HAYEK AND SCIENTISM

That the “individualism” espoused by Hayek and the Austrian School is also vital for a thorough
understanding of the Weltanschauung of neoclassical theory is utterly undeniable. We have dealt
earlier with the “psychological/deontological” foundations of this theory in discussing the concepts
of “utility”, “capital” and “interest”. But it is equally obvious that the notion of “individualism”, when
applied to economics as a discipline that understands itself as a “science” would draw a
philosophically-inclined theoretician like Hayek, and to a lesser extent Schumpeter, into an
examination of the epistemological underpinnings of their activity. Yet, for all that, neither
theoretician comes close to a critical com-prehension of the theoretical assumptions on which
their approach to “economic science” is based. Neither of the two is able to elude the “epoch” in
which they write and the “dogmas” to which they fall victim. As can be easily desumed from the
title, in his “Epochen der Dogmen und Methoden-geschichte” Schumpeter aimed to draw a line
between the “epochs of dogmas” – drawing attention to their transitoriness (epochality) and their
ideological/doctrinaire/dogmatic assumptions –, on the one hand, and the historical “distillation”
(recall Bohm-Bawerk’s diatribe with the Historical School) of a specifically “economic” scientific
analysis (Methodengeschichte). Yet, there are illuminating divergences in their approaches that
will assume great significance in our later exposition of Schumpeter’s work.

Unlike Schumpeter, who left many of these methodological problems unresolved, Hayek has to
justify his exposition of “individualism” through a defence of “subjectivism”. If we take the
approach that no single individual or group knows better than any other individual or group what
is best for society as a whole, it stands to reason that “decentralisation” is the best outcome or, at
the very least, “the least harmful” approach to the best organisation of social life. (Hayek makes
this point explicitly in “Individualism”, referring directly to classical political economy.)
“Competition” is the best form of “decentralisation”. But the question left unanswered is: even
assuming that “the individuals” theorised by Hayek are not just “self-interested”, then we must ask
with Hayek “how is society possible at all? What is the glue or cement, what are the rules or
bonds that constitute a “society”? (See quotes below “Equilibrium” file at 6.)

Hayek can only take refuge in the “spontaneity” of individuals: assuming and accepting that
individuals either agree or need to be in society, that society is best that conforms to their
“spontaneous” individual “choices”. The metaphysical-theological recourse here is evident:
To the accepted Christian tradition that man must be free to follow his conscience in moral matters if his
actions are to be of any merit, the economists added the further argument that he should be free to
make full use of his knowledge and skill, that he must be allowed to be guided by his concern for the
particular things of which he knows and for which he cares, if he is to make as great a contribution to the
common purposes of society as he is capable of making. Their main problem was how these limited
concerns, which did in fact determine people's actions, could be made effective inducements to cause them
voluntarily to contribute as much as possible to needs which lay outside the range of their vision. What the
economists understood for the first time was that the market as it had grown up was an effective way of
making man take part in a process more complex and extended than he could comprehend and that it was
through the market that he was made to contribute "to ends which were no part of his purpose," (IEO,
pp.13-4).
(We should note here, as in ‘Civil Society 1 [Smith and Hobbes]’, that game theory is a splendid
illustration of this Machian “negative” approach in that it is a ‘Pure Logic of Choice’: it serves “to
eliminate” alternative choices so that the mere ‘mathematical schema’ of an immutable reality
based on “self-interested in-dividuals” [even psycho-logically] remains. Hayek seeks to hide the
“brutality” of the “in-dividual” and to base his “scientific/subjectivist” approach behind the
“spontaneity of choice”. But this fails miserably – Mandeville, on whom Hayek relies, would have
laughed contemptuously, “rejoicing” and invoking Hobbes:- for even altruism is “the price Flattery
pays to Pride” [Kaye Intro to ‘Fable’] and the only “impulse/conatus” is self-preservation, the only
spark of “Reason” left in the Heideggerian “homo est brutum bestiale” written at the end of
metaphysics [quoted in Cacciari, p.49]. It is the ‘Destruktion’ of the Arendtian/Augustinian ‘Volo ut
sis’ [Arendt, Vol 2, p.290] - [“nessuna simpatia”, says Cacciari, ibid.] – indeed, an “im-possible”
concept in this perspective, as is Spinoza’s conatus leading, though with Euclidean rigour, to
“amor intellectualis Dei”.) – Perhaps all this should be discussed separately.

(See Arendt, p.43, but especially fn.38 on p.299 about the eclipse of the Political in the Hobbesian State;
refer to Lowith’s comparison of Heidegger’s and Schmitt’s ‘Destruktion’ nihilism of Dasein and Existenz. It is
of paramount importance at this juncture to reflect on the effect of the Hobbesian status civilis on the
integrity of the “individual”. Arendt at p.40 sketches the “dissolving/atomising” effect of a similar bourgeois
order in that the eclipse of the Political reduces “citizens” to the private sphere through the mortifying
pressure of “competition” until the socially-defined experience of the “in-dividual” becomes a mere ‘Existenz’,
a ‘Dasein’ whose ‘fate’ is decided by ‘fatality’ or ‘chance’ (cf Schmitt’s ‘Entscheidung/Exception’). Arendt
refers to the world of the novel from Balzac onwards as the exploration of “interiority” as a last refuge [recall
Joyce and Woolf – “stream of consciousness”] where “human dignity has a desperate need for man to be, at
least, a consenting victim [of the all-pervasive power of the State]” [fn.37, p.299]. Cf. Nietzsche, ‘Zar.’, ‘Of
Redemption’ – “It was thus,…but I willed it thus” in Cacciari, Kr., p.183. Pursuing the “bureaucratic” theme
whereby “the law” admits of no exceptions and fills up the interstices of all social action to reach an
inexorable arbitrariness, Arendt masterfully turns to Kafka, at pp.207-8 and fn.63 at p.327. The most
penetrating statement comes from Cacciari. The extension of the “totalitarian tendency” of “the Pure Logic of
Choice” and game theory means that “la legge raggiunge sempre il colpevole” [Krisis, p.77: on
Wittgenstein’s ‘giudice inesorabile’ and Kafka].)

