Classical Liberalism and the Austrian School

 

2	Liberalism: True and False

Introduction

In past decades, an immense amount of scholarly effort was devoted to the history of socialism, especially in its Marxist versions. Even the minutiae of socialist doctrine and agitation were examined, over and over again, in mind-numbing detail, and particular branches of the field, like “Marxist humanism,” became minor academic industries. Such an imbalance in the allocation of scholarly resources would not perhaps have been irrational if one accepted the view—widespread among intellectuals of the time—that socialism was the predestined “radiant future of all mankind.”

More recently, a change of focus has become evident. With the frustration of the traditional socialist project in the West and the failure and then collapse of “real existing” socialist regimes, it seems to have dawned on the scholarly world that more attention should be paid to the ideological foundations of our own civilization. Thus, liberalism—which Pierre Manent (1984: 9) rightly calls “the basso continuo of modern politics, of the politics of Europe and the West for about the past three centuries”—has increasingly become the subject of study, though still to a relatively modest degree, considering its intrinsic importance.

As yet no serious effort has been made to provide an overall account of the history of liberalism comparable to the highly praised, and deeply flawed, work of Guido de Ruggiero (1981), which, in any case, was limited to Europe, or, rather, to Britain, France, Germany, and Italy.1 Such an account is very much needed and will doubtless be someday essayed. The remarks that follow may be regarded as prolegomena to such a general treatment of liberalism. They also represent an effort to advance the cause of theoretical coherence in an area of intellectual history that is increasingly recognized as vital.

Conceptual Mayhem

Understandably enough, the current disfavor into which socialism has fallen has spurred what Raimondo Cubeddu (1997: 138) refers to as “the frenzy to proclaim oneself a liberal.” Many writers today have recourse to the stratagem of “inventing for oneself a ‘liberalism’ according to one’s own tastes” and passing it off as an “evolution” from past ideas. “The superabundance of liberalisms,” Cubeddu warns, “like that of money, ends up by debasing everything and emptying everything of meaning.”2

In truth, a survey of the literature on liberalism reveals a condition of conceptual mayhem. One root cause of this is the frequent attempt to accommodate all important political groupings that have called themselves “liberal.” This is an approach favored by some British scholars in particular, in whose conception of liberalism the doings and sayings of the British Liberal Party of the twentieth century weigh mightily (e.g., Eccleshall 1986; Vincent 1988).

There is no doubt that after around 1900 the Liberal Party in Britain veered increasingly in a statist direction. In the United States a similar transformation took place within the Democratic Party—once “the party of Jefferson and Jackson”—at a somewhat later date. But such shifts, evident also in Continental parties that kept the liberal name, are easily explained by the dynamics of democratic electoral politics.

Faced with the competition of collectivist ideas, liberal parties produced a new breed of “political entrepreneurs,” men skilled at mobilizing “rent-seeking” constituencies, i.e., those who use the state to enhance their economic position. In order to gain power, these leaders revised the liberal program to the point where it was “practically indistinguishable from democratic and social-reformist ideas, ending up by accepting the notion of the state as an instrument for redesigning society to produce particular ends.” (Cubeddu 1997: 26)3

If one holds that the meaning of liberal must be modified because of ideological shifts within the British Liberal Party (or the Democratic Party in the United States), then due consideration must also be given to the National Liberals of Imperial Germany. They—as well as David Lloyd George and John Maynard Keynes—would have a claim to be situated in the same ideological category as, say, Richard Cobden, John Bright, and Herbert Spencer. Yet the National Liberals supported, among other measures: the Kulturkampf against the Catholic Church and the anti-socialist laws; Bismarck’s abandonment of free trade and his introduction of the welfare state; the forcible Germanization of the Poles; colonial expansion and Weltpolitik; and the military and especially naval buildup under Wilhelm II (Klein-Hattingen 1912; Raico 1999: 86–151, and passim). Actually, if one simply went by party labels, the National Liberals would have more of a right to the title liberal than the authentically liberal German Progressives and Freisinn, whom they opposed, and the question of whether the National Liberals betrayed genuine liberalism in Germany could not even be raised.

A similar difficulty is presented by the case of Friedrich Naumann, regarded by many nowadays as the exemplary German liberal leader of the early twentieth century. Naumann’s views paralleled those of the National Liberals in their later phase. He was a social imperialist par excellence, distinguishing himself by the frenzy of his campaign for colonies, a mighty navy, and the coming, yearned for war with England, until the emerging “constellation of forces”—i.e., the formation of the powerful Triple Entente of Britain, Russia, and France—revealed the fateful error of his cherished Weltpolitik (Raico 1999: 219–61; see also the essay on “Eugen Richter and the End of German Liberalism” in the present volume).4 Must the definition and understanding of liberalism be stretched to include this “exemplary German liberal”? What, aside from standard Anglo-American intellectual parochialism, would stand in the way?

It is evident that mere self-description by politicians or political intellectuals cannot be decisive on this issue (Vierhaus 1982: 742). That Hitler called himself a kind of socialist, a National Socialist, creates no presumption that he must somehow be fitted into a history of socialism.5

A few authors have despaired of finding any common characteristics underlying the “liberalisms” of different national groups or even individual decades of modern history, though they continue to write as if there was something linking them (e.g., Wadl 1987: 13).6 Most commentators, however, have attempted some demarcation of the concept, often through a listing of traits or of model figures.

In The Liberal Imagination, the New York literary critic Lionel Trilling characterized liberalism as, among other things, “a belief in planning and international cooperation, especially where [Soviet] Russia is in question” (cited in Cranston 1967a: 460). Somewhat more plausibly, John Gray views liberalism as individualist, egalitarian, universalist, and meliorist, and goes on to distinguish equally valid “separate branches of a common [liberal] lineage” (1986: x–xi). Two libertarian philosophers, Douglas J. Den Uyl and Stuart D. Warner, maintain that the essential traits are liberty, the rule of law, representative government, and faith in progress (1987: 271). Gray and Den Uyl and Warner also furnish lists of “clear-cut,” “unquestionable” liberals, which include, besides Locke, Kant, Herbert Spencer, and F.A. Hayek, thinkers like Keynes, Karl Popper, and John Rawls.

Yet such rosters leave the concept of liberalism so impoverished as to be useless. Canvassing the views of, say, Kant, Spencer, Popper, and Rawls yields no consensus on crucial issues, for instance, the welfare state or democracy (Ryan 1993: 291). It is highly significant that an unambiguous belief in private property is absent from both Gray’s and Den Uyl and Warner’s enumeration of essential traits.7

Private property, in fact, is and has always been the chief bone of contention in the debate. In recent years, with the emergence of a revitalized movement stressing property and the free market, a number of commentators have experienced acute embarrassment. While they feel they must take notice of this movement and occasionally concede that it may be a form of liberalism, they insist at the same time that it is conservative.8

Helio Jaguaribe, evidently a star of Brazilian political science, describes Hayek, Milton Friedman, and Ludwig von Mises (identified as the author of “the libel Socialism”) as “extremely conservative” (1996: 31).9 David Spitz likewise refers to the three thinkers as “conservatives,” though what he could understand of their views is unclear, considering that he believes that Herbert Spencer was their “patron saint” (1982: 204, 206). A rather droll example of this definitional gambit is provided by the sociologist John A. Hall (1987: 37), who complains of “those modern conservative thinkers who confusingly [sic] call themselves liberals”—such as Milton Friedman.10

Nowhere is Max Weber’s stricture more pertinent:

The use of the undifferentiated collective concepts of everyday speech is always a cloak for confusion of thought and action. It is, indeed, very often an instrument of specious and fraudulent procedures. It is, in brief, always a means of obstructing the proper formulation of the problem. (Weber 1949: 110)

The result of ignoring Weber’s warning is the terminological chaos acquiesced in by José Merquior (1991: 45–46):

the meaning of liberalism changed a great deal. Nowadays what liberal generally means in continental Europe and Latin America is something quite different from what it means in the United States. Since Roosevelt’s New Deal, American liberalism has acquired . . .” a social democratic tinge.” Liberalism in the United States came close to liberal socialism . . .

To add to his muddle, Merquior suggests that the recent spread of free-market ideas signals yet another shift in the American meaning of liberal:

On the other hand, the meaning of liberalism in its current revival, both in the United States and elsewhere, has only a tenuous connection with the mainstream U.S. meaning, and often even marks a departure from it.11

One writer deserves special mention for his strategic boldness. Michael Freeden seeks to exclude belief in private property altogether from the contemporary meaning of liberalism. According to Freeden (1996: 19, 24, 35), private property was “previously a core liberal concept,” but since the nineteenth century it has been “steadily gravitating to a more marginal position. . . . Property continued its migratory path from liberal center to periphery . . . the concept of property was released to gravitate towards a concept of need which supported the notion of universal individual welfare.” Contemporary libertarians, whom some other writers classify as liberals or neoliberals, “must be excluded from the family of liberalisms” because they “stray from the evolutionary path liberalism has taken. . . . In the struggle over the legitimacy of words, libertarianism has so far failed to become a serious contender for the modern liberal mantle.”

There are a number of problems with Freeden’s gravitational-migrational position. What, for instance, does he intend to do with the term “economic liberalism”? On his analysis, it will have to denote the philosophy underlying the leveling welfare state.12 And what of cognate terms, such as “liberalization of the economy”? Presumably, that must be taken to mean, not dismantling of government controls, but instead something like extending welfare benefits. Moreover, in Freeden’s understanding, liberalism in its contemporary mode has nothing to say about the basic structure of the economy, aside from the requirement that it be fitted to meet the growing needs of welfare recipients.13

Anthony Arblaster, author of The Rise and Decline of Western Liberalism (1984)14 has reassessed his earlier work with refreshing sincerity and candor. In the process, he reveals the mind-set of writers like Freeden as they “struggle” to impose their own meaning on the contested term. Confessing that he was mistaken in allotting only a few pages to “liberal political economy,” Arblaster writes, regarding the views of Hayek and associated thinkers,

my account of the phenomenon was based on the only half-conscious assumption that “history” had rendered these ideas permanently obsolete, that their revival was almost an eccentricity, certainly a deviation from the main path of modern social and political development, which pointed steadily in the direction of the growth of state intervention in the economy, and of state responsibility for the welfare of its citizens.

Now our perspective must be “different and more somber.” Contrasting “neo-liberal economic policies” with “the social democratic consensus,” Arblaster holds that while the neoliberal project is “self-evidently reactionary,” that “does not necessarily mean that it is not also a liberal one.” He adds, reasonably enough: “Only if one adopts the North America [sic] equation of the term ‘liberal’ with ‘progressive’ or ‘left-leaning’ does that become impossible by definition” (Arblaster 1996: 165–66, 171).

Grappling with this issue causes even as accomplished a historian of ideas as Alan Ryan to flounder. Ryan (1993: 293–94, 296) concedes a place to Hayek within the category of contemporary liberals, but denies that libertarianism can be a variety of liberalism on the grounds that even classical liberals did not favor decriminalizing victimless crimes. But not only is this libertarian position clearly implied by, for example, Herbert Spencer’s Law of Equal Freedom; it is also the stated view of Ludwig von Mises (1949: 728–29) and F.A. Hayek (1960: 451, n. 18).

To his credit, Ryan at least tries to differentiate “modern liberalism” from socialism. The former, he holds, “does not share the antipathies and hopes of a socialist defense of the welfare state . . . modern liberalism has no confiscatory ambitions” (295). But this attempt at a demarcation fails badly. The first part of Ryan’s statement is hopelessly obscure, while the second underestimates both the degree to which social democrats have resignedly accepted the market economy as the indispensable milch cow for their welfare budgets and the greed of the “modern liberal” political class for the earnings of taxpayers.15

The Role of John Stuart Mill

Much of the confusion prevailing in this field can be traced to John Stuart Mill, who occupies a vastly inflated position in the conception of liberalism entertained by English-speaking peoples.16 This “saint of rationalism” is responsible for key distortions in the liberal doctrine on a number of fronts.17 In economics, Mill opined that “the principle of individual liberty is not involved in the doctrine of free trade [economic liberalism],” provided ammunition for the protectionist arsenal, and accepted and even elaborated socialist arguments (Mill 1977: 293; Mises 1978a: 195; Raeder 2002: 357 n. 76 and 374 n. 23; and especially Rothbard 1995c 2: 277–85).18

Mill rejected the liberal notion of the long-run harmony of interests of all social classes, including entrepreneurs and workers, on the grounds that, “to say that they have same interest . . . is to say that it is the same thing to a person’s interest whether a sum of money belongs to him or to someone else” (cited in Ashcraft 1989: 114). Following that odd and shortsighted reasoning would reveal a very large number of hitherto unsuspected conflicts of interest in society, e.g., between any two people who pass each other in the street. Indeed, in arguing that anti-capitalism is one of the hallmarks of liberalism, Alan Ryan (1993: 302) invokes none other than John Stuart Mill, who wrote (1965: 209): “The generality of laborers in this and most other countries have as little choice of occupation and freedom of locomotion . . . as they could . . . on any system short of actual slavery”—this at a time when English and other “serfs” were migrating in the millions to the towns and cities and even to foreign lands.19

In international affairs, Mill repudiated the liberal principle of non-intervention in foreign wars, whose most trenchant exponent was Richard Cobden (1973). Where Cobden feared that such entanglements would undermine liberty at home, Mill provided interventionists with what has become a favorite argument: that a strong and free country like Britain has a moral obligation to come to the aid of peoples struggling for their freedom, if they are threatened by outside powers.20 That such a standing policy of intervention would most likely compromise domestic freedom was not a problem that Mill, or those who have followed his lead, cared to address.

Worst of all was Mill’s deformation of the concept of liberty itself. Liberty, it seems, is a condition that is threatened not only by physical aggression on the part of the state or other institutions or individuals. Rather, “society” often poses even graver dangers to individual freedom. This it achieves through “the tyranny of the prevailing opinion and feeling,” the tendency “to impose, by other ways than civil penalties, its own ideas and practices as rules of conduct on those who dissent from them,” to “compel all characters to fashion themselves upon the model of its own” (1977: 220). True liberty requires “autonomy,” for adopting “the traditions or customs of other people” is simply to engage in “ape-like” imitation.21

Where others see men and women choosing goals laid out for them by institutions whose authority over them they freely accept, Mill perceives the extinction of freedom. In a striking and utterly preposterous illustration, the saint of rationalism writes: “An individual Jesuit is to the utmost degree of abasement a slave of his order” (1977: 308). One wonders what is supposed to follow from this. Must we form abolitionist associations to emancipate the willing “slaves” of the Society of Jesús? How should we go about selecting our John Brown to lead the storming of the slave-pits of Fordham and Georgetown universities? One also wonders by what right Mill and his alter ego Harriet Taylor could ever have imagined themselves entitled to legislate on the status of members of Catholic or Orthodox orders, of Orthodox Jews and devout Muslims, or of any other believers.22

His comment on the Jesuits illustrates a facet of Mill too rarely noticed: he was, in the words of Maurice Cowling, “one of the most censorious of nineteenth century moralists.” He constantly passed judgment on the habits, attitudes, preferences, and moral standards of great numbers of people of whom he knew nothing. As Cowling dryly observes: “Bigotry and prejudice are not necessarily the best descriptions of opinions which Comtean determinism has stigmatized as outdated” (1963: 143–44, emphasis in original).

