Classical Liberalism and the Austrian School

 

3	Intellectuals and the Marketplace

Bankrolling Adam Smith?

Ronald Coase, Nobel Laureate in economics, relates an interesting incident highly revelatory of the state of mind of opinion moulders in the United States.

It concerns the natural gas shortage of the 1960s. Edmund Kitch, of the University of Chicago, had written a study demonstrating the part that short-sighted federal regulation played in the shortage, and presented his findings in a public lecture in Washington, D.C., in 1971. In Coase’s words (1994: 49–50):

Much of the audience consisted of Washington journalists, members of the staff of congressional committees concerned with energy problems, and others with similar jobs. They displayed little interest in the findings of the study but a great deal in discovering who had financed the study. Many seem to have been convinced that the law and economics program at the University of Chicago had been “bought” by the gas industry . . . a large part of the audience seemed to live in a simple world in which anyone who thought prices should rise was pro-industry and anyone who wanted prices to be reduced was pro-consumer. I could have explained that the essentials of Kitch’s argument had been put forward earlier by Adam Smith—but most of the audience would have assumed that he was someone else in the pay of the American Gas Association.

In this episode we see a microcosm of the world habitually inhabited by anti-market intellectuals and those who have absorbed their teachings. The continued flourishing of this class of intellectuals remains an enduring puzzle and problem for classical liberals. The purpose of this essay is not to propose a definitive solution to the problem, but mainly to assemble and contrast some of the more salient positions advanced (mostly) by liberal scholars, as a step towards solving the puzzle. Finally, I will suggest which position appears to me to be the most plausible.

The Perennial Question

Forty-three years ago, at the 1951 meeting of the Mont Pèlerin Society at Beauvallon, a distinguished panel of scholars discussed the treatment of capitalism by the intellectuals.1 The talks were assembled and published in a volume edited by F.A. Hayek, Capitalism and the Historians.

Arthur Schlesinger, Jr., (1954: 178) composed an entertaining screed on the work,2 in the form of a review for, of all things, the prestigious Annals of the American Academy of Political and Social Science. “All the contributors to this queer volume seem to be driven by some curious sense of persecution,” Schlesinger declared. Capitalism and the Historians is simply “a summons to a witch-hunt. Americans, one would think, have enough trouble with home-grown McCarthys without importing Viennese professors to add academic luster to the process.” Harvard professor Schlesinger ended by denouncing the University of Chicago Press for publishing the book in the first place: “What conceivably could have persuaded a university press to publish this book is hard to imagine. This volume is one more example of what Senator Fulbright recently called ‘that swinish blight so common in our time . . . anti-intellectualism.’”

Yes, of course: Hayek, Ashton, de Jouvenel, and the others, all swinish anti-intellectuals and witch-hunters, possibly afflicted with a touch of mental illness (a “sense of persecution”). The review is, in fact, a good example of how New Deal hacks like Schlesinger treated classical liberal thinkers when they were able to get away with it, even, inanely, trying to whip the University of Chicago Press into line.

Capitalism and the Historians

In his paper, Bertrand de Jouvenel described intellectuals as those who deal in the “mental images, representations of the universe . . . of the things and agents therein, of [man] himself and his relation to them.” Since every society requires such representations, the importance of this group is very great (91).

It happens that a striking characteristic of modern intellectuals is their animosity towards the marketplace:

An enormous majority of Western intellectuals display and affirm hostility to the economic and social institutions of their society, institutions to which they give the blanket name of capitalism. (103)

Why should this be? The reason cannot lie, de Jouvenel argues, in a puritanical disdain for social arrangements that satisfy the hedonistic demands of selfish individuals. Modern welfare democracy is also such an arrangement (although not as efficient in accomplishing its end), yet it is not subject to the same antagonism (95–96).

De Jouvenel claims, surprisingly, that “the intellectual’s hostility to the businessman presents no mystery, as the two have, by function, wholly different standards.” While the businessman’s motto is the customer is always right, the intellectual’s task is to preserve the highest standards of his field even against the weight of popular opinion (hence, the tendency to favor the painters, novelists, poets, film-makers, etc., “who are for intellectuals only”). (116–21).

There is no doubt that de Jouvenel has identified what is felt to be one of capitalism’s major irritants. Many intellectuals find it impossible to resign themselves to the fact that, as Ludwig von Mises pointed out (1956: 9): “What counts in the frame of the market economy is not academic judgments of value, but the valuations actually manifested by people in buying or not buying.”

But the attitude of the intellectuals can hardly be wholly accounted for by the mere fact that entrepreneurs serve the wishes of the public, rather than any loftier end—and for the same reason de Jouvenel himself gave earlier. In democratic welfare states, politicians and bureaucrats are also supposed to serve the public, rather than to struggle to preserve standards of excellence per se. Yet the intellectuals’ enmity is rarely if ever directed against democracy, the welfare state, or its leaders and functionaries.

Thus, the problem remains. In a significant respect, the situation has deteriorated since the 1951 Mont Pèlerin meeting. Then, de Jouvenel could take for granted that even the modern leftist intellectual “takes pride in the achievement of technique [i.e., technology] and rejoices that men get more of the things which they want” (113). The same can hardly be said today, with the rise of a fanatical environmentalism and incessant attack on industrialism and the consumer society.

In 1972, twenty-one years after that panel at Beauvallon, R.M. Hartwell delivered a talk at the Mont Pèlerin meeting at Montreux, on “History and Ideology” (Hartwell 1974).3 Hartwell, too, had occasion to remark on the “widely held aversion to the economic and political system which provided the institutional framework for modern economic growth.” As a historian, he naturally stressed the crucial role of historical myths, concocted and circulated by academic intellectuals, in nourishing this aversion.

Hartwell’s lecture is especially noteworthy for drawing attention to the systematic character of the anti-capitalist onslaught, as experienced by the typical educated citizen of a western democracy, including those journalists cited above. History, he notes, “is only one element in a battery of self-reinforcing prejudice” against private property and the market economy. In literature, economics, philosophy, sociology, and other subjects, the student is continually subjected to data and interpretations that converge on a single point: the viciousness of private enterprise and the virtuousness of state intervention and state-supported labor unionism. “And what schools and universities propagate in formal education,” Hartwell observes, “many other institutions reinforce”—particularly the churches, the creative arts, and the mass media (Hartwell 1974: 11–12).4

The Ever Changing Indictment

Now, twenty-two years later, we address, once again, the question of the intellectual and the marketplace.

This does not argue the futility of the question, however, but rather its central importance. In a sense, the Mont Pèlerin Society was founded to deal with the problem of the modern intellectual’s antipathy to capitalism and the harmful consequences of that antipathy. Most of us here have now lived long enough to understand the truth of Schumpeter’s assertion that “capitalism stands its trial before judges who have the sentence of death in their pockets.” The only thing that changes, Schumpeter wrote, are the particulars (1950: 144). That ever-changing indictment is presented, over and over again, by the intellectuals.

In earlier times, they indicted capitalism for the immiseration of the proletariat, inevitable depressions, and the disappearance of the middle classes. Then, a little later, it was for imperialism and inevitable wars among the imperialist (capitalist) powers.

In more recent decades, the indictment again changed, as earlier accusations became too obviously untenable.

Capitalism was charged with being unable to compete with socialist societies in technological progress (Sputnik); with promoting automation, leading to catastrophic permanent unemployment; both with creating the consumer society and its piggish affluence and with proving incapable of extending such piggishness to the underclass; with “neo-colonialism”; with oppressing women and racial minorities; with spawning a meretricious popular culture; and with destroying the earth itself.5 As George Stigler remarked: “A constant stream of new criticism—such as the problem of homeless families—is being invented, discovered, or heavily advertised.”6 The question remains: what is at the root of this ever-changing, never-ending indictment? What accounts for the intellectuals’ unremitting hostility to the market economy?

