Academic journal article Review of Social Economy

Realism, Theory, and Individualism in the Work of Carl Menger

Academic journal article Review of Social Economy

Realism, Theory, and Individualism in the Work of Carl Menger

Article excerpt

I. INTRODUCTION

Recent years have witnessed a revival of interest in the study of institutions in economics. Accompanying this, there has come an increased awareness of the writings of earlier economists in which a focus on institutions is central. The work of Carl Menger occupies a significant position in this regard. Menger's work is especially attractive to those who seek to distance themselves from the heterodox "old institutionalist" school associated with the work of Thorstein Veblen, John. R. Commons, etc., and to produce instead a "new institutionalism" more in line with the contemporary mainstream approach to "theorizing." Thus Langlois observes that:

It is perhaps fair to say that this modern institutionalism reflects less the ideas of the early institutionalists than it does those of their opponents . . . Menger has perhaps more claim to be the patron saint of the new institutional economics than has any of the original institutionalists.

(Langlois 1986: 2)

This modern or "new" institutionalism(1) sees itself as distinct from the older institutionalism by virtue of its desire to provide a "theory" of institutions:

The problem with . . . the early institutionalists is that they wanted an economics with institutions but without theory; the problem with many neoclassicals is that they want economic theory without institutions; what we should really want is both institutions and theory - not only pure economic theory informed by the experience of specific institutions, but also an economic theory of institutions.

(Langlois 1986: 5)

The reason that Menger is so important to the "new institutionalists" is that he (like they, and like orthodox economists in general) associates theory with individualism at the level of method.(2) Indeed Menger is often supposed to have provided the main defense of individualistic theorizing in economics. Why then is Menger not embraced by mainstream economists in a more wholehearted fashion? At least part of the explanation is that Menger also appears to accept a form of Aristotelian essentialism. This is seen to give rise to untenable claims about "ultimate" entities and to problems of determining how knowledge of them is obtained. However, in some quarters at least, these problems have been downplayed in the optimism resulting from Menger's apparent contribution to (the individualist notion of) theorizing in the context of institutions.

In this paper, building upon the insights recently sustained under the heading of critical realism (and in particular that aspect of critical realism referred to as transcendental realism), I want to argue that this optimism is misplaced. Indeed, it is found, on close examination, that not only does Menger after all fail to provide any justification of the methodological individualist approach to theorizing, but also that the problems previously associated with this Aristotelianism arguably stem from, and only from, those ideas which underlie his individualism. I briefly indicate that a resolution of these problems, and the provision of a coherent approach to theorizing, in fact follow lines akin to the Aristotelian element in Menger's thought. However, this lends weight to institutionalism of the "old" sort rather than the "new."

II. MENGER: REALISM AND THEORY

It is widely accepted that Menger's work not only typifies but also adequately defends a particular form of individualism. However, until recently an Aristotelian strand in Menger's thought has received relatively little attention (exceptions include Kauder 1958, 1965 and Hutchison 1973). Recent accounts, in contrast, have tended to argue that some form of Aristotelianism or essentialist-realism is as fundamental to Menger's work as his individualism (see Smith 1986, 1990a, 1990b; Maki 1986, 1990; Fabian and Simons 1986). One limitation to these recent accounts, however, has been a failure to distinguish, and to investigate the link between, Menger's Aristotelianism and his individualism. …

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