In a posthumously published work, Joseph Hamburger (1999) examines the “dark side” of John Stuart Mill. Here Hamburger, who tells us that he long entertained the conventional view of Mill as a consummate proponent of individual freedom, analyzes Mill’s On Liberty, but also his other writings and letters and the reports of his intimate friends. His conclusion is that the freedom of opinion espoused in On Liberty was largely part of Mill’s grand strategy—to demolish religious faith, especially Christianity, and received mores, on the way to erecting a social order based on “the religion of humanity.” True individuality would be incarnated in the future “Millian man,” dreamt of by Mill and Harriet Taylor, a being in whom selfishness and greed would be replaced by altruism and the constant cultivation of the loftier faculties.

The pioneering revisionism of Cowling and Hamburger has been impressively confirmed by Linda C. Raeder. In her John Stuart Mill and the Religion of Humanity (2002), Raeder thoroughly examines all of Mill’s major works and other relevant materials to uncover the pattern behind Mill’s “self-avowed eclecticism” and his easy employment of “the idiom of the liberal tradition he knew so well.” This pattern she finds in the early and permanent influence on Mill of philosophers Henri de Saint-Simon and Auguste Comte. The notion of progress entertained by these positivist thinkers was the steady advance to a this-worldly “religion of humanity” in which all of mankind would instinctively share. Mill’s “aspirations for human beings were not for the flowering of their unique individuality but for their conformity to his personal ideal of value and service.” In the end, Raeder concludes (338), Mill was no “true friend of liberty.”

The fateful linking of liberalism to an adversarial stance vis-à-vis received religion, tradition, and social norms is due to John Stuart Mill more to than anyone else. It has unfortunately become standard. In a typical example, Owen Chadwick, Dixie Professor Emeritus of Ecclesiastical History at Cambridge, writes (1975: 22):

A liberal was one who wanted more liberty, that is, more freedom from restraint; whether the restraint was exercised by police, or by law, or by social pressure, or by an orthodoxy of opinion which men assailed at their peril. . . . The liberal thought that men needed far more room to act and think than they were allowed by established laws and conventions in European society.

Note how in this statement no distinction is made between state coercion on the one hand and social pressure, orthodox opinion, and conventions on the other. John Dunn states (1979: 29, emphasis in original):

If the central dispositional value of liberals is tolerance [sic], their central political value is perhaps a fundamental antipathy towards authority in any of its forms. . . . Dispositionally, liberalism has little regard for the past.

So much for Macaulay, Thierry, Lecky, Acton, and the other great liberal historians of the nineteenth century. Descriptions such as Chadwick’s and Dunn’s are much more expressive of the “antinomian”23 mentality of contemporary Western academics than of liberalism historically.

Mill’s view tends to erase the rather critical distinction between “incurring social disapproval and incurring imprisonment” (Burke 1994: 30),24 and leads to pitting liberalism against innocent, non-coercive traditional values and arrangements, especially religious ones. It also forges an offensive alliance between liberalism and the state, even if perhaps contrary to Mill’s intentions, since it is difficult to imagine how traditional norms could be uprooted except through the massive use of political power. Contemporary writers like Steven Lukes, committed to the Millian project of enjoining “autonomy,” do not shrink from advocating this course, possibly unaware of its totalitarian implications, though it is difficult to see how.25

The “Old” vs. the “New” Liberalism

It is not disputed that the popular meaning of liberal has changed drastically over time. It is a well-known story how, around 1900, in English-speaking countries and elsewhere, the term was captured by writers who were essentially social democrats. Joseph Schumpeter (1954: 394) ironically observed that the enemies of the system of free enterprise paid it an unintended compliment when they applied the name liberal to their own creed, the opposite of what liberalism stood for from the start.

For a century now controversy has raged over the true meaning of liberalism (Meadowcroft 1996b: 2). Stephen Holmes (1988: 101) scoffs at the dispute as involving nothing more than “bragging rights.” That does not stop him, though, from joining others of the camp Schumpeter referred to in fighting to secure the label for themselves. There is a profound truth in Thomas Szasz’s proposition (1973: 20): “In the animal kingdom, the rule is, eat or be eaten; in the human kingdom, define or be defined.” This is nowhere truer than in the political kingdom.

How did this momentous transformation of the term liberal—what Paul Gottfried (1999: 29) calls “a semantic theft”—come about?

This is the conventional interpretation: liberals from the eighteenth century on characteristically believed in laissez-faire. Beginning in the last decades of the nineteenth century, however, British thinkers like T.H. Green and L.T. Hobhouse (and their counterparts in the United States, Germany, and elsewhere) realized that laissez-faire was totally inadequate to the conditions of modern society. Often inspired by John Stuart Mill—in Hobhouse’s reverential words (1964: 63): “The teaching of Mill brings us close to the heart of liberalism”—they undertook to give liberalism a more up-to-date shape. As one expositor of the conventional view has written:

The central value of the liberated individual, of man as far as possible his own sovereign, did not change; the understanding of that value and the means for achieving it did. (Smith 1968: 280)26

In particular, the state, which earlier liberals had feared as the enemy of individual liberty, was now correctly seen as a potent engine for furthering it in vital ways. The Old Liberalism gave way to the New.

The first thing to be pointed out is the political purpose behind the semantic change. It was to ease the way for the revolutionary extension of the state’s agenda (ultimately, this has become in principle a limitless agenda). The crying need for such an extension, however, was grounded in a highly questionable theory, which is still operative. It is that the “old” liberalism of laissez-faire had been made obsolete by certain deep-seated changes in society. The pioneers of the “new liberalism” and their successors based their claims on the supposedly overwhelming power of business enterprise over consumers and workers. But, despite all their propaganda and that of their followers to the present day, such a power cannot be shown, empirically or theoretically, to exist. (Rothbard 1970: 168–73; Hutt 1954; Armentano 1982; Reynolds 1984: 56–68; DiLorenzo and High, 1988).

Moreover, and decisively, the standard rationale for speaking of a “new liberalism” is analytically flawed. For the end of achieving “the liberated individual” cannot be definitive of liberalism. Other ideologies, among them communist anarchism and many varieties of socialism, share that end.

Consider this statement by Eduard Bernstein, the founder of revisionist socialism (1909: 129, emphasis in original):

The development and protection of the free personality is the goal of all socialist measures, even of those which superficially appear to be coercive. A closer examination will always show that it is a question of a coercion that increases the sum of freedom in society, that gives more freedom, and to a wider group, than it takes away.27

How does this differ from the standpoint of the “New Liberals” for the past century and more?28 What divides liberalism from opposing ideologies is precisely its substantive program, the means it advocates—private property, the market economy, and the minimizing of the power of the state and of state-backed institutions.29

In Anglophone countries, those who anywhere else would be straightforwardly identified as social democrats or democratic socialists shy away from acknowledging their proper name. It is hard to avoid the conclusion that this is essentially a matter of political expediency. For some reason, labels suggestive of socialism have not been popular in countries of English heritage (cf. Gottfried 1999: 9).

This stark political fact was clear to Edward Bellamy, author of the socialist classic, Looking Backward. In 1888, in a letter to William Dean Howells, Bellamy weighed what to call his doctrine. He rejected the term, “socialist.” That was a word he “never could well stomach,” since it is foreign “in itself and equally foreign in all its suggestions.” “Whatever German and French reformers may choose to call themselves, socialist is not a good name for a party to succeed with in America,” he confided to Howells (Schiffman 1958: 370–71). Bellamy chose instead the name “nationalist.” Others, on similar grounds, have preferred the label “liberal.”

The social democratic commandeering of liberal met with great success, leading some laissez-faire liberals to incline towards describing themselves as individualists (Raico 1997). Amusingly, the next step was for socialists like John Dewey to try to capture that term as well. It turned out, according to Dewey, that there was an old individualism before the age of great corporations and modern social science; that kind must now be replaced by a new individualism (Dewey 1930). One product of this “new individualism” would be “a coordinating and directive council in which captains of industry and finance would meet with representatives of labor and public officials to plan the regulation” of the economy.

While this was obviously a replica of the corporate state that Mussolini was erecting in Italy, Dewey chose to ignore that parallel. The power center he proposed would have a voluntarist, and thus appropriately American, slant, as the United States set out constructively “upon the road which Soviet Russia is traveling” in such a deplorably destructive way (Dewey 1930: 118).30 So, after the concept of liberalism was transformed to exclude adherents of the market economy and private property, now individualism was also to be redefined to the same end. Why, it’s almost as if socialist propagandists like Dewey were trying simply to define the advocates of free enterprise out of existence—and debate—altogether.31

Liberalism and the Welfare State

It comes as no surprise that writers enamored of today’s ever-expanding welfare state have attempted to amalgamate it to the liberal tradition, though few have been as creative as Maurice Cranston, who enlisted Lord Acton as a precursor of contemporary welfarism.32 Stephen Holmes does not go so far, yet he maintains (1988) that the principles of “welfare liberalism are not only consistent with but, in some sense, follow directly from [classical] liberal principles themselves.” His evidence is unconvincing. It consists mainly of two facts: that most classical liberals upheld minimal poor relief and that they favored protecting individual rights through tax-funded government agencies (the justice system and the military). Since industrialization produced “unprecedented forms of insecurity” (1988: 93), it was natural for liberalism to evolve in the direction of state welfare programs. Holmes also believes that the cosmopolitan nature of the liberal doctrine leads to “an international transfer plan whereby wealthy [Western] individuals helped support the poor wherever they lived” (1988: 97). The sly qualification “wealthy” should not go unnoticed.

Holmes seems to think, for no good reason, that market fluctuations, crop failures, etc.—i.e., economic insecurity—were a negligible matter before about the middle of the nineteenth century. He makes no mention of the moral hazard involved in state subsidies permitting “the poor”—nationally and internationally—to produce as many children as they wish. The assertion that such a subsidy scheme is implied in the thinking of eighteenth and nineteenth century liberals beggars belief. Even John Stuart Mill coupled support for relief for the poor with a proviso curtailing their freedom to procreate at will (Paul 1979: 181).33 Confidence in Holmes’s familiarity with classical liberal thought is not enhanced by his statement of “the standard Hayekian view,” namely, that liberalism is “wholly incompatible with positive programs of public provision.” Hayek, in fact, explicitly endorsed a wide program of public welfare provision (see The Constitution of Liberty, and Gordon 1998).34

Historically, the relationship between liberalism and the welfare state has been the opposite of one imagined by writers like Holmes.

When liberalism took shape in the eighteenth century as a comprehensive social philosophy, it presented itself as the antithesis of the mercantilist and cameralist system prevailing in Europe. The aim of that system is usually held to be the strengthening of the power of the monarchical state, especially its capacity to wage war. But this by no means excluded the goal of actively fostering the welfare of the king’s subjects, particularly their economic wellbeing.35 The Austrian minister and leading cameralist writer, Joseph von Sonnenfels, for example, laid down the principle that: “Every citizen has a right . . . to claim from the state the greatest possible affluence” (Habermann 1997: 25; Kunisch 1986: 27–32). Paternal solicitude for the people was the supreme end of statecraft, according to Nicolas de la Mare, author of Traité de police, a work widely studied by Continental bureaucrats. De la Mare defined police (in German, Polizei) as “the science of governing men and doing them good, the method of rendering them, as much as possible, what they should be for the general interest of society.” Its “unique object consists in leading man to the most perfect happiness which he is capable of enjoying in this life” (Raeff 1994: 319, 330 n. 48).

It was this “police science” that rationalized and helped generate the intricate network of laws, ordinances, edicts, and directives, the “excessive mania for regulation,” of eighteenth century absolutism (Raeff 1994: 312). That its intention was allegedly benevolent made no difference to the liberals who assailed it as tyrannical (Habermann 1997: 17–65).36 This was this system of control—of the economy as of the rest of social life—that the Physiocrat Mirabeau had in mind when he lashed out against “the rage to govern, the most disastrous disease of modern governments,” the statement which Wilhelm von Humboldt (1969: 1) took as the motto for The Limits of State Action, the greatest work of German liberalism.

Liberalism thus grew up in reaction against the Polizeistaat—a word that, as it happens, translates best as welfare state. This first stage of the welfare state was followed by a

second stage, influenced by the doctrines of the Enlightenment (natural law, laissez-faire, and the natural rights of the individual), [which] rejected paternalistic intervention by the state. It was to be identified with the political democracy, liberalism, and laissez-faire of the nineteenth century. (Dorwart 1971: 2)

The third stage, in the heyday of which we are privileged to live, was inaugurated by the brilliant statesman and archenemy of liberalism, Otto von Bismarck. Bismarck’s explicit aim was to prevent the workers from attaining middle class status through gradually accumulating private means and then passing them on to their children, in a steady intergenerational embourgeoisement of their families. Instead, members of the working class would be made ever dependent on state pensions, for which they were expected to show a fitting gratitude (Koch 1986: 30).37 Bismarck’s social legislation was bitterly opposed by the leading German liberals of his time, to no avail (Raico 1999: 154–79; and see the essay on “Eugen Richter and the End of German Liberalism,” in the present volume).38

Recently, Paul Gottfried (1999; see also 2002) has contributed a penetrating analysis of the character of the contemporary welfare state:

In Western Europe and North America, this state rests its power upon a multitiered following: an underclass and now middle-class welfariate, a self-assertive public sector, and a vanguard of media and journalistic public defenders. (1999: 139)

Under cover of the welfare state, and warmly seconded by their allies in the media and education, politicians, judges, and public administrators conduct an ongoing crusade against every form of inequality and “discrimination.” Deploying the expanding power of the managerial and therapeutic state, the political class is engaged in an “assault on what the old liberals called civil society” (1999: 25).39 The result is the calculated subversion of private property, equality before the law, and freedom of contract, speech, and association, the pillars of historic liberalism. The interventionist state, in the words of a German historian of state power, now claims the right to “shape society if necessary even against the will of the majority or at least of a large minority,” and reveals itself as a “mere soft version of the total state” (Reinhard 1999: 467).40 Today, the complaint that Herbert Spencer voiced over a century ago (1981: 23) rings truer than ever: “Such, then, are the doings of the party which claims the name of Liberal; and which calls itself Liberal as being the advocate of extended freedom!”

The Roots of Authentic Liberalism

That liberalism did not undergo a metamorphosis into a statist caricature of itself does not mean that it did not evolve. No argument is being offered here that the liberal idea suddenly sprang up at a certain point complete and fully matured. Neither can liberalism be approached as though it were a colloquy conducted among philosophers over the centuries.41 Instead, it must be understood as a political and social doctrine and movement grounded in a distinctive culture and traceable to specific historical conditions.

That culture was the West—the Europe that arose in communion with the Bishop of Rome. The historical conditions were those of the Middle Ages. The history of liberalism is rooted in what economic historians sometimes call “the European miracle.” More precisely, liberalism can be viewed as the slowly emerging ideological and political aspect of that “miracle.”

The essence of the European experience is that a civilization developed that felt itself to be a unity and yet was politically decentralized. The continent devolved into a mosaic of separate and competing jurisdictions and polities whose internal divisions themselves resisted central control. “There was, in other words, a type of laissez-faire built into Europe as a whole” (Hall 1987: 55). The relative ease of “exit” and sustained military competition furnished princes with strong incentives (not always determinative) to refrain from confiscations and other violations of property rights. In this process, a major role was played by the free towns in Italy, the Low Countries, Germany, and elsewhere, which became citadels of a self-governing, self-confident middle class, the nurturer and carrier of the commercial ethos.42 Most important of all and unique to Europe was the existence of a powerful, independent, international Church.

The Role of the Medieval Church

Historically, in advanced societies the relationship between the religious and political authorities has been a symbiotic one. The priests sanctified, often deified the rulers, who in turn lavished financial and other privileges on them. In medieval Europe it was portentously different.

