Classical Liberalism and the Austrian School

 

4	Was Keynes a Liberal?

Keynes and Neomercantilism

It is now common practice to rank John Maynard Keynes as one of modern history’s outstanding liberals, the most recent “great” in the tradition of John Locke, Adam Smith, and Thomas Jefferson.1 Like these men, it is generally held, Keynes was a sincere, indeed, exemplary, believer in the free society. If he differed from the “classical” liberals in a few obvious and important ways, it was simply because he tried to update the essential liberal idea to suit the economic conditions of a new age.

There is no doubt that throughout his life Keynes endorsed various broad cultural values, such as tolerance and rationality that are often referred to as “liberal,” and, of course, he always called himself a liberal (as well as a Liberal, that is, a supporter of the British Liberal Party). But none of this carries great weight when it comes to classifying Keynes’s political thought.2

Prima facie, Keynes as model liberal is already paradoxical on account of his embrace of mercantilist doctrine. When his major work The General Theory of Employment, Interest, and Money (Keynes 1973a) appeared, W.H. Hutt was about to send his Economists and the Public (1936) to press. In later years, Hutt would subject Keynes’s system to detailed and withering scrutiny (Hutt 1963, 1979). At this point he could only hurriedly insert some initial observations. What struck Hutt most of all was that this renowned economist “would have us believe that the mercantilists were right and their classical [liberal] critics [e.g., Adam Smith] were wrong” (a position Keynes expounded in Chapter 23 of the General Theory).

Hutt was writing from the standpoint of economic science. Here we are dealing with the integrity of liberalism as a social philosophy. If, as I have argued elsewhere (Raico, 1989, 1992, 1999: 1–22), the liberal doctrine is characterized historically by a repudiation of the paternalism of the absolutist welfare state, this is even truer of its rejection of the mercantilist component in eighteenth century absolutism. How can a writer who tried to rehabilitate mercantilism be counted among the liberal greats?3

In defense of Keynes, Maurice Cranston (1978: 111) contended that no one would deny John Locke inclusion in the liberal ranks in spite of his adherence to mercantilism. Whether this was actually Locke’s standpoint is debatable; Karen Vaughn (1980) has furnished grounds for believing otherwise. But even if Locke had been a mercantilist it would lend no support to Cranston’s argument. Locke is rightly viewed as a liberal great, not because of his views on economic theory and policy, whatever they may have been, but by virtue of his libertarian account of natural rights and what he believed followed from it.4

The Keynesian System

According to his supporters and himself, Keynes’s turn to neomercantilism was necessitated by his discovery of fundamental flaws in classical economics. The classical theory, the claim goes, proved impotent to explain the causes either of Britain’s chronic high unemployment in the 1920s or the Great Depression, while in the General Theory Keynes did both. This he accomplished by exposing the inherent gross defects of the undirected market economy, thereby effecting a “revolution” in economic thought.

Yet the particular crises Keynes reacted to were themselves produced by misguided government policies. The persistence of high unemployment in Britain is traceable in part to the decision of Winston Churchill as Chancellor of the Exchequer to return to gold at the unrealistic pre-war parity, and in part to the high unemployment benefits (relative to wages) available after 1920. The Great Depression resulted primarily from government monetary mismanagement, in particular, by the Federal Reserve in the United States. Both of these crises are amenable to explanation by means of “orthodox” economic analysis, requiring no theoretical “revolution” (Rothbard 1963; Johnson 1975: 109–12; Buchanan, et al., 1991; Benjamin and Kochin 1979).5

As Hutt noted, Keynes in the General Theory turned his back on all the recognized authorities, from Hume and Smith, through Menger, Jevons, and Marshall, to Wicksell and Wicksteed. Those thinkers, whatever the degree of their adherence to strict laissez-faire, at least held that the market economy contained self-correcting forces that rendered business fluctuations temporary. Discarding his “orthodox” predecessors (and contemporaries), Keynes aligned himself with what he himself dubbed that “brave army of heretics,” Silvio Gesell, J.A. Hobson, and other social reformist and socialist critics of capitalism, whom mainstream economists had dismissed as crackpots (Friedman 1997: 7).

In a popular essay two years earlier, Keynes had already ranged himself on the side of these “heretics,” the writers “who reject the idea that the existing economic system is, in any significant sense, self-adjusting. . . . The system is not self-adjusting, and, without purposive direction, it is incapable of translating our actual poverty into our potential plenty” (Keynes 1973b: 487, 489, 491). The General Theory was intended to provide the analytical framework to justify this position.

Changes in prices, wages, and interest rates, according to Keynes, do not fulfill the function ascribed to them in standard economic theory, of tending to generate a full-employment equilibrium. The level of wages has no substantial effect on the volume of employment; the interest rate does not serve to equilibrate savings and investment; aggregate demand is normally insufficient to produce full employment; and so on. The false assumptions, conceptual incoherences, and non sequiturs that vitiate these extravagant claims have been frequently exposed (e.g., in Hazlitt 1959; Rothbard 1962, 2, passim; Hazlitt 1995; Reisman 1998: 862–94)6. As James Buchanan sums up the issue (Buchanan et al. 1991: 109): “There is simply no evidence to suggest that market economies are inherently unstable.”

In any case, not every system retaining some elements of the private property market order can reasonably be considered liberal. In early modern history, there was, famously, a system that included private property and permitted markets to operate in a restricted and limited way. It insisted, however, on the overriding role of the state, without which economic life would collapse into anarchy. Economic liberalism arose as a reaction against this system, which is called mercantilism. Fascism, so far as its economic prescriptions went, would be another such system.

