alfred schutz and economics as a social science

Alfred Schutz and Economics as a Social ScienceAuthor(s): Allen OakleySource: Human Studies, Vol. 23, No. 3 (Jul., 2000), pp. 243-260Published by: SpringerStable URL: http://www.jstor.org/stable/20011278 .

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L4 Human Studies 23: 243-260, 2000.

il O 2000 Kluwer Academic Publishers. Printed in the Netherlands. 243

Alfred Schutz and Economics as a Social Science

ALLEN OAKLEY Department of Economics, The University of Newcastle, Callaghan NSW 2308, Australia

Abstract. Over the years, a number of interpreters with an interest in economics have given some attention the work of Alfred Schutz. As intimated in this literature, the orientation of

his delimited thought on economics stemmed from contacts with the Austrian school during

his Vienna years. Probably because of this connection, there exists among these interpreters an inclination uncritically to align Schutz with the Austrians' thought. What will be argued in

this paper is that in adopting such an uncritical position, each of these readings fails adequately to situate Schutz's critique of economic analyses within the framework of his own social

theory. It will become apparent that his treatment of economics turned out to be a mixture of

defence and critique, and that his interpretation of the subject and the intellectual status he

ascribed to it were considerably more ambivalent and ambiguous than has been noticed. In

particular, Schutz expressed significant reservations about the highly circumscribed and artificial

depictions of the world of human action that some economists espoused, especially within

the confines of marginalist theory. When arraigned against the phenomenology of the life

world that he had developed, and against the "postulates" around which he had constructed

his social theory, much of extant economics did not meet the requirements of a properly

grounded social science.

Introduction

Over the years, a number of interpreters with an interest in economics have

given some attention the work of the Austrian phenomenologist and social

theorist Alfred Schutz (Foss, 1996; O'Sullivan, 1987; Pietrykowski, 1996;

Prendergast, 1986; Stonier and Bode, 1937). Whatever the orientation of their

inquiries, it has been recognized quite correctly by these scholars that Schutz's

brief writings on economics strongly reflect the influence of the Austrian school

that he encountered during his formative exposure to the subject in the early decades of this century.1 In the opinion of Schutz's biographer and student, Helmut Wagner, "Schutz's interest in economics was part of his interest in all

of the social sciences ...," even though "next to sociology, economics ranked

second in his private scale of relative relevance of the various disciplines for

his work." And, with respect to the particular aspect of economics that caught Schutz's attention, Wagner noted that "by training and theoretical preference, his focus was on marginal theory" (1983, p. 164). Most significantly, though, Schutz's biographer also observed concerning his Austrian credentials that



244 ALLEN OAKLEY

"what kept him within the Viennese school were its underlying interpretive

assumptions: it explained an apparently mechanical and impersonal economic

process in terms of subjective decisions and individual actions ?a conception that would become one of the mainstays of Schutz's social-scientific

orientations" (1983, p. 12). As a consequence of this connection between Schutz and the Austrian

economists, there exists among these interpreters an inclination uncritically to

align Schutz with their thought, and then further to embed the origins of his

own social theory within its conf?nes. But, what will be argued in this paper is

that in adopting such an uncritical position, each of these readings fails

adequately to situate Schutz's critique of economic analyses within the

framework of his phenomenologically oriented social theory. In particular, it

will be shown that he actually held significant reservations about the highly circumscribed and artificial depictions of the world of human action that some

economists espoused, especially within the confines of marginalist theory.

Furthermore, his interpretation of economics and the intellectual status he

ascribed to it was considerably more ambivalent and ambiguous than has been

noticed.

Schutz made a number of explicit references to economics spread over his

life's work, and these reveal that he was not concerned to grasp much about

its substantive issues and analyses. Rather, his interest was metatheoretical

in the sense that he sought to expose the foundations upon which economic

theories in general were based. His limited reading of Austrian and other

literature on the subject revealed a social science in which objective and

formalist means of representing human agency had been adopted by some

contributors without equivocation. It was the extreme rationalism and

abstraction of this representation that caught his attention, and his consequent

intention was to compare these characteristics to his own endeavours to devise

subjectivist and interpretive foundations for the social sciences. From this point of view, the version of economics that he emphasized turned out to be a foil.

For Schutz maintained his reservations about what it had actually achieved in

providing the appropriate metatheory for its analyses; a metatheory, that is,

which had the required ontological bona fides in the sense that it demanded

analytical exposure of the actual human origins of its object phenomena.

