Independent Indian: Work & Life of Dr Subroto Roy

Philosophy of Economics

On the Scope of Reason in Economic Inquiry

Subroto Roy
© 1989, 1991, 2007 Subroto Roy

First published by Routledge of London & New York , 1989, in the International Library of Philosophy,

Library of Congress HB72.R69 1989

British Library 330’.01-dc19
Economics – philosophical perspectives
ISBN 0-415-03592-9

Reprinted in paperback, 1991
Library of Congress HB72.R69.1991
British Library 330’.01-dc20
ISBN0-415-06028-1

Preface to 2007 WordPress.com Republication

This book germinated when I was 18 or 19 years of age in Paris, Helsinki and London, and it was first published when I was 34 in Honolulu. I came to economics from natural science (biology, chemistry, physics), not mathematics. It was inevitable I would be drawn to the beauty of philosophy as a theoretical discipline while being driven, as a post-Independence Indian, to economics as the practical discipline that might unlock secrets to India’s prosperity and progress. I belonged to an ancient family of political men, and my father, who had joined India’s new foreign service the year before I was born, inculcated in me as a boy an idea that I had “a mission” (though he later forgot he had done so).

I was fortunate to fail to enter Oxford’s PPE and instead go to the London School of Economics. LSE was at an intellectual peak in the early 1970s. DHN Johnson in international law, ACL Day in international monetary economics, Brian Griffiths vs Marcus Miller in monetary economics with everyone still in awe of Harry Johnson’s graduate lectures in macroeconomics, Ken Wallis, Graham Mizon, JJ Thomas, David Hendry in econometrics with the odd lecture by Durbin himself – I was exposed to a fully grown up intellectual seriousness from the day I arrived as an 18 year old. Michio Morishima as my professorial tutor told me frankly that, as an Indian, I would face less prejudice in Western academia than in the private sector, and said he was speaking from experience as a fellow-Asian. He turned out to be wrong but it was wise advice nevertheless, just as wise as his requiring pupils to read Hicks’ Value and Capital (which, in our undergraduate mythology, he himself had read inside a Japanese gunboat during war).

What was relatively weak at LSE was general economic theory. We were good at deriving the Best Linear Unbiased Estimator but left unsatisfied with our grasp of the theory of value that constituted the roots of our discipline. I managed a First and was admitted to Cambridge as a Research Student in 1976, where fortune had Frank Hahn choose me as a student. That at the outset was protection from the communist cabal that ran “development economics” with whom almost all the Indians ended up. I was wholly impecunious in my first year as a Research Student, and had to, for example, proof-read Arrow and Hahn’s General Competitive Analysis for its second edition to receive 50 pounds sterling from Hahn which kept me going for a short time. My exposure to Hahn’s subtle, refined and depthless thought as an economist of the first rank led to fascination and wonderment, and I read and re-read his “On the notion of equilibrium in economics”, “On the foundations of monetary theory”, “Keynesian economics and general equilibrium theory” and other clear-headed attempts to integrate the theory of value with the theory of money — a project Wicksell and Marshall had (perhaps wisely) not attempted and Keynes, Hicks and Patinkin had failed at.

Hahn insisted a central question was to ask how money, which is intrinsically worthless, can have any value, why anyone should want to hold it. The practical relevance of this question is manifest. India today in 2007 has an inconvertible currency, vast and growing public debt financed by money-creation, and more than two dozen fiscally irresponsible State governments without money-creating powers. While pondering, over the last decade, whether India’s governance could be made more responsible if States were given money-creating powers, I have constantly had Hahn’s seemingly abstruse question from decades ago in mind, as to why anyone will want to hold State currencies in India, as to whether the equilibrium price of those monies would be positive. (Lerner in fact gave an answer in 1945 when he suggested that any money would have value if its issuer agreed to collect liabilities in it — as a State collects taxes – and that may be the simplest road that bridges the real/monetary divide.)

Though we were never personal friends and I did not ingratiate myself with Hahn as did many others, my respect for him only grew when I saw how he had protected my inchoate classical liberal arguments for India from the most vicious attacks that they were open to from the communists. My doctoral thesis, initially titled “A monetary theory for India”, had to be altered due to paucity of monetary data at the time, as well as the fact India’s problems of political economy and allocation of real resources were more pressing, and so the thesis became “On liberty and economic growth: preface to a philosophy for India”. When no internal examiner could be found, the University of Cambridge, at Hahn’s insistence, showed its greatness by appointing two externals: C. J. Bliss at Oxford and T. W. Hutchison at Birmingham, former students of Hahn and Joan Robinson respectively. My thesis received the most rigorous and fairest imaginable evaluation from them.

I had been attracted to Cambridge partly by its old reputation for philosophy, especially that of Wittgenstein. But I met no worthwhile philosophers there until a few months before I was to leave for the United States in 1980, when I chanced upon the work of Renford Bambrough. Hahn had challenged me with the question, “how are you so sure your value judgements promoting liberty blah-blah are better than those of Chenery and the development economists?” It was a question that led inevitably to ethics and its epistemology — when I chanced upon Bambrough’s work, and that of his philosophical master, John Wisdom, the immense expanse of metaphysics (or ontology) opened up as well. “Then felt I like some watcher of the skies, When a new planet swims into his ken; Or like stout Cortez when with eagle eyes, He star’d at the Pacific…”

It has taken me more than a quarter century to traverse some of that expanse; when I returned to Britain in 2004 as the Wincott Visiting Professor of Economics at the University of Buckingham, I was very kindly allowed to deliver a public lecture, “Science, Religion, Art and the Necessity of Freedom”, wherein I repaid a few of my debts to the forgotten work of Bambrough and Wisdom — whom I extravagantly compared with the Bodhisattvas of Mahayana Buddhism, also saying that the trio of Wittgenstein, Wisdom and Bambrough were reminiscent of what Socrates, Plato and Aristotle might have been like.

I had written to Bambrough from within Cambridge expressing my delight at finding his works and saying these were immensely important to economics; he had invited me to his weekly discussion groups at St John’s College but I could not attend. Between 1979 and 1989 we corresponded while I worked in America on my application of his and Wisdom’s work to problems in economics. We met only once when I returned to Cambridge from Blacksburg for my doctoral viva voce examination in January 1982. Six years later in 1988 he said of my Philosophy of Economics, “The work is altogether well-written and admirably clear”, and on another occasion he said he was “extremely pleased” at the interest I had taken in his work. The original preface of Philosophy of Economics said he was not responsible for the use I had made of his writings, which I reiterated in the 2004 lecture. At our meeting, he offered to introduce me to Wisdom who had returned to Cambridge from Oregon but I was too scared and declined, something I have always regretted since. It is only in the last few years that I have begun to grasp the immensity of Wisdom’s achievement in comprehending, explaining and extending the work of both Wittgenstein and Freud. His famous “Virginia Lectures” of 1957 were finally published by his admirers with his consent as Proof and Explanation just before his death in 1993. As for Bambrough, I believe he may have been or become the single greatest philosopher since Aristotle; he told me in correspondence there was an unfinished manuscript Principia Metaphysica (the prospectus of which appeared in Philosophy 1964), which unfortunately his family and successors knew nothing about; the fact he died almost in obscurity and was soon forgotten by his University speaks more about the contemporary state of academic philosophy than about him. (Similarly, the fact Hahn, Morishima and like others did not receive the so-called Economics “Nobel” says more about the award than it does about them.)

