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PART 2: THEORY AND METHOD - Edwin G. Dolan, The Foundations of Modern Austrian Economics 
The Foundations of Modern Austrian Economics, ed. with an Introduction by Edwin G. Dolan (Kansas City: Sheed and Ward, 1976).
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THEORY AND METHOD
Praxeology: The Methodology of Austrian Economics
Murray N. Rothbard
Praxeology is the distinctive methodology of the Austrian school. The term was first applied to the Austrian method by Ludwig von Mises, who was not only the major architect and elaborator of this methodology but also the economist who most fully and successfully applied it to the construction of economic theory.1 While the praxeological method is, to say the least, out of fashion in contemporary economics—as well as in social science generally and in the philosophy of science—it was the basic method of the earlier Austrian school and also of a considerable segment of the older classical school, in particular of J. B. Say and Nassau W. Senior.2
Praxeology rests on the fundamental axiom that individual human beings act, that is, on the primordial fact that individuals engage in conscious actions toward chosen goals. This concept of action contrasts to purely reflexive, or knee-jerk, behavior, which is not directed toward goals. The praxeological method spins out by verbal deduction the logical implications of that primordial fact. In short, praxeological economics is the structure of logical implications of the fact that individuals act. This structure is built on the fundamental axiom of action, and has a few subsidiary axioms, such as that individuals vary and that human beings regard leisure as a valuable good. Any skeptic about deducing from such a simple base an entire system of economics, I refer to Mises’s Human Action. Furthermore, since praxeology begins with a true axiom, A, all the propositions that can be deduced from this axiom must also be true. For if A implies B, and A is true, then B must also be true.
Let us consider some of the immediate implications of the action axiom. Action implies that the individual’s behavior is purposive, in short, that it is directed toward goals. Furthermore, the fact of his action implies that he has consciously chosen certain means to reach his goals. Since he wishes to attain these goals, they must be valuable to him; accordingly he must have values that govern his choices. That he employs means implies that he believes he has the technological knowledge that certain means will achieve his desired ends. Let us note that praxeology does not assume that a person’s choice of values or goals is wise or proper or that he has chosen the technologically correct method of reaching them. All that praxeology asserts is that the individual actor adopts goals and believes, whether erroneously or correctly, that he can arrive at them by the employment of certain means.
All action in the real world, furthermore, must take place through time; all action takes place in some present and is directed toward the future (immediate or remote) attainment of an end. If all of a person’s desires could be instantaneously realized, there would be no reason for him to act at all.3 Furthermore, that a man acts implies that he believes action will make a difference; in other words, that he will prefer the state of affairs resulting from action to that from no action. Action therefore implies that man does not have omniscient knowledge of the future; for if he had such knowledge, no action of his would make any difference. Hence, action implies that we live in a world of an uncertain, or not fully certain, future. Accordingly, we may amend our analysis of action to say that a man chooses to employ means according to a technological plan in the present because he expects to arrive at his goals at some future time.
The fact that people act necessarily implies that the means employed are scarce in relation to the desired ends; for, if all means were not scarce but superabundant, the ends would already have been attained, and there would be no need for action. Stated another way, resources that are superabundant no longer function as means, because they are no longer objects of action. Thus, air is indispensable to life and hence to the attainment of goals; however, air being superabundant is not an object of action and therefore cannot be considered a means, but rather what Mises called a “general condition of human welfare.” Where air is not superabundant, it may become an object of action, for example, where cool air is desired and warm air is transformed through air conditioning. Even with the absurdly unlikely advent of Eden (or what a few years ago was considered in some quarters to be an imminent “postscarcity” world), in which all desires could be fulfilled instantaneously, there would still be at least one scarce means: the individual’s time, each unit of which if allocated to one purpose is necessarily not allocated to some other goal.4
Such are some of the immediate implications of the axiom of action. We arrived at them by deducing the logical implications of the existing fact of human action, and hence deduced true conclusions from a true axiom. Apart from the fact that these conclusions cannot be “tested” by historical or statistical means, there is no need to test them since their truth has already been established. Historical fact enters into these conclusions only by determining which branch of the theory is applicable in any particular case. Thus, for Crusoe and Friday on their desert island, the praxeological theory of money is only of academic, rather than of currently applicable, interest. A fuller analysis of the relationship between theory and history in the praxeological framework will be considered below.
There are, then, two parts to this axiomatic-deductive method: the process of deduction and the epistemological status of the axioms themselves. First, there is the process of deduction; why are the means verbal rather than mathematical logic?5 Without setting forth the comprehensive Austrian case against mathematical economics, one point can immediately be made: let the reader take the implications of the concept of action as developed so far in this paper and try to place them in mathematical form. And even if that could be done, what would have been accomplished except a drastic loss in meaning at each step of the deductive process? Mathematical logic is appropriate to physics—the science that has become the model science, which modern positivists and empiricists believe all other social and physical sciences should emulate. In physics the axioms and therefore the deductions are in themselves purely formal and only acquire meaning “operationally” insofar as they can explain and predict given facts. On the contrary, in praxeology, in the analysis of human action, the axioms themselves are known to be true and meaningful. As a result, each verbal step-by-step deduction is also true and meaningful; for it is the great quality of verbal propositions that each one is meaningful, whereas mathematical symbols are not meaningful in themselves. Thus Lord Keynes, scarcely an Austrian and himself a mathematician of note, leveled the following critique at mathematical symbolism in economics:
It is a great fault of symbolic psuedo-mathematical methods of formalising a system of economic analysis, that they expressly assume strict independence between the factors involved and lose all their cogency and authority if this hypothesis is disallowed: whereas, in ordinary discourse, where we are not blindly manipulating but know all the time what we are doing and what the words mean, we can keep “at the back of our heads” the necessary reserves and qualifications and the adjustments which we shall have to make later on, in a way in which we cannot keep complicated partial differentials “at the back” of several pages of algebra which assume that they all vanish. Too large a proportion of recent “mathematical” economics are mere concoctions, as imprecise as the initial assumptions they rest on, which allow the author to lose sight of the complexities and interdependencies of the real world in a maze of pretentious and unhelpful symbols.6
Moreover, even if verbal economics could be successfully translated into mathematical symbols and then retranslated into English so as to explain the conclusions, the process makes no sense and violates the great scientific principle of Occam’s Razor of avoiding unnecessary multiplication of entities.7
Furthermore, as political scientist Bruno Leoni and mathematician Eugenio Frola pointed out,
It is often claimed that translation of such a concept as the maximum from ordinary into mathematical language, involves an improvement in the logical accuracy of the concept, as well as wider opportunities for its use. But the lack of mathematical precision in ordinary language reflects precisely the behavior of individual human beings in the real world . . . . We might suspect that translation into mathematical language by itself implies a suggested transformation of human economic operators into virtual robots.8
Similarly, one of the first methodologists in economics, Jean-Baptiste Say, charged that the mathematical economists
have not been able to enunciate these questions into analytical language, without divesting them of their natural complication, by means of simplifications, and arbitrary suppressions, of which the consequences, not properly estimated, always essentially change the condition of the problem, and pervert all its results.9
More recently, Boris Ischboldin has emphasized the difference between verbal, or “language,” logic (“the actual analysis of thought stated in language expressive of reality as grasped in common experience”) and “construct” logic, which is “the application to quantitative (economic) data of the constructs of mathematics and symbolic logic which constructs may or may not have real equivalents.”10
Although himself a mathematical economist, the mathematician son of Carl Menger wrote a trenchant critique of the idea that mathematical presentation in economics is necessarily more precise than ordinary language:
Consider, for example, the statements (2) To a higher price of a good, there corresponds a lower (or at any rate not a higher) demand.
(2′) If p denotes the price of, and q the demand for, a good, then Those who regard the formula (2′) as more precise or “more mathematical” than the sentence (2) are under a complete misapprehension . . . . The only difference between (2) and (2′) is this: since (2′) is limited to functions which are differentiable and whose graphs, therefore, have tangents (which from an economic point of view are not more plausible than curvature), the sentence (2) is more general, but it is by no means less precise: it is of the same mathematical precision as (2′).11
Turning from the deduction process to the axioms themselves, what is their epistemological status? Here the problems are obscured by a difference of opinion within the praxeological camp, particularly on the nature of the fundamental axiom of action. Ludwig von Mises, as an adherent of Kantian epistemology, asserted that the concept of action is a priori to all experience, because it is, like the law of cause and effect, part of “the essential and necessary character of the logical structure of the human mind.”12 Without delving too deeply into the murky waters of epistemology, I would deny, as an Aristotelian and neo-Thomist, any such alleged “laws of logical structure” that the human mind necessarily imposes on the chaotic structure of reality. Instead, I would call all such laws “laws of reality,” which the mind apprehends from investigating and collating the facts of the real world. My view is that the fundamental axiom and subsidiary axioms are derived from the experience of reality and are therefore in the broadest sense empirical. I would agree with the Aristotelian realist view that its doctrine is radically empirical, far more so than the post-Humean empiricism which is dominant in modern philosophy. Thus, John Wild wrote:
It is impossible to reduce experience to a set of isolated impressions and atomic units. Relational structure is also given with equal evidence and certainty. The immediate data are full of determinate structure, which is easily abstracted by the mind and grasped as universal essences or possibilities.13
Furthermore, one of the pervasive data of all human experience is existence; another is consciousness, or awareness. In contrast to the Kantian view, Harmon Chapman wrote that
conception is a kind of awareness, a way of apprehending things—or comprehending them—and not an alleged subjective manipulation of so-called generalities or universals solely “mental” or “logical” in their provenience and non-cognitive in nature.
That in thus penetrating the data of sense, conception also synthesizes these data is evident. But the synthesis here involved, unlike the synthesis of Kant, is not a prior condition of perception, an anterior process of constituting both perception and its object, but rather a cognitive synthesis in apprehension, that is, a uniting or “comprehending” which is one with the apprehending itself. In other words, perception and experience are not the results or end products of a synthetic process a priori, but are themselves synthetic or comprehensive apprehensions whose structured unity is prescribed solely by the nature of the real, that is, by the intended objects in their togetherness and not by consciousness itself whose (cognitive) nature is to apprehend the real—as it is.14
If, in the broad sense, the axioms of praxeology are radically empirical, they are far from the post-Humean empiricism that pervades the modern methodology of social science. In addition to the foregoing considerations, (1) they are so broadly based in common human experience that once enunciated they become self-evident and hence do not meet the fashionable criterion of “falsifiability”; (2) they rest, particularly the action axiom, on universal inner experience, as well as on external experience, that is, the evidence is reflective rather than purely physical; and (3) they are therefore a priori to the complex historical events to which modern empiricism confines the concept of “experience”.15
Say, perhaps the first praxeologist, explained the derivation of the axioms of economic theory as follows:
Hence the advantage enjoyed by every one who, from distinct and accurate observation, can establish the existence of these general facts, demonstrate their connection and deduce their consequences. They as certainly proceed from the nature of things as the laws of the material world. We do not imagine them; they are results disclosed to us by judicious observation and analysis . . . .
Political economy . . . is composed of a few fundamental principles, and of a great number of corollaries or conclusions, drawn from these principles . . . that can be admitted by every reelecting mind.16
Friedrich A. Hayek trenchantly described the praxeological method in contrast to the methodology of the physical sciences, and also underlined the broadly empirical nature of the praxeological axioms:
The position of man . . . brings it about that the essential basic facts which we need for the explanation of social phenomena are part of common experience, part of the stuff of our thinking. In the social sciences it is the elements of the complex phenomena which are known beyond the possibility of dispute. In the natural sciences they can only be at best surmised. The existence of these elements is so much more certain than any regularities in the complex phenomena to which they give rise, that it is they which constitute the truly empirical factor in the social sciences. There can be little doubt that it is this different position of the empirical factor in the process of reasoning in the two groups of disciplines which is at the root of much of the confusion with regard to their logical character. The essential difference is that in the natural sciences the process of deduction has to start from some hypothesis which is the result of inductive generalizations, while in the social sciences it starts directly from known empirical elements and uses them to find the regularities in the complex phenomena which direct observations cannot establish. They are, so to speak, empirically deductive sciences, proceeding from the known elements to the regularities in the complex phenomena which cannot be directly established.17
Similarly, J. E. Cairnes wrote:
The economist starts with a knowledge of ultimate causes. He is already, at the outset of his enterprise in the position which the physicist only attains after ages of laborious research . . . . For the discovery of such premises no elaborate process of induction is needed . . . for this reason, that we have, or may have if we choose to turn our attention to the subject, direct knowledge of these causes in our consciousness of what passes in our own minds, and in the information which our senses convey . . . to us of external facts.18
Nassau W. Senior phrased it thus:
The physical sciences, being only secondarily conversant with mind, draw their premises almost exclusively from observation or hypothesis . . . . On the other hand, the mental sciences and the mental arts draw their premises principally from consciousness. The subjects with which they are chiefly conversant are the workings of the human mind. [These premises are] a very few general propositions, which are the result of observation, or consciousness, and which almost every man, as soon as he hears them, admits, as familiar to this thought, or at least, included in his previous knowledge.19
Commenting on his complete agreement with this passage, Mises wrote that these “immediately evident propositions” are “of aprioristic derivation . . . unless one wishes to call aprioristic cognition inner experience.”20 To which Marian Bowley, the biographer of Senior, justly commented:
The only fundamental difference between Mises’ general attitude and Senior’s lies in Mises’ apparent denial of the possibility of using any general empirical data, i.e., facts of general observation, as initial premises. This difference, however, turns upon Mises’ basic ideas of the nature of thought, and though of general philosophic importance, has little special relevance to economic method as such.21
It should be noted that for Mises it is only the fundamental axiom of action that is a priori; he conceded that the subsidiary axioms of the diversity of mankind and nature, and of leisure as a consumers’ good, are broadly empirical.
Modern post-Kantian philosophy has had a great deal of trouble encompassing self-evident propositions, which are marked precisely by their strong and evident truth rather than by being testable hypotheses, that are, in the current fashion, considered to be “falsifiable”. Sometimes it seems that the empiricists use the fashionable analytic-synthetic dichotomy, as the philosopher Hao Wong charged, to dispose of theories they find difficult to refute by dismissing them as necessarily either disguised definitions or debatable and uncertain hypotheses.22 But what if we subject the vaunted “evidence” of modern positivists and empiricists to analysis? What is it? We find that there are two types of such evidence to either confirm or refute a proposition: (1) if it violates the laws of logic, for example, implies that A = −A; or (2) if it is confirmed by empirical facts (as in a laboratory) that can be checked by many persons. But what is the nature of such “evidence” but the bringing, by various means, of propositions hitherto cloudy and obscure into clear and evident view, that is, evident to the scientific observers? In short, logical or laboratory processes serve to make it evident to the “selves” of the various observers that the propositions are either confirmed or refuted, or, to use unfashionable terminology, either true or false. But in that case propositions that are immediately evident to the selves of the observers have at least as good scientific status as the other and currently more acceptable forms of evidence. Or, as the Thomist philosopher John J. Toohey put it,
Proving means making evident something which is not evident. If a truth or proposition is self-evident, it is useless to attempt to prove it; to attempt to prove it would be to attempt to make evident something which is already evident.23
The action axiom, in particular, should be, according to Aristotelian philosophy, unchallengeable and self-evident since the critic who attempts to refute it finds that he must use it in the process of alleged refutation. Thus, the axiom of the existence of human consciousness is demonstrated as being self-evident by the fact that the very act of denying the existence of consciousness must itself be performed by a conscious being. The philosopher R. P. Phillips called this attribute of a self-evident axiom a “boomerang principle,” since “even though we cast it away from us, it returns to us again.”24 A similar self-contradiction faces the man who attempts to refute the axiom of human action. For in doing so, he is ipso facto a person making a conscious choice of means in attempting to arrive at an adopted end: in this case the end, or goal, of trying to refute the axiom of action. He employs action in trying to refute the notion of action.
Of course, a person may say that he denies the existence of self-evident principles or other established truths of the real world, but this mere saying has no epistemological validity. As Toohey pointed out,
A man may say anything he pleases, but he cannot think or do anything he pleases. He may say he saw a round square, but he cannot think he saw a round square. He may say, if he likes, that he saw a horse riding astride its own back, but we shall know what to think of him if he says it.25
The methodology of modern positivism and empiricism comes a cropper even in the physical sciences, to which it is much better suited than to the sciences of human action; indeed, it particularly fails where the two types of disciplines interconnect. Thus, the phenomenologist Alfred Schutz, a student of Mises at Vienna, who pioneered in applying phenomenology to the social sciences, pointed out the contradiction in the empiricists’ insistence on the principle of empirical verifiability in science, while at the same time denying the existence of “other minds” as unverifiable. But who is supposed to be doing the laboratory verification if not these selfsame “other minds” of the assembled scientists? Schutz wrote:
It is . . . not understandable that the same authors who are convinced that no verification is possible for the intelligence of other human beings have such confidence in the principle of verifiability itself, which can be realized only through cooperation with others.26
In this way, the modern empiricists ignore the necessary presuppositions of the very scientific method they champion. For Schutz, knowledge of such presuppositions is “empirical” in the broadest sense,
provided that we do not restrict this term to sensory perceptions of objects and events in the outer world but include the experiential form, by which common-sense thinking in everyday life understands human actions and their outcome in terms of their underlying motives and goals.27
Having dealt with the nature of praxeology, its procedures and axioms and its philosophical groundwork, let us now consider what the relationship is between praxeology and the other disciplines that study human action. In particular, what are the differences between praxeology and technology, psychology, history, and ethics—all of which are in some way concerned with human action?
In brief, praxeology consists of the logical implications of the universal formal fact that people act, that they employ means to try to attain chosen ends. Technology deals with the contentual problem of how to achieve ends by the adoption of means. Psychology deals with the question of why people adopt various ends and how they go about adopting them. Ethics deals with the question of what ends, or values, people should adopt. And history deals with ends adopted in the past, what means were used to try to achieve them—and what the consequences of these actions were.
