Karl Popper and the Social Sciences

4. Situational Analysis and Economic Theory

CHAPTER FOUR Situational Analysis and Economic Theory Popper developed situational analysis largely as a result of his encounters with economic theory and—strange as it may seem to some readers—Marxism. We will examine Marx’s influence on Popper in the next chapter. In this chapter we will see how economic theory influenced Popper’s social science methodology and then consider the important ways in which Popper departed from the economists’ approach. A complete understanding of situational analysis requires an understanding of economic theory. Popper viewed economics as the most developed social science, and he favored examples from economics when reflecting upon social science explanation (see MF, 176, 182 n. 6; OSE II, 95–97; OSE I, 67; PH, 62).1 More importantly, Popper claimed to have modeled situational analysis on economic theory. Specifically, in Unended Quest, Popper stated that in developing situational analysis his aim was “to generalize the method of economic theory (marginal utility theory) so as to become applicable to the other theoretical sciences” (117–18). The link between economics and situational analysis is evident in Popper’s earliest discussions of situational analysis. In The Poverty of Historicism, Popper compared situational logic to the “pure logic of choice” described by the “equations of economics” (PH, 141). In the second volume of The Open Society and Its Enemies, Popper declared that situational analysis “is, in fact, the method of economic analysis” (OSE II, 97). In his 1961 lecture “The Logic of the Social Sciences,”Popper claimed that the “logical investigation of the methods of economics yields a result that can be applied to all social sciences” (ISBW, 79). And in his most in-depth discussion of situational analysis—his 1963 lecture delivered to the economics department at Harvard entitled “Models, Instruments, and Truth”—Popper told his audience that his views on the methodology of social sciences grew out of his “admiration for economic theory” (MF, 154; PS, 353–354). Surprisingly, however, Popper never spelled out precisely what he understood the method of economics to be. This is particularly troubling because, Popper’s own claims to the contrary notwithstanding, it is far from obvious 59 that Popper’s situational analysis is in fact the same approach used by economists (to the extent that a single approach can be identified even among “mainstream” or “orthodox” economists). Also somewhat surprising is the fact that much of the scholarly commentary on Popper’s philosophy of social science fails to address his claim that situational analysis is based on economic theory. Several recent books, for instance, those by Stokes (1998) and Corvi (1997), discuss situational analysis but make no mention of its links to economic theory. An exception, however, comes from the economist Colin Simkin, who, in his 1993 book on Popper, did emphasize the connections between situational analysis and economics. Recently, however, mainly as a result of a 1997 conference on Popper and the social sciences arranged by the Research Unit for Socio-Economics in Vienna, a number of scholars have begun examining the relationship between economics and situational analysis. Most of the scholars who attended the conference—or, at least, most of those who published essays on Popper and economics after the conference—reject the claim that situational analysis and economic theory offer essentially the same approach for examining the social world. Egon Matzner and Ian Jarvie contend that Popper’s development of situational analysis can be understood as an early salvo in “economic imperialism ,” the ongoing attempt to apply the methods of economics to other branches of social science (Matzner and Jarvie 1998, 335). Yet Matzner and Jarvie argue that situational analysis is significantly different from traditional economic theory. Unlike standard economic theory, situational analysis does not disregard the role of social institutions in human action, and therefore, they claim, situational analysis is best understood as a fusion between economic theory and sociology, insofar as situational analysis stresses instrumental action and social situation (Matzner and Jarvie 1998, 337). Similarly, in a separate essay Matzner and Amit Bhaduri conclude that situational analysis cannot be described as a generalized version of standard economic theory precisely because standard economic models ignore the social situation (1998). Paul Ormerod and Bridget Rosewell offer a related criticism, claiming that orthodox economic theory fails to include initial conditions and the historical situation in its standard models of consumer behavior. Situational analysis, they claim, avoids these errors (1998). Like Matzner and Jarvie, Peter Hedstrom et al. also conclude that Popper ’s situational analysis should be viewed as an...