Lachmann discusses Menger’s attitude to “economic laws” and the law of demand:
“For a long time students of Menger have been puzzled by the precise meaning of his notion of ‘exact laws’. He regards it as the prime task of economic science to formulate such laws. In Appendix V of the Untersuchungen we are told that ‘in the field of human phenomena exact laws (so-called ‘laws of nature’) are attainable under the same conditions as in that of natural phenomena.’ In this regard, then, there is no difference at all between social and natural sciences. On the other hand, Menger distinguishes sharply between these ‘exact laws’, i.e. ‘laws of the phenomena which are not only valid without exception but which, according to the laws of our thought simply cannot be thought of in any other way but as without exceptions’ (Menger 1963: 42), and ‘empirical laws’ which rest on observation and admit of exceptions.These views will no doubt strike many of us as odd, but the main reason for it is that we have come to take it for granted that ours is a world of relentless positivism. There will be few natural scientists today ready to acknowledge that their prime task is to find exact laws of the kind Menger describes. For the most of us ‘laws of nature’ are empirical laws, in principle falsifiable.” (Lachmann 1994: 209–210).Menger’s views on the law of demand are quite peculiar. On the one hand, the law of demand is “unempirical when tested by reality in its full complexity,” but at the same time, “in spite of everything, true, completely true”!
Menger uses the ‘law of demand’ as an example for this distinction. According to him the exact law tells us not merely that a rise in demand will lead to a rise in price, but that, under certain conditions, the extent of this price rise is quantitatively exactly determinable (‘dem Masse nach genau bestimmbar’). But he goes on to warn us that these conditions require not only that all participants maximize their satisfaction in the pursuit of which they must be free of all external coercion, but also the absence of error and ignorance. Hence we must not expect to find instances of the exact law in the real world. It is [sc. according to Menger – LK]unempirical when tested by reality in its full complexity.But what else does this prove than that the results of exact research do not find their criteria in experience in the above sense? The above law is, in spite of everything, true, completely true, and of the highest significance for the theoretical understanding of price phenomena as soon as one looks at it from that standpoint appropriate for exact research. If one looks at it from the point of view of realistic research, to be sure, one arrives at contradictions … but in this case the error lies not in the law, but in the false perspective. (Menger 1963: 57).
That Menger could seriously believe and write those words demonstrates that he formulated the law of demand at a level so abstract that it could only be true in that almost imaginary world. It is as if we were to formulate a law that must be necessarily true in the Land of Oz, admit that such a law is not universally true in our world, but nevertheless contend that such a law is always and universally true in Oz, the world of our imagination.
That all this bespeaks a deeply flawed, even deluded, approach to the social sciences goes without saying.
Menger conceded that when related to the empirical real world of experience, the law of demand” arrives at contradictions.” That is quite clearly a continuing problem with the law of demand even in neoclassical economics.
Lachmann, L. M. 1994. “Carl Menger and the Incomplete Revolution of Subjectivism,” in D. Lavoie (ed.), Expectations and the Meaning of Institutions: Essays in Economics, Routledge, London. 207–212.
Menger, Carl. 1963 . Problems of Economics and Sociology (trans. F. J. Nock). University of Illinois Press, Urbana, Illinois.