How Economics Forgot History: The Problem of Historical Specificity in Social Science

Published by EH.NET (December 2002)

Geoffrey M. Hodgson, How Economics Forgot History: The Problem of Historical

Specificity in Social Science. London and New York: Routledge, 2001. xix +

422 pp. $120 (hardcover), ISBN: 0-415-25716-6; $36.95 (paperback), ISBN:

0-415-25717-4.

Reviewed for EH.NET by Julian Reiss, Centre for Philosophy of Natural and

Social Science, London School of Economics.

I tremendously enjoyed reading this book. Geoffrey Hodgson (Research Professor

in Business Studies at the University of Hertfordshire) tells a fascinating

tale of how economics and social science more generally became abstract and

formalistic sciences with little interest in historical and institutional

particularities and he develops the beginnings of an account of how the

perceived shortcomings may be ameliorated. Throughout, Hodgson’s aim is twofold

— which is apparent already in the title. How Economics Forgot History

refers to a historical narrative about how economics has been transformed from

a science of concrete historical and institutional fact to a science of

universal and abstract truths about human choice. The Problem of Historical

Specificity, by contrast, is a methodological concern. Its question is the

range of applicability of economic generalizations, or how “universal” the laws

of economics really are.

The historical narrative traces the development of economics (and, in part, of

sociology) from Karl Marx to contemporary neoclassical theory along the stages

of the older German Historical School and their British counterpart, Alfred

Marshall and his debate with British historicists, Carl Menger and the

Methodenstreit, the younger Historical School of Gustav Schmoller,

Werner Sombart and Max Weber, institutionalism in America, Talcott Parsons’s

sociology, Lionel Robbins’s methodological ideas and Keynes’s General

Theory. But the history is a very focused one. It highlights only events,

ideas and theories relevant to Hodgson’s methodological concern: the problem of

historical specificity.

So what exactly is that problem? Hodgson does not quite define it but rather

tells us that “[i]t first acknowledges that there are different types of

socio-economic system, in historical time and geographic space. The problem of

historical specificity addresses the limits of explanatory unification in

social science: substantially different socio-economic phenomena may require

theories that are in some respects different” (p. 23).

In other words, the concern is whether theories in the social sciences can be

general theories of human nature (or indeed even encompassing non-human animals

and inanimate complex systems) or whether they have to pay attention to the

details of concrete circumstances such as history, geography, culture,

institutional set up and so on. In Hodgson’s view, a satisfactory economic

methodology must imply an answer to that question.

Hodgson’s own methodology attempts to strike a balance between a strict

empiricism and a strict rationalism. He criticizes empiricism for its failure

to realize the need for a prior conceptual framework and something like a

principle of the uniformity of nature in order to make sense of observational

data. On the other hand, methodologists who incline toward what we might call

economic rationalism (my term, not Hodgson’s) fail to realize that economic

laws are valid often only in specific circumstances or for specific

socio-economic systems because they base their theories on a priori

considerations about human nature. What we need instead is a methodology that

(against empiricism) uses some ahistorical (i.e. truly universal) and

transhistorical (i.e. pertaining to more than one socio-economic system)

concepts and principles and combines this (against rationalism) with a quest

for concepts and principles whose domain of applicability differs from case to

case and may comprise only a single socio-economic system.

Hodgson’s narrative, as a consequence, is a search for answers to the issue of

which concepts and principles can be regarded as a- or transhistorical and

which are more closely tied to a particular system. Marx, for example, regarded

history as a sequence of stages that are constituted by their characteristic

production relations. He thus noted the problem but also failed to solve it in

a satisfactory way: “The problem is not that Marx uses transhistorical or

ahistorical categories but that he gave no methodological guidance on their

importance, or on the means of choosing or establishing them” (p. 51). The

older Historical School made the mistake of laying too much stress on fact

gathering at the expense of general concepts and principles while Carl Menger

neglected specific fact. Schmoller got many things right but even he “did not

show in detail how [institutional and cultural] factors affected the outcomes.

For all his concern with causal explanation, Schmoller did not paint an

adequate picture of how an explanatory theory could be built, or of how its

core concepts could be right” (p. 115). Similarly Veblen’s historical and

institutional framework is commended but “[a]lthough he developed some key

ideas that would have helped to open a richer theoretical approach, he failed

to deploy them in the service of such a sustained project” (p. 150). Finally,

Talcott Parsons and Lionel Robbins are presented as the gravediggers of the

interest in the problem of historical specificity and creators of the

ahistorical vision of social science that formed the consensus of much of the

twentieth century.

In the methodological part of the book, Hodgson attempts to develop a response

to the challenge that Marx, historicism and institutionalism left with us, and

which has been ignored by more recent work in social science. His response

consists essentially in relegating concepts and principles to the right level

of abstraction, five of which he distinguishes (Table 21.2, pp. 326-27).

