by Ludwig von Mises
Previous Section | Next Section
Table of Contents
SOCIAL LIBERALISM11. Introduction
Heinrich Herkner, president of the Association for Social Policy, recently published his autobiography under the subtitle “The Life of a Socialist of the Chair.” In it he made it his task “to facilitate an understanding of the closing era of German academic socialism.”2 In fact, it cannot be denied that the Socialists of the Chair have said everything they meant to say, and it seems their supremacy is now declining. Therefore, it is time for an examination of their achievements.
On the occasion of Gustav Schmoller’s seventieth birthday, the most eminent members of the Historical-Realistic School cooperated in a work that was to present the results of the efforts of German economics during the nineteenth century.3 A summary of the forty monographs of this book was never written. The preface expressly states that it must be left to a future analysis to take stock of the nature and extent of the progress of German economic science as a whole.4
If anyone had tried to write this analysis, it undoubtedly would have been disappointing. The summary more than the individual monographs would have revealed how few of its goals the School did achieve. It would have shown how the School, whenever it touched upon fundamental questions, could not escape borrowing from the discoveries of a theoretical school that is quite low in its esteem. In each contribution that merely half-way meets its requirements, the work of economic theorists is clearly visible despite the fact that they stood apart from the School and were attacked by it. Bernhard’s contribution on wages, for instance, arrives at the conclusion that “the Historical-Statistical School barely touched the main problem of wages.” It merely launched detailed investigations, but on the great questions it “finally could stutter only the confession: the processes are more complicated than the sum of our detailed investigations. There would be no new German research if it were not for the so-called abstract Austrian School.”5 If this is true of wages, a topic on which the Socialists of the Chair loved to expound, how much more must it apply to all other problems!
We are gaining the same impression from all other collections of essays this School has published. In Outlines of Social Economics Austrian economists dealt with the history of thought and with economic theory. And the classical contributions by Menger, Böhm-Bawerk, Wieser, and a few other “theorists” are the only essays of lasting interest in the ten-thousand-page collection of the third edition of the Handbook of Social Sciences.
There is yet another comprehensive Festschrift that seeks to present the entire science in monographs. But there are signs that such collections covering motley problems, torturing readers and embarrassing librarians, are gradually being replaced with collections dealing with one set of problems only. On the occasion of the eightieth birthday of Lujo Brentano, the veteran dean of academic socialism in and outside Germany, his students published Economics After the War.6
Naturally, the quality of the individual contributions varies greatly. And it need not be emphasized that the twenty-nine contributors worked independently and took no notice of each other’s theories and ideologies. But a common thread appears throughout the works—especially those the editors thought most important and which Brentano probably read with greatest delight—namely, the intention to defend and elaborate the “Brentano system.” The external conditions for such a task are less favorable today than seventeen years ago. When the Schmoller Festschrift appeared, academic socialism and Historical-Realistic economics stood at the zenith of their reputation and political influence. A great deal has changed since then. The Schmoller Festschrift had the sound of a fanfare. The Brentano Festschrift is calling for discussion.
2. Socialism of the Chair
Academic socialism is no homogeneous ideology. In the way syndicalism stands alongside socialism, although they often are not differentiated distinctly, there are two schools of thought in Socialism of the Chair: the Socialist School (state socialism or etatism), and the Syndicalist School (at times called “social liberalism”).
Socialism and syndicalism are implacable antagonists, and the two ideologies stand in irreconcilable contrast to liberalism. No specious argument can ignore the fact that direct control over the means of production can only rest either with individuals, with society as a whole, or with associations of workers in each industry. Politics can never succeed in dividing direct control over certain means of production between society (the state), labor unions, or individuals. Property as direct control over means of production is indivisible. True, there can be a social order in which some means are owned by the state or other administrative bodies, some by labor unions, and some by individuals. In this sense, there can be partial socialism, partial syndicalism, and partial capitalism. But there can never be a compromise between socialism, liberalism, and syndicalism with regard to the same means of production. This fundamental and logical implacability of the three conceivable social orders has again and again been obscured in theory and politics. But no one has ever succeeded in creating a social order that could be called a synthesis, or even reconciliation, of the conflicting principles.
Liberalism is the ideology that views private property in the means of production as the only possible, or at least best conceivable foundation of human society based on division of labor. Socialism seeks to transfer the property in the means of production to the hands of organized society, the state. Syndicalism wants to transfer control over the means of production to the association of workers in the individual branches of production.7
State socialism (etatism, also conservative socialism) and its related systems of military socialism and Christian socialism aim at bringing about a society in which “the management of property is left to individuals,” but its employment is supervised and guided by the collective whole so that “formally property is private, but in substance it is public.”8 The farmer, for instance, becomes a “civil servant and must grow what the country needs according to his best knowledge and conscience or by government order. If he receives his interest and a living salary, he has everything he can demand.”9 Some large enterprises are transferred directly to the state or community, all others formally remain in the hands of their owners, but must be managed in accordance with the plan of the authorities. Thus, every business becomes a public office, and every occupation an “appointment.”
At the time serious consideration was still given to the Social-Democratic program to transfer formally all means of production to society, there seemed to exist a considerable, although not fundamental, difference between the program of the etatists and that of the Social Democrats. Today the Social-Democratic program simply calls for an immediate nationalization of large enterprises, while trade shops and farms are to be under the control of the state. In this respect, etatists and socialists are much closer today than they were a dozen years ago.
However, the fundamental difference between the social ideals of etatism and the Social Democrats existed in the problem of income distribution, not in the nationalization program. It was self-evident to the Social Democrats that all income differences were to disappear. But etatism meant to distribute income according to “dignity.” Everyone was to receive according to his rank. On this point as well, the gap dividing Social Democrats and etatists has narrowed considerably.
Etatism, too, is genuine socialism, although it may differ in a few points from the socialism of the Communist Manifesto and the Erfurt Program. What is essential alone is its position on the problem of private property in the means of production. Inasmuch as the Socialists of the Chair represented etatism, and inasmuch as they demanded the nationalization of large enterprises and government supervision and control of all other enterprises, they engaged in socialistic politics.
But not all Socialists of the Chair were etatists. Lujo Brentano and his School promoted a syndicalistic program, although in many questions of daily politics they joined ranks with the other Socialists of the Chair and, together with the Social Democrats, fought against liberalism. As set forth, their syndicalism is no more definite and straightforward than any other program. As a matter of fact, it is so contradictory and leads to such absurd consequences that it could never be unswervingly advocated. Brentano carefully veiled his position, but nevertheless it was syndicalism. It became visible in his position on the problems of labor union coercion and strike, and the protection of workers willing to work.
