The Austrian School in the Liberal Arts
This talk was delivered at the Mises Institute's 20th anniversary celebration, October 18–19, 2002.
The penultimate goal of a liberal-arts education is an independent learner, a person trained in the arts of learning who is thereby liberated from the necessity to depend on others to determine what is true and what is false. But the ultimate goal of such an education is to know and practice the truth itself.
Therefore, a liberal arts education is based on the nature of truth, which is at one and the same time unified (because it emanates from a single source, namely God Himself) and diversified (because it contains the three fundamental subjects that exist to be studied, namely God, man, and nature).
This character of the liberal arts was recognized in the very names given to the areas of study in medieval education, trivium (which means a place where three roads meet) and quadrivium (which means a place where four roads meet). The trivium, consisting of grammar, logic, and rhetoric, was the elementary division required for the bachelor's degree.
At the earliest ages, the student of the trivium would begin by memorizing facts. Having come to know the facts of reality, the student would conduct logical inquiries from these facts to organize and explain them. Having come to understand reality, the student would learn the art of communicating his understanding to others and persuading them of the veracity of his findings.
The purpose of rhetoric was to apply the explanations of the world to determine how to act properly in it, especially in the public realm where persuasion was necessary to gain consensus. Because this progression of education is the Christian view, namely, that education proceeds in the steps from knowledge (or facts) to understanding (or reasoning) to wisdom (or action), it was natural that the trivium was adopted as the standard of education in medieval Christendom. The higher division, the quadrivium, contained arithmetic, geometry, astronomy, and music and was studied for three years between the bachelor's and master's degrees. Together the seven areas constituted the liberal arts or the humanities.
As new areas of study developed, they were incorporated into the same diversity-unity conception of the liberal arts. So that by the sixteenth century this educational framework came to include the liberal arts, philosophy, theology, medicine, and law. Alejandro Chaufen, in his chronicle of Late-Scholastic Economics, wrote "the ultimate goal of Scholasticism was to formulate a corpus of scientific thought applicable in all areas of life."
Ludwig von Mises, who received his education in a liberal-arts setting in Vienna, had a similar assessment. In Human Action, He wrote:
The end of science is to know reality….It is the endeavor to attain a mental grasp of the phenomena of the universe by a systematic arrangement of the whole body of available knowledge.
The Scholastic Origins of the Austrian School
It should come as no surprise that the Austrian School approach to economics began with the Late Scholastics at the school of Salamanca in sixteenth century Spain. The praxeological method of economics, which begins with facts about man and human action, uses reason to understand human action, and applies such understanding to determine a proper course of action, especially public action, was naturally born in a liberal-arts intellectual setting.
As Menger would later, the Scholastics conceived of economic law as a cause and effect relationship in the realm of economic activity. Their thought on economics was stimulated by the steady price inflation that resulted from the monetary inflation brought about by the inflow into Spain of gold and silver mined in the New World. From the connection between increases in the money stock and a reduced purchasing power of money, they formulated the principle that a greater supply of good causes a lower price. By extending the principle to all goods and factors, they formulated an economic law, a principle that knows of no exceptions.
Having come to understand the laws of demand, supply, and pricing, they then applied them to public policy, arguing, for example, against price controls as a means to more fully attain the common good.
A causal-realistic approach to economics arose in Christendom because only there did scholars conceive of nature as an interconnected order, created in the flux of time by God out of nothing, and governed by God-ordained natural laws that human intellect could discover and use to comprehend nature, with the goal of ruling over it for God's glory.
Because the scholastics distinguished between man and nature as objects of study, they did not fall prey to the fallacy embraced by modern economists of treating economics as a branch of applied mathematics. To the contrary, the liberal-arts promotes a genuine division of intellectual labor, in which scholars pursue knowledge in their own areas, from facts and by methods relevant to their own subject matters, unified by a common worldview of God, man, and nature. In contrast, scientism, by which the natural science method came to be imported into economics, insists that all intellectual endeavors begin with the same type of facts and employ a common method.