The notion that the individual is “a beginning” goes back to Augustine. Hayek starts with this
“initium” and then proceeds to defend a “historical-empirical” system of equilibrium based on the
market as an institution capable of “co-ordinating” social action, of providing “the social synthesis”
or even “the social fabric”. We have seen that “market equilibrium” can do nothing of the sort in
“economic life” (Schumpeter’s “wirtschaftlichen Lebens”) let alone in other spheres of social life.
But it is evident that once Hayek assumes the existence of this “in-dividuum” whose “spontaneity”
must be the fons et origo of social institutions, then only manner in which such “in-dividua” can
inter-act is through the exchange of “data”, of “information” – because any reference to “physical”
exchange that cannot abstract from its “physicality” would at once remove the in-dependence of
the “in-dividua” involved; their “physical exchange” would then presuppose a “real social or even
biological” inter-dependence that would undermine the “individuality” of the “in-dividual”!
“Praxeology” focuses on “spontaneously-originated” patterns of behaviour. But this at best only
“reflects” reality yet does not and cannot “explain” it because its “formal” equilibrium framework
leaves us clueless about the real origins and “purpose” or “goal” of such behaviour. The
relegation of “science” to a simple “means-goals” role leaves us unable to com-prehend the
“orientation” of social behaviour/institutions and to a passive validation of the status quo sub
specie aeternitatis. Awareness of the Ohnmacht of this “science” in the face of ‘Krisis’ is what
moved Sch to distance himself from “instrumentalism” in the Methodenstreit.

And for this reason Hayek has to insist on the im-personal, dis-embodied, com-petitive
“exchange” of the market – a market that now describes merely the “external” dealings between
individuals, one in which individuals exchange “data” about their spontaneous, free “individual
choices”. What the competitive market consists of, then, is a geometric-mathematical mechanism
or game of “choices” where these choices are based either on “complete” information (in which
case it becomes a Walrasian “general equilibrium”) or an “empirical” process of “price” discovery
(then it is a petition principii of the Hayekian “intertemporal equilibrium” kind) – or else it is based
on “incomplete or asymmetrical” information, in which case it is analysable in a game-theoretic
framework (Nash equilibrium, for instance).

In all of these cases, however, the “scientific” analysis of these “equilibria” amounts to what
Hayek called “the Logic of Pure Choice”. It is not and cannot be a “science” that can “guide”
human action except in the negative form of “avoiding” choices that are not optimal. Any attempt
at “scientific” inquiry that goes beyond “the individual”, beyond “subjectivism”, is improper and
invalid ab initio, because the analytical categories that it will adopt presume a knowledge of the
“motivations” of “individuals” that are known only to the individuals themselves! The “social
scientist” who pretends to observe individuals from afar, “telescopically” as if from a “Galileian
point”, is in fact part of that cosmos that he intends to theorise (“Counter-Rev.ofScience”, pp.95-6;
for discussions of the Greek Weltanschauung see Habermas, ‘Erk.u.Int’ and Leo Strauss, ‘The
Problem of Socrates’ for Husserl and Heidegger’s “historicism”).

As a result, any historical or political or sociological analysis or theory that presents itself as
“science” can only amount to “scientism” because it presumes to know what cannot be known,
because it necessarily disguises the “interest” of the researcher or theoretician in the subject
being researched. To that extent, such “science”, because it deals with “spontaneous individuals”
and not with “inert data”, cannot be “scientific” in the sense of “natural or physical science”
because the social “observer” cannot “generalise” from individual to society. The only science
possible is “the Pure Logic of Choice”.

(There is an obvious parallel here with Pareto’s “residui”, the object of his “logico-experimental
sciences” opposed to the “derivazioni” of the “non-logico-experimental” ones which concerned the
study of “ideologies” intended in a “reductionist/naturalist” sense but clearly “solicited” [Bobbio] by
Marx. It is interesting to note that Pareto reaches the same conclusions as Hayek about “social
equilibria”, except that he felt that this could be the “negative” basis of a future “positive” science -
see Bobbio, p.50, where Pareto even equates his approach to Einstein’s “relativity”, presumably
because “social equilibrium” allows the independent point of the observer to be fixed by its
mathematical “framework” or mechanism, much as “the speed of light” in relativity. Recall that
Einstein rejected quantum theory for these reasons. Hayek obviously refuses the “scientific”
aspirations, but see below for the “subjectivist/compositive method” that he endorses. Check for
refs. To Pareto in ‘CRS’.) (Mention of Descartes’ “Masterplan”, also quoted by Schmitt in Tronti re
Hobbes.)