Lord Acton devoted his life and his immense learning to the study of the growth of liberty. Himself a Catholic, he was sensitive to the role of his Church in this epic story. Acton wrote, of the ongoing struggle between the secular powers and the Church over the appointment of bishops:

To that conflict of four hundred years we owe the rise of civil liberty . . . although liberty was not the end for which they strove, it was the means by which the temporal and the spiritual power called the nations to their aid. The towns of Italy and Germany won their franchises, France got her States-General, and England her Parliament out of the alternate phases of the contest; and as long as it lasted it prevented the rise of divine right. (Acton 1956, 86–87)

Harold J. Berman has bolstered Lord Acton’s analysis of the central role of the Catholic Church in generating Western liberty. With the fall of Rome and the eventual conversion of the Germans, Slavs, and Magyars, the ideas and values of Latin Christendom suffused the whole blossoming culture of Europe. Christian contributions range from the mitigation of slavery and a greater equality within the family to the concepts of natural law, including the legitimacy of resistance to unjust rulers. The Church’s canon law exercised a decisive influence on Western legal systems: “it was the church that first taught Western man what a modern legal system was like.” (1974, 59)

Berman, moreover, focuses attention on a critical development that began in the eleventh century: the creation by Pope Gregory VII and his successors of a powerful “corporate, hierarchical church. . .independent of emperors, kings, and feudal lords,” and thus capable of foiling the relentless power-seeking of temporal authority (ibid. 56). In a major synthesis, Law and Revolution, Berman has highlighted the legal facets of the development whose economic, political, and ideological aspects other scholars have examined (Berman 1983): “Perhaps the most distinctive characteristic of the Western legal tradition is the coexistence and competition within the same community of diverse legal systems. It is this plurality of jurisdictions and legal systems that makes the supremacy of law both necessary and possible” (ibid. 10).

Berman’s work is in the tradition of the great English scholar, A.J. Carlyle, who, at the conclusion of his monumental study of political thought in the Middle Ages, summarized the basic principles of medieval politics: that all—including the king—are bound by law; that a lawless ruler is not a legitimate king, but a tyrant; that where there is no justice there is no commonwealth; and that a contract exists between the ruler and his subjects (Carlyle and Carlyle 1950, 503–26).

Other recent scholarship has supported these conclusions. In his last, posthumous work, the distinguished historian of economic thought, Jacob Viner, noted that the references to taxation by St. Thomas Aquinas “treat it as a more or less extraordinary act of a ruler which is as likely as not to be morally illicit” (Viner 1978, 68–69). Viner pointed to the medieval papal bull, In Coena Domini, evidently republished each year into the late eighteenth century, which threatened to excommunicate any ruler “who levied new taxes or increased old ones, except for cases supported by law, or by an express permission from the pope” (ibid. 69). Throughout the Western world, the Middle Ages gave rise to parliaments, diets, estates-general, Cortes, etc., which served to limit the powers of the monarch. [13] A.R. Myers notes:

Almost everywhere in Latin Christendom the principle was, at one time or another, accepted by the rulers that, apart from the normal revenues of the prince, no taxes could be imposed without the consent of parliament. . . . By using their power of the purse [the parliaments] often influenced the ruler’s policies, especially restraining him from military adventures. (Myers 1975 29–30)

Popular rights, above all protection against arbitrary taxation, were defended by representative assemblies and often enshrined in charters that the rulers felt more or less obliged to respect. In the most famous of these, the Magna Carta, which the barons of England extorted from King John in 1215, the first signatory was Stephen Langton, Archbishop of Canterbury.

In a valuable synthesis of modern medievalist scholarship, Norman F. Cantor has summarized the heritage of the European Middle Ages:

In the model of civil society, most good and important things take place below the universal level of the state: the family, the arts, learning, and science; business enterprise and technological process. These are the work of individuals and groups, and the involvement of the state is remote and disengaged. It is the rule of law that screens out the state’s insatiable aggressiveness and corruption and gives freedom to civil society below the level of the state. It so happens that the medieval world was one in which men and women worked out their destinies with little or no involvement of the state most of the time. (Cantor 1991, 416)

Thus, long before the seventeenth century, Europe had produced political and legal arrangements—a whole way of life—that set the stage for both individual freedom and the later industrial “take-off.” Along with and reinforcing these institutions went a discourse based on natural law, entailing limitations on the prince’s power. Highly important was the desacralization of the state. Karl Ferdinand Werner (1988) directs attention to the work of Friedrich Klinger, who already in 1941 pointed out how early Christian thinkers, specifically St. Augustine, had desacralized the state and thus radically altered the conception prevalent in Greco-Roman antiquity.

The last flowering of this natural law tradition was in Late Scholasticism, commonly associated with the school of Salamanca, whose key theoretical importance is coming to be appreciated (Rothbard 1995c, 1: 81–88, 99–131; Chafuen 1986).

The Attack of the Modern State and the Liberal Response

With the rise of centralizing, bureaucratic monarchies and royal absolutism, this unique political culture came under broad attack. The crucial incursions are those of the Spanish Habsburgs in the later sixteenth century in the Netherlands and of the Stuarts in seventeenth century England.

It is now that liberalism enters upon the scene. It appears from the start as a combative doctrine, in opposition to the centralizing and regimenting thrust of absolutism.

The political history of liberalism in the strict sense begins with John Lilburne and the Levellers in mid-seventeenth century England. These dissenters were the first to present a comprehensive program including the separation of church and state, freedom of the press, abolition of state monopoly grants, local government, and the rejection of the socialist egalitarianism preached by groups like the Diggers (Wolfe 1944; Aylmer 1975).43 From the time of the Levellers to the present day an unbroken tradition can be tracked, which, beyond all differences in modes of discourse and philosophical and theological presuppositions, is recognizably liberal.

Liberalism scored a major victory with the attainment of religious toleration (often for prudential reasons) and, finally, religious freedom, as it came to be acknowledged that in this area civil society could be left to fend for itself.44 In general, liberalism as doctrine and movement was in continual interaction with social reality as it existed in western Europe and then British North America, growing pari passu as practice and theory uncovered the possibilities of beneficial spontaneous order in civil society.45 With every liberal advance, “political philosophy and political economy processed, justified, and systematized these achievements” (Weede 1989: 33).46

Among American historians, it is Joyce Appleby who has understood this interaction best. She comments on England in the seventeenth century, where economic writers discovered

the underlying regularity of free market activity . . . and in so doing they had come upon a possibility and a reality. The reality was that individuals making decisions about their own persons and property were the determiners of price in the market. The possibility was that the economic rationalism of market participants could supply the order to the economy formerly secured through authority. (1987: 187–88)

Of the American colonies a hundred years later, Appleby writes:

In the eighteenth century, two features of the market economy fascinated contemporaries: the reliance upon individual initiative and the absence of authoritarian direction. . . . A century and quarter of economic development had dramatically enhanced public opinion about voluntary human actions, and society was the word that emerged to represent the uncoerced relations of people living under the same authority. . . . It is this vision which animated the Jeffersonians. (1984: 22–23, emphasis in original)47

Three points require comment here.

First, it may be objected that this approach “privileges” the liberalism of certain nations, for instance, England, France, and the United States. In an age of egalitarianism run wild, this objection may strike some as a serious one. However, there is no reason to assume that all “liberalisms” are created equal—that Russian or Hungarian liberalism, for example, ought to be given equal weight with French liberalism in shaping our understanding of the essential meaning of the doctrine.

Second, if, as is argued here, liberalism is a reflection of the society that generates it (and, in turn, shapes that society), then it is easily comprehensible that liberal movements in different national contexts will evince different characteristics. In a national culture in which the state traditionally played a dominant role, empirical liberalism, like much else, will be skewed in a statist direction.

Third, our understanding of the nature of liberalism does not so far decide anything regarding the validity of the liberal doctrine or the feasibility of a liberal social order. It may be that liberalism vastly overestimates the self-regulatory capacity of society. It is possible, for instance, that Keynesian management of aggregate demand and socialization of investment are necessary for the satisfactory functioning of the economy, or that supervision of culture by one or another religious authority is required for preserving a minimal morality.

More plausibly, it may well be that the liberal program of establishing a strictly limited state conceals a fundamental contradiction and, in the nature of things, inevitably makes way for a state armed with all-embracing powers. This has been persuasively argued by Hans-Hermann Hoppe (Hoppe 2001: 221–38), who states: “Contrary to the original liberal intent of safeguarding liberty and property, every minimal government has the inherent tendency to become a maximal government.”

If any of these, or similar, theses prove to be correct, then liberalism could be shown to be fatally flawed. But such a demonstration would not change what liberalism was historically—what it understood itself to be and what it distinctively and characteristically was.

The historical phenomena that present themselves to anyone undertaking an account or appreciation of liberalism as a whole are daunting, to say the least. They involve the social, political, economic, legal, and intellectual histories of entire peoples over centuries. How are the strands that are relevant to liberalism to be separated out in this Himalayas of data? None of the usual methods appears to be satisfactory. They fail to provide us with what we require: an understanding of “liberalism as a distinct political doctrine, that we can tell apart from the others” (de Jasay 1991: 119, emphasis in original). A new approach seems called for.

Applying the Method of the Ideal Type

One possibility that has been suggested is utilizing Max Weber’s notion of the “ideal type” (Briefs 1930/31: 101; Bedeschi 1990: 2–3).48 Weber (1949: 90, 92, emphasis in original) describes it as follows:

An ideal type is formed by the one-sided accentuation of one or more points of view and by the synthesis of a great many diffuse, discrete, more or less present and occasionally absent concrete individual phenomena, which are arranged according to those one-sidedly emphasized viewpoints into a unified conceptual construct (Gedankenbild). . . . It is a utopia. . . . When carefully applied, those concepts are particularly useful in research and exposition . . . there is only one criterion, namely, that of success in revealing concrete phenomena in their interdependence, their causal conditions, and their significance. The construction of abstract ideal types recommends itself not as an end but as a means.49

Ludwig Lachmann (who was dubious of its usefulness in economics, though not in history) comments on Max Weber’s concept:

“The ideal type is essentially a measuring rod. . . . By indicating the magnitude of approximation of an historical phenomenon to one or several of our concepts we can order these phenomena” [Weber]. In other words, the ideal type serves the purpose of ordering concrete phenomena in terms of their distance from it (Lachmann 1971: 26–27).50

The ideal type of liberalism should express a coherent concept, based on what is most characteristic and distinctive in the liberal doctrine—what Weber refers to as the “essential tendencies” (1949: 91).51 Historically, where monarchical absolutism had insisted that the state was the engine of society and the necessary overseer of the religious, cultural, and, not least, economic life of its subjects, liberalism posited a starkly contrasting view: that the most desirable regime was one in which civil society—that is, the whole of the social order based on private property and voluntary exchange—by and large runs itself.52 For at least a century and a half, the idea that society and the state are rivals, that social power is diminished as state power grows, has been typical of those recognized as—or accused of—being the most “dogmatic,” “doctrinaire,” and “intransigent” of the liberals.53

One commentator who has grasped this is Ralf Dahrendorf, who writes of scholars like James Buchanan, Milton Friedman, and Robert Nozick that they were reverting to

the original [liberal] project of asserting society against the state, the market against planning and regulation, the right of the individual against overpowering authorities and collectivities.

Dahrendorf adds, significantly: “Liberalism is not anarchism, but anarchism is in some ways an extreme form of liberalism” (1987: 174).54

Construction of the ideal type of liberalism would draw on emblematic expressions of the liberal affirmation of “society against the state.”55 Most succinct is the Physiocratic slogan, “Laissez-faire, laissezpasser, le monde va de lui-même” (“the world goes by itself”). Another is from Adam Smith:

Little else is requisite to carry a State to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things. All governments which thwart this natural course, which force things into another channel, or which endeavor to arrest the progress of society at a particular point, are unnatural, and to support themselves are obliged to be oppressive and tyrannical. (Cited in Stewart 1996: 68)

Or the statement of Thomas Paine:

Great part of that order which reigns among mankind is not the effect of government. It has its origin in the principles of society and the natural constitution of man. It existed prior to government, and would exist if the formality of government was abolished. (Paine 1969: 357)

Or the implications of the advice of Benjamin Constant:

Remain faithful to justice, which is of all the ages; respect freedom, which prepares all good things; consent to the fact that many things will develop without you; and entrust to the past its own defense and to the future its own accomplishment. (Constant 1957: 1580)

Since liberalism is essentially a doctrine of society’s self-regulation—of its capacity to generate beneficial spontaneous order—a special role falls to economic theory, the best developed branch of social-scientific knowledge that has investigated phenomena of spontaneous social order.56

The elaboration of this ideal type would probably borrow heavily from the social theory of the French liberal school of J.-B. Say, Antoine Destutt de Tracy, and their followers. Here society is taken to be essentially an incalculable network of ever-changing voluntary exchanges. Government is limited to “the production of security,” but has an inherent tendency to expand into exploiting the productive members of society (Raico 1993 and the essay “The Conflict of Classes: Liberal vs. Marxist Theories,” in the present work).

In this way we may well be able to identify a central line of historical liberalism that would include, for instance, in America, Jefferson and the continuing radical Jeffersonian tradition; in France, Benjamin Constant, J.-B. Say, the Industrialiste school, and other writers for the Journal des Économistes; in England, Price, Priestly, Herbert Spencer, and the radical individualists of the late nineteenth century; in Germany, the late eighteenth century natural-law advocates of inviolable property rights and freedom of trade, the early Wilhelm von Humboldt, and John Prince Smith and his disciples; in Italy, Francesco Ferrara and the rest of the school of laissez-faire economists; and in Austria and America, Ludwig von Mises and those who have followed in his footsteps. Other movements and thinkers would be considered as they were situated nearer or further from this central line. Within this taxonomy, “new” or “modern” liberalism, like every other variety, would find its place.57

Focusing on the doctrine of society’s self-regulation does not, of course, imply accepting that doctrine as true. Ideal-type analysis “has nothing to do with any type of perfection other than a purely logical one” (Weber 1949: 98–99, emphasis in original). In the end, it might turn out that the liberal world-view is, for better or worse, fundamentally mistaken. But even then, accounts of liberalism’s history would still be interesting and important.

The suggested ideal type fulfills the requirement of fostering and guiding a research agenda. Divergences from the type would be studied to determine the particular historical and personal circumstances that conditioned them. Thus, the stronger state traditions in Germany and especially Russia, would be brought in, as would the felt deprivation of a national unity that could only be achieved by a militarily strong state in the German case. (The high proportion of German liberals in the nineteenth century who were state functionaries would not be overlooked.) On the issue of education, to take one instance, attention would be directed to the conditions faced by liberals like the Idéologues and Richard Cobden, who favored a role for the state, that may have been absent with others, such as Bastiat and Herbert Spencer, who opposed it.

Following such a procedure would avoid the recourse of “then there was this, and then there was that” over three hundred years. It would clearly delineate the features of a liberalism that evolved and spread but did not finally disintegrate into a mass of personal preferences and mental attitudes or into a politics indistinguishable from social democracy.58

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59The original Italian edition dates from 1925. F.A. Hayek, with his characteristic generosity towards those outside the authentic liberal camp, refers (1954: 11) to “Ruggiero’s justly esteemed” work, although he cites it in order to criticize the author’s antiquated, ultra-pessimistic account of the industrial revolution.

60In a move characteristic of too many writers, Conrad Waligorski 1981: 2 eschews any “rigid and dogmatic [i.e., clear and consistent] definition of liberalism, because it would itself be illiberal.”

61As Ralf Dahrendorf cogently remarks, 1987: 174: “Liberal parties declined to the point of insignificance, unless they merely kept the name and changed their policies out of recognition, either in the direction of social democracy (Canada) or in that of conservatism (Australia).”