If employees receive the right to shut down an enterprise as long as its owner rejects their demands, the control over production, in final analysis, has been placed in the hands of labor unions. The problem must not be obscured by the confusion between free collective bargaining—the workers’ freedom to organize—and the impunity of workers guilty of breach of contract. The protection of workers willing to work is an entirely different matter. As long as the work stoppage of the workers of one enterprise or in an entire industry can be rendered ineffective through employment of workers from other industries or from a given reservoir of unemployed workers, the labor unions are unable to raise wage rates above those paid without them. But as soon as the physical force of labor, with tacit consent or open promotion by the state, makes it impossible to replace the strikers, the labor unions can do as they like. The workers of “essential” enterprises then can freely determine their wage rates. They could raise them as high as they please were it not necessary to be mindful of public opinion and the sentiment of workers in other industries. At any rate, all labor unions have the power temporarily to raise wage rates above those the economic situation would determine without union intervention.
Anyone who would deny protection to workers willing to work must raise the question of how excessive labor demands can be dealt with. It is no answer to refer to a sensible conduct of workers or to entrust committees of employers and employees with the power of decision. Committees with equal representation of both sides can come to an agreement only if one side makes the concessions. But if the decision is to be made by the state, either as judge with the power of binding arbitration or by the committee member representing the state, the solution again is that of etatism, the very thing that was to be avoided.
A social order that refuses to protect those willing to work lacks vitality and must disintegrate in short order. This is why all political systems, no matter how they collaborate with the unions, must finally oppose union coercion. To be sure, prewar Germany never managed to legislate government protection to those willing to work; an attempt failed on account of the resistance by Brentano and his School. But it should be noted that prewar Germany could easily have quashed a strike in essential enterprises by calling the strikers to active military duty. Postwar republican Germany no longer has this power at its disposal. And yet, despite the Social-Democratic Party’s supremacy, it has successfully taken a stand against strikes in essential enterprises and thus has expressly granted protection to workers willing to work. In the Russia of the Soviets, a strike is utterly impossible. Kautsky and Lenin completely agree that willing workers must be permitted to render a strike against vital facilities ineffective.
Etatism trusts in the wisdom and attitude of government officials. “Our officials are learning soon enough,” writes Knapp,
how things look in the clash of economic interests. They will not let the reins slip out of their hands, not even to parliamentary majorities, which we know how to handle so well. No rule is born so easily, in fact, perceived so gratefully as that of high-minded, very learned officials. The German state is officialdom, let us hope that it will always remain that. It should then be rather easy to overcome the confusion and error of economic struggles.10
Brentano and his School lacked this faith in the infallibility of government officials, on which they based their very claim to being “liberal.” But over the years, the two schools have come very close: the Brentano School advocated nationalization or municipalization of a number of enterprises, and the Schmoller School emphasized the activity of labor unions. For a long time, their positions on foreign trade policies separated the two schools. Brentano rejected protectionism, while the majority of etatists pursued it. On this point the etatists have made some concessions; an ambiguous free-trade resolution, devised in 1923 by university professors meeting at Stuttgart, revealed this change.
Brentano himself sought to describe their differences in the fundamental questions of social policy as follows:
We both favored the activity of free organizations as well as government intervention wherever the individual left to his own was too weak to preserve his personality and to develop his ability. But from the beginning our positions on both were reversed. My studies of British conditions had led me to build my hopes for lifting the working classes primarily on the activities of their organizations, while it mattered much more to Schmoller that the state assume the role of protector of the weak.11
Brentano wrote this in the spring of 1918, shortly after the collapse of the Schmoller system, and shortly before the collapse of the Brentano system became evident. While the fundamental differences between the two schools are not clearly delineated, they are at least discernible.
Liberalism and Social Liberalism
Names are unimportant; what matters is substance. The term “social liberalism” sounds strange indeed as socialism and liberalism are mutually exclusive. But we are accustomed to such terminology. Also, socialism and democracy are irreconcilable in the final analysis, and yet there is the old concept of “Social Democracy,” which is a contradictio in adjecto. If today the Brentano School, which adopted syndicalism, and some “moderate” etatists designate their movement as “social liberalism,” no terminological objection need be raised. But we must object—not for political reasons, but in the interest of scientific clarity and logical thought—that this designation erases the differences between liberalism and socialism. It permits calling “liberal” that which is the very opposite of what history and social science define as liberal. The fact that in Great Britain, the home of liberalism, this semantic confusion prevails is no excuse for us to accede to the practice.
Herkner is correct when he observes that the sanctity of private property is not a dogmatically anchored objective for liberalism, but a means for the attainment of ultimate goals. He is mistaken, however, when he states that this is so “only temporarily.”12 In their highest and ultimate goal liberalism and socialism are in agreement. They differ precisely in that liberalism views private property in the means of production as the most suitable means to attain the goal, while socialism looks upon public property as the most suitable means. This difference in the two programs, and this alone, corresponds to the history of thought during the nineteenth century. Their different positions on the problem of property in production separates liberalism from socialism. It is confusing to present this in any other way.
Socialism, according to Herkner, “is an economic system in which society organized in a state directly assumes responsibility for the existence of all its members. As an economic system based on satisfying the national needs rather than gleaning profits, the whole production and distribution process becomes the task of public authority, replacing private property in the means of production and their use for profit.”13 This is not very precise, but is stated clearly enough. Herkner then continues, “If this system could be realized with liberal means, that is, without force and violation of law, and if it could not only improve the material conditions of the people, but also assure a greater measure of individual freedom, then no objection could be raised against it from the liberal point of view.”14 Thus, when Parliament discusses the question of nationalization, the liberals, according to Herkner, could vote for the common weal if it is introduced “without force and violation of law” and if it were not for their doubts about the material well-being of the people.
Herkner seems to believe that the older liberalism advocated private property for its own sake and not for its social consequences. Like Wiese and Zwiedineck, he construes a difference between the older and the contemporary liberalism. According to Herkner, “While the older liberalism viewed private property as an institution of natural law whose protection besides that of individual freedom was the first duty of the state, contemporary liberalism is emphasizing ever more strongly the social factor in property. . . . Private property is no longer defended with individualistic reasons, but with considerations of social and economic suitability.”15 In a similar vein, Zwiedineck observes that there is reason for optimism “that a private property order for its own sake and in the interest of owners only, would be of brief duration.” Modern liberalism, too, is advocating private property on grounds of “social suitability.”16
It cannot be our task here to examine how nonliberal theories of natural law meant to defend private property as a natural phenomenon. But it should be common knowledge that the older liberals were utilitarians (they are frequently criticized for it), and that it was self-evident to them that no social institution and no ethical rule can be advocated for its own sake or for reasons of special interest, but can be defended only on grounds of social suitability. It is no indication that liberalism is moving toward socialism if modern liberalism demands private property in the means of production because of its social utility, and not for its own sake or for the interests of owners.
“Private property and inheritance,” Herkner continues, “give rise to unearned income. Liberalism sympathizes with the efforts of socialists to oppose this unearned income in the interest of justice and equal opportunity for all members of society.”17 The fact that unearned income flows from property is as obvious as that poverty comes from pauvreté. In fact, unearned income flows from control over the means of production. He who opposes unearned income must oppose private property in the means of production. Therefore, a liberal cannot sympathize with such efforts. If he does so nevertheless, he is no longer a liberal.
