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Why I Am an Austrian

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06/15/2011Jonathan M. Finegold Catalan

I recently came across "Putting Economics in Its Place," an article penned by Robert L. Heilbroner, an avowedly Schumpeter-influenced socialist.1 Heilbroner's main purpose is to argue that the explanatory scope of economics has been greatly exaggerated. He contends that economics does not provide a universal, underlying science of society. He exemplifies this theme by pointing to the — alleged — failure of the economics profession to predict and explain the sudden collapse of the Soviet Union.

But while I read Heilbroner's biting illustration of the deficiencies he perceived in economic science, I felt only reinforced in my Austrian conviction. That is, I remain fascinated with the fact that none of Heilbroner's disapprovals seem to apply to the theoretical framework of the Austrian School.

Not only does the Austrian School not suffer from the weaknesses Heilbroner charges economics with having, but it was the Austrians who settled many of the issues Heilbroner suggests still mar the science. No less important, in reading his article through an Austrian lens, one realizes just how complete the Austrian framework is. Heilbroner, for instance, rehashes discussion on the scope and nature of the science — this discussion should have been settled with the contributions of the likes of Lionel Robbins and Ludwig von Mises.2 Finally, an analytical union between Heilbroner's criticisms and his own flawed conclusions buries non-Austrian economic frameworks, and as a result elevates Austrian theory above its opposition. Had Heilbroner possessed a better grasp of the many Austrian contributions to the debate, the conclusions he drew would have been considerably different.3

Because Heilbroner's central thesis revolves around his views on the capacity and quality of economic science, I must briefly discuss the Austrian contribution to this fundamental topic. By doing as much, I hope to illustrate why the Austrian School is so much more radically thorough than any of the available alternative frameworks.

Heilbroner's central assertion is that economics can only describe the capitalist system, and thus has nothing to offer in regards to describing noncapitalist orders, such as prehistoric and command societies. This thesis is a corollary of his belief that what defines economics is a specific technique by which man accomplishes sought ends, namely the mixture of labor and "the materials and forces of nature."4 From this, one can infer that Heilbroner believes that the techniques that man may employ in seeking ends in a precapitalist society, a command society, and a capitalist society are different.

But the Austrians show us just how utterly absurd Heilbroner's position is. Society is not shaped by the techniques employed by humanity; rather, the techniques are fashioned by the underlying nature of society. Indeed, the entire purpose of economization is to organize means and ends as a method of dealing with the fundamental scarcity that characterizes society — if it were not for this scarcity, there would be no purpose for economization. The nature of this scarcity is no different whether a society is a precapitalist, capitalist, or command one; the economization technique employed is the same across the board. Indeed, economization is the technique! There is no alternative, and attempts to plan an alternative can only end in failure.5

As far as the scope of economics is concerned, Heilbroner is correct, inasmuch as economics deals with phenomena related to the technique of economization. But if economization is a natural characteristic of every society beset by scarcity, then it follows that the scope of economics encompasses all human action. And it follows that economics does have something to say regarding what Heilbroner calls "command societies," and in fact Ludwig von Mises and Friedrich von Hayek spent much of their careers elucidating just what implications economic theory has for the viability of socialism.6

What makes Heilbroner's conclusions all the more incredible — and I can only mean this negatively — is that he is well aware of Mises's and Hayek's contributions, just as he is of the entire socialist-calculation debate.7 Furthermore, he expresses agreement with Oskar Lange's rebuttals, which conceded to Mises the point of the necessity to economize scarce resources.8 If even command societies are distinguished by a scarcity of goods, and thus even command societies require a means of economization, then how can Heilbroner argue that the techniques employed by the individuals who make up such a society are different from those used under capitalism? Heilbroner writes as if the very natures of the underlying societies were different. But even Lange admits that socialism seeks to replace the natural method of economization with central planning. By its very definition, socialism is unnatural.

What is important is that Heilbroner's thesis collapses when we consider the society-wide scarcity of means. And it is the Austrian School that best brings to our attention the very facts to which Heilbroner is seemingly oblivious.

"To Austrians, economics is not a medley of generalizations based on empirical observation; economics is an integrated theoretical structure."

It is pertinent to highlight one other aspect of Heilbroner's analysis of economics' place in the social sciences. There comes a point in his examination where Heilbroner claims that economic concepts do not enjoy "an inviolable causal basis, comparable to Newtonian physics."9 That Heilbroner comes to this conclusion is intriguing, given that one of his greatest influences was Adolph Lowe, who held the view that traditional economic theory had to be replaced by "laws and rules which permit us to predict what means are suitable for the attainment of a given end."10

Heilbroner's rationale is surprisingly Misesian, in that he recognizes the individual as the smallest whole in the economic system. He holds that economic "generalizations" are not subject to causality, because "the relation between social stimulus and response always contains the semi-indeterminate elements of recognition, assessment, and response."11 Perhaps Heilbroner's rejection of economic causality stems from a dismissal of Lowe's vision for a new framework — How can we establish rules and laws that predict what means are suitable for the attainment of a given end if, ultimately, such an endeavor is necessarily reliant on subjective appraisals by the individual?

Now we can fully appreciate the splendor of the Austrian framework. In many ways, the school of thought that was birthed in 1871 with the publication of Carl Menger's Principles of Economics was more radical and more revolutionary than its sister marginalist movements. It is true that, generally speaking, the entire marginalist revolution represents an overthrow of the classical school's erroneous objective theories of value. However, the degree to which the subjectivist movement sought to replace the theories of the classical school widely differs between separate branches. The Mengerian framework, in this sense, was the most revolutionary and groundbreaking. It sought to essentially reinvent economic science.