62The case is similar with another highly regarded German “liberal,” Walther Rathenau. See Raico 1999: 43–44.

63However, certain of the views and policies Hitler espoused on state direction of the economy and the expansion of the welfare state suggest that he, as well as his model, Karl Lueger, may well have to be conceded a place in the history of at least of social welfarism. See Zittelmann 1990: 116ff., 145, 470, 489ff.

64Similarly, Lothar Döhn 1977: 11, who claims that “all attempts at a universal, comprehensive conceptual determination of what liberalism is have failed,” and then blithely goes on to speak of “non-liberal or anti-liberal elements” in theories and parties commonly considered liberal. Stuurman 1994: 32 asserts that liberalism is merely a “historical invention”; it possessed no coherent philosophy until after the revolutions of 1848, when it “appeared as a unified whole, a well-defined ‘historical individual.’” Yet it is a fact that there were theoretical and political differences among thinkers usually considered to be liberals both before and after 1848, between, for instance, Jeremy Bentham and Benjamin Constant and John Stuart Mill and Herbert Spencer.

65When J. Salwyn Schapiro 1958: 88–90 came to catalogue liberalism’s “lasting values,” he included neither private property nor free trade. It is remarkable how even today many writers omit any discussion of private property in characterizing the doctrine. Here is an ideology that has shaped world history, but which, it seems, had nothing in particular to say about the conditions under which human beings work, survive, invest, and occasionally prosper.

66Cf. Brunner 1987: 25–26, who persuasively argues that the standard treatment of the terms “liberal” and “conservative” in America “is almost an exercise in disinformation. The characteristic features of alternative visions of a desirable society are more usefully approached in terms of social and political institutions including, most particularly, the prevailing pattern of property rights.” Brunner distinguishes among socialist, social democratic, liberal, and conservative positions. “The social democrat conception centers essentially on an extended and encompassing welfare state. . . . Private property rights, even in means of production, still remain. But these rights are typically restricted in various dimensions.” The liberal conception “differs fundamentally from the other three positions by a severe constitutional limitation on the range of admissible government activities. It also involves a much stricter constitutional anchoring of property rights.”

67Since Jaguaribe could hardly mean that these thinkers were deeply committed to the status quo and averse to radical change, the conclusion must be that in his view this movement is extremely conservative (and to that degree non-liberal) because it rejects the presumed goal of modern history, the universal welfare state.

68Hall’s blunder in stating Friedman’s position deserves to be mentioned, as it is typical of the slovenliness of many writers when dealing with the ideas of free-market scholars. According to Hall, Friedman holds “that freedom and capitalism always go in tandem.” But, as Friedman explicitly states in the work cited by Hall (Friedman 1962: 10): “History suggests only that capitalism is a necessary condition for political freedom. Clearly it is not a sufficient condition. . . . It is therefore clearly possible to have economic arrangements that are fundamentally capitalist and political arrangements that are not free.” Gertrude Himmelfarb 1990: 324n concedes that in calling themselves the genuine liberals Friedman and Hayek are “more consistent” than their opponents who label these thinkers conservatives. She nonetheless holds that “the current usage must be respected as a reflection of the social reality.” But what if the current usage is the product of a political strategy and itself produces conceptual incoherence? What is the “social reality” underlying this deceptive usage?

69Even in a literature so rich in stupified confusion, Merquior’s contribution stands out. He denounces “minimal-state fanatics” who “do not hesitate to demand the dismantling of the welfare state, the adoption of private armies, even the use of private currencies.” Note the inclusion among advocates of the minimal-state of the supporters of private armies (usually termed anarchists or anarcho-capitalists, a category that logically excludes believers in the minimal state), and also the implication that all these positions are self-evidently ludicrous. Merquior further argues, allegedly following Norberto Bobbio, that because democracy “is a consequence or at least an extension of liberalism” and because the welfare state is the product of “well articulated popular demands in the political market,” the welfare state is a product of liberalism. But that would mean that any policies generated by the democratic process and widely supported, from laws against victimless crimes to militarism and wars of imperialist conquest, must be regarded as part of the liberal doctrine. Regarding Merquior’s view that Hayek did not view the market as “the best means for distributing resources,” since “a computer could do that better” (1996: 11, 16–17), any comment would be superfluous.

70This was the recourse chosen by L.T. Hobhouse (1964: 88–109; see also Greenleaf 1983: 162–68), who includes under “economic liberalism”: state ownership of land and ownership and operation of public utilities and key industries; high graduated income taxes and expropriation of “the social factor” in wealth creation; a “living wage” and extensive social security programs for all; and implementation of “the equation of social service and reward.” Hobhouse gives no indication why this should be regarded as economic liberalism. Evidently it was sufficient that these policies were either being enacted by the British Liberal Party of his time or aimed at by its more radical wing. The program also provided a possible basis for the “Lib-Lab” political coalition Hobhouse favored.

71Probably a minor consideration for Freeden is that his definition of liberalism does not translate. In French, for instance, libéral still means a believer in the free market economy, and ultralibéral a “doctrinaire” or “fanatical” believer in the free market, e.g., Frédéric Bastiat.

72For a critique of his relentless attack on its subject by this interesting and provocative scholar see Raico 1989.

73Cf. the remark of Paul Gottfried (2002: 26): “Restricted economic freedom can cohabit with an administrative state devoted to social experiments. Providing the capitalist goose is not killed in the process, public administration can be both expansive and financially secure.”

74Elevating Mill to the status of model liberal thinker has also tended to reinforce the search for an underlying philosophical (in the narrower sense) basis in liberalism. This basis is often taken to include an empiricist epistemology and utilitarian ethics. But too many conflicting philosophical traditions—from Aristotelianism and Thomism to Kantianism and others—coexist within the history of liberalism for this to be credible. Cf. Bedeschi 1990: 1–2.

75Mill’s deviation from authentic liberalism comes out in his differences with Wilhelm von Humboldt, although according to Mill Humboldt was a major inspiration of On Liberty, which carries an epigraph from the latter’s Limits of State Action. See Valls 1999, who, however, considers Mill the more realistic liberal.

76Henry Sidgwick concluded that in the later editions of his Principles Mill was “completely Socialistic in his ideal of ultimate social improvement.” Richard Cobden held that Mill’s argument in favor of protection for “infant industries” “outweighed all the good which may have been caused by his other writings” (cited in Dicey 1963: 429 and n. 2).

77Ryan slightly distorts Mill’s statement by omitting the qualification “short of.” As for Mill’s mature views, a summary by a warm and famous sympathizer seems fair: “He came to look forward to a co-operative organization of society in which a man would learn to ‘dig and weave for his country,’ as he now is prepared to fight for it, and in which the surplus products of industry would be distributed among the producers. In middle life, voluntary co-operation appeared to him the best means to this end, but towards the close he recognized that his change of views was such as, on the whole, to rank him with the Socialists . . .” Hobhouse 1964: 62. One sees what Murray Rothbard had in mind in his heretical reference to Mill as “a woolly-minded man of mush” (1995c, 2: 277).

78David Manning 1976: 93 categorically asserts: “By the middle of the nineteenth century liberalism was as firmly committed to international support for national self-determination as it was to international free trade.” Predictably, his evidence comes from Mill. Manning’s assertion ignores the anti-interventionist Manchester School (and many others), whose influence on foreign policy thinking extended into the twentieth century.

79See Loren Lomasky’s astute critique of the ideal of “autonomy,” beloved of professional philosophers (1987: 42–45, 247–50), e.g.: “the advocacy of autonomy is typically accompanied by contempt for the actual. . . . One who is born to a particular family, nation, and religion is not thereby burdened with an anchor restricting his domain of choice but rather is the beneficiary of an inheritance of a manageable number of prospects for fashioning a worthwhile life.”

80Raeder 2002: 324–35 makes good use of the long review of Mill’s Autobiography by Henry Reeve. Reeve, who had known Mill most of his life, was the editor of the Edinburgh Review and the translator of Tocqueville’s Democracy in America. According to Reeve, one result of Mill’s well-known peculiar and isolated upbringing and his and Harriet Taylor’s later general avoidance of social intercourse was that Mill was “totally ignorant” of English life and society. Reeve added: “Mill never lived in what may be called society at all. . . . In later life he affected something of the life of a prophet, surrounded by admiring votaries. . .Mankind itself was to him an abstraction rather than a reality. He knew nothing of the world . . .”

81The term was used in regard to “collectivist” liberals by Edward Shils 1989: 12–14.

82See Burke’s cogent discussion 1994: 28–30, where he criticizes Mill’s tendency “to blur the dividing line between physical force and other kinds of pressure.” See also Norman Barry (1996a: 50), who refers to “the kind of mindless and deliberate non-conformism recommended by John Stuart Mill . . . Under conditions of non-constraint, individuals are the makers of their own lives, whether or not they lead them as fully autonomous agents.”

83See Lukes 1973: 154–55, where the author writes of the need for government “to take an ever more active role in shaping and controlling the natural and social environment if equality and liberty are to be enhanced.” One of the areas in which true liberty must be enhanced is religion, for religious belief, Lukes maintains, “is not compatible with the full development by individuals of their consciousness of themselves and their situation, and of their human powers.” He concurs with Marx that the “abolition of religion as the illusory happiness of men, is a demand for their real happiness,” etc. (Emphasis in Marx.) The government that is to undertake such social engineering, Lukes insists, must be “democratic and representative.” Here Lukes runs into what proved to be a major obstacle for his predecessors in social engineering, Robespierre and Lenin among them: where could a truly democratic and representative government obtain the warrant to transform the retrograde people it intends to operate upon?

84This is from David G. Smith’s entry on liberalism in The International Encyclopedia of the Social Sciences. It is a pity that such an important topic should have been left to Smith, whose treatment is often hopelessly confused: e.g., he claims that Ludwig von Mises cannot be considered a liberal because he was too “extreme” in leaving “the individual at the mercy of nature, society, and group and economic power,” yet he labels J.-B. Say and Bastiat “liberal economists” (Smith 1968: 277, 280).

85Cf. Pierre Angel 1961, especially 7, 9, 287, 332, 382–87, 411–15, and 420–33. Bernstein rejected Marxism’s central economic concepts as well as state ownership and was resigned to the indefinite continued existence of the capitalist order. He insisted, however, that it should evolve into a “democratized” capitalism, with an expanding “social” legislation (he considered the Weimar “social state” a good start). Bernstein’s revisionism ended by absorbing German socialism and for all practical purposes western socialism altogether, except for those who became known as Communists.

86See also Lukes 1973: 12, where the author cites Jean Jaurès as asserting that “socialism is the logical completion of individualism,” in that it realizes individualist ends through means more appropriate to the modern age. Lukes agrees, positing that “the only way to realize the values of individualism is through a humane form of socialism.” We should be grateful to him for at least keeping individualism (in this context, the equivalent of political and economic liberalism) and socialism analytically distinct.

87Cf. R.W. Davis (1995: vii–viii), in his foreword to the distinguished series, The Making of Modern Freedom: “We use freedom in the traditional and restricted sense of civil and political freedom—freedom of religion, freedom of speech and assembly, freedom of the individual from arbitrary and capricious authority over persons and property, freedom to produce and to exchange goods and services, and the freedom to take part in the political process . . .” Davis, the Director of the Center for the History of Freedom at Washington University, in St. Louis, the sponsor of the series, adds that this modern idea of freedom must be sharply differentiated from “the boundless calls for freedom from want and freedom from fear” of Franklin Roosevelt’s Four Freedoms.

88A year later, Rexford Tugwell, of Roosevelt’s “Brain Trust,” wrote in The New Republic that “the interest of the liberals among us in the institutions of the new Russia of the Soviets has created a wide popular interest in ‘planning.’” Cited in Gottfried 1999: 66.

89Cf. Gottfried, ibid. 13: “When Dewey decided to characterize his proposed social reforms as ‘liberal,’ he had already tried out ‘progressive,’ ‘corporate,’ and ‘organic.’”

90See Cranston (1967b: 7–8), where he makes this absurd statement: “Lord Acton proposed to write a history of mankind in terms of its struggle towards freedom. . . . Acton seems to have meant by ‘freedom’—freedom from the constraints of nature, freedom from disease and hunger and insecurity and ignorance and superstition.” This Cranston calls the Progressive theory of freedom, which culminates in the welfare state.

91Ellen Paul adds, that in Mill’s view, “without such a limitation on the recipients of public alms, future dependent populations would eat away the substance of society.”

92Holmes’s argument that tax-funded provision of army, police, and judiciary are liberal concessions to welfarism, though still unconvincing, is more interesting. There are two possible rebuttals. First, that the classical liberals were, in fact, inconsistent, and that a thoroughgoing liberalism must eventuate in anarcho-capitalism. Second (and closer to traditional liberal thinking), that there is a qualitative difference between tax-funding for, on the one hand, an apparatus presumed to be indispensable to the survival of society (a state with an army, police, and justice system) and, on the other, for unlimited benefits to the “underprivileged.”

93Cf. Krieger 1963: 557, who writes (favorably) of mercantilism that it “sponsored the three kinds of activity commonly associated with the welfare state: regulation of the economically strong, support and direction of the economically weak, and the state’s own enterprise where private initiative is wanting . . . whatever the ultimate motivation, the material well-being of the working population was a constant concern of the mercantilist statesman.”

94Cf. Goetz Briefs 1930/31: 94–95. According to Briefs, liberalism arose as a reaction to the mercantilist attempt “to regard and treat economy and society as a branch of the public administration. Against this stands the thesis of liberalism: the state has no economic task. It also has no social task [aside from protection of liberty and property domestically and defense against foreign foes]. . . . In this way economy and society are separated out from the totality formed and composed by the state. This world runs by itself . . .”

95This has, of course, been the end result of modern-day social security systems.

96For all its many faults, Hirschman’s The Rhetoric of Reaction (1991: 131–32) has the merit of pointing out the “tension” between the liberal tradition and the values underlying the modern welfare state. Hirschman notes that: “Perhaps this is the basic reason why social welfare policies were pioneered by Bismarck’s Germany, a country singularly unencumbered by a strong liberal tradition.”

97Maurice Cowling (1990) has suggested the linkage between John Stuart Mill and today’s “parties of civic and bureaucratic virtue,” including militant environmentalists and radical feminists, in his introduction to the second edition of his 1963 work.

98Reinhard adds that “legitimation through the fiction of popular sovereignty allows intrusions of state power into society to appear as those of society into itself.” Reinhard’s whole analysis of the parallels between the welfare and totalitarian state (458–67), the culmination of his magisterial history of state power, is highly illuminating.

99Even as learned a scholar as Pierre Manent suggests (1987: 8–11; emphasis in original) that liberalism “was thought and willed before being put into practice,” and that it “assumes a conscious and ‘constructed’ project.” His stress on the heavy reliance of the American founders on Montesquieu ignores other sources of American constitutionalism, such as English and colonial legal and political traditions, in turn conditioned by the distinctive societies in which they developed.

100Some years back, it was much more common than it is now for classical liberalism to be contemptuously dismissed as the ideology of the rising, self-seeking bourgeoisie. According to Harry K. Girvetz (1963: 24, 60), the classical liberal program was “largely determined” by “the needs and aspirations of the merchants and manufacturers.” Following Harold Laski, Girvetz quoted Arthur Young: “Everyone but an idiot knows that the lower classes must be kept poor or they will never be industrious.” Taking Arthur Young rather than, say, Adam Smith or Condorcet as representative of eighteenth-century liberal thinking is so peculiar that it must be ascribed either to sheer, disqualifying ignorance or to bad faith, depending on how charitable one cares to be.

