by Morgenstern
[Title Page and Publication Information]: Title page and publication details for the 1937 English translation of Oskar Morgenstern's 'The Limits of Economics', translated by Vera Smith. [Foreword]: Morgenstern introduces the book's purpose: to clarify that theoretical economics is neutral regarding ideologies and to define the limits of its application to policy. He argues that while economics has limitations, it is the only path to rationality in economic policy, especially during times of intellectual decay. [Table of Contents and Chapter I Heading]: Table of contents listing ten chapters covering topics such as the application of policy, rigid systems, trade-cycle policy, and the relationship between the state and economics. [Introduction: The Nature and Process of Economic Policy]: Morgenstern defines economic policy as actions aimed at bestowing advantages on specific groups for social effects, independent of the framers' personal interests. He distinguishes between 'popular' notions of policy—often contradictory maxims derived from direct experience—and the rigorous application of economic theory. The section emphasizes that while facts require statistical investigation, the evaluation of effects depends on understanding how acts of intervention change the course of economic events compared to a non-interventionist baseline. [The Role of the Investigator and the Artistic Turn of Mind]: The author argues that economics must offer a contribution to practical life to avoid being a mere 'intellectual plaything.' He posits that successful application requires an 'artistic turn of mind'—an instinct for reality and proportion—to bridge the gap between abstract theory and concrete facts. This quality is rare, leading to a distinction between those who are economists by profession and those who are so by vocation. [Chapter II: The Problem of Application]: This chapter addresses the fundamental difficulty of applying abstract economic theory to reality. Unlike natural sciences, economics lacks universal constants, relying instead on 'relative' relationships and the 'ceteris paribus' assumption. Morgenstern critiques both the historical school (for rejecting generalization) and extreme apriorists (for ignoring reality). He introduces the concept of 'lacunæ'—gaps in theory that require ad hoc adaptation by the practitioner. A significant portion is dedicated to the 'time factor' and the inadequacy of data, particularly in trade-cycle theory, which often masks the real forces at work until they manifest later. [Chapter III: Rigid Systems of Economic Policy]: Morgenstern critiques Liberalism and Socialism as 'rigid systems' that falsely claim scientific justification for their policy prescriptions. He argues that 'social value' is not a scientific concept and that these systems fail to account for the dynamic evolution of economic theory and the economic system itself. He highlights the paradoxes within these systems: for instance, how a Liberal state must intervene to maintain competition, or how Marxists might reject social relief to hasten the collapse of capitalism. He concludes that economic theory is independent of these political systems and that a rigid formula cannot account for changes in 'economic mentality' or structural shifts like the rise of monopolies. [Chapter IV: The Distribution of Effects of Economic Policy]: This chapter examines how the effects of policy measures diffuse through the economic system. Morgenstern distinguishes between 'visible' effects (immediate, localized impacts like job losses) and 'invisible' effects (dispersed, long-term impacts like consumer savings or export declines). He notes a psychological bias: concentrated, present disadvantages (like those from foreign competition) are felt more acutely than dispersed, future advantages (like lower prices), leading to a 'trend' toward interventionism and rigidity. He also discusses 'frictions'—the real-world impediments to theoretical adjustments—and how political instability favors short-term over long-term policy. The section concludes that organized 'pressure groups' drive the growth of intervention, necessitating a higher court of appeal in the State to set overarching aims. [Chapter V: The Mutual Interdependencies of Measures of Economic Policy]: Morgenstern explores the systematic interconnection of economic measures. He argues that while a 'logical' interdependence based on a social welfare optimum is scientifically unattainable, an 'interdependence of effects' exists automatically through price movements. He introduces the 'principle of the fusion of effects,' where measures interact at different speeds and often in unforeseen ways. The only scientific-economic principle he identifies is 'freedom from inconsistency'—ensuring that measures do not work against each other (e.g., trying to lower the cost of living while raising agricultural tariffs). He uses the mathematical analogy of the 'geodetic line' to explain how theory must be adapted to the 'non-Euclidean' space of practical constraints. [Chapter VI: The Limits Set by Power]: This chapter addresses the objection that 'power' (social and economic pressure) nullifies economic laws. Drawing on Böhm-Bawerk, Morgenstern argues that power does not destroy economic laws but rather increases the 'range of indeterminacy' within which prices are fixed. He asserts that economic theory can still determine these limits. He also notes that the 'time factor' eventually weakens power through adaptations like the development of substitutes or labor-saving technology. Thus, the presence of power necessitates a more detailed casuistry but does not render theory useless. [Chapter VII: Inherent Difficulties of Economic Policy]: Morgenstern identifies human and organizational obstacles to rational policy. He notes that economic knowledge is esoteric and difficult to pass between generations, leading to the repetition of historical errors like inflation or exchange control. He highlights the unequal 'organizability' of interests, where producers and primary industries consistently outweigh consumers, creating a natural trend toward interventionism regardless of the form of government. He advocates for a 'laboratory of economic