Praxeology, or economic theory in particular, is thus a unique discipline within the social sciences; for, in contrast to the others, it deals not with the content of men’s values, goals, and actions—not with what they have done or how they have acted or how they should act—but purely with the fact that they do have goals and act to attain them. The laws of utility, demand, supply, and price apply regardless of the type of goods and services desired or produced. As Joseph Dorfman wrote of Herbert J. Davenport’s Outlines of Economic Theory (1896):
The ethical character of the desires was not a fundamental part of his inquiry. Men labored and underwent privation for “whiskey, cigars, and burglars’ jimmies,” he said, “as well as for food, or statuary or harvest machinery.” As long as men were willing to buy and sell “foolishness and evil,” the former commodities would be economic factors with market standing, for utility, as an economic term, meant merely adaptability to human desires. So long as men desired them, they satisfied a need and were motives to production. Therefore economics did not need to investigate the origin of choices.28
Praxeology, as well as the sound aspects of the other social sciences, rests on methodological individualism, on the fact that only individuals feel, value, think, and act. Individualism has always been charged by its critics—and always incorrectly—with the assumption that each individual is a hermetically sealed “atom,” cut off from, and uninfluenced by, other persons. This absurd misreading of methodological individualism is at the root of J. K. Galbraith’s triumphant demonstration in The Affluent Society (Boston: Houghton Mifflin Co., 1958) that the values and choices of individuals are influenced by other persons, and therefore—supposedly—that economic theory is invalid. Galbraith also concluded from his demonstration that these choices, because influenced, are artificial and illegitimate. The fact that praxeological economic theory rests on the universal fact of individual values and choices means, to repeat Dorfman’s summary of Davenport’s thought, that economic theory does “not need to investigate the origin of choices.” Economic theory is not based on the absurd assumption that each individual arrives at his values and choices in a vacuum, sealed off from human influence. Obviously, individuals are continually learning from and influencing each other. As F. A. Hayek wrote in his justly famous critique of Galbraith, “The Non Sequitur of the ‘Dependence Effect’”:
Professor Galbraith’s argument could be easily employed, without any change of the essential terms, to demonstrate the worthlessness of literature or any other form of art. Surely an individual’s want for literature is not original with himself in the sense that he would experience it if literature were not produced. Does this then mean that the production of literature cannot be defended as satisfying a want because it is only the production which provokes the demand?29
That Austrian-school economics rested firmly from the beginning on an analysis of the fact of individual subjective values and choices unfortunately led the early Austrians to adopt the term psychological school. The result was a series of misdirected criticisms that the latest findings of psychology had not been incorporated into economic theory. It also led to misconceptions such as that the law of diminishing marginal utility rests on some psychological law of the satiety of wants. Actually, as Mises firmly pointed out, that law is praxeological rather than psychological and has nothing to do with the content of wants, for example, that the tenth spoonful of ice cream may taste less pleasurable than the ninth spoonful. Instead, it is a praxeological truth, derived from the nature of action, that the first unit of a good will be allocated to its most valuable use, the next unit to the next most valuable, and so on.30 On one point, and on one point alone, however, praxeology and the related sciences of human action take a stand in philosophical psychology: on the proposition that the human mind, consciousness, and subjectivity exist, and therefore action exists. In this it is opposed to the philosophical base of behaviorism and related doctrines and joined with all branches of classical philosophy and with phenomenology. On all other questions, however, praxeology and psychology are distinct and separate disciplines.31
A particularly vital question is the relationship between economic theory and history. Here again, as in so many other areas of Austrian economics, Ludwig von Mises made the outstanding contribution, particularly in his Theory and History.32 It is especially curious that Mises and other praxeologists, as alleged “a priorists”, have commonly been accused of being “opposed” to history. Mises indeed held not only that economic theory does not need to be “tested” by historical fact but also that it cannot be so tested. For a fact to be usable for testing theories, it must be a simple fact, homogeneous with other facts in accessible and repeatable classes. In short, the theory that one atom of copper, one atom of sulfur, and four atoms of oxygen will combine to form a recognizable entity called copper sulfate, with known properties, is easily tested in the laboratory. Each of these atoms is homogeneous, and therefore the test is repeatable indefinitely. But each historical event, as Mises pointed out, is not simple and repeatable; each event is a complex resultant of a shifting variety of multiple causes, none of which ever remains in constant relationships with the others. Every historical event, therefore, is heterogeneous, and therefore historical events cannot be used either to test or to construct laws of history, quantitative or otherwise. We can place every atom of copper into a homogeneous class of copper atoms; we cannot do so with the events of human history.
This is not to say, of course, that there are no similarities among historical events. There are many similarities, but no homogeneity. Thus, there were many similarities between the presidential election of 1968 and that of 1972, but they were scarcely homogeneous events, since they were marked by important and inescapable differences. Nor will the next election be a repeatable event to place in a homogeneous class of “elections”. Hence no scientific, and certainly no quantitative, laws can be derived from these events.
Mises’s radically fundamental opposition to econometrics now becomes clear. Econometrics not only attempts to ape the natural sciences by using complex heterogeneous historical facts as if they were repeatable homogeneous laboratory facts; it also squeezes the qualitative complexity of each event into a quantitative number and then compounds the fallacy by acting as if these quantitative relations remain constant in human history. In striking contrast to the physical sciences, which rest on the empirical discovery of quantitative constants, econometrics, as Mises repeatedly emphasized, has failed to discover a single constant in human history. And given the ever-changing conditions of human will, knowledge, and values and the differences among men, it is inconceivable that econometrics can ever do so.
Far from being opposed to history, the praxeologist, and not the supposed admirers of history, has profound respect for the irreducible and unique facts of human history. Furthermore, it is the praxeologist who acknowledges that individual human beings cannot legitimately be treated by the social scientist as if they were not men who have minds and act upon their values and expectations, but stones or molecules whose course can be scientifically tracked in alleged constants or quantitative laws. Moreover, as the crowning irony, it is the praxeologist who is truly empirical because he recognizes the unique and heterogeneous nature of historical facts; it is the self-proclaimed “empiricist” who grossly violates the facts of history by attempting to reduce them to quantitative laws. Mises wrote thus about econometricians and other forms of “quantitative economists”:
There are, in the field of economics, no constant relations, and consequently no measurement is possible. If a statistician determines that a rise of 10 per cent in the supply of potatoes in Atlantis at a definite time was followed by a fall of 8 per cent in the price, he does not establish anything about what happened or may happen with a change in the supply of potatoes in another country or in another time. He has not “measured” the “elasticity of demand” of potatoes. He has established a unique and individual historical fact. No intelligent man can doubt that the behavior of men with regard to potatoes and every other commodity is variable. Different individuals value the same things in a different way, and valuations change with the same individuals with changing conditions . . . .
The impracticability of measurement is not due to the lack of technical methods for the establishment of measure. It is due to the absence of constant relations . . . . Economics is not, as . . . positivists repeat again and again, backward because it is not “quantitative.” It is not quantitative and does not measure because there are no constants. Statistical figures referring to economic events are historical data. They tell us what happened in a nonrepeatable historical case. Physical events can be interpreted on the ground of our knowledge concerning constant relations established by experiments. Historical events are not open to such an interpretation . . . .
Experience of economic history is always experience of complex phenomena. It can never convey knowledge of the kind the experimenter abstracts from a laboratory experiment. Statistics is a method for the presentation of historical facts . . . . The statistics of prices is economic history. The insight that, ceteris paribus, an increase in demand must result in an increase in prices is not derived from experience. Nobody ever was or ever will be in a position to observe a change in one of the market data ceteris paribus. There is no such thing as quantitative economics. All economic quantities we know about are data of economic history . . . . Nobody is so bold as to maintain that a rise of a percent in the supply of any commodity must always—in every country and at any time—result in a fall of b per cent in price. But as no quantitative economist ever ventured to define precisely on the ground of statistical experience the special conditions producing a definite deviation from the ratio a:b, the futility of his endeavors is manifest.33
Elaborating on his critique of constants Mises added:
The quantities we observe in the field of human action . . . are manifestly variable. Changes occurring in them plainly affect the result of our actions. Every quantity that we can observe is a historical event, a fact which cannot be fully described without specifying the time and geographical point.
The econometrician is unable to disprove this fact, which cuts the ground from under his reasoning. He cannot help admitting that there are no “behavior constants.” Nonetheless, he wants to introduce some numbers, arbitrarily chosen on the basis of a historical fact, as “unknown behavior constants.” The sole excuse he advances is that his hypotheses are “saying only that these unknown numbers remain reasonably constant through a period of years.”34 Now whether such a period of supposed constancy of a definite number is still lasting or whether a change in the number has already occurred can only be established later on. In retrospect it may be possible, although in rare cases only, to declare that over a (probably rather short) period an approximately stable ratio—which the econometrician chooses to call a “reasonably” constant ratio—prevailed between the numerical values of two factors. But this is something fundamentally different from the constants of physics. It is the assertion of a historical fact, not of a constant that can be resorted to in attempts to predict future events.35 The highly praised equations are, insofar as they apply to the future, merely equations in which all quantities are unknown.36
In the mathematical treatment of physics the distinction between constants and variables makes sense; it is essential in every instance of technological computation. In economics there are no constant relations between various magnitudes. Consequently all ascertainable data are variables, or what amounts to the same thing, historical data. The mathematical economists reiterate that the plight of mathematical economics consists in the fact that there are a great number of variables. The truth is that there are only variables and no constants. It is pointless to talk of variables where there are no invariables.37
What, then, is the proper relationship between economic theory and economic history or, more precisely, history in general? The historian’s function is to try to explain the unique historical facts that are his province; to do so adequately he must employ all the relevant theories from all the various disciplines that impinge on his problem. For historical facts are complex resultants of a myriad of causes stemming from different aspects of the human condition. Thus, the historian must be prepared to use not only praxeological economic theory but also insights from physics, psychology, technology, and military strategy along with an interpretive understanding of the motives and goals of individuals. He must employ these tools in understanding both the goals of the various actions of history and the consequences of such actions. Because understanding diverse individuals and their interactions is involved, as well as the historical context, the historian using the tools of natural and social science is in the last analysis an “artist”, and hence there is no guarantee or even likelihood that any two historians will judge a situation in precisely the same way. While they may agree on an array of factors to explain the genesis and consequences of an event, they are unlikely to agree on the precise weight to be given each causal factor. In employing various scientific theories, they have to make judgments of relevance on which theories applied in any given case; to refer to an example used earlier in this paper, a historian of Robinson Crusoe would hardly employ the theory of money in a historical explanation of his actions on a desert island. To the economic historian, economic law is neither confirmed nor tested by historical facts; instead, the law, where relevant, is applied to help explain the facts. The facts thereby illustrate the workings of the law.
The relationship between praxeological economic theory and the understanding of economic history was subtly summed up by Alfred Schutz:
No economic act is conceivable without some reference to an economic actor, but the latter is absolutely anonymous; it is not you, nor I nor an entrepreneur, nor even an “economic man,” as such, but a pure universal “one.” This is the reason why the propositions of theoretical economics have just that “universal validity” which gives them the ideality of the “and so forth” and “I can do it again.” However, one can study the economic actor as such and try to find out what is going on in his mind; of course, one is not then engaged in theoretical economics but in economic history or economic sociology . . . . However, the statements of these sciences can claim no universal validity, for they deal either with the economic sentiments of particular historical individuals or with types of economic activity for which the economic acts in question are evidence . . . .
In our view, pure economics is 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 . . . . Excluded from such a scheme would have to be any consideration of the uses to which the “goods” are to be put after they are acquired. But once we do turn our attention to the subjective meaning of a real individual person, leaving the anonymous “anyone” behind, then of course it makes sense to speak of behavior that is atypical . . . . To be sure, such behavior is irrelevant from the point of view of economics, and it is in this sense that economic principles are, in Mises’ words, “not a statement of what usually happens, but of what necessarily must happen.”38
On the Method of Austrian Economics
Israel M. Kirzner
One of the areas in which disagreement among Austrian economists may seem to be nonexistent is that of methodology. Yet I shall attempt to point out that even with respect to method there are differences of opinion among individual thinkers. Some light may be cast on these differences by drawing attention to two distinct strands of thought that run through the writings of Austrian economists on the question of method. By separating these strands and then focusing on each in turn, we may discover and define different perspectives on economic method and perhaps more clearly understand how these different perspectives grow out of the unique view of method shared by all Austrian economists.
The general outline of the Austrian position on methodology is well known. Austrian economists are subjectivists; they emphasize the purposefulness of human action; they are unhappy with constructions that emphasize equilibrium to the exclusion of market processes; they are deeply suspicious of attempts to apply measurement procedures to economics; they are skeptical of empirical “proofs” of economic theorems and consequently have serious reservations about the validity and importance of a good deal of the empirical work being carried on in the economics profession today. These are the general features of the position that we know very well; yet within this general view we can distinguish two independent strands of argument. It is upon this debate that I should like to focus my attention in this paper.
TWO TASKS FOR ECONOMIC EXPLANATIONS
It will be helpful to cite two statements—by prominent Austrian economists—about what economics as a discipline is supposed to achieve. The first is by Friedrich A. Hayek, and the other is by Ludwig M. Lachmann. Hayek in his Counter-revolution of Science contended that the function of social science, and by implication economics, is to explain how conscious, purposeful human action can generate unintended consequences through social interaction.1 The emphasis here is on the unintended consequences of individual human decisions. To explain phenomena that are not the unintended consequences of human decision making is outside the scope of the social sciences in general and economics in particular. Hayek’s position was cited by Alexander Gerschenkron in his contribution to the Akerman Festschrift, and I think Gerschenkron was perceptive in focusing on exactly what is, in Hayek’s view, the fundamental task of economic explanation.2
Let us contrast the Hayek view with one expressed by Lachmann. Lachmann’s position on the purpose of economic explanations is dealt with at length in his contribution to the Hayek Festschrift, Roads to Freedom.3 Here, however, I shall quote from a more recent statement of his position that appeared in his review of John R. Hicks’s Capital and Time:
Economics has two tasks. The first is to make the world around us intelligible in terms of human action and the pursuit of plans. The second is to trace the unintended consequences of such action. Ricardian economics emphasized the second task, the “subjective revolution” of the 1870s stressed the urgency of the first, and the Austrian school has always cherished this tradition.4
Thus, we have here two tasks for economics. Besides the task that Hayek emphasized—the tracing out of the unintended consequences of action—we have the requirement that it make the world around us intelligible in terms of human action.
It is worth reminding ourselves that the two tasks Lachmann identified are to be found in Carl Menger’s writings. In the third part of his 1884 book on methodology Menger pointed out that actions do have unintended consequences, and he made it very clear, as Hayek had done, that economics is the science that is able to explain how these unintended consequences emerge in the market place.5 But Menger was also aware of the other task Lachmann emphasized. In a letter Menger wrote Léon Walras, cited by T. W. Hutchison in several of his writings,6 Menger insisted that the economist is not merely after the relationships between quantities, but the essence of economic phenomena: “the essence of value, the essence of land rent, the essence of entrepreneurs’ profits, the essence of the division of labor.”7 This view is what Kauder meant when he described Menger as holding that economics deals with social essences,8 and what Hutchison called “methodological essentialism.”9
TWO BASIC AUSTRIAN TENETS
I have asserted that two distinct strands of thought may be identified in the writings of Austrian economists with regard to the meaning and purpose of economic explanation. I would now like to distinguish two distinct insights about the economic world that receive varying emphasis and are not often adequately differentiated. First, there is the insight that human action is purposeful, and, second, there is the insight that there is an indeterminacy and unpredictability inherent in human preferences, human expectations, and human knowledge. Now these two insights are really quite distinct, because one does not encompass the other in any logical or epistemological sense. That human action is purposeful is an insight by itself, and that human knowledge and expectations are largely unpredictable is another. Nor is the truth of these two propositions equally obvious. The purposefulness of human action is something we arrive at by introspection. In this sense it is “obviously” true. On the other hand, the insight that men’s preferences are inherently unpredictable—that we cannot discover consistent patterns in what men prefer and that we cannot postulate that there are consistent patterns in what men know and expect to happen—cannot be arrived at by introspection. The truth claimed for this last insight depends on our observations of our fellow men; that we do as a matter of fact find them to be unpredictable in their actions and expectations about future states of the world.
To me, the different emphasis Austrian economists attach to these basic insights is largely responsible for their different attitudes regarding the purpose of economic explanation. The recognition of purposefulness is, of course, fundamental to our definition of economics as the logic of choice. We are able to use our logic to simulate the actions of other human beings only because we share the logic that other men’s purposes lead them to harness in their own interests. The recognition of purposefulness is essential to our positive conception of economics as the logic of choice and to our enterprise of studying the consequences of purposeful action. But if we consider those aspects of the Austrian approach that are used, not to derive economic laws, but to criticize other areas of contemporary economic thought, then the second of these basic tenets comes into prominence. Our dissatisfaction with empirical work and our suspicion of measurement rest on the conviction that empirical observations of past human choices will not yield any regularities or any consistent pattern that may be safely extrapolated beyond the existing data at hand to yield scientific theorems of universal applicability.
THE SIGNIFICANCE OF PURPOSEFULNESS
Let us try to understand the role these basic tenets of Austrian economics play in the Lachmann-Hayek discussions concerning what economic explanation is all about. In 1938 T. W. Hutchison published The Significance and Basic Postulates of Economic Theory.10 The book received a blistering Austrian-like critique from the pen of Frank H. Knight, who was on most other issues, such as capital theory, not in sympathy with the Austrian school. In that article Knight conveyed some brilliant insights about the relationship of economics to the study of human action. Knight noted that “the whole subject of conduct—interests and motivation—constitutes a different realm of reality from the external world.” In addition to the external world, with which the natural sciences are conversant, there is a different realm of reality, a realm no less real than the external world, but nevertheless different from it. This other realm is that of human conduct, which Knight identified as interests, motivation, and purpose.
The first fact to be recorded is that this realm of reality exists or “is there.” This fact cannot be proved or argued or “tested.” If anyone denies that men have interests or that “we” have a considerable amount of valid knowledge about them, economics and all its works will simply be to such a person what the world of color is to the blind man. But there would still be one difference: a man who is physically, ocularly blind may still be rated of normal intelligence and in his right mind.11
Here, surely, we have the first of the basic tenets of Austrian theory, that there is a realm of reality constituted of human motives, interests, and purposes, and that, although purposes cannot be seen or touched, they are nonetheless “there.”
When Lachmann called upon economists to make the world intelligible in terms of human decisions and purposes, I take it that he was telling us the following: It is the task of science to describe and explain reality. If reality consists of more than the external world, then a science that is confined to the facts of the external world is simply incomplete. It does not account for everything that is there. The Austrian approach insists that there is something besides the facts of the external world and the relationships that may be postulated between these bare facts. What is that something else? It is the realm of reality that Knight pointed to, the realm of purposes. And even if one were able to explain the facts of the external world in terms of similar facts, without regard to the human purposes underlying these facts, one would not have explained everything there is to be explained, not have set forth everything there is to set forth. One would have failed to make the world intelligible in terms of human action, that is, in terms of human purposes. Thus, even if the second Austrian tenet (that there are no constants in human behavior) were false, even if one were able to postulate consistent chains of cause and effect that depend only on externally observable phenomena, still one has failed to fulfill one’s scientific obligation. There is a realm of reality called purposes. It is there, and if we fail to point it out, then we fail in the task of making the world intelligible in terms of human action.
Let us consider a simple example. Suppose a man from Mars is doing research for his doctorate and, after focusing his telescope on a particular location on Earth, discovers a certain regularity. Through his telescope he observes a set of boxes lined up in a row. He further discovers that a smaller box moves past these boxes every day at 7:30 A.M., comes to a stop at one of the boxes, and then, after a short stay, moves on. Moreover the investigator discovers something else; out of one of these boxes a body emerges every morning, and when the moving box makes its daily stop, the body is swallowed up by the moving box. Discovering this regularity, the researcher postulates a definite law, the law of moving boxes and bodies. As he goes on with the research, however, he discovers that sometimes the box moves away before the body has entered it, leaving the body behind altogether; while sometimes the body moves at an unusually rapid speed, arriving at the daily moving-box stop just in time to be swallowed up before the box moves on. Now this Martian researcher may be able to predict just when the person is going to miss the box and when he is going to catch it. He may even be able to explain the movements of the body and the box entirely without reference to the fact that someone is trying to catch the bus because he wants to get to work on time. But if he does so, he has not told us everything there is to be learned about this situation. A theory of moving bodies and boxes that does not draw attention to the dimension of purpose gives a truncated picture of the real world. This is what economics, in the Austrian view, is all about. Economics has to make the world intelligible in terms of human motives. It is more than simply moving boxes or changing economic quantities. This is the task to which Lachmann drew our attention when he insisted that we must make the world intelligible in terms of human purpose.
A memorable passage in Hayek’s Counter-revolution is the one in which he explained that objects useful to human beings are simply not objective facts.