101Cf. Murray Rothbard’s judgment 1995c, 1: 313 that the Levellers were “the world’s first self-consciously libertarian movement . . . while the economy was scarcely a primary focus of the Levellers, their adherence to a free market economy was a simple derivation from their stress on liberty and the rights of private property.”

102Cf. Patterson 1997: 25–26: “. . . Locke’s understanding of the need for toleration was broader and deeper than [John} Milton’s. . . . And when Thomas Jefferson sat down in 1776 to prepare his speeches in connection with the disestablishment of the church in Virginia, he used Locke’s Letter concerning Toleration as a stepping-stone for another advance in the theory of toleration. Jefferson’s notes mark the leap of logic succinctly: ‘It was great thing to go so far (as he [Locke] himself says of the parl. who framed the act of tolern.) but where he stopped we may go on.’”

103Cf. Hume 1985: 604–05 (emphasis in original): “It has also been found, as the experience of mankind increases, that the people are no such dangerous monster as they have been represented. . . . Before the United Provinces set the example, toleration was deemed incompatible with good government; and it was thought impossible, that a number of religious sects could live together in harmony and peace, and have all of them an equal affection to their common country and to each other. ENGLAND has set a like example of civil liberty . . .”

104Cf. Hardin 1993: 121: “. . . economic liberalism more or less grew. It was analyzed and understood retrospectively rather than prospectively. It came into being without a party or intellectual agenda. By the time Bernard Mandeville, Adam Smith, and others came to analyze it, they were analyzing characteristics of their own society. Insofar as they had programs, these were for reforms of political practice to end elements of state-sponsored monopoly and protection.” Hardin contrasts this with the “invention” of political liberalism.

105Cf. Norman Barry 1991: 160: “Liberalism began in eighteenth-century Europe with the discovery that there are ordering mechanisms in society that maintain stability (or a kind of equilibrium) without central control.”

106Briefs states, of his use of “ideal-typical constructions,” that they “throw into relief essential basic ideas of liberalism, without consideration of the qualifications that can be found in individual authors, are logically enhanced and thought out to the end.”

107Cf. Sadri 1992: 16 and 11–22: “a historical ideal type is the result of one-sided accentuation and stylization of historical facts . . . [it] is warped and lopsided, for it carries more logical consistency and less factual or historical detail than the reality it represents; and also because it favors certain elements of historical reality as ‘relevant’ and ‘significant’ to the exclusion of others.”

108See also the critique of Israel M. Kirzner 1976: 158–59, and Mises 1933: 71–88. The criticisms of Lachmann, Kirzner, and Mises are directed to what Raymond Aron 1970: 246–47 identified as the third kind of Weberian ideal-type, “rationalizing reconstructions of a particular kind of behavior.” Here it is the first kind, “ideal types of historical particulars,” that is being drawn on.

109Hekman 1983: 32 stresses Weber’s insistence on observing the “’logic’ inherent in the concepts themselves. When Weber states that the features which make up the ideal type will be combined ‘according to their compatibility,’ his point is that concepts cannot be thrown together in arbitrary fashion. Ideal types are not the product of the whim or fancy of a social scientist, but are logically constructed concepts.”

110Cf. Karlson 1993: 77, who writes of civil society that its modern meaning “as a kind of sphere outside and distinct from the political sphere or the state, emerges slowly in the eighteenth and nineteenth centuries. One major influence came from natural rights theorists, such as Thomas Paine, who, inspired by Locke, argued that most actual governments continuously tend to threaten the individual freedom and natural sociability in civil society. The state is in this perspective at best seen as a necessary evil, and civil society is viewed as a largely self-regulating sphere where the good life may be reached.” Hegel retained the contrast of civil society and state, while loading the former with a negative connotation. Karlson attempts to avoid what he sees as the normative slant of both of these approaches and defines civil society as: “the non-political relationships and behavioral patterns between a large number of interdependent actors within a given political territory. By ‘non-political’ is here meant social and economic arrangements, codes, and institutions that have evolved or exist without being directly created, upheld or enforced by the activities of the state, e.g. conventions, voluntary organizations, social norms and markets.” (Emphasis in original)

111Robert Skidelsky 1995: ix, defines collectivism—presumably the opposite of liberalism—as “the belief that the state knows better than the market, and can improve on the spontaneous tendencies of civil society, if necessary by suppressing them.” He describes this as “the most egregious error of the twentieth century. . .this belief in the superior wisdom of the state breeds pathologies which deform, and at the limit, destroy, the political economies based on it.”

112Cf. Norman Barry 1996b: 58: “Economic liberalism finds its ultimate logical conclusion in the doctrine of anarcho-capitalism.” Dahrendorf holds, however, that welfare liberalism is a valid continuation of the original liberal program.

113As Weber wrote 1949: 95: “An ideal type of certain situations, which can be abstracted from certain characteristic social phenomena of an epoch, might—and this is indeed quite often the case—have also been present in the minds of the persons living in that epoch as an ideal to be striven for in practical life or as a maxim for the regulation of certain social relationships.”

114Cf. the conclusion of one of the finest historians of liberalism (though not strictly a liberal himself), Albert Schatz 1907: 32: “little by little the idea will emerge and spread that the economic order is no more the artificial work of the legislator than the order that naturally reigns in the functioning of an organism is the work of the hygienist . . . that there is, in a word, a natural economic order and that this order is capable of being substituted for the artificial order of regulation. . . . The day that this idea is scientifically established one may say that the individualist [i.e., liberal] doctrine was born.”

115For a trenchant critique of varieties of the “new” liberalism and its modern descendents, see Conway 1995: 25–64.

116The nadir of intellectual bewilderment in abolishing the distinction between liberalism and socialism may have been reached by Eccleshall 1986: 62, who states: “the task of creating a more liberal society now lies with those people who strive to lay the foundations of a socialist future within the existing framework of capitalism: with socialists who recognize, in the words of Marx and Engels, ‘that mankind advances, not by leaps, but only step by step. . . . Only by degrees can private property be transformed into social property.’”