To throw light on these questions, we must go beyond the specific accusations themselves. Israel Kirzner writes (1992: 96):

Whatever the stated specific denunciations of capitalism, whatever the errors in economic analysis which are implicit in these denunciations, a thorough understanding of the anti-capitalist mentality cannot avoid ultimately coming to grips with the deep-seated prejudices and ingrained habits of thought which are, both consciously and unconsciously, responsible for the antipathy shown to the market system.

Hayek on the Intellectuals and Socialism

F.A. Hayek was acutely concerned with our problem, since he, too, was wholly convinced of the importance of the intellectuals: “They are the organs which modern society has developed for spreading knowledge and ideas,” he declares in his essay, “The Intellectuals and Socialism” (Hayek 1967). The intellectuals—whom Hayek characterizes as “the professional second-hand dealers in ideas”7—exercise their power through their domination of public opinion: “There is little that the ordinary man of today learns about events or ideas except through the medium of this class.” Among other things, they often virtually manufacture professional reputations in the minds of the general population; and through their domination of the news media, they color and shape the information that people in each country have of events and trends in foreign nations. Once an idea is adopted by the intellectuals, its acceptance by the masses is “almost automatic and irresistible.” Ultimately, the intellectuals are the legislators of mankind (178–80, 182).

With all this, Hayek’s view of the intellectuals is flatteringly benign: their ideas are determined by and large by “honest convictions and good intentions” (184).8 In “The Intellectuals and Socialism,” Hayek does mention in passing the intellectuals’ egalitarian bias; the analysis, however, is basically in terms of their “scientism.” With his characteristic emphasis on epistemology, Hayek sees the revolt against the market economy as stemming from the methodological errors he identified and investigated at length in his brilliant study of the rise of French positivism, The Counter-Revolution of Science (1955).

Thus, in Hayek’s view, the chief influence on the intellectuals has been the example of the natural sciences and their applications. As man has come to understand and then control the forces of nature, intellectuals have grown infatuated with the idea that an analogous mastery of social forces could produce similar benefits for mankind. They are under the sway of “such beliefs as that deliberate control or conscious organization is also in social affairs always superior to the results of spontaneous processes which are not directed by a human mind, or that any order based on a plan beforehand must be better than one formed by the balancing of opposing forces” (186–87). Hayek even makes the following astonishing statement (187):

That, with the application of engineering techniques, the direction of all forms of human activity according to a single coherent plan should prove to be as successful in society as it has been in innumerable engineering tasks is too plausible a conclusion not to seduce most of those who are elated by the achievements of the natural sciences. It must indeed be admitted both that it would require powerful arguments to counter the strong presumption in favor of such a conclusion and that these arguments have not yet been adequately stated. . . . The argument will not lose its force until it has been conclusively shown why what has proved so eminently successful in producing advances in so many fields should have limits to its usefulness and become positively harmful if extended beyond those limits.

It is exceedingly difficult to follow Hayek’s reasoning here. He appears to be saying that because the natural sciences have made great advances and because innumerable particular engineering projects have succeeded, it is quite understandable that many intellectuals should conclude that “the direction of all forms of human activity according to a single coherent plan” will be similarly successful.

But, in the first place, the advances of the natural sciences were not brought about in accordance with any overall central plan; rather, they were the product of many separate decentralized but coordinated researchers (produced analogously in some respects to the market process; see Baker 1945 and Polanyi 19519). Second, from the fact that many particular engineering projects have succeeded it does not follow that a single vast engineering project, one subsuming all particular projects, is likely to succeed; nor does it seem likely that most people will find such a claim plausible.

Why, then, is it natural, or logical, or easily comprehensible that intellectuals should reason from the triumphs of decentralized scientific research and of individual engineering projects to the success of a plan undertaking to direct “all forms of human activity”?10

In his review of Hayek’s The Road to Serfdom, Joseph Schumpeter (1946: 269) remarks that Hayek was “polite to a fault” towards his opponents, in that he hardly ever attributed to them “anything beyond intellectual error.” But not all the points that must be made can be made without more “plain speaking,” Schumpeter declares.11

Schumpeter here implies an important distinction. Civility in debate, including the formal presumption of good faith on the part of one’s adversaries, is always in order. But there is also a place for the attempt to explain the attitudes, for instance, of anti-market intellectuals (a form of the sociology of knowledge). In this endeavor, “politeness” is not precisely what is most called for. As regards the positivist intellectuals who argued from the successes of natural science to the need for central planning: it may well be that this false inference was no simple intellectual error, but was facilitated by their prejudices and resentments, or perhaps their own will to power.12

In any case, Hayek’s gentlemanly deference to anti-market intellectuals can sometimes be downright misleading. Consider his statement (1967: 193):

Orthodoxy of any kind, any pretense that a system of ideas is final and must be unquestioningly accepted as a whole, is the one view which of necessity antagonizes all intellectuals, whatever their views on particular issues.

This, of a category of persons that in the twentieth century has notoriously included thousands of prominent apologists for Soviet Communism in all western countries, is indeed politeness “to a fault.”13 There was, after all, good reason, as late as the 1950s, for Raymond Aron (1957) to have written on The Opium of the Intellectuals and for H.B. Acton (1955) to have entitled what is probably the best philosophical critique of Marxism-Leninism, The Illusion of the Epoch.14

Nor was Communism the only nefarious orthodoxy to claim the loyalty of numerous intellectuals, as is shown by the cases of Martin Heidegger, Robert Brasillach, Giovanni Gentile, Ezra Pound, and many others. For a less complimentary but more realistic view of the integrity of modern intellectuals we may turn to the memoirs of the German historian, Golo Mann (1991: 534), who quotes from his diary of 1933: “18 May. [Josef] Goebbels in front of a writers’ meeting in the Hotel Kaiserhof: ‘We [Nazis] have been reproached with not being concerned with the intellectuals. That was not necessary for us. We knew quite well: if we first have power, then the intellectuals will come on their own.’ Thunderous applause—from the intellectuals.”15

Schumpeter on the Intellectual Proletariat

In chiding Hayek, Schumpeter suggested (1946: 269) that he might have learned a useful lesson from Karl Marx. Schumpeter’s own interpretation reflects his lifelong engagement with Marxism. Like Marx, he offered a highly pessimistic prognosis for the capitalist system, though for mainly different reasons (1950: 131–45). But while Schumpeter holds that intellectuals will play a key role in capitalism’s demise, he in no way relies on the scenario set forth in the Communist Manifesto.

There, Marx and Engels (1976: 494) announced that as the final revolution approaches, a section of the “bourgeois ideologists” will go over to the side of the proletariat. These will be the ideologists “who have worked their way up to a theoretical understanding of the historical movement as a whole.”16 Such a laughably self-serving description could hardly appeal to an inveterate skeptic like Schumpeter. Instead, his “Marxism” consisted in examining capitalism as a system with certain attendant sociological traits, and exposing the class interests of the intellectuals within that system.17

Compared to previous social orders, capitalism is especially vulnerable to attack:

unlike any other type of society, capitalism inevitably and by virtue of the very logic of its civilization creates, educates, and subsidizes a vested interest in social unrest. (1950: 146)

In particular, it brings forth and nurtures a class of secular intellectuals who wield the power of words over the general mind. The capitalist wealth machine makes possible cheap books, pamphlets, newspapers, and the ever-widening public that reads them. Freedom of speech and of the press enshrined in liberal constitutions entails also “freedom to nibble at the foundations of capitalist society”—a constant gnawing away that is promoted by the critical rationalism inherent in that form of society. Moreover, in contrast to earlier regimes, a capitalist state finds it difficult, except under exceptional circumstances, to suppress dissident intellectuals: such a procedure would conflict with the general principles of the rule of law and the limits to the police power dear to the bourgeoisie itself (1950: 148–51).

