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Mises and the Renaissance of Austrian Economics

December 10, 2004

Mises was a towering figure: he represented uncompromising intellectual integrity, the courageous pursuit of ideas regardless of the crop of unpopularity which he well knew he would reap. His scholarship was extraordinary; his wisdom legendary; the profundity of his insights into social processes has probably never been surpassed.

Much has been written about his passionate championship of individual liberty; it is only natural that exponents of the several different streams of social philosophy to whom individual liberty is of importance are each eager to recognize Mises as a source for their respective positions on the ideological spectrum. I, too, wish to draw attention to Mises the proponent of individual liberty, but I wish to do so in a context for which matters of ideological emphasis are, nonetheless, wholly irrelevant. Let me explain.

A number of writers have, on occasion, claimed to have perceived a contradiction in Mises. On the one hand Mises was an outspoken exponent of the Weberian view that economic science can and must be wertfrei (value free). Economic science can and must be pursued in a manner that carefully distinguishes between the personal opinions and value-judgements of the economist, and the objective, interpersonally valid conclusions of science. On the other hand Mises was the impassioned defender of the free-market, full of scorn for the pretensions of central planners and interventionists to replace or supplement the spontaneous market with contrived arrangements by the state. It has seemed difficult, for a number of writers, to reconcile these different aspects of Mises. Yet, to anyone who heard Mises lecture on these topics, there can be no doubts concerning his position; there is certainly no contradiction in that position.

For Mises economic science is very definitely wertfrei.The demonstrations that wage controls tend to produce specific consequences, that rent controls tend to produce specific consequences, or that foreign exchange controls tend to produce specific consequences—these are not matters of opinion, they are the conclusions of science. Whether one approves or disapproves of these consequences, whether the fulfillment of these lessons of science be welcomed or feared, affects not in the slightest the truth of the proportions which assert these tendencies. Yet for Mises economics does not operate in an ivy-clad vacuum; it is impossible to ignore the fact that these consequences do not in general coincide with the goals which the proponents of controls purport to cherish. From the perspective of these goals, then, these policies are simply wrong and muddleheaded policies.

No doubt, in articulating these judgments it was difficult for Mises altogether to conceal his own passionate sense of human tragedy entailed by the pursuit of such bad policies—but what made these policies bad policies in the view of Misesian applied economic science was not Mises’s own opinions, but the opinions of those who wrong-headedly sought to promote their announced goals by policies that tend to produce consequences precisely the opposite of these goals.

Now, there can be no doubt that for Mises, the value of the value-free pursuit of economic truth, was extremely high. For Mises the systematic search for economic truths is an activity that is eminently worthy of human endeavor. This sense of worth had its source in Mises’s passionate belief in human liberty and the dignity of the individual. For Mises the preservation of a society in which these values can find expression depends, in the last resort, upon the recognition of economic truths. But, paradoxically enough, Mises was convinced that these deeply held values can be promoted, through the advancement of social science, only if scientific activity is itself conducted as an austerely dispassionate undertaking. If economic science is to attain a credibility beyond that achieved by crass propaganda, it must earn that credibility by impartial concern for truth. The values to be achieved by economics require value-freedom in economic investigation.

How tragic, then, it must have been for Mises in the latter half of his life to observe the direction taken by economics. So far from economic science demonstrating those truths upon which, for Mises, the very future of civilized society depends, we had an atmosphere of professional opinion in which the prestige of science was deployed to deride the very possibility of spontaneous market solutions to social problems. In virtually every area in economics, it seemed to turn out, chaos and misery were shown to be bound to ensue unless market forces are curbed, redirected or superseded by the firm, benevolent hand of an all-wise government.

For Mises these sadly mistaken conclusions meant a two-fold tragedy. First, they represented serious error in the understanding of economic phenomena; second, they constituted a tragic perversion of science for ends diametrically opposed to those which, for Mises, confer worth and beneficent purpose upon the distinterested study of economics. The possibility that today, as we mark the one-hundredth birthday of our teacher, the climate of professional opinion may to some extent be changing, offers us an opportunity to appraise the place of Mises within the broader perspective of the history of economic understanding.