Neither the science of economics nor the natural sciences arose outside of Christendom, despite the advanced learning of several ancient civilizations. Although surrounded by the same facts about nature and man, neither the Egyptians, nor the Greeks, nor the Chinese, nor the Babylonians, nor the Indians, nor the Romans, nor the Islamic civilization of the Middle Ages conceived of science. Failing to correctly comprehend God as creator, they could make little scientific progress concerning creation as an ordered system whose laws of motion and action can be discovered by man's intellect.
As the eminent philosopher of science, Stanley Jaki, noted in his book The Savior of Science,
[The culture of medieval Christendom] was not only vastly different [from all other previous cultures] in that [it had countless Christian natural philosophers, who believed in the temporality of the universe], but precisely because of this it had a tremendous advantage over them. The advantage was that of one who in possession of a fact can naturally devote himself to the task of speculating about the manner in which that fact appears in reality.
From the scholastics, economic thought as part of the natural law was transmitted to the English-speaking world through Hugo Grotius who taught it to Samuel Pfufendorf who brought it to the Scottish enlightenment. As the Late Scholastics had done, the Scottish intellectuals taught economics as part of moral philosophy. Even the most ambitious writer on economics among them, Adam Smith, was professor of Moral Philosophy, not political economy, at Glasgow.
This arrangement, as Murray Rothbard has argued, stunted the development of economics as a positive science. By breaking economics out of moral philosophy the positive aspects of human action could be decoupled from its normative aspects, thereby permitting economics to develop properly as a scientific discipline within the liberal arts. The British classical economists forged important, though half-formed, insights under this new regime. They more fully developed the system of economic laws, but only as applying to hypothetical states of affairs in the long run, and of action subject to monetary calculation.
The Austrian Contribution
Although the continental classical economists conceived of economics more correctly than their British counterparts, it was left to the Austrians to develop economics as part of the liberal arts. Carl Menger was the first to outline a causal-realistic method of economics as a body of laws about actual, observable events, making economics a theory of reality itself. And Mises was the first to fully recognize the broader application of the fundamental principles of economics to all actions and not just those of the calculating businessmen in the market, making praxeology the basis for all sciences dealing with human action.
In the interim between its separation from moral philosophy and its reconstruction at the hands of the Austrians, economics succumbed to a more destructive fallacy than any that plagued the British classical economists. The separation, coming as it did in the excesses of the enlightenment drive to suppress theology, left economics, now out from under the wing of moral philosophy with its own scientific aspirations, susceptible to scientism. As Stanley Jaki saw it,
The liberals—a J.S. Mill, a Spencer—had in view more than science taken in a strict technical sense. They rather entertained a picture of Western intellectual history in which science, or rather its rise in the seventeenth and eighteenth centuries, coincided with and presupposed the liberation of human reason from transcendental shackles, superstitions at worst, metaphysical dreams at best. This picture received its hallowed codification on Condorcet's Essay on the Progress of the Human Mind and became a staple fare of education through the influence of Comte's positivism. In other words, science meant for those liberals much more than its technical contents and methodological precepts with which they were often unfamiliar. Science for them represented above all a state of mind unfettered by any presupposition, a state of mind open to all possibilities, and a mental attitude aiming at maximum behavioral freedom.
Fundamentally then, positivism rests on the contention that there are no genuine laws, i.e., universally true propositions. Science is merely the cataloging of hypothetical propositions that are held tentatively, while leaving open the possibility of refutation in the future. This view, in turn, is grounded in the metaphysical position that the universe is not an orderly creation. As Jaki wrote,
J.S. Mill discoursed on political liberty on the basis of a vast study of logic and scientific method. The measure of that vastness was coextensive with the universe. He found grist for his mill of liberalism even in the evolution of solar systems and galaxies. Few paragraphs in his prolific writings give a more telling glimpse of the nature of the liberalism he preached than the one in which he spoke of remote areas of the universe where two and two do not necessarily make four. This suggests that behind the aversion to constraint, so characteristic of liberalist politics and economics, there may lurk a view of the universe in which anything can happen and allegedly does happen. Such a state of affairs, it may be noted in passing, reflects a radical multiplicity, a multiverse, which is the very opposite to a thoroughgoing coordination of things and processes within a coherent framework, or to the converging of all into a unity, a uni-verse in short.