The key to the hostility of intellectuals to capitalism is the expansion of education, particularly higher education.18 This creates unemployment, or underemployment, of the university-schooled classes; many become “psychically unemployable in manual occupations without necessarily acquiring employability in, say, professional work.” The tenuous social position of these intellectuals breeds discontent and resentment, which are often rationalized as objective social criticism. This emotional malaise, Schumpeter asserts,

will much more realistically account for hostility to the capitalist order than could the theory—itself a rationalization in the psychological sense—according to which the intellectual’s righteous indignation about the wrongs of capitalism simply represents the logical inference from outrageous facts . . . (1950: 152–53)19

A major merit of Schumpeter’s argument is that it elucidates an abiding feature of the sociology of radicalism and revolution: the hunt for government jobs. The interconnection between over-education, an expanding reservoir of unemployable intellectuals, the pressure for more bureaucratic positions, and political turmoil was a commonplace among European observers in the nineteenth century.20 In 1850, the conservative author Wilhelm Heinrich Riehl (1976: 227–38) offered a remarkable analysis, in many ways anticipating Schumpeter, of the “intellectual proletariat” (Geistesproletariat). Even then Germany was producing each year much more “intellectual product” than it could use or pay for, testifying to an “unnatural” division of national labor. This was a general phenomenon in advanced countries, Riehl maintains, resulting from the enormous industrial growth that was taking place. But the impoverished intellectual workers experience a contradiction between their income and their perceived needs, between their own haughty conception of their rightful social position and the true one, a contradiction which is far more irreconcilable than in the case of the manual laborers. Because they cannot “reform” their own meager salaries, they try to reform society. It is these intellectual proletarians who have taken the lead in social revolutionary movements in Germany. “These literati see the world’s salvation in the gospel of socialism and communism, because it contains their own salvation,” through domination of the masses.21 Later revolutionary movements, whether of the left or the right, can be understood to a large extent as the ideologically camouflaged raid on the great state employment office. Carl Levy (1987: 180) has linked the expansion of the state from the later nineteenth century on to the growth in the numbers of the university-educated, who sought government jobs and utilized positivism as a facilitating ideology. Positivism

stressed the need for expertise, special training, and trained intelligence . . . [fortified by] a desacralizing of tradition and the rapid expansion of the public sphere . . . [there proliferated] schemes for the organization of society which substituted for traditional elites and capitalist entrepreneurs a stratum of experts and/or the lay clerisy. Examples can be found among the Fabians and the ILP [Independent Labor Party], [Edward] Bellamy and other American authoritarian utopia builders, the Italian socialist professors, and the French socialist elites.

From this perspective, we obtain a deeper understanding of the claim that the welfare state “saved capitalism.” What the welfare state has actually accomplished is to furnish a never-ending source of state jobs for the (mainly middle class) products of what is still referred to as university education, without, as in the nineteenth century, requiring a revolutionary assault.22

While there is doubtless a great deal of truth in Schumpeter’s identification of the systemic surplus of intellectuals as a source of anti-capitalism, it also presents certain difficulties.

Such an overproduction—and consequent un- or under-employment—is a feature of non-capitalist societies, as well. Its effect is the general destabilization of regimes, as occurs from time to time in underdeveloped countries. A more detailed knowledge of the situation in former Communist societies might show that it was also implicated in their subversion and final overthrow.

More to the point: it is not so much the unemployed intellectuals who are the problem but the ones who are employed. Intellectuals unable to find suitable jobs may well provide a receptive subculture as well as occasional cannon fodder for revolutionary movements: among communist anarchists in the late nineteenth century, or in some third world countries more recently. In Germany after the First World War, artists and writers frozen out of the avant-garde culture of Weimar were prominent among the early National Socialists.

But Schumpeter’s thesis does not hold for many other cases, probably the historically most significant ones. Émile Zola and Anatole France, Gerhart Hauptmann and Bertold Brecht, H.G. Wells and Bernard Shaw, John Dewey and Upton Sinclair were scarcely “unemployables” in the intellectual world. Today the “stars” of the mass news media of all the advanced countries—you would know their names in your own country; one could mention American “newspersons” who earn a million dollars a year or more, such being the savage inequalities of capitalism—are typically constant “nibblers” at the system of private enterprise. The question is rather why so many successful and highly influential intellectuals become carping critics of the free economy.23

The Two Approaches of Ludwig von Mises

If Schumpeter declined to be “polite to a fault” when it came to anti-market intellectuals, what is one to say of Hayek’s own mentor, Ludwig von Mises?

No one surpassed Mises in the importance he attached to the power of ideas.24 Thus, it was crucial to his social philosophy and historical interpretations to determine the basis of “the anti-capitalistic mentality,” especially as represented among the intellectuals (Mises 1956).

Often Mises emphasizes invidious personal motivation—resentment and bitter envy—as the source of this attitude. Replacement of the society of status by the society of contract aggravated feelings of failure and inferiority. With equality of opportunity and all careers open to talent, lack of financial success becomes a judgment upon the individual. This is a burden he attempts to shift by scapegoating the social system (1956: 5–11). Intellectuals share this weakness, perhaps in an accentuated form. On occasion, Mises goes so far as to trace the “psychological roots of anti-liberalism” to mental pathology. The scapegoating of the social system by those unable to cope with the reality of their relative failure in life is, Mises claims, a mental disorder which psychiatry has so far neglected to classify. Engaging in a bit of volunteer psychiatric nosology, he ventures to label this condition “the Fourier complex” (1985: 13–17), after the early French socialist, Charles Fourier.

Although Mises’s focus on envy and resentment is the best known of his attempts to explain the anti-capitalist mentality,25 a second and different approach of his seems more fruitful. In an early essay titled “The Psychological Roots of the Resistance to Economics” (1933: 170–88), Mises launches a radical attack on the strand of traditional western morality that has stigmatized moneymaking. Citing Cicero’s De officiis as an exemplary text, he identifies the contempt for moneymaking deeply ingrained in western culture as the source of the hostility towards capitalists, trade, and speculation “which today dominates our whole public life, politics, and the written word.” This contempt, nurtured and sustained through the centuries under changing regimes, is the natural outgrowth of a class morality—specifically, the morality of the classes that are sheltered from the market by the circumstance that they live from taxes.26 In our own day, it is a morality generated by “priests, bureaucrats, professors, and army officers,” who look with “loathing and scorn” on entrepreneurs, capitalists, and speculators (1933: 181–82).27

Insight into the prevalence of this anti-market ethic helps explain (as Mises’s other, envy-based approach does not) the anti-market attitudes often found even among the economically successful in the private sector, since “no one can escape the power of a dominant ideology.” Thus, “entrepreneurs and capitalists themselves are swayed by the moral outlook that damns their activity.” They suffer from a bad conscience and feelings of inferiority. This shows itself in, among other things, the support given to socialist movements by millionaires and their sons and daughters (1933: 184).28

Envy and Envy-Avoidance

A different slant on the anti-market attitudes of the economically successful is offered by another liberal scholar, Helmut Schoeck. In his Envy (1987), Schoeck presents an empirical examination of this pervasive yet elusive—and strangely under-investigated—phenomenon, in the light of evidence from anthropology, ethnology, social psychology, and history.29

Human beings are by nature prone to envy, springing from a primitive conception of causality that interprets the good fortune of others as having been achieved at a cost to oneself. People are equally subject, however, to a “universal fear of one’s neighbor’s envy and of the envy of the gods and spirits” (363, 308). Fear of the envy of others—of the “evil eye,” for example—gives rise to “a primitive, pre-religious, irrational sense of guilt,” and with it behavior patterns that aim at envy-avoidance.