In fact most of the objects of social or human action are not “objective facts” in the special narrow sense in which this term is used by the [natural] Sciences . . . they cannot be defined in physical terms . . . . Take the concept of a “tool” or “instrument,” or of any particular tool such as a hammer or a barometer. It is easily seen that these concepts cannot be interpreted to refer to “objective facts,” i.e. to things irrespective of what people think about them.12
Pursuing this point Hayek asserted (in a footnote reference to the work of Ludwig von Mises) that every important advance in economic theory in the preceding century had been a result of the consistent application of subjectivism.13 Lachmann’s advice to economists paralleled Hayek’s. According to Hayek, when we deal with artifacts—with tools and instruments or other products of human beings—we have not exhausted the description of what it is that we are describing if we stubbornly confine ourselves to their physical entities. We have not described a hammer until we have drawn attention to its purpose. Lachmann, similarly, instructed us that when we deal with broader questions, with institutions and regularities in economic affairs, we have not completed our task if we have not called attention to the purposes and motives and interests that underlie these phenomena. A hammer is more than a handle with a metal head; so is a price more than a number, milk consumption more than a number of gallons, and its relationship to price more than a simple functional relationship. A whole world of interests and motives is “there,” is real, and it is surely our responsibility as scientists to make it clear.
Critics of Austrian methodology often argue that since praxeology deals with unobservables, it is inherently incapable of telling us anything scientific about observables. The latest (and perhaps the clearest and most sympathetic) statement of this argument was by James Buchanan, in his contribution to the Hayek Festschrift,14 when he drew attention to the distinction between (1) the logic of choice (what he called the abstract science of economic behavior) and (2) the predictive science of human behavior. Buchanan argued that if we treat economics as the logic of choice, it cannot in principle lead to refutable hypotheses because no particular preference ordering has been specified, and to that extent it cannot tell us anything about the real world.
In answer to Buchanan, our discussion indicates that the truth is the other way around. We are not only able to say something about the real world; we are also able to say a great deal about a large and important area of human experience about which other disciplines are necessarily silent—the realm of purpose. This needs to be stated and restated, emphasized and reemphasized, again and again! The real world is more than the external world; the real world includes a whole range of matters beyond the scope of the measuring instruments of the econometrician. Economic science must be able to encompass this realm.
It is helpful in pursuing this strand of thought in Austrian methodology to constrast the Austrian use of purpose with the rationality hypothesis often employed by economists. For many non-Austrian economists this hypothesis is invoked with apologies and is considered something of a necessary evil. It is used to get theoretical results and is justified on the grounds that these results seem to fit the facts of the outside world although the hypothesis is philosophically suspect. Thus we find Gary Becker eager to demonstrate how certain fundamental theorems of economics do not require the rationality hypothesis—that rather embarrassing piece of excess baggage.15 For Austrian economists, on the other hand, the notion of purposefulness is not merely a useful tool to obtain results but an essential element of economic reality that cannot be omitted. Making reference to human plans and motivations is an essential part of the economist’s scientific task.
THE UNPREDICTABILITY OF KNOWLEDGE: A DILEMMA
Let us turn to the second basic tenet of Austrian methodology, the proposition that there is an inherent unpredictability and indeterminacy with regard to human preferences, expectations, and knowledge. I have already pointed out that this proposition does not have the same introspectively obvious ring of truth that the idea of human purposefulness does. Are we really so certain that human wants and human preference-orderings and the manner in which they undergo modification are inherently unpredictable? In fact, I wish to suggest that asserting this creates something of a dilemma for the Austrian economist.
There is a passage in an essay by Hayek that deals with this very question. In that essay Hayek discussed the concept of equilibrium and raised the problem of whether or not there is a tendency toward equilibrium in the economic world. Hayek remarked:
It is clear that, if we want to make the assertion that, under certain conditions, people will approach that state, we must explain by what process they will acquire the necessary knowledge. Of course, any assumption about the actual acquisition of knowledge in the course of this process will also be of a hypothetical character. But this does not mean that all such assumptions are equally justified. We have to deal here with assumptions about causation, so that what we assume must not only be regarded as possible . . . but must also be regarded as likely to be true; and it must be possible, at least in principle, to demonstrate that it is true in particular cases. The significant point here is that it is these apparently subsidiary hypotheses or assumptions that people do learn from experience, and about how they acquire knowledge, which constitute the empirical content of our propositions about what happens in the real world.16
Hayek, then, asserted that when postulating a tendency toward equilibrium, we do have to resort to a particular empirical proposition. Moreover, the empirical proposition in question would seem to contradict the other idea that there are an inherent unpredictability and an indeterminacy about human preferences and human knowledge. If we are to be able to say anything about the process of equilibration, especially if we are to say something about the course by which human decisions lead to unintended consequences, we shall have to rely upon the particular empirical proposition that men learn from market experience in a systematic manner. This is inconsistent with the second tenet underlying Austrian economics that there is an inherent indeterminacy in the way by which human knowledge changes.
Hayek’s argument is straightforward. In disequilibrium man’s knowledge is imperfect, some people are making mistakes; equilibrium is the situation in which nobody is making mistakes. A movement from disequilibrium to equilibrium must therefore be one in which men gradually learn to avoid mistakes, so that their actions become more and more coordinated. Where do we derive our confidence that this type of learning in fact takes place? Hayek stated very clearly that this is an empirical hypothesis. If we reject this hypothesis, then we reject the basis for viewing the market process as an equilibrating mechanism—that is, reject the claim that economics can tell us anything definite about the unintended market consequences of human actions. We may still be able to make the world intelligible—that is, we may explain that what happens happens because human beings pursue their purposes. We can assert that their interacting decisions generate certain changes in knowledge, but we shall no longer be able to say in which particular directions knowledge changes, and we can no longer postulate a determinate process toward equilibrium. We shall, to put the matter succinctly, not be able to go beyond the first Lachmann task in order to pursue the program advanced by Hayek. If, however, we confine ourselves to the enormously important task of making the world intelligible in terms of human purposes, we need not accept Hayek’s empirical proposition about the coordination of plans and the progressive elimination of mistakes. But if we are to explain the unintended consequences of human action, that is, if we are to assert that there is a tendency for entrepreneurial profits to be eliminated, or for prices to move in one direction rather than another, we must be able to say something about the manner in which human knowledge and human expectations undergo modification. If one accepts this particular empirical hypothesis, one has surely weakened, perhaps irreparably, the second basic tenet underlying Austrian methodology.
We have identified two requirements of economic explanations that Austrian economists consider important. We have also identified two basic tenets that seem fundamental to Austrian methodology. It turns out, however, that while one of these basic tenets, that of human purposefulness, is sufficient to sustain one of these two requirements (that of making the world intelligible in terms of human action), the second, which asserts the unpredictability of human knowledge, is inconsistent with the requirement that economic explanations trace the unintended consequences of human action. It seems therefore that the future progress of the Austrian school in applying its basic methodological tenets requires some decision about the extent to which the second tenet about the inconstancy of human purposes and knowledge can be upheld as a general proposition.
New Light on the Prehistory of the Austrian School
Murray N. Rothbard
The most notable development in the historiography of the Austrian school in the post-World War II era has been the drastic reevaluation of what might be called its prehistory and, as a corollary, a fundamental reconsideration of the history of economic thought itself. This reevaluation may be summarized by briefly outlining the orthodox prewar paradigm of the development of economic thought before the advent of the Austrian school. The Scholastic philosophers were brusquely dismissed as medieval thinkers who totally failed to understand the market, and who believed on religious grounds that the just price was one that covered either the cost of production or the quantity of labor embodied in a product. After briefly outlining the bullionist and antibullionist discussion among the English mercantilists and lightly touching on a few French and Italian economists of the eighteenth century, the historian of economic thought pointed with a flourish to Adam Smith and David Ricardo as the founders of economic science. After some backing and filling in the mid-nineteenth century, marginalism, including the Austrian school, arrived in another great burst in the 1870s. Apart from the occasional mention of one or two English precursors of the Austrians, such as Samuel Bailey in the early nineteenth century, this completed the basic picture. Typical was the encyclopedic text of Lewis Haney: the Scholastics were described as medieval, dismissed as hostile to trade, and declared believers in the labor and cost-of-production theories of the just price.1 It is no wonder that in his famous phrase, R. H. Tawney could call Karl Marx “the last of the Schoolmen.”2
The remarkably contrasting new view of the history of economic thought burst upon the scene in 1954 in the monumental, though unfinished, work of Joseph Schumpeter.3 Far from mystical dunderheads who should be skipped over to get to the mercantilists, the Scholastic philosophers were seen as remarkable and prescient economists, developing a system very close to the Austrian and subjective-utility approach. This was particularly true of the previously neglected Spanish and Italian Scholastics of the sixteenth and seventeenth centuries. Virtually the only missing ingredient in their value theory was the marginal concept. From them filiations proceeded to the later French and Italian economists. In the Schumpeterian view, the English mercantilists were half-baked, polemical pamphleteers rather than essential milestones on the road to Adam Smith and the founding of economic science. In fact, the new view saw Smith and Ricardo, not as founding the science of economics, but as shunting economics onto a tragically wrong track, which it took the Austrians and other marginalists to make right. Until then, only the neglected anti-Ricardian writers kept the tradition alive. As we shall see, other historians, such as Emil Kauder, further demonstrated the Aristotelian (and hence Scholastic) roots of the Austrians amidst the diverse variants of the marginalist school. The picture is almost the reverse of the earlier orthodoxy.
It is not the purpose of this paper to dwell on Schumpeter’s deservedly well-known work, but rather to assess the contributions of writers who carried the Schumpeterian vision still further and who remain neglected by most economists, possibly from a failure to match Schumpeter in constructing a general treatise. The best development of the new history must be sought in fugitive articles and brief pamphlets and monographs.
The other relatively neglected contributions began contemporaneously with Schumpeter. One of the most important, and probably the most neglected, was The School of Salamanca by Marjorie Grice-Hutchinson, who suffered in the economics profession from being a professor of Spanish literature. Moreover, the book bore the burden of a misleadingly narrow subtitle: Readings in Spanish Monetary Theory.4 In fact, the book was a brilliant discovery of the pre-Austrian subjective-value-and-utility views of the late sixteenth-century Spanish Scholastics. But first Grice-Hutchinson showed that the works of even earlier Scholastics as far back as Aristotle contained a subjective-value analysis based on consumer wants alongside the competing objective conception of the just price based on labor and costs. In the early Middle Ages, Saint Augustine (354–430) developed the concept of the subjective-value scales of each individual. By the High Middle Ages, the Scholastic philosophers had largely abandoned the cost-of-production theory to adopt the view that the market’s reflection of consumer demand really sets the just price. This was particularly true of Jean Buridan (1300–58), Henry of Ghent (1217–93), and Richard of Middleton (1249–1306). As Grice-Hutchinson observed:
Medieval writers viewed the poor man as consumer rather than producer. A cost-of-production theory would have given merchants an excuse for over-charging on the pretext of covering their expenses, and it was thought fairer to rely on the impersonal forces of the market which reflected the judgment of the whole community, or, to use the medieval phrase, the “common estimation.” At any rate, it would seem that the phenomena of exchange came increasingly to be explained in psychological terms.5
Even Henry of Langenstein (1325–83), who of all the Scholastics was the most hostile to the free market and advocated government fixing of the just price on the basis of status and cost, developed the subjective factor of utility as well as scarcity in his analysis of price. But it was the sixteenth-century Spanish Scholastics who developed the purely subjective and profree-market theory of value. Thus, Luis Saravia de la Calle (c. 1544) denied any role to cost in the determination of price; instead the market price, which is the just price, is determined by the forces of supply and demand, which in turn are the result of the common estimation of consumers on the market. Saravia wrote that, “excluding all deceit and malice, the just price of a thing is the price which it commonly fetches at the time and place of the deal.” He went on to point out that the price of a thing will change in accordance with its abundance or scarcity. He proceeded to attack the cost-of-production theory of just price:
Those who measure the just price by the labour, costs, and risk incurred by the person who deals in the merchandise or produces it, or by the cost of transport or the expense of travelling . . . or by what he has to pay the factors for their industry, risk, and labour, are greatly in error, and still more so are those who allow a certain profit of a fifth or a tenth. For the just price arises from the abundance or scarcity of goods, merchants, and money . . . and not from costs, labour, and risk. If we had to consider labour and risk in order to assess the just price, no merchant would ever suffer loss, nor would abundance or scarcity of goods and money enter into the question. Prices are not commonly fixed on the basis of costs. Why should a bale of linen brought overland from Brittany at great expense be worth more than one which is transported cheaply by sea? . . . Why should a book written out by hand be worth more than one which is printed, when the latter is better though it costs less to produce? . . . The just price is found not by counting the cost but by the common estimation.6
Similarly the Spanish Scholastic Diego de Covarrubias y Leiva (1512–77) a distinguished expert on Roman law and a theologian at the University of Salamanca, wrote that the “value of an article” depends “on the estimation of men, even if that estimation be foolish.” Wheat is more expensive in the Indies than in Spain “because men esteem it more highly, though the nature of the wheat is the same in both places.” The just price should be considered not at all with reference to its original or labor cost but only with reference to the common market value where the good is sold, a value, Covarrubias pointed out, that will fall when buyers are few and goods are abundant and that will rise under opposite conditions.7
The Spanish Scholastic Francisco Garcia (d. 1659) engaged in a remarkably sophisticated analysis of the determinants of value and utility. The valuation of goods, Garcia pointed out, depends on several factors. One is the abundance or scarcity of the supply of goods, the former causing a lower estimation and the latter an increase. A second is whether buyers or sellers are few or many. Another is whether “money is scarce or plentiful,” the former causing a lower estimation of goods and the latter a higher. Another is whether “vendors are eager to sell their goods.” The influence of the abundance or the scarcity of a good brought Garcia almost to the brink, but not over it, of a marginal utility analysis of valuation.
For example, we have said that bread is more valuable than meat because it is more necessary for the preservation of human life. But there may come a time when bread is so abundant and meat so scarce that bread is cheaper than meat.8
The Spanish Scholastics also anticipated the Austrian school in applying value theory to money, thus beginning the integration of money into general value theory. It is generally believed, for example, that in 1568 Jean Bodin inaugurated what is unfortunately called “the quantity theory of money” but which would more accurately be called the application of supply-and-demand analysis to money. Yet he was anticipated twelve years earlier by the Salamanca theologian the Dominican Martin de Azpilcueta Navarro (1493–1587), who was inspired to explain the inflation brought about by the importation of gold and silver by the Spaniards from the New World. Citing previous Scholastics, Azpilcueta declared that “money is worth more where it is scarce than where it is abundant.” Why? Because “all merchandise becomes dearer when it is in great demand and short supply, and that money, in so far as it may be sold, bartered, or exchanged by some other form of contract, is merchandise and therefore also becomes dearer when it is in great demand and short supply.” Azpilcueta noted that “we see by experience that in France, where money is scarcer than in Spain, bread, wine, cloth, and labour are worth much less. And even in Spain, in times when money was scarcer, saleable goods and labour were given for very much less than after the discovery of the Indies, which flooded the country with gold and silver. The reason for this is that money is worth more where and when it is scarce than where and when it is abundant.”9
Furthermore, the Spanish Scholastics went on to anticipate the classical-Mises-Cassel purchasing-power parity theory of exchange rates by proceeding logically to apply the supply-and-demand theory to foreign exchanges, an institution that was highly developed by the early modern period. The influx of specie into Spain depreciated the Spanish escudo in foreign exchange, as well as raised prices within Spain, and the Scholastics had to deal with this startling phenomenon. It was the eminent Salamanca theologian the Dominican Domingo de Soto (1495–1560) who in 1553 first fully applied the supply-and-demand analysis to foreign exchange rates. De Soto noted that “the more plentiful money is in Medina the more unfavourable are the terms of exchange, and the higher the price that must be paid by whoever wishes to send money from Spain to Flanders, since the demand for money is smaller in Spain than in Flanders. And the scarcer money is in Medina the less he need pay there, because more people want money in Medina than are sending it to Flanders.”10 What de Soto was saying is that as the stock of money increases, the utility of each unit of money to the population declines and vice versa; in short, only the great stumbling block of failing to specify the concept of the marginal unit prevented him from arriving at the doctrine of the diminishing marginal utility of money. Azpilcueta, in the passage quoted above, applied the de Soto analysis of the influence of the supply of money on exchange rates, at the same time that he set forth a theory of supply and demand in determining the purchasing power of money within a country.
The de Soto-Azpilcueta analysis was spread to the merchants of Spain by the Dominican friar Tomás de Mercado (d. 1585), who in 1569 wrote a handbook of commercial morality in Spanish, in contrast to the Scholastic theologians, who invariably wrote in Latin. It was followed by García and endorsed at the end of the sixteenth century by the Salamanca theologian the Dominican Domingo de Bañez (1527–1604) and by the great Portuguese Jesuit Luís de Molina (1535–1600). Writing near the turn of the century, Molina set forth the theory in an elegant and comprehensive manner:
There is another way in which money may be worth more in one place than in another; namely, because it is scarcer there than elsewhere. Other things being equal, wherever money is most abundant, there will it be least valuable for the purpose of buying goods and comparing things other than money.
Just as an abundance of goods causes prices to fall (the quantity of money and number of merchants being equal), so does an abundance of money cause them to rise (the quantity of goods and number of merchants being equal). The reason is that the money itself becomes less valuable for the purpose of buying and comparing goods. Thus we see that in Spain the purchasing-power of money is far lower, on account of its abundance, than it was eighty years ago. A thing that could be bought for two ducats at that time is nowadays worth 5, 6, or even more. Wages have risen in the same proportion, and so have dowries, the price of estates, the income from benefices, and other things.
We likewise see that money is far less valuable in the New World (especially in Peru, where it is most plentiful), than it is in Spain. But in places where it is scarcer than in Spain, there will it be more valuable. Nor will the value of money be the same in all other places, but will vary: and this will be because of variations in its quantity, other things being equal . . . . Even in Spain itself, the value of money varies: it is usually lowest of all in Seville, where the ships come in from the New World and where for that reason money is most abundant.
