6

The scope and goals of economic science

A Habermasian perspective

Jon D.Wisman

Jürgen Habermas is the most prominent contemporary descendant of the socalled Frankfurt school. The guiding aim of his intellectual endeavours has been to reconstruct social theory so as to reunite theory and practice in a manner which accounts for the complexities of the late twentieth century. This project has entailed not only drawing upon such intellectual giants of the nineteenth and early twentieth century as Marx, Freud, Weber, Dewey, and Durkheim, but also upon practically every notable contemporary philosopher and social theorist.

Over the past 20 years, Habermas’s wide-ranging social and philosophical work has had a substantial impact within practically all domains of the social sciences and humanities.1 Yet surprisingly, the queen of the social sciences, economics, stands out as a striking exception. Perhaps the failure of Habermas’ work to penetrate the discourse of economists has to do with the unmerited high degree of methodological confidence within the profession. Apparently unburdened by the ever-present self-doubt and reflection within other ‘soft’ disciplines about just what it is that their pursuits should be about, economists by and large are considerably more confident that their discipline is on the right track. They typically believe that they are asking the right questions and using the appropriate research strategies to answer them.

But this confidence is by no means universal. Although the overwhelming majority of the profession’s rank and file appears confortable, the discipline has long had heterodox schools of Marxists, Institutionalists, and Austrians who have argued—albeit with often radically different reasoning —that to a substantial degree the inadequacies of mainstream economics stem from its faulty methodology. In recent years a growing number of luminaries within the profession have also come to recognize that all is not well within the house of economic science. Some of the frequently heard allegations include: that the discipline has become bogged down in a sort of formalism—a seemingly endless mathematization of a narrow body of theory—which bears little relevance for contemporary concerns;2 that it has abandoned the classical duty of knowledge to provide public enlightenment; that a misplaced smugness prevents the profession from limiting the disastrous use of economics as ideology. Indeed, it has frequently been alleged of late that economic science is in a state of crisis.

112 ALTERNATIVE VIEWS OF ECONOMICS

Crisis times are soul-searching times, and the soul of economics has to do with such things as its social function, its scope and its methodology. Jürgen Habermas has made little more than passing comments on the nature of economic science. However, in so far as his work is focused directly upon the question of what the full potential of social thought might be, it has relevance for a science of economics. Two areas in particular where a greater acquaintance with this work might aid economists in improving their discipline concern the social function of knowledge, and the nature of a critical social science. In terms of the social function of economic knowledge, the question has to do with what it is that society could ideally hope for from a science of economics. In terms of the nature of a critical social science, the issue is how economics might at times serve as ideology and how it might more successfully avoid such a fate.

THE SOCIAL FUNCTION OF ECONOMIC

KNOWLEDGE

Why do we seek economic knowledge, or for that matter, any knowledge? A common response is that knowledge or, more honorifically, ‘truth’, is one of those highest ends which are sought for their own sake. Yet clearly such an answer has little explanatory power. It cannot explain why societies would allocate scarce resources toward the production of specific forms of knowledge. A more satisfactory answer, according to Habermas, is to be found by examining the universal conditions of human existence. Knowledge has a ‘practical intent’. It stems from and serves ‘social practice’ in the reproduction of the human species. Social practice, for Habermas, occurs in two distinct, although interdependent, categories: labour and interaction.3 It is through labour that humans struggle with nature to overcome material privation. It is through communicative interaction within an inherited institutional framework that humans come to agreement as to how they should live together. These categories, although radically different, were inspired by Marx’s definition of a mode of production as composed of forces of production and social relations of production.4

For Habermas, it is through the social practices of labour and interaction that humans constitute themselves. Labour is, of course, necessitated by scarcity; it mediates between human material needs and wants and the natural world. And, as Marx had emphasized, in this process of working upon and transforming nature, humans also transform themselves. All of human self-formation is not, however, reducible to labour, the material struggle of the species to survive and reproduce. The self-formation process also occurs in social interaction. Because humans are by nature social, there must be a significant degree of social coordination. To achieve this, humans interact symbolically, they use language to communicate their wants and intentions. Further, they must often strive for agreement, and this entails an inherent rationality.5

Within the social-practice category of labour or work, knowledge is sought which might enable humans to manipulate and control their environments with

SCOPE AND GOALS OF ECONOMIC SCIENCE 113

greater efficiency. This knowledge, then, has an instrumental character—it is ‘purposive-rational’. It is expressed through a means-ends form of rationality, what Weber had termed Zweckrationalität. This instrumental or technical form of rationality takes ends or goals as given. It is restricted to the discovery of efficient or strategic means for their attainment. The sciences which develop this form of knowledge Habermas terms ‘empirical-analytic’.

