|Principle:||Economic Principle||Human Action|
|By conscious choice.|
|By formal deduction, not|
I have previously argued that Von Mises was not original in asserting the impossibility of socialist central planning. I have recently stumbled across a book by Benedetto Croce. This is a collection of articles critiquing and reviewing the views of other Italian scholars on Marxism and marginalist economics. I claim that Croce's take on the methodology of marginalist economics is close to an advocacy of praxeology, but without the use of the word. Before elaborating this claim, I will first summarize Croce's interpretation of Marxism, in the light of the then new-fangled marginalist analysis.2.0 Croce On Marx
Volume 1 of Marx's Capital contains a formal model, as well as many historical analyses. For Croce, this overarching formal model is an abstract description of a pure capitalist economy. All commodities are assumed to be produced with labor hired by capitalists. In the model, there are no old master's (e.g., paintings by Rembrandt) or rare wines of a given vintage. Such commodities are not and cannot be made any more. Likewise, no self-employed artisans exist in the model.
The volume 1 analysis focuses on explaining the origin of the returns to capital. Distinctions among profits, interest, and rent are abstracted from in the category of surplus value. For purposes of explaining the source of surplus value, the assumption is made that all commodities sell at their (labor) value. Labor value are not prices, even prices of production.
Volume 3 of Capital looks at prices. Croce accepts the marginalist explanations of prices. Since prices are to be explained at a more concrete level of abstraction, marginalism is compatible with the Volume 1 analysis, according to Croce.
This compatibility raises a question for Croce. How should the volume 1 analysis now be interpreted, in the light of this acceptance of marginalism as a descriptive theory? Croce claims that the value of labor power - that is, wages in the volume 1 analysis - should be compared with what the returns to the workers would be in a post-capitalist communist society, in which the means of production are collectively owned. For Croce, surplus value is the difference between the latter and the former quantities.
I do not think Croce's interpretation can be textually justified. He was writing, however, at a time when marginalism was the new theory. It was not clear then that this theory could be rejected because of its inability to explain returns to capital. Vilfedo Pareto and Maffeo Pantaleoni were certainly serious economists, and well worth engaging with. Given this historical setting, Croce's interpretation has a certain amount of ingenuity. Kozo Uno also argued that the formal analysis in volume 1 is based on a abstract description of a pure capitalist economy. I find this idea plausible. Furthermore, Marx definitely and quite explicitly works at multiple levels of abstractions.3.0 Pure Economics and Praxeology
I now select some quotations from Croce, perhaps not the best, to illustrate parallels between Croce's conception of marginalism and ideas later put forth by Von Mises. In this conception, economic theory is to be formally deduced from an axiomatic description of choice. Neither applications nor psychology can test economic theory; it is not capable of being empirical falsified. (For the purposes of this post, I put aside the controversy over socialist calculation. Croce has some comments on Pareto on socialism.)3.1 The Economic Principle
Croce talks about the economic principle as a foundation for pure economics:
"And what can an economic principle be if not an hypothetical maxim: the man who wishes to secure this or that object of subjective satisfaction must employ these or those means..." -- Benedetto CroceAnd again:
"The economic axiom is a very general and purely a formal principle of conduct. It is inconceivable that anyone should act without applying, well or ill, the very principle of every action, i.e., the economic principle." -- Benedetto Croce3.2 Applications Cannot Provide Empirical Tests of Economic Science
Croce think of pure economics as being capable of being applied, but not of being tested empirically:
"...this social economics, to which [Stammler] aspires, will either be just economic science applied to definite social conditions, in the sense now indicated, or it will be a form of historical knowledge. No third thing exists." -- Benedetto Croce3.3 Human Action is Conscious Action
Croce talks about human action, that is human activity:
"[value] denot[es] a very simple fact, a summum genus, i.e. the fact of the very activity of man. Activity is value. For us nothing is valuable except what is an effort of imagination, of thought, of will, of our activity in any of its forms... There is nothing in the universe that is valuable, except the value of human activity... Value is observed immediately in ourselves, in our consciousness." -- Benedetto Croce
Like Mises, human action is defined by conscious choice:
"If we speak of conscious choice, we have before us a mental fact, if of unconscious choice, we have before us a natural fact; and the laws of the former are not those of the latter. I welcome [Pareto's] discovery that economic fact is the fact of choice; but I am forced to mean by choice, voluntary choice. Otherwise we should end by talking not only of the choices of a man who is asleep (when he moves from side to side), but of those of animals, and why not? of plants and why not again? of minerals; passing rapidly along the steep slope down which my friend Professor C. Trivero has slipped..." -- Benedetto Croce
As with applications, the empirical science of psychology cannot falsify the foundation of formal deductions from the supposed fact of human activity:
"[Graziadei] fails to see how the purist theory of value dovetails in with the doctrines of Psychophysics and Psychology. I can well believe it! Psychophysics and Psychology are natural sciences and cannot throw light on economic fact which is mental and of value. I may be allowed to point out, that, even three years ago, I gave a warning against the confusion of economics with psychology." -- Benedetto Croce
"...economics... is the science of man, of a form of the conscious activity of man - the same attitude which it rightly takes up in relation to the empirical natural sciences." -- Benedetto CroceReferences
- Benedetto Croce (1914). Historical Materialism and the Economics of Karl Marx (Trans. by C. M. Meredith), London: George Allen & Unwin Ltd.
- Riccardo Faucci and Stefano Perri (1995). "Socialism and Marginalism in Italy, 1880-1910", in Socialism and Marginalism in Economics, 1870-1930 (ed. by Ian Steedman), London: Routledge. [TO READ]
- Ludwig Von Mises (1966). Human Action: A Treatise on Economics, Revised Third Edition. [I AM NOT GOING TO REREAD]