It is fair and appropriate to comment that, Hayek’s notion of equilibrium based on the “division of
information” removes the “essentialism” of “marginal utility” theory. Given that the centrepiece of
neoclassical theory is not “utility” itself, which is a quintessential metaphysical notion, but rather
the validation of exchange “at the margin” as the “indifference” of market individuals to additional
quantities of goods in exchange, the focus of the exchange becomes the “equilibrium” of this
“indifference” rather than any “substantive quantity” or essence or quidditas that stands behind
the goods. That is why Hayek is able to label neoclassical equilibrium theory “the Pure Logic of
Choice” – “pure” because it is “insubstantial”, im-material, dis-embodied: it is a “pure logic of
choice”, a purely “mathematical” reality - and therefore a “reality” that can be transformed into a
“scientific” event. In particular, the “constants” that are taken as “given” cannot be quantified, and
Hayek also cites Pareto about the “irrelevance” of quantifying his “ophelimites’” because the
number of simultaneous equations to be solved even for a relatively small sample of market
participants would be so large that it would be far easier to ask “political economy” by simply
observing the actual “behaviour” of the “market”:
37. Pareto himself has clearly seen this. After stating the nature of the 
factors determining the prices in his
system of equations, he adds (Manuel d'economic politique, 2nd ed., 1927, pp. 
233­4) : "It may be mentioned here that this determination has by no means the 
purpose of arriving at a numerical calculation of prices. Let us make the most 
favorable assumptions for such a calculation; let us assume that we have 
triumphed over all the difficulties of finding the data of the problem and that 
we know the ophelimites of all the different commodities for each individual, 
and all the conditions of production of all the commodities, etc. This is 
already an absurd hypothesis to make. Yet it is not sufficient to make the 
solution of the problem possible. We have seen that in the case of 100 persons 
and 700 commodities there will be 70,699 conditions (actually a great number of 
circumstances which we have so far neglected will still increase that number) ; 
we shall, therefore, have to solve a system of 70,699 equations. This exceeds 
practically the power of algebraic analysis, and this is even more true if one 
contemplates the fabulous number of equations which one obtains for a population
of forty millions and several thousand commodities. In this case the roles would
be changed: it would not be mathematics which would assist political economy, 
but political economy which would assist mathematics. In other words, if one 
really could know all these equations, the only means to solve them which is 
available to human powers is to observe the practical solution given by the 
market." Compare also A. Cournot, Researches into the Mathematical Principles of
the Theory of Wealth (1838), trans, by N. T. Bacon, New York, 1927, p. 127, 
where he says that if in our equations we took the entire economic system into 
consideration "this would surpass the powers of mathematical analysis and of our
practical methods of calculation, even if the values of all the constants could 
be assigned to them numerically."
(Note the clearly “ideological” position taken by Pareto: though he declares that even the
“attempt” to calculate the ‘ophelimites’ is “absurd”, nevertheless he gives the impression that it is
“possible” (!) if impractical, when we know in fact that the attempt is absurd because the
“ophelimites” are clearly “metaphysical” in nature and incapable of any form of calculation or
comparison.)

Bobbio writes (‘Saggi’, pp.76-7) that Pareto’s initial aim in writing the ‘Trattato di Sociologia’ was
clearly to develop a theory of “equilibres sociaux” (social equilibria) “in tutto e per tutto
paragonabile” to the economic equilibrium he had developed (with Walras). (Machian sources?)
And his methodological approach to the ideological “mascheramento” (again, p.76) was based on
the “functionality” of means to ends as well as the internal logic of “non-logico-experimental”
doctrines. In this he reminds us of Weber’s methodology, although Pareto almost never mentions
Weber. But Weber, much more worldly than the reclusive Italian, was aware of “marginal utility”
(see first essay in Shils) and possibly used it analogously to the Pareto-Hayek “compositionist-
subjectivist” method in that one can “negatively” abstract from human behaviour until the most
basic “logico-experimental” rules appear – which can then be expressed logico-mathematically.
(Cf. also Weber’s notion of “progress” just before discussing ‘rationalisation’, in Shils [first essay].)
But this is evidently a “positivist” approach and Weber is careful to stress that only the
“inconsistencies” are to be exposed “scientifically” but not the “values” disclosed. Pareto would
agree only with regard to the “sociological” part of the Trattato – but certainly not about the “social
equilibria” part. Of course, Weber would never have entertained the thought of a “social
equilibrium” despite his emphasis on “Objektivitat”. But see Swedberg on Weber.

The link Pareto-Walras with Schumpeter and “instrumentalism” (Das Wesen) is discussed in
Hodgson – and references in Shinoya (‘Soul of GHS’,ch on ‘JS and GHS’ and next).

Hayek definitely surpasses the old Machian “empiricism” on which his early scientific training had
been based. The correspondence of sense-data to the real physical events that cause them is no
longer “describable” in a purely “pictorial” manner. This is what had prompted Mach to resist the
concept of “the atom” (recall Mach’s visual tracing of electromagnetic waves). But mathematical
physics has shown that there are complex relations that are simply not comprehensible or
describable in an intuitive sense.
This process of re­classifying "objects" which our senses have
already classified in one way, of substituting for the "secondary"
qualities in which our senses arrange external stimuli a new classification
based on consciously established relations between classes of
events is, perhaps, the most characteristic aspect of the procedure
of the natural sciences. The whole history of modern Science proves
to be a process of progressive emancipation from our innate classification
of the external stimuli till in the end they completely disappear
so that "physical science has now reached a stage of development
that renders it impossible to express observable occurrences in language
appropriate to what is perceived by our senses. The only
appropriate language is that of mathematics," 18
i.e., the discipline developed to describe complexes of relationships between 
elements
which have no attributes except these relations. While at first the
new elements into which the physical world was "analyzed" were
still endowed with "qualities," i.e., conceived as in principle visible
or touchable, neither electrons nor waves, neither the atomic structure
nor electromagnetic fields can be adequately represented by mechanical models.
(p.20)

Note how carefully Hayek eschews all notion of “causality”. Indeed, in the Machian empiricist
epistemological framework even the word “explanation” is suspect, for obvious reasons of
“anthropomorphic” causality or “teleological” purposiveness or “essentialism” or “substantiality”.
What “Science” achieves is the “economical” ordering of “relationships between elements which
have no attributes except these relations” (p.20, above). Clear is the disavowal in this vision of
“science” of any substantive or essentialist notions of space and time as “metaphysical” notions.
Science is not the attempt to enquire about the ultimate make-up of the cosmos but rather an
empirical/positive attempt to order human experience (see preface to Erk. U. Irr.).
The tendency to abandon all anthropomorphic elements in the discussion of the 
external world has in its most extreme development even led to the belief that 
the demand for "explanation" itself is based on an anthropomorphic 
interpretation of events and that all Science ought to aim at is a complete 
description of nature.10 (p.18 – the footnote here refers to Mach, Erk u. Irr., 
and Kirchoff)
Footnotes: 10. This view was, I believe, first explicitly formulated by the 
German physicist G. Kirchhoff in his Vorlesungen uber die mathematische Physik; 
Mechanik, 1874, p. 1, and later made widely known through the philosophy of 
Ernst Mach.
11. The word "explain" is only one of many important instances where the natural
sciences were forced to use concepts originally formed to describe human 
phenomena. "Law" and "cause," "function" and "order," "organism" and 
"organization" are others of similar importance where Science has more or
less succeeded in freeing them from their anthropomorphic connotations, while in
other instances, particularly, as we shall see, in the case of "purpose,"
though it cannot entirely dispense with them, it has not yet succeeded in doing 
so and is therefore with some justification afraid of using these terms.