• 1Ludwig von Mises
• 2Raico’s profound and extensive knowledge of intellectual, political, and economic history are evident in each of the following essays and, in fact, virtually on each page of this book. His readers will also appreciate the warm passion he brings to the study of his subject, as well as his dry wit. Drawing from original sources in German, French, and Italian, as well as English, Professor Raico provides us with original scholarship on the history of liberalism from a decidedly liberal, though not exclusively Anglo-Saxon perspective. What is more, he definitely has the talent to rouse his readers to emulate the deeds of earlier generations. It was through Raico’s book Die Partei der Freiheit (The Party of Freedom) that I and many other Germans first heard of Eugen Richter, the champion of true liberalism in fin de siècle Germany. Forgotten by virtually everyone except for his social-democratic detractors, Richter has made a comeback in the past ten years and some of his major writings are again in print. Today his words and deeds inspire a new generation of intellectuals and politicians. Thank you for that lesson, Professor Raico! If Germany returns to the tradition of true liberalism, we shall have in Berlin a Raico Straße leading to the Richter Platz.
• 3Erich Streissler 1990a.: 60 has even maintained that it is in this area that Menger’s achievement is to be found, and not in co-initiating the marginalist revolution.
• 4Eugen von Böhm-Bawerk, for instance, stated (1891: 380–81): “We must not weary of studying the microcosm if we wish rightly to understand the macrocosm of a developed economic order . . . we must seek an understanding of the phenomena of great things in the study of the world of small things.” F.A. Hayek, who probably did more than anyone else to identify Austrianism with methodological individualism, wrote (1973: 8): “The consistent use of the intelligible conduct of individuals as the building stones from which to construct models of complex market structures is of course the essence of the method that Menger himself described as ‘atomistic’ (or occasionally, in manuscript notes, as ‘compositive’) and that later came to be known as methodological individualism.”
• 5Elster makes the important point (1985: 5; emphasis in original): “It is not only our confidence in the explanation, but our understanding of it that is enhanced when we go from macro to micro, from longer to shorter time-lags. To explain is to provide a mechanism, to open up the black box and show the nuts and bolts, the cogs and wheels, the desires and beliefs that generate the aggregate outcomes.”
• 6The Austrian method also involves a universalism that has strong affinities with liberalism, in contrast to certain forms of conservatism. As Mises stated (1969: 38): “As against the declarations of Schmoller and his followers, [the Austrians] maintained that there is a body of economic theorems that are valid for all human action irrespective of time and place, the national and racial characteristics of the actors, and their religious, philosophical, and ethical ideologies.”
• 7On the general philosophical background of the Austrian School, see especially Gordon 1993, also Smith 1994c. Pearson 1997: 31 attempts to minimize the differences between the German Historical School and the early marginalists (including the Austrians), maintaining that both were allegedly reacting against the Classical School (of mainly British political economy), rather than one another. His analysis fails to inspire confidence, however, since it is based on his assumption that the marginalists “displace[d] interest away from ‘value,’ that transcendent quality that had never quite lost the imprint of natural law, and toward ‘price,’ a frankly social phenomenon . . .”
• 8See Gellner 1968: 256 n. 4, where M. Ginsberg is cited: “those who refuse to accept methodological individualism . . . are well aware . . . of the dangers of concentrated power. But they deny that the only choice open to us is between a spontaneous competitive order on the one hand, and a system of all-pervading control on the other.” See also Gellner’s own comment on the same page: “[Methodological] individualists who attempt to save us, in the name of logic and liberty, from misconstruing our situation, are not wholly free at all times from suspicion that a little propaganda for laissez-faire is being hitched on to those very general issues.”
• 9In his account of the Great Depression (1963), as well as other works, Rothbard applies theory to help explain quite concrete historical events, often interpreting those events in the light of the “class” (or, “caste,” in the stricter, Misesian-Rothbardian terminology) interests involved. See also the comment by Garrison and Kirzner (1989: 121) that, among other scientific merits, “Hayek’s business cycle theory provided a basis for interpreting much of 19th-and 20th-century economic history.”
• 10Cf. White 1984: 4: “The subjective approach to economic phenomena builds economic analysis upon the insight that every individual chooses and acts purposively. . . . This approach has been the hallmark of the Austrian School from its inception in the 1870s to the present day, although different members have defended their method in different ways.” Cf. also Vaughn 1990: 382: “The human being that is the subject of Menger’s study . . . cannot be summarized by a static and fully defined preference function. . . . He is an active creator both of himself and of his world. And creation is a process rather than a state of affairs.”
• 11In contrast to Pareto, in the Austrian view, consumers are viewed, not as fixed loci of consumption functions, but as sources of incessant change, who also play an entrepreneurial role (Mises 1949: 253–54). As for Pareto, despite the positivism and apparent “anti-individualism” of his methodology, he was all his life a fervent economic liberal; see Finer 1968 and the essay on “Ludwig von Mises’s Liberalism on Fascism, Democracy, and Imperialism,” in the present volume.
• 12Cf. Kirzner’s remarks 1976b: 59: “It is easy to see how foreign the notion of the ‘automatic maintenance of capital’ [the Clark-Knight concept] must have appeared to Mises. An approach that concentrates analytical attention—as Austrian economics does—on the purposive and deliberate decisions of individual human beings when accounting for all social economic phenomena must treat the notion of capital as a spontaneously growing plant as not merely factually incorrect but simply absurd.”
• 13Cf. the statement of the self-described Austrian “fellow traveler,” Leland Yeager 1995: 219: “economics deals with human choices and actions, not with mechanistically dependable relations. The economy is no machine whose ‘structure’ can be ascertained and manipulated with warranted confidence.” There are no constants in economics comparable to those in the natural sciences, and “no amount of cleverness with econometrics can make the nonexistent exist after all.” See also Yeager 1997, where, after a judicious evaluation of Austrian economics, the author suggests some reasons for the relative neglect of the Austrian school by the mainstream of the profession.
• 14See especially the works attempting to develop Misesian ideas on this topic by Israel M. Kirzner, beginning with Kirzner 1973; and the exposition by Rothbard 1997, 2: 245–53. Jaffé 1976 argues that decisive differences between the Austrian and neoclassical approaches that existed from the start have been overlooked because of the tendency to “homogenize” Menger, Jevons, and Walras as co-founders of “the marginalist revolution.”
• 15For an informative discussion of other contrasts between Austrianism and neoclassicism, see Huerta de Soto 1998.
• 16Herbert Matis remarks (1974: 257) of the early Austrian school that “this new intellectual approach in economics was subjective, relative, and psychological, since it started from the human being and not from abstract concepts; it signified, therefore, to that degree a departure from classical liberalism.” The confusions evident here are not untypical of the superficial treatment of liberalism by many writers on its history.
• 17Cf., for instance, Edward G. Dolan’s critique 1976b: 6, 11 of “mainstream economics”: “it necessarily omits an important component of reality—the concept of purposive action,” while Austrianism “insists on laying bare the true causal relationships at work in the social world and is not content to simply establish empirical regularities among dubious statistical aggregates.” Austrianism offers “a microeconomic approach to macroeconomic problems.”
• 18See also the trenchant analysis in two essays on the subject by Rothbard 1997, 2: 180–84 and 217–25.
• 19Cf. the perceptive and important comment by Lawrence Birken (1988: 256): “Only with the emergence of marginalism was individual taste decidedly emancipated from the idea of universal need. With occasional exceptions, pre-marginalist thought had ignored or downplayed the significance of the idiosyncratic consumer, thus precluding the recognition of consumer preference as a mark of individuality. Early economic thought, functioning as a kind of secular morality which sought to uphold the idea of the ‘normal,’ conceived of need or utility in universal terms. . . . Only with the advent of marginalism do we see the emergence of a genuinely individualistic desire.” Birken’s analysis, however, would appear to apply much more to the Austrian than the neoclassical variant of marginalism.
• 20Hayek himself lent some support to Hutchison’s distinction between Mises and “Hayek II” in his foreword to a reprint of Mises’s Socialism (Mises 1981: xxiii-xxiv), when he criticized Mises’s claim that “all social cooperation [is] an emanation of rationally recognized utility,” as both “factually mistaken” and an expression of Mises’s “extreme rationalism.” But the general thrust of this passage is to downplay his disagreement with Mises. Hayek states, for instance, that Mises “largely emancipated himself from that rationalist-constructivist starting point,” and that “Mises as much as anybody has helped us to understand something which we have not designed.”
• 21Mises never claimed that the specific motivations of human action, in the psychological sense, were relevant to economics; rather it was a question of preferences as demonstrated in action.
• 22It should be noted that Friedman expressed these views in a popular address. Still, it is difficult to see how his argument could be made substantially more rigorous or coherent. Friedman declares, for example, that we must “beware of intolerance [such as Mises supposedly displayed] if we’re going to be really effective in persuading people,” yet concedes, very graciously, that “there is no doubt in my mind that Ludwig von Mises has done more to spread the fundamental ideas of free markets than any other individual” (1991: 18). Friedman’s brief account of Ayn Rand’s allegedly a priori philosophy is simply uninformed and incorrect.
• 23To those familiar with Mises’s achievements (see Rothbard 1988; Hoppe 1993; Reisman 1998; Zlabinger 1994; Ebeling 1981), the attempt of Hutchison and others to minimize them is more ludicrous than troubling, e.g., Erich Streissler’s assertion, regarding Mises (1990b: 109; see also 1988: 200) that, “not without truth, though certainly with little charity, [he] might be called the arch-lobbyist for entrepreneurial concerns in interwar Austria.”
• 24On the question of apriorism, it is worth noting that Hayek (1955: 221 n.1) wrote of John Locke that he regarded “the moral sciences” (ethics, political theory, etc.) “as a priori sciences comparable with mathematics and of equal certainty with it.” The context makes it clear that Hayek is here passing a favorable judgment on Locke. It is doubtful whether either Hayek or Hutchison would have wished to classify Locke as “a false individualist.”
• 25For an incisive critique of Popperian falsificationism, see Gordon 1993: 34–41.
• 26See also de Jasay 1991b. Gerard Radnitzky 1995: 49–84, especially 50, 64, 83, has criticized Popper’s oft-repeated praise of Marx as a “humanist,” as well as his political philosophy in general. He holds Popper’s concessions to “a not thought-through social democracy” to have been a “survival strategy,” which permitted him to find a wide readership for his views. This Radnitzky contrasts to Mises, who simply refused to compromise with the statist spirit of the times. Radnitzky’s view paints Popper as a hypocrite and an opportunist, which does not seem right.
• 27Popper’s knowledge of the history of liberal thought was astonishingly deficient. He held, for instance, 1992: 10 that Hayek originated the notion that complete socialism entailed political enslavement (and that Mises derived it from Hayek). But this idea was a commonplace among late-nineteenth century liberals, as evidenced by Herbert Spencer’s essay, “The Coming Slavery,” Yves Guyot’s La tyrannie socialiste, Eugen Richter’s Pictures of a Social-Democratic Future, and other works.
• 28On the influence of Capitalism and the Historians, see Taylor 1997: 162–64. In a learned study, Jeremy Shearmur (1996) has argued that, despite Popper’s evident social-democratic attitudes, the implications of his ideas are more closely related to classical liberalism than Popper himself understood. Whatever the validity or scope of that claim, there is the anterior and more fundamental question—whether Popper’s ideas on politics, based as they are on grossly incorrect historical and economic notions, are even important enough to warrant extended examination in the first place. Popper’s superficiality in dealing with political issues is nowhere more obvious than in his 1956 tour d’ horizon of the world scene, “The History of Our Time: An Optimist’s View” (1962: 364–76). Here he declares that “our own social world is the best that has ever been”—neglecting, among other things, the Chinese, around one-fifth of the human race and then living under the Maoist terror regime. He not only implies, for no good reason, that the disappearance of “class differences” is desirable, but announces, absurdly, that in the United States (and elsewhere) “we have, in fact, something approaching classless societies.” Similarly, in a tribute to Hayek (Popper 1997: 321, from a talk given in 1992), Popper recalls that often in conversations with Hayek, he criticized Mises’s conduct of the fight against “what was then called . . . protectionism, or state-protectionism” (sic—presumably, Popper is referring to what everyone else calls interventionism), because “in a complex society, anything approaching a free market could only exist if it enjoyed the protection of laws, and therefore of the state. Thus the term ‘free market’ should always be placed in inverted commas, since it was always bound, or limited, by a legal framework and made possible only by this framework.” On Popper’s “logic,” then, terms like “freedom of the press” and “religious freedom” should also always be placed in inverted commas, for the same reason.
• 29On some differences between Mises and Hayek in connection with the famous debate, see Keizer 1994.
• 30For a statement of this position, see März 1991: 101–05, where the author, in what purports to be a scholarly work, adopts the Marxist polemical tactic of characterizing Mises as having launched “the theoretical and ideological counter-offensive of the Austrian bourgeoisie” in his critique of socialist planning.
• 31Karen Vaughn 1994 maintains that the use by socialist writers of neoclassical theory to derive market socialist responses to the Austrian assault sensitized both Mises and Hayek to the distinctively Austrian components of their argument.
• 32Cf. Dasgupta 1985: 80: in contrast to classical economics, “consumption, not accumulation, appears in marginalist economics as the mainspring of economic activity. The new system, so to say, substitutes ‘consumers’ sovereignty’ for ‘capitalists’ sovereignty.’”
• 33It should be noted that by including the state in the same category as such social formations as language and markets, Menger is obscuring the crucial liberal distinction between state and civil society, coercion and voluntarism.
• 34Emil Kauder 1965: 61 points out that Menger opposed religious bigotry, anti-Semitism, militarism, dueling, and the glorification of war, and “was very critical of the feudal pillars of the Habsburg monarchy—clergy, army, and nobility.” A number of these are traditions or institutions which, it could well be argued, had developed “spontaneously.”
• 35In his last work on politics, Considerations on the Government of Poland, Rousseau, who is still viewed by many as a serious political thinker, continued his idolization of Lycurgus, while spelling out the totalitarian implications of his childish infatuation: “He showed them [the Spartans] their country unceasingly, in their laws, their games, their homes, their loves, their feasts. He did not allow them a moment to be by themselves alone. And from this continual constraint, ennobled by its object, was born that ardent love of country . . .” See Crocker 1973: 335.
• 36Wieser maintained 1923: 91–92 that, before Menger, all the schools of economic thought “pursued the interests of one of the great economic parties . . . [and] sought evidence for their partisan interest.” Very oddly, he even employs the Marxist terminology of “bourgeois” and “proletarian” economists, going so far as to assert that the “proletarian,” i.e. socialist, economists, will be able to learn from Menger’s economic theory, without “in any way giving up their fundamental standpoint”; rather, they will be able to “strengthen their standpoint.”
• 37It was left for Erich Streissler among non-socialists to impute a class interest to the Austrian economists (1988: 200–01): “after the end of the monarchy the members of the School belonged to the old ruling class dispossessed of power and mostly expropriated through the hyperinflation which had abolished their rentier capital. No wonder they were particularly critical of the state.”
• 38Fetter 1923: 602 noted that the negative implications of the subjective theory for Marxian economics appears more clearly in Wieser’s and Böhm-Bawerk’s works, but maintained that “this application had, however, been recognized from the very beginnings of the subjective school.” While he cites no particular evidence, he may have had in mind, for instance, Menger’s critique of Rodbertus’s claim that capitalists and landowners expropriate the product of labor and thus “live without working.” To this Menger 1981: 168 n. 30 countered that they live “upon the services of their land and capital which have value, just as do labor services, both to individuals and to society.”
• 39Streissler 1990a: 64 makes the peculiar statement that: “Perhaps Bukharin is not that far off the mark after all when he thinks it [Austrian economics] is the economics of the rentier.” However, Günther Chaloupek, an author sympathetic to Marxism, is considerably closer to the mark when he states 1986: 221, in discussing Bukharin’s critique of Austrianism: “But: if the marginal utility school drew attention to demand, this was certainly not in the first instance a symptom of the beginning of age of the rentier, but rather a reflex of the increased standard of living of the masses as well in the train of capitalist expansion.”
• 40Joan Robinson, on the other hand, argued 1962: 52, emphasis in original, that while “the whole point of utility was to justify laisserzfaire,” the theory had inherently egalitarian and redistributionist implications.
• 41That the approach to the history of economic thought centering on the British tradition from Smith to Mill must be abandoned is argued by Murray N. Rothbard (1976a). Rothbard persuasively claims 1976a: 53 that a more informed interpretation would see “Smith and Ricardo, not as founding the science of economics, but as shunting economics onto a tragically wrong track, which it took the Austrians and other marginalists to make right.” Citing works by Marjorie Grice-Hutchinson and Raymond de Roover, Rothbard emphasizes the importance of medieval and early modern thinkers, particularly the Spanish Late Scholastics. These themes also pervade Rothbard’s history of economic thought 1995c, where the Late Scholastics are treated in 1: 97–133. See also Jesús Huerta de Soto 1999.
• 42Oscar Morgenstern 1927: 673–74, however, had a sharply different interpretation of Wieser’s last work, Gesetz der Macht, and incongruously characterized Wieser as a “convinced pacifist.”
• 43Streissler 1986: 100 points out that Wieser’s constant references to “the socialist state of the future” influenced his student Joseph Schumpeter in the latter’s assessment of the probable course of historical development.
• 44Even as regards Wieser’s economic theory, Mises 1978b: 36 concluded that he “could not be called a member of the Austrian School, but was rather a member of the Lausanne School . . .” This viewpoint is cogently set forth in Hoppe and Salerno 1999.
• 45Cf. Streissler’s insightful remark 1987: 24: “Through Menger his school became a vessel of economic liberalism, at a time when in other countries it stood under an unlucky star. This school took over a then ‘lost cause,’ and nursed liberalism at the time of its deepest ebb—especially in the period between the wars.”
• 46Kauder 1965: 64 asserts of Menger: “He was not a consistent defender of free competition, and he was not a socialist, although his brother, the famous socialist Anton Menger, had some influence on him.”
• 47Paul Silverman, however, 1990: 85, 90–91 criticizes Kauder on the nature of the Austrian background of Menger’s work (as well as on Menger’s alleged methodological dependence on Aristotle). Silverman points up the importance in Austrian history of a school of liberal cameralists, including the key figure of Joseph von Sonnenfels, who posited “a system of preestablished social harmony which the state was to watch over and protect.” Josef von Kudler, whose work on economics was the standard textbook in Austrian universities in the decades before the appearance of Menger’s Principles, likewise displayed “a staunchly liberal outlook.” In Silverman’s view, the impact of the “Austrian tradition” on Menger was not in the direction of conservatism, spurring the search for a Metternichian stability; instead, it may mainly have worked to convey the notion of objective, rational ends for man in society. This set a limit to Menger’s subjectivism, leading him, for instance, to differentiate real from imagined needs.
