second idea, namely, that economic theory and economic laws have only a relative value, is treated with even greater emphasis, and this was another point on which the older economists had gone wrong. Economic laws, unlike the laws of physics and chemistry, with which the Classical writers were never tired of comparing them, have neither the universality nor the inevitability of the latter. Knies has laid special stress on this point. “The conditions of economic life determine the form and character of economic theory. Both the process of argument employed and the results arrived at are products of historical development. The arguments are based upon the facts of concrete economic life and the results bear all the marks of historical solutions. The generalisations of economics are simply historical explanations and progressive manifestations of truth. Each step is a generalisation of the truth as it is known at that particular stage of development. No single formula and no collection of such formulæ can ever claim to be final.”[826]
This paragraph, though somewhat obscure and diffuse, as is often the case with Knies, expresses a sound idea which other economists have stated somewhat differently, by saying that economic laws are at once provisional and conditional. They are provisional in the sense that the progress of history continually gives rise to new facts of which existing theories do not take sufficient account. Hence the economist finds himself obliged to modify the formulæ with which he has hitherto been quite content. They are conditional in the sense that economic laws are only true so long as other circumstances do not hinder their action. The slightest change in the conditions as ordinarily given might cancel the usual result. Those economists who thought of their theory as a kind of final revelation, or considered that their predictions were absolutely certain, needed reminding of this.
But Knies is hopelessly wrong in thinking that this relativity is enough to separate the laws of economics from the laws of other sciences. Professor Marshall justly remarks that chemical and physical laws likewise undergo transformation whenever new facts render the old formulæ inadequate. All these laws are provisional. They are also hypothetical in the sense that they are true only in the absence of any disturbing cause. Scientists no longer consider these laws as inherent in matter. They are the product of man’s thought and they advance with the development of his intelligence.[827] They are nothing more or less than formulæ which conveniently express the relation of dependence that exists between different phenomena; and between these various laws as they are framed by the human mind there is no difference except a greater or lesser degree of proof which supports them.
What gives to the laws of physics or chemistry that larger amount of fixity and that greater degree of certainty which render them altogether superior to economic law as at present formulated is a greater uniformity in the conditions that give rise to them, and the fact that their action is often measurable in accordance with mathematical principles.[828]
Not only has Knies exaggerated the importance of his doctrine of relativity,[829] but the imputation that his predecessors had failed to realise the need for it was hardly deserved. We shall have to refer to this matter again. Mill’s Principles was already published, and even in the Logic, which appeared for the first time in 1843, and several editions of which had been issued before 1853, the year when Knies writes, we meet with the following sentence:[830] “The motive that suggests the separation of this portion of the social phenomenon from the rest … is that they do mainly depend at least in the first resort on one class of circumstances only; and that even when other circumstances interfere, the ascertainment of the effect due to the one class of circumstances alone is a sufficiently intricate and difficult business to make it expedient to perform it once for all and then allow for the effect of the modifying circumstances.” Consequently sociology, of which political economy is simply a branch, is a science of tendencies and not of positive conclusions. No better expression of the principle of relativity could ever be given.
Notwithstanding all this, modern economists have come to the conclusion that the criticisms of the Historical school are sufficiently well founded to justify them in demanding greater precision so as to avoid those mistakes in the future. Dr. Marshall, for one, adopts Mill’s expression, and defines an economic law as “a statement of economic tendencies.”[831]