Felix Kaufmann, On the Postulates of Economic Theory (1942)

Felix Kaufmann’s journal article examines the methodological status of economic theory through a dispute between T. W. Hutchinson and F. H. Knight. Its six sections move from the relation between natural and social science to empirical testing, the ceteris paribus clause, economic idealizations, and normative analysis. Kaufmann’s central argument is that economists often confuse empirical laws with heuristic postulates: propositions asserting relations between facts must remain testable, whereas prescriptions for organizing inquiry guide investigation without themselves asserting facts. Recognizing this distinction preserves the usefulness of pure theory without granting its assumptions necessary truth about economic reality.

The opening section rejects the terms of the controversy between “naturalists,” who demand that social science emulate physics, and “anti-naturalists,” who defend its methodological autonomy. Both sides obscure the issues through misconceptions about observation, mathematics, and values. Kaufmann instead distinguishes levels of methodological generality: principles common to empirical inquiry, methods peculiar to social science, and procedures specific to economics. Shared logical structure does not imply identical subject matter or techniques.

Section II introduces Hutchinson’s insistence that factual economic propositions cannot claim a priori certainty, alongside Knight’s contention that economics concerns purposive, ideal behavior rather than experimentally testable regularities. Kaufmann accepts Hutchinson’s rejection of necessary truths about reality but finds his account of pure theory as conceptual clarification insufficient. Against Knight, he argues that the purposive character of economic conduct does not remove economics from the general logic of inquiry. The decisive issue is an ambiguity in what economists—and physicists—call a law.

Section III treats science as an ongoing process of incorporating and eliminating propositions under accepted rules. Deduction makes explicit what an accepted corpus already implies; induction changes that corpus. Failed predictions can require the elimination of a law, provided the accompanying factual premises are granted. Yet the priority assigned to observation does not follow from the principle of contradiction alone: logic prohibits retaining incompatible propositions but does not decide which to reject.

There observational facts are regarded as cornerstones of all knowledge.

This priority defines empirical procedure rather than supplying an ultimate logical proof of it. Kaufmann also uses “observation” broadly enough to include self-observation and the observation of others’ behavior. A common methodology therefore need not entail behaviorism or the reduction of human action to physical events.

Section IV distinguishes two meanings of ceteris paribus. If the factors held constant are specified, the clause yields a more restricted empirical proposition, still open to testing. If those factors remain indefinite, the statement loses its empirical character. Kaufmann nevertheless finds a function beyond Hutchinson’s alternatives of factual generalization and tautology:

Closer analysis reveals that the ceteris paribus clause is a way of formulating a heuristic postulate, a methodological program.

The price–demand relationship can prescribe an order of investigation: begin with price changes, then examine income, substitutes, and other factors needed to explain exceptions. Such a program is neither a complete forecast nor an assertion that price alone determines demand. Invoking “disturbing factors” after a failed prediction does not excuse neglecting influences that were foreseeable. Kaufmann thus grants historical and institutionalist criticism of careless forecasting while defending theoretical isolation as a legitimate first stage. Isolated relationships require synthesis before they can explain concrete events.

Section V develops the distinction through Galileo’s law of falling bodies. Testing under specified conditions concerns a restricted proposition; a more general formulation may retain significance as a research directive even when it cannot stand as an unrestricted factual law.

But we should never forget that a heuristic postulate as such is a convention, not a proposition belonging to the corpus of a science.

A convention can be abandoned when it proves unproductive, but it is not directly falsified like an empirical assertion. Economic principles usually function in this heuristic capacity. To explain exchange, inquiry first reconstructs the conduct of an informed, capable agent seeking the greatest return, then considers competing motives and limitations of knowledge. Pure theory performs the first task. The prominence of profit-seeking supplies a practical reason for beginning there, not an a priori guarantee. Likewise, useful reconstruction and prediction require appropriate knowledge assumptions, not an impossible ideal of universal perfect foresight.

The final section addresses Knight’s conception of economics as normative. Kaufmann separates the factual description of conduct from the logical question of whether it satisfies a definition:

Our result is, then, that the logical core of the so-called normative method is the analysis of definitions.

Definitions assist empirical research through assumptions about the relevance of the concepts they organize. Marginal utility, for example, directs attention to intended uses, ranked wants, substitution, complementary goods, and the consumer goods obtainable from capital goods. These are investigative precepts, not necessary descriptions of every economic subject. Introspection cannot convert them into certain truths about reality. Kaufmann concludes by preserving economics’ distinctive concern with motives, purposes, preferences, and errors while locating its ideal constructions within a methodological structure shared with physics. The article’s enduring relevance lies in separating a model’s explanatory usefulness from both its literal realism and claims of ultimate justification.