The paper is organized around a number of themes that are pertinent to

understanding Schutz's ambivalent critique of economics. Section 1 outlines

two of the key characteristics of Schutz's social theory that are pertinent to

the interpretation of his reading of economics. One of these was his focus on

individual human action as the origin of social phenomena; the other was his

reliance on a number of key metatheoretical "postulates" as the means of

arguing social theory. Schutz's general attitude towards economics as a social

science is then examined in section 2, and his views about methodology are

suggested as a rationale for his consciously restrained critique of economics



ALFRED SCHUTZ AND ECONOMICS AS A SOCIAL SCIENCE 245

in its received form. Nonetheless, he found two particular aspects of extant

economics troubling. Regarding the first of these, in section 3 it is shown that

Schutz found economics to have identified its object phenomena by means of

conceptual forms that express predominantly quantitative manifestations of

subjectivist human agency. This led him correctly to conclude that economists, in accounting for such observed phenomena, were largely content to relate

and manipulate these quantitative concepts without due penetration into their

ontological origins in human agency. The second troubling aspect of economics

is dealt with in section 4, where Schutz is shown to have drawn attention to

the resulting inclination of economists severely to restrict the scope of their

representation of human agency in devising and applying these quantitative

conceptual forms. The most extreme of such restrictions was Ludwig von

Mises's depiction of agency as grounded in a priori, axiomatic determinants.

Schutz traced this approach to a perceived need to adopt a principle of

rationality that turns agents into omnipotent automata so that economists can

claim scientific objectivity in their accounts of phenomena. He thought of this

need as stemming from the requirement of bridging the gap between the

objective status of the quantitative conceptual expressions of these phenomena and their origins in the subjective actions of human agents. The concluding section will draw together the arguments that have indicated how ambivalent

Schutz was about the status to be attributed to economics.

1. Schutz's Social Theory

Two particular characteristics of Schutz's social theory need to be recalled if

his reading of economics is to be properly assessed. First, he was in no doubt

that the agreed position amongst all social scientists was that a social object cannot be understood "without reducing it to the human activity which has

created it and, going beyond, without referring this human activity to the

motives out of which it sprang" (1940b, p. 52).2 That is, underpinning observations in the social sciences are "human behavior, its forms, its

organization, and its products." This meant for him that these sciences should

"deal with human conduct and its common-sense interpretation in the social

reality" by means of analyses that refer "by necessity to the subjective point of view, namely, to the interpretation of the action and its setting in terms of

the actor" (1962, p. 34). For Schutz, the challenge for scientists was to

understand the origins of social phenomena from an ontological perspective and to render that understanding analytically tractable.

To meet such a challenge, analysts are required to formulate a methodology that enables the complex exigencies of subjective human agency in which

phenomena originate to be discursively represented in logically consistent

argument. It was apparent to Schutz that a strictly individualist approach to



246 ALLEN OAKLEY

the human agency involved was out of the question: for observing analysts, the "human activities and the frame of reference within which they occur . . .

[cannot be] the unique acts, the unique choices of unique individuals in their

settings within a unique situation of contesting and conflicting systems of

possibilities" (1972, p. 582). He knew, too, that the accepted standards of

science demanded that explanatory accounts of phenomena be represented in logically formalized analyses consisting of generalizations and universalized

concepts. The crucial issue, therefore, was to discover the way in which this

minimal methodological prerequisite could be met in the sciences that must

interpret and understand human action, while preserving ontological realism

in how the object phenomena are represented.

Meeting this objective requires that analysts establish a degree of immediate

continuity between their representation of the relationships and actions of

agents, and how these things are experienced by active agents themselves.

For Schutz, it was "quite clear that the starting point of social science is to

be found in ordinary social life" (1967, p. 141). But, "there is a difference in

kind between the type of naive understanding of other people we exercise in

everyday life and the type of understanding we use in the social sciences."

The challenge was "to find what distinguishes [the] two sets of categories from each other: (1) those categories in terms of which the man in the natural

standpoint understands the social world and which, in fact, are given to the

social sciences as material with which to begin, and (2) those categories which

the social sciences themselves use to classify this already preformed material"

(1967, p. 140). As social scientists, "we shall have to find how the phenomena of meaning-determination and meaning-interpretation are carried out..."

differentially by agents and analysts. And, "we shall have to discover the

principles of continuity . . ." that exist between the processes of these two

groups (p. 143f). Having done so, it is possible then to determine "what methods

the social sciences should employ in order to carry out research adequate to

their objects" (p. 144). The second pertinent characteristic of Schutz's metatheory is his belief that

for such an interpretive duality between agents and analysts to make sense,

the requirements of a number of specific metatheoretical postulates should be

met. These included, variously arranged and explained, those of "relevance,"

"subjective interpretation," "rationality," "logical consistency" and "adequacy"

(1940b, p. 59f and n77; 1962, p. 34ff; 1996, p. 22ff).3 Each was part of his overall articulation of the problems that realist formal representations of human

actions pose for scientists. Specifically, the first four serve to assist social

scientists to develop methodological principles that conform to the requirement of "adequacy" by dealing "in an objective way with the subjective meaning of

human action," so that "the thought objects of the social sciences . . . remain

consistent with the thought objects of common sense, formed by men in

everyday life in order to come to grips with social reality" (1962, p. 43). For




Schutz, the "postulate of subjective interpretation" and the "postulate of

relevance" were the means of providing the phenomenal foundations for any human inquiry. Then the postulates of "rationality" and "logical consistency" were to be applied as the mediations between these foundations and meeting the requirements of the "postulate of adequacy" in discursive analysis.