Hayek still relies on an empirical identification of the physical-mathematical description of real

events with the relationship between the objects of observation themselves and the mathematical
formulae that supply “the key” to their “translation” into sense-data. This is possible even after
natural events are “described” and “ordered” in a mathematical form and their further “physical
observation” is dispensable in that it becomes mathematically deductible – without the need of
empirical experimentation.
The new world which man thus creates in his mind, and which consists entirely of
entities which cannot be perceived by our senses, is yet in a definite way 
related to the world of our senses. It serves, indeed, to explain the world of 
our senses. The world of Science might in fact be described as no more than a 
set of rules which enables us to trace the connections between different 
complexes of sense perceptions. But the point is that the attempts to establish
such uniform rules which the perceptible phenomena obey have been
THE PROBLEM AND THE METHOD OF THE NATURAL SCIENCES 21
unsuccessful so long as we accepted as natural units, given entities, such 
constant complexes of sense qualities as we can simultaneously perceive. In 
their place new entities, "constructs," are created which can be defined only in
terms of sense perceptions obtained of the "same" thing in different 
circumstances and at different times a procedure which implies the postulate 
that the thing has in some sense remained the same although all its perceptible 
attributes may have changed.
In other words, although the theories of physical science at the stage which has
now been reached can no longer be stated in terms of sense qualities, their 
significance is due to the fact that we possess rules, a "key," which enables us
to translate them into statements about perceptible phenomena.(pp.20­1)

It is evident that to Hayek the physical world is “com-prehensible”, not in a “teleological” manner,
and certainly not in a “metaphysical” perspective, but rather in a “phenomenological” form that
makes it “empirically knowable”.

Again Hayek draws a clear impenetrable barrier between the natural and the social sciences.
Whereas the former have “objective” validity in that the scientific “observer” can remove or
abstract himself from the “properties” of the “objects” or “events” that he theorises, no such
“telescopic” abstraction or “objectivity” is possible in the social sciences because the “objects”
and “events” observed are human constructs that emanate from the “subjectivity” of the
individuals involved.
In fact the elimination of qualities from our picture of the external world does
not mean that these qualities do not "exist," but that when we study qualities 
we study not the physical world but the mind of man. In some connections, for 
instance when we distinguish between the "objective" properties of things which 
manifest themselves in their relations to each other, and the properties merely 
attributed to them by men, it might be preferable to contrast "objective" with 
"attributed," instead of using the ambiguous term "subjective." The word 
"attributed" is, however, only of limited usefulness. The main reasons why it is
expedient to retain the terms "subjective" and "objective" for the contrast with
which we are concerned, although they
inevitably carry with them some misleading connotations, are not only that most 
of the other available terms, such as "mental" and "material," carry with them 
an even worse burden of metaphysical associations, and that at least in 
economics 22 the term "subjective" has long been used precisely in the sense in 
which we use it here.
What is more important is that the term "subjective" stresses another important 
fact to which we shall yet have to refer: that the knowledge and beliefs of 
different people, while possessing that common structure which makes 
communication possible, will yet be different and often conflicting in many 
respects. If we could assume that all the knowledge and beliefs of different 
people were identical, or if we were concerned with a single mind, it would not 
matter whether we described it as an "objective" fact or as a subjective 
phenomenon.
But the concrete knowledge which guides the action of any group of
people never exists as a consistent and coherent body. It only exists
30 THE COUNTER­REVOLUTION OF SCIENCE
in the dispersed, incomplete, and inconsistent form in which it appears in many 
individual minds, and this dispersion and imperfection of all knowledge is one 
of the basic facts from which the social sciences have to start. What 
philosophers and logicians often contemptuously dismiss as "mere" imperfections 
of the human mind becomes in the social sciences a basic fact of crucial 
importance. We shall later see how the opposite "absolutist" view, as if 
knowledge, and particularly the concrete knowledge of particular circumstances, 
were given "objectively," i.e., as if it were the same for all people, is a 
source of constant errors in the social sciences.(pp.29­30)
What is supremely evident here is Hayek’s inability to see beyond the mere world of
“observation”. He never poses himself the problem of the “metaphysical” relation between human
“observation” and “phenomena” observed and, over and beyond, “the thing” that lies beyond
observation, let alone the “ground of grounds”, the “Being” that “things” might share.

The “scientificity” of economic theory, then, if it wishes to avoid the “scientism” of the social
sciences – comprising “positivism”, “collectivism” and “historicism” – must start with “the
individual” through a “negative procedure”, as it were, similar to that adopted by Wittgenstein in
the Tractatus vis-à-vis philosophical inquiry, that “clarifies” analytically or “renders visible”
(sichtbar machen) or “makes useful” (dienstbar machen) the “options” available in economic life
from a “compositional” approach that brings into sharper focus the institutional arrangements
emanating from the spontaneous “subjectivities” of “individuals”.
I am certain that there are many who regard with impatience and distrust the whole tendency, which is
inherent in all modern equilibrium analysis, to turn economics into a branch of pure logic, a set of
self-evident propositions which, like mathematics or geometry, are subject to no other test but internal
consistency. But it seems that, if only this process is carried far enough, it carries its own remedy with
it. In distilling from our reasoning about the facts of economic life those parts .:which are truly a priori, we
not only isolate one element of our reasoning as a sort of Pure Logic of Choice in all its purity but
we also isolate, and emphasize the importance of, another element which has been too much neglected. My
criticism of the recent tendencies to make economic theory more and more formal is not that
they have gone too far but that they have not yet been carried far enough to complete the isolation of this
branch of logic and to restore to its rightful place the investigation of causal processes, using formal
economic theory as a tool in the same way as mathematics, (I&EO, p.35).