Wherever the demand for money is greatest, whether for buying or carrying goods, . . . or for any other reason, there its value will be highest. It is these things, too, which cause the value of money to vary in course of time in one and the same place.11
The outstanding revisionist work on the economic thought of the medieval and later Scholastics is that of Raymond de Roover. Basing his work in part on the Grice-Hutchinson volume, de Roover published his first comprehensive discussion in 1955.12 For the medieval period, de Roover particularly pointed to the early fourteenth-century French Ockhamite Scholastic Jean Buridan and to the famous early fifteenth-century Italian preacher San Bernardino of Siena (1380–1444). Buridan insisted that value is measured by the human wants of the community of individuals, and that the market price is the just price. Furthermore, he was perhaps the first to make clear in a pre-Austrian manner that voluntary exchange demonstrates subjective preferences, since he stated that the “person who exchanges a horse for money would not have done so, if he had not preferred money to a horse.”13 He added that workers hire themselves out because they value the wages they receive higher than the labor they have to expend.14
De Roover then discussed the sixteenth-century Spanish Scholastics, centered at the University of Salamanca, the queen of the Spanish universities of the period. From Salamanca the influence of this school of Scholastics spread to Portugal, Italy, and the Low Countries. In addition to summarizing Grice-Hutchinson’s contribution and adding to her bibliography, de Roover noted that both de Soto and Molina denounced as “fallacious” the notion of the late thirteenth-century Scholastic John Duns Scotus (1266–1308) that the just price is the cost of production plus a reasonable profit; instead that price is the common estimation, the interaction of supply and demand, on the market. Molina further introduced the concept of competition by stating that competition among buyers will drive prices up, while a scarcity of purchasers will pull them down.15
In a later article, de Roover elaborated on his researches into the Scholastic theory of the just price. He found that the orthodox view of the just price as a station-in-life, cost-of-production price was based almost solely on the views of fourteenth-century Viennese Scholastic Henry of Langenstein. But Langenstein, de Roover pointed out, was a follower of the minority views of William of Ockham and outside the dominant Thomist tradition; Langenstein was rarely cited by later Scholastic writers. While some of their passages are open to a conflicting interpretation, de Roover demonstrated that Albertus Magnus (1193–1280) and his great pupil Thomas Aquinas (1226–74) held the just price to be the market price. In fact, Aquinas considered the case of a merchant who brings wheat to a country where there is a great scarcity; the merchant happens to know that more wheat is on the way. May he sell his wheat at the existing price, or must he announce to everyone the imminent arrival of new supplies and suffer a fall in price? Aquinas unequivocally answered that he may justly sell the wheat at the current market price, even though he added as an afterthought that it would be more virtuous of him to inform the buyers. Furthermore, de Roover pointed to the summary of Aquinas’s position by his most distinguished commentator, the late fifteenth-century Scholastic Thomas de Vio, Cardinal Cajetan (1468–1534). Cajetan concluded that for Aquinas the just price is “the one, which at a given time, can be gotten from the buyers, assuming common knowledge and in the absence of all fraud and coercion.”16
The cost-of-production theory of just price held by the Scotists was trenchantly attacked by the later Scholastics. San Bernardino of Siena, de Roover pointed out, declared that the market price is fair regardless of whether the producer gains or loses, or whether it is above or below cost. The great early sixteenth-century jurist Francisco de Victoria (c. 1480–1546), founder of the school of Salamanca, as well as his followers insisted that the just price is set by supply and demand regardless of labor costs or expenses; inefficient producers or inept speculators must bear the consequences of their incompetence and poor forecasting. Furthermore, de Roover made clear that the general Scholastic emphasis on the justice of “common estimation” (communis aestimatio) is identical to “market valuation” (aestimatio fori), since the Scholastics used these two Latin expressions interchangeably.17
De Roover noted, however, that this acceptance of market price did not mean that the Scholastics adopted a laissez-faire position. On the contrary, they were often willing to accept governmental price fixing instead of market action. A few prominent Scholastics, however, led by Azpilcueta and including Molina, opposed all price fixing; as Azpilcueta put it, price controls are unnecessary in times of plenty and ineffective or positively harmful in times of dearth.18
In a comment on de Roover’s paper, David Herlihy noted that, in the northern Italian city-states of the twelfth and thirteenth centuries, the birthplace of modern commercial capitalism, the market price was generally considered just because it was “true” and “real,” if it was “established or utilized without deceit or fraud.” As Herlihy summed it up, the just price of an object is its “true value as determined by one of two ways: for objects that were unique, by honest negotiation between seller and purchaser; for staple commodities by the consensus of the market place established in the absence of fraud or conspiracy.”19
John W. Baldwin’s definitive account of the theories of just price during the High Middle Ages of the twelfth and thirteenth centuries amply confirmed de Roover’s revisionist insight. Baldwin pointed out that there were three important and influential groups of medieval writers: the theologians (whom we have been examining), the Roman lawyers, and the canon lawyers. For their part, the Romanists, joined by the canonists, held staunchly to the principle of Roman private law that the just price is whatever is arrived at by free bargaining between buyers and sellers. Baldwin demonstrated that even the theologians of the High Middle Ages before Aquinas accepted the current market price as the just price.21
Several years later, de Roover turned to the views of the Scholastics on the broader issue of trade and exchange.22 He conceded the partial validity of the older view that the medieval Church frowned on trade as endangering personal salvation; or rather that, while trade can be honest, it presents great temptation for sin. However, he pointed out that, as trade and commerce grew after the tenth century, the Church began to adapt to the idea of the merits of trade and exchange. Thus, while it is true that the twelfth-century Scholastic Peter the Lombard (c. 1100–60) denounced trade and soldiering as sinful occupations per se, a far more benevolent view of trade was set forth during the thirteenth century by Albertus Magnus and his student Thomas Aquinas, as well as by Saint Bonaventure (1221–74) and Pope Innocent V (1225–76). While trade presents occasions for sin, it is not sinful per se; on the contrary, exchange and the division of labor are beneficent in satisfying the wants of the citizens. Moreover, the early fourteenth-century Scholastic Richard of Middleton developed the idea that both the buyer and the seller gain by exchange, since each demonstrates that he prefers what he receives in exchange to what he gives up. Middleton also applied this idea to international trade, pointing out that both countries benefit by exchanging their surplus products. Since the merchants and citizens of each country benefit, neither party is exploiting the other.
At the same time, Aquinas and other theologians denounced “covetousness” and love of profit, mercantile gain being only justifiable when directed toward the “good of others”; furthermore, Aquinas attacked “avarice” as attempting to improve one’s “station in life.” But, as de Roover pointed out, the great early sixteenth-century Italian Thomist Cardinal Cajetan corrected this view by demonstrating that, if this were true, every person would have to be frozen in his current occupation and income. On the contrary, asserted Cajetan, people with unusual ability should be able to rise in the world. In contrast to such northern Europeans as Aquinas, Cajetan was quite familiar with the commerce and upward social mobility in the Italian cities. Furthermore, even Aquinas explicitly rejected the idea that prices should be determined by one’s station in life, pointing out that the selling price of any good tends to be the same whether the entrepreneur is poor or wealthy.
De Roover hailed the early fifteenth-century Scholastic San Bernardino of Siena as being the only theologian who dealt in detail with the economic function of the entrepreneur. San Bernardino wrote of the uncommon qualities and abilities of the successful entrepreneur, including effort, diligence, knowledge of the market, and calculation of risks, with profit on invested capital justifiable as compensation for the risk and effort of the entrepreneur. The acceptance of profit was immortalized in a motto in a thirteenth-century account book: “In the name of God and of profit.”23
De Roover’s final work in this area was a booklet on San Bernardino and his contemporary Sant’ Antonino (1389–1459) of Florence.24 In San Bernardino’s views of trade and the entrepreneur, the occupation of trade may lead to sin, but so may all other occupations, including that of bishops. As for the sins of traders, they consist of such illicit activity as fraud, misrepresentation of products, the sale of adulterated products, and the use of false weights and measures, as well as keeping creditors waiting for their money after a debt is due. As to trade, there are several kinds of useful merchants, according to San Bernardino: importer-exporters, warehousemen, retailers, and manufacturers.
San Bernardino described the rare qualities and virtues that go into the making of successful businessmen. One is efficiency (industria), which includes knowledge of qualities, prices, and costs and the ability to assess risks and estimate profit opportunities, which, he declared, “indeed very few are capable of doing.” Entrepreneurial ability therefore includes the willingness to assume risks (pericula). Businessmen must be responsible and attentive to detail, and trouble and toil are also necessary. The rational and orderly conduct of business, also necessary to success, is another virtue lauded by San Bernardino, as are business integrity and the prompt settlement of accounts.
Turning again to the Scholastic view of value and price, de Roover pointed out that, as early as Aquinas, prices were treated as determined, not by their philosophic rank in nature, but by the degree of the usefulness or utility of the respective products to man and to human wants. As de Roover wrote of Aquinas, “These passages are clear and unambiguous; value depends upon utility, usefulness, or human wants. There is nowhere any mention of labor as the creator or the measure of value.”25 A century before the Spanish Scholastics and a century and a half before the sophisticated formulation of Francisco Garcia, San Bernardino had demonstrated that price is determined by scarcity (raritas), usefulness (virtuositas), and pleasurability or desirability (complacibilitas). Greater abundance of a good will cause a drop in its value and greater scarcity a rise. To have value, furthermore, a good must have usefulness, or what we may call “objective utility”; but within that framework, the value is determined by the complacibilitas, or “subjective utility,” that it has to individual consumers. Again, only the marginal element is lacking for a full-scale pre-Austrian theory of value. Coming to the brink of the later Austrian solution to the classical economists’ “paradox of value,” San Bernardino noted that a glass of water to a man dying of thirst would be so valuable as to be almost priceless, but fortunately water, though absolutely necessary to human life, is ordinarily so abundant that it commands either a low price or even no price at all.
Correcting Schumpeter’s ascription of the founding of subjective utility to Sant’ Antonino and observing that he had derived it from San Bernardino, de Roover showed further that recent scholarship demonstrates that Bernardino derived his own analysis almost word for word from a late thirteenth-century Provencal Scholastic, Pierre de Jean Olivi (1248–98). Apparently, Bernardino did not give credit to Olivi because the latter, coming from another branch of the Franciscan order, was at that time suspected of heresy.26
Turning to the concept of the “just price,” de Roover made it clear that San Bernardino, following Olivi, held that price of a good or service to be “the estimation made in common by all the citizens of the community.” This he held explicitly to be the valuation of the market, since he defined the just price as “the one which happens to prevail at a given time according to the estimation of the market, that is, what the commodities for sale are then commonly worth in a certain place.”27
Wages were treated by the two Italian friars as equivalent to the prices of goods. For San Bernardino, “The same rules which apply to the prices of goods also apply to the price of services with the consequence that the just wage will also be determined by the forces operating in the market or, in other words, by the demand for labor and the available supply.” An architect is paid more than a ditchdigger, asserted Bernardino, because “the former’s job requires more intelligence, greater ability, and longer training and that, consequently, fewer qualify . . . . Wage differentials are thus to be explained by scarcity because skilled workers are less numerous than unskilled and high positions require even a very unusual combination of skills and abilities.”28 And Sant’ Antonino concluded that the wage of a laborer is a price which, like any other, is properly determined by the common estimation of the market in the absence of fraud.
During and after the sixteenth century, the Roman Catholic church and Scholastic philosophy came under increasingly virulent attack, first from Protestants and then from rationalists, but the result was not so much to eliminate any influence of Scholastic philosophy and economics as to mask that influence, since their proclaimed enemies would often fail to cite their writings. Thus, the great early seventeenth-century Dutch Protestant jurist Hugo Grotius (1583–1645) adopted much of Scholastic doctrine, including the emphasis on want and utility as the major determinant of value, and the importance of the common estimation of the market in determining price. Grotius, in fact, explicitly cited the Spanish Scholastics Azpilcueta Navarro and Covarrubias. Even more explicitly following the Spanish Scholastics of the sixteenth century were the Jesuit theologians of the following century, including the highly influential Flemish Jesuit Leonardus Lessius (1554–1623), a friend of Luis de Molina, and the even more influential Spanish Jesuit Cardinal Juan de Lugo (1583–1660), whose treatise was originally published in 1642 and was reprinted many times in the next three centuries. Also explicitly following the Scholastics and the Salamanca school in the seventeenth century was the Genoese philosopher and jurist Sigismundo Scaccia (c. 1618), whose treatise was widely reprinted, as well as Antonio de Escobar (c. 1652), author of a moral manual.
To return to what would be the dominant Protestant trend for later economic thought, Grotius’s legal and economic doctrines were followed closely in the later seventeenth century by the Swedish Lutheran jurist Samuel Pufendorf (1632–94). While Pufendorf followed Grotius on utility and scarcity and the common estimation of the market in determining value and price, and while he certainly consulted the writings of the Spanish Scholastics, it is the rationalist Pufendorf who dropped all citations to these hated Scholastic influences upon his teacher. Hence, when Grotian doctrine was brought to Scotland by the early eighteenth-century professor of moral philosophy at Glasgow Gershom Carmichael (1672–1729), who translated Pufendorf into English, knowledge of Scholastic influences was lost. Hence, with Carmichael’s great student and successor Francis Hutcheson, utility began to be weakened by labor and cost-of-production theories of value, until finally by the time Hutcheson’s student Adam Smith (1723–90) wrote the Wealth of Nations, pre-Austrian Scholastic influence had unfortunately dropped out altogether. Hence the view of Schumpeter, de Roover, and others that Smith and later Ricardo shunted economics onto a wrong track, which the later marginalists (including the Austrians) had to correct.
Scholastic doctrine had a more lasting influence on economists on the Continent, particularly in Catholic countries. Thus, the brilliant mid-eighteenth-century Italian the Abbé Ferdinando Galiani (1728–87) is often credited by historians with inventing full-blown the concept of utility and scarcity as the determinants of price. No one wished to stress Scholastic writings in that rationalistic age, but strong Scholastic influence is detectable in Galiani’s work, whose section on value even contains an explicit citation to the Salamanca Scholastic Diego Covarrubias y Leiva. Galiani’s uncle Celestino, who brought up the youthful economist, had been professor of moral theology before becoming an archbishop and was therefore undoubtedly familiar with the Scholastic literature on the subject, which filled the Italian libraries of the eighteenth century. Galiani’s contemporary Italian economist Antonio Genovesi (1712–69) was also directly influenced by Scholastic thought; he had served as professor of ethics and moral philosophy at the University of Naples.
From Galiani the central role of utility, scarcity, and the common estimation of the market spread to France, to the late eighteenth-century French abbé Étienne Bonnot de Condillac (1714–80), as well as to that other great abbé Robert Jacques Turgot (1727–81). Knowing only Galiani as his predecessor, Turgot echoed the Salamanca school in holding the prices of goods and the value of money, as the result of the “common estimation” of the market, to be built up out of the subjective valuations of individuals in that market. Francois Quesnay (1694–1774) and the eighteenth-century French physiocrats—often considered to be the founders of economic science—were also heavily influenced by the Scholastics, both in their natural law theory and in their emphasis on consumption and subjective value. Scholastic doctrine even appears in the fiercely anti-Catholic Encyclopedie, including the doctrine of natural law, as well as the analysis of price as determined by the current common estimation of the market. Even during the nineteenth century strong traces of Condillac and Turgot appear in Jean Baptiste Say (1767–1832), who upheld a utility model for the future.29
At about the same time as Schumpeter, Grice-Hutchinson, and de Roover published their researches, Emil Kauder set forth a similar revisionist viewpoint. Kauder traced the connection between the Scholastics and Galiani, first to the mid-sixteenth-century Italian politician Gian Francesco Lottini (1512–72).30 He showed that Lottini first worked out a rudimentary concept of time preference: that people estimate present wants higher than future. The next link was the late sixteenth-century Italian merchant Bernardo Davanzati (1529–1606), who applied subjective-value theory to money in 1588. Indeed, Schumpeter was soon to point out that Davanzati also solved the “paradox of value,” that water is very useful but not valuable on the market because it is highly abundant. Whether or not Davanzati was influenced by San Bernardino is not known.31 He was followed almost a century later by the Italian mathematics professor Geminiano Montanari (1633–87). Galiani was then definitely influenced by Davanzati.
Kauder then developed in an original way the great contributions of Galiani. For not only did Galiani comprehensively set forth the familiar theory of utility and scarcity as determinants of price—which lacked only the marginal principle to arrive at the Austrian theory—but he also went on to apply the utility theory to the value of labor and other factors of production. For the value of labor is, in turn, determined by the utility and scarcity of the particular kind of labor being considered. The highly skilled are paid much more than the common laborer, since nature produces only a small number of able men. But not only that; for Galiani it is not labor costs that determine value, but value—and consumer choice—that determines labor cost. Furthermore, Galiani touched on a pre-Böhm-Bawerk theory of interest, with interest being the difference between present and future money.32 Turgot then anticipated the Austrians in applying Galiani’s utility theory to a detailed analysis of isolated exchange, showing that both parties benefit in utility from the exchange. Turgot, furthermore, as Schumpeter pointed out, developed a time analysis of production and worked out a pre-Austrian general analysis of the law of eventually diminishing returns that was not to be matched until the end of the nineteenth century. Quite justly Schumpeter wrote that “it is not too much to say that analytic economics took a century to get where it could have got in twenty years after the publication of Turgot’s treatise had its content been properly understood and absorbed by an alert profession.”33 Instead, as Kauder pointed out, it was left to Condillac to offer a last-ditch and neglected defense of Galiani’s utility theory against the rising tide of British cost theory. In Condillac’s trenchant phrase, “A thing does not have value because it costs, as people suppose; instead it costs because it has a value.”34
In a fascinating companion article, Kauder speculated on the persistence of utility-and-subjective-value theory on the Continent, as compared to the rise and dominance of a quantity-of-labor-and-cost-of-production theory in Great Britain.35 He was particularly intrigued by the fact that the pre-nineteenth-century French and Italian subjectivists were all Catholics (and, of course, he might have added the medieval and sixteenth century Scholastics as well), while the British economists were all Protestants, or, more precisely, Calvinists. Kauder speculated that it was their Calvinist training that led John Locke and particularly Adam Smith to reject the Continental tradition (Smith knew Turgot and read Grotius) and to emphasize a labor theory of value. The Calvinists believed that work or labor was divine; could not this imprint have led Smith and the others to adopt a labor theory of economic value? Furthermore, Kauder pointed out that until the middle of the eighteenth century the French and Italian universities were dominated by Aristotelian philosophy, particularly as transmitted by the Jesuits and other religious orders. Kauder added that, in contrast to Calvinism, Aristotelian-Thomist philosophy did not glorify work or labor per se as divine; work may be necessary, but “moderate pleasure-seeking and happiness”—in short, utility—”form the center of economic actions.” Kauder concluded that “if pleasure in a moderate form is the purpose of economics, then following the Aristotelian concept of the final cause, all principles of economics including valuation must be derived from it.”36
Kauder admitted that his is a conjecture that cannot be proved, and also that it does not particularly hold for the nineteenth century. However, he did offer an intriguing explanation for Alfred Marshall’s failure to adopt the full marginal utility theory and, instead, his shunting of the theory aside in favor of a recrudescence of Ricardo’s objective cost-of-production theory. That explanation lies in Marshall’s undoubtedly strong Evangelical and Calvinist background.37
Finally, Emil Kauder convincingly demonstrated the direct influence of Aristotelian philosophy on the founders of the Austrian school and contrasted the result with the other marginalist schools of the late nineteenth century. First, in contrast to Jevons and Walras, who believed that economic laws are hypotheses dealing with social quantities, Carl Menger and his followers held that economics investigates, not the quantities of phenomena, but the underlying essences of such real entities as value, profit, and the other economic categories. The belief in underlying essences inherent in superficial appearances is Aristotelian, and Kauder pointed out that Menger studied and cited Aristotle extensively in his methodological work. He also noted the similarities discovered by Oskar Kraus between the Austrian and the Aristotelian theories of imputation. Kauder also pointed out that Menger applied the fundamental Aristotelian distinction between matter and form to economic theory: economic theory deals with the underlying form of events, while history and statistics deal with the concrete matter. The concrete historical cases are the exemplifications of general regularities, the Aristotelian matter that contains potentialities, while the economic laws “are the Aristotelian forms which actualize the potential, i.e., they provide the laws and concepts valid for all times and places.”38
Secondly, Menger held, in contrast to Jevons and Walras, that economic laws as expressed in mathematical equations are only arbitrary statements; on the contrary, genuine economic laws are “exact,” in Menger’s terminology meaning fixed laws that describe sequences invariable to time and place. Thus, Menger and the Austrians build up an “eternal structure of economics . . . stripped of all historical peculiarities.” In short, Menger and, following him, Böhm-Bawerk were Aristotelian social ontologists, maintaining the absolute and apodictic reality of economic laws. Kauder perceptively pointed out that in contemporary economics, “only von Mises, the most faithful student of the three [Austrian] pioneers, maintains the ontological character of economic laws. His theory of human action . . . is a ‘reflection about the essence of action.’ Economic laws provide ‘ontological facts.’”39
Finally, the Jevons-Walras mathematical method necessarily deals with “functions of interdependent phenomena,” whereas, for Menger and the Austrians, economic laws are genetic and causal, proceeding from the utility and the action of the consumer to the market result. As Kauder put it:
For Marshall, value and cost, supply and demand are interdependent factors whose functional connection can be explained in an equation or a geometrical figure. For Wieser, Menger, and especially for Böhm-Bawerk the wants of the consumer are the beginning and the end of the causal nexus. The purpose and the cause of economic action are identical. There is no difference between causality and teleology, claims Böhm-Bawerk. He knew the Aristotelian origin of his argument.40
Kauder also pointed out that the characteristically Austrian method of proceeding by words from a Robinson Crusoe model and then proceeding step by step to a fully developed economy accords with the Aristotelian concept of entelechy, in which “the motion from the potentiality to the actualization determines not only the structure of the system but also the presentation of the thoughts.”41
In attempting to explain the Austrian choice among all the marginalists for philosophical realism and social ontology, Kauder pointed to the late nineteenth-century influences on the Austrian intellectual climate of Aristotle, Thomas Aquinas, and other schools of realistic philosophy. Most influential was Aristotle, who was studied carefully down to the middle of the nineteenth century, and who was often taught in the secondary schools in Austria. And while realism gave way to empiricism in the Austrian schools by the turn of the twentieth century, “the Viennese Schottengymnasium, the intellectual nursery of many famous Austrians including Wieser, required, even after 1918, the students to read Aristotle’s metaphysics in the original Greek.”42 In contrast, of course, the influence of Aristotelian philosophy in Britain or even France during the nineteenth century was virtually nil.