In various societies varying means have evolved to cope with this sense of guilt and to ward off the retribution of the envious. With intellectuals in capitalist society, envy-avoidance often manifests itself in support for egalitarian causes. The diffuse dread of the envy of others, Schoeck finds, is “the root of that general, aimless sense of guilt which, during the past hundred years, has exercised so disrupting and disorienting an influence. The pangs of guilt (social conscience), and the naive assumption that there could ever be a form of society that was either classless or otherwise non-provocative of envy, have been responsible for the adherence to leftist movements of large numbers of middle- and upper-class people . . .” (324). In adhering to movements that preach social and economic equality, they assuage their guilt and anxiety, for now they can feel they are helping to set up “a society in which no one is envious” (325).30

Schoeck’s theory has the advantage of accounting also for the peculiar self-righteous “idealism” often displayed by leftist intellectuals, especially among the young:

sensitivity to the envy of others is so deep-rooted in the human psyche that most people erroneously interpret the sense of redemption and peace, which they feel when they have made concessions to envy, as confirmation, not only of their moral superiority, but also of the expediency of their action in the reality of the here and now. (362)

We may add that the blessed release experienced by those who have, they feel, placed themselves safely beyond the envy of the resentfully dispossessed often turns to fury when they are faced with their class brethren who have casually spurned such psychological capitulation.

But How Relevant are the Intellectuals?

The authors considered so far have been agreed at least in assigning a great deal of weight in the ultimate determination of political events to intellectuals and the ideologies they generate. This was also the standpoint of Murray Rothbard, which he set forth theoretically (e.g., in Rothbard 1974: 72–76) and frequently explicated historically (e.g., Rothbard 1989 and 1996). Virtually uniquely among free-market thinkers, Murray Rothbard was equally adept, where appropriate, at analyzing political change as the result of interest-group machinations—for example, in the case of the Federal Reserve (Rothbard 1994). But the political relevance of the intellectuals has been challenged by another group of liberal scholars, most notably by George J. Stigler.31

Professor Stigler’s justly famed wit was on target when he defined intellectuals (1975: 314) as “people who strongly prefer talking and writing to physical exertion.” In this way, Stigler spurned the common but faulty inference that intellectuals are particularly intelligent. There is no necessary connection between the two categories: for the most part, what distinguishes an intellectual is his command of a particular discourse.32

Stigler was quite aware that, despite the many benefits they reap from the capitalist system, intellectuals have by and large been its implacable critics in all the sectors they dominate (Stigler 1984a: 143–58)33. Yet, while “there is a natural temptation to credit to them . . . the decline that has occurred in the public esteem for private enterprise and the large expansion of state control over economic life” (1982: 28–29), this temptation should be resisted. In his view, claims regarding the decisive influence of intellectuals and ideologies are unscientific, since such claims have never been quantified and subjected to empirical testing. In fact, there is a total lack of any theory of how ideologies originate and change (Stigler 1982: 35; 1984b: 3).

In contrast, Stigler proposes to attack the problem with the conventional analytical methods of (neoclassical) economics: hypotheses are to be formulated in quantifiable terms and tested against the data.

A central implication of economic theory is that “man is eternally a utility maximizer, in his home, in his office,—be it public or private—in the church, in his scientific work, in short, everywhere” (1982: 35). Just as they act on the market to maximize their personal utility, so “individuals consistently behave in a utility-increasing manner with respect to the use of the state” (1984b: 3), that is, in supporting measures that, in the aggregate, constitute the historical expansion of state power.

Very sensibly, Stigler warns against defining utility in such a way as to make the hypothesis tautological (1982: 26). Conceding that there is “no accepted content to the utility function,” he proposes one, viz., that a person’s utility “depend[s] upon the welfare of the actor, his family, plus a narrow circle of associates” (1982: 36).

How far this advances the argument is unclear, however. After all, a person’s adherence to a given ideology is usually conditioned by his belief that it will, in some sense, promote his “welfare” and that of his family and close associates, so that reliance on utility functions does not automatically obviate the need to reckon with the impact of ideology.

In Stigler’s view, the simplest way to test the role of ideology as a non-utility-maximizing goal is to ascertain whether the champions of a given ideology incur costs in supporting it:

If on average and over substantial periods of time we find (say) that the proponents of “small is beautiful” earn less than comparable talents devoted to urging the National Association of Manufacturers to new glories, I will accept the evidence. But first let us see it. (1982: 35)

“Utility,” then, appears, for all practical purposes, to mean maximization of income. This is reasonable from Stigler’s viewpoint, since employing another value, for instance, maximization of power, would create insuperable difficulties for formalization and empirical testing in Stiglerian terms.

Stigler further holds that the desire of intellectuals to maximize their incomes (now including prestige and “apparent influence”) explains their distribution along the political spectrum (1982: 34). He refers to Joseph Schumpeter as having partially accepted this position. But Schumpeter’s (and Riehl’s and others’) ascription of economic motives to the intellectuals is of a very different order from Stigler’s. As we have noted, Schumpeter held that economic factors (underemployment, etc.) tend to create a mind-set among intellectuals which is apt to generate anti-capitalistic ideologies that, in turn, spread throughout society. Stigler seems to maintain that economic factors operate upon individual intellectuals directly and immediately.

Stigler applies his notion of the relative unimportance of ideology in a general way to the repeal of the Corn Laws in England in 1846 usually considered a landmark victory of liberalism in its heroic phase. In this instance, it was not intellectuals like the classical economists, from Adam Smith on, nor even leaders like Richard Cobden and Robert Peel, who were responsible, but rather “a shift in political and economic power” (1975: 318–20).

Gary M. Anderson and Robert D. Tollison (1985) purport to provide a somewhat detailed study of the Anti-Corn League in the fashion of Stigler (as well as Gary Becker and others), which appears to avoid the ambiguities of Stigler’s position.34 While the authors do not deny that “ideology played a role” in repeal, they declare that any basically ideological explanation should be avoided because of its untestability. Instead, they apply the framework of public choice analysis, focusing on the part played by the direct financial self-interest of some of the League’s contributors and supporters. Yet it is far from clear how their own narrative, which piles up generally well-known facts with no attempt at quantification and formalization, is supposed to be “testable” in the rigorous sense they require. Droll is the authors’ earnest presentation of the public subscription for Cobden and the awarding of a seat for Manchester in the House of Commons to John Bright as “the Payoff” of the two great liberal leaders.

George Stigler sometimes combined his deprecatory estimation of the influence of intellectuals with a similarly low evaluation of the influence of individuals altogether, including political leaders. As a general explanation of political change, Stigler’s own hypothesis is that

we live in a world of reasonably well-informed people acting intelligently in pursuit of their self-interests. In this world, leaders play only a modest role, acting much more as agents than as instructors or guides of the classes they appear to lead. (1982: 37)

As a rule, the effect of prominent leaders on history is “almost infinitesimal” (1975: 319). It is safe to say that this assessment would find little agreement from students of the careers of Mohammed, Napoleon, Bismarck, or Hitler—or of Lenin and Stalin.35

The Rise and Fall of Soviet Communism

Authors who minimize the impact of ideology in politics would have a hard time accounting for the rise, duration, and final demise of Communism in Russia. It is difficult to imagine what could explain crucial episodes in the history of Soviet Communism if ideology is relegated to a subordinate position. Such episodes include Lenin’s own revolutionary career, the formation of the Bolshevik party, the coup d’état of October, 1917, the institution of “War Communism,” victory in the civil war, and the fanatical dedication of the cadres who carried out the collectivization of agriculture and the terror famine.

