A positivist tradition in early demand theory

Abstract

In this paper I explore a positivist methodological tradition in early demand theory, as exemplified by several common traits that I draw from the works of V. Pareto, H. L. Moore and H. Schultz. Assuming a current approach to explanation in the social sciences, I will discuss the building of their various explanans, showing that the three authors agreed on two distinctive methodological features: the exclusion of any causal commitment to psychology when explaining individual choice and the mandate to test the truth of demand theory on aggregate data by statistical means. However, I also contend, from an epistemological point of view, that the truth of demand theory was conceived of in three different ways by our authors. Inspired by Poincaré, Pareto assumed that many different theories could account for the same data on individual choice, coming close to a kind of conventionalism – though I prefer to refer to this position as theoreticism. Moore was himself akin to Pearson's approach, which could be named descriptivist in so far as it resolved scientific laws into statistical descriptions of the data. Finally, Schultz tried to reconcile both approaches in an adequationist stance with no success, as we shall see.

Keywords:

• positivism
• Pareto
• Moore
• Schultz
• demand theory
• methodology

ACKNOWLEDGEMENTS

Thorough comments by F. Guala, W. Hands, U. Mäki, J. Urrutia and J. Zamora are gratefully acknowledged. I also thank J. F. Álvarez, M. Armatte, M. Barbut, S. Barberá, J. Davis, J. Echeverría, M. Fernández Grela, J. C. García‐Bermejo, J. Ruiz‐Castillo and J. C. Zapatero for their suggestions. My research was funded by the grant BF2003‐04372. Support by the Urrutia Elejalde Foundation deserves a special mention. The usual disclaimer on intellectual responsibility applies.

Notes

1. E.g. the now canonical Caldwell 1994; for a more recent discussion see Hands 2001.

2. E.g. Roger Backhouse: ‘To understand Samuelson and Friedman [their positivist views, DT], one needs to consider Henry Schultz and debates in the 1920s and 1930s over demand theory.’ Cf. the debate on ‘Mainstream economics and logical positivism’ at the Hes mailing list archive: http://www.eh.net/lists/archives/hes/oct‐1998/0001.php

3. Cf. e.g. Ingrao and Israel 1990: 113–21.

4. I will henceforth briefly address Paretian choice theory drawing on Bruni and Guala's account. I will make my case commenting mainly on Pareto's Manuel d'économie politique (Pareto [1909] 1981), where Poincaré's influence is most evident. Kirman 1998 comments on the turn in Pareto's thought by the time La science et l'hypothèse first appeared. I quote the Manuel by the French critical edition, indicating chapter and section.

5. I have discussed the relevance of this trend in positivism to the patterns of explanation in economics in Fernández and Teira 2003.

6. Cf. Poincaré [1902] 1968, chs 6, 9 and 11.

7. ‘Moreover, the same facts may be explained by an infinity of theories, all equally true, because they all reproduce the facts to be explained. It is in this sense that Poincaré could say that from the very fact that a phenomenon allows one mechanical explanation, it allows an infinity of them.’ (Pareto [1909]1981: 44). Pareto also cited Poincaré's Les méthodes nouvelles de la mécanique céleste (Pareto [1909] 1981: 15).

8. Pareto [1909] 1981: 543–4. Cf. Poincaré [1902] 1968: 147.

9. Note that it may be justified in various other ways, as Paul Samuelson did, for instance: see Bruni and Guala 2001, where his approach is compared to Pareto's.

10. Pareto [1909] 1981: 173. Cf. also Pareto [1911] 1966: 319.

11. Though Pearson also entertained openly idealistic positions now discussed in depth by Porter 2004.

12. The book was already completed by 1895, a year before Moore presented his dissertation: see Clark's letters to Seligman dated 17 October 1890 (Dorfman 1941: 111–12), 30 May 1891 (pp. 113–14) and 6 April 1892 (pp. 114–15).