In recent decades, the revisionist scholars have clearly altered our knowledge of the prehistory of the Austrian school of economics. We see emerging a long and mighty tradition of proto-Austrian Scholastic economics, founded on Aristotle, continuing through the Middle Ages and the later Italian and Spanish Scholastics, and then influencing the French and Italian economists before and up till the day of Adam Smith. The achievement of Carl Menger and the Austrians was not so much to found a totally new system on the framework of British classical political economy as to revive and elaborate upon the older tradition that had been shunted aside by the classical school.
Philosophical and Ethical Implications of Austrian Economics
Israel M. Kirzner
The title of this paper contains an apparent paradox: it assumes that Austrian economic theory can have philosophical and ethical implications, while the tradition within Austrian economics has been strongly in support of Wertfreiheit as a cardinal precept of scientific propriety. A good deal of what I have to say in this paper relates to the resolution of this paradox. Let us first rapidly review the history of the doctrine of value-freedom in economics.
WERTFREIHEIT: A THUMBNAIL SKETCH
In his 1884 Untersuchungen Carl Menger included an appendix that briefly but very clearly criticized the tendency of the German “historical” economists to confuse ethical positions with the conclusions of economics.1 At that time holders of chairs of economics at the German universities considered themselves social reformers. They fused their economics with their personal views on social justice and morality. In their lectures they reportedly permitted their emotions free rein. Adolf Wagner, for example, would shake his fist at imaginary opponents of his proposals. Other professors would lecture as if addressing preelection meetings, to the cheers of their students.2 It was with this style of economic discussion that Menger was expressing his disenchantment.
In subsequent decades the figure to mount a vigorous campaign for Wertfreiheit in the social sciences was, of course, Max Weber. He described the fusion of ethical and scientific statements as “the work of the devil.”3 The issue was heatedly debated at the 1909 meeting of the Verein für Sozialpolitik in what Schumpeter described as almost amounting to a row.4 In Weber’s opinion, when a scientist combines his scientific conclusions with his ethical views, he may mislead the layman into supposing that these views carry with them the authority of science. For science to be interpersonally valid, it must not depend on the personal views of any one scholar. Any departure from an austere neutrality on the part of the scientist qua scientist with respect to judgments of value must be denounced. Weber not only stated value-freedom to be a canon of scientific procedure to be jealously guarded but also defended the possibility of pursuing this procedure in economics. Others argued that since economics and social science in general deal with material permeated with ethical content—values, interests, and motives—it is impossible to engage in value-free research in these areas. Weber’s contribution was to point out that the investigator’s own value judgments need not (and also should not) color the conclusions that he reaches concerning the admittedly value-laden activities and phenomena with which his research deals.
Writing in the early 1930s, Lionel Robbins pursued the Weber doctrine still further. Under the influence of Austrian thought, Robbins offered a definition of economics with the incidental property of establishing that the economist’s value judgments have nothing at all to do with his concerns as a scientific investigator.5 Robbins defined economics as the science concerned with the implications of the insight that men are economizing individuals who seek to allocate given scarce resources among given competing ends. Because both the ends and the means are given, what is being investigated is strictly the patterns of behavior generated by the particular configuration of ends and means that happen to be given. The concrete content of the ends does not determine these patterns of behavior. An ends-means configuration applicable to a specific factual situation may also be applicable to an entirely different situation in which the concrete content of both ends and means is entirely different. Economic science, therefore, is value-free in the sense that the particular ends being pursued are not essential to the economic analysis of a given situation. The purposes being aimed at in the economizing aspects of men’s activities may be lofty or mundane. The generalizations economic science develops concerning economizing behavior are equally valid in both situations. Thus Robbins was able to show that Wertfreiheit emerges as an implication of this definition of economics.
In the writings of Ludwig von Mises the Wertfreiheit tradition was vigorously upheld. Mises was deeply concerned with insuring that the scientific truths embodied in economics be perceived as such, that they should not be disparaged as partisan propaganda. Accordingly, it was essential to guard jealously against any lapses from Wertfreiheit—lapses that might lay economics open to the charge of being the expression of someone’s vested interests. As is well known, Mises firmly rejected all suggestions (such as those contained in Marxist literature and in the literature on the sociology of knowledge) that science is subject to a relativism in logic, that its conclusions must inevitably reflect the class consciousness or interests of the scientists.6 Logic, Mises insisted, is universally and interpersonally valid; so is economic science. To surrender Wertfreiheit will unnecessarily and tragically jeopardize the acceptance of scientific conclusions by those not sharing the values revealed by the non-wertfrei scientist.
THE CRITICS OF WERTFREIHEIT
The Wertfreiheit doctrine had come under attack in a number of different ways. One episode of particular interest involves the evolution of Gunnar Myrdal’s attitude toward the doctrine. In The Political Element in the Development of Economic Theory, published in 1929 when he was still a young man and not translated into English until 1954, he charged that economists have consistently violated the Wertfreiheit ideal. From the beginning of economic science until our own times, economists have consciously or unconsciously—possibly quite innocently—permitted their value judgments and ethical positions to color their analyses and help determine their normative conclusions. He saw his task as being to complete Weber’s work by criticizing, from the perspective of the Wertfreiheit doctrine, “the political speculation in classical and neoclassical economic theory.”7 This task required him to expose the errors introduced into economic doctrines by “the insertion of valuations.”8 Both from his 1929 preface and from the 1953 preface to the English translation, it is clear that what stimulated his research was his wish to protest the “uncompromising laissez-faire doctrine” that “dominated the teaching of economics in Sweden” in the late 1920s. By exposing the valuations that must be smuggled into economic analysis before such a normative doctrine as laissez-faire can be extracted, he hoped to discredit the dominant “economic liberalism” of his time.9
Thus, in this early work, Myrdal had no quarrel with Weberian Wertfreiheit as a scientific ideal. He was merely pointing out how seriously, in his view, this ideal has been trampled on in the course of the history of economics. But in his later writings he drastically shifted his point of view. As he himself put it, “Throughout [this early work] there lurks the idea that when all metaphysical elements are radically cut away, a healthy body of positive economic theory will remain, which is altogether independent of valuations.”10 This idea he later emphatically rejected. Such an idea, as a
belief in the existence of a body of scientific knowledge acquired independently of all valuations is . . . naive empiricism. Facts do not organize themselves into concepts and theories just by being looked at; indeed, except within the framework of concepts and theories, there are no scientific facts but only chaos . . . . Questions must be asked before answers can be given. The questions are an expression of our interest in the world, they are at bottom valuations.11
Nor does Myrdal shy away from the rejection of the Wertfreiheit doctrine that his later views entail. “I have therefore arrived at the belief in the necessity of working always, from the beginning to the end, with explicit value premises.”12 This position—emphasizing the impossibility of wertfrei social science—Myrdal vigorously pursued in a series of writings, the most important of which have been collected under the title Value in Social Theory (London: Routledge and Kegan Paul, 1958).
Myrdal was not, of course, alone in this rejection of Wertfreiheit. It will perhaps suffice, for my purpose in this article, merely to refer to the excellent history of the debate concerning Wertfreiheit contained in T.W. Hutchison’s “Positive” Economics and Policy Objectives (Cambridge: Harvard University Press, 1964). We should, however, also note that after the publication of Hutchison’s book Myrdal’s skepticism concerning the possibility of Wertfreiheit in the social sciences came to characterize the position often taken by scholars on the New Left. Throughout the various branches of the social sciences, these writers denounced all claims of Wertfreiheit to be either examples of downright fraud or else evidence of naiveté.
It is against this Myrdal tradition, which denies the possibility and/or desirability of Wertfreiheit in economics, that we must contrast the mainstream perspective of Austrian economics from Menger down to Mises as outlined earlier. Furthermore, this Austrian perspective forces us to confront certain apparent inconsistencies in the Austrian (and particularly the Misesian) position.
MISES, WERTFREIHEIT, AND POLICY PRESCRIPTIONS
In his 1929 book Myrdal gave Austrian economics relatively good marks for disinterested objectivity:
In Austria, economics has never had direct political aims in spite of the close connection of the Austrian marginal utility theory with utilitarian philosophy. The Austrians were preoccupied with value theory and never elaborated a detailed theory of welfare economics.13
It is interesting to note that Fritz Machlup, in his review of the English translation of Myrdal’s book, asked with amazement whether Myrdal was not familiar with Mises’s strongly anti-interventionist writings.14 Misesian economics, it is implied in Machlup’s question, can hardly qualify as being free of “direct political aims.” Again, we find Hutchison in a footnote rather clearly implying that Mises was guilty of this inconsistency.15 He juxtaposed two positions taken by Mises, which, it appears, Hutchison considered to be mutually incompatible. On the one hand, Mises vigorously defended the Wertfreiheit doctrine; on the other hand, he made strong normative statements concerning the desirability of the free market. Here then is the apparent difficulty that we must confront: can we reconcile Mises’s strong normative position in economics with his declared insistence on Wertfreiheit? I believe that we can. I believe moreover that such a reconciliation bears a definite relationship to the specifically Austrian character of Misesian economics.
In arguing that a reconciliation is possible in this way, it is necessary for me to modify to some extent a position I defended a short while ago. In an eloquent article in Intercollegiate Review, John Davenport advocated a closer relationship between economics and philosophy.16 Davenport deplored the gap in communication between the economists, concerned only with pure (i.e., abstract) efficiency, and those scholars in philosophy and ethics, concerned with the concrete nature of the goals and ends of efficient action. If we are to achieve a good society, Davenport argued, discussions of efficiency cannot remain divorced from philosophical concepts of the good and the bad, the beautiful and the ugly, the true and the untrue. In pursuing his critique of economics from this point of view, Davenport referred approvingly to Robbins and to Mises as having to some extent “humanized” economics. The emphasis that both Robbins and Mises placed on human choice and purpose made it inevitable, Davenport explained, that attention be paid to the nature of choice and purpose. To this extent, therefore, Davenport credited Robbins and Mises with having “made a beginning at least of rebuilding the bridge that connects [economics] with philosophy.”17
Commenting recently on Davenport’s paper, I took issue with this last point and argued that the subjectivism of Robbins and Mises in no way requires or implies the possibility of a synthesis between ethical values and the value-free propositions of economic science.18 The tradition of Wertfreiheit, so stoutly upheld by both Robbins and Mises, was not at all inconsistent—even by implication—with their emphasis on purposeful decision making. It would, it seemed to me, be a distortion of both the Robbinsian and the Misesian points of view to perceive either of them as uniquely capable of initiating the kind of bridge building between economics and ethics that Davenport advocated.19
It now appears necessary for me to modify this position. While I would still insist that Misesian purposefulness in no way implies the need to surrender the ideal of Wertfreiheit, Davenport’s observation regarding Mises may embody an insight I previously missed. Furthermore, it is by means of this insight that I hope to reconcile the apparent inconsistency between Mises’s pronouncements concerning the economic advantages of the free market and his insistence on Wertfreiheit in economics.
The Misesian emphasis on purposeful choice enables us to avoid discussions of efficiency that depend on such notions as utility and welfare. Efficiency, in the Misesian framework, does not mean welfare maximization (not individual welfare maximization nor social welfare); it means instead the fulfillment of the purposes deemed most important rather than the fulfillment of less important purposes. It is impossible therefore to speak of efficiency in terms other than those of the purposes of specific individuals under discussion. Nothing in the concept of Misesian efficiency is consistent with the belief that an economist’s approval of, say, a specific policy reflects his own approval of the ends of that policy, or even his belief that the ends will command general approval. For Mises, professional approval by an economist of a specific policy proposal merely means that the economist believes the policy will enhance the fulfillment of the purposes of those interested in the economist’s professional opinion. (By contrast, other approaches to economic welfare that do not place this emphasis on individual purposes—even though it is acknowledged that welfare depends on individual tastes—tend to jeopardize their Wertfreiheit when making policy pronouncements. It is now a well-established conclusion of welfare economics that such policy pronouncements, insofar as they imply a maximization of social welfare, cannot escape arbitrary, and thus value-laden, assignments of weights to individuals.)
And, indeed, when one examines Mises’s many statements about economic policy, whether they be about price controls, tariffs, antitrust policy, or anything else, one invariably discovers that his conclusions do not at all reflect his own personal valuations. They reflect only his opinions concerning the degree of success with which others are pursuing their purposes. Sometimes Mises made clear whose purposes he had in mind. Sometimes it is taken for granted that the reader will be aware of whose purposes are being used as a frame of reference, and that the general nature of the preferences expressed in these purposes is also well known. One may on occasion question such an assumption; one may on occasion find language superficially implying that a certain policy is simply wrong or bad. But a careful reading of Mises will support the interpretation we are placing here on his policy pronouncements. This was made very clear indeed in Mises’s oral presentations. He would emphasize again and again that interventionist policies are “wrong,” not from the point of view of the economist himself, but from the point of view of those initiating these policies (or at least from the point of view of those whose well-being the policies are supposed to enhance).
SOME FURTHER REMARKS ON VALUE-FREE ECONOMICS
In discussions concerning Wertfreiheit in economics, analogies have often been drawn with medical research. Almost a century and a half ago Archbishop Whately used such an analogy in responding to criticism directed against the study of economics. The critics felt that the “science of wealth” was too mundane a discipline, concerned with too sinful a subject matter, to be the proper concern of moral persons. Whately’s defense was to point to medical research as a model. The critics, identifying wealth as sinful, saw the economist as promoting sin. Not so, argued Whately. The researcher investigating the causes of disease surely cannot be accused of promoting disease. If wealth be sinful, then it behooves us to encourage the study of political economy in order most effectively to eliminate the offensive immoral affluence.20
To put Whately’s defense in other words, we may say that pure research itself is wertfrei. If a scientist searches for and identifies the factors that foster a specific phenomenon, we are unable without additional information to determine whether his motivation has been fueled by pure curiosity, by a desire to promote the phenomenon in question, or by a desire to eliminate it. In Misesian context the phenomenon in question turns out to be the fulfillment of individual purposes. Economic analysis is able to provide insight into the circumstances and policies that foster or frustrate the fulfillment of individual purposes. Without further information one is unable to identify any specific valuations as being implied in an economist’s policy conclusions; he may be in favor of these purposes, he may abhor them, or he may be in different about them. Value judgments are simply not prerequisites for policy conclusions.
It has sometimes been argued that, in providing a client with policy advice, the economist is after all making a moral judgment to the effect that the client’s purposes are worthy of support. Surely, it is pointed out, an economist should not as a moral being offer a prospective mass murderer wertfrei advice on how to achieve his purposes most effectively.21 Apparently, economic policy advice turns out inevitably to reflect and endorse the values of those to whom advice is being proffered. This reasoning does not, it should be clear, invalidate our claim that the policy conclusions of economics can be entirely consistent with the ideals of wertfrei science. Here again Whately’s analogy is helpful.
Research into the causes of a dread disease can, we have seen, be entirely wertfrei. Nonetheless, we recognize that what motivates a scientist to dedicate his life to such research may be his wish to free mankind from the scourge. Or, again, a malevolent individual intent on harming his enemies may be interested in the results of this research for sinister reasons. The Wertfreiheit of the research itself and the objectivity of its conclusions are not affected in the least by our recognition that the researcher should not as a moral being divulge these conclusions to the man of malevolence. The choice of his clients must indeed be governed by the scientist’s moral values; policy advice can indeed be given only to those whose purposes are not repugnant to the professional; but the objectivity and Wertfreiheit of the analysis that led to these policy conclusions are not one whit compromised by these considerations.
To pursue this argument one step further, in many cases the economist discovers policy conclusions that are applicable to situations in which a wide variety of quite different purposes may be involved. A policy statement pointing out that voluntary exchange benefits both participants (in their own prospective estimation) may after all be made without regard to what is being exchanged or the purposes to which the exchanged items will be put. In publishing such a general policy conclusion the economist can, therefore, hardly be accused of seeking personally out of his own sense of moral worth to promote any specific purposes that may in fact turn out to be served by free exchange.
POLICY STATEMENTS, INTERPERSONAL COMPARISONS, AND COORDINATION
Implicit in our discussion of Mises’s wertfrei approach to economic policy and in our argument that it is the peculiarly Austrian aspect of the Misesian approach that makes it possible is an insight to which we have briefly referred. This insight is important and deserves to be spelled out more fully.
Statements by non-Austrian economists on economic policy are made against the background of the theory of welfare economics. Crucial to this theory is the attempt to aggregate, in some sense, the tastes, the purposes, or the satisfactions of individuals into an entity that it is the ideal of economic policy to maximize. The principal conceptual difficulties involved in this procedure are two. The first is well known: the problem of interpersonal comparisons of welfare inevitably stands in the way of any kind of aggregation. The second difficulty, less well known but no less serious, was pointed out by Hayek many years ago: welfare economics, in discussing efficiency at the aggregate level, is compelled to make the illegitimate assumption that the bits of information scattered throughout society concerning individual tastes (and everything else) can somehow be spontaneously integrated and fed into a single mind in order for the notion of aggregate welfare maximization to be meaningful.22 These difficulties make it clear that, for policy statements to be made without these embarrassments, an analytical framework is needed that preserves the individuality of individual purposes. If policies or institutions can be judged on the extent to which they permit individual purposes—seen simply as the unaggregated preference structures of individuals—to be fulfilled, then both of the aforementioned difficulties can be avoided. Such an approach has been found, on Austrian lines, in the notion of coordination.23
In the coordination approach to normative economics it is made clear that the ideal is not the maximization of aggregate social welfare or any such entity. Instead, the far more modest, but meaningful, criterion of success in social economic arrangements is the degree to which the purposes of separate individuals can be harmonized through coordination of decision making and action. The obvious example of coordinated action is voluntary interpersonal exchange in which each participant acts to improve his position, with such improvement possible only because each participant’s action is coordinated precisely with that of his trading partner. In using the coordination criterion as the theoretical basis for evaluating social efficiency, the individuality of purposes is not lost sight of; on the contrary, the very notion of coordination prohibits submersion of these purposes into any social aggregate.
