Abstract: Economics fell into crisis as a whole as it was proceeding in its will and effort of expansive imperialism. The most serious crisis is that of the basic hypothesis of capitalist economics : scarcity and the rational economic agent. The crisis originated from lack of awareness of the nature of historic science itself, and failure to carry out the principles and methods of historic sciences. At this stage, the only way that economics can overcome its crisis is to be true to the nature of a historic science.
THE PROBLEM AS DRAWN FROM THE CRISIS OF ECONOMICS
There is a phenomenon that often called “the imperialism of economics” in the study of humanities and social science. It is “the economic approach to human behavior” according to Gary Becker, or it is “political economics” according to the school of public choice which studies politics using economics, or it is the way domestic economists studying culture use economic methods.
The nature of the “imperialism of economics” is that economists believe that “economics has now set the general syntax for social science”, that economic analysis is the centralized method for interpreting all of human behavior [1] (p181). We do not want to appraise the imperialism of economics in this paper, but to point out that economics is facing the most serious internal crisis itself while triumphantly pressing ahead in its colonialism, as is always true of empires in history.
Actually, the crisis of economics is long-standing, which is also acknowledged by economists themselves. But as recognized by economists, the crisis of economics is that of one paradigm in the theory or the crisis of the guiding principle of its study, as concludes Mark Blaug who studied the methods of economics using the “paradigm” or “the guiding principle of study”.
But if we regard the whole of economics as a paradigm of theory or guiding principle of study, the crisis is actually just a crisis around the margins, and there is no crisis in the core of economics; that is to say, there is no crisis in the basic hypothesis. Therefore the crisis as seen and believed by an economist is a limited one, namely. The “way” economics developed by carrying on a “revolution of science”. However, the crisis faced by modern economics is not the failure of this or that theory, it is the crisis of the “core” of the whole economic paradigm, that is to say, the crisis of its basic hypothesis.
This is the basic of the whole economics edifice, and the premise that makes economics possible. Undoubtedly, this determines the life or death of economics.
Economic activity is a systematic effort by which man meets his needs by producing, distributing, exchanging and consuming resources, economics is the “ology” which studies that. Therefore, the basic hypothesis of economics must determine both the object and the subject. The hypothesis about scarcity is the hypothesis of the world as object in economic activity. Scarcity is a state of the world for man, that is to say, a state that the resources we possess are always less than the resources we need.
The rational economic agent is the hypothesis of the person as subject in economic activity. It itself include three meaning: (1) The hypothesis of “egoism”, which believe that seeking for one’s own benefit is fundamental motive in human economic activity.
(2) The hypothesis of “maximization”, which believes that seeking for personal maximum benefit is the purpose of man’s behavior,
(3) the hypothesis of the “methodological individualism”, which believes that seeking for the maximum benefit will naturally lead to affine social order and in the end to maximum common welfare. Economics plays the role that how to realize the best arrangement of the scare resources and how to satisfy the rational economic agent’s demand. However, both basic hypotheses have fallen into crisis.
The hypothesis of scarcity represents perfectly the method of economics as the general principle of social science, as far as economists are concerned. But in modern times, it meets a crisis from at least two aspects which seem contradictory to each order: one is the challenge evoked by the “existential difficulty”. Economics resolves the contradiction between demand and scarcity by expanding production led to the exhaustion of resources and the deterioration of the environment.
The true result if the arrangement of resources is that the economically developed countries plunder or even colonize the developing countries. The crisis between nature and man and the crisis between man and man results in difficulties of human existence. The actual difficulty led people to doubt the hypothesis of scarcity in economics.
The other crisis encountered by economists is the challenge from the knowledge or information revolution. People find that the resources produced and arranged by the knowledge industry, which is gradually becoming the main industry, are no longer material resources. ‘Knowledge resources’ are shared by all of the people, and are not exclusive: they will multiply during the course of dissemination and consumption instead of being consumed and diminished, as do the material resources.
That is to say, the resources in knowledge economy are no longer scare. The situation that arises here has been little studied in the field of economics thus far. Someone may say that the resources will no longer scare, only the solution of the existential difficulties. I would not draw conclusion at present, but only point out that there is a logical error in the hypothesis of “scarcity” in economics. At least it cannot interpret reality very well with its former meaning and falls into crisis.
Economists have debated the hypothesis of “the rational economic agent” for a long time, -- although economists all consciously regard “the rational economic agent” as the basic hypothesis of their theory building. There are three great debates about the rational economic agent within economics since it was challenged by the German History School. When economics expands its hypothesis to other subjects in a process of imperialism, it suffers more attacks from outside economics. The hypothesis of the rational economic agent encountered four attacks:
The first is the argument between egoism and altruism, egoism in economics can’t explain the existence of unselfish behavior in actual life. Egoism faces the challenge of the moral person, the social person and the practical person.
The second is that individuality may not seek the maximization of benefit.