• 48Böhm 1990: 232 n. 2 suggests that Mises’s extreme liberal viewpoint was out of step with the general position of the founders of Austrianism, who tended towards “a kind of ‘enlightened conservatism’ (in the European sense), or ‘paternalistic conservatism’—allegations of laissez faire repeated ad nauseam notwithstanding.”
• 49At the University of Vienna, Hans Mayer, who was all that was left of the Austrian school after the Anschluss with Nazi Germany, also held that Mises’s radical liberal conclusions were not inherent in the school’s teachings (Craver 1986: 10–11). This is easily understandable, given Mayer’s position as a functionary of the new National Socialist regime. The tradition of attempting to disassociate Mises’s “personal,” “Manchester-liberal” world-view from “the objective findings of the Austrian school” was carried on by Weber 1949: 644.
• 50Hans-Hermann Hoppe puts the matter very well. When Mises arrived in the United States in 1940, he was already “an international scientific celebrity,” and his influential works, The Theory of Money and Credit and Socialism had been available in English for years. “But while every third-class European Marxist or ‘Marxian’ of the time found a respectable academic position without any difficulty, in the land of capitalism the American universities and intellectuals plainly and shamelessly turned a cold shoulder to Mises, the great theoretician of liberalism and capitalism.” Mises finally obtained a position at New York University, but only as permanent guest professor, and the university did not pay his salary, which was covered from private sources. Hoppe 1993: 27–28, 30, 34 n. 24. Hayek’s situation was analogous. While he did become a professor on the Committee on Social Thought, he was deemed unsuitable, not “scientific” enough (i.e., not sufficiently positivist) by the economics department of George Stigler and Milton Friedman, and his salary was likewise paid from outside sources.
• 51Cf. Steele 1992: “The fact that there were capable liberal thinkers in Europe after World War II is mainly due to the influence of Die Gemeinwirtschaft [Mises’s Socialism] during the inter-war years. There might not have been any West German ‘economic miracle’ without the existence of a handful of active people converted from socialism by Mises.” See also Roll 1945: 176: “Hayek and his Viennese colleagues have been the leaders of an astonishing movement of revival [of individualism and liberalism] which in the early thirties began to appear also in England. . .There in nothing quite comparable to this movement in the United States.”
• 52See in particular Joseph T. Salerno’s perceptive introduction to Hayek’s Prices and Production and Other Works, “Hayek on the Business Cycle,” Mises Daily, October 8, 2008.
• 53On Hayek’s position, see Shearmur 1997. The German “neo-liberal” Alexander Rüstow was one of many who could not differentiate the position of Hayek from that of “his master Mises,” viewing both as “the last surviving examples” of the “old liberalism,” fit to be placed in a museum; see Kathrin Meier-Rust 1993: 69–70. Meier-Rust herself (91) discusses the sharp differences between the German “neo-” and “Ordo-liberal,” and the “classical laissez-faire champions” like Hayek.
• 54See also Streissler 1987: 10: “pronounced liberals, at least in the eighteenth and nineteenth centuries, were rather averse to a redistributive function [of the state]. On the other hand, Friedrich von Hayek, for instance, is no longer of this opinion. He believes only that the pursuit of Sozialpolitik should not be attempted with the help of the market but through transfers independent of the market.”
• 55Hayek also later remarked that another error in The Road to Serfdom was his neglect of the significance of the experience of Soviet Communism, adding, rather oddly, that this was a fault “which is perhaps pardonable when it is remembered that when I wrote Russia was our wartime ally.” This is a curious inversion of the strange criticism leveled at The Road to Serfdom by Erich Roll, in the American Economic Review (1945: 180): “Hayek might have stopped to reflect upon the very different development during the last few pre-war years in Germany and in the Soviet Union, and he might have had the grace, at the least, to acknowledge the very different manner in which the war itself has been conducted by the enemy and by our ally: we have yet to be shown that Maidanek is an inevitable corollary of a collective economy” (1945: 180). Evidently, Professor Roll and his equally ignorant editors at the American Economic Review had somehow never heard of the Ukrainian terror famine, the mass executions, or the system of forced labor camps known today as the Gulag, all conducted by our noble wartime ally, the model terror state of the twentieth century.
• 56Cf., e.g., Mises, 1949:149: “State or government is the social apparatus of compulsion and coercion. It has the monopoly of violent action. . . . The state is essentially an institution for the preservation of peaceful interhuman relations. However, for the preservation of peace it must be prepared to crush the onslaughts of peace-breakers.”
• 57Hans-Hermann Hoppe 1994: 67 has ventured to assert that “Hayek’s view regarding the role of market and state cannot systematically be distinguished from that of a modern social democrat.” But see the attack on Hayek for his rejection of the concept of social justice by a social democratic writer, in Plant 1994.
• 58Late in his life, Hayek 1994: 68, 72–73 referred to his “curious relationship” to Mises, from whom “I probably learnt more than from any other man.” Here Hayek made the confusing claim that “Mises remained in the end himself a rationalist-utilitarian, and with a rationalist-utilitarianism, the rejection of socialism is irreconcilable. . . . If we remain strict rationalists, utilitarians, that implies that we can arrange everything according to our pleasure.” At an earlier stage, Hayek’s judgment of Mises had been much more positive. In 1952, Hayek wrote 1952: 729–30 of Mises that “since the early twenties [he] has been building a new edifice of liberal thought more consistently, more systematically, and more successfully than anyone else . . . his work resemble[s] that of the great social philosophers of the eighteenth century much more than the labors of a contemporary expert . . . he alone has given us a conclusive treatment of all economic and social thought,” Hayek asserted, adding, “whether or not one concurs with him in every detail.”
• 59Ludwig von Mises, Theory and History (New Haven: Yale University Press, 1957), p. 294.
• 60R. Raico, Die Partei der Freiheit (Stuttgart: Lucius & Lucius, 1999). The book is available online at http://docs.mises.de/Raico/die_partei_der_freiheit_raico.pdf
• 61Methodological individualism has been a keystone of Austrian economics from the start (Christainsen 1994). In his Investigations, Menger wrote:
• 62Methodological individualism was endorsed by the other leaders of Austrianism to the point where Fritz Machlup (1981: 9) could list it as the first of “the most typical requirements for a true adherent of the Austrian school.”
• 63It is certainly possible for someone to adopt methodological individualism and not endorse liberalism (Böhm 1985: 252–53). Jon Elster, for instance, is able to insist on the necessity of methodological individualism in the social sciences, while continuing to view himself as a kind of Marxist (1985: 4–8). Yet it is significant that Elster dismisses certain claims of Marx on the grounds of their incompatibility with methodological individualism. In general, it seems clear that the Austrian approach in methodology tends to preclude certain holistic ideologies that are also inconsistent with liberalism, such as classical Marxism and some varieties of racism and hyper-nationalism. To this extent, then, it is not simply methodological individualism.
• 64It is certainly possible for someone to adopt methodological individualism and not endorse liberalism (Böhm 1985: 252–53). Jon Elster, for instance, is able to insist on the necessity of methodological individualism in the social sciences, while continuing to view himself as a kind of Marxist (1985: 4–8). Yet it is significant that Elster dismisses certain claims of Marx on the grounds of their incompatibility with methodological individualism. In general, it seems clear that the Austrian approach in methodology tends to preclude certain holistic ideologies that are also inconsistent with liberalism, such as classical Marxism and some varieties of racism and hyper-nationalism. To this extent, then, it is not simply methodological individualism.
• 65Political factors played a role in the debate over Austrian methodology from the start. The very fact that “nation” and “state” understood as holistic entities were not primaries in his system set Menger apart from important currents of economic thought in the German-speaking world of his time. Indeed, it was on the basis of Menger’s methodology that Gustav Schmoller, leader of the German Historical School, instantly politicized the whole debate at the very start of the famous Methodenstreit (dispute over methods) (Bostaph 1978 and 1994). Reviewing the Investigations, Schmoller (1883:241) charged Menger with the cardinal sin of adhering to Manchestertum (laissez-faire), since his abstract and “atomistic” method might better be called “the Manchesteristindividualist” method.
• 66Furthermore, according to Hayek, the supposed discovery of such laws has resulted in the construction of philosophies of history on which major socialist projects have been erected—Marxism, of course, but particularly Saint-Simonianism, the system he dissects in his book. The followers of the early “utopian” socialist, Henri de Saint-Simon, were practitioners par excellence of scientism, the illegitimate application to the study of society of the methods of the natural sciences. And it is scientism—the negation of methodological individualism—that “through its popularizers has done more to create the present trend towards socialism than all the conflicts between economic interests . . .” (1955: 100–01). Opponents of liberalism, in criticizing Hayek for his methodological individualism, have also assumed that it was closely connected to his political philosophy.
• 67This Marxist complaint is misguided, however. The abstracting approach of Austrianism pertains—necessarily—to its theory. Some Austrians, it may be conceded, have neglected to apply their theory to the understanding of concrete, “real-life” issues. That this failing is not intrinsic to Austrian economics, however, was demonstrated—to cite only one example—by the outstanding Austrian economist, Murray N. Rothbard, who devoted much of his extremely productive career not only to “pure economics,” but also to highly important questions of political economy, both on a theoretical level and in specific historical contexts (see, e.g., Rothbard 1963, 1970, 1995a, 1995b, 2002).
• 68the thought design, the economic calculation or economic plan of the individual, always stands in the foreground of theoretical interest. . . . The significance of the Austrian school in the history of ideas perhaps finds its most pregnant expression in the statement that here man as an actor stands at the center of economic events. (1978: 47, 51; emphasis in original)
• 69This standpoint may be contrasted to that of neoclassical theory, of which Lachmann went so far as to declare: “Fundamentally, we cannot really speak of economic activity here. As in nature, people react to the current external conditions of their economic existence: they do not act.” In support of this rather severe judgment, Lachmann cited the statement of Vilfredo Pareto: “The individual can disappear, provided that he leaves us this photograph of his tastes.” Incensed by such a depreciation of individual acting man, Lachmann assailed the “arid formalism” of neoclassical economics, which treats “the manifestations of the human mind in household and market as purely formal entities, on par with material resources” (1978: 51, 56, 181; emphasis in Lachmann).
• 70This standpoint may be contrasted to that of neoclassical theory, of which Lachmann went so far as to declare: “Fundamentally, we cannot really speak of economic activity here. As in nature, people react to the current external conditions of their economic existence: they do not act.” In support of this rather severe judgment, Lachmann cited the statement of Vilfredo Pareto: “The individual can disappear, provided that he leaves us this photograph of his tastes.” Incensed by such a depreciation of individual acting man, Lachmann assailed the “arid formalism” of neoclassical economics, which treats “the manifestations of the human mind in household and market as purely formal entities, on par with material resources” (1978: 51, 56, 181; emphasis in Lachmann).
• 71Israel Kirzner, too, has noted the uniqueness of the Austrian outlook. Both the earlier Ricardian and the current neoclassical economics exhibit a “mechanical quality,” whereby “human aspirations, human errors, and human discoveries are downplayed, ignored, or simply assumed away.” Austrian economics, on the other hand, highlights the alertness, inventiveness, fallibility, and resourceful creativity of all the participants in the market process, especially in the case of the entrepreneur and the entrepreneurial function. This is a distinctive Austrian outlook which Kirzner traces back to Menger, whose originality consisted in his “vision of an economy created and shaped by human action” (Kirzner 1994, 1: xiv, xxiv). For neoclassical economic theory, on the other hand, as one practitioner has ruefully admitted, entrepreneurs and entrepreneurship simply do not exist (Rosen 1997: 148–49).
• 72Israel Kirzner, too, has noted the uniqueness of the Austrian outlook. Both the earlier Ricardian and the current neoclassical economics exhibit a “mechanical quality,” whereby “human aspirations, human errors, and human discoveries are downplayed, ignored, or simply assumed away.” Austrian economics, on the other hand, highlights the alertness, inventiveness, fallibility, and resourceful creativity of all the participants in the market process, especially in the case of the entrepreneur and the entrepreneurial function. This is a distinctive Austrian outlook which Kirzner traces back to Menger, whose originality consisted in his “vision of an economy created and shaped by human action” (Kirzner 1994, 1: xiv, xxiv). For neoclassical economic theory, on the other hand, as one practitioner has ruefully admitted, entrepreneurs and entrepreneurship simply do not exist (Rosen 1997: 148–49).
• 73Israel Kirzner, too, has noted the uniqueness of the Austrian outlook. Both the earlier Ricardian and the current neoclassical economics exhibit a “mechanical quality,” whereby “human aspirations, human errors, and human discoveries are downplayed, ignored, or simply assumed away.” Austrian economics, on the other hand, highlights the alertness, inventiveness, fallibility, and resourceful creativity of all the participants in the market process, especially in the case of the entrepreneur and the entrepreneurial function. This is a distinctive Austrian outlook which Kirzner traces back to Menger, whose originality consisted in his “vision of an economy created and shaped by human action” (Kirzner 1994, 1: xiv, xxiv). For neoclassical economic theory, on the other hand, as one practitioner has ruefully admitted, entrepreneurs and entrepreneurship simply do not exist (Rosen 1997: 148–49).
• 74In this whole area there is a strong link to an important element of classical liberalism, as exemplified, for instance, in the early Wilhelm von Humboldt, Benjamin Constant, and Herbert Spencer. In combating authoritarian ideologies, liberal thinkers focused on the individual human being per se (i.e., irrespective of class, race, etc.) as the fountainhead of creative response to an ever-changing world. From this they derived the basic liberal demand for as wide a latitude as possible for individual freedom of choice and action.
• 75On the level of policy, Austrianism’s individualist and subjectivist methodology tends, indirectly at least, to sway decisions in a liberal direction. Austrian economists are skeptical of the macroeconomic models devised by “mainstream economists,” with their assumption that various global magnitudes act upon one another. There appear to be affinities between a macroeconomic approach and anti-liberal policies. Hayek, for example, wrote, of the heightened interest in macroeconomic statistics associated with the Keynesian revolution:
• 76It was largely a growing demand for greater deliberate control of the economic process (which required more knowledge of the specific effects to be expected from particular measures) that led to the endeavor to use the obtainable statistical information as the foundation of such predictions. (1973: 12)
• 77Besides having implications for policy, the Austrian concern with the diversity of human beings and their situations is strongly congruent with liberalism’s view of the nature of man. The epigraph which John Stuart Mill placed at the beginning of his On Liberty, from Humboldt’s Limits of State Action, epitomizes this liberal outlook: “The grand, leading principle towards which every argument unfolded in these pages directly converges is the absolute and essential importance of human development in its richest diversity” (quoted in Mill 1977: 213).
• 78“False” as well as “True” Individualism has been very much present among modern Austrian views on the philosophy and method of economics . . . it is important that [the Austrians’] methodology, or epistemology, should be clearly, logically, and explicitly compatible with their political principles. As well as its ethics, politics, and economics, freedom has its epistemology, which must surely be one of its most fundamental aspects and requirements. (1981: 224).
• 79. . . his fundamental idea was that we knew things about “human action” (the title of his famous book) because we are human beings. As a result, he argued, we have absolutely certain knowledge of the motivations of human actions [sic] and he maintained that we can derive substantive conclusions from that basic knowledge. Facts, statistical or other evidence cannot, he argued, be used to test those conclusions. . . . That philosophy converts an asserted body of substantive conclusions into a religion. . . . Suppose two people who share von Mises’s praxeological view come to contradictory conclusions about anything. How can they reconcile their difference? The only way they can do so is by a purely logical argument. One has to say to the other, “You made a mistake in reasoning.” And the other has to say, “No, you made a mistake in reasoning.” Suppose neither believes he has made a mistake in reasoning. There’s only one thing left to do: fight. (1991: 18)
• 80How such an argument could emanate from such a distinguished source is simply baffling. Among other problems with it: Friedman’s theory would predict the occurrence of incessant bloody brawling among mathematicians and logicians, the non-occurrence of which falsifies that theory in Friedman’s own positivist terms. Friedman’s position also entails that no religious person who felt certain about his religious beliefs could have any principled reason to respect the conflicting religious beliefs of others, which is absurd. Finally, Friedman’s “explanation” of Mises’s alleged personal “intolerance” fails to account for the personal “tolerance” of other practitioners of apriorism in economics.
• 81As for Hutchison, he really offers no argument at all for his strange attack on Mises. Instead, there is the endorsement, without argument, of Hayek’s very dubious distinction between “false,” French individualism, and “true,” British individualism, and of the confusing account of intellectual history Hayek builds on this imagined dichotomy. (See the essay on “Liberalism: True and False,” in the present volume.) Hutchison also makes the unsupported and no means obviously true assumption that “freedom” (presumably meaning liberal theory) must have a single epistemological (as well as ethical) foundation. Clearly, Hutchison’s candidate for the “epistemology of freedom” is the theory of knowledge of Karl Popper.
• 82As for Hutchison, he really offers no argument at all for his strange attack on Mises. Instead, there is the endorsement, without argument, of Hayek’s very dubious distinction between “false,” French individualism, and “true,” British individualism, and of the confusing account of intellectual history Hayek builds on this imagined dichotomy. (See the essay on “Liberalism: True and False,” in the present volume.) Hutchison also makes the unsupported and no means obviously true assumption that “freedom” (presumably meaning liberal theory) must have a single epistemological (as well as ethical) foundation. Clearly, Hutchison’s candidate for the “epistemology of freedom” is the theory of knowledge of Karl Popper.
• 83To what extent Hayek accepted Popper’s methodological views remains unclear. In his Nobel lecture, in 1974, Hayek continued to argue that a fundamental difference exists between the subject matter of the natural and social sciences. Since the complexity of the phenomena studied in the latter usually renders empirical testing impossible, most attempts to apply the characteristic methods of the natural sciences in the social sciences are ruled out (Christainsen 1994: 14). Hutchison himself (1994: 233, n. 7) labels the claim that Hayek became a “falsificationist” as “exaggerated and misleading.” One wonders, though, what a Popperian is supposed to be if not a falsificationist.
• 84In his most famous work on social philosophy, The Open Society and Its Enemies, he asserts—argues for would be putting it much too strongly—that the state has an obligation not only to provide the usual welfare services, but beyond that to guarantee a livelihood to everyone willing to work, and, topping it all, to protect everyone from “inequitable arrangements” arising out of differential “economic power.” Even in 1974, Popper was advocating that the state should take over a controlling share of all “public companies” (Shearmur 1996: 51–52, 36).
• 85Most damaging to any claim that Popper represents authentic liberalism is the fact that he accepted the traditional mythology of industrial capitalism as a system of oppression of the working class, only gradually made tolerable by social reforms effected in part through socialist agitation. In The Open Society and Its Enemies, Popper wrote that Marx’s protests against capitalist oppression “will secure him forever a place among the liberators of mankind.” He contrasted Marx’s “invincible humanitarianism and sense of justice” with the “cynical” defense of “shameless exploitation” of workers by “hypocritical apologists,” i.e., the laissez-faire liberals of the time (1950: 310–12; see also 675 n. 13). As late as 1973, he declared that, although he had decisive disagreements with Marx, he respected him highly “as a fighter for a better world” (1984: 167).