Hayek returns to this theme in “The Counter Revolution”:

The number of separate variables which in any particular social phenomenon will 
determine the result of a given change will as a rule be far too large for any 
human mind to master and manipulate them effectively.
38 In consequence our knowledge of the principle by which these phenomena are 
produced will rarely if ever enable us to predict the precise result of any 
concrete situation. While we can explain the principle on which certain 
phenomena are produced and can from this knowledge exclude the possibility of 
certain results, e.g. of certain events occurring together, our knowledge will 
in a sense be only negative, i.e. it will merely enable us to preclude certain 
results but not enable us to narrow the range of possibilities sufficiently so 
that only one remains.(‘CRS’, p.42)

(Again we cross that word – “distilling” and “economic life”. Here the parallel with Pareto is
irresistible.) And note the emphasis on “negative” reminiscent of Mach. Hayek rejects “positivism”
(as did Pareto with regard to Comte). Even “historicism” is castigated to the extent that it purports
to guide human action, even “deontologically”.

THE SOCIAL SCIENCES

Note Hayek’s frontispiece quote:

Systems which have universally owed their origin to the lucubrations of those 
who were acquainted with one art, but ignorant of the other; who therefore 
explained to themselves the phenomena, in that which was strange to them, by 
those in that which was familiar; and with whom, upon that account, the analogy,
which in other writers gives occasion to a few ingenious similitudes, became the
great hinge on which every thing turned” (Adam Smith, ‘Essay on the History of 
Astronomy’).

Adam Smith’s review of Newton’s Principia and laws of astronomy had led him to describe his
scientific description of the underlying reality as a useful deception, a human invention, to secure
our ‘tranquillity” in dealing and coping with the world. And Schumpeter was happy to quote him on
this. The fact that Hayek should epigraph his review of the philosophy of science with a citation
from Smith’s obscure and dated ‘Essay’ serves to show how deeply-ingrained were the Machian
notions embedded therein. But Hayek, unlike Schumpeter, objects even to the application of the
laws of “Science” to the reality described by the social sciences. In passing from the natural or
physical sciences to the social sciences, we pass from the observation of regularities of relations
between “things” or “events” that cannot reflect on their activities, to “individuals” who, even as
they participate in “collective” activities, are capable of reflecting on this “participation”. The result
is that the observer must be sure that upon observing the activities of groups of “individuals” or in
describing and categorising them, the observer does not include pre-emptively “value
judgements” in those analytical categories that “pre-judge” the outcome of the observation by
assigning “teleological” or “normative” values to its analytical categories.

What the social scientist must do is, like the economist, to start from the “subjective” and
“unintended” (we would say “spontaneous”) actions of “individuals” so as to draw conclusions
from any regularities or patterns in the behaviour of these “individuals”, taking special care to
limit himself to conclusions drawn from that pattern or regularity.
It is only by the systematic and patient following up of the implications of 
many people holding certain views that we can understand, and often even only 
learn to see, the unintended and often uncomprehended results of the separate 
and yet interrelated actions of men in society. That in this effort to 
reconstruct these dif THE SUBJECTIVE CHARACTER OF THE SOCIAL SCIENCES 35
ferent patterns of social relations we must relate the individual's action not 
to the objective qualities of the persons and things towards which he acts, but 
that our data must be man and the physical world as they appear to the men whose
actions we try to explain, follows from the fact that only what people know or 
believe can enter as a motive into their conscious action.

There is therefore a “double character” in the observation of social facts. One is provided by the
“subjective/spontaneous” actions of “individuals”, giving rise to “unintended/unplanned” social
consequences – this Hayek calls “the constitutive” ideas – and the other are the product of
individuals “reflecting” or “forming ideas” about the nature of their “subjective” actions. This latter
aspect or “character” of social behaviour is the part we must eschew because it is here that the
fallacy of “scientism” lies.
It is very important that we should carefully distinguish between the motivating
or constitutive opinions on the one hand and the speculative or explanatory 
views which people have formed about the wholes; confusion between the two is a 
source of constant danger. Is it the ideas which the popular mind has formed 
about such collectives as "society" or the "economic system," "capitalism" or 
"imperialism," and other such collective entities, which the social scientist 
must regard as no more than provisional theories, popular
38 THE COUNTER­REVOLUTION OF SCIENCE
abstractions, and which he must not mistake for facts. That he consistently
refrains from treating these pseudo­entities as "facts," and that he 
systematically starts from the concepts which guide individuals in their actions
and not from the results of their theorizing about their actions, is the 
characteristic feature of that methodological individualism which is closely 
connected with the subjectivism of the social sciences. The scientistic 
approach, on the other hand, because it is afraid of starting from the 
subjective concepts determining individual actions, is, as we shall presently 
see, regularly led into the very mistake it attempts to avoid, namely of 
treating as facts those collectives which are no more than popular 
generalizations.

What Hayek’s “individualistic and ‘compositive’ method” (origins of term is Menger who corrected
Schmoller’s “deductive” description – Hayek, CRS, fn33) is ultimately aimed at, therefore, is the
emargination of all conscious “collective” behaviour from the sphere of “social science”. Only
those conclusions based on existing and unintended regularities in the behaviour of human
groups are capable of “scientific” investigation – the rest is the bitter and confounded fruit of
“scientism” or, with Whitehead”, the fallacy of misplaced concreteness (a bourgeois version
perhaps of the Marxian “reification”).