13. By the time Moore published the series of three papers containing his statistical results on wages, Clark stated that a dynamic approach to economics was yet to be attained (Clark 1907: v). Yet Laws of Wages was dedicated to him.

14. ‘If the relation between the two is one of cause and effect, that is to say, if the wages of unskilled labourers are determined by the means of subsistence, then the degree of association must approach unity’ (Moore [1911] 1967: 30). Moore cited Pearson's Grammar immediately in support of his thesis: cf. Moore [1911] 1967: 32 and also Moore [1911] 1967: 112.

15. The letters are cited by their number in the Whitaker edition (Whitaker 1996).

16. Marshall did not understand that Pearson and Elderton were in search for an index of their general ability, while the correlation between efficiency and wages was irrelevant for them (Stigler 1999: 26).

17. On Moore's contribution to time series analysis cf. Klein 1997: 249–56.

18. More precisely, Moore correlated the deviations of the cycles from their respective secular trends, once their time series have been both smoothed by means of moving averages.

19. Moore's results are discussed in Armatte 1995: ch. 12.1.5 and Álvarez 1996: 117–18. Le Gall 1996 presents his 1914 book as a prelude to subsequent works.

20. Cf. Lehfeldt 1915; Magee 1915; Persons 1915; Wright 1915; Yule 1915 and Fanno 1916.

21. ‘The indifference function’, Journal of Social Psychology 2 (1931): 139–67. He was already quoting this paper in Schultz 1931c: 78 n. Two other papers by Thurstone were quoted in Schultz 1933b: 116: ‘A mental unit of measurement’, Psychological Review 34(6) (1927): 415–23 and ‘Psychophysical analysis’, American Journal of Psychology 38 (1927): 368–89.

22. As Mordechai Ezekiel put it: ‘[A]ll that need to be assumed is that the position of the curve is changing in such a way that the change can be measured and eliminated, so that then at least the shape of the curve, and its position at a specified time, or under specified conditions, may be inferred from the corrected data’ (Ezekiel 1928: 212).

23. This is, in my opinion, the proper place to discuss Percy Bridgman's influence on Schultz – against Mirowski 2002: 192: an operational definition of demand based on its measurement procedures cannot be conceived of for him if the action of time is excluded. The Logic of Modern Physics appeared in 1927, and it is already quoted in Schultz 1928b: 647–8 – and later: see, for instance, Schultz 1930: 17; Schultz 1938: 10–11.

24. Another instance of Schultz's absolute trust in the power of statistics: having to account for the different elasticities of demand that could be obtained depending on whether price or quantity was taken as the independent variable in the regression curve, he opted for a statistical rule and chose the variable that enhanced the regression's performance in the Pearsonian χ² test (Epstein 1987: 20).

25. ‘[D]ie neo‐klassischen Nachfrage‐ und Angebotskurven können aus der Statistik der Preise und Mengen nur abgeleitet werden, wenn wir den Einfluß der “störenden Faktoren” zu eliminieren wissen (…) Doch ist es unmöglich, in irgendeiner statistischen Untersuchung Korrekturen für alle störenden Faktoren zu finden und anzuwenden. Aus diesem Grunde kann man sich den theoretischen Kurven in induktiven Untersuchungen nur annähern, ohne sie je ganz zu verwirklichen.’ (Schultz 1930: 37–8) This is an excerpt from the German published translation of an English text titled The Meaning of Statistical Demand Curves, which Schultz circulated in photostatic copy about 1930. It was reviewed in Bean 1931. The last assertion comes from Moore (Schultz 1925: 630). Schultz often returned to it (e.g. Schultz 1933a: 276).

26. The relevance of the Duhem‐Quine thesis for economics is assessed in Mongin 1988, esp. p. 301. A broader treatment in Sawyer et al. 1997. On its particular consequences for econometrics, cf. Morgan 1990: ch. 6 and Qin 1989: 73–8.