The thesis advanced in this paper, that Misesian policy pronouncements are entirely consistent with Wertfreiheit, depends crucially on the nonaggregation of individual purposes. What we have been at pains to emphasize is that this Austrian feature of Misesian economics may be exploited—through the cognate notion of coordination—to escape those pitfalls that other approaches have characteristically been unable to avoid.
WERTFREIHEIT: A CONCLUDING REMARK
Mises the defender of the free market and Mises the economic scientist were indeed one and the same individual. It was not necessary for Mises, in order to extol the market and condemn intervention, to remove his value-free scientist’s cap and don a political one. To extol and to condemn were for Mises so circumscribed as to be strictly within the limits of Wertfreiheit. It remains for his followers to subject themselves to similar self-imposed restraints, not only because of Weberian ideals of scientific propriety, but also because explicitly value-laden perspectives are frequently found consorting with Austrian economics.
There is, of course, nothing improper about the proponent of a value-laden political position seeking support in the wertfrei conclusions of science. One who values the preservation of life and crusades against cigarette smoking is acting quite properly in citing the conclusions of medical research to the effect that smoking is dangerous to health. Similarly, one who wishes to promote a free society with unhampered markets may legitimately cite the conclusions of economic science with respect to the coordinative-allocative properties of competitive markets. What is essential, however, if such scientific support is to be persuasive, is that the scientific research not only be conducted with strict objectivity but also be widely recognized as having been so conducted. Any suspicion that the conclusions of the economic theorist depend upon the perception of particular goals as being more valid than others will only jeopardize the acceptance of those conclusions as objectively determined truths. At every stage of the process of economic reasoning, Wertfreiheit thus becomes a crucially important element in scientific procedure. Until the stage where scientific conclusions come to be marshalled as fuel for explicitly political-persuasive positions, any surrender of Wertfreiheit carries with it, therefore and in fact, the altogether unwholesome prospect that such positions will necessarily be taken without the benefit of scientific information at all. Surely, if one is imbued with the value judgment that scientific truth is worth pursuing and disseminating, one can be expected to be prepared to exercise the restraint necessary to prevent that truth from being dismissed in the eyes of the public as mere propaganda.
Praxeology, Value Judgments, and Public Policy
Murray N. Rothbard
Ethics is the discipline, or what is called in classical philosophy the “science,” of what goals men should or should not pursue. All men have values and place positive or negative value judgments on goods, people, and events. Ethics is the discipline that provides standards for a moral critique of these value judgments. In the final analysis, either such a discipline exists and a rational or objective system of ethics is possible, or else each individual’s value judgments are ultimately arbitrary and solely a creature of individual whim. It is not my province to try to settle one of the great questions of philosophy here. But even if we believe, as I do, that an objective science of ethics exists, and even if we believe still further that ethical judgments are within the province of the historian or social scientist, one thing is certain: praxeology, economic theory, cannot itself establish ethical judgments. How could it when it deals with the formal fact that men act rather than with the content of such actions? Furthermore, praxeology is not grounded on any value judgments of the praxeologist, since what he is doing is analyzing the fact that people in general have values rather than inserting any value judgments of his own.
What, then, is the proper relationship of praxeology to values or ethics? Like other sciences, praxeology provides laws about reality, laws that those who frame ethical judgments disregard only at their peril. In brief, the citizen, or the “ethicist,” may have framed, in ways which we cannot deal with here, general ethical rules or goals. But in order to decide how to arrive at such goals, he must employ all the relevant conclusions of the various sciences, all of which are in themselves value-free. For example, let us suppose that a person’s goal is to improve his health. Having arrived at this value—which I would consider to be rational and others would consider purely emotive and arbitrary—the person tries to discover how to reach his goal. To do so, he must employ the laws and findings, value-free in themselves, of the relevant sciences. He then extends the judgment of “good,” as applied to his health, on to the means he believes will further that health. His end, the improvement of his health, he pronounces to be “good”; he then, let us say, adopts the findings of medical science that x grams of vitamin C per day will improve his health; he therefore extends the ethical pronouncement of “good”—or, more technically, of “right”—to taking vitamin C as well. Similarly, if a person decides that it is “good” for him to build a house and adopts this as his goal, he must try to use the laws of engineering—in themselves value-free—to figure out the best way of constructing that house. Felix Adler put the relationship clearly, though we may question his use of the term social before science in this context:
The . . . end being given, the ethical formula being supplied from elsewhere, social science has its most important function to discharge in filling in the formula with a richer content, and, by a more comprehensive survey and study of the means that lead to the end, to give to the ethical imperatives a concreteness and definiteness of meaning which otherwise they could not possess. Thus ethical rule may enjoin upon us to promote . . . health, . . . but so long as the laws of hygiene remain unknown or ignored, the practical rules which we are to adopt in reference to health will be scanty and ineffectual. The new knowledge of hygiene which social science supplies will enrich our moral code in this particular. Certain things which we freely did before, we now know we may not do; certain things which we omitted to do, we now know we ought to do.1
Praxeology has the same methodological status as the other sciences and the same relation to ethics. Thus, to take a deliberately simple example: if our end is to be able to find gasoline when we pull up to the service station, and value-free praxeological law tells us—as it does—that, if the government fixes a maximum price for any product below then free-market price, a shortage of that product will develop, then (unless other goals supervene) we will make the ethical pronouncement that it is “bad” or “wrong” for the government to impose such a measure. Praxeology, like the other sciences, is the value-free handmaiden of values and ethics.
To our contention that the sciences, including praxeology, are in themselves value-free, it might be objected that it is values or ethics that directs the interest of the scientist in discovering the specific laws of his discipline. There is no question about the fact that medical science is currently far more interested in discovering a cure for cancer than in searching for a cure for some disease that might only have existed in parts of the Ukraine in the eighteenth century. But the unquestioned fact that values and ethics are important in guiding the attention of scientists to specific problems is irrelevant to the fact that the laws and disciplines of the science itself are value-free. Similarly, Crusoe on his desert island may not be particularly interested in investigating the science of bridge building, but the laws of that science itself are value-free.
Ethical questions, of course, play a far smaller role in applied medicine than they do in politics or political economy. A basic reason for this is that generally the physician and his patient agree—or are supposed to agree—on the end in view: the advancement of the patient’s health. The physician can advise the patient without engaging in an intense discussion of their mutual values and goals. Of course, even here, the situation is not always that clear-cut. Two examples will reveal how ethical conflicts may arise: first, the patient needs a new kidney to continue to live; is it ethical for the physician and/or the patient to murder a third party and extract his kidney? Second, is it ethical for the physician to pursue medical research for the possible good of humanity while treating his patient as an unwitting guinea pig? These are both cases where valuational and ethical conflicts enter the picture.
In economic and political questions, in contrast, ethical and value conflicts abound and permeate the society. It is therefore impermissible for the economist or other social scientist to act as if he were a physician, who can generally assume complete agreement on values and goals with his patient and who can therefore prescribe accordingly and with no compunction. Since, then, praxeology provides no ethics whatsoever but only the data for people to pursue their various values and goals, it follows that it is impermissible for the economist qua economist to make any ethical or value pronouncements or to advocate any social or political policy whatsoever.
The trouble is that most economists burn to make ethical pronouncements and to advocate political policies—to say, in effect, that policy X is “good” and policy Y “bad.” Properly, an economist may only make such pronouncements in one of two ways: either (1) to insert his own arbitrary, ad hoc personal value judgments and advocate policy clearly on that basis; or (2) to develop and defend a coherent ethical system and make his pronouncement, not as an economist, but as an ethicist, who also uses the data of economic science. But to do the latter, he must have thought deeply about ethical problems and also believe in ethics as an objective or rational discipline—and precious few economists have done either. That leaves him with the first choice: to make crystal clear that he is speaking not as an economist but as a private citizen who is making his own confessedly arbitrary and ad hoc value pronouncements.
Most economists pay lip service to the impermissibility of making ethical pronouncements qua economist, but in practice they either ignore their own criteria or engage in elaborate procedures to evade them. Why? We can think of two possible reasons. One is the disreputable reason that, if Professor Doakes advocates policy X and basically does so as an economics professor, he will be listened to and followed with awe and respect; whereas if he advocates policy X as plain Joe Doakes, the mass of the citizenry may come to the perfectly valid conclusion that their own arbitrary and ad hoc value judgments are just as good as his, and that therefore there is no particular reason to listen to him at all. A second and more responsible reason might be that the economist, despite his professed disbelief in a science of ethics, realizes deep down that there is something unfortunate—we might even say bad—about unscientific and arbitrary value judgments in public policy, and so he tries desperately to square the circle, in order to be able to advocate policy in some sort of scientific manner.
While squaring this circle is impossible, as we shall consider further, I believe that this putative uneasiness at making arbitrary value judgments is correct. While it is surely admirable (ethical?) for an economist to distinguish clearly and carefully between the value-free science and his own value judgments, I contend further that it is the responsibility of any scientist, indeed any intellectual, to refrain from any value judgment whatever unless he can support it on the basis of a coherent and defensible ethical system. This means, of course, that those economists who, on whatever grounds, are not prepared to think about and advance an ethical system should strictly refrain from any value pronouncements or policy conclusions at all. This position is of course itself an ethical one. But it relates to the ethical system that is the precondition of all science; for, even though particular scientific laws are themselves value-free, the very procedures of science rest on the ethical norm of honesty and the search for truth; that norm, I believe, includes the responsibility to lend coherence and system to all one’s pronouncements including valuational ones. I might add in passing that anyone conceding the necessity of honesty in science ipsofacto becomes willy-nilly a believer in objective ethics, but I will leave that point to the ethical subjectivists to grapple with.2
Let me clarify with an example. Henry C. Simons, after trenchantly criticizing various allegedly scientific arguments for progressive taxation, came out flatly in favor of progression as follows:
The case for drastic progression in taxation must be rested on the case against inequality—on the ethical or aesthetic judgment that the prevailing distribution of wealth and income reveals a degree (and/or kind) of inequality which is distinctly evil or unlovely.3
My point is that, while it was surely admirable for Simons to make the distinction between his scientific and his personal value judgments crystal clear, that is not enough for him to escape censure. He had, at the very least, the responsibility of analyzing the nature and implications of egalitarianism and then attempting to defend it as an ethical norm. Flat declarations of unsupported value judgments should be impermissible in intellectual, let alone scientific, discourse. In the intellectual quest for truth it is scarcely sufficient to proclaim one’s value judgments as if they must be accepted as tablets from on high and not be themselves subject to intellectual criticism and evaluation.
Suppose, for example, that Simons’s ethical or esthetic judgment was not on behalf of equality but of a very different social ideal. Suppose that instead he had come out in favor of the murder of all short people, of all adults under five feet six inches in height. And suppose that his sole defense of this proposal were the following:
The case for the liquidation of all short people must be rested on the case against the existence of short people—on the ethical or aesthetic judgment that the prevailing number of short adults is distinctly evil or unlovely.
One wonders if the reception accorded to Simons’s remarks by his fellow economists or social scientists would have been quite the same.4 Yet, of course, the logic of his stance would have been precisely the same.
More usual is an attempt by the economist to place himself in the status of the physician of our foregoing example, that is, as someone who is merely agreeing to or ratifying the values either of a majority in society or of every person in it. But even in these cases, it must be remembered that the physician is in no sense value-free, though he is simply sharing the value of his patient, and that the value of health is so deeply shared that there is no occasion for making it explicit. Nevertheless, the physician does make a value judgment, and, even if every person in society shares the same value and goal, the economist who goes along with such a value is still making a value judgment, even if indeed universally shared. He is still illegitimately going beyond the bounds of the economist per se, and his value judgments must still be supported by rational argument.
The weakest path to an economist’s adoption of social values is to appeal to the majority. Thus, John F. Due commented on the progressive income tax in his text on public finance:
The strongest argument for progression is the fact that the consensus of opinion in society today regards progression as necessary for equity. This is, in turn, based on the principle that the pattern of income distribution, before taxes, involves excessive inequality (which) can be condemned on the basis of inherent unfairness in terms of the standards accepted by society.
But once again the fact that the majority of society might hold market inequality to be “unfair” does not absolve Due of the fact that, in ratifying that judgment, he himself made that value judgment and went beyond the province of the economist. Furthermore, on scientific standards, the ad hoc and arbitrary value judgments of the majority are no better than those of one person, and Due, like Simons, failed to support that judgment with any sort of argumentation. Furthermore, when we ratify the majority, what of the rights or the utilities of the minority? Felix Adler’s strictures against the utilitarian ethic clearly apply here:
Other sociologists frankly express their ideals in terms of quantity and, in the fashion of Bentham, pronounce the greatest happiness of the greatest number to be the social end, although they fail to make it intelligible why the happiness of the greater number should be cogent as an end upon those who happen to belong to the lesser number.6
Again, with Due as with Simons, one wonders about the treatment of such a position by the American intellectual community if his imprimatur on the “consensus of opinion in society today” had been applied instead to the treatment of the Jews in Germany in the 1930s.
Just as the physician who advises his client commits himself to the ethic of good health, so the economist who advises a client is not, much as he would like to think so, a mere technician who is not commiting himself to the value judgment of his client and his client’s goals. By advising a steel company on how to increase its profits, the economist is thereby committed to share in the steel entrepreneur’s value judgment that his greater profit is a desirable goal. It is even more important to make this point about the economist who advises the State. In so doing, he commits himself to the value judgments, not simply of the majority of the society as in the case of Due, but to the value judgments of the rulers of the State apparatus. To take a deliberately dramatic example, let us suppose that an economist is hired by the Nazis to advise the government on the most efficient method of setting up concentration camps. By agreeing to help make more efficient concentration camps, he is agreeing to make them “better,” in short, he is committing himself willy-nilly to concentration camps as a desirable goal. And he would, again, still be doing so even if this goal were heartily endorsed by the great majority of the German public. To underscore this point, it should be clear that an economist whose value system leads him to oppose concentration camps might well give such advice to the German government as to make the concentration camps as inefficient as possible, that is to sabotage their operations. In short, whatever advice he gives to his clients, a value commitment by the economist, either for or against his clients’ goals, is inescapable.7
A more interesting variant of the economist’s attempt to make value-free value judgments is the “unanimity principle,” recently emphasized by James M. Buchanan. Here the idea is that the economist can safely advocate a policy if everyone in the society also advocates it. But, in the first place, the unanimity principle is still subject to the aforementioned strictures: that, even if the economist simply shares in everyone else’s value judgment, he is still making a value judgment. Furthermore, the superficial attractiveness of the unanimity principle fades away under more stringent analysis; for unanimity is scarcely sufficient to establish an ethical principle. For one thing, the requirement of unanimity for any action or change begins with and freezes the status quo. For an action to be adopted, the justice and ethical propriety of the status quo must first be established, and of course economics can scarcely be prepared to do that. The economist who advocates the unanimity principle as a seemingly value-free pronouncement is thereby making a massive and totally unsupported value judgment on behalf of the status quo. A stark but not untypical example was the debate in the British Parliament during the early nineteenth century on the abolition of slavery, when early adherents of the “compensation principle” variant of the unanimity principle (which has its own additional and grave problems) maintained that the masters must be compensated for the loss of their investment in slaves. At that point, Benjamin Pearson, a member of the Manchester school, declared that “he had thought it was the slaves who should have been compensated.”8 Here is a striking example of the need in advocating public policy of some ethical system, of a concept of justice. Those ethicists among us who hold that slavery is unjust would always oppose the idea of compensating the masters and would rather think in terms of reparations to compensate the slaves for their years of oppression. But what is there for the value-free economist qua economist to say?
There are other grave problems with the compensation principle as a salvaging attempt to make it possible for value-free economists to advocate public policy. For the compensation principle assumes that it is conceptually possible to measure losses and thereby to compensate losers. But since praxeology informs us that “utility” and “cost” are purely subjective (psychic) concepts and therefore cannot be measured or even estimated by outside observers, it become impossible for such observers to weigh “social costs” and “social benefits” and to decide that the latter outweigh the former for any public policy, much less to make the compensations involved so that the losers are no longer losers. The usual attempt is to measure psychic losses in utility by the monetary price of an asset; thus, if a railroad damages the land of a farmer by smoke, it is assumed that the farmer’s loss can be measured by the market price of the land. But this ignores the facts that the farmer may have a psychic attachment to the land that puts its value far above the market price and that—especially in this kind of situation that does not involve direct action and exchange by the individuals—it is impossible to find out what the farmer’s psychic attachment to the land may be worth. He may say, for example, that his attachment to the land requires the compensation of $10 million, even though the market price is $100,000, but of course he may be lying. However, the government or other outside observer has no scientific way of finding out one way or another.9 Furthermore, the existence in the society of just one militant anarchist, whose psychic grievance against government is such that he cannot be compensated for his psychic disutility from the existence of government, is enough by itself to destroy the social-utility and compensation-principle case for any government action whatever. And surely at least one such anarchist exists.
Can praxeological economics, then, say nothing about social utility? Not quite. If we define an “increase in social utility” in the Paretian manner as a situation where one or more persons gain in utility while nobody loses, then praxeology finds a definite, but restricted, role for the concept. But it is a role where social utilities remain unmeasurable and incomparable between persons. Briefly, praxeology maintains that when a person acts, his utility, or at least his ex ante utility, increases; he expects to enjoy a psychic benefit from the act, otherwise he would not have done it. When, in a voluntary free-market exchange, for example, I buy a newspaper from a newsdealer for 15 cents, I demonstrate by my action that I prefer (at least ex ante) the newspaper to the 15 cents, while the newsdealer demonstrates by his action the reverse order of preference. Since each of us is better off by the exchange, both the newsdealer and I have demonstrably gained in utility, while nothing has demonstrably happened to anyone else. Elsewhere I have called this praxeological concept “demonstrated preference,” in which action demonstrates preference, in contrast to various forms of psychologizing, which tries to measure other person’s value scales apart from action, and to behaviorism, which assumes that such values or preferences do not exist.10 The compensation principle that I have been criticizing rests on the illegitimate psychologizing notion that a scientific economist-observer can know anything about someone else’s value scale except as it is demonstrated through such action as the purchase or sale of a newspaper. And since the compensation principle is necessarily divorced from demonstrated preference, it cannot be employed by the scientific economist. Incidentally, I might note here that “demonstrated preference” is very different from Samuelson’s famous concept of “revealed preference,” for Samuelson, in illegitimate psychologizing fashion, assumed the existence of an underlying preference scale that forms the basis of a person’s action and that remains constant in the course of his actions over time. There is, however, no warrant for the scientific economist to make any such assumption. All we can say is that an action, at a specific point of time, reveals some of a person’s preferences at that time. There is no warrant for assuming that such preference orderings remain constant over time.11
Now since praxeology shows, by the concept of demonstrated preference, that both the newsdealer and I gain in utility from the exchange, and nothing has demonstrably happened to anyone else, we can conclude scientifically, as praxeological economists, that social utility has increased from the sale and purchase of the newspaper—since we have defined social utility in the Paretian manner. It is true, of course, that third parties may well be grinding their teeth in hatred at the exchange. There may be people, for example, who through envy suffer a psychic loss because the newspaper dealer and/or I have gained. Therefore, if we employ the Paretian definition of “social utility” in the usual psychologizing sense, we can say nothing about social utility one way or the other. But if we confine the concept to its strict scientific compass in demonstrated preference, then we can state that social utility increases from the exchange. Still further, we may know as historians, from interpretive understanding of the hearts and minds of envious neighbors, that they do lose in utility. But we are trying to determine in this paper precisely what scientific economists can say about social utility or can advocate for public policy, and since they must confine themselves to demonstrated preference, they must affirm that social utility has increased.