What in Herkner’s view, then, is liberalism? His answer is this:
Liberalism is a world view, a kind of religion, a faith. It is a faith in the natural dignity and goodness of man, in his great destiny, in his ability to grow through his powers of natural reason and freedom, in the victory of justice and truth. Without freedom there is no truth. Without truth there can be no triumph of justice, no progress, thus no development, later stages of which are always more desirable than the preceding stages. What sunlight and oxygen mean to organic life, reason and freedom mean to intellectual development. Neither individuals, classes, nations, nor races must be viewed as mere means for the purposes of other individuals, classes, nations or races.18
This is all very fine and noble, but unfortunately so general and vague that it equally applies to socialism, syndicalism, and anarchism. His definition of liberalism lacks the decisive ingredient, namely, a social order that is built on private property in the means of production.
It cannot surprise us that with such ignorance about liberalism Herkner also subscribes to practically all misconceptions that are in vogue today. Among others: “In contrast to the older liberalism which aimed mainly at the elimination of hampering restrictions, modern liberalism [that is, social liberalism] has a positive, constructive program.”19 If Herkner had discovered private property in the means of production as the basic ingredient of liberalism, he would have known that the liberal program is no less positive and constructive than any other. It is the mentality of officialdom—which, according to Brentano, was “the only sounding-board of the Association for Social Policy”20—that considers as constructive and positive only that ideology which calls for the greatest number of offices and officials. And he who seeks to reduce the number of state agents is decried as a “negative thinker” or an “enemy of the state.”
Both Herkner and Wiese21 expressly emphasize that liberalism has nothing to do with capitalism. Passow tried to show that the ambiguous terms “capitalism,” “capitalistic economic order,” et cetera, are political slogans that, with but few exceptions, are not used objectively to classify and comprehend the facts of economic life. Instead, they are used to criticize, accuse, and condemn phenomena that are more or less misunderstood.22 If this position is taken, it is clear that he who appreciates liberalism, no matter how he defines it, seeks to protect it from labels that are felt to be derogatory, defamatory, and abusive. However, if we agree with Passow’s observation that for most writers who have given the term “capitalism” a definite meaning, its essence is the development and expansion of larger enterprises,23 we must admit that liberalism and capitalism are closely related. It was liberalism that created the ideological conditions that gave rise to modern large-scale industrial production. If we should use the term capitalism to identify an economic method that arranges economic activity according to capital calculation,24 we must come to the same conclusion. But no matter how we define capitalism, the development of capitalistic methods of production was and is possible only within the framework of a social order built on private property in the means of production. Therefore, we cannot agree with Wiese’s contention that the essence of liberalism was obscured by “its historical coincidence with large-scale capitalism.”25
That which makes capitalism appear “unliberal,” according to Wiese, is “its insensitivity toward suffering, the brutal use of elbows, and the struggle to overpower and enslave fellow men.”26 These expressions come from the old register of socialistic complaints about the corruption and wickedness of capitalism. They reveal the socialistic misinterpretation of the nature and substance of a social order that is based on private property. If, in a capitalistic society, the buyer seeks to buy an economic good wherever it is least expensive, without regard for other considerations, he does not act with “insensitivity toward suffering.” If the superior enterprise successfully competes with one working less economically, there is no “brutal use of elbows,” or “struggle to overpower and enslave fellow men.” The process in this case is no undesirable concomitant effect, or “outgrowth” of capitalism, and unwanted by liberalism. On the contrary! The sharper the competition, the better it serves its social function to improve economic production. That the stagecoach driver was replaced by the railroad, the hand weaver by mechanical weaving, the shoemaker by the shoe factory, did not happen contrary to the intentions of liberalism. And when small shipowners with sailing vessels were replaced by a large steamship company, when a few dozen butchers were replaced by a slaughterhouse, a few hundred merchants by a department store, it signifies no “overpowering and enslaving of fellow men.”
Wiese remarks correctly that “in reality, liberalism has never existed on a large scale, and that the community of liberals still needs to be created and brought along.”27 Thus, the picture of what fully developed capitalism can achieve is incomplete at best, even if we reflect upon British society at the zenith of capitalism when liberalism was leading the way. It is popular today to blame capitalism for anything that displeases. Indeed, who is still aware of what he would have to forego if there were no “capitalism”? When great dreams do not come true, capitalism is charged immediately. This may be a proper procedure for party politics, but in scientific discussion it should be avoided.
Control or Economic Law?
Among the many mistakes to which the Socialists of the Chair of all varieties tenaciously cling is their faith in limited government interventions in economic life. They are convinced that, except for syndicalism, there are three conceivable possibilities of control over the means of production in a society based on the division of labor. Besides public property and private property, there is the third possibility of private property that is subject to government regulation. The possibility and conceivability of this third system will be discussed in this section on the antithesis of “control or economic law.”
For the Socialists of the Chair this question had special political significance. They could maintain their claim of an impartial middle position between the Manchester School and communism only if they favored a social ideal that apparently was “equally distant” from the ideals of the two competing movements. They rejected as irrelevant for their ideals all criticism leveled at the socialistic ideal. They could do so as long as they ignored the fact that limited interventions in the private property order fail to achieve their objectives, and that the desired etatist objectives can be achieved only when private property exists in name only and a central authority regulates all production. Moeller observes correctly that the younger Historical School opposed classical economics for practical reasons: “Schmoller did not care to see his road to scientific justification of social policy blocked by the concept of an external economic regularity independent of man.” But Moeller is mistaken when he comments on Rist’s remark that the classical school did not uphold the general validity of economic laws. He is mistaken when he asserts that “it was not the ‘laws’ of classical economics properly understood that were blocking the way.”28 Indeed, they stood in the way because they revealed that government intervention in the operations of a capitalistic social order is incapable of achieving the desired results, which leaves the alternative either to renounce such intervention or go the whole way and assume control over the means of production. On this fact all the critique by the Historical-Realistic School missed its mark. It was irrelevant that these economic laws were not “natural laws” and that private property was not eternal, but “only” a historical-legal category. The new economics should have replaced the theory of catallactics developed by Physiocrats and classical economists with another system that did not demonstrate the futility of government intervention. Because it could not do so, it had to reject categorically all “theoretical” investigations of economic problems.
At times it has been said that there are several kinds of economics. This is no more correct than that there are several biologies and several physics. Surely in every science various hypotheses, interpretations, and arguments seek to solve concrete problems. But logic is consistent in every science. It is true also of economics. The Historical-Realistic School itself, which for political reasons disagreed with the traditional and modern theories, proves this point by not substituting its own explanations for the rejected doctrines, but by merely denying the possibility of theoretical knowledge.
Economic knowledge necessarily leads to liberalism. On the one hand, it demonstrates that there are only two possibilities for the property problem of a society based on the division of labor: private property or public property in the means of production. The so-called middle of the road of “regulated” property is either illogical, because it does not lead to the intended goal and accomplishes nothing but a disruption of the capitalistic production process, or it must lead to complete socialization of the means of production. On the other hand, it demonstrates what has been perceived clearly only recently, that a society based on public property is not viable because it does not permit monetary calculation and thus rational economic action. Therefore, economic knowledge is blocking the way to socialistic and syndicalistic ideologies that prevail all over the world. And this explains the war that is waged everywhere against economics and economists.