Mises recognized, moreover, that although positivism was open to any theoretical explanation, it was closed on the proper method of scientific inquiry. Positivism embraced the twin fallacies of a multiverse to be explained and a unimethod to determine the explanation. These errors had a corrosive effect on economics. Mises wrote:
Positivism flatly denies that any field of inquiry is open for teleological research. The experimental methods of the natural sciences are the only appropriate methods for any kind of investigation. They alone are scientific, while the traditional methods of the sciences of human action are metaphysical, that is, in the terminology of positivism, superstitious and spurious. Positivism teaches that the task of science is exclusively the description and interpretation of sensory experience. It rejects the introspection of psychology as well as all historical disciplines. It is especially fanatical in its condemnation of economics.
But the full implications of positivism for economics had to await the twentieth century and positivism itself was predominantly an English language movement at first.
In contrast, Austrian education in Menger's day held to the traditional liberal-arts form. As Barry Smith and David Gordon have argued, Menger was an Aristotelian who learned his Aristotle from the University of Vienna professor of philosophy, Franz Brentano. Trained in the scholastic tradition, Brentano revived the study of Aristotle at Vienna and thereby made available to Menger the axiomatic-deductive method. But before Menger had applied it, economics, having completed the separation from moral philosophy and now viewed as a positive science, had come to be seen as an applied discipline and was taught in the schools of law.
The growing social engineering movement in the German language universities in the latter half of the nineteenth century, which would feed the progressive movement in America, fostered this perception by treating economics as a guide to policy. Mises himself attests to his training at the University of Vienna being oriented to the study of public policy. His first published work, written under Karl Gruenberg, was "a history of government measures" in Galcia and his second was entitled, "A Contribution to Austrian Factory Legislation." It is worth noting that the analog today in the treatment of economics as a practical discipline is to have economics taught in business schools.
But Menger and Wieser in the first two decades of the twentieth century, and Mises in the following decade conceived of the reach of their discipline more broadly than applied economics. Instead, they thought of economics as part of the larger discipline of sociology.
Menger studied sociology in the last two decade of his life, although he never wrote about it. Wieser's major works, Natural Value and Social Economics, were self-consciously sociology tracts, the latter being Wieser's invited contribution to Max Weber's massive collection Grundriss der Sozialoekonomik. Mises's 1922 book, Socialism, takes this broader sociological view, analyzing the topics of property, law politics, democracy, religion, and the family as they relate to socialism.
Although Mises called this broader body of thought sociology in the 1920s, he eventually named it praxeology. A group of non-economists around the same time, including Max Weber, Georg Simmel, and Robert Michels, had a similar conception of sociology, developing sociological theories that applied broadly to topics such as bureaucracy, religion, and art.
These twentieth century efforts were anticipated by the nineteenth century French laissez-faire school of economists who saw economics as a component of a larger social science. Their leader, Frederic Bastiat had planned a book, called Social Harmonies, as a broader companion volume to his Economic Harmonies. Bastiat's follower Gustav Molinari, and the Italian Vilfredo Pareto, who admired Molinari, used economic theory to write about spoliation, aristocracy, class struggle, and other such topics. The American, Frank Fetter originated the concept of psychic income permitting the generalization of economic treatments to other disciplines, while the British author, Philip Wicksteed was, perhaps, the first economist to see that economic thought was a general approach to all human action in his 1910 book, The Common Sense of Political Economy. In Austria, however, only Mises was coming to a correct conception of the broader discipline of which economics was a part. Wieser's thinking on sociology was compartmentalized from his work in economics and thus, inadequate as a basis for a liberal-arts treatment of economics.
This was even more so for his student Schumpeter. But at the same time that Schumpeter was writing tracts on sociological analysis, Mises was coming to Wicksteed's position that economics was a part of a broader science of society. But Mises went beyond Wicksteed who held that value theory applied only to the economic side of action. For Mises argued that value theory applied to all action.