In any endeavour to give an account of empirical human phenomena, Schutz

believed that "we cannot understand them except through the scheme of human

motives, human means and ends, human planning - in short, by means of the

categories of human actions" (1996, p. 22). Integral to grasping agents in situ

was an awareness of their pattern and scale of relevance when sorting out

their attention to selected aspects their circumstances. In this respect, the

"postulate of relevance" ensured that "our analysis of the common-sense

interpretation of the social world of everyday life . . . [shows] how the

biographical situation of man within the natural attitude determines at any given moment his purpose at hand." That is, continued Schutz, "the system of

relevances involved selects particular objects and particular typical aspects of such objects as standing out over against an unquestioned background of

things just taken for granted" (1962, p. 37). Appreciating this role of relevance

gives some rationale for the notion that "the social scientist must ask, or at

least have the possibility to ask, what happens in the mind of the individual

actor whose action has brought about the phenomenon in question." This

metatheoretical position was then specified as comprising the "postulate of

the subjective interpretation," to be formulated as a procedure in which "the

social scientist has to ask what type of individual mind can be constructed and

what typical thoughts must be attributed to it in order to explain the fact in

question as a result of mental activities in an understandable context." From

this perspective, a form of "subjective interpretation" was required because

"we cannot treat phenomena of the social world as if they were phenomena of the world of nature . . . [where] we deal with facts and regularities which are not understandable . . .", but are rather "compatible with the laws which

have been deduced from some basic assumptions about the physical world"

(1996, p. 22). There was a need, that is, to interpret and to represent agents and their

actions as ideal types. In scientific analyses, this called forth the "postulate of

rationality" and its reflection in arguments that are compatible with the

"postulate of logical consistency." Requiring the condition of rationality when

devising social action types means that they "must be constructed in such a

way that the actor in the life-world would perform the typified act (in the ideal

typical form) if he had a clear and distinct knowledge of all the elements relevant

for his choice and persistently tended to choose the most appropriate means

for the realization of the most appropriate ends" (1996, p. 23; cf. 1962, p. 45). This requirement is embedded in the demands of "logical consistency" that are to be met in constructing "pure theory," so that "action can be scientifically



248 ALLEN OAKLEY

discussed only within the framework of rational categories. Scientists have at

their disposal no other methods than rational ones; therefore they cannot verify or falsify purely occasional propositions" (1996, p. 23). Schutz's claim was,

then, that only resulting argument "fully compatible with the principles of formal

logic . . .warrants the objective validity of the thought objects constructed by

the social scientist" (1962, p. 43). For a viable model of human action, meeting the cumulative metatheoretical

demands of the postulates of "relevance," "subjective interpretation,"

"rationality" and "logical consistency" is necessary but not sufficient

without satisfying the further requirements of the "postulate of adequacy." Schutz (1996) was adamant that "this postulate is of extreme importance for the methodology of the social sciences. What makes it at all possible for social scientists to refer to events in the life-world is the fact that their

interpretation of any human act can be basically similar or analogous to its

interpretation by the actor and his partner" (1996, p. 22f). In meeting this

subjectivist requirement in analyses, it was Schutz's (1962) further belief

that "the scientific observer proceeds in a way similar to that of the observer

of a social interaction pattern in the world of everyday life, although guided

by an entirely different system of relevances" (1962, p. 40). To do so means

conforming to the principle that "each term in a scientific model of human

action must be constructed in such a way that a human act performed within the life-world by an individual actor in the way indicated by the

typical construct would be understandable for the actor himself as well as

for his fellow-men in terms of common-sense interpretation of social life"

(p. 44).

So, what needs to be emphasized here is that for Schutz, the subjectivist vision of typification and resulting ideal types was much more broadly defined

and had more than merely methodological import in the social sciences. This

mode of abstracting the essential defining characteristics of agents and their

actions as generalized types was so crucial because it had a dual status in his

thought: at the same time, and interdependently, typification was both an

ontological principle, because he claimed that it is applied by active agents, and a metatheoretical principle that could be applied scientifically by analysts in the objective form of the ideal type. Types have an ontological status that

comes from the argument that active agents use them in order to reduce the

complex specificity of their life-world situations and problems, and their

multifarious relationships with others, to manageable proportions. When

identified and adopted by analysts through the "postulate of adequacy," these

patterns of typification become the substance of realist discursive re?

presentations in which human phenomena are accounted for in terms that are,

potentially at least, part of the agents' own generalized views of the world

around them.




2. Situating Economics

Now in arguing out his set of "postulates," it is evident that Schutz left

incomplete the continuity and articulation between the "rationality" and

"adequacy" postulates (Shearmur, 1993; cf. Zijderveld, 1972). But this was a

difficulty that Schutz found unresolved in his reading of economics, too.

Economics had adopted the most rationalistic vision of human action possible, with the result that no "postulate of adequacy" could be sustained within its

models. The idealized assumptions made about human agency in economics

were simply incompatible with any common-sense understanding of the life

world position and activities of living agents. This left Schutz with the task of

somehow situating economics in relation to his own social theory in a way that would leave intact the established status of economics as a social science.