Zwiedineck-Südenhorst seeks to give the untenable doctrine of the third possible social order a new garb. “We are dealing not only with the institution of property,” he informs us,
but probably more importantly also with the totality of legal standards that form a superstructure over any property order and thereby any economic order. We must realize that these legal standards are decisive for the manner of cooperation of the various factors of production (that is, not only capital, land, and labor, but also the different categories of human labor). In short, we are dealing with that which comprises the organization of production. This organization can only serve the objective of placing the momentary control conditions over the various production factors in the service of the whole economy. Only then does it have social character. Of course, these momentary control conditions, that is, the property order, constitute a part of the organization of production. But this does not lead to the conclusion that the organization would have to differ for the individualistic and the collectivistic economy. In fact, whether and how it can differ is the crucial question.29
Here again, as with all representatives of etatism, is the notion that a legal structure placing private property “in the service of the whole economy” can achieve the objectives the authority meant to achieve. After all, Zwiedineck only recently took his position on the problem of “control or economic law,” which is so characteristic of all Socialists of the Chair.30
It is remarkable that all these literary efforts produced nothing new. Old errors that had been refuted a hundred times were dished up again. The question is not whether the power of the state “can” intervene in economic life. No economist would deny today that, for instance, the bombing of a city or a prohibition of exports is possible. Even the freetrader does not deny that import duties are possible; he only maintains that protective tariffs do not have the effects the protectionists ascribe to them. And he who rejects price controls for being unsuitable does not deny that government can impose and supervise them. He merely denies that the controls will lead to the goal which government meant to attain.
As early as the 1870s Walter Bagehot irrefutably exploded the arguments with which the followers of the Historical School rejected the dependability of “theoretical” inquiries in the field of economics. He called the two methods—the Historical School considered them the only permissible methods—the “all-case method” and the “single-case method.” The former works with induction only, and makes the erroneous assumption that this is the road that usually leads the natural sciences to their findings. Bagehot demonstrated that this road is completely impassable, and that on it no science ever has achieved satisfactory results. The “single-case method,” which accepts descriptions of concrete historical data only, fails to realize, according to Bagehot, that there can be no economic history and no economic description “unless there was a considerable accumulation of applicable doctrine before existing.”31
The Methodenstreit has long been decided. Never before has a scientific exchange led to such a crushing defeat of one side. Fortunately, this is freely admitted in Economics After the War. In his contribution on business cycle research, which is based on a thorough knowledge of the material, Lowe briefly touches upon the question of method and skillfully proves the untenableness of the objections empiricists raise against theory. Unfortunately, we must also agree with Lowe where he observes that “the heresy of ‘impartial’ data research, which deprived a whole generation of German scholars of its results,” has recently also intruded itself into American research.32 But it is even more regrettable that despite the thorough methodological debates in recent years, we again and again encounter the old, long-refuted errors in German science. Bonn, for instance, praises Brentano because in his book on Agricultural Policy he was not content with “describing the skeleton of a system, separated from the flesh of life. He abhored bloodless abstractions, deductions of barren concepts, as he encountered them in his youth. He sought the fullness of life.”33
I must admit that I find the term “flesh of life” empty. Bonn’s use of the adjective “bloodless” in connection with the noun “abstraction” appears illogical to me. What is the contrast to “bloodless” abstraction—perhaps “bloody” abstraction? No science can avoid abstract concepts, and he who abhors them should stay away from science and see whether and how he can go through life without them. When we look at Brentano’s Agricultural Policy we find a number of discussions of rent, land price, cost, et cetera, purely theoretical investigations that obviously work with abstractions and abstract concepts.34 Every investigation that in any way touches upon economic questions must “theorize.” True, the empiricist does not know that he is theorizing, as Monsieur Jourdain never knew that he was always speaking prose. And as empiricists are unaware of this, they carelessly adopt theories that are incomplete or even incorrect and avoid thinking them through logically. An explanatory theory can easily be constructed for each “fact,” but only when the individual theories are united into a whole can we determine the value and futility of the “explanation.” But the Historical School rejected it all; it did not want to admit that theories must be thought through and that they must be united into a consistent whole. In eclectic fashion it used pieces of all possible theories and followed indiscriminately and uncritically now this opinion, now that opinion.
But the Socialists of the Chair not only did not build a system of their own, they also failed utterly in their critique of modern theoretical economics. The subjective-value theory did not receive the outside critique that is so indispensible for scientific progress. It owes its progress during the last decades to its own initiative, to critiques from its own ranks. This the followers of the Historical School did not even notice. Whenever they speak of modern economics their eyes are glued on 1890, when the achievements of Menger and Böhm-Bawerk were generally completed. The theoretical accomplishments in Europe and America since then remain rather foreign to them.
The critique which the champions of academic socialism leveled at theoretical economics proved to be largely irrelevant and, without apparent reason, not free of personal hatred. As in the writings of Marx and his disciples, a more or less tasteful joke often takes the place of critique. Brentano thought it proper to introduce a critique of Böhm-Bawerk’s Capital and Interest—a critique which, by the way, no one appreciated in the seventeen years since its publication—with the following: “As one of my first-semester students correctly remarked. . . .”35 The Russian professor Totomianz, an Armenian, writes in his History of Economics and Socialism:
A German critic of the psychological school ironically observes, not without a kernel of truth, that the soil in which the Austrian School grew was the city of Vienna with its numerous students and officers. For a young student seeking the pleasures of life present goods naturally are more valuable than future goods. Similarly, a dashing officer chronically suffering from lack of cash will pay any interest rate on borrowed money.36
This book with such a profound critique of Böhm-Bawerk’s theory first appeared in the Russian language. Rist wrote an introduction to the French edition, Loria to the Italian edition, and Masaryk to the Czech edition. In his introduction to the German edition, Herkner acclaims the work for being “popular and perceptual.” All significant and fruitful thoughts in Great Britain, France, Germany, Austria, Belgium, Italy, Russia, and America find “loving and understanding consideration” with Totomianz. He shows “remarkable ability to do justice to such different minds as Fourier, Ruskin, Marx, Rodbertus, Schmoller, Menger, and Gide.”37 This Herkner judgment is all the stranger as he is very familiar with the history of economic thought.38
In the Methodenstreit the Brentano wing of the Empirical-Realistic School acted more prudently than the followers of Schmoller. We must give personal credit to Brentano who, a generation earlier, leveled sharp criticism at the School’s research in economic history.
Many a writer of no more than excerpts from economic documents believes he has written an economic treatise. But when the excerpt is completed the economic analysis is just beginning. Its content must then be analyzed and transformed to a picture full of life, and the lesson must be drawn from this researched passage of life. It is not enough to be diligent in the preparation of excerpts from documents. It takes the power of intuition, combination, sagacity, and the most important scientific gift: the ability to recognize the common element in the multiplicity of phenomena. When this is lacking we gain nothing but uninteresting details. . . . This kind of economic historical analysis is utterly worthless for economics.39
And bearing in mind the etatist bias in the works of the Schmoller School, Brentano calls it an aberration “to confuse enthusiastic excerpts from archives with economic investigations and research.40
The Economic Doctrines of Social Liberalism
Faithful to their principle, the Socialists of the Chair did not create a system of economics, which was the endeavor of the Physiocrats and classical economists, and now the modern subjectivist economists. The socialists were not concerned with creating a system of catallactics.