The Postitivist Onslaught
The advent of a liberal-arts treatment of economics was cut short by another development affecting economics and reinforcing the adoption of positivism. Before the end of the nineteenth century, economists worked in academia and devoted themselves to elucidating economic theory and solving economic problems. The interventionism of the progressive era, however, ushered in the professional economist who looked at society in the way an engineer considers a machine. He took it to be his task, not to discover truth and transmit it to his students, but to advise the state on how to intervene into society for its betterment. And the state, ever in need of a class of professional apologists, lavishly subsidized such economists, who have long since dominated the ranks of economists.
Mises clearly saw the effect of professionalization for economics. He wrote,
the philosophy that guides their activities narrows their horizon. By virtue of their connection with definite parties and pressure groups, eager to acquire special privileges, they become one-sided. They shut their eyes to the remoter consequences of the policies they are advocating. With them nothing counts but the short-run concerns of the group they are serving. The ultimate aim of their efforts is to make their clients prosper at the expense of other peoples. They are intent upon convincing themselves that the fate of mankind coincides with the short-run interests of their group. They try to sell this idea to the public.
Economics as a body truth and the economist as the discoverer, elucidator, and teacher of this truth had to be pushed aside to make room for the professional economist.
The rise of economics as a profession has also drawn many economists into forecasting. When the business cycle emerged as a regular feature of economic life, businessmen came to realize that the boom must end in bust and they sought economists to aid them in predicting the inevitable collapse.
As with attempts to justify intervention, however, economics was ill-suited to this task, for economic theory only tells us that the bust must follow the boom, it is silent on the timing of the turning point. To predict this is a task requiring specific understanding of the concrete conditions affecting the course of the cycle, which economists are unlikely to have in greater degree than the entrepreneurs themselves, whose livelihood depends precisely on their ability to acquire such specific understanding.
Economic theory provides no formula that can be substituted for entrepreneurial foresight in anticipating future events. Not being an empirical, predictive science, economics has little practical relevance for business affairs and, therefore, finds no home in business schools. And yet this was precisely the trend of the twentieth century, as departments of economics became quantitative and professional, they moved into schools of business.
Increasingly over the century, economics came to be taught as an empirical science under the influence of positivism and tortured into supporting interventionism and prediction by the drive for professionalism. In no small part this has been the effect of the rise of the power of the Federal government in America spurred on by the two World Wars and especially the Second World War. Economists flooded into Washington to run the war economy and into businesses to forecast the cycle, which emanated from the Fed's war-time monetary inflation.
The renaissance of Austrian economics, therefore, requires more than just placing it in the liberal arts in the current university system, for the system itself is corrupted by interventionism. As Mises wrote,
Tax-supported universities are under the sway of the party in power. The authorities try to appoint only professors who are ready to advance ideas of which they themselves approve. As all nonsocialist governments are today firmly committed to interventionism, they appoint only interventionists. In their opinion, the first duty of the university is to sell the official social philosophy to the rising generation. They have no use for economists.
What is needed is a thoroughly independent institution of higher education, in thought as well as finance. As Mises recognized, independence from government funding by itself is not sufficient to produce such an institution in modern conditions, because the very idea of genuine liberal-arts learning has been abandoned in favor of the view that science is the method of the natural sciences applied to the plethora of hyper-specialized subjects taught in the modern university. Even a financially independent institution is an island in a sea of interventionist ideology and positivist method.
Reinforcing this problem is the expectation that every faculty member make an original contribution to his discipline. And yet, the university system is now constituted as a mass production system designed to give everyone regardless of ability and desire a higher education. Hence, it must hire thousands of professors only a handful of whom have the capacity to contribute original thoughts to their fields. As a consequence, the majority of professors turn to historical and empirical studies to carve out an area of expertise for themselves.