All I needed in 1980 was time and freedom to develop the contents of this book, and that I found in America — which I could not have done in either Britain or India. It would take eight or nine very strenuous years before the book could be written and published, mostly spent at Virginia Polytechnic Institute (1980-1985) and the University of Hawaii (1986-1990) Economics Departments, with short interludes at Cornell (Fall 1983) and Brigham Young (1985-86). I went to Virginia because James M. Buchanan was there, and he, along with FA Hayek, were whom Hahn decided to write on my behalf. Hayek said he was too old to accept me but wrote me kind and generous letters praising and hence encouraging my inchoate liberal thoughts and arguments. Buchanan was welcoming and I learnt much from him and his colleagues about the realities of public finance and democratic politics, which I quickly applied in my work on India, published in 1984 in London as Pricing, Planning & Politics: A Study of Economic Distortions in India and republished elsewhere here. The visit to the Cornell Economics Department was really so I could talk to Max Black the philosopher, who represented a different line of Wittgenstein’s students, and Max and I became friends until his death in 1988.

Buchanan’s departure from Blacksburg led to a gang of inert “game theorists” to arrive, and I was immediately under attack – one senior man telling me I was free to criticise the “social choice” work of Amartya Sen (since he was Indian too) but I was definitely unfree to do the same of Sen’s mentor, Kenneth Arrow, who was Jewish! (Arrow was infinitely more gracious when he himself responded to my criticism.) On top of that arose a matter of a woman, fresh off the aeroplane from India, being assaulted by a senior professor, and when I stood for her against her assailant, my time in Blacksburg was definitely up.

The manuscript of this book was at the time under contract with University of Chicago Press, and, thanks to Mrs Harry Johnson there, I had come in contact with that great American, Theodore W. Schultz. Schultz, at age 81, told me better to my face what the book was about than I had realised myself, namely, it was about economics as knowledge — its subject-matter was the epistemology of economics. Schultz wrote letters all over America on my behalf (as did Milton Friedman at Stanford and Sidney Alexander of MIT, whom I had also met and become friends with), and I was able to first spend a happy year among the Mormons at Brigham Young, and then end up at the University of Hawaii where I was given responsibility for the main graduate course in macroeconomics. I taught Harry Johnson-level IS-LM theory and Friedman-Tobin macroeconomics and then the new “rational expectations” vs Keynesian material.

I was also offered a large University grant to work on “South Asia”, which led to the books Foundations of India’s Political Economy: Towards an Agenda for the 1990s, and Foundations of Pakistan’s Political Economy: Towards an Agenda for the 1990s, both created by myself and WE James, and which led to the origins of India’s 1991 economic reform and the India-Pakistan peace process as told elsewhere. Also, this book came to be accepted for publication by Routledge, as the first economics book in its famed International Library of Philosophy.

Just as I was set to be evaluated for promotion and tenure at the University of Hawaii, I became the victim of a most vicious racist defamation (and there was some connection with Blacksburg). Quite fed up with the sordidness of American academia as I had experienced it, I sued in the federal court, which consumed much of the next half dozen years as the case worked its way through the United States Supreme Court twice. Milton Friedman and Theodore W. Schultz stood as expert witnesses on my behalf but you would not have known it from the judge’s ruling. There had been not only demonstrable perjury and suborning of perjury by the State of Hawaii’s officers, there was also “after-discovered” evidence of bribery of court-officers in the US District Court for the District of Hawaii, and I had to return to India in 1996 quite exhausted to recuperate from the experience. “Solicitation of counsel, clerks or judges” is “embracery curialis”, recognized as extrinsic fraud and subversion of justice since Jepps 72 E R 924 (1611), “firmly established in English practice long before the foundation” of the USA, Hazel Atlas, 322 US 238 (1943). “Embracery is an offense striking at the very foundation of civil society” says Corpus Juris 20, 496. A court of equity has inherent power to investigate if a judgement has been obtained by fraud, and that is a power to unearth it effectively, since no fraud is more odious than one to subvert justice. Cases include when “by reason of something done by the successful party… there was in fact no adversary trial or decision of the issue in the case. Where the unsuccessful party has been prevented from exhibiting fully his case, by fraud or deception practised on him by his opponent, as…where an attorney fraudulently or without authority assumes to represent a party and connives at his defeat; or where the attorney regularly employed corruptly sells out his client’s interest to the other side ~ these, and similar cases which show that there has never been a real contest in the trial or hearing of the case, are reasons for which a new suit may be sustained to set aside and annul the former judgment or decree, and open the case for a new and a fair hearing….” (Hazel Atlas). There is no time-limit in United States federal law for rectification of fraud on the court of this sort, and I remain fully hopeful today of the working of American justice in the case.

The practical result was that this book was never able to be properly publicized among economists as it would have been had I become Professor of Economics at the University of Hawaii by 1992 as expected. The hardback sold out quickly on its own steam and went into paperback by 1991, and a friend told me it was being used for a course at Yale Law School. The reviews were mostly intelligent. Upon returning to Britain as the Wincott Visiting Professor in 2004, I found times had changed and so had Routledge who would not keep it in print let alone permit a second revised edition. But I am now free to republish the book as I please, and today in 2007, with the Internet growing to a maturity which allows the young geeks at WordPress.com to want to encourage blogging worldwide, I can think of no more apt place to reproduce the first edition of this book than here at my own blog www.independentindian.com.

This is not a second or revised edition, and it is unchanged in content except for this lengthy new preface made necessary by the adventures and dramas the book’s author found himself unwittingly part of since its first publication. I am 52 now and happy to say I endorse the book just as I had published it at 34, though I do find it a little impatient and too terse in a few places. The 1991 paperback corrected a few slight errors in the 1989 hardback, and has been used. I am planning an entirely new book which shall have its roots in this one though it will be mostly in philosophy and not economics — the outlines it may take may be seen in the 2004 public lecture I gave on the work of Bambrough and Wisdom mentioned above and published elsewhere; its main aim will be to uncover for new generations the immense worth there is in their work which is in danger of being lost.

At least two names failed to appear in the original list of acknowledgements. G. Bruce Chapman, now of the University of Toronto, and I talked much of serious ethics and political philosophy when I first arrived at Cambridge in 1976. And in 1980 in Blacksburg, Anil Lal, then a graduate student and house-painter, borrowed my copy of Bambrough’s work, read it, and later made a comment on the metaphysics of John Wisdom which allowed me to see things more clearly.

Ballygunge, Kolkata,
April 7 2007

TO: R.A.R.

Contents

Preface

1. Introduction

Part I

2. Hume and the Economists

3. Understanding the Consensus

4. Difficulties with Moral Scepticism

Part II

5. Objectivity and Freedom

6. Expertise and Democracy

Part III

7. An Example from Microeconomics

8. A Dialogue in Macroeconomics

9. Mathematical Economics and Reality

10. Remarks on the Foundations of Welfare Economics

Envoi

Notes and References

Select Bibliography

Preface to First Edition
The publication of this work marks the end of an adventure of more than a decade and a half, most of the writing being done between 17 December 1980 and 22 May 1987. It has been quite perilous at times, especially as a foreigner in the West, and over the years many teachers, colleagues, friends and members of family have contributed to the author’s learning with their thoughts and actions. A number of senior scholars in economics and philosophy — especially Professor Frank Hahn, Professor James Buchanan, Professor Sidney Alexander, Professor Milton Friedman, Professor Max Black, Professor Sidney Alexander, Professor Amartya Sen, Professor Peter Bauer, Professor T. W. Hutchison and Dr C. J. Bliss, have lent their support to the work as it developed, even when they may have not known of its final form, or disagreed with its content, or been themselves a subject of its criticism. Most especially, the work has been honoured in the last six years with the unwavering encouragement of Professor T. W. Schultz of the University of Chicago. And Professor Ted Honderich of University College London has shown it the kindest consideration, without which publication would have been much delayed. Finally, a large philosophical debt will be seen to be owed to the work of Mr. Renford Bambrough of St. John’s College, Cambridge; however he should not be considered responsible for the use that has been made here of his writings.
HONOLULU
15 AUGUST 1988.