policy'—independent scientific review of the results of past measures—to unmask catchwords and demagogy, and to improve the rationality of future decisions. [Chapter VIII: The Special Features of Trade-Cycle Policy]: This chapter explores the complexities of trade-cycle policy. Morgenstern argues that because cycles lack a strict rhythm, theory must be adapted ad hoc for each historical instance. He proposes three principles for trade-cycle policy: 1) increasing the flexibility of the economic system during depressions; 2) using the bottom of a depression to effect fundamental structural reorientations; and 3) damping down booms in their early stages to prevent later crises. He critiques the 'expansionist' view and emphasizes the danger of rigid state budgets. He also discusses the emerging importance of 'imperfect competition,' the 'time factor,' and 'anticipations' (expectations) in theory, while strongly condemning 'scientific economic prognosis' as a misuse of statistics. [Chapter IX: The Dangers of Economics]: Morgenstern warns of the dangers posed by 'amateur economics'—a pseudo-science of catchwords and half-truths that lacks internal consistency but holds great sway over public life. He argues that economists must reach the 'Socratic point' of admitting what is unknown, whereas amateur economists falsely claim to solve all problems. He defends theoretical economics against charges of 'doctrinairism,' explaining that the repetition of fundamental truths is necessary in the face of recurring errors. He concludes that there is no substitute for economic theory; 'intuitive' policy is merely a mask for irrationality or self-interest. The only path to rational policy is the rigorous application and development of scientific theory. [Chapter X: The State and Economic Policy (Conclusion)]: In the concluding chapter, Morgenstern observes that economic wisdom or stupidity is not tied to specific forms of government; both democracies and dictatorships have pursued similar policies. However, he notes that authoritarian states may be better positioned to resist pressure groups and pursue long-term liberal policies, while democracies offer more elasticity but risk instability. He critiques the use of unqualified 'advisers' (citing the U.S. 'Brain Trust') and calls for an independent 'control' of economic policy—similar to a national auditor—to evaluate whether methods are appropriate to ends. He ends by reiterating that the State is subject to economic laws and that the greatest wisdom lies in recognizing these limitations through theory. [Appendix: Bibliographical Notes and Commentary]: The appendix provides a comprehensive review of the literature underpinning the book's arguments. Morgenstern references key thinkers on methodology and value neutrality (Menger, Weber, Robbins) and interventionism (Mises, Röpke). He discusses the 'time element' and 'expectations' in the works of Keynes and his own articles. He also highlights the Swedish school (Wicksell, Myrdal) and critiques W. H. Hutt's views on the role of economists. The appendix serves as a guide for further study into the logical and historical foundations of economic policy.
Title page and publication details for the 1937 English translation of Oskar Morgenstern's 'The Limits of Economics', translated by Vera Smith.
Read full textMorgenstern introduces the book's purpose: to clarify that theoretical economics is neutral regarding ideologies and to define the limits of its application to policy. He argues that while economics has limitations, it is the only path to rationality in economic policy, especially during times of intellectual decay.
Read full textTable of contents listing ten chapters covering topics such as the application of policy, rigid systems, trade-cycle policy, and the relationship between the state and economics.
Read full textMorgenstern defines economic policy as actions aimed at bestowing advantages on specific groups for social effects, independent of the framers' personal interests. He distinguishes between 'popular' notions of policy—often contradictory maxims derived from direct experience—and the rigorous application of economic theory. The section emphasizes that while facts require statistical investigation, the evaluation of effects depends on understanding how acts of intervention change the course of economic events compared to a non-interventionist baseline.
Read full textThe author argues that economics must offer a contribution to practical life to avoid being a mere 'intellectual plaything.' He posits that successful application requires an 'artistic turn of mind'—an instinct for reality and proportion—to bridge the gap between abstract theory and concrete facts. This quality is rare, leading to a distinction between those who are economists by profession and those who are so by vocation.
Read full textThis chapter addresses the fundamental difficulty of applying abstract economic theory to reality. Unlike natural sciences, economics lacks universal constants, relying instead on 'relative' relationships and the 'ceteris paribus' assumption. Morgenstern critiques both the historical school (for rejecting generalization) and extreme apriorists (for ignoring reality). He introduces the concept of 'lacunæ'—gaps in theory that require ad hoc adaptation by the practitioner. A significant portion is dedicated to the 'time factor' and the inadequacy of data, particularly in trade-cycle theory, which often masks the real forces at work until they manifest later.
Read full textMorgenstern critiques Liberalism and Socialism as 'rigid systems' that falsely claim scientific justification for their policy prescriptions. He argues that 'social value' is not a scientific concept and that these systems fail to account for the dynamic evolution of economic theory and the economic system itself. He highlights the paradoxes within these systems: for instance, how a Liberal state must intervene to maintain competition, or how Marxists might reject social relief to hasten the collapse of capitalism. He concludes that economic theory is independent of these political systems and that a rigid formula cannot account for changes in 'economic mentality' or structural shifts like the rise of monopolies.