To maintain the fiction that they are contributing to economics in their hyper-specialized field, they must claim that their work is economic theory and not merely historical investigation. In the extreme, they claim that their work is the only proper economic treatment of the issue, a stance that leads them to denigrate deductive economics as the musings of "armchair" economists. Such attitudes not only have a corrosive effect on the praxeological concept of a general theory of economics, but they feed the interventionist bias of the system. As Mises wrote,
What these specialists deal with in their lectures and publications is not economics, but the doctrines of the various pressure groups…Even those specialists who do not openly side with a definite pressure group and who claim to maintain a lofty neutrality unwittingly endorse the essential creeds of the interventionist doctrine…Without a qualm they endorse the fundamental thesis of both interventionism and socialism that the unhampered market economy unfairly harms the vital interests of the immense majority for the sole benefit of callous exploiters. As they see it, an economist who demonstrates the futility of interventionism is a bribed champion of the unjust claims of big business. It is imperative to bar such scoundrels from access to the universities and their articles from being printed in the periodicals of the associations of university teachers.
As Mises goes on to point out, this state of affairs not only isolates economists who wish to work in a liberal-arts framework, it also has a debilitating effect on students and thus, the possibility of building a movement for praxeological economics. Students can easily see that the real world does not conform to the hypothetical, general equilibrium models of the mathematical economists, from which they readily concur with their teachers that the real world needs to be radically reformed.
The majority of students swallow whole the interventionist prescriptions of their teachers. And the minority, who are bright enough to realize that piecemeal intervention will not suffice, are driven to socialism. But the main problem in modern universities lies not in economics but in the other academic disciplines, which by design are hermetically sealed from any contact with economics or each other. Mises wrote,
However, what has made many of the present-day universities by and large nurseries of socialism is not so much the conditions prevailing in the departments of economics as the teaching handed down in other departments. In the department of economics there can still be found eminent economists, and even the other teachers are familiar with some of the objections raised against the practicability of socialism. The case is different with many of the teachers of philosophy, history, literature, sociology, and political science. They interpret history on the ground of a garbled vulgarization of dialectical materialism. Even many of those who passionately attack Marxism on account of its materialism and atheism are under the sway of the ideas developed in the Communist Manifesto and in the program of the Communist International. They explain depression, mass unemployment, inflation, war and poverty as evils necessarily inherent in capitalism and intimate that these phenomena can disappear only with the passing of capitalism.
The solution to the deplorable state of higher education is the restoration of the genuine liberal-arts in which God, man, and nature can be studied with facts and methods suitable to them. Only in that context can economics secure its proper place as a praxeological inquiry, alongside the other disciplines that study human action. Instead of beginning with empirical facts acquired by observation as in the natural sciences, praxeology begins with facts about the nature of man discovered by reflection. The fact of action itself, that action aims at the attainment of ends by the application of means, that action requires a choice based on preference between potential ends to pursue and potential combinations of means to employ, that action presupposes the faculty of reason in identifying what things can be means to an end, that action necessitates the personal ownership of means by the actor, these are some of the basic facts of praxeology.
Beginning with such facts, praxeology can develop properly as the general study of human action from which stem economics, political philosophy, sociology, psychology, and history. Economics develops the logical, conceptual structure of human action, confining itself mainly to the area of action in which monetary calculation is possible.
Political philosophy develops praxeological insights in the area of interpersonal violence and the management of enterprises by bureaucracy as opposed to entrepreneurship. Sociology develops praxeological principles about the ideas that lead to the various institutions people form in society, the workings of these institutions, and their effects on the development of human interactions. Like economics, political philosophy and sociology deal with the conceptual, logical structure of human action.
Psychology and history, in contrast to the mainly theoretical areas of praxeology, are part of the discipline Mises calls thymology, which develops specific understanding of human action. Specific understanding seeks a complete comprehension of the specific actions of specific persons; their motivatation to select particular ends and apply particular means to attain these ends; their judgment of the situation in which they acted and the value of changing it in the way that they did; their assessment of the success or failure of their action and how they acted in response to that assessment.
Thymology is not unsystematic assemblage of such experience, however, but the development and application of particular types of human character that are useful in understanding and predicting specific human action. Such judgments guide the identification of causal factors and the weight to be given to each one in understanding and predicting action. The historian uses thymology to gauge the relevance to be given to each causal factor affecting past action and the entrepreneur uses thymology to gauge the relevance to be given to each causal factor affecting future action.