In Schutz's limited references to economics, the first thing that is apparent is that he was convinced of the viability of its extant formalist approach to

"pure theory," taken on its own terms and as far as it was intended to go.

Indeed, he made it clear that he saw such "pure" attempts to model economic

activity as legitimately representative of an extreme version of his own social

theory, as it applies to a particular field of inquiry. At the same time, though, there exists some evidence that he wanted to draw attention to the implications of his subjectivist metatheory for understanding economic activity and the

generation of its phenomena in a deeper sense. But, this was always mixed in

with his primary admiration for what "pure" economics had achieved as a

rigorous science. In the end, his concern for economics was confined to that

of an outside commentator on existing practice who was not inclined to engage in any destructive critique or reconstructive suggestion.

One probable reason for such critical reluctance was more fundamental

than Schutz's obvious respect for the well-established success of formal

economic theory as an exact social science. This was his attitude towards

methodology generally as following and guiding rather than dictating substantive

practice in the social sciences. Methodology is, he wrote, "not the preceptor or tutor of scientists; the methodologists are always their pupils." The

consequence is that "there is no great master in any scientific field who could

not teach the methodologists how they should proceed." But, to this Schutz

(1996) added the qualification that "the truly great teacher always has always to learn from his pupils," and this opened the way to give methodology a more

positive role. He went on to explain that "the methodologist in his role has to

ask the intelligent questions about the techniques of his teachers. He has

performed his task if his questions help others to reflect on what they actually do and perhaps induce them to eliminate certain intrinsic difficulties hidden in

the foundations of the scientific edifice which the scientists themselves have never inspected" (1996, p. 24). He confirmed this attitude when, as late as

1955 he espoused a supportive role for the methodologist when writing to his



250 ALLEN OAKLEY

colleague at the New School for Social Research, Adolph Lowe that "it is my

conviction that methodologists have neither the job nor the authority to prescribe to social scientists what they have to do. Humbly he has to learn from the

social scientists and to interpret for them what they are doing" (Schutz, 1996,

p. 146, emphasis added).4 In these observations, we find expressed an attitude that accounts for much

of the critical restraint Schutz showed in his handling of the expository void he

found in economics, between its focus on the real-world ontology of subjective human agency and the methodologically imposed rational formalization ofthat

agency. It explains, too, the very mixed messages about economics that are

revealed by a study of his quite limited treatment of what he, nonetheless,

considered to be the most formally advanced of the social sciences. Although he made us aware at all times that the ultimate origin of economic phenomena is to be found in the subjective actions of socialized and situated individual

agents, Schutz realized that economics felt no need to represent this ontology

directly in its analyses. As an interpreter of extant methodology, he saw his

task as limited to making sense of what economists were seen to do when

confronted with this matter of human involvement in economic activity. It was

not his place, therefore, to claim any superiority of insight and to dictate change.

Throughout his work, this restraint is evident. However, at one point, as we

are to see, his frustration with the narrow metatheoretical perspective of

economics, relative to what he knew to be the extremely complex human origins of its phenomena, almost got the better of him.

3. Defining the phenomena of economics

In his social theory, Schutz emphasized that social scientists are most

immediately confronted with a world of phenomena that are the products of

deliberated purposeful human action (1972, p. 580f). He espoused a subjectivist

and individualist mode of understanding and accounting for empirical phenomena

in the human realm, including those of economics. Now whatever may be the

extent to which this mode of inquiry was actually recognized by some Austrians,

he read most economists as prepared to forego its demands. That is, with

respect to material production, for example, they "limit their interest to

products .. .and refuse to embark upon an investigation of the human activities

which lead to their production." And, he revealed some acute insight when he

pointed out that "it is the 'behavior of prices,' not the behavior of men in the

market situation, it is the 'shape of demand curves' and not the anticipations

of economic subjects which the curves symbolize, that interest them." To this

he added the well-aimed critical comment that as a result, "the outsider who

listens to a discussion among modern economists sometimes even has the

impression that notions like'saving,' 'spending,' 'capital,' 'unemployment,'



ALFRED SCHUTZ AND ECONOMICS AS A SOCIAL SCIENCE 25 1

'profit,' and 'wages' are used as if they were entirely detached from any

relationship to the activities of economic subjects" (1972, p. 582).5 So, as

Schutz put it elsewhere, economists accept the appearances of the social world, as described by concepts such as "nation, government, market, price ...," at

face value and pretend that as analysts, they are "not obliged to go back to

the subjective activities of those alter egos and to their correlates in their minds

in order to give a description and explanation of the facts of this social world"

(1940b, p. 46f). On these bases, he was led to conclude that where conceptual abstractions are called for, "modern economics is the example of a social

science" that has had great scientific success dealing "with curves, with

mathematical functions, with the movement of prices, or with such institutions

as bank systems or with currency fluctuations" (1996, p. 22). These observations indicated to Schutz a belief among economists that they