Marx simply adopted the system of the classics and drew the conclusion that, in a society based on the division of labor, there is no third organizational possibility besides the private property and the public property orders. He mocked all attempts at a third order as “bourgeois.” The position of etatism is different. From the start it did not seek to understand, but to judge. It brought along preconceived ethical opinions: “It shall be!” and “It shall not be!” All things were chaotic as long as the state did not intervene. Only government intervention could put an end to the arbitrariness of self-seeking individuals. The idea that a social order could be based on a constitution under which the state would do nothing but protect private property in the means of production seemed utterly absurd to it. It only had ridicule for the “enemies of the state” who believed in such a “pre-established harmony.” The etatists thought it utterly illogical to reject every government “intervention” in economic life, as this would lead to anarchism. If government intervention for the protection of private property is permissible, it is illogical to reject all further intervention. The only reasonable economic order is a social order in which private property exists in name, but actually is abolished, the state holding the final reins over production and distribution. The state of affairs at the zenith of liberalism could come into existence only because the state neglected its duties and granted too much freedom to individuals. With such a point of view, the development of a catallactic system is unnecessary, indeed illogical.
The best example for the ideology of the welfare state is the balance of payments theory. A country may lose all its monetary metal if the state does not intervene, so runs the older, mercantilist version. The classical economists demonstrated, however, that the danger so dreaded by the mercantilists does not exist, because forces are at work that, in the long run, prevent the loss of money. This is why the quantity theory was always so objectionable to etatists. They favored the Banking School. The victory of the Historical School practically brought excommunication of the Currency School. Karl Marx,41 Adolf Wagner, Helfferich, Hilferding, Havenstein, and Bendixen held to the doctrines of the Banking School.
After two generations of eclecticism and avoidance of clear concepts, many contemporary writers have difficulty recognizing the differences between those two famous British schools. Thus Palyi shows surprise that “a resolute follower of the Banking Principle, M. Ausiaux, occasionally advocates the comptabilism of Solvay.”42 Let us not overlook the fact that “comptabilism” and all other related systems are logical applications of the Banking Principle. If the banks are in no position to issue more notes than are necessary (the “elasticity of circulation”), there can be no objection to the adoption of Solvay’s monetary reform.
Palyi’s etatist position explains why he could not add a single word to the old mercantilist observations, and why his whole theory is limited to pointing at the selfish disposition of the state’s subjects, who should not be left to themselves.43 Social liberalism could not share this etatist position. For better or worse it had to show how, according to its social ideal, the members of an exchange society cooperate without government assistance. But social liberalism never developed a comprehensive theory either. Some of its followers probably believed that the time was not yet ripe on account of insufficient preparation through collection of material; the majority probably never saw the need for a comprehensive theory at all. Wherever the need for theory arose, the social liberals usually borrowed from the classical system, mostly in the garb of Marxism. In this regard the social liberals differed from the etatists, who preferred to fall back on the mercantilists.
Nevertheless, social liberalism did seek to make an independent contribution to theory—a doctrine of wage rates. It could use neither classical theory nor modern theory. Marx very logically had denied that collective bargaining of labor unions could raise wages. Only Brentano and Webb sought to prove that collective bargaining can permanently raise the income of all workers; this theory is the principal doctrine of social liberalism. However, it could not withstand a scientific critique, such as that by Pohle44 and Adolf Weber.45 In his last essay, Böhm-Bawerk, too, arrived at the same conclusion,46 and no one today dares seriously represent the Brentano-Webb doctrine. It is significant that the comprehensive Festschrift honoring Brentano does not contain a single contribution on wage theory and the wage policies of labor unions. Cassau merely observes that before the war the labor union movement worked “without any wage theory.”47
In his review of the first edition of Adolf Weber’s book, Schmoller responded to the point that it is regularly impossible, without a rise in productivity, to raise wage rates through the withholding of labor. According to Schmoller, “such theoretical abstract price discussions” could lead to no useful results. We can render a “safe judgment” only “if we can numerically measure these fine complicated processes.” Adolf Weber sees in such an answer a declaration of bankruptcy of our science.48 But the etatist need not be concerned with the bankruptcy of catallactics. In fact, the consistent etatist denies the existence of any regularity in the process of market phenomena. At any rate, as politician the etatist knows an escape from the dilemma: the state determines the level of wages. But the refutation of the Brentano-Webb doctrine alone is not fatal. Even if we were to accept it—which, as we pointed out, no one would dare do since the writings of Adolf Weber, Pohle, and Böhm-Bawerk—the decisive question would still need an answer. If labor unions actually had the power to raise the average wage of all workers above the rate that would prevail without their intervention, the question remains, How high can wages go? Can average wages go so high that they absorb all “unearned” income and must be paid out of capital? Or is there a lower limit at which this rise must stop? This is the problem the “power theory” must answer with regard to every price. But until today no one has ever tried to solve the problem.
We must not deal with the power problem by calling authoritative intervention “impossible,” as did older liberalism. There cannot be any doubt that labor unions are in the position to raise wage rates as high as they wish if the state assists them by denying protection to all workers willing to work, and either pays unemployment compensation or forces employers to hire workers. But then the following occurs:
The workers in essential enterprises are in the position to extract any arbitrary wage from the rest of the population. But ignoring even that, the shifting of the wage boost to consumer prices can be borne by the workers themselves, but not by capitalists and entrepreneurs whose incomes did not rise on account of the wage boost. They now must curtail capital accumulation, or consume less, or even eat into their capital. What they will do, and to what extent they will do it, depends on the size of their income reduction. Surely everyone will agree that it is inconceivable thus to eliminate or merely greatly to curtail property income without at least reducing or halting capital formation and very likely consuming capital (after all, there is nothing in the way of unions that could keep them from raising their demands to levels that absorb all “unearned” income). But it is obvious that the consumption of capital does not permanently raise the workers’ wages.
The etatist and social-liberal roads to higher wages of workers diverge. But neither leads to the goal. As social liberalism cannot possibly wish to halt or reduce capital formation, much less cause capital consumption, it finally faces the alternative: either capitalism or socialism. Tertium non datur (“There is no third road”).
The Concept and Crisis of Social Policy
All the economic policies of the last two generations are designed step by step to abolish private property in the means of production— if not in name, then in substance— and to replace the capitalist social order with a socialistic order. Decades ago Sidney Webb announced it in his Fabian Essays.49 As the pictures of the desired future social order varied with the individual branches of socialism, so did their opinions on the road by which the goal was to be reached. There are questions on which all branches could agree. In other questions great differences separated the camps, as, for instance, factory labor by married women, or protection of handcrafts from the competition of big business. But they all agreed on the rejection of the social ideal of liberalism. No matter how they differed from each other, they joined ranks in the fight against “Manchesterism.” In this point, at least, the champion Socialists of the Chair saw eye to eye with the champions of social liberalism.