Within the social practice of interaction, by contrast, knowledge is sought of just what should constitute appropriate norms or goals. This pursuit is carried out through intersubjective communication. It ‘is governed by binding consensual norms, which define reciprocal expectations about behavior and which must be understood and recognized by at least two acting subjects’ (Habermas 1970a, pp. 91–2). This search for truth in communicative action involves a form of rationality which Habermas terms ‘practical’ or ‘communicative’. Actors involved in social interaction must strive to understand the meanings of others. They must participate in a hermeneutical project. The sciences which study this domain Habermas calls the ‘cultural’, or the ‘historical-hermeneutical’. These sciences:

gain knowledge in a different methodological framework. Here the meaning or validity of propositions is not constituted in the frame of reference of technical control…. [These] theories are not constructed deductively and experience is not organized with regard to the success of operations. Access to the facts is provided by the understanding of meaning, not observation. The verification of lawlike hypotheses in the empirical-analytic sciences has its counterpart here in the interpretation of texts. Thus the rules of hermeneutics determine the possible meaning of the validity of statements of the cultural sciences.6

(Habermas 1971, p. 309)

For Habermas, the rise of capitalism and modernity generally has witnessed the delegitimation of the historical-hermeneutical sciences. He argues that this development was a consequence of the expansion of what he terms ‘subsystems’— such as markets, contract law, and state administration—in which means-ends or instrumental rationality are exercised. These subsystems have encroached ever more on the ‘life-world’7 where citizens participate in discursive will-formation. The life-world has become progressively ‘colonized’ by social institutions which mechanically, bureaucratically, or technocratically determine social outcomes, such that ‘personal relations, services and phases of life are being transformed into objects of administration, or into commodities’ (Habermas in Dews 1986, p. 141). And, as personal and social relations become increasingly technical,It is characteristic of the pattern of rationalism in capitalist societies that the complex of cognitive-instrumental rationality establishes itself at the cost of practical rationality; communicative relations are reified’ (Habermas 1984, p. 363). As this process continued, the social sciences became increasingly positivistic. They

114 ALTERNATIVE VIEWS OF ECONOMICS

imitated the methodological stances of the empirical-analytic sciences and came to see their goal as prediction and control. But the object, the behaviour of which was to be predicted and controlled, was social interaction. Social sciences came to serve as legitimation for technocratic society. The rise to dominance of an instrumental form of social knowledge led to the ‘scientization of politics’:

The social potential of science is reduced to the powers of technical control —its potential for enlightened action is no longer considered…. Socially effective theory is no longer directed toward the consciousness of human beings who live together and discuss matters with each other, but to the behavior of human beings who manipulate.

(Habermas 1974, pp. 254–5)

In none of the social sciences has this delegitimation of interaction and a hermeneutical approach been more complete than in economics. Given the subject matter of economics, this is perhaps not entirely surprising. Of the social sciences, economics stands closest to the physical sciences. It is concerned with a physical problem, the problem of material scarcity. Part of its social function is to provide knowledge about how nature might more effectively be manipulated and controlled to improve human welfare. In this manner, it shares an instrumental character with what Habermas terms the empirical-analytic sciences. However, economics is also concerned with social interaction. The human struggle with nature does not dictate a unique set of social institutions.8 Indeed, it is conceivable that even the most efficient social institutions for drawing the most out of nature would not be those which most benefit human welfare. There may well be trade-offs between efficiency and other goals. Ironically, the discipline which is often called the ‘science of trade-offs’ essentially ignores this question.