Conversely, since every act of the State involves coercion, at least the coercion of taxation, and since in its every act there is at least one demonstrable loser in utility, we must also conclude that no act whatever of the State can increase social utility. Here, of course, is another good reason why the economic scientist cannot use the concept of “social utility” to establish any sort of unanimity principle or any other case for government action. It has been pointed out that, similarly, we cannot say that any action of the State decreases social utility, at least in the short run, and that too is correct.
We must emphasize, however, that the praxeological conclusion that the free market maximizes social utility is not sufficient to enable the praxeological economist to advocate the free market while abstaining from value judgments or from an ethical system. In the first place, why should an economist favor increasing social utility? This in itself requires an ethical or value judgment. And, secondly, the social-utility concept has many other failings, including the fact that while the envious and the egalitarian or the admirer of coercion per se may not be included in the social-utility concept, the contemporary historian knows that he is there, lurking in the wings; it therefore requires an ethical judgment, which cannot be supplied by praxeology, to overrule him. Furthermore, many of the strictures against the unanimity principle apply here too; for example, should we really be eager to preserve the utility of the slaveholder against loss? And if so, why?
Let us now turn to the position of Ludwig von Mises on the entire matter of praxeology, value judgments, and the advocacy of public policy. The case of Mises is particularly interesting, not only because he was a leader in the modern Austrian school and in praxeology, but also because he was, of all the economists in the twentieth century, the most uncompromising and passionate adherent of laissez-faire and at the same time the most rigorous and uncompromising advocate of value-free economics and opponent of any sort of objective ethics. How then did he attempt to reconcile these two positions?12
Essentially, Mises offered two very different solutions to this problem. The first is a variant of the unanimity principle. Essentially this variant affirms that an economist per se cannot say that a given governmental policy is “good” or “bad.” However, if a given policy will lead to consequences, as explained by praxeology, that every one of the supporters of the policy will agree is bad, then the value-free economist is justified in calling the policy a “bad” one. Thus, Mises wrote:
An economist investigates whether a measure a can bring about the result p for the attainment of which it is recommended, and finds that a does not result in p but in g, an effect which even the supporters of the measure a consider undesirable. If the economist states the outcome of his investigation by saying that a is a bad measure, he does not pronounce a judgment of value. He merely says that from the point of view of those aiming at the goal p, the measure a is inappropriate.13
Economics does not say that . . . government interference with the prices of only one commodity . . . is unfair, bad, or unfeasible. It says, that it makes conditions worse, not better, from the point of view of the government and those backing its interference.14
Now this is surely an ingenious attempt to allow pronouncements of “good” or “bad” by the economist without making a value judgment; for the economist is supposed to be only a praxeologist, a technician, pointing out to his readers or listeners that they will all consider a policy “bad” once he reveals its full consequences. But ingenious as it is, the attempt completely fails. For how could Mises know what the advocates of the particular policy consider desirable? How could he know what their value scales are now or what they will be when the consequences of the measure appear? One of the great contributions of praxeology, as I have pointed out above, is that the praxeologist, the economist, doesn’t know what anyone’s value scales are except as those value preferences are demonstrated by a person’s concrete action. In the case of my purchase of the newspaper, historians or psychologists may make more or less informed estimates of the newsdealer’s or my value scales through the process of interpretive understanding, but all that the economist can know scientifically and with certainty is the preferences relative to 15 cents or the newspaper as demonstrated through concrete action. Mises himself emphasized that
one must not forget that the scale of values or wants manifests itself only in the reality of action. These scales have no independent existence apart from the actual behavior of individuals. The only source from which our knowledge concerning these scales is derived is the observation of a man’s actions. Every action is always in perfect agreement with the scale of values or wants because these scales are nothing but an instrument for the interpretation of a man’s acting.15
Given Mises’s own analysis, then, how can the economist know what the motives for advocating various policies really are or how people will regard the consequences of these policies?
Thus, Mises, qua praxeologist, might show that price control (to use his example) will lead to unforeseen shortages of a good to the consumers. But how could Mises know that some advocates of price control do not want shortages? They may, for example, be socialists, anxious to use the controls as a step toward full collectivism. Some may be egalitarians who prefer shortages because the rich will not be able to use their money to buy more of the product than poorer people. Some may be nihilists, eager to see shortages of goods. Others may be one of the legion of contemporary intellectuals who are eternally complaining about the excessive affluence of our society or about the great waste of energy; they may all delight in the shortages of goods. Still others may favor price control, even after learning of the shortages, because they or their political allies will enjoy well-paying jobs or power in a price-control bureaucracy. All sorts of such possibilities exist, and none of them are compatible with the assertion of Mises, as a value-free economist, that all supporters of price control—or of any other government intervention—must concede, after learning economics, that the measure is “bad.” In fact, once Mises conceded that even a single advocate of price control or any other interventionist measure may acknowledge the economic consequences and still favor it, for whatever reason, then, as a praxeologist and economist, he could no longer call any of these measures “bad” or “good” or even “appropriate” or “inappropriate” without inserting into his economic policy pronouncements the very value judgments that he himself held to be in admissible in a scientist of human action.16 He would no longer be a technical reporter to all advocates of a certain policy but an advocate participating on one side of a value conflict.
Moreover, there is another fundamental reason for advocates of “inappropriate” policies to refuse to change their minds even after hearing and acknowledging the praxeological chain of consequences. For praxeology may indeed show that all types of government policies will have consequences that most people, at least, will tend to abhor. But, and this is a vital qualification, most of these consequences take time, some a great deal of time. No economist has done more than Ludwig von Mises to elucidate the universality of time preference in human affairs—the praxeologic law that everyone prefers to attain a given satisfaction sooner than later. And certainly Mises, as a value-free scientist, could never presume to criticize anyone’s rate of time preference, to say that A’s was “too high” and B’s “too low.” But, in that case, what about the high-time-preference people in society who retort to the praxeologist: “Perhaps this high tax and subsidy policy will lead to a decline of capital; perhaps even the price control will lead to shortages, but I don’t care. Having a high time preference, I value more highly the short-run subsidies, or the short-run enjoyment of buying the current good at cheaper prices, than the prospect of suffering the future consequences.” And Mises, as a value-free scientist and opponent of any concept of objective ethics, could not call them wrong. There is no way that he could assert the superiority of the long run over the short run without overriding the values of the high-time-preference people; and that could not be cogently done without abandoning his own subjectivist ethics.
In this connection, one of Mises’s basic arguments for the free market is that, on the market, there is a “harmony of the rightly understood interests of all members of the market society.” It is clear from his discussion that he could not merely mean “interests” after learning the praxeological consequences of market activity or of government intervention. He also, and in particular, meant people’s long-run interests. As he stated, “For ‘rightly understood’ interests we may as well say interests ‘in the long run.’”17 But what about the high-time-preference folk, who prefer to consult their short-run interests? How can the long run be called “better” than the short run? Why is “right understanding” necessarily the long run?
We see, therefore, that Mises’s attempt to advocate laissez-faire while remaining value-free, by assuming that all of the advocates of government intervention will abandon their position once they learn of its consequences, falls completely to the ground. There is another and very different way, however, that Mises attempted to reconcile his passionate advocacy of laissez-faire with the absolute value-freedom of the scientist. This was to take a position much more compatible with praxeology, by recognizing that the economist qua economist can only trace chains of cause and effect and may not engage in value judgments or advocate public policy. In so doing, Mises conceded that the economic scientist cannot advocate laissez-faire but then added that as a citizen he can do so. Mises, as a citizen, proposed a value system but it is a curiously scanty one. For he was here caught in a dilemma. As a praxeologist he knew that he could not as an economic scientist pronounce value judgments or advocate policy. Yet he could not bring himself simply to assert and inject arbitrary value judgments. And so, as a utilitarian (for Mises, along with most economists, was indeed a utilitarian in ethics, although a Kantian in epistemology), he made only one narrow value judgment: that he desired to fulfill the goals of the majority of the public (happily, in this formulation, Mises did not presume to know the goals of everyone).
As Mises explained in his second variant:
Liberalism (i.e., laissez-faire liberalism) is a political doctrine . . . . As a political doctrine liberalism (in contrast to economic science) is not neutral with regard to values and ultimate ends sought by action. It assumes that all men or at least the majority of people are intent upon attaining certain goals. It gives them information about the means suitable to the realization of their plans. The champions of liberal doctrines are fully aware of the fact that their teachings are valid only for people who are committed to their valuational principles. While praxeology, and therefore economics too, uses the terms happiness and removal of uneasiness in a purely formal sense, liberalism attaches to them a concrete meaning. It presupposes that people prefer life to death, health to sickness . . . abundance to poverty. It teaches men how to act in accordance with these valuations.18
In this second variant, Mises successfully escaped the self-contradiction of being a value-free praxeologist advocating laissez-faire. Granting in this variant that the economist may not make such advocacy, he took his stand as a citizen willing to make value judgments. But he was not willing, as Simons was, to simply assert an ad hoc value judgment; presumably he felt that a valuing intellectual must present some sort of system to justify such value judgments. But for Mises the utilitarian, his system is a curiously bloodless one; even as a valuing laissez-faire liberal, he was only willing to make the one value judgment that he joined the majority of the people in favoring their common peace, prosperity, and abundance. In this way, as an opponent of objective ethics, and uncomfortable as he must have been with making any value judgments even as a citizen, he made the minimal possible degree of such judgments; true to his utilitarian position his value judgment is the desirability of fulfilling the subjectively desired goals of the bulk of the populace.
A full critique of this position must involve a critique of utilitarian ethics itself, and this cannot be done here. But a few points may be made. In the first place, while praxeology can indeed demonstrate that laissez-faire will lead to harmony, prosperity, and abundance, while government intervention leads to conflict and impoverishment,19 and while it is probably true that most people value the former highly, it is not true that these are their only goals or values. The great analyst of ranked value scales and diminishing marginal utility should have been more aware of such competing values and goals. For example, many people, whether through envy or a misplaced theory of justice, may prefer far more equality of income than will be attained on the free market. Many people, pace the aforementioned intellectuals, may want less abundance in order to whittle down our allegedly excessive affluence. Others, as I have mentioned, may prefer to loot the capital of the rich or the businessman in the short run, while acknowledging but dismissing the long-run ill effects, because they have a high time preference. Probably very few of these people will want to push statist measures to the point of total impoverishment and destruction—although this may happen, as in the case of Communist China. But a majority coalition of the foregoing might well opt for some reduction in wealth and prosperity on behalf of these other values. They may well decide that it is worth sacrificing a modicum of wealth and efficient production because of the high opportunity cost of not being able to enjoy an alleviation of envy, or a lust for power, or a submission to power, or, for example, the thrill of “national unity,” which they might enjoy from a (short-lived) economic crisis.
What could Mises reply to a majority of the public who have indeed considered all the praxeological consequences and still prefer a modicum—or, for that matter, even a drastic amount—of statism in order to achieve some of their competing goals? As a utilitarian, he could not quarrel with the ethical nature of their chosen goals: for he had to confine himself to the one value judgment that he favored the majority’s achieving their chosen goals. The only reply that Mises could make within his own framework was to point out that government intervention has a cumulative effect, that eventually the economy must move either toward the free market or toward full socialism, which praxeology shows will bring chaos and drastic impoverishment, at least to an industrial society. But this, too, is not a fully satisfactory answer. While many programs of statist intervention—especially price controls—are indeed cumulative, others are not. Furthermore, the cumulative impact takes such a long time that the time preferences of the majority would probably lead them, in full acknowledgment of the consequences, to ignore the effect. And then what?
Mises attempted to use the cumulative argument to answer the contention that the majority of the public prefer egalitarian measures even knowingly at the expense of a portion of their own wealth. Mises’s comment was that the “reserve fund” was on the point of being exhausted in Europe, and therefore that any further egalitarian measures would have to come directly out of the pockets of the masses through increased taxation. Mises assumed that once this became clear, the masses would no longer support interventionist measures.20 In the first place, this is no argument against the previous egalitarian measures or in favor of their repeal. But secondly, while the masses might be convinced, there is certainly no apodictic certainty involved; the masses have in the past and presumably will in the future continue knowingly to support egalitarian and other statist measures on behalf of others of their goals, despite the knowledge that their income and wealth would be reduced. Thus, as William E. Rappard pointed out in his thoughtful critique of Mises’s position:
Does the British voter, for instance, favor confiscatory taxation of large incomes primarily in the hope that it will redound to his material advantage, or in the certainty that it tends to reduce unwelcome and irritating social inequalities? In general, is the urge towards equality in our modern democracies not often stronger than the desire to improve one’s material lot?21
Rappard also noted that in his own country, Switzerland, the urban industrial and commercial majority of the country have repeatedly, and often at popular referendums, endorsed measures to subsidize the minority of farmers in a deliberate effort to retard industrialization and the growth of their own incomes. The urban majority did not do so in the “absurd belief that they were thereby increasing their real income.” Instead, “quite deliberately and expressly, political parties have sacrificed the immediate material welfare of their members in order to prevent, or at least somewhat to retard, the complete industrialization of the country. A more agricultural Switzerland, though poorer, such is the dominant wish of the Swiss people today.”22 The point here is that Mises, not only as a praxeologist but also as a utilitarian liberal, could have no word of criticism against these statist measures once the majority of the public take their praxeological consequences into account and choose them anyway on behalf of goals other than wealth and prosperity.
Furthermore, there are other types of statist intervention that clearly have little or no cumulative effect and that may even have very little effect in diminishing production or prosperity. Let us, for example, assume—and this assumption is not very farfetched in view of the record of human history—that the great majority of a society hate and revile redheads, perhaps, to cite Simons again, because they find redheads “evil or unlovely.” Let us further assume that there are very few redheads in the society. This large majority then decide that they would like very much to murder all redheads. Here they are; the murder of redheads is high on the value scales of the great majority of the public; there are few redheads so that there will be little loss in production on the market. How could Mises rebut this proposed policy either as a praxeologist or as a utilitarian liberal? I submit that he could not do so.
Mises made one further attempt to establish his position, but it was even less successful. Criticizing the arguments for state intervention on behalf of equality or other moral concerns, he dismissed them as “emotional talk.” After reaffirming that “praxeology and economics . . . are neutral with regard to any moral precepts,” and asserting that “the fact that the immense majority of men prefer a richer supply of material goods to a less ample supply is a datum of history; it does not have any place in economic theory,” he concluded by insisting that “he who disagrees with the teachings of economics ought to refute them by discursive reasoning, not by . . . the appeal to arbitrary, allegedly ethical standards.”23
But I submit that this will not do; for Mises would have to concede that no one can decide upon any policy whatever unless he makes an ultimate ethical or value judgment. But since this is so, and since according to Mises all ultimate value judgments or ethical standards are arbitrary, how then could he denounce these particular ethical judgments as “arbitrary”? Furthermore, it was hardly correct for Mises to dismiss these judgments as “emotional,” since for him as a utilitarian, reason cannot establish ultimate ethical principles, which can therefore only be established by subjective emotions. It was pointless for Mises to call for his critics to use “discursive reasoning” since he himself denied that discursive reasoning can be used to establish ultimate ethical values. Furthermore, the man whose ultimate ethical principles would lead him to support the free market could also be dismissed by Mises as equally “arbitrary” and “emotional,” even if he takes the laws of praxeology into account before making his ultimately ethical decision. And we have seen above that the majority of the public very often have other goals which they hold, at least to a certain extent, higher than their own material well-being.
The burden of this paper has been to show that, while praxeological economic theory is extremely useful for providing data and knowledge for framing economic policy, it cannot be sufficient by itself to enable the economist to make any value pronouncements or to advocate any public policy whatsoever. More specifically, Ludwig von Mises to the contrary notwithstanding, neither praxeological economics nor Mises’s utilitarian liberalism is sufficient to make the case for laissez-faire and the free-market economy. To make such a case, one must go beyond economics and utilitarianism to establish an objective ethics that affirms the overriding value of liberty and morally condemns all forms of statism, from egalitarianism to the murder of redheads, as well as such goals as the lust for power and the satisfaction of envy. To make the full case for liberty, one cannot be a methodological slave to every goal that the majority of the public might happen to cherish.
[1.]See in particular Ludwig von Mises, Human Action: A Treatise on Economics (New Haven: Yale University Press, 1949); also see idem, Epistemological Problems of Economics, trans. George Reisman (Princeton: D. Van Nostrand, 1960).
[2.]See Murray N. Rothbard, “Praxeology as the Method of Economics,” in Phenomenology and the Social Sciences, ed. Maurice Natanson, 2 vols. (Evanston: Northwestern University Press, 1973), 2: 323–35; also see Marian Bowley, Nassau Senior and Classical Economics (New York: Augustus M. Kelley, 1949), pp 27–65; and T. W. Hutchison, “Some Themes from Investigations into Method,” in Carl Menger and the Austrian School of Economics, ed. J. R. Hicks and Wilhelm Weber (Oxford: Clarendon Press, 1973), pp. 15–31.
[3.]In answer to the criticism that not all action is directed to some future point of time, see Walter Block, “A Comment on ‘The Extraordinary Claim of Praxeology’ by Professor Gutierrez,” Theory and Decision 3(1973): 381–82.
[4.]See Mises, Human Action, pp. 101–2; and esp., Block, “Comment,” p. 383.
[5.]For a typical criticism of praxeology for not using mathematical logic, see George J. Schuller, “Rejoinder,” American Economic Review 41(March 1951):188.
[6.]John Maynard Keynes, The General Theory of Employment, Interest, and Money (New York: Harcourt, Brace & Co., 1936), pp.297–98.
[7.]See Murray N. Rothbard, “Toward a Reconstruction of Utility and Welfare Economics,” in On Freedom and Free Enterprise, ed. M. Sennholz (Princeton: D. Van Nostrand, 1956), p.227; idem, Man, Economy and State, 2 vols. (Princeton: D. Van Nostrand, 1962), 1:65–66. On mathematical logic as being subordinate to verbal logic, see René Poirier, “Logique,” in Vocabulaire technique et critique de la philosophie, ed. André Lalande, 6th ed. rev. (Paris: Presses Universitaires de France, 1951), pp. 574–75.
[8.]Bruno Leoni and Eugenio Frola, “On Mathematical Thinking in Economics” (unpublished manuscript privately distributed), pp.23–24; the Italian version of this article is “Possibilita di applicazione della matematiche alle discipline economiche,” Il Politico 20(1955).
[9.]Jean-Baptiste Say, A Treatise on Political Economy (New York: Augustus M. Kelley, 1964), p. xxvi n.
[10.]Boris Ischboldin, “A Critique on Econometrics,” Review of Social Economy 18(September 1960): 11 n.; Ischboldin’s discussion is based on the construction of I. M. Bochenski, “Scholastic and Aristotelian Logic,” Proceedings of the American Catholic Philosophical Association 30(1956): 112–17.
[11.]Karl Menger, “Austrian Marginalism and Mathematical Economics,” in Carl Menger, p.41.
[12.]Mises, Human Action, p. 34.
[13.]John Wild, “Phenomenology and Metaphysics,” in The Return to Reason: Essays in Realistic Philosophy, ed. John Wild (Chicago: Henry Regnery, 1953), pp. 48, 37–57.
[14.]Harmon M. Chapman, “Realism and Phenomenology,” in Return to Reason, p. 29. On the interrelated functions of sense and reason and their respective roles in human cognition of reality, see Francis H. Parker, “Realistic Epistemology,” ibid., pp. 167–69.