For the movement toward a gradual replacement of capitalism by a socialistic or syndicalistic social order, the term “social policy” slowly gained acceptance. A precise definition of the term was never offered, as sharp conceptual definitions were never the concern of the Historical School. The use of the term “social policy” remained ambiguous. Only in recent years when pressed by economic critique did the social politicians attempt to define the term.
Sombart probably recognized the nature of social policy most clearly. “By social policy,” he wrote in 1897, “we understand those measures of economic policy that effect the preservation, promotion, or repression of certain economic systems.”50 Amonn rightly found many faults with this definition, but especially pointed out that measures should be characterized by their objectives, not by their effects within the framework of policy, and that social policy goes beyond the realm that usually is called “economic policy.”51 But it is decisive that Sombart saw a change in the economic order as the objective of social policy. Let us bear in mind that when he wrote this, Sombart was standing firmly on Marxian ground, which made him think of the introduction of socialism as the only conceivable social policy. We must admit that he correctly perceived the essential point. The only deficiency of his definition is his inclusion of all efforts toward a realization of the liberal program, efforts that were made at a time when, in the language of Marx, the bourgeoisie was still a revolutionary class. Similarly, Sombart expressly included the liberation of peasants from feudal servitude as an example of social policy. Many writers followed him in this respect. Again and again they sought to define the term “social policy” in such a way that it would include political measures other than those aiming at the realization of socialism.52
It makes little sense to deal further with the empty argument on the concept of social policy, an argument that just recently caught fire. It was touched off by the crisis that seized socialism and syndicalism of all varieties upon the victory of the Marxian Social Democrats in Germany.
Prussian etatism and its intellectual followers in other countries, had gone as far on the road to socialism as possible without too much visible damage to the economy and too great a reduction in the productivity of labor. No one whose vision is unclouded by party politics can deny that Prussia-Germany of the prewar era was more suited than any other country before or since to conduct socialistic experiments. The tradition of Prussian officialdom, the faith of all educated people in the calling of the state, the military-hierarchic classification of the population, its inclination to blindly obey the authorities, all provided the prerequisites for socialism given nowhere else. Never can there be men more suited for the management of a socialistic communal operation than the mayors of German cities or the directors of the Prussian railroad. They did everything possible to make communal enterprises work. If, in spite of these advantages the system failed, it proved conclusively that the system just cannot be realized.
Suddenly the Social Democrats came to power in Germany and Austria. For many decades they had announced time and again that their genuine socialism had nothing in common with the false socialism of the etatists, and that they would proceed completely differently from the bureaucrats and professors. Now was the time to demonstrate what they could do. But they could not come up with anything new except the term “socialization.” In 1918 and 1919, all political parties in Germany and Austria added the socialization of suitable industries to their programs. At that time no step on the way to pure socialism of the Marxian variety met serious resistance. Even so, what was realized did not exceed in direction or scope that which the Socialists of the Chair had recommended earlier, or in many cases had already tried. Only a few day-dreamers in Munich believed that the example of Lenin and Trotsky in agrarian Russia could be emulated in industrial Germany without causing an unprecedented crisis.
Socialism did not fail because of ideological resistance— the prevailing ideology is socialistic even today. It failed because of its unrealizability. As the general awareness grew that every step taking us away from the private property order always reduced labor’s productivity, and so brought want and misery, it became necessary not only to halt the advance to socialism, but even to repeal some of the socialistic measures already taken. Even the Soviets had to yield. They did not proceed with the socialization of land, but merely distributed the land to the rural population. In trade and commerce they replaced pure socialism with the “New Economic Policy.” However, the ideology did not participate in this retreat. It stubbornly clung to its pronouncements of decades ago, and sought to explain the failures of socialism in all possible ways except the right one—its basic unrealizability.
Only a few champions of socialism have realized that the failure of socialism was not coincidental, but inevitable. Some went even further and admitted that all social measures reduce productivity, consume capital and wealth, and are destructive. The renunciation of the ideals these men used to embrace is called in economic literature the crisis of social policy.53 In reality, it is much more: it is the great world crisis of destructionism—the policy that seeks to destroy the social order based on private property in the means of production.
The world can support teeming humanity in the manner in which it has been supported in recent decades only if men work capitalistically. Only capitalism can be expected to further raise the productivity of human labor. The fact that the vast majority of people adheres to an ideology that refuses to admit this, and therefore conducts policies that lead to a reduction of labor productivity and consumption of capital, is the essence of the great cultural crisis.
Max Weber and the Socialists of the Chair
The opposition that arose in Germany against the Socialists of the Chair generally started with an awareness that theoretical investigations of economic problems are essential. As economists, Dietzel, Julius Wolf, Ehrenberg, Pohle, Adolf Weber, Passow, and others rose against the Socialists of the Chair. On the other hand, historians raised objections against the manner in which Schmoller, Knapp, and his pupils sought to solve historical tasks. Equipped with the tools of their sciences, these critics approached the doctrines of the Socialists of the Chair from the outside. Of course the Socialists of the Chair, with their great prestige and important positions, made it difficult for the critics; but the encounter presented no problem of conscience to them. They either had never been under the spell of socialism, or had freed themselves from it without difficulty.
It was quite different with Max Weber. To the younger Max Weber, the ideas of Prussian etatism, the Socialism of the Chair, and evangelical social reform had meant everything. He had absorbed them before he had begun to deal scientifically with the problems of socialism. Religious, political, and ethical considerations had determined his position.
Max Weber’s university training was in law; his early scientific works dealt with legal history. He began as an unsalaried lecturer and became professor of law. His inclination was for history, not the historical research of particulars that is lost in details and overlooks the whole, but universal history, historical synthesis, and the philosophy of history.
To him, history was no goal in itself, but a means toward gaining more profound political insights. Economics was alien to him. He was appointed professor of economics without having dealt with this science before, which was a customary procedure at that time.54 It reflected the Empirical-Realistic School’s opinion on the nature of “social sciences” and on the scientific expertise of legal historians. Just before his untimely death Weber regretted that his knowledge of modern theoretical economics and the classical system was too limited. He mentioned his fear that time would not permit him to fill these regrettable gaps.
When he accepted the position, he was obliged to give lectures on those problems which the Socialists of the Chair considered the proper subject matter for university teaching. But Weber found no satisfaction in the prevailing doctrine. The jurist and historian in him rebelled against the manner in which the School treated legal and historical problems. This is why he began his pioneering methodological and epistemological investigations. It led him to the problems of materialistic philosophy of history, from which he then approached the religious-sociological tasks. He proceeded finally to a grandiose attempt at a system of social sciences.
But all these studies, step by step, led Max Weber away from the political and social ideals of his youth. He moved, for the first time, toward liberalism, rationalism, utilitarianism. It was a painful personal experience, not different from that of many other scholars breaking away from Christianity. Indeed, his faith and religion were Prussian etatism; breaking away from it was like desertion from hope, his own people, indeed, from European civilization.