Certain concepts and principles pertain to all “open, evolving and

complex systems.” At this level, theorizing is informed by evolutionary theory,

general systems theory and complexity theory. At the second level, concerning

all human societies, human instincts and psychology as well as general

anthropological principles govern theorizing. The usual laws of supply and

demand come into play at the third level concerning only “civilized and complex

human societies” while the fourth and fifth levels differentiate between kinds

of socio-economic system. This very general framework can be applied to

concrete cases using the various principles that Hodgson introduces, such as

the Principle of Dominance (concerning what kind of institution

dominates a specific system), the Principle of Prominence (concerning

whether a certain institution is very common in a system) and the

Principle of Impurity, which says that any system will host more institutions

than the dominant one (e.g. though market relations are dominant in capitalist

systems, non-market institutions such as the family persist).

Hodgson’s view of what is the fundamental methodological problem in social

science and his response are highly original and insightful. But in my view, he

himself falls prey to a number of methodological flaws and omissions. To begin

with, I think Hodgson is right when he says that a pure empiricism is an

incoherent position. We do not learn much from sense data alone. But this does

not imply that there are any concepts or principles that are a priori in

the strict sense, i.e. prior to all experience. A tenable form of empiricism

can hold that while any particular inquiry may require some sort of background

knowledge, this background knowledge is itself neither infallible nor innate.

While we surely need a conceptual framework in order to make sense of

observations, the conceptual framework itself can, at a different stage of the

inquiry, be subject to revision in the light of new experience. Similarly,

while we need some kind of inductive principle to learn from experience, the

exact formulation of that principle can itself be extracted from what has been

successful in the past.

Therefore, I think that Hodgson concedes too much to the rationalist (or

theorist). This concession is relevant to his own theoretical framework. Much

of it is informed by very general theory-schemes such as general systems

theory, complexity theory and, in particular, evolutionary theory. There is of

course nothing wrong with borrowing analogies from these schemas. But Hodgson

seems to treat these as givens rather than hypotheses. Maybe the analogue of

natural selection is an important causal factor in economic phenomena, too. But

maybe it is not. Hodgson’s methodology has no built-in mechanism which weeds

out false hypotheses of this kind.

A related but different criticism is that Hodgson is a realist (or

essentialist) about concepts. Concepts, according to him, “carve reality at its

joints” (p. 315) and represent “what is essential to, and enduring in, an

entity — ignoring the accidental and superficial” (p. 287). On the basis of

this theory, for instance, Gary Becker’s neoclassical analysis of family

relations is criticized. Since it is in the nature of market phenomena

(the kind of phenomena to which neoclassical analysis was tailored) that

property rights are exchanged, and no such exchange takes place in the family,

Becker’s analysis must fail. But whereas I grant that Becker’s theory is

untenable, this is not because he gets the nature of market phenomena or the

nature of the family wrong. Indeed, it is possible that certain cases of

marriage and certain cases of prostitution are sufficiently alike that for

certain kinds of inquiry we may treat them as the same. We use concepts to

classify phenomena. It is now more or less generally accepted that there is no

one unique way of doing so. Each classification is more or less suitable for

the particular inquiry at hand. Thus, concepts have no real essence.

Finally, we may ask how useful Hodgson’s own response to the problem of

historical specificity is. Imagine, I am a monetary economist and concerned

with the quantity theory of money. Reading the present book, I learn from him

that institutions and historical and geographical circumstances matter —

sometimes at least. So I set out to test the theory for US post-war data. Are

my findings projectable to other countries or times? In Hodgson’s schema,

“effects of supply and demand on prices” are at the third level of abstraction,

that is, applicable to all civilized human societies. But surely one will want

to say that certain institutional facts about the monetary constitution will

affect the money-prices relation. But which ones? Is whether or not the gold

standard prevails relevant? Is the presence of e-banking? Do cultural

differences play a role? The point is that while Hodgson rightly alerts us that

economic laws hold only on account of a particular socio-economic structure, he

does not solve the problem of historical specificity. He does not tell us to

which degree and in what respects two socio-economic systems must resemble each

other for some economic law to hold in both systems. And I think there is a

good reason for this failure: there is no solution at the general level. All we

can say at the general level is that differences may matter but which ones

really do matter is an empirical question.

To summarize, Hodgson has done a great job in drawing attention to the fact

that economic laws are true only on account of particular arrangements of

institutional and cultural facts. He has written an exciting history of how

this matter has been treated in the economic literature from Marx to the

present day. Furthermore, he has presented us with elements of an analytical

framework that helps us to determine which kinds of institutions and cultural

facts may matter for which kinds of inquiry. In my view, his own methodological

framework cannot solve his original problem and it suffers from a slight bias

towards apriorism. Nonetheless, this book is greatly stimulating and I can

highly recommend it to anyone interested in economic history and methodology.

Julian Reiss is a Senior Researcher at the Centre for Philosophy of Natural

and Social Science, London School of Economics. Recent works include “Causal

Inference in the Abstract or Seven Myths About Thought Experiments,”

Causality: Metaphysics and Methods Technical Reports CTR 03/02, London

School of Economics and “Natural Economic Quantities and their Measurement,”

(2001) Journal of Economic Methodology 8:2, 287-311.