• 86That Popper uncritically embraced the most negative interpretation of the industrial revolution is not surprising, considering that his source for the condition of workers in that period was Marx’s Capital (Shearmur 1996: 52). But it is remarkable that Popper never reconsidered that interpretation, given that it was his friend Hayek himself among liberal theorists who led the fight to bring more historically correct views on this subject to the general public (Hayek 1954). One wonders why Popper, the fearless critical thinker, didn’t just read Capitalism and the Historians and a few of the works cited in that collection.
• 87The sustained theoretical attack on the possibility of rational economic planning under socialism initiated by Mises in the early 1920s and then led by him and Hayek doubtless played a major role, and rightly so, in associating the school with the liberal doctrine. In the decades that followed, the common opinion among economists, that Mises and Hayek had been bested by their socialist adversaries, tended to confirm the sense that the Austrian position in general was antiquated and obsolete. However, recent scholarship (Lavoie 1985; Boettke 1990; Steele 1992)—as well as certain well-known world events—has served to overturn the older verdict. Indeed, the revolution in thinking has prompted one scholar to remark that “it is really scandalous to observe how decades of ridicule poured upon Mises’s ‘impossibility thesis’ [on rational planning under socialism] suddenly give way to an appreciation of his views as if they had been part of conventional wisdom all along” (Böhm, 1990: 231).
• 88The sustained theoretical attack on the possibility of rational economic planning under socialism initiated by Mises in the early 1920s and then led by him and Hayek doubtless played a major role, and rightly so, in associating the school with the liberal doctrine. In the decades that followed, the common opinion among economists, that Mises and Hayek had been bested by their socialist adversaries, tended to confirm the sense that the Austrian position in general was antiquated and obsolete. However, recent scholarship (Lavoie 1985; Boettke 1990; Steele 1992)—as well as certain well-known world events—has served to overturn the older verdict. Indeed, the revolution in thinking has prompted one scholar to remark that “it is really scandalous to observe how decades of ridicule poured upon Mises’s ‘impossibility thesis’ [on rational planning under socialism] suddenly give way to an appreciation of his views as if they had been part of conventional wisdom all along” (Böhm, 1990: 231).
• 89The sustained theoretical attack on the possibility of rational economic planning under socialism initiated by Mises in the early 1920s and then led by him and Hayek doubtless played a major role, and rightly so, in associating the school with the liberal doctrine. In the decades that followed, the common opinion among economists, that Mises and Hayek had been bested by their socialist adversaries, tended to confirm the sense that the Austrian position in general was antiquated and obsolete. However, recent scholarship (Lavoie 1985; Boettke 1990; Steele 1992)—as well as certain well-known world events—has served to overturn the older verdict. Indeed, the revolution in thinking has prompted one scholar to remark that “it is really scandalous to observe how decades of ridicule poured upon Mises’s ‘impossibility thesis’ [on rational planning under socialism] suddenly give way to an appreciation of his views as if they had been part of conventional wisdom all along” (Böhm, 1990: 231).
• 90a system driven entirely and independently by the choices and valuations of consumers—with these valuations transmitted “upwards” through the system to “goods of higher order,” determining how these scarce higher-order goods are allocated among industries and how they are valued and remunerated as part of a single consumer-driven process. (Kirzner 1990: 99)
• 91In his Investigations, Menger broaches the issue in Chapter 2, Book 3, devoted to “The Theoretical Understanding of Those Social Phenomena Which Are Not a Product of Agreement or of Positive Legislation, but Are Unintended Results of Historical Development.” He poses the question: “How can it be that institutions which serve the common welfare and are extremely significant for its development come into being without a common will directed toward establishing them?” Menger points out that “Law, language, the state, money, markets, all these social structures are to no small extent the unintended result of social development,” and goes on to provide a brilliant and famous explanation, based on methodological individualism, of the origin of money (1985: 146, 152–55; see also Menger 1981: 256–85).
• 92But never, and this is the essential point in the matter under review, may science dispense with testing for their suitability those institutions which have come about “organically.” It must, when careful investigation so requires, change and better them according to the measure of scientific insight and practical experience at hand. No era may renounce this “calling.” (1985: 234).
• 93The lawgiver is the engineer who invents the machine; the prince is merely the mechanic who sets it up and operates it. . . . Whoever ventures on the enterprise of instituting a people must be ready, as it were, to change human nature. . . . A sublime reason, which soars above the heads of the common people, produces those rules which the lawgiver puts into the mouth of the immortals. . . .The lawgiver’s great soul is the true miracle which must vindicate his mission. (1968: 84–87)
• 94Their “intellectual distress” was instantly alleviated, however, when they happened to discover Menger’s Principles. It should be stressed that Wieser gives no hint of bad faith. He states that both he and Böhm-Bawerk became convinced that socialism, in consistently applying the classical concept of value as stemming from labor, was fallacious (Wieser 1923: 88).
• 95Like Wieser, Fetter is quick to point out that no bad faith was involved in propagating the subjective theory. Yet he asserts, as against Hayek, that even a “casual examination of the works of Jevons, Menger, Clark, and of their most influential colleagues reveals from first to last evidences of this undercurrent of interest in the political bearings of the value theory.” The story, however, ends happily from Fetter’s point of view. The subjective-value theory left Marxism in the dust: “it would be difficult to find in the whole history of economic thought a more complete victory of one idea over another” (1923: 600–02, 605; on Fetter, see Herbener 1999).
• 96Like Wieser, Fetter is quick to point out that no bad faith was involved in propagating the subjective theory. Yet he asserts, as against Hayek, that even a “casual examination of the works of Jevons, Menger, Clark, and of their most influential colleagues reveals from first to last evidences of this undercurrent of interest in the political bearings of the value theory.” The story, however, ends happily from Fetter’s point of view. The subjective-value theory left Marxism in the dust: “it would be difficult to find in the whole history of economic thought a more complete victory of one idea over another” (1923: 600–02, 605; on Fetter, see Herbener 1999).
• 97From the opposing camp, a long line of socialist critics, from the 1890s on, pilloried marginalism as a mere rationalization for the exploitative capitalist system. The Italian socialist Achille Loria assailed the marginal approach for precluding “the possibility of a deep analysis of social relations” and eliminating “any theoretical threat against the established economic system” (Barucci 1972: 529). Karl Kautsky, the Pope of German Marxism before the First World War, took note of the Austrian challenge in the form of Böhm-Bawerk’s work, declaring: “Böhm-Bawerk’s and Marx’s theories of value are mutually exclusive. . . . That means, therefore: either-or” (cited in Chaloupek 1986: 198–99). Nikolai Bukharin (1927), who attended Böhm-Bawerk’s lectures, labeled Austrianism “the economic theory of the rentier class.” Decades later, Ronald L. Meek claimed, citing Menger and Jevons, that “the founders [of marginalism] were very well aware of the dangerous uses which were currently being made of these doctrines [of classical economics] in certain quarters” (1972: 503).
• 98From the opposing camp, a long line of socialist critics, from the 1890s on, pilloried marginalism as a mere rationalization for the exploitative capitalist system. The Italian socialist Achille Loria assailed the marginal approach for precluding “the possibility of a deep analysis of social relations” and eliminating “any theoretical threat against the established economic system” (Barucci 1972: 529). Karl Kautsky, the Pope of German Marxism before the First World War, took note of the Austrian challenge in the form of Böhm-Bawerk’s work, declaring: “Böhm-Bawerk’s and Marx’s theories of value are mutually exclusive. . . . That means, therefore: either-or” (cited in Chaloupek 1986: 198–99). Nikolai Bukharin (1927), who attended Böhm-Bawerk’s lectures, labeled Austrianism “the economic theory of the rentier class.” Decades later, Ronald L. Meek claimed, citing Menger and Jevons, that “the founders [of marginalism] were very well aware of the dangerous uses which were currently being made of these doctrines [of classical economics] in certain quarters” (1972: 503).
• 99The history of economic thought in the first half or three-quarters of the nineteenth century was and still is often portrayed in very Anglo-centric terms, as though the theories which achieved for so long in Britain such an extraordinary dominance and authority. . .enjoyed a similar hold and authority elsewhere in Europe. This was not the case.
• 100Of the founders—Menger, Böhm-Bawerk, and Wieser—it is Wieser’s views that seem to be the least problematical (Mayer 1929; Streissler 1986: 86–91). Though not a socialist, Wieser firmly believed that the private property, market economy was rife with flaws that cried out for interventionist remedies. Robert B. Ekelund, Jr., has noted that, for Wieser, both consumers and workers were typically tyrannized by the possessors of great concentrations of wealth, and that in Wieser’s view it was the duty of government to reduce the power of these property owners and provide for the “victims of acquisitive capitalism.” Detecting power operating everywhere in market exchanges, Wieser even favored protective tariffs for less developed nations in order to counteract the economic and political domination of the wealthier countries. He tried to deploy marginal utility theory to justify not only progressive taxation, as Hayek noted, but also state subsidies for “projects productive of high total utility” (Ekelund 1992). There seems little reason to dissent from Streissler’s characterization of Wieser as “a statist, who believed in the wisdom of the state machinery guided by a wise bureaucracy (coming from his own caste)” (1987: 14–15).
• 101Of the founders—Menger, Böhm-Bawerk, and Wieser—it is Wieser’s views that seem to be the least problematical (Mayer 1929; Streissler 1986: 86–91). Though not a socialist, Wieser firmly believed that the private property, market economy was rife with flaws that cried out for interventionist remedies. Robert B. Ekelund, Jr., has noted that, for Wieser, both consumers and workers were typically tyrannized by the possessors of great concentrations of wealth, and that in Wieser’s view it was the duty of government to reduce the power of these property owners and provide for the “victims of acquisitive capitalism.” Detecting power operating everywhere in market exchanges, Wieser even favored protective tariffs for less developed nations in order to counteract the economic and political domination of the wealthier countries. He tried to deploy marginal utility theory to justify not only progressive taxation, as Hayek noted, but also state subsidies for “projects productive of high total utility” (Ekelund 1992). There seems little reason to dissent from Streissler’s characterization of Wieser as “a statist, who believed in the wisdom of the state machinery guided by a wise bureaucracy (coming from his own caste)” (1987: 14–15).
• 102Wieser’s last book, The Law of Force, intended as his magnum opus, has been open to widely varying interpretations (Streissler 1986: 86–91; Morgenstern 1927: 673–74; and especially Samuels in Wieser 1983: xiii–xxxvi). In any case, as a confusing hodgepodge in which all of history is explained and the whole future of mankind sketched through an obsessive application of the concepts of “power” and “leadership,” this work is fundamentally outside the tradition of the Austrian school. Menger’s political orientation, on the other hand, has been the most studied and remains the most disputed.
• 103Mises (1969: 18) conveyed the impression that Menger was more or less a classical liberal, asserting that he “heartily disapproved of the interventionist policies that the Austrian Government—like almost all governments of the epoch—had adopted.” Streissler has also argued for a virtually laissez-faire Menger, seeing him as the source of the school’s commitment to the free market. Emil Kauder, on the other hand, saw Menger as a sympathizer with Sozialpolitik (social reform) and a critic of laissez-faire (1965: 62–64).
• 104Mises (1969: 18) conveyed the impression that Menger was more or less a classical liberal, asserting that he “heartily disapproved of the interventionist policies that the Austrian Government—like almost all governments of the epoch—had adopted.” Streissler has also argued for a virtually laissez-faire Menger, seeing him as the source of the school’s commitment to the free market. Emil Kauder, on the other hand, saw Menger as a sympathizer with Sozialpolitik (social reform) and a critic of laissez-faire (1965: 62–64).
• 105But, according to Kauder, the underlying intellectual tradition in Austria was one of state paternalism, to the point where even the expression of the concept of a spontaneous economic order had been actively suppressed. The founders thus “tried to compromise between British [i.e., Smithian] and Austrian tradition.” In the end, Böhm-Bawerk held that social stability was more important than progress, preaching a “social quietism akin to the ideals of the Austrian past” (Kauder 1958: 421–22). To make matters worse, Stephan Böhm points out that “Böhm-Bawerk’s outstanding achievement as Minister of Finance was the introduction of the progressive income tax on the total income of individuals.” (1985: 256; see also Weber 1949: 667)
• 106But, according to Kauder, the underlying intellectual tradition in Austria was one of state paternalism, to the point where even the expression of the concept of a spontaneous economic order had been actively suppressed. The founders thus “tried to compromise between British [i.e., Smithian] and Austrian tradition.” In the end, Böhm-Bawerk held that social stability was more important than progress, preaching a “social quietism akin to the ideals of the Austrian past” (Kauder 1958: 421–22). To make matters worse, Stephan Böhm points out that “Böhm-Bawerk’s outstanding achievement as Minister of Finance was the introduction of the progressive income tax on the total income of individuals.” (1985: 256; see also Weber 1949: 667)
• 107His purpose, Weiss declared, was “to establish that a number of notable representatives [of the Austrian doctrine], among them its founders, did not draw from it the conclusions for economic policy that [Mises] believes he must draw.” Mises’s brief response to Weiss’s critique: “I am not so pious towards authority [autoritätsgläubig] and quotation-minded [zitatenfreudig], and I base my argumentation on logic and not on exegesis.” The interesting implication is that the political consequences of Austrian economics are to be gathered not from the particular views of its major early proponents, subject to the climate of opinion of their times, but from the inner logic of the system itself (Mises and Spiethoff 1933: 51–53, 131, 118).
• 108Beginning with Ludwig von Mises and F.A. Hayek, the links between liberalism and the Austrian School become intense and pervasive, since these two scholars were themselves at once the outstanding Austrian economists and the most distinguished liberal thinkers of the twentieth century. The American academic world, however, deemed none of this sufficient for them to be accorded the kind of positions to which they were clearly entitled. They, and in particular Mises, were also responsible to a greater degree than is generally appreciated for the upsurge of the free-market philosophy in the second half of the century.
• 109Beginning with Ludwig von Mises and F.A. Hayek, the links between liberalism and the Austrian School become intense and pervasive, since these two scholars were themselves at once the outstanding Austrian economists and the most distinguished liberal thinkers of the twentieth century. The American academic world, however, deemed none of this sufficient for them to be accorded the kind of positions to which they were clearly entitled. They, and in particular Mises, were also responsible to a greater degree than is generally appreciated for the upsurge of the free-market philosophy in the second half of the century.
• 110What follows refers to Hayek’s political attitudes, not to his contributions to economic science. These were highly significant and valuable in the earlier part of his career, as he together with Mises built the theoretical foundations of the modern Austrian school.
• 111This remained Hayek’s standpoint throughout his long and richly productive scholarly life. It is regrettable, but typical, that a great many confused commentators continue to characterize him as a advocate of laissez-faire. In fact, he always avoided using the term to describe his own views, quite unlike Mises, who gloried in it. Provocatively—and quite misleadingly—Hayek states that the supposed laissez-faire conclusions of classical economics “of course, would have been invalidated by the demonstration that, in any single case, State action was useful” (1933: 134). Here Hayek seems to have lost sight of a principle that otherwise loomed large in his thinking: that with such issues of social policy it could never be a question of “any single case,” but rather of general rules and their overall effect.
• 112Hayek habitually displayed a penchant for a considerable degree of Sozialpolitik. In a radio debate in Chicago, following the publication of The Road to Serfdom, he not only stated that, “I have always said that I am in favor of a minimum income for every person in the country,” but, pressed by two aggressive if uninformed leftist opponents, even made the astonishing assertion: “That the monetary system must be under central control has never, to my mind, been denied by any sensible person” (1994b: 114, 116). Some twenty years later, in the preface to a reprint of his book, Hayek admitted that at the time he wrote The Road to Serfdom, “I had not wholly freed myself from all the current interventionist superstitions and in consequence made various concessions which I now think unwarranted” (1994a: xxiv). It may be that, besides his youthful inclination towards a mild Fabianism and his deep admiration for Friederich von Wieser, Hayek was influenced in this direction by the arrant statism that dominated intellectual life in Britain when he lived there in the 1930s and 40s, often involving starry-eyed admiration for the noble experiment underway in Soviet Russia. In any case, his divergence from the more consistent—or more “dogmatic”—variety of liberalism espoused by Mises endured to the end of his career.
• 113Hayek habitually displayed a penchant for a considerable degree of Sozialpolitik. In a radio debate in Chicago, following the publication of The Road to Serfdom, he not only stated that, “I have always said that I am in favor of a minimum income for every person in the country,” but, pressed by two aggressive if uninformed leftist opponents, even made the astonishing assertion: “That the monetary system must be under central control has never, to my mind, been denied by any sensible person” (1994b: 114, 116). Some twenty years later, in the preface to a reprint of his book, Hayek admitted that at the time he wrote The Road to Serfdom, “I had not wholly freed myself from all the current interventionist superstitions and in consequence made various concessions which I now think unwarranted” (1994a: xxiv). It may be that, besides his youthful inclination towards a mild Fabianism and his deep admiration for Friederich von Wieser, Hayek was influenced in this direction by the arrant statism that dominated intellectual life in Britain when he lived there in the 1930s and 40s, often involving starry-eyed admiration for the noble experiment underway in Soviet Russia. In any case, his divergence from the more consistent—or more “dogmatic”—variety of liberalism espoused by Mises endured to the end of his career.
• 114The state, Hayek insisted, is not solely “a coercive apparatus,” but also “a service agency,” and as such “it may assist without harm in the achievement of desirable aims which perhaps could not be achieved otherwise.” This opening to an extensive welfare state in cases where it “involves no coercion except for the raising of the means by taxation” (sic) (Hayek, 1978: 144), has been criticized by Anthony de Jasay. De Jasay cogently remarks that Hayek put his proposal “a touch naïvely,” and adds:
• 115Here is a clear call, or what anyone might be excused for taking as one, to re-create something like the “Swedish model” under the liberal banner. Horrified as Hayek would be by the imputation of such a proposal, his exposition is fully consistent with it, and must be classed as “loosely liberal” for that reason. (1991a: 15–16; see also 1996)
• 116Tributes to the faculty of human reason are strewn throughout his works, e.g., reason is “the mark that distinguishes man from animals and has brought about everything that is specifically human”; and, “Man has only one tool to fight error: reason” (Mises 1949: 91, 187; see also especially Salerno 1990). This stands in stark contrast to Hayek’s disparagement of reason in his later works (especially Hayek, 1988).