In a major study, Martin Malia asserts (1994: 16) that “the key to understanding the Soviet phenomenon is ideology,” specifically, Marxism-Leninism.

Malia traces the story back to the mid-nineteenth century. Russia, where civil society was weak and the state strong, provided fertile ground for the spread of socialist ideas. Liberal social theory the ideas of Locke, Hume, Adam Smith, Turgot, Jefferson, and others had never struck root. By the time an intelligentsia sprang up in Russia, European intellectuals, from whom the Russians derived most of their political views, had made capitalism into an object of horror. The chaos following the fall of the Tsar and the demoralization caused by the First World War permitted Lenin and his highly disciplined Bolsheviks to effect their coup d’état.

The Bolsheviks at once set about to realize the Marxist dream: to construct a free and prosperous society by abolishing private property and the market. But that task, Malia maintains, citing the Austrian School, in particular Mises and Hayek, was and is inherently impossible, an assault on reality (185, 515). From the start the Soviet Union was a “world-historical fraud” (15). The land that was supposedly in the vanguard of progressive humanity was, in truth, an arena of endless oppression, mass poverty, and boundless despair. Suppressing this reality, generating and propping up a surreality, became the job of the legions of state-intellectuals at home, and, abroad, of the fellow-traveling intellectuals in every western country.36

The indoctrination first began on a vast scale with the civil war, and its target were the millions of recruits of the Red Army. Every known means of propaganda, from the printed word, lectures, and discussion groups to cabaret, plays, and movies, was used by the thousands of Bolshevik cadres who toured the fronts, with the explicit aim of turning the Russian peasant-soldier into “a conscious revolutionary fighter.” The half-million Red Army soldiers who joined the Party in the course of the civil war became “the missionaries of the revolution,” who “carried Bolshevism, its ideas and its methods, back to their towns and villages, where they flooded into Soviet institutions during the early 1920s” (Figes 1997: 602). The pervasive propaganda barrage continued for seven decades, testifying to the awareness of the Communist authorities that repression alone could never ensure their continued rule.37

Similarly, the collapse the Soviet regime can only be understood as a case study in the operation of ideology, in this case, of the end of an ideology’s sway.

The subversion of the Leninist faith began after Stalin’s death, with the “Thaw” introduced by Khrushchev. In the 1960s a few dissident intellectuals, often samizdat [independent, usually underground] publishers, sowed the seeds of doubt in small urban and university circles. Still, the great mass of Soviet citizens remained indoctrinated, until the declaration of perestroika and glasnost under Gorbachev.

Then the truth—of the crimes of Lenin as well as Stalin, the poverty prevailing in the socialist homeland, the true nature of the fantasy world woven by Soviet ideologists for decades—came to light. It was propagated by what Hayek called the “second-hand dealers in ideas,” in the press, television, and radio (Shane 1994: 212–44). “By 1991 polls showed the majority of Soviet citizens and a substantial majority of urbanites had lost that basic faith in the system . . . the Soviet world-picture had been wrecked not by tanks and bombs but by facts and opinions, by the release of information bottled up for decades. . . . What changed minds was the cumulative, synergistic effect of a great deal of new information on a variety of subjects at once” (Shane 1994: 214–15, 221). The same swelling cascade of information shattered the faith of the Soviet ruling class itself, dissolving its sense of its own legitimacy and, finally, its will to coerce (Hollander 1999).

Importance of the Intellectuals Theoretically Reaffirmed

The position represented by Stigler has, in turn, been criticized by other liberal scholars, among them Douglass C. North. North freely concedes that public choice theory is invaluable in explaining much of political behavior: interest group pressures do account for a good deal of political decision-making (1981: 56). But to regard this as the whole story is to fall victim, in his view, to the “myopic vision” of neoclassical economics:

Casual observation provides evidence that an enormous amount of change occurs because of large group action which should not occur in the face of the logic of the free rider problem. . . . Large groups do act when no evident benefits counter the substantial costs to individual participation; people do vote, and they do donate blood anonymously. . . . Individual utility functions are simply more complicated than the simple assumptions so far incorporated in neoclassical theory. (1981: 46–47)

Ideology, which, according to North, is ubiquitous, is “an economizing device by which individuals come to terms with their environment and are provided with a ‘world view’ so that the decision-making process is simplified.” The fundamental aim of ideology “is to energize groups to behave contrary to a simple, hedonistic, individual calculus of costs and benefits.”38 And, aside from rare exceptions, ideologies develop under the guidance of intellectuals (North 1981: 49–53)

A crucial part of ideologies, ignored by scholars who minimize their significance, are judgments of right and wrong, just and unjust. In this connection, North presents an argument that might well give such scholars pause:

If the concept [of just and unjust] is not crucial to the way in which choices are made, then we are left with the puzzle of accounting for the immense amount of resources invested throughout history in attempting to convince individuals about the justice or injustice of their position. (51)

In other words, if, as Stigler believed, people are reasonably well informed and act intelligently in pursuit of their self-interest, how are we to account for this massive and continual “misuse” of resources in contending over questions of right and wrong?

Robert Higgs is another knowledgeable critic of the Stiglerian position. In Crisis and Leviathan (1987a), he presents a detailed examination of the growth of the U.S. federal government in the twentieth century, highlighting the importance of intellectuals, “the specialists in the production and distribution of ideologies.” “An understanding of ideology,” he asserts, “is essential to an understanding of the growth of government” (1987a: 192, 36).39

Higgs, too, believes that the conventional neoclassical approach is incapable of explaining a wide range of political behavior (1987a: 39–41). Drawing on widely accepted conclusions of social psychology, including those of Amartya Sen, he notes that individuals often act to confirm, enhance, and validate their “identity” or “self-image.” For instance, “the kind of groups to which a person chooses to belong is closely connected with the kind of person he takes himself to be—a matter of prime concern to the typical person.” This holds also for the political dimension of their self-image. Again, like North, Higgs stresses that in acting politically people are often truly concerned with what is right and wrong, just and unjust, issues that cannot be reduced to a narrow hedonistic calculus. Citing Schumpeter on the purely formal nature of the utility theory of value, which implies nothing regarding the content of people’s wants, Higgs concludes that “one cannot demolish an ideological fortress with the weapons of neoclassical economics” (1987a: 42, 44; 1987b: 141–42).

Higgs’s own methodology is strictly empirical, though not in any unrealistically quantitative sense. Since rhetoric is crucial to ideology, ideological changes can often be tracked by a careful examination of the rhetoric of opinion leaders. However, as everywhere in science, the method applied must be suited to the area of reality under study: “Although we cannot measure [ideology and ideological changes] as we would height or weight, we can learn a good deal about them qualitatively, and for certain purposes such knowledge may be adequate” (1987a: 48–51).

Higgs’s insight that much political behavior involves the affirmation of one’s self-image prompts the question: How do people acquire political identities which they then act to instantiate and confirm? A fountainhead of such identities is clearly the system of formal education.40 From this point of view, it would prove highly instructive to examine how the educational establishments of western countries—especially higher education—function not only to convey the panoply of anti-capitalist ideas, but also to impart a particular self-image to a significant proportion of the students it processes, a self-image which they will then live out—roughly, their identities as members of the adversary culture, the bearers of a lifelong animus against private enterprise.