Read full textThis chapter examines how the effects of policy measures diffuse through the economic system. Morgenstern distinguishes between 'visible' effects (immediate, localized impacts like job losses) and 'invisible' effects (dispersed, long-term impacts like consumer savings or export declines). He notes a psychological bias: concentrated, present disadvantages (like those from foreign competition) are felt more acutely than dispersed, future advantages (like lower prices), leading to a 'trend' toward interventionism and rigidity. He also discusses 'frictions'—the real-world impediments to theoretical adjustments—and how political instability favors short-term over long-term policy. The section concludes that organized 'pressure groups' drive the growth of intervention, necessitating a higher court of appeal in the State to set overarching aims.
Read full textMorgenstern explores the systematic interconnection of economic measures. He argues that while a 'logical' interdependence based on a social welfare optimum is scientifically unattainable, an 'interdependence of effects' exists automatically through price movements. He introduces the 'principle of the fusion of effects,' where measures interact at different speeds and often in unforeseen ways. The only scientific-economic principle he identifies is 'freedom from inconsistency'—ensuring that measures do not work against each other (e.g., trying to lower the cost of living while raising agricultural tariffs). He uses the mathematical analogy of the 'geodetic line' to explain how theory must be adapted to the 'non-Euclidean' space of practical constraints.
Read full textThis chapter addresses the objection that 'power' (social and economic pressure) nullifies economic laws. Drawing on Böhm-Bawerk, Morgenstern argues that power does not destroy economic laws but rather increases the 'range of indeterminacy' within which prices are fixed. He asserts that economic theory can still determine these limits. He also notes that the 'time factor' eventually weakens power through adaptations like the development of substitutes or labor-saving technology. Thus, the presence of power necessitates a more detailed casuistry but does not render theory useless.
Read full textMorgenstern identifies human and organizational obstacles to rational policy. He notes that economic knowledge is esoteric and difficult to pass between generations, leading to the repetition of historical errors like inflation or exchange control. He highlights the unequal 'organizability' of interests, where producers and primary industries consistently outweigh consumers, creating a natural trend toward interventionism regardless of the form of government. He advocates for a 'laboratory of economic policy'—independent scientific review of the results of past measures—to unmask catchwords and demagogy, and to improve the rationality of future decisions.
Read full textThis chapter explores the complexities of trade-cycle policy. Morgenstern argues that because cycles lack a strict rhythm, theory must be adapted ad hoc for each historical instance. He proposes three principles for trade-cycle policy: 1) increasing the flexibility of the economic system during depressions; 2) using the bottom of a depression to effect fundamental structural reorientations; and 3) damping down booms in their early stages to prevent later crises. He critiques the 'expansionist' view and emphasizes the danger of rigid state budgets. He also discusses the emerging importance of 'imperfect competition,' the 'time factor,' and 'anticipations' (expectations) in theory, while strongly condemning 'scientific economic prognosis' as a misuse of statistics.
Read full textMorgenstern warns of the dangers posed by 'amateur economics'—a pseudo-science of catchwords and half-truths that lacks internal consistency but holds great sway over public life. He argues that economists must reach the 'Socratic point' of admitting what is unknown, whereas amateur economists falsely claim to solve all problems. He defends theoretical economics against charges of 'doctrinairism,' explaining that the repetition of fundamental truths is necessary in the face of recurring errors. He concludes that there is no substitute for economic theory; 'intuitive' policy is merely a mask for irrationality or self-interest. The only path to rational policy is the rigorous application and development of scientific theory.
Read full textIn the concluding chapter, Morgenstern observes that economic wisdom or stupidity is not tied to specific forms of government; both democracies and dictatorships have pursued similar policies. However, he notes that authoritarian states may be better positioned to resist pressure groups and pursue long-term liberal policies, while democracies offer more elasticity but risk instability. He critiques the use of unqualified 'advisers' (citing the U.S. 'Brain Trust') and calls for an independent 'control' of economic policy—similar to a national auditor—to evaluate whether methods are appropriate to ends. He ends by reiterating that the State is subject to economic laws and that the greatest wisdom lies in recognizing these limitations through theory.
Read full textThe appendix provides a comprehensive review of the literature underpinning the book's arguments. Morgenstern references key thinkers on methodology and value neutrality (Menger, Weber, Robbins) and interventionism (Mises, Röpke). He discusses the 'time element' and 'expectations' in the works of Keynes and his own articles. He also highlights the Swedish school (Wicksell, Myrdal) and critiques W. H. Hutt's views on the role of economists. The appendix serves as a guide for further study into the logical and historical foundations of economic policy.
Read full text