Pareto on the History Of Economic Thought as an Aspect of Experimental Economics

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Who should undertake Histories of Economic Thought

Given Pareto’s objective of using the history of economics to better understand the sociological part of the economic phenomenon, the question arises as to who should research, and review, studies in the history of economics: economists or sociologists? A similar issue has been discussed relatively recently, with Margaret Schabas (1992) indicating that the history of economics will, and should, be a subject for historians of science to shift research away from economists narrower focus on economic ideas and move towards a broader historical focus on the philosophy of science.

Prima facie, one may expect Schabas’s assessment to be consistent with Pareto’s view. He emphasised the theory of theories (sociology of knowledge) in studying the history of economics. He also examined the history of economics in conjunction with economic history, which complements Schabas’s goal of exploring the conditions in which theories arise. Perhaps surprisingly then Pareto considered it “rather ridiculous that the history of economics is compiled mostly by people who do not know the science of Economics” (Pareto [1918] 1980 , p.734).

Pareto’s position on this issue is governed by two main factors: a concern about the capacity of non-economists to undertake research in the history of economics; and his emphasis on the experimental objective.

In regard to the first factor, the initial and critical analytical step is the differentiation of the intrinsic and extrinsic aspects of theory. This is a task that Pareto only entrusts to experimental economists, as the criteria for judging intrinsic merit is given by the current state of experimental economics. This implies that economists undertaking intellectual histories must also have knowledge of the “theory of theories” to analyse the extrinsic dimension and to then isolate the related general uniformities. The implication of this is that Pareto was wary of non-economists’ ability to acquire a sound knowledge of experimental economics, with the associated risk that they may treat the intrinsic aspects of experimental economics as if they were extrinsic.

In regard to the second factor, Pareto regarded the history of economics as a means to a non-historical end: developing modern theories of the sociological part of the economic phenomenon. As a consequence, the investigative questions asked of historical texts derive primarily from non-historical concerns. The scholar to benefit most from such investigation is not the sociologist, or the intellectual historian, but the economist developing theory on the effect of government on the economic phenomenon. This position is not only in stark contrast to Schabas, but also to the general body of modern academic historians of economic thought.

Intellectual Historical?
Given Pareto’s non-historical objective for studies in the history of economics and studies in economic history, it is useful to consider whether his approach to exegesis and the history of economics is really historical.
Texts examined under Pareto’s approach are historical bodies of work. At this level, the approach he advocated is clearly historical. However, as the textual analysis is undertaken solely in terms of the relationship between logic and experimental observation, not all historians of economics would accept this as historical scholarship. For instance, comments by Peter Gronewegen (2002) and Luigino Bruni (2003) suggest that they may not class historical research that relies on the logic of theory (judged by modern standards of economic theory) as history of economics. Bruni points to dangers of ‘modern exegesis’ because consideration is not given to personal and social influences such as the prevailing culture of science, the author’s life, the effect of the author’s interlocutors or the effect of the author’s sources. In Pareto’s approach, none of these four elements appear as primary considerations. It is the relationship between fact and theory that is decisive, with emphasis given to the rise and fall of theories that are dominated by extrinsic elements outweighing concerns about the contribution of any particular author.
In addition, the level of generalisation associated with Pareto’s approach is much greater than that usually pursued by intellectual historians. For example, in the case of monetary theory, his approach is primarily directed towards establishing whether theories support stable or inflationary monetary policies, with the theoretical form of such theories treated as a secondary issue to the policy being advocated. The theoretical form is largely treated as a mechanism to rationalise an outcome, with the interests and sentiments served by such outcomes being the prime interest. In mainstream history of economics, the emphasis is typically reversed: the essential characteristics of a theory, its development, reception and legacy are all issues of primary importance. For example, a purely Paretian history of twentieth century monetary theory would be more concerned with the policies advocated by Keynesian, monetarist or new-classical theories (i.e. stable monetary policies or inflationary policies) than the formal representation of the theories developed by these schools.
Nevertheless, when Pareto’s approach is considered with respect to the criteria that Ian Kerr (2002) associated with the “Value of the History of Economic Thought”, the value of the history of economics generally, and that of Pareto’s approach to the field specifically, overlap significantly. Kerr suggests that that the history of economic thought is of value for: its intrinsic worth9 (a pure consumption activity); enriching understanding of the discipline (demonstrating the development of ideas); avoiding errors of the past (avoiding sunk costs); extending the range of hypothesis (while methods of analysis from the past may be redundant, the types of questions asked may still be relevant); highlighting unfulfilled evolutionary potential (issues lost in the subsequent syntheses my still be relevant – so the study of the work of the masters can have benefits); offsetting neglected holism (relevance of integrated systems), preserving alternative paradigms (preserve intellectual heritage, as we attempt to preserve cultural heritage); and providing long term perspective (transcending fads and fashion).

Pareto’s approach to the history of economics meets several of these criteria. It is intended to enrich understanding of the discipline, avoid errors of the past, extend the range of hypothesis, consider unfulfilled evolutionary potential and provide a long term perspective on the development of theories. While preservation of alternative paradigms is not a specific objective of the Paretian approach, it is an indirect consequence of treating theories of the past as the factual data for textual analysis. However, Pareto placed little or no emphasis on the history of economics as mechanism for satisfying human curiosity or reducing the neglect of holism (although, he did not deny the intrinsic scientific merit of holism, in either the history of theory or contemporary theory, as long as holistic theories were also experimental).

Nevertheless, it must be conceded that the non-historical objectives of Pareto’s history of economics has the effect of directing attention away from matters that modern intellectual scholars regard as fundamental. This raises the question, can Pareto’s approach to textual analysis be utilised in modern histories of economic thought undertaken without regard to the development of contemporary theories? I believe that it can: the fundamental distinction between the economic and the sociological parts of theory of the economic phenomenon with textual exegesis based on the intrinsic and the extrinsic aspects of theory, and the associated identification of the asymptotic and non-asymptotic aspects of theory, provide the basis for a historical framework that first isolates rational, sentimental and experimental elements of theory and then permits concurrent development of Whig history and the sociology of scientific knowledge. Of course, there can be no suggestion that Paretian textual analysis should replace modern historiography – constructivism, the new sociology of scientific knowledge and other approaches retain their value for the history of economic thought. However, it complements modern research methods and provides a basis for uniting apparently contradictory methods in the history of economic thought, with rational and sociological constructions becoming complements.

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