The Role of Historical Myths

Hayek believed that historical writings have in all likelihood been the major medium for the spread of anti-market ideas among intellectuals. In his essay, “History and Politics,” he notes the great impact of historical interpretations on political opinion, and speaks of “a socialist interpretation of history which has governed political thinking for the last two or three generations and which consists mainly of a particular view of economic history”—especially, of the industrial revolution. It is an interpretation most of whose tenets have long been shown to be mythical (Hayek [ed.] 1954: 3, 7). Hayek observes that the continued domination of this view, long discarded by scholars, presents a problem. In fact, today, forty years after Hayek wrote these lines, the obsolete “catastrophic” version of the industrial revolution continues to be cherished by the great majority.

It may be useful to focus on an example of another legend that has been a part of socialist pseudo-history, and that has now likewise been exploded.

For decades the prevailing view was that German big business played a central and essential role in the Nazi rise to power. Coincidentally, this interpretation echoed the official position of the Comintern (Communist International), set forth in the 1920s and 30s, according to which a generic “fascism,” including its German variant, represented the naked fist of a bourgeoisie confronting the final proletarian assault.

For years socialists continued to tout the line that the financial and political support of German big business was to a great degree responsible for Hitler’s coming to power—and, consequently, for World War II and all the atrocities it entailed. In the Federal Republic of Germany, intellectuals never tired of repeating Max Horkheimer’s aphorism, couched in the patented portentousness of the Frankfurt School: “He who does not want to speak of capitalism should also be silent about fascism” (cited in Nolte 1982: 76). The view was shared and propagated, however, by many prominent non-socialist writers as well, Alan Bullock, Norman Stone, and H. Stuart Hughes, among them.

In 1985, in a work of superb scholarship, Henry Ashby Turner, Jr., of Yale, demonstrated that this interpretation was, simply, a myth. He relied on a multitude of primary sources ignored by other writers. Turner’s own analysis is now accepted by practically all experts in the field. Whether he will have any more success in seeing his version passed on to the educated public than the economic historians of the industrial revolution have had remains to be seen.

Years ago, R.M. Hartwell had posed the question, why do we observe the persistence of historical accounts that are demonstrably false (Hartwell 1974: 2)?41 Towards the end of his work, Turner reflects on why so many professional historians should have accepted the old fable of Hitler and the German industrialists so uncritically. His reply is: bias. “Bias, in short, appears over and over again in treatments of the political role of big business even by otherwise scrupulous historians” (Turner 1985: 350). He attempts to explain this dangerous prejudice (350–51):

Professional historians generally have little or no personal contact with the world of business. Like so many intellectuals, they tend to view big business with a combination of condescension and mistrust.42 . . . Since almost all of those who have concerned themselves with the relationship between the business community and Nazism have, to one degree or another, stood left or at least left of center in their political sympathies, a great many have found it difficult to resist the temptation to implicate big business . . . in the rise of Nazism. Although deliberate distortion figures in some publications on the subject, the susceptibility of most historians to the myths dealt with in this volume is attributable not to intellectual dishonesty but rather to the sort of preconceptions that hobble attempts to come to grips with the past.

Another way of putting Turner’s explanation is in terms of one of the several components of the Marxist concept of ideology, as refined by Jon Elster (1985: 476, 487–90). The individual’s comprehension of social relations is inevitably skewed by the particular position he himself occupies in the network of these relations, because he necessarily comes to understand “the whole from the point of view of the part.”

Seen in this light, the root of the problem lies in the social position—the way of life—of the academic intellectual, whose views in turn profoundly shape and condition those of virtually all other intellectuals. Essentially, he is a mandarin, accustomed, to reiterate Mises’s point, to living from an assured source of income—usually taxes, but the case is similar with guaranteed endowments. As such, he will rarely find it possible to appreciate or even begin to understand the way of life of capitalists, entrepreneurs, traders, and speculators, men and women who live and die by the vicissitudes of the market. Thus, the problem turns out to be one not so much of invidious personal motivation as of a socially determined distorted cognition.

In reply, one might object that it is academic intellectuals who, of all people, are morally and professionally obliged to free themselves from socially imposed blinders and to strive to see the free market order as it really is. That they have manifestly not lived up to this obligation is, however, merely another way of stating the problem we have been considering.

My own inclination is towards the “second” approach of Ludwig von Mises, focusing on the ingrained hostility to business and profit-making in our culture. This millenia-old antipathy continues to be spread by the highly influential classes sheltered from the market’s threatening rigors, classes that will be with us for as far as we can see.

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________________

This essay is adapted from a paper delivered at the general meeting of the Mont Pèlerin Society, in Cannes, September, 1994.

43T.S. Ashton, “The Treatment of Capitalism by Historians,” L.M. Hacker, “The Anticapitalist Bias of American Historians,” and Bertrand de Jouvenel, “The Treatment of Capitalism by Continental Intellectuals.” These were later supplemented by an additional essay by Ashton, a contribution by W.H. Hutt on the early nineteenth century factory system, and an introduction by F.A. Hayek on “History and Politics,” and published by the University of Chicago Press, 1954.

44A later, and less biased, judgment on the importance of the work is provided by Taylor 1997: 163: “During the following decade modern economic history took a dramatic swing away from the liberal-left consensus established by the Hammonds, Tawney, and the Webbs. The seminal text for this change of direction was the 1954 collection of essays compiled by F.A. Hayek, Capitalism and the Historians . . .”

45I am grateful to Professor Leonard P. Liggio for bringing this essay to my attention.

46On the leftist leanings of American academics, see Lee 1994 and the surveys cited therein.

47Cf. Bronfenbrenner 1981: 104: “Both the rise of environmental legislation and the postthalidomide burgeoning of ostensible consumer protection have come since Schumpeter’s death; both would have been grist for Schumpeter’s mill.” Philosopher Robert Nozick 1984: 134 wrote of an experience he often had in replying to criticisms that laissez-faire capitalism causes various evils, from monopoly and pollution to systematic overproduction or underproduction. After Nozick painstakingly refuted the stated charge, his interlocutor “drops the point and quickly leaps to another,” child labor, racism, advertising, etc., etc. “Point after point is given up. . . . What is not given up, though, is the opposition to capitalism.” Nozick concluded that the particular arguments are not important, since “there is an underlying animus against capitalism” (emphasis in original). This is an experience that many another advocate of the free market could also attest to.

48Stigler 1989: 1. I am grateful to Dr. Claire Friedland, manager of the George J. Stigler archives, for her kindness in making this and other unpublished papers of Professor Stigler available to me.

49This definition by Hayek is somewhat idiosyncratic, in that it excludes the originators of ideas, e.g., among socialists, Saint-Simon and Marx.

50At one point (182) Hayek does suggest that selfish personal interests might play a part in the intellectuals’ attitude; he refers, without naming him, to Karl Mannheim and “the curious claim . . . that [the intellectual class] was the only one whose views were not decidedly influenced by its own economic interests.” But he does not indicate why he considers this claim “curious.”

51These are both works with which Hayek was quite familiar, which makes his argument at this point more perplexing.

52In another essay, on “Socialism and Science,” 1978: 295, Hayek refers to “the undeniable propensity of minds trained in the physical sciences, as well as of engineers, to prefer a deliberately created orderly arrangement to the results of spontaneous growth—an influential and common attitude, which frequently attracts intellectuals to socialist schemes. This is a widespread and important phenomenon which has had a profound effect on the development of political thought.” It seems highly doubtful that surveys of political opinion among university professors in the United States, western Europe, or elsewhere, would find socialist opinions more common among physical scientists and engineers than in the humanities and social science faculties.

