“The two approaches of the Methodenstreit…[represented] widely divergent views on the scope and logic of economic and social‐​scientific inquiry.”

“The Methodological Debate Between Carl Menger and the German Historical School.” Atlantic Economic Journal 6 (September 1978): 3–16.

The “war of methods” (Methodenstreit) began with the publication of Carl Menger’sUntersuchungen über die Methode der Socialwissenschaften und der Politischen Oekonomie Insbesondere in 1883 (translated as Problems of Economics and Sociology). In that volume Menger both presented his positive position on the scope and method of the social sciences and criticized the position of the intellectually‐​dominant German historical school. The dean of the younger German historical school, Gustav Schmoller, responded in a caustic review of Menger’s book. A highly polemical exchange ensued that involved each scholar’s followers.

The debate pitted two radically different methodological positions against one another. The “Austrian” positions argued that economic theory can and should discover “absolute” laws of economic behavior, and held that these laws are discoverable using methodological individualism. The result would be abstract laws that are “exact,” i.e., necessarily true. The “German” position denied the possibility of discovering universally true economic laws and hence denied the possibility of constructing an economic theory in the Austrian sense. Schmoller adopted “methodological collectivism” in seeking to discover contingent economic laws by observing the formation of actual social institutions. Such laws would only be applicable in a cultural context.

Historians of thought have generally been critical of this methodological debate. Besides noting its polemical nature, they point to the inability of the participants to resolve any of the issues involved. Historians have generally concluded that the differences were minor compared to the similarities between the schools. Both “induction” and “deduction” are necessary.

In an important historical reinterpretation, Bostaph argues that the differences between Menger and Schmoller were far greater than even they realized. The debate raged so long and so furiously, not because methodological debates are fruitless, but because most historians never identified the fundamental basis of disagreement.

Ultimately, Menger and Schmoller disagreed over epistemology, particularly over the theory of concepts. Schmoller as a nominalist, believed that only the names men choose arbitrarily to ascribe to phenomena are universal, not the phenomena themselves. For the nominalist there are no universal characteristics (essences) of phenomena having independent ontological status. Hence, there can be no necessary causal connections between phenomena. The search for absolute or universal laws would consequently be a fruitless one. Bostaph links the historical school’s position on causality to Hume’s.

Menger adopted an Aristotelian position in which phenomena themselves are viewed as possessing essential properties that characterize all instances of an ontological type. By abstracting from the individual elements of the phenomena one can discover these essences, as well as necessary causal connections among elements of the phenomena. By building up from the simplest elements and relationships, one can reconstruct and understand the complex social phenomena we actually observe. For the methodological individualist, like Menger, one can only understand the complex phenomena by developing an abstract theory built up from an investigation of the micro elements of the phenomena. Menger’s methodological individualism is distinct from Schmoller’s methodological holism, in which one attempts to understand complex phenomena by collecting data on the macro phenomena directly.

As Bostaph observes, the two approaches of the Methodenstreit are not complementary, but are the result of widely divergent views on the scope and logic of economic and social‐​scientific inquiry (Socialwissenschaften). The issues cannot be swept aside by arguing for an eclectic approach. Bad methodology may condemn modern economic researchers to a lifetime of wasted effort.