Thymology is also the basis of psychology, which attempts to explain the particular actions of particular persons, categorize different types of actions and human characters, and understand the causes and effects of actions and characters. This praxeological psychology must be distinguished from physiological psychology, which examines the causes and effects of the natural functions of the body and is rightly a part of the natural sciences having no relevance for praxeology.
"While naturalistic psychology does not deal at all with the content of human thoughts, judgments, desires, and actions, the field of thymology is precisely the study of these phenomena."
Extensions of Praxeological Knowledge
Other fruits of a praxeological approach to the broader disciplines of human action have been born in the works of Murray Rothbard and Hans Hoppe. Rothbard has reconstructed both political philosophy and economics into a social theory of liberty based upon the nature of man and human action.
Both economics and political philosophy begin with the natural fact of each person's ownership of his own labor. To live and flourish, he must act with his labor to bring natural resources into productive use and to produce goods. Economics accepts this pattern of personal ownership as the foundation of the market economy and analyzes how such an economy works. Political philosophy addresses the ethical justification of personal ownership in society. Because it is good for man to live and flourish and personal property is necessary for any human action by which man can live and flourish, a person has a natural right to own his labor, natural resources that he homesteads, goods that he produces and to use his personal property in any non-aggressive way and to defend his property against aggression. Given a regime of private property, Rothbard showed, the market economy renders the greatest welfare of people in society.
Hoppe has extended this politico-economic edifice to the analyses of comparative systems, political forms, and civilization itself.
To give praxeology its proper place in the world of education, however, intellectual achievements like those of Rothbard and Hoppe must be housed in a proper institutional setting, one that will nurture them and teach them. It is difficult to imagine how Rothbard and Hoppe could have accomplished their work and passed it down to the next generation without the Mises Institute. What is needed is for the independence and devotion to the truth so evident in the Institute to become the model for mainstream educational enterprises in which students receive their under-graduate degrees.
The future of Austrian economics depends on combining under-graduate and graduate institutions that are truly independent working together to advance the truth by restoring genuine liberal-arts education. Grove City College and the Mises Institute are showing us the way.
 Alejandro Chaufen, Christians for Freedom: Late-Scholastic Economics (San Francisco: Ignatius Press, 1986), p. 21.
 Ludwig von Mises, Human Action: A Treatise on Economics, Scholars Edition (Auburn, Ala.: Mises Institute, 1998), pp. 65 and 20.
 Stanley Jaki, The Savior of Science (Washington: Regnery Gateway, 1988), pp. 51–52.
 Carl Menger, Principles of Economics (New York: New York University Press, 1976 ).
 Ludwig von Mises, Epistemological Problems of Economics (New York: New York University Press, 1976 ).
 Stanley Jaki, “Order in Nature and Society,” in The Absolute Beneath the Relative, p. 106.
 Stanley Jaki, “Order in Nature and Society: Open or Specific?” in The Absolute Beneath the Relative, p. 103.
 Mises, Theory and History, p. 241.
 Barry Smith, Austrian Philosophy: The Legacy of Franz Brentano (Chicago: Open Court, 1994); and David Gordon, The Philosophical Origins of Austrian Economics (Auburn, Ala.: Mises Institute, 1993).
 Ludwig von Mises, Notes and Recollections (Spring Mills, Pa.: Libertarian Press, 1978), p. 7.
 Mises, Human Action, p. 865.
 Mises, Human Action, p. 868.
 Mises, Human Action, pp. 870–71.
 Mises, Human Action, p. 872.
 Ludwig von Mises, Theory and History, second edition ((Auburn, Ala.: Mises Institute, 1985).
 Mises, Theory and History, p. 266.
 Murray Rothbard, The Ethics of Liberty (New York: New York University Press, 1998 ).
 Murray Rothbard, “Toward a Reconstruction of Utility and Welfare Economics,” in The Logic of Action I (Cheltenham, U.K.: Edward Elgar, 1997), pp. 211–54.
 Hans Hoppe, A Theory of Socialism and Capitalism (Boston: Kluwer., 1989); The Economics and Ethics of Private Property (Boston: Kluwer, 1993); and Democracy, the God That Failed (New Brunswick: Transaction Publishers, 2001).