Let us briefly recount part of the story of Austrian economics.

When Carl Menger published his Grundsatze in 1871, the subjectivist revolution that he initiated against classical economic theory was audacious and sweeping. This revolution was, as is well-known, paralleled by comparable intellectual currents in England and Lausanne. Jevons and Walras are, along with Menger, generally credited with focusing attention on the critical role played by subjectivist, marginal-utility-inspired forces underlying the demand side of the market. By the eve of World War I these new developments had become the established orthodoxy: Alfred Marshall in England and John Bates Clark in the United States provided the core of what is still today the standard body of microeconomics.

Despite some recognized differences of emphasis separating the various major schools of theoretical economics, it was generally held that what they shared in common (especially as contrasted both with the classical theorists and with the anti-theorists of the younger Historical School) far outweighed what distinguished them from one another. It seems fair to say that Mises, as well as other Austrian economists of the first half of this century, shared in this sense of fellow-feeling with their colleagues of other schools. For Mises the approving label "modern economics" applied to all the post-1870 currents of theoretical economics. It was this which appears responsible for the opinion, accepted at least in part by Mises, Hayek and other Austrian economists of the time, that what was valuable in the earlier Austrian tradition had become benignly absorbed into the mainstream of twentieth century economics by about 1931, sixty years after the appearance of Menger’s Grundsätze, and at the midpoint of the century which we are today celebrating.

Yet I believe it must be argued that this view (still maintained in standard histories of economic thought) has, since 1931, been revealed to have been profoundly mistaken. The course of mainstream economics during the past fifty years surely establishes beyond question (a) that what separated the early Austrians from their fellow economists elsewhere was far more significant than had been appreciated — even by Austrians themselves; (b) that it was the complete failure of these uniquely "Austrian" elements to have been meaningfully accepted into mainstream economics that has been responsible for those massive developments in standard economics since the Thirties that cast so depressing a shadow over Mises’s later years.

The historic contribution of Mises, I submit, was represented not so much, perhaps, by the magisterial works that he produced in 1912, or 1922, in 1933, or 1940, — as by his courageous, lonely vigil during the arid decades of the Forties, Fifties and Sixties, a vigil marked by a stream of unpopular books and papers, and by patient, unperturbed teaching and lecturing to whomever he was able to influence. It was this painful, unappreciated work which kept Austrian ideas alive during the years of eclipse. It is surely only as a result of this work that most of us who are here in Hillsdale today, are indeed here. And it is as a result of this work, I have reason to hope, that we can look to a resurgence of awareness on the part of economists generally, of the fundamental Austrian insights, and of their crucial importance for economic understanding.

Let us recall that oft-quoted sentence of Hayek’s in which he suggested that “it is probably no exaggeration to say that every important advance in economic theory during the last hundred years was a further step in the consistent application of subjectivism.” (The Counter-Revolution of Science, Free Press, 1955, p. 31). The legacy of Carl Menger was one to which subjectivism was the very essence; the direction in which the Austrian tradition pointed, was one leading almost inescapably to more and more consistent application of the subjectivist insights. And it was, to cite Hayek once again, Mises who, moving ahead of his colleagues, carried out this development most consistently (ibid., p. 210).

What I wish to suggest here is that in the first half century of Austrian economics the members of the school were themselves not fully aware of how deeply their subjectivism set them apart from their non-Austrian fellow-economists. One is not always aware of the air one breathes. It was perhaps not until Mises (in his Grundprobleme of 1933) and Hayek (in Individualism and Economic Order and in the Counter-Revolution of Sciences) had articulated some of the more radical implications of the subjectivist approach, that it was possible to realize the extent of the gulf that separated the Austrian theory of the market process from the neo-Walrasian theory of market equilibrium. Austrian economics may have shared much in common with the economics of Alfred Marshall and of Leon Walras.

But surely one crucial difference stands out. The latter schools, we are now in a position to see, pointed to a natural line of development that led to a positivist, instrumentalist view of economic theory, a view for which human purposefulness, error, surprise and subjectivism of expectations are matters of embarrassment. It was the Austrian tradition, on the other hand that pointed in the direction of the consistent application of subjectivism.