What Hayek debellates and defenestrates is the very ability of “scientific reflection” to give a
“purpose” or “conatus” to human collective action. For once the actions of “individuals” are
regarded only in their “subjective/unintended” moment, it follows that it will be impossible “to
compose” (!) these actions into any meaningful structure that is not purely mathematical, deprived
of any “qualities” and “aim/goal/purpose/conatus” because these are “metaphysical” – and this is
precisely what neoclassical theory achieves with “general equilibrium”! Walrasian and Pareto
equilibria now become the mathematical “social synthesis” bound together by a carefully-hidden
notion of “utility”: with neoclassical equilibrium, the form has swallowed up the substance; the
mechanism, the aim or goal of human activity. Bravo!
It is a mistake, to which careless expressions by social scientists often give 
countenance, to believe that their aim is to explain conscious action. This, if 
it can be done at all, is a different task, the task of psychology. For the 
social sciences the types of conscious action are data 84 and all they have to
do with regard to these data is to arrange them in such orderly fashion that 
they can be effectively used for their task.85 The problems which they try to 
answer arise only in so far as the conscious action of many men produce 
undesigned results, in so far as regularities are observed which are not the 
result of anybody's design. If social phenomena showed no order except in so far
as they were consciously designed, there would indeed be no room for theoretical
sciences of society and there would be, as is often argued, only problems of 
psychology. It is only in so far as some sort of order arises as a result of 
individual action but without being designed by any individual that a 
problem is raised which demands a theoretical explanation. But although people 
dominated by the scientistic prejudice are often inclined to deny the existence 
of any such order (and thereby the existence of an object for theoretical 
sciences of society), few if any would be prepared to do so consistently: that 
at least language shows 40 THE COUNTER­REVOLUTION OF SCIENCE
a definite order which is not the result of any conscious design can scarcely be
questioned. The reason of the difficulty which the natural scientist experiences
in admitting the existence of such an order in social phenomena is
that these orders cannot be stated in physical terms, that if we define the 
elements in physical terms no such order is visible, and that the
units which show an orderly arrangement do not (or at least need not) have any 
physical properties in common (except that men react to them in the "same" way 
although the "sameness" of different people's reaction will again, as a rule, 
not be definable in physical terms).

By removing the need or the ability to look into the “inter-esse” or “purposefulness” or the
“conatus” of human activity, Hayek and neoclassical theory can purport to examine human activity
as a “composite” of individual actions that have “empirical” significance only and that, like
“Science”, can be observed and “reconciled” only through the “automatic”, “equilibrated”
mechanism of the market – that is, “contemplatively” through the “regular”, “predictable
effectiveness” of observed individual actions. This is why “labour” can be effectively removed from
economic analysis in the neoclassical paradigm where the removal of all
“metaphysical/purposive” theorising leaves “labour” to compete with all other “endowments” as a
means of exchange. This is what Bohm-Bawerk achieved with his attack on Marx: isolate “labour”
as a “disutility” in that its “use” is equivalent to immediate consumption and therefore as a “use” of
capital which, instead, represents “roundabout” and therefore “delayed” consumption. After such
an operation whereby “labour as conatus” as Schopenhauer’s “will to life” is sublimated or
“renounced” (Entsagung), the “reconciliation” of socially-constitutive “individual self-interests” can
be achieved only through “equilibrium analysis”.

And this is where we return to Adam Smith, but this time we can draw the contrast with
“teleological” approaches:
Hegel and Comte both singularly fail to make intelligible how the interaction of
the efforts of individuals can create something greater than they know. While 
Adam Smith and the other great Scottish individualists of the eighteenth century
even though they spoke of the "invisible hand" provided such an explanation,59 
all that Hegel and Comte give us is a mysterious teleological force.(Counter 
Rev.ofSc., p.203)

The best illustration in the field of the social sciences is probably the 
general theory of prices as represented, e.g., by the Walrasian or Paretian 
systems of equations. These systems show merely the principle of coherence 
between the prices of the various types of commodities of which the system is 
composed; but without knowledge of the numerical values of all the constants 
which occur in it and which we never do know, this does not enable us to predict
the precise results which any particular change will have.87
Apart from this particular case, a set of equations which shows merely the form 
of a system of relationships but does not give the values of the constants 
contained in it, is perhaps the best general illustration of an explanation 
merely of the principle on which any phenomenon is produced.(p.43)

Finally, a quote from Andrew Gamble in “The Cambridge Companion to Hayek”:

 Verstehen over
This hermeneutic argument in Hayek, which privileges
erkla¨ren, leads to the uniform minds hypothesis – the Hayek on
knowledge, economics, and society
119

through the knowledge of our own mind. Social scientists use the analogy of
their own mind in order to understand social phenomena: ‘‘We all constantly
act on the assumption that we can interpret other people’s actions on the
analogy of our own mind’’ (Hayek [1943]1948, p.64).
Hayek maintains that understanding human action is quite unlike
understanding natural processes, since for human actions it is impossible to
enumerate the physical attributes which would allow the actions to be
classified in an objective manner without any resort to the attitudes and
intentions of the agent. Hayek was a firm opponent of behaviorism and all
forms of positive social science which tried to develop what he regarded as a
false objectivism. The core of social science for him has to be subjectivism,
and this stems directly from his conception of human knowledge and human
action. It follows that the business of social science is not to engage in
prediction, or seek to explain individual behavior, or devise ways of measuring
human attitudes as though they were physical phenomena. Rather it is to
classify types of individual behavior, to uncover patterns and principles:

All that the theory of the social sciences attempts is to provide a technique of
reasoning which assists us in connecting individual facts, but which, like logic
or mathematics, is not about the facts. (Hayek [1943]1948, p.73)

It follows according to Hayek that no social science theory can be verified or

refuted by facts. He later modified this position, con- vincedby Popper’s
arguments. But in his ownpractice he found little use for falsifiability:
While it is certainly desirable to make our theories as falsifiable as possible,
we must also push forward into fields where, as we advance, the degree of
falsifiability necessarily decreases. (Hayek1967c, p.29)

Also in this volume, the description of “Hayek’s liberalism” and its two major assumptions by
Chandran Kukathan (Ch.10):