[15.]See Murray N. Rothbard, “In Defense of ‘Extreme Apriorism,’” Southern Economic Journal 23(January 1957): 315–18. It should be clear from the current paper that the term extreme apriorism is a misnomer for praxeology.
[16.]Say, Treatise, pp. xxv-xxvi, xlv.
[17.]Friedrich A. Hayek, “The Nature and History of the Problem,” in Collectivist Economic Planning, ed. F. A. Hayek (London: George Routledge & Sons, 1935), p. 11.
[18.]John Elliott Cairnes, The Character and Logical Method of Political Economy, 2d ed. (London: Macmillan & Co., 1875), pp. 87–88 (Cairnes’s italics).
[19.]Bowley, Nassau Senior, pp. 43, 56.
[20.]Mises, Epistemological Problems, p. 19.
[21.]Bowley, Nassau Senior, pp. 64–65.
[22.]Hao Wong, “Notes on the Analytic-Synthetic Distinction,” Theoria 21(1955):158; see also John Wild and J. L. Cobitz, “On the Distinction between the Analytic and the Synthetic,” Philosophy and Phenomenological Research 8(June 1948):651–67.
[23.]John J. Toohey, Notes on Epistemology, rev. ed. (Washington, D.C.: Georgetown University, 1937), p. 36 (Toohey’s italics).
[24.]R. P. Phillips, Modern Thomistic Philosophy (Westminster, Md.: Newman Bookshop, 1934–35) 2:36–37; see also Murray N. Rothbard, “The Mantle of Science,” in Scientism and Values, ed. Helmut Schoeck and J. W. Wiggins (Princeton: D. Van Nostrand, 1960), pp. 162–65.
[25.]Toohey, Notes on Epistemology, p. 10 (Toohey’s italics).
[26.]Alfred Schutz, Collected Papers of Alfred Schutz, vol. 2, Studies in Social Theory, ed. A. Brodersen (The Hague: Nijhoff, 1964), p. 4; see also Mises, Human Action, p. 24.
[27.]Ibid., vol. 1, The Problem of Social Reality, p. 65. On the philosophical presuppositions of science, see Andrew G. Van Melsen, The Philosophy of Nature (Pittsburg: Duquesne University Press, 1953), pp. 6–29. On common sense as the groundwork of philosophy, see Toohey, Notes on Epistemology, pp. 74, 106–13. On the application of a similar point of view to the methodology of economics, see Frank H. Knight, “’What is Truth’ in Economics,” in On the History and Method of Economics (Chicago: University of Chicago Press, 1956), pp. 151–78.
[28.]Joseph Dorfman, The Economic Mind in American Civilization, 5 vols. (New York: Viking Press, 1949) 3:376.
[29.]Friedrich A. Hayek, “The Non Sequitur of the ‘Dependence Effect,’” in Studies in Philosophy, Politics, and Economics, ed. Friedrich A. Hayek (Chicago: University of Chicago Press, 1967), pp. 314–15.
[30.]Mises, Human Action, p. 124.
[31.]See Rothbard, “Toward a Reconstruction,” pp. 230–31.
[32.]Ludwig von Mises, Theory and History (New Haven: Yale University Press, 1957).
[33.]Mises, Human Action, pp. 55–56, 348.
[34.]Cowles Commission for Research in Economics, Report for Period, January 1, 1948-June 30, 1949 (Chicago: University of Chicago Press, 1949), p. 7, quoted in Mises, Theory and History, pp. 10–11.
[35.]Ibid., pp. 10–11.
[36.]Ludwig von Mises, “Comments about the Mathematical Treatment of Economic Problems” (unpublished manuscript), p. 3; the German language version of this essay is “Bemerkungen über die mathematische Behandlung nationalökonomischer Probleme,” Studium Generale 6 (1953): 662–65.
[37.]Mises, Theory and History, pp. 11–12; see also Leoni and Frola, “On Mathematical Thinking,” pp. 1–8; and Leland B. Yeager, “Measurement as Scientific Method in Economics,” American Journal of Economics and Sociology 16(July 1957): 337–46.
[38.]Alfred Schutz, The Phenomenology of the Social World (Evanston: Northwestern University Press, 1967), pp. 137, 245; also see Ludwig M. Lachmann, The Legacy of Max Weber (Berkeley, Calif.: The Glendessary Press, 1971), pp. 17–48.
[1.]Friedrich A. Hayek, The Counter-revolution of Science: Studies on the Abuse of Reason (Glencoe, Ill.: Free Press, 1955), p. 39.
[2.]Alexander Gerschenkron, “Reflection on Ideology as a Methodological and Historical Problem,” in Money, Growth, and Methodology, ed. Hugo Hegeland (Lund: C. W. K. Gleerup, 1961), p. 180.
[3.]Ludwig M. Lachmann, “Methodological Individualism and the Market Economy,” in Roads to Freedom: Essays in Honour of Friedrich A. von Hayek, ed. Erich Streissler et al. (London: Routledge & Kegan Paul, 1969), pp. 93–104.
[4.]Ludwig M. Lachmann, “Sir John Hicks as a Neo-Austrian,” South African Journal of Economics 41 (September 1973): 204.
[5.]Carl Menger, Problems of Economics and Sociology, trans. Francis J. Nock, ed. L. Schneider (Urbana: University of Illinois, 1963). The title of the 1884 German edition of the work is Untersuchungen über die Methode der Socialwissenschaften und der Politischen Oekonomieinsbesondere, and it is therefore sometimes referred to as Investigations into Method, which more correctly indicates the character of its contents.
[6.]T. W. Hutchison, A Review of Economic Doctrines, 1870–1929 (Oxford: Clarendon Press, 1954), p. 148; idem, “Some Themes from Investigations into Method,” in Carl Menger and the Austrian School of Economics, ed. J. R. Hicks and Wilhelm Weber (Oxford: Clarendon Press, 1974), p. 17 n.
[7.]This letter was composed in 1884; see the reference to it in W. Jaffé, “Unpublished Papers and Letters of Léon Walras,” Journal of Political Economy 43(April 1935): 187–207; also see Léon Walras, Correspondence of Léon Walras and Related Papers, ed. W. Jaffe, 2 vols. (Amsterdam: North-Holland Publishing Co., 1965), 2:3.
[8.]Emil Kauder, A History of Marginal Utility Theory (Princeton: Princeton University Press, 1965), p. 97.
[9.]Hutchison, “Some Themes,” p. 18; Hutchison explained that the source of this term is in Karl Popper, The Poverty of Historicism (New York: Harper & Row, 1961), pp. 28–38.
[10.]T. W. Hutchison, The Significance and Basic Postulates of Economic Theory (London: Macmillan & Co., 1938).
[11.]Frank H. Knight, “’What is Truth’ in Economics,” in On the History and Method of Economics, ed. Frank H. Knight (Chicago: University of Chicago Press, 1956), p. 160.
[12.]Hayek, The Counter-revolution, pp. 26–27.
[13.]Ibid., pp. 24, 31, 209–10.
[14.]James M. Buchanan, “Is Economics the Science of Choice?” in Roads to Freedom: Essays in Honour of Friedrich A. von Hayek, ed. Erich Streissler et al. (London: Routledge & Kegan Paul, 1969), pp. 47–65; see also James M. Buchanan, Cost and Choice (Chicago: Markham Publishing Co., 1970).
[15.]Gary S. Becker, “Irrational Behavior and Economic Theory,” Journal of Political Economy 70(February 1962): 1–13.
[16.]Friedrich A. Hayek, “Economics and Knowledge,” in Individualism and Economic Order (London: Routledge & Kegan Paul, 1952), p. 46.
[1.]Lewis H. Haney, History of Economic Thought, 4th ed. (New York: Macmillan Co., 1949), pp. 106–8.
[2.]R. H. Tawney, Religion and the Rise of Capitalism (New York: New American Library, 1954), pp. 38–39.
[3.]Joseph A. Schumpeter, A History of Economic Analysis (New York: Oxford University Press, 1954).
[4.]Marjorie Grice-Hutchinson, The School of Salamanca: Readings in Spanish Monetary Theory, 1544–1605 (Oxford: Clarendon Press, 1952).
[5.]Ibid., p. 27.
[6.]Luis Saravia de la Calle, Instruccion de mercaderes (1544), in Grice-Hutchinson, School of Salamanca, pp.79–82.
[7.]Ibid., p. 48.
[8.]Francisco Garcia, Tratado utilisimo y muy general de todos los contractos (1583), in Grice-Hutchinson, School of Salamanca, pp. 104–5.
[9.]Martin de Azpilcueta Navarro, Comentario resolutorio de usuras (1556), in Grice-Hutchinson, School of Salamanca, pp. 94–95.
[10.]Domingo de Soto, De Justitia et Jure (1553), in Grice-Hutchinson, School of Salamanca, p. 55.
[11.]Luis de Molina, Disputationes de Contractibus (1601), in Grice-Hutchinson, School of Salamanca, pp. 113–14; Tomás de Mercado, Tratos y contratos de mercaderes (1569), ibid., pp. 57–58 and; Domingo de Bañez, De Justitia et Jure (1594), ibid., pp. 96–103.
[12.]Raymond de Roover, “Scholastic Economics: Survival and Lasting Influence from the Sixteenth Century to Adam Smith,” Quarterly Journal of Economics 69(May 1955): 161–90; reprinted in idem, Business, Banking, and Economic Thought (Chicago: University of Chicago Press, 1974), pp. 306–35.
[13.]Ibid., p. 309.
[14.]Raymond de Roover, “Joseph A. Schumpeter and Scholastic Economics,” Kyklos 10(1957):128. De Roover traced the concept of mutual benefit as exhibited in exchange back to Aquinas, who wrote that “buying and selling seem to have been instituted for the mutual advantage of both parties, since one needs something that belongs to the other, and conversely” (ibid., p. 128).
[15.]De Roover, Business, pp. 312–14. Elsewhere de Roover noted that the Scotists were a small minority among medieval and later Scholastics, whereas the Scholastics discussed here were in the mainstream of Thomist tradition.
[16.]Raymond de Roover, “The Concept of the Just Price: Theory and Economic Policy,” Journal of Economic History 18(December 1958):422–23.
[17.]De Roover, “Just Price,” p. 424.
[18.]Ibid., p. 426.
[19.]David Herlihy, “The Concept of the Just Price: Discussion,” Journal of Economic History 18(December 1958):437.
[21.]In particular, the theologians at the great center at the University of Paris in the early thirteenth century: Alexander of Hales and Aquinas’s teacher, Albertus Magnus (ibid., p. 71). Baldwin further pointed out that theological treatment of such practical questions as the just price in the Middle Ages only began with the development of university centers at the end of the twelfth century (ibid., p. 9).
[22.]Raymond de Roover, “The Scholastic Attitude toward Trade and Entrepreneurship,” Explorations in Entrepreneurial History 2(1963):76–87; reprinted in idem, Business, pp. 336–45.
[23.]De Roover, here and in his other writings, pointed to the great deficiency in Scholastic analysis of the market: the belief that any interest on a pure loan (a mutuum) constituted the sin of usury. The reason is that while the Scholastic understood the economic functions of risk and opportunity cost, they never arrived at the concept of time preference. On the Scholastics and usury, see the magisterial work of John T. Noonan, Jr., The Scholastic Analysis of Usury (Cambridge: Harvard University Press, 1957); see also Raymond de Roover, “The Scholastics, Usury, and Foreign Exchange,” Business History Review. 41(1967):257–71.
[24.]Raymond de Roover, San Bernardino of Siena and Sant’ Antonino of Florence: The Two Great Economic Thinkers of the Middle Ages (Boston: Kress Library of Business and Economics, 1967).
[25.]Ibid., p. 17.
[26.]On the originality of Olivi, see ibid., p. 19.
[27.]Ibid., p. 20.
[28.]Ibid., pp. 23–24.
[29.]On the later influence of the Scholastics, see Schumpeter, History, pp. 94–106; Grice-Hutchinson, School of Salamanca, pp. 59–78; de Roover, Business, pp. 330–35; and de Roover, “Joseph Schumpeter,” p. 128–29.
[30.]Emil Kauder, “Genesis of the Marginal Utility Theory: From Aristotle to the End of the Eighteenth Century,” Economic Journal 63(September 1953):638–50.
[31.]Schumpeter, History, p. 300.
[32.]Kauder, “Genesis,” p. 645.
[33.]Schumpeter, History, p. 249; see also ibid., pp. 259–61, 332–33.
[34.]In Kauder “Genesis,” p. 647. Kauder and Schumpeter also noted the early eighteenth-century French mathematician Daniel Bernoulli (1738), who outside the stream of economic thought developed a mathematical version of the diminishing marginal utility of money (ibid., pp. 647–50: Schumpeter, History, pp. 302–5).
[35.]Emil Kauder, “The Retarded Acceptance of the Marginal Utility Theory,” Quarterly Journal of Economics 67 (November 1953):564–75.
[36.]Ibid., p. 569.
[37.]Ibid., pp. 570–71. These two articles are essentially represented in Emil Kauder, A History of Marginal Utility Theory (Princeton: Princeton University Press, 1965), pp. 3–29.
[38.]Emil Kauder, “Intellectual and Political Roots of the Older Austrian School,” Zeitschrift für Nationalökonomie 17(December 1957):411–25.
[39.]Ibid., p. 417.
[40.]Ibid., p. 418.
[42.]Ibid., p. 420; see also Kauder, History of Marginal Utility, pp. 90–100. On Menger as Aristotelian, also see T. W. Hutchison, “Some Themes from Investigations into Method,” in Carl Menger and the Austrian School of Economics, ed. J. R. Hicks and Wilhelm Weber (Oxford: Clarendon Press, 1973), pp. 17–20.
[1.]Carl Menger, Problems of Economics and Sociology, trans. F. J. Nock, ed. L. Schneider (Urbana: University of Illinois Press, 1963), pp. 235–37; see above p. 51, note 5.
[2.]Joseph A. Schumpeter, History of Economic Analysis (New York: Oxford University Press, 1954), p. 802.
[3.]See T. W. Hutchison, “Positive” Economics and Policy Objectives (Cambridge: Harvard University Press, 1964), p. 43.
[4.]Schumpeter, History, p. 805.
[5.]See Lionel Robbins, An Essay on the Nature and Significance of Economic Science, 2d ed. (London: Macmillan & Co., 1935), pp. xv-xvi.
[6.]Ludwig von Mises, Human Action: A Treatise on Economics (New Haven: Yale University Press, 1949), pp. 72–91.
[7.]Gunnar Myrdal, The Political Element in the Development of Economic Theory (Cambridge: Harvard University Press, 1954), p. 12.
[8.]Ibid., p. 18.
[9.]Ibid., pp. 56–76.
[10.]Ibid., p. vii.
[12.]Ibid., p. viii.
[13.]Ibid., p. 128.
[14.]Fritz Machlup, “Review of G. Myrdal, The Political Element in the Development of Economic Theory,” American Economic Review 45(December 1955):950.
[15.]Hutchison, “Positive” Economics, p. 42.
[16.]John Davenport, “From a Western Window: Economics and Philosophy Have Need of Each Other,” Intercollegiate Review 8(Spring 1973):147–58.
[17.]Ibid., p. 151.
[18.]Israel M. Kirzner, “Letter to the Editor,” Intercollegiate Review 9(Winter 1973–74): pp. 59–60.
[19.]This disagreement with Davenport does not imply that I am unwilling to endorse his principal theme, that is, the need for economists to speak out not merely as wertfrei professionals but also as concerned citizens. Professionals must be concerned with moral as well as scientific truth.
[20.]See Richard Whately, Introductory Lectures on Political Economy,Delivered at Oxford in Easter Term, 1831,4th ed.(London:John W. Parker, 1855), p. 25.
[21.]See Murray N. Rothbard, “Value Implications of Economic Theory,” American Economist 17(Spring 1973):35–39; see also Clarence E. Philbrook, “‘Realism’ in Policy Espousal,” American Economic Review 43(December 1953):379–82.
[22.]See Israel M. Kirzner, Competition and Entrepreneurship (Chicago: University of Chicago Press, 1973), pp. 213–22. Hayek’s critique of welfare economics was presented in “The Use of Knowledge in Society,” American Economic Review 35(September 1945):519–30.
[23.]Kirzner, Competition and Entrepreneurship, pp. 212–42.
[1.]Felix Adler, “The Relation of Ethics to Social Science,” in Congress of Arts and Science, ed. H.J.Rogers(Boston: Houghton Mifflin Co., 1906), 7:678.
[2.]See the critique of the inconsistency of the championing of intellectual honesty by the great opponent of objective ethics, Max Weber, in Leo Strauss, Natural Right and History (Chicago: University of Chicago Press, 1953), pp. 47–48.
[3.]Henry C. Simons, Personal Income Taxation (1938), pp. 18–19, cited by Walter J. Blum and Harry Kalven, Jr., The Uneasy Case for Progressive Taxation (Chicago: University of Chicago Press, 1953), p. 72.
[4.]Murray N. Rothbard, Egalitarianism as a Revolt against Nature, and Other Essays (Washington, D. C.: Libertarian Review Press, 1974), pp. 2–3.; also see idem, Power and Market (Menlo Park, Calif.: Institute for Humane Studies, 1970), pp. 157–160.
[6.]Adler, “Relation of Ethics,” p. 673.
[7.]Murray N. Rothbard, “Value Implications of Economic Theory,” The American Economist 17 (Spring 1973), pp. 38–39.
[8.]William D. Grampp, The Manchester School of Economics (Stanford: Stanford University Press, 1960), p. 59; also see Rothbard, “Value Implications,” pp. 36–37.
[9.]For a further analysis of this question, see Walter Block, “Coase and Demsetz on Private Property Rights: A Comment” (unpublished manuscript, privately distributed).
[10.]Murray N. Rothbard, “Toward a Reconstruction of Utility and Welfare Economics,” in On Freedom and Free Enterprise: Essays in Honor of Ludwig von Mises, ed. Mary Sennholz (Princeton: D. Van Nostrand, 1956), pp. 224–32, 243–62.
[11.]Rothbard, “Toward a Reconstruction,” pp. 228–30; also see Ludwig von Mises, Human Action: A Treatise on Economics (New Haven: Yale University Press, 1949), pp. 102–4. Samuelson’s views may be found, among other places, in Paul A. Samuelson, “The Empirical Implications of Utility Analysis,” Econometrica 6 (October 1938):344–56; and idem, Foundations of Economics (Cambridge: Harvard University Press, 1947), pp. 146–63.
[12.]For a posing of this question, see William E. Rappard, “On Reading von Mises,” in On Freedom and Free Enterprise, ed. Sennholz, pp. 17–33.
[13.]Mises, Human Action, p. 879.
[14.]Ibid., p. 758 (Mises’s italics).
[15.]Ibid., p. 95.
[16.]Mises himself conceded at one point that a government or a political party may advocate policies for “demagogic,” i.e., for hidden and unannounced, reasons (ibid., p. 104 n.).
[17.]Ibid., pp. 670, 670 n.
[18.]Ibid., pp. 153–54.
[19.]Rothbard, Power and Market, pp. 194–96.
[20.]Mises, Human Action, pp. 851–55.
[21.]Rappard, “On Reading von Mises,” pp. 32–33.
[22.]Ibid., p. 33.
[23.]Ludwig von Mises, “Epistemological Relativism in the Sciences of Human Action,” in Relativism and the Study of Man, ed. Helmut Schoeck and J. W. Wiggins (Princeton: D. Van Nostrand, 1961), p. 133.