The realization that economic science, praxeologically conceived, fits not at all into the standard paradigms of the philosophers of the natural sciences, is a lesson still not fully learned. Paradoxically enough, it was the eclipse of Austrian economics during the mid-twentieth century that has helped us glimpse the far-reaching truths contained in this lesson. During an era in which methodological individualism was forgotten in mainstream economics in which scope for error or for entrepreneurial discovery was at least implicitly denied, in which clarity of theoretical insight was carelessly bartered for a pottage of econometric techniques—it was during such an era that Austrian economists came to appreciate the character of a praxeologically conceived science of human action.

So that we have before us a most interesting episode in the history of ideas. A body of work, a unique approach to its field of study, decisively loses scientific popularity. From the perspective of the newly regnant orthodoxy this now fashionable approach is in fact perceived as a crude, introspective, discredited, almost pre-scientific line of work that has come to be replaced by sophisticated mathematical techniques, and hard-headed empirical and econometric realism. And yet that body of work not only refuses to die. On the contrary, its very unfashionability generates a hitherto-absent degree of self-awareness—and plants the seeds for its renewed growth and revitalization.

Thus it was that, during the Forties, Fifties and Sixties Austrian economics declined to permit itself to be relegated to the dustbin of intellectual history. Instead Austrian economics identified itself with unprecedented clarity not as a primitive approach displaced by intellectual advance, but rather as a unique set of ideas the subtlety of which had hitherto escaped attention. Sooner or later the richness of these ideas, and the depth of understanding they convey, would come to be appreciated. If there is hope today for a resurgence in Austrian economics, then the unsung contributions of Mises during the decades of eclipse indeed assume historic proportions.

There is, in fact, considerable room for hope. At the very time when mainstream orthodoxy has never been more technically sophisticated, more sensitive to the complexities of social interaction — there is deep unrest in the economics profession. Faculty members and graduate students perceive a yawning gulf between the smoothly-oiled models on their blackboards and the seething reality in the streets around them. Self-criticism and bleak methodological introspection among economists — even among the high priests of contemporary orthodoxy — are becoming almost standard features in the academic environment. In this climate Misesian ideas are finding, once again, attentive ears in the economics profession. It is exciting work to nurture those hopeful signs of Austrian resurgence. I am, for example, most pleased to report that this month my own New York University will conduct a scholarly conference in honor of the Mises centenary. During this conference some twenty economists from all over the U.S. and Europe will gather in New York to discuss new work now being written in the light of Mises’s own contributions.

It is impossible, of course, to predict precisely where this kind of intellectual development will take us. But it is surely clear that the rekindled interest in the ideas of subjectivism, the replacement of a positivistic economic science by one sensitive to the methodological uniqueness that derives from attention to human purposefulness and to human error, are developments which the economics profession can no longer in good conscience refuse to come to grips with. Out of this intellectual ferment appears to be emerging a sympathetic reappraisal of the ideas of earlier Austrian economics (whether in the area of capital theory, of competition theory, or of monetary theory) that were ignominiously discarded from the mainstream in years past.

Here, surely, Mises’s historic role comes into focus in a bright new light. Mises was not merely the intellectual leader of the Austrian School during the central decades of the twentieth century. He was, surely more importantly, responsible for rescuing subjectivism from an otherwise certain death in the chokingly hostile environment of post-World War II positivism. Looking to the future, I would submit, it is our obligation to see to it that indeed Mises will be remembered in the long sweep of the history of economic thought as the pivotal figure responsible for a late twentieth century rediscovery of the fruitfulness and the subtlety of subjectivist economics. In this rediscovery process, the Misesian commitment to strict ideological neutrality, to an almost puritanical wertfreiheit, must never be relaxed. And yet, one senses, it is precisely the truths that such a wertfrei pursuit of praxeology can reveal, that would be likely to gladden the heart of Mises the devoted adherent of the ideals of Western civilization, the passionate lover of human liberty.


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