Oskar Morgenstern, Der theoretische Unterbau der Wirtschaftspolitik — Summary

Morgenstern’s 1956 lecture asks what theory can legitimately do for economic policy. Its answer is methodological rather than programmatic: science cannot determine collective ends, but it can discipline policy by requiring stated objectives, admissible instruments, quantities, timing, and assumptions about other actors. Thus the lecture rejects both verbal exhortation and the technocratic belief that calculation can itself discover a single public good.

„ich bekenne mich zu dem Prinzip der absoluten Freiheit von Werturteilen.“

English translation: "I commit myself to the principle of absolute freedom from value judgments."

Value-freedom, for Morgenstern, makes economics more useful rather than less. Once political ends are supplied, theory can test whether means fit them and what sacrifices follow. But a problem is not defined until the permitted means are named. Unemployment changes character according to whether one permits wage cuts, public works, inflation, military recruitment, migration, or some combination. The analyst’s first duty is therefore to prevent slogans from masquerading as solutions.

„Welche Mittel läßt man zu, um zur Lösung zu kommen?“

English translation: "Which means are admitted in order to arrive at a solution?"

This is why Morgenstern welcomes mathematics, statistics, experiment, operations research, and electronic computation. Utility experiments, input-output relations, linear programming, and project scheduling all force clearer specification than traditional literary economics often achieved. Yet he does not identify formalization with wisdom. He criticizes the older mechanical image of the economy as a system tending toward equilibrium by impersonal forces, because policy occurs among institutions and interested agents. Quantification can rank alternatives, reveal bottlenecks, expose costs, and compare technical possibilities; it cannot choose ends or remove political conflict.

Time is another constraint on rational policy. Measures require design, authorization, and execution; their consequences appear late; and overlapping interventions may change the situation they were meant to correct. Countercyclical public investment shows the difficulty. Schools, hospitals, transport systems, and power facilities cannot simply be moved around a cycle chart, since demographic need, technical preparation, and administrative calendars have their own logic.

„Wirtschaftspolitik ist ein kontinuierlicher Prozeß.“

English translation: "Economic policy is a continuous process."

Forecasting is therefore necessary but fragile. Like weather prediction, it may use analogy with past cases or theoretical calculation, yet economics lacks stable enough data and laws for confidence of that kind. Social systems change, and their data may be incomplete or strategically distorted. Scientific advice should make such assumptions visible: it can say what follows if aims, instruments, behavioral hypotheses, and time horizons are accepted, not pretend those conditions have been settled by science.

Morgenstern’s constructive distinction is between controllable optimization and strategic interaction. Where the state really commands the relevant variables, quantitative methods may improve decisions. His examples of project ranking, scheduling, the Berlin airlift, and manganese policy show how formal comparison can reduce guesswork about costs, bottlenecks, security risks, and technical alternatives. But governments usually act on a field populated by unions, cartels, firms, consumers, parties, and foreign states, each able to respond, conceal information, threaten, bargain, or form coalitions. In such cases the search for a simple optimum misdescribes the problem.

„kein „Optimum“ gibt, keine „beste“ Lösung“

English translation: "there is no 'optimum,' no 'best' solution"

Game theory supplies the needed correction. It treats policy as interdependent action under rules, conflict, and uncertain information, not as maximization by a solitary planner. This also changes the status of statistics, since social facts can be produced by strategic actors rather than merely observed. Morgenstern’s defense of formal methods is consequently double-edged: he calls for more disciplined calculation, but only when its assumptions, limits, and strategic setting are explicit.

The lecture emphasizes this balance. Economic theory should rescue policy from impressionistic judgment by making objectives, instruments, quantities, delays, and reactions explicit. But it cannot set values, abolish uncertainty, overcome institutional time, or convert conflict into a unique best answer. It supports policy best when it clarifies the structure of possible action without pretending to replace political choice.