As it became clear to him that the prevailing social ideology was untenable, and as he saw where it was bound to lead he began to see the future of the German nation and the other nations that carry European civilization. In a way, as the cauchemar des coalitions (“nightmare of coalitions”) deprived Bismarck of his sleep, so the recognition to which his studies led him gave Weber no rest. No matter how he clung to the hope that everything would work out in the end, a dark premonition told him again and again that a catastrophe was approaching. This awareness gnawed at his health, filled him with growing uneasiness after the outbreak of the World War, urged him on to activity that for a man unwanted by any of the political parties had to remain fruitless, and finally hastened his death.
From its beginning in Heidelberg, the life of Max Weber was an uninterrupted inner struggle against the doctrines of the Socialism of the Chair. But he did not fight this struggle to the end; he died before he succeeded in completely freeing himself from the spell of these doctrines. He died lonely, without intellectual heirs who could continue the fight he had to give up in death. To be sure, his name is praised, but the true substance of his work is not recognized, and that which was most important to him has found no disciples. Only opponents have recognized the dangers to their own ideology from the thoughts of Max Weber.55
The Failure of the Prevailing Ideology
In all variations and colors the ideas of socialism and syndicalism have lost their scientific moorings. Their champions have been unable to set forth another system more compatible with their teachings and thereby refute the charge of emptiness by the theoretical economists. Therefore, they had to deny fundamentally the posibility of theoretical knowledge in the field of social science and, especially, in economics. In their denial they were content with a few critical objections to the foundation of theoretical economics. But their methodological critique as well as their objections to various theories have proven to be utterly untenable. Nothing, absolutely nothing has remained of what half a century ago Schmoller, Brentano, and their friends used to proclaim as the new science. The fact that studies in economic history can be very instructive, and that they should be undertaken, had been known before, and had never been denied.
Even during the zenith of the Historical School theoretical economics did not remain idle. The birthday of modern subjectivist theory coincided with the foundation of the Association for Social Policy. Since then, economics and social policy have confronted each other. The social scientists do not even know the foundation of the theoretical system, and have taken no notice of the significant development of theoretical knowledge in recent decades. Wherever they sought to deal with it critically, they could not get beyond the old errors already fully dealt with by Menger and Böhm-Bawerk.
But all this has not weakened the socialistic and syndicalistic ideology. Today, it is swaying the minds of people more than ever before. The great political and economic events in recent years are seen almost exclusively from its viewpoint, though of course it has failed here also. What Cassau said about the ideology of proletarian socialism applies also to that of Socialism of the Chair: All experiences of the last decade “passed by the ideology without influencing it. Never did it have more opportunities for expansion, and scarcely ever has it been as sterile as during the debates on socialization.”56 The ideology is sterile, and yet it is reigning. Even in Great Britain and the United States, classical liberalism is losing ground every day. To be sure, there are characteristic differences between the teachings of German etatism and Marxism on the one hand, and the new doctrine of salvation in the United States on the other. The phraseology of the Americans is more carefully worded than that of Schmoller, Held, or Brentano. But the Americans’ aspirations basically concur with the doctrines of the Socialists of the Chair. They also share the mistaken belief that they are upholding the private property order.
When, by and large, socialism and syndicalism are in a stagnate state, when we notice some retreating steps on the road to socialism are taken, when thought is given to a limitation of labor union power, the credit can be given neither to the scientific perception of economics nor the prevailing sociology. For but a few dozen individuals all over the globe are cognizant of economics, and no statesman or politician cares about it. The social ideology even of those political parties that call themselves “middle class,” is totally socialistic, etatistic, syndicalistic. If, nevertheless, socialism and syndicalism are languishing, although the prevailing ideology is demanding further progress, it is solely due to the all-too-visible decline in labor productivity as a result of every restrictive measure. Swayed by the socialistic ideologies, everyone is searching for excuses for the failure, and not for the cause. Nevertheless, the net result has been greater caution in economic policy.
Politics does not dare introduce what the prevailing ideology is demanding. Taught by bitter experience, it subconsciously has lost confidence in the prevailing ideology. In this situation, no one, however, is giving thought to replacing the obviously useless ideology with a useful one. No help is expected from reason. Some are taking refuge in mysticism, others are setting their hopes on the coming of the “strong man”—the tyrant who will think for them and care for them.
1Zeitschrift für die Gesainte Staatswissenschaft [Journal for all the social sciences], vol. 81, 1926.
2Volkswirtschaftslehre der Gegenwart in Selbstdarstellung [Contemporary economics in an autobiography], edited by Dr. Felix Meiner, vol. I, Leipzig, 1924, p. 113.
3Die Entwicklung der deutschen Volkswirtschaftslehre im 19. Jahrhundert [The development of German economics during the ninteenth century], Leipzig, 1908, two volumes.
4Ibid., vol. I, p. viii.
5Bernhard, “Der Arbeitslohn” [Wages] in ibid., vol. I, XI, p. 11 et seq.
6Festgabe für Lujo Brentano: Die Wirtschaftswissenschaft nach dem Kriege [Economics after the war], Twenty-nine Contributions to the State of German and Foreign Research after the War; vol. I, Economic Ideologies; vol. II, The Situation in Research; edited by M.J. Bonn and M. Palyi, Munich and Leipzig, 1925. Below, I quote from these contributions, giving in the footnotes author, volume, and page number.
7Syndicalism as a social ideal must not be confused with syndicalism as tactics. The specific syndicalistic tactics (the action directe of the French syndicalists) may also serve other ideologies. For instance, they may be used toward the realization of socialism.
8Also in the restructuring of society by Othmar Spann, Der wahre Staat [The true state], Leipzig, 1921, P. 249. Cf. Honigheim, Romantische und religiös-mystisch verankerte Wirtschaftsgesinnungen [Romantic and religiously-mystically rooted economic opinions], vol. I, p. 264.
9See Philipp von Arnim, Ideen zu einer vollständigen Landwirtschaftlichen Buchhaltung [Ideas on complete agricultural accounting], 1805, quoted by Waltz, Vom Reinertrag in der Landwirtschaft [On the net return in agriculture], Stuttgart and Berlin, 1904, p. 21.
10Knapp, Die Landarbeiter in Knechtschaft und Freiheit [Agricultural workers in serfdom and freedom], 2nd ed., Leipzig, 1909, p. 86; now also in Einführung in einige Hauptfragen der Nationalökonomie [Introduction to a few principal questions of economics], Munich and Leipzig, 1925, p. 1922.
11Brentano, Ist das System Brentano zusaummengebrochen? [Has the Brentano system collapsed?], Berlin, 1918, p. 14 et seq.
12Herkner, “Socialpolitischer Liberalismus” [Social liberalism], vol. I, p. 41.
13Ibid., vol. I, p. 43.
14Ibid., p. 44.
15Ibid., p. 49.
16Zwiedineck-Südenhorst, “Zur Eigentums- und Produktionsverfassung” [On the organization of property and production], vol. II, p. 447.
17Herkner, vol. I, p. 49.
18Ibid., p. 39.
19Ibid., p. 47.