53Hayek 1973: 161n. 18, 70, rebutted Schumpeter’s criticism, asserting that it was not “‘politeness to a fault’ but profound conviction about what are the decisive factors” for his having attributed merely intellectual error to his opponents in The Road to Serfdom. Hayek reaffirmed that: “It is necessary to realize that the sources of many of the most harmful agents in this world are often not evil men but highminded idealists, and that in particular the foundations of totalitarian barbarism have been laid by honorable and well-meaning scholars who never recognized the offspring they produced.” One wonders how Hayek could know this about the character of those who “laid the foundations of totalitarian barbarism.”

54Cf. the comment by George Stigler 1989: 6: “a central reason for the dissatisfaction of the intellectuals with the enterprise system” is that “it does not give them a mechanism to coerce changes in the behavior of individuals.” Cf. also Robert Skidelsky 1978: 83, who mentions, as one factor in the conversion of the younger American economists to Keynesianism, that, in the version propagated by Alvin Hansen, it provided a “rationale for the permanent direction of economic life by an élite of economists. . . . In the Keynesian political economy, public policy would be handed over to the professional economists, who alone would understand what needed to be done.” Robert Higgs 1987a: 116 observes that American Progressives around 1900 found state intervention appealing because it implied a social organization supervised and directed by engineers, planners, technicians, and trained bureaucrats, and thus put “a wise minority in the saddle.”

55There is by now a substantial literature on the subject; see, for instance, Caute 1973. Richard Pipes 1993: 202 makes the interesting comment that: “The Bolshevik regime, for all its objectionable features, attracted them [intellectuals] because it was the first government since the French Revolution to vest power in people of their own kind. In Soviet Russia, intellectuals could expropriate capitalists, execute political opponents, and muzzle reactionary ideas.” See also the challenge issued by Eugene D. Genovese (1994) to his fellow intellectuals to testify publicly on what they knew of the crimes of Soviet Communism and when they knew it.

56Cf. O’Brien 1994: 344, who notes that “the overwhelming majority of [his] academic colleagues adopted an attitude of judicious agnosticism and relativism towards the horrors of the Stalinist and other Marxist regimes.”

57Benjamin Constant 1988: 137–38, in criticizing the French writers of the Revolutionary and Napoleonic period, described the intellectuals’ penchant to identify with arbitrary power: “all the great developments of extrajudicial force, all the examples of recourse to illegal measures in dangerous circumstances have from century to century been recounted with respect and described with complacency. The author, sitting comfortably at his desk, hurls arbitrary measures in every direction. . . . For a moment, he believes himself invested with power just because he is preaching its abuse . . . in this way he gives himself something of the pleasure of authority; he repeats as loud as he can the great words of public safety, supreme law, public interest. . . . Poor imbecile! He talks to those who are only too glad to listen to him and who, at the first opportunity, will test out his own theories upon him.” Constant’s words may be viewed as a prescient gloss on Stalin’s treatment of many of the Bolshevik intellectuals who had lent their aid to the creation of the Soviet terror state.

58The critique of Marxism as the camouflaged ideology of an intellectual would-be “new class” is part of the communist anarchist tradition, begun by Bakunin and continued by Machajski and others; see Dolgoff 1971 and Szelenyi and Martin 1991.

59This approach, however, like the Marxist analysis of historical change in terms of class conflict, had numerous precursors among classical liberal thinkers; see the essay on “The Conflict of Classes: Liberal vs. Marxist Theories,” in the present work.

60Cf. Raymond Ruyer 1969: 155–56, who indicates the social and psychological problems resulting from prolonged state instruction (including “adult education”) and the diffusion of “culture” under the aegis of the state. He concludes: “It is typical that the greatest progress that has come about in ‘the democratic extension of culture’ has been produced by private enterprise in the form of paperback books, in which the state did not involve itself, except to impose its usual taxes.” A third of a century later, the same could be said of compact discs and computers. Ruyer’s work, quite unduly neglected, is a profound and elegant dissection of the intellectual’s persistent resentment of the free market economy and capitalist society. In this respect, it stands in contrast to the recent book of Raymond Boudon (2004). Despite its promising title (Why the Intellectuals do not Like Liberalism) and occasional insights, Boudon’s book proves to be superficial, e.g., in dating the intellectuals’ turn against a liberal order from around 1950.

61Schumpeter 1950: 155 highlights an important channel of the intellectuals’ influence, by means of the state bureaucracies, which are “open to conversion by the modern intellectual with whom, through a similar education, they have much in common.”

62See O’Boyle 1970; also Levy 1987: 160, who writes of “the state-created intelligentsias of post-Restoration Europe [i.e., after 1815] which, outpacing economic growth, faced serious underemployment and played important roles in the revolutions of 1830 and 1848.” In the Reichstag, Chancellor Otto von Bismarck (Raico 1999: 100) claimed that social revolutionaries in Russia consisted of the “diploma-proletariat,” an excess produced by higher education which society could not absorb. The leaders were not workers, but consisted “in part of people of genteel education, many half-educated people . . . dissipated students and unsullied dreamers . . .”

63Schumpeter does not mention Riehl in Capitalism, Socialism, and Democracy and refers to him once in his History of Economic Analysis (1954: 427 and 427 n. 20), but only in connection with Riehl’s work in Kulturgeschichte (cultural history).

64Cf. Mises (1974: 47–48): “In dealing with the ascent of modern statism, socialism, and interventionism, one must not neglect the preponderant role played by pressure groups and lobbies of civil servants and those university graduates who longed for government jobs.” In this connection, Mises mentions the Fabian Society in Britain and the Verein für Sozialpolitik (Association for Social Policy) in Imperial Germany.

65Doubt is cast on Schumpeter’s fundamental analysis by Paul A. Samuelson 1981: 10, who points out that in Japan for decades “the continued omnipresence of Marxist terminology among journalists and teachers” has had no discernible effect on Japanese politics.

66For instance, in 1932, Mises 1990: 96 stated: “All the misfortunes from which Europe has suffered in the last two decades have been the inevitable result of the application of the theories which have dominated the social and economic philosophy of the last fifty years.”

67On one of the very few occasions that he has taken notice of Mises’s writings, Paul Samuelson 1981: 10, n. 3 writes of his “notion that those who can’t hack it in the competitive commercial struggle for existence become the whiners and complainers who seek to subvert the capitalistic order.” This is also the only Misesian explanation mentioned by Nozick 1984: 138.

68Friedrich Naumann, today a liberal icon in Germany, founded his National Social Association in 1896 to promote social welfare measures and an imperialist agenda. Eugen Richter, the chief authentic liberal political figure of the time, mocked Naumann’s little group as a “pastor and school teacher party.” Richter explained the deficient understanding of the market on the part of its members from the fact that they obtained their living from taxes. Raico 1999: 227. See also the essay on Richter in the present volume.

69It should be pointed out that Mises had in mind Continental regimes, in which the clergy was customarily supported by state subsidies. De Jouvenel, in Hayek (ed.), 1954: 104, points out that modern intellectuals have taken over the task of the medieval clergy: they are “forever thrusting the condition of the poor before the eyes of the rich,” and forever scolding the rich for being rich.

70Drawing on Schumpeter, Robert Higgs 1987: 239 comments on one of the results of the cultural hegemony of the anti-capitalist intellectuals: “the bourgeoisie loses faith in its traditional values and ideals; its defense of the free-market system grows steadily weaker as it accommodates itself to a political environment that gives ever greater priority to social security, equality, and governmental regulation and planning.” George Stigler 1984: 152–53 also held that, because of the influence of the intellectuals, capitalists have themselves become apologetic for their pursuit of profit. “To boast that large profits demonstrate great efficiency in producing existing products and introducing new ones is considered even by them [the capitalists] to be too archaic a form of thought for public consumption.” Mises 1933: 183 suggests another reason for the intellectuals’ rejection of economic theory, and, by implication, liberalism: they identify with “the demigods who make history,” while economics demonstrates the strict limits to the power of these masters of mankind.