The basis of this new framework finds itself in exactly what Heilbroner sought to reject: causality. But it is not a causality that deals with what means should be economized toward what ends. Rather, it is a causality that explains what can logically be expected to happen if an individual does A instead of B. It is a recognition of the fact that economic occurrences are subject to cause and effect, and that these phenomena are all a consequence of economizing man.12 The utter brilliance of the Austrian framework is that, given this logical, deductive, causal connection, all Austrian economic theory is in this sense unified. To Austrians, economics is not a medley of generalizations based on empirical observation; economics is an integrated theoretical structure.

In "Putting Economics in Its Place," Heilbroner sought to investigate just how important economics was when compared to its sister social sciences in its application toward explaining society. Heilbroner's argument came up short, because his economic framework was insufficient for the task he sought to tackle. The Austrian dynamic, causal model is the appropriate one.

If we agree that the fundamental economic insight revolves around economizing man or, more accurately, purposeful human action, and that the development of society has been a function of human action, then the role of economics in explaining social phenomena is greater than Heilbroner is willing to admit. Indeed, it is only through economics that we can fully understand how resources are coordinated in a market — the market being society — to achieve what humanity has been able to achieve thus far.

Articles like Heilbroner's "Putting Economics in Its Place" remind me of why I am an Austrian. Those who can properly be considered Austrians are at the forefront of economic — more accurately, praxeological — science. Everybody else, with time, will come to us.

  • 1. Robert L. Heilbroner, "Putting Economics in Its Place," Social Research 69, no. 4 (1995).
  • 2. Lionel Robbins, An Essay on the Nature and Significance of Economic Science (London, United Kingdom: MacMillan & Co., Limited, 1945); Ludwig von Mises, Epistemological Problems of Economic Science (Auburn, Alabama: Ludwig von Mises Institute, 2003 [1933]); Mises, Human Action (Auburn, Alabama: Ludwig von Mises Institute, 1998 [1949]); Mises, Theory & History (Auburn, Alabama: Ludwig von Mises Institute, 2007 [1957]); Mises, The Ultimate Foundation of Economic Science (Princeton, New Jersey: D. Van Nostrand Company, Inc., 1962); Israel M. Kirzner, The Economic Point of View (Indianapolis, Indiana: Liberty Fund, 2009 [1960]).
  • 3. As will be clarified below, I do not mean to suggest that Robert Heilbroner was ignorant or unaware of the Austrian School and its many insights. As a socialist, Heilbroner was well versed in the economic calculation debate that took place principally between 1920 and 1940. Robert L. Heilbroner, "Analysis and Vision in the History of Modern Economic Thought," Journal of Economic Literature 28, No. 3 (1990).
  • 4. Heilbroner 1995, p. 884.
  • 5. Carl Menger, Principles of Economics (Auburn, Alabama: Ludwig von Mises Institute, 2007 [1871]), pp. 94–109. Menger's insight is pivotal, as it is Menger who originally makes the case that a difference in technique can only come about if there is a difference in the fundamental aspects of society, namely whether there exists scarcity or general superabundance. If there is superabundance then there is no need to economize, and therefore society is de facto socialist. However, in the presence of scarcity, society is necessarily capitalist.
  • 6. Ludwig von Mises, Economic Calculation in the Socialist Commonwealth; Mises, Socialism: An Economic and Sociological Analysis (Auburn, Alabama: Ludwig von Mises Institute, 2009 [1951]); Friedrich A. Hayek, Socialism and War: Essays, Documents, Reviews (Indianapolis, Indiana: Liberty Fund, 1997).
  • 7. Heilbroner 1990, pp. 1100–1101.
  • 8. Oskar Lange, "On the Economic Possibility of Socialism: Part One," The Review of Economic Studies 4, no. 1 (1936); Lange, "On the Economic Possibility of Socialism: Part Two," The Review of Economic Studies 4, no. 2 (1937). As an interesting sidenote, Heilbroner categorizes Lange's rebuttal to Mises and Hayek's original charges against socialism as "unanswerable." Lange's solution to Mises's problem was a trial-and-error pricing system controlled by a planning board. To Lange this was a reasonable alternative to the market's pricing process, since the planning board's pricing ability was clouded by the same uncertainty as the entrepreneur's. In a later footnote, Heilbroner cites Hayek's response to Lange — the troubles that constantly shifting preferences bring the trial and error process of price setting — and recalls that, despite various promises to do so, Lange never published a rejoinder. How Heilbroner can describe a theory as "unanswerable" when the very author cannot respond to criticism is beyond sense. Heilbroner 1990, p. 1111, fn. 15.
  • 9. Heilbroner 1995, p. 891.
  • 10. Lall Ramrattan and Michael Szenberg, "A Review of Heilbroner's Contributions, In Memoriam (1919–2005)," The American Economist 49, no. 2 (2005), p. 16.
  • 11. Heilbroner 1995, p. 891.
  • 12. At this point, it is important to distinguish between economizing man and rational man, with the latter being the most appropriate term (where rational is defined as purposeful). While making this distinction in the essay would introduce a greater degree of terminological exactitude, "economizing man" is used here as a synthesis of the two for the purpose of simplification. On the differences, see Kirzner 2009.

Contact Jonathan M. Finegold Catalan

Jonathan M. Finegold Catalán writes from San Diego and studies political science and economics.