The Pragmatic Basis of Economic Theory

Abstract

Although the English tradition of analytical economics was established at least as long ago as the publication of David Ricardo's Principles in 1817, doubt has never ceased to exist concerning the fruitfulness of abstract and deductive methods in economics. Indeed, although the significant advances made since Ricardo's day were the products of men following closely the theoretical tradition, this doubt has increased rather than lessened. While the established methods weathered the attacks of the historical school during the latter part of the nineteenth century, they were severely shaken by the fundamental questionings of Thorstein Veblen. No one has emerged in our day as a true inheritor of the Veblenian mantle, but the institutionalist school of economics, which acknowledges him as its source of inspiration, is undeniably a very serious critic of orthodox economic theorizing.This paper stems in part from the most recent controversy on the methods and conclusions of economic theory. It attempts to meet the sense of dissatisfaction with which I read the arguments of both attackers and defenders. Perhaps also the fact that during the past few years I have frequently been asked embarrassing questions by students may have something to do with my interest in this problem. I am surely not the only person who has had to contend with the remark that “it looks all right in theory but how does it work out in fact?” For some time now I have been either a consumer or a purveyor of economic theory and I feel motivated to demonstrate (at least to myself) that the activity constitutes productive labour. If that has given this paper the character of rationalization, I hope that it will not be one that cannot be put to good professional service.