1. Introduction

1. IN this book, some of the central philosophical questions facing the modern economist will be raised. Most attention will be given to the question of the appropriate relationship between the positive and the normative, as well as to its parent question of the appropriate scope of objective reasoning in the making of evaluative judgements. Closely related is the question of the appropriate role of the economic expert in society, while slightly more distant questions have to do with the significance of interpersonal comparisons of utility, with the philosophical status of the concepts and theorems of mathematical economics, and with how judgements of probability should be understood. It is this family of questions which will be the concern of the present work.

Economics is a science with potentially important practical bearing upon the lives of men and nations. The state of the modern world may have been affected more profoundly and subtly by the use or misuse of economic knowledge than by many another science. Yet anyone familiar with the intellectual history of the field will know it to have seen more conflicts, and often conflicts of a more destructive kind, than may be reasonably expected or tolerated in the development of a scholarly discipline. The reader will be familiar with the many explicit and implicit divisions of opinion that have occurred upon theories and methods and evidence and policies, which have sometimes torn apart individual university departments and even threatened the integrity of the science itself. Indeed the modern economist in a despondent mood might be inclined to say of the state of his discipline as David Hume once said of philosophy: “There is nothing which is not the subject of debate, and in which men of learning are not of contrary opinions. The most trivial question escapes not our controversy, and in the most momentous we are not able to give any certain decision. Disputes are multiplied, as if everything was uncertain, and they are settled with the utmost warmth, as if everything was certain.”
At the same time as there have been deep and persistent divisions on substantive questions of economic theory and method and evidence and policy, there has been a deliberate or inadvertent consensus about the answer to an important question in the theory of knowledge. Modern economists happen to have been practically unanimous in their opinion on the possible scope of objective reasoning in the making of judgements, and thus in their opinion on the appropriate relationship between the positive and the normative. A broad consensus has developed to the effect that while common reasoning can have some scope in evaluative discussion, it is quite possible in practice and in principle for this scope to become exhausted. At such a point of the exhaustion of reason, only sheer and unadulterated subjective differences will be found to remain between people. Put another way, it has been believed possible for judgements ultimately to become immune to rational question and criticism.

Many of the pioneers of twentieth century economic thought, Kenneth J. Arrow, Milton Friedman, F. A. Hayek, Sir John Hicks, Oskar Lange, Gunnar Myrdal, Lionel Robbins, Joan Robinson, Paul Samuelson, Joseph Schumpeter, Jan Tinbergen, to name but a few, who between themselves would represent all of the main schools of contemporary economics, may be found to have shared such a thesis in the theory of knowledge, differing amongst themselves only upon the relatively minor question of the precise amount of room reasoning should be considered to have: some saying a great amount, others saying almost none, but all agreeing that whatever the exact amount it is a finite amount, both actually and potentially. The theory of demand, the theory of macroeconomic policy, the theory of welfare economics, the theory of social choice — each has in whole or in part rested upon an epistemological premise of this kind. If such a consensus can be shown to have existed, the reader may agree it to be something of a remarkable fact, since it would be difficult indeed to find a single substantive proposition of theory or method or evidence or policy to which a similar measure of consensus among modern economists might obtain.
One of the objects of the present work will be to argue that the fact there have been tremendous disharmonies on substantive economic questions, may not be independent of the fact there has been this kind of harmony in the theory of knowledge among many of the pioneers of twentieth century economics as well as the many more who have followed them. If the epistemological point hitherto accepted as true happens in fact to be false, it becomes possible that the scope of objective reasoning on substantive questions has been artificially prevented from being extended as far as it could have and should have been. Evaluative judgements are clearly of indefinite variety: attitudes towards goods or people, expectations of the future, recommendations to buy or sell, advice to a friend or a student or a government, etc. — roughly, all judgements taken by an individual or social agent about a right or optimal course of action in given circumstances. We shall find the consensus has been that it is possible for reasoning to come to a necessary halt in the process of coming to such judgements, whether the maker of the judgement is a public body or a private individual acting in the capacity of consumer or voter. A large amount (and possibly the whole amount) of what may deserve to be within the domain of common and objective reasoning comes to be placed instead under the rule of subjective will and caprice. Not only must we live with the fact that discussions between citizens or economists or politicians or spouses or states do frequently come to end without resolution, because there happens to be a lack of patience or tolerance or perseverance or good humour or whatever, but also that such outcomes may be written into the script from the start. In any normative discussion, we are to be permitted to call a unilateral halt merely by declaring “Well that is a value judgement of mine” or “That is a personal opinion of mine”, with the implication that any further questioning is out of bounds and unacceptable. Given a theory which allows us in this way to declare as we please what to call objective science and what to call subjective opinion, and given that it may be but human nature to be sceptical of the other fellow’s dogma while being oblivious to one’s own, we may have some explanation of how the consensus among economists in the theory of knowledge may have caused and preserved a state of affairs in which rival substantive dogmas can thrive — because the processes of common reasoning and even communication itself may have been allowed too often to come to a virtual standstill. (Or move at a snail’s pace.) “Disputes are multiplied, as if everything was uncertain, and they are settled with the utmost warmth, as if everything was certain.”

The gist of the present work will be that the present consensus in the theory of economic knowledge is logically inconsistent. It is therefore untenable and deserves to be abandoned. Men can aspire to, and in fact do attain and possess, certain and objective knowledge in an indefinite number of contexts. At the same time, there is no proposition of any kind held by anyone which must be thought of as necessarily closed to further question on grounds of reason or evidence. This simple maxim is something that may be found to hold in any field of human inquiry or endeavour one cares to mention — mathematics or medicine, ethics or physics, history or probability, logic or theology — and it will be our purpose in this work to examine its consequences in the context of economics in particular.

§2. Our study is one in what may be called theory of economic knowledge, and it may be worth a moment to consider what may be meant by this.

Bertrand Russell said of pure mathematics that it was a subject “in which we do not know what we are talking about” — meaning that the pure mathematician does not normally intend to refer in his theorems to substantive factual truths about the world. The epistemology or theory of knowledge of a discipline may be thought of similarly as being not concerned with either affirming or denying, corroborating or refuting the substantive propositions that happen to be made within the discipline. The study of the theory of economic knowledge may be thought of as not making any commitment one way or another to the substantive propositions which are to be found within the department of economics itself. Instead it is a more abstract undertaking, which seeks to examine certain kinds of questions from outside the department in the practical hope of dissolving or at least clarifying the character of substantive questions and controversies that may be occurring within. For example, to ask whether a criterion of truth and falsity can be applied to economic propositions, or whether objective knowledge is possible in the field, or how the kinds of propositions made in economics are to be justified, or how they compare and contrast with propositions made in other departments of inquiry — these would be the kinds of question we might see asked in the theory of economic knowledge; from which too the importance can be seen of generally abstaining from making substantive commitments in the process.

Much of the present work, especially Parts I and II, may be understood to be an attempt to provide a theory of economic knowledge of this kind. Thus the reader will not find in it commitments made to any substantive economic propositions. There is no theorem reported of the existence or efficiency of some new kind of economic equilibrium, no new model or evidence offered of the influence of the supply of money on prices, no new theory of how the expectations of economic agents may be formed or fulfilled or disappointed, no new evidence or explanation of why some country may be experiencing rapid growth or high inflation or increasing unemployment. No new result within economic science; one might almost say, nothing substantive! The present work will offer no more than “a machine to think with” on certain philosophical aspects of economics; it intends to leave economics as it is — and yet in so doing to have shown the way out of some of the philosophical difficulties that are encountered in its study. “For the clarity that we are aiming at is indeed complete clarity. But this simply means that the philosophical problems should completely disappear.”

Yet the practical purpose to making an investigation of this kind may be stated quite readily. For suppose, for sake of argument, we granted the truth of our simple maxim and assumed the epistemological concepts ‘knowledge’ and ‘doubt’, and their allied concepts ‘objectivity’ and ‘freedom’, should not be seen as incompatible in the project of inquiry. What consequences would follow from accepting such a viewpoint? Clearly first of all, we would be placed in a happy position of being able to say that no matter how deep or persistent the actual disagreements between economists or between citizens on economic questions happened to be, there is knowledge to be had in the study of economics. Not just high sophistry or rhetoric or political posturing or the opinions and prejudices of different people — but certain and objective knowledge about those actions, events, and phenomena that are part of the economic context. We would be able to say, in other words, there are at least some propositions in economics which are true, and which moreover can be known to be true.