Moreover, from a Habermasian perspective, to the extent that economic science ignores social interaction, it is not fully capable of comprehending the evolution of society’s productive capacity. The domains of labour and interaction are interdependent, and Habermas frequently tilts towards granting causal determinacy to the latter:

Rationality structures are embodied not only in amplifications of purposive-rational action—that is, in technologies, strategies, organizations, and qualifications—but also in mediations of communicative action —in the mechanisms for regulating conflict, in world views, and in identity formations. I would even defend the thesis that the development of these normative structures is the pacemaker of social evolution, for new principles of social organization mean new forms of social integration; and the latter, in turn, first make it possible to implement available productive forces or to generate new ones, as well as making possible a heightening of social complexity.

(Habermas 1984, p. 120)

SCOPE AND GOALS OF ECONOMIC SCIENCE 115

The positivistic character of modern economics is reinforced through both the pedagogy and the practice of the profession. A positivistic manifesto is frequently stated in textbooks, and as the profession has turned ever more toward mathematical formalism and econometrics, the positivism has become the common sense of what science is all about. It generally goes pretty much as follows: economic science is positive, not normative; it is concerned with ‘what is’, not with ‘what ought to be’; it is concerned with facts, not values. These facts are ‘empirical’; hence, scientifically acceptable theories are those which have been confirmed through empirical testing (or in a Popperian fashion, have not yet been falsified by empirical testing). Values, on the other hand, must be taken as given, as outside the purview of science.

The reason for adherence to this methodological manifesto is not hard to find. It is attractive. It enables practitioners of the science to believe that they are doing ‘hard’ science, that they are above ideological quibbling. Indeed, many become convinced that with positivist criteria they possess a powerful weapon for ridding the discipline of ideology.

Unfortunately, however, the process of science is far more complex than this positivistic picture suggests. Theory validation, even in the ‘hard’ sciences, requires far more than a mechanical process of subjecting hypotheses to empirical testing. As post-positivistic philosophers have made clear, science requires intersubjective communication; it requires a hermeneutical process in which practitioners must persuade others of the validity of their theories and hypotheses. Even empirical results must be interpreted and these interpretations must be communicated. Science, then, is very much a social process in which communicative or hermeneutical rationality plays a central role.9

Although the positivistic character of mainstream economics has been widely discussed, very little attention has been given to the manner in which the accompanying instrumentalism restricts and delegitimates the realm of interaction. An instrumental view of science is not, of course, new. The view that instrumental power is the principal, if not sole, goal of science has become progressively more widely held since Francis Bacon. Yet it is only with the advent of Keynesianism that this instrumentalism has become dominant within economics. From Smith to Keynes, what might be called a ‘natural law cosmology’ provided little in the way of legitimation for social intervention into the workings of the economy. The laissez-faire view that the economy is automatically self-adjusting in an ideal manner meant that economics was to be a passive science. Economic thought was principally descriptive. The task was to determine scientifically the laws of motion of a mechanistic, self-regulating natural economic order so as to ensure that interference stemming from ignorance did not threaten this perfect order. By providing an acceptable explanation of why the machine was imperfect, Keynes transformed the goal of economic thought. It was no longer sufficient to describe the economic world, since that world must be actively controlled and manipulated by public policy.

116 ALTERNATIVE VIEWS OF ECONOMICS

Thus, economic thought must strive for explanation and prediction. Economic thought became overtly active or instrumental.

By the 1950s and 1960s this instrumentalism had become the general understanding of the social function of the discipline.10 But in terms of how economists would come methodologically to understand instrumentalism, it is ironic that Milton Friedman would play an important role, given his stature as a foremost spokesperson for non-intervention. Friedman unwittingly did this in his now classic essay, ‘The methodology of positive economics’. He argued that the ultimate goal of a positive science ‘is the development of a “theory” or “hypothesis” that yields valid and meaningful (i.e., not truistic) predictions about phenomena’ (Friedman 1953, p. 7).11 This, coupled with his denial of the need for realism of assumptions (Friedman 1953, p. 14), suggests that science is merely an instrument for generating predictions, not explanations.12 Although Friedman’s ‘methodological instrumentalism’ does not explicitly suggest control and manipulation as the end of science, it has served as a methodological foundation for this view.