“First, order is possible without design or central command. Hayek, more than
any other thinker in this century (with the possible exception of Ludwig von
Mises), attempted to show the feasibility of a social order understood as a
means-connected systemwithout a common hierarchy of ultimate
ends.4Indeed, Hayek has gone further, arguing that demands for conscious
control or direction of social processes can never be met and that attempts to
gain control or to direct social development can only result in the loss of
liberty and, ultimately, in the destruction of civilizations. In some respects,
Hayek’s theory here is not especially novel: he offers an account of invisible-
hand processes which Mandeville, Hume, and Adam Smith had identified as
crucial to the understanding of social order as the undesigned product of
human interaction. Hayek’s distinctive contribution is his account of social
institutions and rules of conduct as bearers of
knowledge. Society may profitably be viewed as a network of practi-
ces and traditions of behavior that convey information guiding indi- vidual
conduct. These institutions not only facilitate the matching of means with
established ends, but also stimulate the discovery of human ends. Hayek’s
argument is that it is vital that society not be brought under the governance of
a single conception of the ends of life which is held to subsume all the various
purposes human beings pursue, for this can only stifle the transmission and
growth of knowledge.
The second assumption underlying Hayek’s political philosophy is that
individual freedom is not to be understood in terms of man’s capacity to
control his circumstances, nor in terms of collective self- government. Rather,
freedom obtains when the individual enjoys a protected sphere or domain
within which others may not interfere, and he may engage in his separate
pursuits in accordance with his own purposes.
This liberalism stands in clear contrast to the socialism of Karl Marx.”
(p.184).

METHODOLOGY: “Instrumentalism” and “Praxeology” – cf. also Schumpeter’s “Das Wesen u.

Hauptinhalt”.

The aim of “economic analysis” for Schumpeter, what allows it to acquire “scientific” status, is the
fact that it can develop a “box of tools” (Joan Robinson) that are “effective”, that…”work”. The aim
of Schumpeter’s Untersuchungen is to discover analytical “tools” or “mechanisms” that explain
why and how the capitalist economy “develops”, that is “trans-forms” its characteristics and
“displaces” its “equilibrium centre (of gravity)” (Gravitationszentrum). This is the aim of the new
“Dynamik” theory as against the traditional “Statik” theory.

(Note discussion in Santo Mazzarino, Vol 3, p.253, discussion of ‘metabole’ and ‘stasis’ with the
first resembling Sch.’s ‘Kreislauf’/’Statik’ and the other the “civil war-insurrection” or ‘Krisis’ that
gives way to ‘Dynamik’ – this ‘transition’ due to ‘corruptio’, that is, decadence from an earlier
golden age or purity of the ‘body politic’, this time intended as ‘body economic’ by Schumpeter.
Hodgson [‘Marshall, Sch…’] traces ‘Dynamik’ past Mill to the sphere of zoology [qv] which again
echoes ‘metabole’ and ‘stasis’ [stagnation in economics, which may deteriorate into crisis] and
‘crisis’, all medical terms.
Mazzarino notes the absence of the concept of ‘revolutio’ in Ancient historiography. But his
discussion of the Late Empire historians and their awareness of the “death” of states is
instructive. This is the original sin of Sch.’s “analysis” that it purports “to distil” the “tools” of
scientific analysis so that Economics is seen ‘sub specie aeternitatis’ – which is aporetic with his
‘Dynamik’ approach. It is conclusive/determinant here that Sch. changed his attitude to Marx in
‘CS&D’ to such an extent that he praised Marx’s unifying method [“intierezza” in Colletti, p.17]
whereby historical and economic facts are inextricably considered resulting in an “histoire
raisonnee” [quoted in Colletti, p.48]. And note also Sch.’s later mollified attitude to Schmoller’s
School.)

Hayek acknowledges the eventual “exit” of Sch. from the Austrian School (Intro. to Sch’s
“MethInd’).

(On the “box of tools” (Robinson), cf. E. Mach’s “La science peut etre consideree comme une
sorte de collection d’instruments nous permettant de completer par la pensee des faits…ou de
limiter le plus possible notre attente [Kirchoff’s ‘description’]…Les faits ne sont pas forces de
suivre nos pensees…” (pp.376-7) – here Machian subjectivism gives the game away in that it
cannot understand science as a positive process of discovery, as an enterprise. Innovation is
epistemologically aporetic for Mach. His “negative” procedure is homologated in Walras, Pareto
and Hayek.) See also above quotation from Andrew Gamble’s summary.

(We should note here, as in ‘Innovation’, that game theory is a splendid illustration of this
Machian “negative” approach in that it is a ‘Pure Logic of Choice’: it serves “to eliminate”
alternative choices so that the mere ‘mathematical schema’ of an immutable reality based on
“self-interested in-dividuals” [even psycho-logically] remains. Hayek seeks to hide the “brutality” of
the “in-dividual” and to base his “scientific/subjectivist” approach behind the “spontaneity of
choice”. In CouRevSc, fn.64, he is at pains to distinguish “individual” from “in-dividuum” in that the
former is the active “spontaneous” subject that animates Mises’ “praxeology”. In footnote 98,
p.220, he decries the “social engineering/planning” of “socialist” methodology precisely for the
reason that it would turn the whole of society into a factory! In other words, economics and social
science can analyse the capitalist economy so long as they focus on its “spontaneity” or
“praxeology”. But any attempt consciously “to transform it” will reduce “society” (with its
“praxeological” dimensions, of which “economics” is only one) to the “mechanism” of the factory.
Again here “praxeology” is distanced from “society” because it is only “one” aspect of social life.
Those who make it the “central/essential” aspect of it [like Gary Becker and game-theoreticians
recently?] reduce social life to ugly “Stakhanovism”.

Similarly, Hayek cites Menger in fn.76 to attack the American “institutionalists”.

But this fails miserably – Mandeville, on whom Hayek relies, would have laughed contemptuously,
“rejoicing” and invoking Hobbes and “welding” his rigourism with utility (“otium” cannot, like
“labour” pay for the utility of consuming goods, which is “paid for” with the “disutility of labour” –
Colletti, p.280). For even altruism is “the price Flattery pays to Pride” [Kaye Intro to ‘Fable’] and
the only “impulse/conatus” is self-preservation, the only spark of “Reason” left in the Heideggerian
“homo est brutum bestiale” written at the end of metaphysics [quoted in Cacciari, p.49]. It is the
‘Destruktion’ of the Arendtian/Augustinian ‘Volo ut sis’ [Arendt, Vol 2, p.290] - [“nessuna simpatia”,
says Cacciari, ibid.] – indeed, an “im-possible” concept in this perspective, as is Spinoza’s
conatus leading with Euclidean rigour to “amor intellectualis Dei”.) – Perhaps all this should be
discussed separately.