An important ambiguity is possible here in asking whether there is knowledge about a given matter, insofar as such a question can be taken either as asking whether it is possible for there to be any knowledge about the matter, or as asking whether it is known that someone actually possesses such knowledge and how that has been determined. Defining as an expert someone who has the most reasonable and justifiable answer to give to a question, we need to distinguish, in other words, the relatively cool logical question of whether here can be any such thing as expert knowledge from the more heated political question of who is supposed to be such an expert and how we are supposed to know that. For instance, a question like “Is there a proof to Fermat’s last theorem?” can be understood either in the manner of the pure mathematician, as asking whether there can be a proof to the proposition it is impossible xn + yn = zn for positive integers x, y, z, n, and n > 2; or in the manner of the historian of mathematics, as asking whether any human being has come up with such a proof, as Fermat himself claimed to have done but of which no record exists. Among the great thinkers, Plato is the most influential to have crossed these wires in suggesting it possible not only for there to be objective knowledge about mathematics and ethics and statesmanship, but also for a special and closed set of experts to come to be identified to whom such knowledge should be thought of as being exclusively given. Plato’s theory can be and has been interpreted as giving license to elitism and dictatorship, yet the natural protest which the ideas of these would evoke in most of us may lead to an equal and opposite error of denying the very possibility of knowledge because we feared or wished to reject the idea of being ruled by a closed set of self-described experts. Once these wires are uncrossed, we may see it to be quite possible to maintain there can be objective knowledge and expertise in economics, without making any commitments toward specifying who should be considered an expert on some economic issue, or how we are supposed to determine that, or for that matter claiming any such knowledge or expertise for ourselves.

A second consequence of our simple maxim may seem more troubling. For by its second part, we should also have to say that even while there is objective knowledge in economics, there is nevertheless no proposition in the field which must be thought of as being necessarily closed to further question. Not the proposition that every human act is a rational act, nor the proposition that economic agents continually maximize utility, or are well modelled as doing so, nor the proposition that the market economy cannot be expected to reach full employment and needs to be and can be actively supplemented by macroeconomic policy, nor the proposition that the growth of money is necessary and sufficient for inflation, nor the proposition that free trade will maximize world output given factor immobility, nor the proposition that externalities imply a possible scope for taxes and subsidies, nor the proposition that the histories of nations is a history of class struggle.

By the second part of the maxim, there is no axiom or theorem of economic theory, no finding of economic history, no estimate of the value of an economic coefficient, no prediction of the course of an economic variable, no proposal of economic policy, which must be thought of as being closed to further question. None whatsoever. “No statement is immune to revision” (Quine).

Taken together, then, the net consequence of supposing objectivity and freedom, knowledge and doubt, to be compatible concepts deserving of equal respect, is that we shall be able to chart a course which steers us clear of two perennial and opposing hazards besetting all projects of human inquiry, viz., Scepticism and Dogmatism — the modern origins of which were traced by the American philosopher Charles Sanders Peirce to the cartesian proposal that philosophy “must begin with universal doubt, whereas scholasticism had never questioned fundamentals.” In the pages to follow, we will be denying universal doubt and we shall be free to question fundamentals. In an indefinite number of contexts, there is certain and objective knowledge to be had. Scepticism, understood technically as a logical thesis denying that we can possibly have or know that we have certain knowledge, is therefore a false thesis. At the same time, there is no proposition which is necessarily closed to question. Dogmatism, understood technically as a logical thesis implying there can be or must be some propositions which are absolutely and incorrigibly true, is therefore an equally false thesis. In place of a theory of knowledge restricting the scope of common reasoning to the finite or even the potentially finite, it is possible to have a theory of knowledge extending this scope to the potentially infinite. In particular, while normative proposals in economics or elsewhere may be supposed to be objectively better or worse depending on the soundness of the positive grounds given in their support, there are no unquestionable normative proposals — because there are no unquestionable positive grounds. The simple practical result of making the present investigation is that it will permit a sure and safe course to be found between Scepticism and Dogmatism for any project of economic inquiry.

§3. Would such a simple and straightforward thesis be new to economics in any way? To what extent would the argument which has been summarized above and which will be developed in the chapters to follow not been expressed before? The reader may wish an answer to such a question, and the author presently takes this to be as follows. With respect to the general debate which has occurred about knowledge and scepticism especially in moral philosophy, there will be little if anything in the present work which is a direct or novel contribution to it. While the philosophers have not been concerned with political economy at all, we shall be passive participants to their discussions, listening in to see what can be learned for our purposes and not intending to add to them directly. It may be remembered of course that it has not been long since economics formally broke away from philosophy to become a specialized discipline in its own right, in the belief the concerns of economics are of a more concrete and practical kind than those of philosophy. Since then we have made many highly abstract and theoretical claims, while also becoming scornful of philosophical thinking and believing ourselves to be exempt from its influences. Yet serious philosophical thought constitutes a mature and magnificent conversation which it would be foolish for any serious science to be deaf to. Moreover, it has been quite widely believed that there have been significant advances in philosophical understanding in the present century, and we are responsible to take such a claim seriously. It will be one of the aims of the present work to apply what may be learned from these discussions towards resolving, or at least clarifying, some of the main substantive disputations in modern economic science.

These are two broad traditions of moral philosophy relevant to our subject-matter, one deriving from Aristotle, the other from Hume (and a line of sceptics before him). Even though it would be unwise to expect agreement within either tradition, we may for convenience speak of an aristotelian and a humean tradition respectively. With respect to the discussions among economists on the relationship of the positive to the normative, we shall find an eminent consensus to have appeared on the humean side. This work will declare for the other side, and in so doing shall have to dissent from the humean consensus upon which all of the theory of social choice and much of the theory of welfare economics and theory of economic policy have appeared to rest. As far as is known by the author, there seem to have been but two published dissents on similar lines among economists in recent decades: those of Sidney Alexander and Amartya Sen. Of these, Professor Sen’s dissent has been very short and hesitant, and he would seem to have withdrawn it in other writings. Professor Alexander’s dissent has been clear and vigourous, but unlike his work on the balance of payments, his philosophical work has not received attention, and the present work was mostly developed in complete ignorance of its existence.

By the end of this work however, a clear choice should have been set out for the reader on the question of the relationship of the positive to the normative — between the consequences of accepting the humean consensus among economists and the consequences of the position of Professor Alexander and the author and possibly Professor Sen. The simple maxim “Objective knowledge is possible and yet there is no proposition which is closed to question” should not undermine its own content by being closed to question itself — instead it is supposed to refer and apply to itself as well. It may be true and deserving of our belief but it is not self evidently so, and will have to earn its credentials at the common bar of reason. Ultimately it will have to be the reader’s individual judgement whether it has been successfully shown that, contrary to what has been supposed by many of the pioneers of twentieth century economics, no conflict must arise between knowledge and doubt, objectivity and freedom. The history of the discussion may accord to our side the advantage J. S. Mill had seen to be enjoyed by all minority opinions: if the opinion of one or a few is false then not much will be lost by believing in it, while if it proves better able to stand the tests of time then much may be gained by allowing it to replace error. Put differently, it may seem quite risky that the pioneers of modern economic science have placed all their philosophical eggs in the humean basket — just in case it is Hume himself who happens to be mistaken.

§4. In Part I of the work will be found described the received theory of economic knowledge and its possible justification, as well as an account of the logical difficulties that arise with it. Chapter 2 has the task of documenting as fully as possible the existence of a humean consensus among economists in recent decades. Chapter 3 then examines the kinds of reasons that may incline us to be persuaded to such a view, and which may go to explaining how it has seemed to be an attractive theory to so many economists. These reasons appear to have been of two different but related sorts.

