Value theory and the related areas of industrial organization, focusing on the allocation of scarce resources, grew very rapidly, with impressive progress. The graphical representation of demand and supply curves suggested related areas of investigation through graphical and algebraic presentation of the nature of demand and the nature of supply. Analyses of production functions generating supply curves led to the analysis of the organizational structure of production (and businesses) and of markets. The result, as seen in Alfred Marshall’s Principles of Economics (Ninth Edition, 1961, initially published in 1890), is an elaborate, elegant and almost comprehensive theory of the derivation and satisfaction of human material wants and needs. Because of the use of mathematics and mathematical reasoning, the neo-classical theory also had the trappings of a science.
Micro and macro and more
As efforts were made to make neo-classical theory more comprehensive, economics began to disintegrate into multiple parts or sub-disciplines. The terms micro-economics and macro-economics describe fields focused on value theory and industrial organization, on the one hand, and trends in the economy and the role of money, on the other. Game theory became a specialty. More intensive work in each specialty yielded fruit, as one would expect. What might not have been expected was that the progress in the sub-categories appears not to be bringing economists closer to a unified theory but, instead, to be leaving them with relatively unconnected theories for the individual person or decision-maker, for individual markets and for economies as a whole.
So, over time, economists have generated theories of consumer behavior, theories of the firm, theories of markets, theories of international trade and theories of the economy. We have micro-economics developed from value theory based upon supply and demand; we have macro-economics that attempts to explain money, finance and economic cycles. We also have behavioral economics, game theory, general equilibrium models and so on. What we certainly do not have is a unified theory of everything economic. That, however, is not a lacking unique to economics or, even, to the social sciences. As we shall discuss, it is clearly true of the state of all branches of the natural sciences as well.5
The Science of Economics
The “proper” methodological approach to economics as a branch of study was not obvious at the beginning (and may still not be). In the second half of the nineteenth century, the impressive progress that was apparently being made in the field we now call micro-economics stimulated various economists to discuss the methodological foundations of economics. One result was that economists began to propound theories of the philosophy of (social) science, adopting from and adding to the developments of that philosophical field in the natural sciences.
Keynes undertook an analysis of these issues in The Scope and Method of Political Economy (1891). He distinguished between two schools: the theoretical, abstract and deductive and the ethical, realistic and inductive. Id., pp.9–10. Adam Smith had engaged in both approaches. Malthus had continued the inductive tendencies of Smith, while David Ricardo had developed the deductive approaches. However, even Alfred Marshall stressed the need for inductive as well as deductive analysis and rejected the idea of a comprehensive, axiom-based theory: “The function then of analysis and deduction in economics is not to forge a few long chains of reasoning, but to forge rightly many short chains and single connecting links.” Marshall, Principles of Economics, p.781.
Deductive theories
Deductive systems have strong appeal, presumably in part because they seem scientific. But, it is also clear that such theories can be immensely flexible, general and powerful. The use of deductive systems also has the advantage of allowing work to be done in pieces. Certain aspects of what might become an all-inclusive theory could be developed independently, with the expectation that the pieces could ultimately be put together into a sweeping whole.
Part of the differences in approach by practicing economists reflected different views of what it was that economics was supposed to explain. What became the marginal utility school (the deductive theorists) asserted that the goal was to understand—or, the subject of economics was—the allocation of scarce resources among competing ends. The other school focused on the historical and institutional underpinnings of economic development. See, Sherman R. Krupp, “Types of Controversy in Economics,” in Krupp (ed.), The Structure of Economic Science (1966), p.42.
Keynes’ prejudice was clear. He admired abstract reasoning. Keynes was impressed by the scientific method of economic theory and believed that, because of it, economics was decidedly superior to the other social sciences, especially sociology. See, e.g., The Scope and Method of Political Economy, pp.110, 134. (The criticism of sociology seems not to be a result of negative reactions to sociologists but to the concept of sociology as being the overarching or all-encompassing study of human activities.) Other economists, in the following decades, were to espouse the same view. The belief was that economists were developing ‘“a body of ‘pure theory’ the possession of which distinguishes Economics from the other social sciences.” T.W. Hutchinson, The Significance and Basic Postulates of Economic Theory (1938), p.3.
In the English-speaking world, in the end, mainstream economics came to focus on explanatory models based upon the model of classical mechanics.6 As classical economics evolved into neo-classical theory, economics assumed the mantel (almost) of a real science. Its proponents and admirers marveled at the elaborate graphical presentations that appeared to generate definitive and clear results, putting to shame the subjective narrative methodologies of the other social science. For example, once value (or price) is defined as the intersection of supply and demand and one hypothesizes that both supply and demand over various quantities and prices are functions that can be depicted as curves (sloping opposite directions), then mathematical techniques can be utilized to explore various possible characteristics of those curves and make “predictions” of the results that would occur if those characteristics obtained in the real world. In other words, the theories constructed about relationships in the world lent themselves to mathematical representation. If such cases, the power and versatility of mathematics could be used to investigate those relationships and to make predictions about events.
The first effort to state economic theory in the form of a system of axioms and deductions is attributed to Nassau William Senior, writing in the 1830s. “To Senior belongs the signal honor of having been the first to make the attempt to state, consciously and explicitly, the postulates that are necessary and sufficient in order to build up—it is misleading to say to ‘deduce’—that little analytical apparatus commonly known as economic theory, or, to put it differently, to provide for it an axiomatic basis.” Schumpeter, A History of Economic Analysis, pp.575–76. Senior described the analytical work of the economist as follows: “his premises consist of a very few general propositions, the result of observation, or consciousness, and scarcely requiring proof, or even formal statement, which almost every man, as soon as he hears them, admits as familiar to his thoughts, or at least as included in his previous knowledge; and his inferences are nearly as general, and, if he has reasoned correctly, as certain, as his premises.” Nassau William Senior, Political Economy (1836), pp.2–3.
This attitude is reminiscent of the “necessary truths” that allegedly exist a priori to experience. The methodological approach was certainly believed to be sound: if the premises are true, then logical deductions from them will also be true. Today, of course, there is considerable appropriate skepticism about the obviousness and, indeed, the truth of the initial premises that economists were utilizing. Indeed, a century after Senior published his treatise, Lord Robbins described economics in very similar terms: "The propositions of economic theory, like all scientific theory, are obviously deductions from a series of postulates. And the chief of these postulates are all assumptions involving in some way simple and indisputable facts of experience relative to the way in which the scarcity of goods…actually shows itself in the world of reality… . But while it is important to realize how many are the subsidiary assumptions which necessarily arise