This chapter discusses the literature on ad hoc theory adjustment both within economics and within the Popperian philosophical tradition. It will be shown that there are two fundamentally different concepts of ad hocness within the Popperian tradition, one associated with Popper himself and one with Lakatos, and that these two different concepts are mirrored in the way the term is used by economic methodologists and economic theorists, respectively. In Section I, Popper's use of the term “ad hoc” and its fundamental importance to the Popperian program will be discussed. In Section II, Lakatos's three different notions of ad hocness will be reduced to two (one the same as Popper's and one uniquely Lakatosian), and the importance of each of these to the methodology of scientific research programs will be examined. These first two sections, although simply surveys, are necessary because this particular aspect of both the Popperian and Lakatosian philosophy of science has been badly neglected in the recent literature on economic methodology. Section III discusses the use of “ad hoc” by both economic methodologists and economic theorists, and compares these uses with those in the philosophical literature. In the conclusion (Section IV) the methodological implications of the discussion in the first three sections will be examined. It will be argued that proper emphasis on the different notions of ad hocness, and the different groups who tend to emphasize each use, have significant implications for economic methodology, particularly Lakatosian economic methodology.

Outsiders make the same complaint about philosophers as they do about economists, saying, These writers thin down the question so. And so they both do. The economist thins the question of the good society right down to matters of price and marginal cost. The philosopher thins the good argument right down to matters of modus tollens and infinite regress. Precision comes from the conversational thinness, as does employment and other goods. But even after such achievements, we should not be surprised if outsiders want to get back to the main and fatter point.

The trouble with using Karl Popper's thinking for a history or methodology of economic thought is not mainly some flaw in its technique, though Daniel Hausman has made the pervasiveness of the flaws clear. The main problem, even in this the richest of philosophies, is its thinness. Rich as Sir Karl's thinking is, supplemented by Lakatos, elaborated and applied with wonderful ingenuity by their followers, it looks thin beside the actual conversation of science. A conversation begun in the primeval forest, as Michael Oakeshott once said, extended and made more articulate in the course of centuries, is probably not going to fit easily into a few lines of philosophy. Or rather, since the issue is empirical, it might–it might be that a philosophy could describe well what goes on in the conversation of science–but it hasn't.

It is commonplace criticism that econometricians never refute a model that they set out to “test” in the sense that they never reject the underlying theoretical model they have used. It has been argued that refutations cannot be expected from econometrics for various reasons of a logical or philosophical nature. The less kindly, more casual observer might note that econometricians sometimes blame the paucity of data or problems with the estimation method or computing power, rather than reject a theory; in other words that, as bad workers, they blame their tools.

Without wishing to detract from the sound philosophical arguments about the inability to test economic theories, and ignoring the unkind aspersions on econometricians, I want to argue from a different viewpoint–an historical viewpoint. This viewpoint suggests that although econometricians have described their activity as that of testing economic theories, this testing should not be understood in quite the same terms as methodological discussions about falsification and verification. In my view, econometricians have been primarily concerned with finding satisfactory empirical models, not with trying to prove fundamental theories true or untrue.

Historically, econometricians sought applied counterparts to theory that “worked” with reference to observed data. This involved not only the translation of theory into empirical models but also the parallel development of criteria for labeling empirical models “satisfactory.”

Economic methodologists and historians of economics have begun to find common ground in studying the actual practices of economists. Ironically, this has come about partly because both have sought and found inspiration in the philosophy of science. Ironic because, in its early days, philosophy of science was the captive of the philosophy of Logical Positivism, whose overriding concern with meaning, rather than with knowledge, made it remote from the activity of scientists. Thus the alleged connection between philosophy of science and the methodology and history of economics may seem unlikely, and a brief history of the interaction seems called for. Sir Karl Popper's views and reactions to them are central to the story.