First the concept of value as used in ordinary life and ethics may have become confounded with the concept of economic value or scarcity or rareté in Walras’s term. Where economists have referred to a theory of value, they may have meant to refer more accurately to a theory of relative prices as determined by conditions of scarcity. The advance of the original neoclassicals in the late nineteenth century was to establish the importance of subjective estimations of economic agents to the determination of the relative prices of goods — as opposed to say how much labour went into different production processes as the classical economists might have said, or how much intrinsic value God had placed in the goods as the scholastics might have said. While it is clear by now that such an observation is broadly correct, it would be a mistake to go from a premise that market prices are determined in part by subjective estimations to a conclusion that the relative prices thus determined in any sense establish an order of how goods deserve to be valued or not. Goods are indeed valued the way they are because people happen to value them. Yet equally, in most cases, people seem to value goods in the way they do because the goods deserve to be thus valued — for example, because, like food or clothing or shelter, the goods are conducive to some valuable human purpose.
Secondly, it is possible the consensus has been motivated by a desire to find an effective shield against dogmatism and tyranny. For example, the context of an open parliamentary democracy presupposed by the modern theory of economic policy may have derived out of the experience of the great tyrannies of twentieth century history. There may have been a natural and understandable desire that the choices and decisions of citizens in the capacity of voters or consumers should be treated with the fullest due respect, and a humean scepticism may have been adopted because it has been believed to be something which is necessary and sufficient for this kind of respect to be shown. This would be an outstanding reason for adopting a humean point of view, and one which any critic must be required to account for. Yet it also places in relief the fatal self-contradiction that is present within the humean theory. For example, a theory of economic policy which has to rely upon an assumption of the polity being open and democratic would have to be silent about the conduct of economic policy in societies which were demonstrably not open or democratic, making it a theory very special and contingent in its range of application. Moreover, to give the defence of political or economic or religious freedom as a reason for holding a subjectivist epistemology would be to have left freedom entirely defenceless and toothless from those who would attack it from within precisely the same subjectivist framework. For example, if we conflated a general right to express an opinion freely with an idea that what such an opinion expresses is itself a matter of subjective opinion, then clearly, by the same token, an opinion that opinions should be freely expressed might also be considered merely subjective, and therefore no better or worse than its contrary. Within a subjectivist theory of knowledge, there ultimately can be nothing to choose between freedom and tyranny.

Chapter 4 is a survey of these kinds of logical difficulties with the humean position stated in Chapters 2 and 3. Its main result will be that the anti dogmatic campaign of the humean cannot succeed, and in fact comes to make the Sceptic resemble the Dogmatist more than anything else. It is possible this happens because both Sceptic and Dogmatist are sharing the same deductivist model of justification, to the effect that we cannot know a proposition to be true or right unless we have deduced it as the conclusion of a set of premises of whose truth or rightness we are certain. The Sceptic sees the threat of infinite regress that is implicit in such a model, and then denies we can be certain of anything. The Dogmatist sees the potential regress too, but responds to it by calling a halt at some arbitrary point, denying the need or possibility of going any further. In Part II a fresh picture will be given which attempts to preserve the truths the Sceptic and Dogmatist would each like us to take notice of, while correcting for the distortions both would force upon us by their unequivocal adoption of a deductivist model of justification. Chapter 5 reframes the main philosophical problems of Part I in the terms of the ancient dualism between Nominalism and Realism, and brings to light a possible resolution of this which has been advanced by a number of modern philosophers. Chapter 6 develops the argument further and applies it to the question of the appropriate role of expertise in a democracy. Taken together, Part II contains the main outlines of a fresh theory of economic knowledge with which to replace the flawed and inconsistent theory to which so many economists have thus far subscribed.

Part III of the work consists of a series of diverse illustrations and possible applications of the theory of knowledge developed in Part II. Chapters 7-10 all give examples of how inquiry and criticism can be seen to proceed in economics without sacrifice of either objectivity or freedom. Chapter 7 examines an actual debate on a concrete question of microeconomic policy, which may be compared and contrasted with the more academic examples of later chapters. Chapter 8 examines aspects of the division in macroeconomics and monetary theory since J. M. Keynes’s General Theory of Employment, Interest and Money. Chapter 9 considers a question with wide and general reference to economic theory: how the relationship between mathematical economics and real economic phenomena might be best understood. This has been the subject of long and bitter disputation, and some light is attempted to be shed on it from the vantage point of the philosophy of mathematics. It is possible that certain views in the philosophy of mathematics have been presupposed in modern mathematical economics; once these are exposed and aired, some of the conceptual problems which have been faced in this discussion may come to be dissolved. The theory of probability and expected utility and the theory of general equilibrium will be used as brief illustrations. Finally, in Chapter 10, the possible philosophical sources of the controversy surrounding the question of interpersonal comparisons of utility will be described, and a possible resolution suggested. This will be argued to have bearing on received understanding of the foundations of welfare economics.

§5. It will be found in the present work, then, that we shall be denying universal doubt on the one hand, while yet being free to question fundamentals on the other. Such a project will entail a critical examination of the philosophical premises and assumptions advanced by some of the most distinguished contemporary scholars in our field, and it is to be hoped the spirit in which the present criticism is offered will not be misunderstood. Every generation holds a peculiar advantage over preceding generations in having available to it what has gone before, while not being able to anticipate the criticisms of its own beliefs that will certainly come in the future. This kind of advantage that the present holds over the past may be thought of as being quite arbitrary, and we can expect it to carry with it a responsibility of taking what has gone before into serious account. Since no individual is able to do so on his own, we find every generation as a whole attempting to provide itself with critical discussions, which, when integrated over time, constitute the grand and unending conversation we call the history of human thought. It is with such a model in mind of a continuing and self-critical tradition of scholarship that we shall seek to address the questions raised at the beginning about the foundations of economic knowledge, while not making any pretence whatsoever to finality, and instead leaving the entire treatment as open as it can be made to the examination and criticism of others.

PART I

2. Hume and the Economists
THERE has been a broad and long standing consensus among economists about the character of the relationship between positive and normative propositions, as well as about the related question of the appropriate scope and limits of economic expertise in society. Joining in this consensus have been many of the pioneers of twentieth century economic thought: Kenneth J. Arrow, Milton Friedman, F. A. Hayek, Sir John Hicks, Oskar Lange, Gunnar Myrdal, Lionel Robbins, Joan Robinson, Paul A. Samuelson, Joseph Schumpeter, Jan Tinbergen, to name but a few. Many others are likely to be found in explicit or implicit agreement, while a survey by Professor T. W. Hutchison suggests that some of the most renowned figures of nineteenth century economics should probably be included as well. The main purpose of this chapter will be to provide enough documentary evidence to show that such a consensus has in fact existed. When we think of how many deep and wide differences there have been over the years in the field that was once called political economy and is now called economic science, differences on questions of method and theory and evidence and recommendations of policy, the existence of such a consensus may seem quite a remarkable fact.

Very briefly, what appears to have been accepted is that it is possible to identify a body of progressively changing knowledge called ‘positive economics’, which is the main contribution of economists to human knowledge and understanding in general. It consists of such things as the microeconomic and macroeconomic descriptions of present and past states of an economy, conditional predictions of such states in the future, hypothetical or substantive explanations of what economic causes may have what economic effects, the deduction and analysis of theorems of economic significance, and so on. That is to say, positive economics has been supposed to consist of the domain of propositions in an economic context which have to do in one way or another with questions of what is the case, or with what has been the case in the past or may be expected to be the case in the future. In contrast, evaluative or prescriptive or ‘normative’ propositions, having in one way or another to do with what ought to be done or not done by a government or a private economic agent, have been believed to fall into quite a different category. These have been believed to amount sooner or later to being expressions of subjective personal opinion, either on the part of the individual economist himself or of those whom he may happen to be advising.