"may and should restrict themselves to describing what this world means to

them, neglecting what it means to the actors within this social world" (1940b,

p. 47). Once social sciences, including economics, show that they can deliver

formalistic argument akin to that in the natural sciences, this metatheoretical

vision would claim that analysts "may confidently leave the subjective analyses to psychologists, philosophers, metaphysicians, or whatever else you like to

call the idle people who concern themselves with such problems" (p. 47). In

this connection, exclaimed Schutz, "look at modern economics!" This is a

science, he astutely remarked, in which the greatest progress towards

objectivity has been made since "the decision of some advanced minds to study curves of demand and supply and to discuss equations of prices and costs

instead of striving hard and in vain to penetrate the mystery of subjective wants

and subjective values" (p. 47). The issue becomes one of why should analysts pursue economic phenomena from the perspective of human agency at all.

Schutz put it rhetorically that as "statisticians have done a great job by collecting information about the 'behaviour' of collectivities," why should analysts not

"simply collect empirical facts?" Indeed, "why go back to the scheme of social

action and to the individual actor?" (1996, p. 22). Schutz was thus prepared to grant that "on a certain level real scientific

work may be performed without entering into the problem of subjectivity. . . .We can develop and apply a refined system of abstraction. . .which

intentionally eliminates the actor in the social world, with all his subjective points of view .. ." (1940b, p. 47). At one point, he looked directly to economics for

the bona fides of this strategy: "The achievements of modern economic theories

would make it preposterous to deny that an abstract conceptual scheme can

be used very successfully for the solution of many problems" (1962, p. 35). It

had to be recognized, though, that this strategy involved the most extreme

abstractions in devising what limited concern there was in economics for the

representation of the human agent. Schutz was sensitive to the apparent

penchant of contemporary economists for arguing directly in terms of quantified



252 ALLEN OAKLEY

variables and relationships rather than pursuing their origins in the subjective actions of human agents. Economists are inclined to work within an "abstract

conceptual scheme that is nothing else than a kind of intellectual shorthand ...

[in which] the underlying subjective elements of human actions involved are either

taken for granted or deemed to be irrelevant with respect to the scientific purpose at hand... and are, therefore, disregarded" (p. 35). The fact is, he argued, "this

type of social science does not deal directly and immediately with the world of

everyday life, common to us all. . ." But at the same time, "nor does this type of social science make the less indispensable reference to the subjective point of view on other levels of abstraction .. ." in any endeavour to understand the

actions of real agents that generate observed phenomena (1940b, p. 48). The real social world of human agency remained for Schutz the undeniable

origin of all that is isolated and abstracted in formal analyses: that is, in the "very

complicated cosmos of human activities," it is "that 'forgotten man' of the social

sciences,.. .the actor in the social world whose doing and feeling lie at the bottom

of the whole system" (1940b, p. 48). In order to get at and grasp this human

origin, Schutz posited the need for analysts to ask themselves "what does this

social world mean for the observed actor within this world, and what did he mean

by his acting within it?" (p. 48). The socio-economic world of agents can then

no longer be understood as bounded by the concepts invented by analysts for

their own purposes of doing science. What is actually the situation, according to

Schutz's vision of a properly grounded theory, is that "in economics, as in all the

other social sciences, we always can ?

and for certain purposes must ?

go

back to the activity of the subjects within the social world: their ends, motives,

choices, and preferences" (1972, p. 582, emphasis added). The hint of frustration with the boundaries set by formalist economic analysis

evident here was born of Schutz's more penetrating insight into the real

demands of representing and accounting for the generation of any human

phenomenon. For whatever his intentions with respect to economics, the fact

was that most economists chose to presume an extreme form of agent rationality in order to avoid fully confronting the complexities and contingencies of this

humanist perspective. Such a choice must have struck him as incongruous,

given the revelations of his own phenomenological investigations in social

theory. It was clear to him that he should take a critical look at what economists

had actually done about understanding and representing their phenomena, and

how this could be situated relative to the metatheory of the social sciences as

he had defined it in terms of meeting the demands of his "postulates."

4. Economics and the "Postulate of Rationality"

Schutz objected to the notion that objectivist rationalism could apply immediately to the representation of living agents and their actions. One of his misgivings




about most economists was that they had not squarely confronted the

conundrums introduced into social theory by separating the subjective vision

of active agents from the constructed analyses devised by scientific observers.