Transition to “Civil Society 3”

But the “self-understanding” of Equilibrium can only lead to “renunciation”/Political as

‘unversohnendes’ return to “status naturae”/status civilis Hobbesian dichotomy (bellum
omnium contra omnes. Cf. Schmitt vs. Leo Strauss interpretation of Hobbes. Refer to
Lowith’s equiparation of Schmitt and Heidegger.)

(Can include here Schopenhauer’s political theory. Contrast with Hegel’s dialectic.)

CRISIS: Given that scientific activity is approached in a “non-essentialist” manner but in, yes a
“phenomenological” sense but one that remains profoundly Machian-empiricist, Hayek fails to see
here that “natural sciences” too are afflicted with “the indeterminacy principle”. And he also
neglects the “crisis” of all “scientific knowledge” brought about by quantum theory – the “dis-
continuity” of the electron’s movement between different energy orbitals. (Husserl will capture this
with far greater sophistication and acumen – and indeed make this “crisis of science” the starting
point of his phenomenology.) The point to emphasise is that for Hayek there is no “crisis”; he
certainly perceives none, let alone confront one. The same is valid for Schumpeter who,
nonetheless, is the first to confront the “critical/political” factors involved in the transformation of
“Science” (Hayek) into an “instrumental/rationalised” activity in need of “practical/political” activity
direction/guidance.

Note Hayek’s reference to Machian influence on Schumpeter and later ‘eloignement’ from
Austrian School in S’s “Meth.Indiv.”.

Mach – Carnap – Heidegger and Schmitt.

IMPORTANT! – Note that Loasby refers to Schumpeter’s approbative discussion of
Adam Smith’s review of Newton’s “Astronomy” and Laws of Mechanics….as a
“scientific paradigm” similar to that discussed by Thomas Kuhn. See A. Smith’s ‘History
of Astronomy’ in Essays on Philosophical Subjects quoted by S (1954, p.182 – in
Loasby’s Knowledge, Insttns.&Evltn.inEcnmcs, p.8). S notes Smith’s emphasis on human
beings’ need to connect otherwise dis-connected facts through theories to
achieve…”tranquillity”.

This is applied to Smith’s own understanding of his ‘Wealth of Nations” and specifically
of the “Invisible Hand” (the deus otiosus) of the “self-regulating market”, that is
of….”equilibrium” (Gleichgewichtlichkeit).
But REMEMBER that the (capitalist) economy (Welt des Wirtschaftlichens) has a
“tendency” (Glgwcts- tendenz in ‘Theorie’) to return or “GRAVITATE”(!) toward
“equilibrium”! (This Tendenz is also in Hayek: it is the empirical solution to the “co-
ordination problem”! )
Schumpeter calls this Gravitazionszentrum and even refers to different/separate
“equilibrium CENTRES” before and after the “transformation” and “displacement”
(Veranderung und Verschiedigung) operated by the Unternehmer and his Innovation.

So here once again re-appear the Newtonian mechanics (notions of “force” and “energy”
abound in S’s Japanese intro – “force which incessantly transforms it...a source of energy
within the economic system which would of itself disrupt any equilibrium that might be
attained”, in Rosenberg, ‘Endogeneity’, p. 7).

And Newtonian mechanics bring us right back to…Hobbes! (Cf. A.Piazzi’s discussion of
Hobbes’s relation to Euclid and Thucydydes’ “Pelopp.Wars”, experience of civil wars.)
Recall Colletti: “Hobbes to whom Mandeville owed so much” (in I&S); and Arendt
draws ‘Hobbes - self-interest – political economy link’ in ‘Origins’ – see my “Civil
Society 1”.

So, for S the Entrepreneur upsets the laws of Newtonian physics, much as Einstein did.
“Crisis” is also the crisis of Machian epistemology with rise of relativity and quantum
theory - for there is also a “quantum leap” between “equilibrium centres” or “energy
levels”!
But Cacciari rightly insists on the “lingering” Machian bases of Schumpeter’s ‘Theorie’
(also Hayek’s preface to ‘Meth.Indiv.’), specifically around retaining Neoclassical Theory
and “Equilibrium” as foundations of his “analysis” whilst ignoring, on one side, Marx’s
“critique” and on the other, Weber’s superior “positioning” of ‘sozialwissenschaftlicher’
categories in a Husserl-Heideggerian sense (cf. Husserl’s “Krisis”).
Loasby recalls that unlike Marx, Darwin had no ‘telos’; evolution is ‘open-ended’ against
the “closed system” of equilibrium analysis (p.13). Same goes for S.
Hayek seeks “historical institutional continuity”, benignly and blithely unaware of the paradigmatic
“dis-continuity” of social and political institutions. He completely ignores the “crisis” of capitalism.
And there is no “crisis” without “something” that is in “crisis”, without the concept of “capitalism”
that Hayek seeks to denounce as a creature of “scientism”. This notion of “crisis” is the “orbital
quantum leap” between “equilibria as ‘gravitational centres’” that will become central to
Schumpeter’s ‘Theorie’.

We should now turn to the historical origins of Neoclassical Theory, from which the Austrian
School derived, and then to Schumpeter. (Check also S’s “coefficients of choice” in Essays.)

Hayek’s approach was surely shared by Schumpeter: indeed, Hayek’s “intertemporal equilibrium”
is what allowed Schumpeter to embark on his studies of “evolutionary or developmental
economics” – the launching pad for his ‘Theorie der wirthschaftlichen Entwicklung’, where
Entwicklung stands for both “evolution” and “development”. Note Hayek’s reference to Machian
influence on Schumpeter and later ‘eloignement’ from Austrian School in S’s “Meth.Indiv.”.

“Negative Thought”, Bohm-Bawerk and (State) Monetary Policy in ‘Prices and Production’.