Most economists who have considered the matter have allowed that there is usually at least some scope, and sometimes much scope, for common reasoning on logical and empirical grounds to be brought to bear in normative discussion; making it possible that at least some of the disagreements between economists or citizens or politicians on normative questions can come to be objectively resolved. But it has been believed possible also for the processes of common reasoning to become exhausted in discussions of normative questions like those of economic policy or ethics or jurisprudence, in a way they are not supposed to become exhausted in discussions of positive questions like those of economic theory or econometrics or natural science or mathematics. Once such a point of the exhaustion of reason has been reached, any residual conflict which remains is to be considered necessarily irreconcilable and of a sheer normative kind. And such sheer normative opinions, upon which it is not possible to bring to bear any further objective consideration, are to be supposed to express the purely subjective attitudes and feelings of the individual person, opinions which might happen to be shared by others too, but which are certainly closed to further argumentation, whether in public or in the person’s own mind. Put a little differently, the theory of knowledge and policy which we shall see to have been widely accepted by many economists in the twentieth century, has made an assumption that while all questions of analysis and evidence can have objectively true or false answers, only some and not all questions of evaluation and prescription can have objectively right or wrong answers.

§2. Underlying the consensus among economists has been a more general thesis in the theory of knowledge or epistemology. It is a thesis which may be called ‘moral scepticism’, and its most brilliant and influential exponent in the modern period has been David Hume (1711-1776). Among those to have advanced influential and persuasive points of view of a similar kind in twentieth century moral and political philosophy have been C. L. Stevenson, R. M. Hare, A. J. Ayer, and Karl Popper.

In the course of a critique of dogmatic religion and ethics, the young Hume was to attack with a sceptical scalpel what he took to be the illogic of trying to deduce evaluation and prescription from analysis and description: “In every system of morality, which I have hitherto met with… the author proceeds for some time in the ordinary way of reasoning… when of a sudden I am surpriz’d to find, that instead of the usual copulations of propositions, is, and is not, I meet with no proposition that is not connected with an ought or an ought not. This change is imperceptible; but is, however, of the last consequence. For as this ought, or ought not, expresses a new relation or affirmation, ’tis necessary that it shou’d be observ’d and explain’d; and at the same time that a reason should be given, for what seems altogether inconceivable, how this new relation can be a deduction from others, which are entirely different from it.” While the precise context and implications of this passage continue to divide philosophers, it will be adequate for our present purpose to follow the sympathetic and influential modern interpretation given by the Oxford moral philosopher R. M. Hare, and obtain for an economic context what may be called Hume’s First Law: No normative conclusion, for example, about what a private economic agent or a government ought to do or not do, can be validly deduced from a set of solely positive premises, i.e., from premises which only describe what is the case. No normative conclusion can be deduced without at least one normative premise having been made. A dualism of this kind between the ‘is’ and the ‘ought’ has been frequently supposed to separate science from ethics, the objective from the subjective, the rational from the irrational, public knowledge from private opinion.

Hume was to reinforce this opinion a decade later in a more recondite form of words: “[A]fter every circumstance and every relation is known, the understanding has no further room to operate, nor any object on which it could employ itself. The approbation or blame which then ensues cannot be the work of the judgement, but of the heart; and is not a speculative proposition or affirmation, but an active feeling or sentiment.” This passage too continues to divide philosophers, but for our present purpose R. M. Hare’s recent writing is once more helpful in obtaining a modern interpretation. Hare asks whether, in addition to logical questions and factual questions about how the world is, there can be “irreducibly evaluative or prescriptive questions” as well; once we have “done all we can” by way of reasoning and adducing evidence, “will there remain something to be done which is neither logic nor fact finding but pure evaluation or prescription?” Hare answers yes it is possible, and in the same vein we may restate the idea to obtain for an economic context what may be called Hume’s Second Law: After every empirical question and every logical and mathematical question has been answered in an economic problem, there is no further scope for common reasoning to work. If an evaluative statement is made at such a point, then it can express no more than a subjective attitude or feeling of the individual economist towards the subject.

This is a maxim which does grant that a measure of common reasoning and evidence can be brought to bear upon particular normative questions, and so some normative disagreements may come to be objectively resolved. But it also allows for the potential for such reasoning to become exhausted, leaving merely a subjective residue of personal sentiment or feeling which people might or might not happen to share with one another but which would be beyond further question and discussion. In the pages to follow, a position will be referred to as ‘humean’ if it implicitly or explicitly endorses one or both of Hume’s Laws as stated above. The small h is used to suggest that a close examination of Hume’s works may show him to have been not entirely clear in his own meaning, as well as to suggest that the question of what Hume himself may have actually or fully meant is not of as direct importance for the present purpose as the question of what he has been taken to mean by contemporary economists.

The remainder of this chapter is given to documenting at fair length the fact that a number of the pioneers of twentieth century economics have quite unambiguously seemed to endorse a humean point of view in the theory of knowledge. Chapter 3 will be given to placing this fact in an appropriate historical context. This needs to be done not only in order to understand the nature of the consensus as fully as possible, but also to realize how close economists have been to one another on a central question in the theory of knowledge, even while being engaged in any number of deep and well known and seemingly interminable disputes on substantive matters. The reader who may be impatient with a detailed record of this kind, or who is prepared for the present to take its existence for granted, may wish to move on directly to Chapter 3 without losing the main threads of the argument.

§3. Friedman. Following Neville Keynes, Professor Milton Friedman has clearly and emphatically argued the importance of extending the scope of common reasoning in economics: “Positive economics is in principle independent of any particular ethical position or normative judgments…. [it] is, or can be, an ‘objective’ science, in precisely the same sense as any of the physical sciences…. Normative economics and the art of economics, on the other hand, cannot be independent of positive economics…. differences about economic policy among disinterested citizens derive predominantly from different predictions about the economic consequences of taking action — differences that in principle can be eliminated by the progress of positive economics — rather than from fundamental differences in basic values, differences about which men can ultimately only fight.” It is well known that in this and other works, Friedman has argued for the extension of common reasoning and evidence, or positive economics, as the surest means to resolving normative disputations. Yet from the passage quoted, it is clear that Friedman has also accepted something like Hume’s Second Law, to the effect that while common reasoning can have some and indeed much scope, a point of ultimate and sheer normative disagreement can still be reached, distant though it might be, where reasoning must be considered to have become exhausted and “men can ultimately only fight”. In the same essay, Friedman added that it was the practical importance of economics which impeded objectivity and promoted confusion between “scientific analysis and normative judgment”, suggesting an endorsement of Hume’s First Law as well.

Myrdal. Gunnar Myrdal argued for many years that a number of economic concepts purporting to be analytical or descriptive in character in fact had evaluative or prescriptive overtones. Myrdal and his editor and translator, Professor Paul Streeten, argued that a view that there is no place for normative judgments in economic science has been a guise for the advocacy of a specifically liberal political economy, a thesis which might well be endorsed by many marxian and keynesian economists. While postponing an assessment of this claim to a later chapter, we may note that Myrdal also happened to endorse the extension of the scope of positive economics, with as much emphasis as Friedman would do after him: “By subjecting to impartial criticism those arguments in political controversies which concern the facts and the causal relations between them, economic science can make an important contribution to the political sphere. As often as not, conflicting political opinions spring not so much from divergent valuations about the best possible future state of society and the proper policy for securing it, as from subjectively coloured and therefore distorted beliefs regarding actual social conditions.” Myrdal went on to endorse Hume’s First Law in recommending that the economist leave the supply of evaluative premises to the politician. While the economist can provide descriptions, explanations and conditional predictions, “the scientist must not venture beyond this. If he wishes to go further he needs another set of premises, which is not available to science: an evaluation to guide him in his choice of the effects which are politically desirable and the means permissible for achieving them.” Finally, Myrdal reached the humean conclusion that the normative differences between economists are ultimately beyond objective resolution: “[E]conomic reasoning is often obscured by the fact that normative principles are not introduced explicitly, but in the shape of general ‘concepts’. The discussion is thus shifted from the normative to the logical plane. On the former there is either harmony or conflict; conflict can only be stated, not solved by discussion. On the logical plane we should define our concepts clearly and then operate with them in a logically correct manner. What is ‘correct’ and what ‘false’ can be discussed with the methods of logic, whereas conflicting interests can be recognized, never solved scientifically.”