Schutz could not have put his rejection of such immediate human rationalism

more emphatically: "I want to defend the following thesis: In its strict meaning,

rationality is a category of the scientific observation of the social world and

not a category of the mind of the actor within the social world." The import of this belief was that "in its primary denotation, the conceptual scheme of

rationality is valid only on the level of theoretical observation; its application to other levels of our experience of the social world is possible only in a

modified and restricted sense" (1996, p. 7). In the same vein, he continued

by emphasizing that "the ideal of rationality is not a particular feature of

everyday thinking. Therefore it cannot be the methodological principle of

the interpretation of human acts in daily life" (p. 18). Rather, it finds "its

native place not on the level of the social world of daily life, but on the

theoretical level of its scientific observation. This is its realm of

methodological application. Thus we have to move to the problem of the

social world as [the] object of the social sciences and to the scientific methods

of its interpretation" (p. 19, emphasis added). In spite of this rejection of active agent rationality, his role as interpreter of

received economic methodology led Schutz to attempt some reasonable account

of why, in their analyses of choice and decision, economists "build up the model

of rational actions and why they are entitled to do so" (1972, p. 579, emphasis

added). So it was that with a measure of implicit incongruity, he defended the

adoption of rationalist agency by economists. The claim that the sciences of

the human realm, including economics, are "entitled" to rely upon a

representation of human action that Schutz knew from his own inquiries to be

abstract and truncated, confronted him with a serious and troubling challenge. From among what he called the "methodological devices of economic theory,"

developed by economists for representing the active agent in an operational context of decision making, what Schutz found most crucial was "the

assumption that all acting within the economic sphere is rational. This implies not only that all preferring and choosing between projects fulfills the conditions

of rationality but also that all projecting itself is done in a rational way" (1972,

p. 586). To meet this requirement, the condition is that "each branch of the

social sciences which has reached the theoretical stage contains a fundamental

hypothesis both defining its field of research and offering the regulative principles for constructing a system of ideal-types." To Schutz's mind, this was

achieved by grounding all economic action on a single behavioural principle: "Such a fundamental hypothesis, for instance, is the utilitarian principle in

classical economics and the principle of marginality in modern economics."

The imperative is then to "construct your ideal-type as if all actors had oriented

their life plans and therefore all their activities . . ." to meeting the demands



254 ALLEN OAKLEY

of such a singular principle, with the result being that "human activity orientated

in such a way (and only this kind of human activity) is the subject-matter of

your science" (1996, p. 23). On this basis, Schutz expressed the view that

"the social sciences, and especially economics, presuppose not only the

possibility of purely rational action but even take such action as archetypal of

all economic acts" (1972, p. 579). As an observer analyst intent upon defending such rationalism in economic

theory, Schutz made the claim that "one can study the economic actor as such

and try to find out what is going on in his mind," but the import of such a strategy was that "one is not then engaged in theoretical economics but in economic

history or in economic sociology . .." (1967, p. 137). This isolation of a "pure" theoretical economics was maintained by Schutz because he saw explicit

methodological merit in the universality and objectivity of the axiomatic

representation of human action. Immediately empirical observations of

particular examples of economic activity render this universality void because

they necessarily originate in "the economic sentiments of particular historical

individuals" (p. 137). But, to make a proper assessment of his apparent defence

of the ultra-rationalist approach, we need to be aware that he saw it as having a broader meaning for economic theory than was immediately evident in a

reading of Mises's exposition of its a priori foundations.

Schutz believed that it was in the hands of Mises especially, that economics

had come furthest in reflecting upon its metatheoretical foundations and in

meeting the challenge of explicating its required methodological form. In this

respect, Schutz recognized such "pure economics" as a "perfect example of

an objective meaning-complex about subjective meaning-complexes, in other

words, of an objective meaning-configuration stipulating the typical and

invariant subjective experiences of anyone who acts within an economic

framework" (1967, p. 245). That is, the merit of the a priori approach was

that it argued axiomatically in terms of "anyone's action, about action or

behavior considered as occurring in complete anonymity and without any

specification of time or place" (p. 244). All this gave an essential generality and universality to the fundamentals of agents' conduct that should be sought

by all social sciences, but had been achieved to a greater degree in economics

than elsewhere thanks to the efforts of Mises.6

Nevertheless, Schutz remained mindful of the methodological void that must,

according to his own "postulates," be bridged between the subjective origins

of all individual human phenomena and the objective perspective and intentions

of economic analysts. As he knew, objective economic knowledge consists of

formal analyses that account logically for a range of observed quantifiable

phenomena, such as those market relationships that are manifested as supply

and demand functions, price movements and cost-price dynamics. But

whatever may be achieved in economics by adopting this quantitative categorial

perspective, it cannot grasp the essential fact that all such phenomenal




appearances originate in the purposeful actions of individual human agents situated in their social world (1936b, p. Iff and 1996, p. 93ff).

Schutz was aware, too, that subjectivist economists had confronted this

explicitly human origin of observed phenomena and endeavoured to apply

methodological principles consistent with accounting for them on this basis.