20Brentano, op. cit., p. 19.
21See Herkner, vol. I, p. 38; Wiese, “Gibt es noch Liberalismus?” [Is there still liberalism?], vol. I, p. 22.
22See Passow, Kapitalismus [Capitalism], Jena, 1918, p. 1 et seq.
23Ibid., p. 132 et seq.
24See my Gemeinwirtschaft, Jena, 1922, p. 110 et seq. [English-language edition: Socialism (London: Jonathan Cape, 1936), p. 111 et seq.]
25Wiese, op. cit., vol. I, p. 23.
27Ibid., p. 16.
28Moeller, “Zur Frage der ‘Objectivität’ des wirtschaftlichen Prinzips” [On the “objectivity” of economic principles], Archives for Social Science, vol. 47, p. 163.
29Zwiedineck-Südenhorst, op. cit., vol. II, p. 430 et seq.
30See Zwiedineck-Südenhorst, “Macht oder ökonomisches Gesetz” [Control or economic law], Schmoller’s Yearbook, 49th year, p. 273-92.
31Bagehot, “The Postulates of English Political Economy,” in Works, edited by Russell Barrington, London, 1915, vol. VII, p. 100-104.
32Löwe, “Der gegenwärtige Stand der Konjunkturforschung in Deutschland” [The present state of business cycle research in Germany], vol. II, p. 365 et seq.
33Bonn, “Geleitwort: Lujo Brentano als Wirtschaftspolitiker” [Preface: Lujo Brentano as economic politician], vol. I, p. 4.
34See Brentano, Agrarpolitik [Agricultural policy], Stuttgart, 1897, pp. 60 et seq., 83 et seq.
35Brentano, Konkrete Grundbedingungen der Volkswirtschaft [Concrete conditions of economy], Leipzig, 1924, p. 113.
36V. Totomianz, Geschichte der Nationalökonomie und des Socialismus [History of economics and socialism], Jena, 1925, p. 152. Even if we disregard this critique of Böhm-Bawerk, the Totomianz effort is wholly unsatisfactory and mistaken. He states, for instance, on p. 146: “While Menger’s achievement mainly was the development of a new methodology, the two other representatives of the Austrian School, Böhm-Bawerk and Wieser, built a sagacious psychological value theory.” We must conclude from this statement that Menger contributed less to the development of the new value theory than Böhm-Bawerk and Wieser, which is not at all correct. Totomianz introduces his discussion of the marginal utility theory with the following statement: “The economy consists of economic goods. These goods relate in a certain way to human well-being. This relationship is expressed in two different grades or stages: the lower stage and the higher stage. We are dealing with the higher stage when the economic good is not only useful, but also necessary for well-being, so that its possession or loss entails a loss of consumption or enjoyment.” His discussion of other economists is not better. As I do not read Russian, I cannot determine whether this nonsense must be charged to the Russian original or to the German translation.
37Ibid., p. 7 et seq.
38See Herkner, Die Geschichte der Nationalökonomie, Festschrift für Lujo Brentano zum siebzigsten Geburtstag [History of economics, Festschrift for Lujo Brentano in honor of his seventieth birthday], Munich and Leipzig, 1916, p. 223-35.
39Emphasis added. Brentano, “Über den grundherrlichen Charakter des hausindustriellen Leinengewerbes in Schlesien” [On the manorial character of the linen home industry in Silesia], Journal for Social and Economic History, vol. I, 1893, p. 319 et seq.
40Ibid., p. 322.
41Marx did not recognize that by adopting the Banking Principle he acknowledged the foundation on which Proudhon’s exchange-bank ideas were based. Marx had no clear conception of banking; in many cases he uncritically followed the Banking Theorists. How little he understood of the problems is visible in each of the few remarks he added to the excerpts, as, for instance, on the Catholic character of the monetary system and the Protestant character of the credit system (Das Kapital, vol. III, pt. II, 3rd ed., Hamburg, 1911, p. 132). Even more characteristic is another remark that connects with the basic principle of the Banking Principle that “the emission of a certain quantity of one-pound notes replaces an equal quantity of sovereigns.” According to Marx, “a sleight of hand well known to all banks!” (Ibid., vol. I, 7th ed., Hamburg, 1914, p. 84.) What is the purpose of this “sleight of hand”? Banks were not interested in attracting sovereigns through the issue of notes. They were interested only in granting more credits through the issue of more notes and thereby raising their interest income. This “sleight of hand” was well known to banks, but not that mentioned by Marx.
42Palyi, “Ungelöste Fragen der Geldtheorie” [Unsolved questions of monetary theory], vol. II, p. 514.
43Only subjects have selfish “special interests” and do not know what is good for them. Government officials and “the sovereign” are always unselfish and wise.
44See Pohle, Die gegenwärtige Krisis in der deutschen Volkswirtschaftslehre [The contemporary crisis in German economics], 2nd ed., Leipzig, 1921, p. 29 et sea.
45See Adolf Weber, Der Kampf zwischen Kapital und Arbeit [The struggle between capital and labor], 2nd ed., Tubingen, 1920, p. 411 et seq.
46Böhm-Bawerk, “Macht oder ökonomisches Gesetz” [Control or economic law], Collected Works, edited by Weiss, Vienna, 1924, p. 230 et seq. [English-language edition: Shorter Classics of Böhm-Bawerk (South Holland, Ill.: Libertarian Press, 1962), vol. I, p. 139 et seq.]
47Cassau, Die sozialistische Ideenwelt vor und nach dem Kriege [The socialistic world of ideas before and after the war], vol. I, p. 136.
48See Weber, op. cit., p. 405.
49Sidney Webb, Die historische Entwicklung [Historical development], edited by Grunwald, Leipzig, 1897, p. 44.
50Sombart, “Ideale der Sozialpolitik” [Ideals of social policy], Archives for Social Legislation and Statistics, vol. X, p. 8 et seq.
51See Amonn, “Der Begriff der Sozialpolitik” [The concept of social policy], Schmoller’s Yearbook, 48th year, 1924, p. 160 et seq.
52It is characteristic that the Historical School, which otherwise knows only of historical categories, seeks to define the concept of social policy so that they may speak also of old Babylonian and Aztecan social policy.
53See Pribram, “Die Wandlungen des Begriffes der Sozialpolitik” [The changes in the concept of social policy], vol. II, p. 249.
54Marianne Weber recalls of her husband’s time in Freiburg: “He reports in joking exaggeration that he is listening to great economic lectures, given by himself.” Marianne Weber, Max Weber, Ein Lebensbild [Max Weber: a biography], Tübingen, 1926, p. 213.
55See Wilbrandt, “Kritisches zu Max Webers Soziologie der Wirtschaft” [On the critique of Weber’s economic sociology], Cologne Quarterly for Sociology, 5th year, p. 171 et seq.; Spann, “Bemerkungen zu Max Webers Sociologie” [Remarks on Max Weber’s sociology], Zeitschrift für Volkswirtschaft und Sozialpolitik [Journal for economics and social policy], new series, vol. III, p. 761 et seq.
56Cassau, op. cit., vol. I, p. 152.