In the heyday of Positivism the authority undoubtedly due to science was thought of as being intimately linked with the properties of statements. So-called elementary statements were deemed to capture in a quite direct way elements of reality. Hence the logical relation of such statements to nonelementary statements, and the verifiability of a statement (by observation), became the central concerns of philosophy of science. Apart from analytic propositions, only empirically verifiable statements were judged meaningful (cf. Ayer 1946). But after all, it is statements not about particular instances or observations but about general classes of experience that interest scientists. Thus, as Popper noted in The Logic of Scientific Discovery (1959, ch. 1, sect. 4), the philosophy of logical empiricism inevitably led to a search for a modified logic of induction.

“When English-speaking philosophers think of economics, they usually have a particular kind of pure theory in mind. This is the class of theories predominantly taught in western universities and often called neo-Classical. Purity here is a matter of conceiving homo economicus in abstraction from his social setting and, more excusably, of forswearing the attempt to make economics part (or all) of a general theory of society. By contrast, political economy, as the term is now used, is just such an attempt and its champions insist that no economic theory can be as pure as neo-Classicals pretend.” This view of the links between philosophy and economic theory, espoused by Frank Hahn and Martin Hollis, is one that the contributors to this volume embrace, even if none of them is a practitioner of “political economy” precisely as it is defined here. This book had its origins in an effort to place neoclassical economic theory (especially conventional textbook microeconomic theory) in the broader context of modern economics with special concern for the boundaries between economics and the other social sciences. The widespread use of textbook theory in business, economic, and political analysis is a clear testament to its power. Yet the restrictions and artificialities of neoclassical economic assumptions also give cause for worry to some of the finest minds in the discipline. These chapters examine two related themes that complicate the conventional “economist's” view of conduct and thereby provide a more complex (and humane) subject of study than the traditional Homo economicus.

Time has usually been treated in two very different ways in economic and social analysis. An analytical high road ponders the Nature of Time and the metaphysical conundrums of St. Augustine and Einstein, whereas a low road considers the time context of human behavior and its analysis to be self-evident, uncomplicated, and not very interesting. Both of these are appealing but both, I will argue, are inadequate: the high road because of its irrelevance to social analysis, the low road because its inattention to temporality creates important obstacles to understanding social behavior. A middle road needs building – or at least widening and surfacing – a road that acknowledges the importance of the time structure of social behavior and our analysis of it while avoiding both mystification, on the one hand, and carelessness, on the other. I hope this chapter will make a contribution to that end.

The high road, the low road, and a middle road

Consideration of the Ultimate Nature of Time is mind boggling. Sympathy with Augustine's (1955:354) famous complaint has certainly increased in the past fifteen hundred years: “What, then, is time? If no one asks me, I know what it is. If I wish to explain it to him who asks me, I do not know.” Philosophers have asked whether time has reality, whether the passage of time has reality, whether time exists apart from human observation of it, and whether statements about time can be made independent of time itself.

With patience historians may resolve a few of the issues that arouse their curiosity. Eventually they tire of many they cannot settle. Finally they keep returning to still others that cannot easily be solved but do not lose their intellectual or moral fascination: the persistent questions that get under the scholar's skin. From one angle or another, over a period of fifteen years, the pieces collected here have addressed one of these besetting issues, namely, how are the inequalities inherent in modern economic organization defused or overcome as a source of explosive social conflict? This inquiry includes several interlocking questions:

What mixture of constraint and ideological legitimation, what forms of representation, what promises of material reward support political and social stability?

Under what circumstances is stability threatened; under what circumstances is it recovered?

How does the alignment of power among nation-states influence the tensions and rivalries within national societies?

These common issues provide one reason for publishing this diverse collection of essays in a single volume. A further incentive is that several of the pieces appeared in journals or conference proceedings that political scientists and economists were more likely to encounter than fellow historians. I like to think that, although they are essentially historical, that is, more intent on explaining specific past outcomes than generalizing about political or economic development as recurrent possibilities, some of the essays do cross disciplinary frontiers. Though not really economic history, some are informed by economic issues; though not really political science, some try to provide typologies of political groups and behavior.