In doing so, subjectivists were required to develop ideal types of agent

personalities to complement the ideal types that make up their quantitative object

phenomena. By contrast, in accordance with their scientistic methodology, formalist economists who are not wedded to subjectivist ideas are bound to

avoid representing the actions of living individual agents (1936b, p. 23ff and

1996, p. 104f). Rather, as Schutz put it, "the actor in the economic world is not

a man who lives his full life among his fellow men. He is, so to speak, reduced

in his thoughts and acts to that sector of his outer and inner world which is

economically relevant" (1972, p. 583f). If we allow such a separation and

isolation of particular facets of the human identity, the next step is to recognize that for the purposes of analytical representation, the agent "is not an actor at

all." The sense of this assertion is that rather, "he is a homunculus, a model, an ideal type which is supposed to behave and act exactly as a human being

would if the attainment of economic goals by economic means based on

economic motives constituted the exclusive content of his stream of

consciousness" (p. 584). In short, economists create for themselves a world

inhabited only by puppets whose absolute rationality and omnipotence is

guaranteed. These puppets, both as individuals and in their relationships with

others, are totally within the control of the economist master who pulls their

strings. Of course, the necessary omnipotent qualities of the human agent that could

facilitate such extreme rationality in real life simply have no existential status, even at the ideal-typical level. This is because the objective and rational

concept of human agents adopted by economic theorists is very narrow and

constructed for a specific methodological purpose. The model is a "pure" ideal

type in which only one dimension of human agents' whole existence is specified as active. They are "fictive beings imagined to be equipped with conscious

experiences (goals of action, motives, actions, etc.) and they are considered

sufficient for acting out those economic events which the economist considers

sufficiently relevant for his problem" ( 1996, p. 99). Given his deep understanding of the exigencies of human agency, Schutz was all too well aware that any

degree of claimed rationality sufficient to enable the arguments representing human action to meet the standards of scientific, hypothetico-deductive logic

must be imposed by analytical fiat. With respect to the realities of economic

action, he reiterated that "in a system like that established by economic

theory .. .all possibilities of choice are problematic and thus compete, one with

another ..." The certainty and clarity of the choice implied requires "a perfect

knowledge [that] can be presupposed only if the economic homunculus, the



256 ALLEN OAKLEY

personal ideal type by which economic theory replaces the economic actor

within the life-world, is from the outset endowed with the consciousness, with

the stock of knowledge at hand, and a safeguard against misjudgement which

will enable him to come to rational decisions" (1972, p. 587, emphasis added). Schutz was quite frank that in "such a fictitious model . . .economic

homunculi. . .were constructed to behave in a specific way, like automata."

He argued at the same time, though, that such rationalist presumptions could

not be rejected on logical grounds and that they had proved to be scientifically successful as a means of arguing claims to economic insight. But it remained

a legitimate question for him to ask "whether a theory based on the assumption of perfect rationality is widely applicable to occurrences within the everyday economic life-world, in which . . .pure rational actions are impossible and in

which only a certain stereotyped institutionalized action can approach more

or less closely the ideal of rationality" (p. 587). The response was to emphasize the reality of agents' potential for failure relative to rationalist depictions. As

Schutz put it, "a man living among men in the everyday life-world of economics

cannot but err, cannot but commit misjudgements, if for no other reason than

because his knowledge, after performing an act, will be different from the

knowledge he had when he projected it" (p. 587). In what sense could this

fact of existence be made compatible with the agent depicted as the all

powerful and infallible homo oeconomicus?

In its original format, "the economic homunculus, who does not live, who

does not perform real acts of choice in a unique situation, . . .has been invented

in order to make fictitious typical choices which are supposed to result in typical states of affairs . . ." Now such an agent "cannot commit errors and

misjudgements unless this personal ideal type was constructed especially for

the purpose of erring and committing misjudgements" (1972, p. 588). It is a

matter of life-world practice, Schutz hinted, that subjective agents must accept and deal with the incorrigibility of ex ante uncertainty about the intended

outcomes of their actions, as well as an ex post degree of unintended content

in the actually realized outcomes. He recognized that if economic theory as it

is extant wishes to recognize such potential for realist compromise, it must be

imposed as a characteristic of the model agent that is in effect added back. A

fallible agent could not be a participant in the actions depicted in pure economic

theory. Rather, such an agent can only be "the type invented for the purpose

of reconciling pure theory with the praxis of daily life" (p. 588). There was

here a hint of concern that the sciences of the human world are required to

adopt such a strategy of invention and imposition in order to maintain established

methodological and epistemological demands. Schutz lamented that "the social

sciences are only seemingly interested in the processes of choosing and

deciding. In reality it is merely the choice made, the decision arrived at, which

interests them." Similarly, he went on, "it is not the projecting or acting which

they study but the project once drafted, the act once performed" (p. 588,




emphasis added). In these respects, economic theory was a definitively extreme

case in point. It was for Schutz a simple matter of fact that in order to purport to be

theoretical and scientific, "the social sciences . . .have to create particular devices for eliminating the contingency inherent in the situation of choice and

decision in daily life" (1972, p. 588). As an apt example in this context, Schutz

used the case of malinvestment that may result when entrepreneurs make

incorrect decisions about the purchase of additional or replacement real capital

goods in the form of means of production (1996, p. 98). Two sources of such

a failed outcome from a decision to undertake investment expenditure are

possible. One arises when the agent is modelled as making the objectively rational decision under the specifically given circumstances, but the decision