71Choi 1993 equates envy with the demand for social justice, and sees it as stemming from an inability to understand the sources and functions of entrepreneurial profits. While suggestive and useful as far as it goes, this would seem to take too narrow a view of envy.

72Regarding the leftist orientation of the economically successful, Schoeck remarks (327) that: “a man will opt for a philosophically decked-out, long-term communist programme . . . all the more readily, the more unequal, distinguished, and exceptional is the position he already holds in society, in so far as he combines his privileged position with a sense of guilt.”

73Norman Barry 1989: 55 (see also idem 1984) somewhat overstates the case when he refers to an “intellectual schizophrenia” in classical liberal thinking, which undertakes to explain the expansion of the public sector by the actions of “sinister interests,” while crediting the triumph of the liberal cause to the advance of liberal “ideas.” Actually, the position of most liberals who have addressed the problem may be best summed up by the statement of R.M. Hartwell 1989: 122: “Ideas count, and always have, for good or for ill.” Barry’s own suggestion 1989: 54, that “there is an interplay between ideas and interests and that the relative strengths of the two forces will depend upon the prevailing institutional arrangements in the society in question,” is a fair summary of the customary liberal view.

74Cf. the typically adroit aperçu of Raymond Ruyer 1969: 158: “One is an intellectual today . . . without any special aptitude for intellectuality, with an intelligence often inferior to that of a worker, an artisan, or a middling tradesman, and sometimes with an IQ manifestly close to the level of mental deficiency. In order to ‘pass,’ it is enough to have acquired the vocabulary of intellectuality.”

75Cf., ibid., 161: “The intellectual wishes to choose his way of life and also to choose his standard of living. He chooses freedom, outside of the economic circuit, but he does not renounce the benefits of this circuit. The men who work within the economy displease him, as the yokels displeased the aristocrats, who nonetheless lived on the labor of the yokels, or as the clothiers and shopkeepers of the seventeenth century were the butt of the sarcasms of high society and the ‘persons of quality,’ who in the end might refuse to settle their bills.” It is a great pity that Ruyer’s insightful and beautifully written book has not been translated into English, nor gained the appreciation it deserves.

76Stigler at one point writes 1975: 315 that the intellectual’s role is not that of “simply meeting a well-defined demand for ideology by some important groups in the society. Groups and desired ideologies are neither clearly defined nor immutable through time, so the effective intellectual performs useful functions in detecting shifts of view, in filling in the details of the views, and in gradually adapting them to new circumstances.” His tasks are “giving coherence to a set of positions or interests, of developing them into principles sufficiently broad to allow ready application to new issues and facts, of finding the natural allies and uncovering the submerged conflicts between groups”; these are “not routine or unimportant tasks.” But Stigler’s qualifications undermine his position to a substantial degree. If the intellectuals have the job, among other things, of even defining interest groups, then their independent effect would seem to be considerable.

77In a work tracing the Marxist-Leninist revolutionary vision that came to be shared by intellectual and military cadres in poor countries across the world, Forrest D. Colburn wisely observes 1994: 104, “for a satisfactory understanding of revolution, the revolutionary impulse itself has to be explained, and only the most reductionist theorist would argue that the radical urge to remake state and society is either completely ‘rational’ or ‘self-interested’ . . . this approach can perhaps explain the behavior of a Cuban bureaucrat or peasant, but it is a loss to explain Fidel Castro. His leadership of the Cuban Revolution cannot be explained solely as result of changes in objective conditions or material interests. His ideas—and he is full of them—are consequential because they surely shape his decisions. Explaining revolutionary elites’ ideas is crucial, because in a revolution ideas are more than a kind of intervening variable that mediates interests and outcomes. Ideas transform perceptions of interests, sometimes wildly so. They shape actors’ perceptions of possibilities, as well as their understanding of their interests.”

78In contrast to Malia and others, Richard Pipes 1993: 502 holds that ideology was a “subsidiary factor . . . not a set of principles that either determined [the Communist ruling class’s] actions or explains them to posterity.” Pipes’s reasoning, however, is seriously flawed: he claims, for instance, that Marxism could not have been complicit in Soviet crimes, because “nowhere in the West has Marxism led to the totalitarian excesses of Leninism-Stalinism.” Here he ignores the fact that, in the West, socialist parties abandoned orthodox Marxism, opting instead for a “mixed economy” and the welfare state. In any case, his argument concerns ideology only as a determinant of the actions of the Communist rulers, not as a means of animating and controlling the people. Pipes further maintains that ideology played only a minor role in National Socialism. In this case he relies on the writings of Hermann Rauschning, who held, allegedly on the basis of his personal experiences, including intimate conversations with Hitler, that Nazism represented mere “nihilism.” Rauschning’s reports, however, are a highly questionable source and possibly fraudulent; see Tobias 1990. Moreover, it would be impossible today to find any knowledgeable person prepared to argue that the ideology of anti-Semitism played no role, or a minor one, in the Nazi massacre of the European Jews.

79The use of the public school system for the mass indoctrination of the populace by all modern governments, but especially by totalitarian ones, is dealt with in Lott 1999.

80Cf. Sartori 1969: 410: “in the ideological actor the ‘logic of interest’ combines with the ‘logic of principles.’ In fact, ideological politics represents a situation in which the utility scale of each actor is altered by an ideological scale. Hence, and much to the bewilderment of the pragmatist, in this case the logic of interest no longer suffices to explain, and even less to predict, political behavior.”

81Higgs (37) usefully defines ideology as “a somewhat coherent, rather comprehensive belief system about social relations,” with four distinct aspects: cognitive, affective, programmatic, and solidary.

82Cf. North 1981: 54: “The educational system in a society is simply not explicable in narrow neoclassical terms, since much of it is obviously directed at inculcating a set of values, rather than investing in human capital.”

83Another question of Hartwell’s, why are most historians “softer on the ‘left’ than on the ‘right’?’” is also worth serious consideration.

84Cf. Pollard 2000: 1: “Making money is a dirty game. That sentence might almost sum up the attitude of English literature towards British business. Few writers have had first-hand experience of the world of commerce and industry. Their world is governed by the imaginative and the spiritual. It is no wonder therefore that they so often despise the other world that they see as materialistic . . .”

• 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.”
• 43Ludwig von Mises, Theory and History (New Haven: Yale University Press, 1957), p. 294.
• 44R. 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
• 45Methodological individualism has been a keystone of Austrian economics from the start (Christainsen 1994). In his Investigations, Menger wrote:
• 46Methodological 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.”
• 47It 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.
• 48It 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.
• 49Political 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.
• 50Furthermore, 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.
• 51This 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).
• 52the 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)
• 53This 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).
• 54This 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).
• 55Israel 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).
• 56Israel 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).
• 57Israel 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).
• 58In 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.
• 59On 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:
• 60It 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)
• 61Besides 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).
• 62“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).
• 63. . . 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)
• 64How 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.
• 65As 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.
• 66As 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.
• 67To 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.
• 68In 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).
• 69Most 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).
• 70That 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.
• 71The 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).
• 72The 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).
• 73The 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).
• 74a 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)
• 75In 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).
• 76But 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).
• 77The 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)
• 78Their “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).
• 79Like 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).
• 80Like 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).
• 81From 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).
• 82From 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).
• 83The 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.
• 84Of 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).