It is doubtful, especially in a social science like economics, whether prediction, or even empirical testing more generally, could bear the weight which Friedman would place upon it. But even if it could, the question remains as to whether prediction should be the sole, or even principal goal of economic science. Habermas’s social category of interaction suggests that it should not. Economic science is capable of more than merely serving as an engineering tool. It is capable of participating in social enlightenment as to how we might best live economically. It can help society better understand which socio-economic goals might best be pursued. This, of course, means that values would openly enter into the discourse of economists.

Positivistic economics insists that values are beyond the purview of science, if not reason. As Friedman so poignantly put it, value questions involve ‘differences about which men ultimately can only fight’ (Friedman 1953, p. 5). Habermas does not agree. All knowledge claims, whether of facts or of appropriate norms or values, must be supported by reason. Only through communicative interaction can knowledge claims be redeemed or agreed upon. Along with modern postpositivist philosophers, Habermas rejects the traditional ‘foundationalist’ hope of finding a secure, solid criterion for judging all knowledge claims. Instead, it is only through communication, intersubjective interaction, that knowledge claims can be supported: ‘Post-empiricist philosophy of science has provided good reasons for holding that the unsettled ground of rationally motivated agreement among participants in argumentation is our only foundation—in questions of physics no less than in those of morality’ (Habermas 1982, p. 238). What is required is that the discussants be equal partners in open and uncoerced discourse.

Positivistic economics restricts itself to an instrumental or means-ends form of rationality. It restricts itself to discovering efficient means to given goals or ends. But this restrictive stance suggests several disturbing questions: Just what goals

SCOPE AND GOALS OF ECONOMIC SCIENCE 117

are given? Who determines these goals? How are they determined? How do economic scientists become aware of the appropriate goals? And to what extent does economics participate in determining the very goals which it then pretends to take as externally given?

A Habermasian perspective, then, suggests that economic science must address the social practice of interaction. Economists would not dictate appropriate ends or goals: ‘in a process of enlightenment there can only be participants’ (Habermas 1974, p. 40). Instead, they would participate in the process of public enlightenment as to exactly what ends or goals might constitute the good and just economic order. They would participate in the ‘public sphere’ where ‘public opinion’ is formed. This public sphere for Habermas is where citizens openly discuss issues of general social interest as equals. They come together, not as subjects of the state or individuals pursuing their own economic interests, but as citizens.13 Within a Habermasian perspective, economists would recognize, as did Adam Smith, that economics is a subset of politics. Providing ‘advice to the statesman’ in a democracy means providing enlightenment for the people, empowering the people to better determine their own destinies.

MAINSTREAM ECONOMICS AND MODERN

CAPITALIST SOCIETY

For Habermas, modern social thought has been largely moulded by its formation within the evolution of capitalist society. However, the relationship between thought and the socio-economic context in which it has been nurtured is a dialectical one. Just as, on the one hand, thought is continually reproduced by capitalist institutions and reformed as these institutions change; on the other, this thought provides legitimation for these social institutions.

Habermas has written relatively little concerning modern economic science per se, beyond noting that political economy has abandoned its broader earlier concern with society as a whole and became a ‘specialized science’ that ‘concerns itself with the economy as a subsystem of society and absolves itself from questions of legitimacy’ (Habermas 1984, p. 4). Nevertheless, his attitude towards the discipline might be inferred from a combination of: his views on social theory generally (discussed above), his attitude towards capitalism, and what he sees as the general nature of a more ideal or rational society.

Habermas is no fan of capitalism. With certain reservations, many of the faults he appears to find with capitalism are those shared within the Marxist traditions.14 But what appears most central to his critical attitude toward capitalism is less traceable to Marx than to Weber, Lukács, and the earlier Frankfurt school. The institutions of capitalism operate by an instrumental form of action which constricts the realms of communicative interaction. ‘[W]hat happened to many areas of life in the wake of capitalist modernization [is that] money and power—more concretely, markets and administrations—take over the integrative functions which were formerly fufilled by consensual values and