is rendered incorrect by the subsequent, unanticipated outturn of events. The

other arises when from the outset the decision made by the agent is flawed,

given what is actually known and relevant about the circumstances. Schutz

was not very clear about how we should interpret this example, but it seems

that in the former situation, the objective model of the investment decision is

valid as far as it went, whereas in the second situation the subjective fallibility of the agent is introduced and this destroys the objectivity of the decision model

itself. What flowed from the example, though, was very important. Schutz

introduced through this case the general problem of "knowledge and prediction in economics" (p. 98). The fact of real-life for agents that he emphasized was

the uncertainty and contingency of the future compared to the certain but

unchangeable status of the past. For, as he well recognized, it is the incorrigible effect of time and uncertainty that creates the open-endedness involved in

future oriented decisions. So it was that the assumptions made about the

omnipotence of agents, along with "certain additional assumptions which unify the field of possibilities to be chosen from . . .," have to be imposed in order

to "make it possible to translate the dynamic process of choosing and deciding in inner time into static or outer time" ( 1972, p. 588). That is, in effect, to create

the sort of models that dominate in economics.

Conclusion

Schutz's ambivalent intention in confronting economics was simultaneously to

suggest a rationale for its formalist characteristics, while maintaining a critical

stance towards the limitations they imposed on developing a complete

subjectivist understanding of the economic actions. It is evident from his

endeavours to give some bona fides to these characteristics that he could not

rest content with them as indicative of the most appropriate foundation that

could be devised for the social sciences in general. When arraigned against the phenomenology of the life-world that he had constructed, and against the



258 ALLEN OAKLEY

"postulates" he required the social sciences to meet, much of extant

economics fell well short of the complex treatment of human action that

realism demanded.

Schutz had tried to portray economics as an exemplar of social science as

far as possible. But in advocating at the same time the crucial status of adhering to the postulate of "adequacy" in particular, he had burdened himself with a

dilemma. It was immediately apparent to him that the efforts of economists to

avoid confronting the subjectivism of human agency could only succeed by means of an imposed presumption of omnipotently rational agents. If rationality

in the social sciences generally was to be modelled on that established in

economics, the relevant patterns of ideal types of agents and their actions must

be shown explicitly to conform to the demands of "adequacy." This was

certainly not the case in "pure" economics, as Schutz must have realized, whatever his admiration for its apparent scientificity and intellectual success.

His own expositions of the subjectivism of human agency, and all that this

implies for understanding human action, indicated that homo oeconomicus

cannot be aligned with the ontological typicality of active agents situated in

their life-world. On this basis, Schutz's defence of economics could not but

have faltered and the ultimate result was to reinforce the unresolved tension

in his work between preserving the postulate of "rationality" and ensuring that

the resulting analyses meet the demands of "adequacy."

Acknowledgement

I thank two anonymous referees for their helpful comments, but I remain

responsible for the final content of this paper. The research for this paper,

including my visit to study the Alfred Schutz Papers in The Beinecke Rare

Book and Manuscript Library in Yale University, was supported by a Small

Grant from the Australian Research Council. A more detailed treatment of

Schutz's relevance for economics will be found in Oakley (forthcoming 2001).

Notes

1. Most of Schutz's references to the Austrians were to the writings of Ludwig von Mises

(1881-1973) and Friedrich von Hayek ( 1899-1992). On their work and its philosophical foundations see Oakley, 1997 and 1999.

2. All reference citations without an author are to Schutz's writings and, in all quotations

from these writings, the emphases shown are in the original, unless otherwise indicated.

3. The latter reference to the postulates was made by Schutz in a paper entitled: "The

problem of rationality in the social world. A lecture delivered at the Faculty Club of

Harvard University on April 13th, 1940" (1940a: reprinted in Schutz (1996: 6ff)). A

shorter version of the paper was published in Econ?mica in 1943 and reprinted in Schutz

(1964: 64ff), but it is the original version to which reference will be made here throughout.




4. The reference is to page 11 of a letter written in English from Schutz to Lowe dated 17

October 1955 (Schutz, 1955). The quoted wording varies slightly from the original held in the Beinecke Library.

5. These arguments are from 1945 when Schutz drafted a paper on the problem of

understanding choice as a constituent of human agency. The draft was published in two

parts. One piece was published in 1951 as "Choosing among projects of action" (1962:

67ff). The other (with some overlap) was published posthumously by Lester Embree in 1972 as "Choice and the social sciences" (Schutz, 1972), and contained what Schutz

thought of as the "economics part" of the original paper.

6. In 1934, Schutz made an assessment of Austrian economics and the use of the a priori

depiction of human action when he reviewed Mises's Grundprobleme der

National?konomie that had been published in 1933 (Schutz, 1934: reprinted in English translation in Schutz 1996: 88ff). Mises and the a priori were also subjected to some

sympathetic critical scrutiny by Schutz in a 1936 paper sent in draft form to Hayek (1936b: 20ff; and in English translation 1996: 103f; cf. 1936a).

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alfred schutz and economics as a social science

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