Carl Menger’s subjectivism: “Types, " economic subjects, and microfoundation

Introduction In this chapter, I present my critique of the methodological arguments of Carl Menger, the founder of the Austrian School of Economics, with special attention paid to his subjectivism, the general theme of the entire volume. Menger has been widely viewed as a mentor of the school, and although his subjectivism plays an important role in the arguments of later Austrians, his methodology is not always well founded. My thesis statements are that: (1) Menger failed to apply his own methodology to Grundsätze (1871), one of his main works, which contributed a great deal to the foundation of microeconomics in the broader sense of the term. (2) Menger attempted to provide the foundations of his methodology in his 1883 book, but he was not successful in doing so. He failed to persuade the reader that an economic analysis based on each individual subject and economic behavior is more relevant than other vantages in understanding economic phenomena. In order to preclude the possibility of misinterpretations and facilitate understanding in the reader, the provision of rather simple but formal definitions of the two terms is in order. First, “subjectivism” refers to a way of understanding social phenomena, in which one relies upon subjects with unified personalities.2 In economics, it is generally the case that subjects are supposed to have a consistent preference ordering. Second, if analysis is based upon individuals and not on society, a community, or a nation, it is said to be founded on individualism; herein, we refer to methodological individualism, a term coined by Joseph Alois Schumpeter, a later Austrian. A number of publications address Menger’s methodology. Alter (1990) devotes a substantial part of his book to it. Among the papers read at the Menger conference in 1989 at Duke University, four papers concerned themselves with it. Whether Menger was an Aristotelian continues to be an important and attractive issue among Menger scholars who investigate his methodology. For instance, Alter (1990) and Smith (1990) each attempt to interpret Mengerian methodology in the context of Aristotelian philosophy. Milford (2010) denies an Aristotelian interpretation of Menger’s economic thought; rather, he attempts to read Menger’s text by relying upon Popperian terminology.3 I refrain from participating in this debate, as deriving an answer depends completely on the interpretations of the great ancient philosopher. This necessitates a deep scholarship of the philosopher himself, to be sure. Menger was an economist with some philosophical background, yet it is not possible to compare his arguments directly to those of Aristotle or Kant. I do not share the standpoint of those who believe that Menger’s text can be better understood when viewed through the lens of an Aristotelian or some other philosophical context. I prefer to interpret Menger’s text in itself, without relying on specific philosophical frameworks. As is well known, Menger’s 1883 book continues to be a valuable source of thought, from which some of the important ideas of modern Austrians are drawn. Among the few contributions that attempt to take a critical look at Menger’s methodology, Lawson (1996) deserves to be mentioned here. From the standpoint of critical realism, Lawson shows persuasively that Menger’s methodological individualism is simply baseless. Indeed, this is a new contribution to Menger’s methodology. My analysis below draws heavily upon Lawson’s penetrating critical analysis. My chapter is divided into two parts. First, I examine Menger’s 1871 book, as far as it relates to methodological issues. After addressing Menger’s arguments in the Preface of Grundsätze, I analyze Menger’s characteristic definition of “imaginary goods, " followed by a section in which concrete models are examined from a methodological viewpoint. I argue that some statements in Grundsätze cannot be justified by his attempt to establish his economics methodology in its Preface - an attempt that leads to his detailed analysis in the second book. Then, the second part of this chapter undertakes a critical understanding of his methodological book. First, I will take a close look at the methodological foundation in Untersuchungen (1883); I then go on to the critical arguments made by the German Historical School against the English Classical School. I will follow Menger’s counterarguments against the former, showing that not all the points he raises can be adequately supported. This might lead to a serious breakdown of both methodological individualism and subjectivism. In conclusion, this chapter summarizes and makes critical remarks on Mengerian methodology.