The third is that individual reason may not lead to collective reason. Systems theory and game theory show that collective benefit is not the simple sum of individual benefits, and seeking the maximization of individual benefit is not sure to lead to the maximization of collective benefit.
The fourth is a challenge to economic reason. In economics, the one who consciously seeks for the maximization of individual benefit is a rational person; reason is understood as a plot. Actually, on the one hand, there are many irrational causes in man’s behavior; on the other hand, the limited “reason” in economics is only kind of instrumental reason, while practical and comprehensive reason ought to be unity of instrumental reason and value reasoning. Facing attack from all sides, “the rational economic agent” in economics has come down to its last point. Economists face not a minor “operation”, but as the lord who gives birth to “the rational economic agent”, they must thoroughly rethink own design and craft.
What is the root of the crisis in economics? From the early History School to the old and new institutional economic school, all have ever been rethinking the mainstream in economics. For example, an economist of German History School, B. Hildebrand pointed out early in 1848 that the fault of mainstream economics was that “it intended to find the general principle which was true for all ages from the temporal facts in the development of each country, and then founded a kind of world economics or human economics.
This attempt completely responded to the rationalism of Adam Smith’s times. It started from the belief that all of the laws of the civil economics, because they are founded on the relation between man and goods, overtook the limits of time and space, and were recognized as correct despite the fact that phenomena were changing all the time.
Therefore these theorists did not understand that from the aspect of social animals, man was ever a newborn baby of culture and history. And that his demands, which form the relation of goods to man, would never forever be the same. They were all different according to geography and history, and they changed, and improved continuously with the human being’s whole culture”. [2] (P41) The book Crisis of Economic Theory, edited by Daniel Bear and Owen Kristol in 1981, ordered concentrically the main opinions of different modern economic schools to the economics crisis.
Twelve economists of different schools self-criticized the mathematical tendency, the theory of general equilibrium, the hypothesis of reason and the hypothesis of steady preference, etc., in economics. They believed that the root of the crisis in economics was that “it didn’t concern history and it analyzed abstractly…economic theory was founded on the pattern of the classical mechanics and played its role according to the imagination of natural science. The result was basically applying a mechanistic behavior to human beings”. Therefore, the way to overcome the crisis was that “economic theory must return to the time (logical meaning) and history (of experienced meaning) [3] (P108- 111). But, they did not realize the historic problem of economics itself, that is to say, they could not realize and understand economics as an actively historic science.
WHAT IS THE HISTORIC SCIENCE?
The concept of the “historic science” can be traced back early to Giambattista Vico’s “new science”, but it was Marx and Engels who gave “historic science” its complete meaning. For Marx and Engels, “historic science” had meaning of dividing subjects, but it was mainly a kind of principle and method of scientific study founded on the materialist conception of history concerning the meaning of historic science. As for the division of subject, “all branches of science which are not natural science are not historical.” [4] (P117)
Obviously, the historic science concerned here includes the social sciences and the humanities. But the key meaning of historic science is a kind of integrated principle and method of scientific study. From this, Marx and Engels pointed out that “we only know one unique science, that is historic science” [5](P2). The principles and methods of historic science can be reduced to three, that is the principles of historicism; the method of unifying logic and history; and the method of humanitarianism.
The historic principles believe that all things are not forever and are not absolute, but are temporal products of history. The thing is its historical course. Therefore, just as Heidegger said, “all inquiries unto being have the character of historic meaning”. [6] (P27) But in modern time before Marx, man mainly followed the track of metaphysical rational views from Descartes to Hegel, which interpreted history with an eternal reason that was not historic.
The historic materialism founded by Marx and Engels completely ended any fantasy about eternal things. Now, the historic principle has become the main general realization of all living academic traditions. Historic principle indicated that for any historic science
(1) the principles, concepts and categories owned by this science “are as little as the relation they express. They are historical and transitory products”. [5] (P109) Therefore, there are not abstract, absolute principles, or concepts, categories or formulas which can be applied to everything.
(2) any science (whether social science or the humanities) is not ready made, or eternal. As historic patterns, they will disappear with the disappearance of the historical stage or condition of the science.
The historic principle studied by historic science determined its method as a unity of logic and history. As logic is the reaction of history, therefore the logic in thought must rise to the concrete from the abstract, and be identical to the historical facts. “The point where this history begins must also be the starting point of the train of thought, and its further progress will be simply the reflection in abstract and theoretically consistent form of the historical course… all theoretical conceptions which arise in the course of history can be understood only if the material conditions of life obtaining during the epoch of their revelation have been understood and the former are traced back to these material conditions. (MATERIAL CONDITIONS??? To understand?)
This was a revolutionary discovery not only for economics, but for all historical sciences.” While history decides the limit of abstract logic, we cannot decide history with logic. Of course, the unity of logic and history concerns the trends of the development, but not a unity whose aspects are identical one by one.