In his own account of his intellectual formation, F. A. Hayek has always acknowledged his indebtedness to the thinkers of the Scottish school and, above all, to Ferguson, Smith, and Hume. Indeed, in his contributions to the intellectual history of classical liberal political economy and social philosophy, Hayek has gone so far as to distinguish two divergent and opposed intellectual traditions – that of the French Enlightenment, which he sees as inspired ultimately by a variation of Cartesian rationalism, and that of the Scottish Enlightenment, with its roots in a Christian and skeptical recognition of the limits of human understanding – and has identified himself explicitly with the Scottish tradition. That Hayek's thought converges with that of the leading Scottish political economists on many fundamental questions is not in serious doubt and can easily be demonstrated. At the same time, the thought of the Scottish school is only one of the influences that have shaped Hayek's complex intellectual makeup, and these other influences, especially that of his teachers in the Austrian school, are responsible for many of the points of sharp and real divergence between Hayek and the Scottish philosophers. It is by virtue of these other influences that we may say that Hayek's thought diverges from that of the Scottish philosophers as often as it converges with it – and, often enough, in ways Hayek has not himself perceived.

An early version of this chapter was prepared for a conference at the Kellogg Institute of Notre Dame University in April 1984 honoring the work of Albert O. Hirschman. That contribution was published as “The Economics of Fascism and Nazism: Premises and Performance,” in Alejandro Foxley, Michael S. McPherson, and Guillermo O'Donnell, eds., Development, Democracy, and the Art of Trespassing: Essays in Honor of Albert O. Hirschman (Notre Dame, Ind.: University of Notre Dame Press, 1986), 57–88. The original paper was proposed as an examination of development and economic management under nondemocratic conditions. This expanded version rests on a wider survey of the literature and statistical material; it has a new introduction and examines some of the important controversies about the Depression and wartime performance in greater detail. I have benefited from discussion at the Columbia Economic History Seminar, the Harvard Economic History Workshop, and the Harvard Center for European Studies Seminar on the State and Capitalism. Steven Marglin pressed me to think through the issues raised by German recovery from the Depression. Alan Milward and Tim Mason read the penultimate version very closely. They raised important questions and pointed out some errors. Those that remain are my responsibility.

Introduction: two generations of studies

The economic claims of Italian Fascism and German Nazism proved a subject of compelling interest from their inception. In the 1930s and 1940s they aroused impassioned and significant debate. Apologists vaunted Fascism and National Socialism as political systems that would overcome the selfishness and chaos of interwar capitalism without recourse to a stultifying collectivism.

The theme introduced here has been taken up by other authors, especially in regard to Italy. See Pier-Paolo D'Attorre, “Aspetti dell' attuazione del Piano Marshall in Italia,” in Elena Aga Rossi, ed., II Piano Marshall e l'Europa (Rome: Instituto della Enciclopedia Italiana, 1983), 163–80; and Mariuccia Salvati, Stato e industria nella ricostruzione: Alle origini del potere democristiano (Milan: Feltrinelli, 1982). On the impact on trade unions see the essay by Federico Romero, “Postwar Reconversion Strategies of American and Western European Labor,” European University Institute Working Paper, no. 85/193 (San Domenico di Fiesole, September 1985). Since this article appeared, I have continued a study of the United States and postwar reconstruction in Europe, which will develop further the argumentation and evidence introduced here.

The ground rules of a liberal international economic system may establish formal equality among participants but they also reflect the disparity of power and resources. Just as significant, they reveal the inequalities and conflicts within the dominant national societies of the system. The primary objective of this chapter is to suggest how the construction of the post–World War II Western economy under United States auspices can be related to the political and economic forces generated within American society. A second focus must be to demonstrate how those American impulses interacted with the social and political components of other nations, both European and Japanese.

The close of World War II brought American policy makers a rare and heady opportunity to reshape the guidelines of the international economic order. The pretensions of the Axis powers to organize continental Europe and East Asia had collapsed.