Robbins. In his influential writings over many years, Lionel Robbins made a distinction between ‘economic science’, having to do with such questions as how best to allocate scarce resources between alternative ends, and ‘political economy’ or normative theories of economic policy, prescribing the ends themselves and the weights to be attached to them. In his well known methodological work we read as clear a statement of Hume’s First Law as might be found in economics: “Propositions involving ‘ought’ are on an entirely different plane from propositions involving ‘is’…. Economics is neutral as between ends. Economics cannot pronounce on the validity of ultimate judgements of value…. Economics deals with ascertainable facts; ethics with values and obligations. The two fields of inquiry are not on the same plane of discourse. Between the generalizations of positive and normative studies there is a logical gulf fixed which no ingenuity can disguise and no juxtaposition in space or time can bridge over.” Robbins’s endorsement of the Second Law was equally emphatic. While positive economics extends the scope of common reasoning, it is still possible to find normative differences which are rationally irresoluble: “If we disagree about ends it is a case of thy blood or mine — or live and let live according to the importance of the difference or the relative strength of our opponents. But if we disagree on means, then scientific analysis can often help us to resolve our differences. If we disagree about the morality of the taking of interest (and we understand what we are talking about), then there is no room for argument.”
Samuelson. Professor Paul Samuelson has seemed to feel a tension in the humean position, but also that its logic compelled him to follow closely in Robbins’s path: “It is fashionable for the modern economist to insist that ethical value judgments have no place in scientific analysis. Professor Robbins in particular has insisted upon this point, and today it is customary to make a distinction between the pure analysis of Robbins qua economist and his propaganda, condemnations and policy recommendations qua citizen. In practice, if pushed to extremes, this somewhat schizophrenic rule becomes difficult to adhere to, and it leads to rather tedious cicumlocutions. But in essence Robbins is undoubtedly correct. Wishful thinking is a powerful deterrent of good analysis and description, and ethical conclusions cannot be verified in the same way that scientific hypotheses are inferred or verified.”

Hicks. Like Samuelson, Professor Sir John Hicks has seemed to feel a tension in the humean position, yet he too must be considered as having endorsed at least an important version of it. On the one hand, Hicks has seemed critical of mid-century positivism and emotivism, and claimed the main rationale of the “new welfare economics” to be that it allowed a route of escape from them. “During the nineteenth century, it was generally considered to be the business of an economist, not only to explain the economic world as it is and as it has been, not only to make prognostications (so far as he was able) about the future course of economic events, but also to lay down principles of economic policy, to say what policies are likely to be conducive to social welfare, and what policies are likely to lead to waste and impoverishment.” Since then positivism had declared that explanation and only explanation may be part of scientific economics, and any move to prescribe “must depend upon the scale of social values held by the particular investigator. Such conclusions can possess no validity for anyone who lives outside the circle in which these values find acceptance. Positive economics can be, and ought to be, the same for all men; one’s welfare economics will inevitably be different according as one is a liberal or a socialist, a nationalist or an internationalist, a christian or a pagan.” But such a position is “rather a dreadful thing to have to accept”, one which might “become an excuse for the shirking of live issues, very conducive to the euthanasia of our science.” Fortunately we are not compelled to accept it, since the new welfare economics advanced by Kaldor, Hotelling and Hicks himself was a viable alternative, not open to the objections the positivists had raised to the utilitarianism of Pigou and others.

Yet we may ask, what had the new welfare economics been about? And did it in fact make a break with the positivism which seemed to be troubling Hicks, or had it not been prompted precisely by humean doubts? As is well known, the new welfare economics had to do with questions such as whether the potential gainers from a change in policy could possibly compensate the potential losers from the change by enough so as to get them to go along with it, or conversely for the losers from a change to compensate the gainers from the change by enough so as to get them to go along without it, and so on. As Hicks himself makes clear, it was a discussion very much motivated by the belief that while the Pareto criterion was not a wholly adequate substitute for the utilitarianism of Pigou, any emendation of the paretian theory must leave untouched its basic positivistic premise, viz., that interpersonal comparisons cannot be conceived of as anything but purely subjective judgements, outside the scope of objective reasoning. Hicks claimed it was because the new welfare economics avoided making interpersonal comparisons that it should be considered a positive advance, a scientific advance. And Hicks has emphasized that he, like Robbins, has not wanted any truck with interpersonal comparisons. The old welfare economics of Pigou required one “to admit the possibility of comparing the satisfactions derived from their wealth by different individuals. This is where Professor Robbins parts company; for my part, I go with him.” More recently: “A single individual… shows by his choices that he prefers one thing to another; we may put this, if we like, in the form of saying that he derives (or thinks he derives) greater satisfaction from the one than from the other. But there is no similar way in which we can see that the satisfaction derived by one individual from one good is greater than the satisfaction derived by another individual from another good; these satisfactions are not compared in any actual choice, so that for the comparison between them there is not the same evidence.”
While we shall be returning to these questions in Chapter 10, what we may note here is that since interpersonal comparisons certainly amount to being a particular species of evaluative judgement, Hicks’s scepticism with respect to the possibility of making them objectively must be considered to amount to an endorsement of at least a species of moral scepticism. If so, it would seem to sit uncomfortably with Hicks’s opinion that he had not cared much for the positivist dichotomy between explanatory science and subjective prescriptions, which was said to have prompted the search for the new welfare economics in the first place.

Robinson. Writing on the theory of employment, Joan Robinson was to give a superbly clear account of the humean position at its best, which requires no commentary: “[All economic] controversies should be capable of resolution. The rules of logic and the laws of evidence are the same for everyone, and in the nature of the case there can be nothing to dispute about. Controversies arise for five main reasons. First, they occur when the two parties fail to understand each other. Here patience and toleration should provide a cure. Second, controversies occur in which one (or both) of the parties have made an error of logic. Here the spectators at least should be able to decide on which side reason lies. Third, two parties may be making, unwittingly, different assumptions, and each maintaining something which is correct on the appropriate assumptions…. Here the remedy is to discover the assumptions and to set each argument out in a manner which makes clear that it is not inconsistent with the other. Fourth, there may not be sufficient evidence to settle a question of fact conclusively one way or the other. Here the remedy is for each party to preserve an open mind and to assist in the search for further evidence. Fifth, there may be differences of opinion as to what is a desirable state of affairs. Here no resolution is possible, since judgements of ultimate values cannot be settled by any purely intellectual process…. argument in the nature of the case can make no difference to ultimate judgements based on interest or moral feeling. The ideal is to set out all the arguments fairly on their merits, and agree to differ about ultimate values. On questions of policy, the differences can never be resolved.”