Because history moves often in leaps and bounds and in zigzag line, logic cannot follow it everywhere. The application of logic to history must be “corrected in accordance with laws provided by the actual historical course; since each factor can be examined at the stage of development where it reaches its full maturity its classical form.” [4] (P122) Therefore, any concept and category in science should be a unity of description and the abstract, reality and the ideal, while historic facts are the final true source.
“History science” as different from natural science implies its own unique method, namely that of humanitarianism. The difference between history and nature is that history is created by man, and history is identical with man’s creative activity. History’s development is the development of man. Man has no regular essence, the “whole history is nothing but the change of the human essence all the time.” [5](P138)
In this sense, historic science is generalized humanities. On the contrary, all humanities are historic science. Even natured is concerned; it is a nature existing for man. Natural history and history of human beings are conditioned by each other since man emerged. History is “the developing course of nature for man in this sense.” [7] (P131)
History science is therefore called by Marx and Engels the unique science. The character of humanitarianism in historic science is that: (1) The object studied by historic science was man, not matter; it was the real relation between man and man which was changing in the time with the history. For those sciences that seem to study matter we must impose the relation between man and man over the relation between matters. Engels even pointed out directly, “economics doesn’t study matter, but the relation between men.” [4] (P123)
(2) The starting point and purpose of historic science are in the existence and better existence of man. The final purpose is man’s free, all-round development. Forgetting this leads to the alienation of man, the loss of freedom and the crisis of existence. Therefore, as historic science, it must pay close attention to the conditions of human existence.
Historicism is the basic principle born from the scientific world outlook; it is the direct by given character of historic science, its concrete method is to acknowledge and study history in order to unify history and logic, which makes historic science possible as a science. The method of humanitarianism is a special method of historic science by which it always pays close attention to the condition of man himself, and will not result in the “loss of being”. The three principles and methods are the study principles and methods necessary for all historic science.
ANALYZING THE CRISIS OF ECONOMICS WITH HISTORIC SCIENCE
George C. Marshall held that economics was a science studying both wealth and man. Economics belongs to the scope of historic science, but the mainstream of economics ignored, and even escaped its character as historic science. This is the true origin of the crisis in economics. And the most serious crisis is the crisis of the basic hypothesis, described above. Hence we will analyze the two basic hypotheses of economics with the method of historic science, and look for the causes in order to find a possible settlement.
On the Hypothesis of Scarcity
From the viewpoint of historic science, the hypothesis of “scarcity” in economics stated that economics had forgotten “being”. Scarcity means we should cherish resources in order that they can be more beneficial to human existence. But there is a deeper hypothesis or belief, which has never been attended to by man behind the hypothesis of scarcity in economics.
That is that scarcity is concerned in time and space and, although the matter we need is scare, it exists perpetually as a whole and eternal being. This is not true of nonexistence or nothing. The problem is how to find, create (as far as being is concerned, creation doesn’t create something from nothing, but makes one being become another being) and dispose it. Man worries that resources are scarce but not that they will disappear; he worries only about to disappearance in this or that time and space, but not about that it will disappear in the world and for all history. Therefore, economics never worries about “to be or not to be”.
In this hypothesis or belief, man always stands outside the world and divides world into his own property; He believes that resources will not be exhausted at first, and then has a blind faith that the fairy tale of the technology can produce highly alternative world (this is another manifestation of the belief that matter is inexhaustible). But the consequence is that resources are exhausted, environment desiccated, and disputes continuously appear. Man is facing the same crisis as Hamlet: “to be or not to be, that is the question.” Therefore, when economics employs the hypothesis of scarcity, it must explain, and make detailed inquiries about this hypothesis of hypothesis in order to pay close attention to the existential conditions of the world and man. [8] Economics lacks an examination of meta-economics.
Economists also acknowledge, “Scarcity is a concept which essentially concerns no time, the same as choice”. [3] (P236) It supposes that man’s preference is steady in different times and cultures. Therefore the scare object too is steady. And this scarcity of resources is understood to be the scarcity of material resources. Therefore the fallacy that the problem of scarcity would be resolved by knowledge of economics arose. In fact, man’s preference is different under different historical conditions and different developing stages. And some of man’s preferences can be produced (such as by the modern advertising media).
Therefore, the scare objects are different. In an information society, although knowledge and information can be enjoyed together, it is not true that they will no longer be scare, as some believe. In fact, on the one hand, the information that has creative ideas and can bring the utmost economic benefit is packed closely and is not gratuitous (the property rights on information and the patent right on technology) Therefore it too is scarce. In essence, this kind of scarcity is the shortness of man’s intelligence. Therefore, scarcity must be comprehended as an historical causes.
At the same time, scarcity is not only the relation between man’s need and resources. It always reflected the relation between men. Someone’s state of scarcity is always the result of another’s being wealthy because if the unfair social system or international order. Furthermore, with the changes of the system and the changes of the relation between men (including conscious political activities), men’s state of scarcity will change too. Thus, the different cultures, system, etc., which are the exterior causes for mainstream economics will now be interior causes.
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