Hayek. Professor F. A. Hayek has stated an unambiguous commitment to Hume’s First Law, as when he wrote recently: “Our starting point must be the logical truism that from premises containing only statements about cause and effect, we can derive no conclusions about what ought to be.” In his earlier discussion of the economics of socialism, Hayek had hinted at the Second Law as well, saying that “problems of ethics, or rather of individual judgements of value… [are]… ones on which different people might agree or disagree, but on which no reasoned arguments would be possible.” If the questions about socialist planning are ethical by this definition then “no scientist, least of all the economist” would have anything to say about them. Positive argument presumes there to be some common values between the participants: “Meaningful discussion about public affairs is clearly possible only with persons with whom we share at least some values. I doubt if we could even fully understand what someone says if we had no values whatever in common with him. This means, however, that in practically any discussion it will be in principle possible to show that some of the policies one person advocates are inconsistent or irreconcilable with some other beliefs he holds.” In particular, the argument over socialist planning should be seen to be one on positive grounds: “[E]veryone desires, of course, that we should handle our common problems as rationally as possible and that, in so doing, we should use as much foresight as we can command. In this sense, everybody who is not a complete fatalist is a planner, every political act is (or ought to be) an act of planning, and there can be differences only between good and bad, between wise and foresighted and foolish and shortsighted planning. An economist, whose whole task is to study how men actually do and how they might plan their affairs is the last person who could object to planning in this general sense.” The dispute between socialists and their critics is “not a dispute about whether planning is to be done or not. It is a dispute as to whether planning is to be done centrally, by one authority for the whole economic system, or is to be divided among many individuals.”

Lange. Oskar Lange, the famous adversary of Hayek and Robbins on the question of socialist planning, was agreed with them that the only task within the scope of scientific economics was the determination of the best means, with economic ends having been decided politically. He gave this infelicitous analogy to the economist’s role: “The situation may be compared with that of two physicians treating a patient. There is no necessity of interpersonal agreement about the objective of the treatment. One physician may want to heal the patient, the other may want to kill him (e.g., the patient may be a Jew in a Nazi concentration camp; one physician may be a fellow prisoner who wants to help him, the other may be a Nazi acting under orders to exterminate Jews). But once the objective is set for the purposes under discussion (either of the two physicians may, of course, refuse to act upon it), their statements as to whether a given treatment is conducive to the end under consideration have interpersonal validity. Any disagreement between them can be settled by appeal to fact and to the rules of scientific procedure.”

Schumpeter. In discussing the wertfrei controversy between Carl Menger and the German historical school, Joseph Schumpeter was to suggest that the epistemological matters involved were neither difficult nor interesting and could be disposed of shortly. The distinction between ‘is’ and ‘ought’ had been correctly and adequately drawn already, so it only needed to be accepted that an ‘ought’ statement “that is to say, a precept or advice, can for our purpose be reduced to a statement about preference or ‘desirability’.” Schumpeter went on to endorse Hume’s First Law, saying that an acceptance of one value judgement always requires the acceptance of others. This “is of little moment when the ‘ultimate’ value judgments to which we are led up as we go on asking why an individual evaluates as he does, are common to all normal men in our cultural environment.” Unlike Lange, Schumpeter gave the physician as a negative analogy: “[T]here is no harm in the physician’s contention that the advice he gives follows from scientific premises, because the — strictly speaking extra-scientific — value judgment involved is common to all normal men in our cultural environment. We all mean pretty much the same thing when we speak of health and find it desirable to enjoy good health. But we do not mean the same thing when we speak of the Common Good, simply because we hopelessly differ in those cultural visions with reference to which the common good has to be defined in any particular case.” I.e., common reasoning can proceed in normative discussion but only so long as we find common values among “all normal men in our cultural environment”, which is to suggest reasoning may be helpless with abnormal men or those who are outside our cultural environment. Further, siding with Menger, Schumpeter suggested that the bitterness of the wertfrei controversy could be explained because it had been not so much a logical dispute as one between those who were practising and those who were protesting a kind of scholarly deceit, viz., the propagation of personal dogmas within an ostensible pursuit of objective knowledge: “Those who profess to be engaged in the task of widening, deepening, and ‘tooling’ humanity’s stock of knowledge and who claim the privilege that civilized societies are in the habit of granting to the votaries of this particular pursuit, fail to fulfil their contract if, in the sheltering garb of the scientist, they devote themselves to what really is a kind of political propaganda.”

Arrow. In opening his famous paper on the theory of social choice, Professor Kenneth J. Arrow was to refer explicitly to the ancient ontological dualism between Nominalism and Realism. To take aggregate rankings of “social states” as independent of individual rankings “is to assume, with traditional social philosophy of the Platonic realist variety, that there exists an objective social good defined independently of individual desires. This social good, it was frequently held, could be best apprehended by the methods of philosophic inquiry. Such a philosophy could be and was used to justify government by elite, secular or religious, although the connection is not a necessary one. To the nominalist temperament of the modern period the assumption of the existence of the social ideal in some Platonic realm of being was meaningless.” Nineteenth century utilitarianism had “sought instead to ground the social good on the good of individuals”, which, when combined with a hedonistic psychology, implied “each individual’s good was identical with his desires” and “the social good was in some sense to be a composite of the desires of individuals.” Such a view “serves as a justification of both political democracy and laissez faire economics, or at least an economic system involving free choice of goods by consumers and of occupations by workers.”
While Arrow found it necessary to remark that a connection between elitist rule and a Realist ontology was “not a necessary one”, he did not also remark upon whether he took a connection between democratic rule and a Nominalist ontology to be logically necessary. If not, then we might of course entertain other cases equally well, such as Nominalism being associated with elitist rule, or Realism with democratic rule, or perhaps more subtle cases which may arise from a denial of the dualism altogether — matters to which we shall return more explicitly in Part II. In any case, it would seem evident Arrow’s sympathy has been with the humean thesis, which he endorses strongly in suggesting, like Schumpeter, that no distinction can be made between a personal preference and a judgement of value: “One might want to reserve the term ‘values’ for a specially elevated or noble set of choices. Perhaps choices in general might be referred to as ‘tastes’. We do not ordinarily think of the preference for additional bread over additional beer as being a value worthy of philosophical inquiry. I believe, though, that the distinction cannot be made logically, and certainly not in dealing with the single isolated individual. If there is any distinction between values and tastes it must lie in the realm of interpersonal relations.” That Arrow believes normative questions to be only personally and subjectively answerable is further suggested by his remarks that “[t]he only rational defense of what may be termed a liberal position… is that it is itself a value judgment”; that his own values are such he is willing “to go very far indeed in the direction of respect for the means by which others choose to derive their satisfactions”; that he personally shares “a strongly affirmed egalitarianism, to be departed from only when it is in the interest of all to do so”; that he is personally “in favor of very wide toleration”; and so on. In Chapters 9 and 10, we shall return to examine certain aspects of the theories of general equilibrium and social choice which Professor Arrow has helped pioneer.

Blaug. In his influential writings in the history and methodology of economics, Professor Mark Blaug has appealed directly to Hume, declaring that the “orthodox Weberian position on wertfrei social science is essentially a matter of logic: as David Hume taught us, ‘you can’t deduce ought from is’.” Blaug grants that scientific practice does continually call for the exercise of judgement, but he wishes to distinguish “methodological” judgements, having to do with such questions as “the levels of statistical significance, selection of data, assessment of their reliability, and adherence to the canons of formal logic”, from “normative” or “appraising” judgements, which “refer to evaluative assertions about states of the world, including the desirability of certain kinds of behavior and the social outcomes that are produced by that behavior; thus all statements of the ‘good society’ are appraising value judgments.” It is judgements of this latter sort which are “incapable of being eliminated in positive science”. In support of such a dualism Blaug claims “there are long established, well tried methods for reconciling different methodological judgments” but none “for reconciling different normative value judgments — other than political elections and shooting it out at the barricades.” Blaug’s acceptance of Hume’s Second Law is as explicit as may be found in contemporary economics. There sometimes can be rational discussion over normative differences “and that is all to the good because there is a firmer tradition for settling disputes about facts than for settling disputes about values. It is only when we distill a pure value judgment… that we have exhausted the possibilities of rational analysis and discussion.” Echoing Robbins, Blaug suggests that at such a terminal point we are left with “factual statements and pure value judgments between which there is indeed an irreconcilable gulf on anyone’s interpretation.” Like Arrow, Blaug also makes reference to an ontological division between Realism (or “essentialism”) and Nominalism, and hints at a necessary link between a Realist ontology and dogmatism and tyranny. From Plato and Aristotle up through