Equally crucial to the question at issue are the ways in which Keynes’s errors undermined confidence in the free market order and opened the way for the colossal growth of state power.

Murray Rothbard noted that Keynes posited a world in which consumers are ignorant robots and investors are systematically irrational, driven by their blind “animal spirits.” The conclusion was that the overall volume of investment had to be entrusted to a deus ex machina, a “class external to the market . . . the state apparatus” (Rothbard 1992: 189–91). This process Keynes refers to as “the socialization of investment.” As he declares in the General Theory:

I expect to see the State, which is in a position to calculate the marginal efficiency of capital-goods on long views and on the basis of the general social advantage, taking an ever greater responsibility for directly organizing investments. (1973a: 164)

Keynes argued for the creation of a National Investment Board; as late as 1943, he estimated that such an authority would directly influence “two-thirds or three-quarters of total investment” (Seccareccia 1994: 377).7

Robert Skidelsky (1988: 17–18) insists that in these instances Keynes did not have in mind the state in the sense of the central government, but rather those “semi-autonomous bodies within the State” of which he spoke in 1924, “bodies whose criterion of action within their own field is solely the public good as they understand it, and from whose deliberations motives of private advantage are excluded.” (Keynes 1972: 288–89)

Skidelsky, however, appears oblivious to the problems of this high-sounding conception. Keynes never specified how such bodies were to operate, never gave any reason to believe they would be in a position to calculate the “marginal efficiency of capital” (a thoroughly confused concept, in any case; see Hazlitt 1959: 156–70; Anderson 1995: 200–05), and never indicated by what subtle means they would be kept untainted by motives of private (including personal ideological) advantage.8 Moreover, since Keynes granted that these “autonomous bodies” would be “subject in the last resort to the sovereignty of the democracy as expressed through Parliament,” how could they be prevented from effectively becoming agencies of the central state?

If liberalism’s core doctrine is that, given institutional adherence to the rights of life, liberty and property, civil society can be counted on by and large to run itself, and if the showcase example in liberalism’s brief is the capacity of the undirected market economy to function satisfactorily, then the “Keynesian Revolution” signaled the abandonment of liberalism.

Within a very few years, Keynesianism triumphed among economists prominent in the academy and government, becoming after World War II the official doctrine in advanced countries. It was mandated by the administrators of the Marshall Plan and their allies in the United Nations Economic Commission for Europe and of the European Recovery Program. Italy, for instance, “was constantly urged to reflate by both these agencies” (de Cecco, 1989: 219–21).9 While West Germany, under the leadership of Ludwig Erhard and advised by economists like Wilhelm Röpke, resisted, in Britain both major parties championed Keynesian demand management as the means to full employment, now the principal goal. In the United States, the Employment Act of 1946 recognized the primary responsibility of the federal government for ensuring maximum employment through fiscal operations. The results of this revolution were disastrous.

Prior to Keynes, budget balancing had at least been the goal of the governments of civilized countries. Keynesianism reversed this “fiscal constitution.” By making governments responsible for “counter-cyclical” fiscal policy while ignoring the tendency of shortsighted politicians to accumulate deficits, it set the stage for the unprecedented levels of taxation and public debt of the decades following the Second World War (Buchanan 1987; Rowley 1987; Buchanan et al. 1991).

It is sometimes maintained that Keynes was “not a Keynesian,” in the sense that he cannot be held responsible for the application of his theory by his followers. Yet, with what other “great” or “model” liberal do we have a coterie of highly influential acolytes who interpreted him in a sharply anti-liberal sense? As Michael Heilperin (1960: 125) sardonically observed: “If [Keynes] was a liberal, then he was that extraordinary kind of liberal whose practical recommendations consistently promote collectivism.”

Rules or “Discretion”?

In contrast to earlier absolutist and later collectivist ideologies, liberalism is characterized by its insistence on rules, in political as in economic life (cf. Hayek 1973: 56–59). The rule of law as the foundation of the Rechtsstaat is an obvious example, as is the doctrine of laissez-faire, which even John Stuart Mill felt obliged to pay lip service to as a (readily defeasible) principle (“Laissez-faire, in short, should be the general practice . . .”). Maximum flexibility and leeway in the exercise of power is not a trait that commends itself to liberals. A government of laws, not of men is a well-known liberal slogan.10

Murray Rothbard (1992: 177) noted that Keynes was opposed, as it were, to principle on principle.11 It is no exaggeration to say that he was constitutionally averse to rules, or “dogmas,” as he often called them. This attitude dominated Keynes’s thinking throughout his life. In 1923, he declared:

when great decisions are to be made, the State is a sovereign body of which the purpose is to promote the greatest good of the whole. When, therefore, we enter the realm of State action, everything is to be considered and weighed on its merits. (Keynes 1971a: 56–57)

In his last years, he found “much wisdom” in the proposition that the state should “fill the vacant post of entrepreneur-in-chief,” only “interfering with the ownership or management of particular businesses . . . on the merits of the case and not at the behest of dogma” (Keynes 1980: 324). In a letter to F.A. Hayek, apropos of Hayek’s recently published The Road to Serfdom, Keynes chided him for not realizing that “dangerous acts can be done safely in a community which thinks and feels rightly, which would be the way to hell if they were executed by those who think and feel wrongly” (1980: 387–88).

This, Robert Skidelsky (1988:15) claims, is the heart of Keynes’s “second revival of liberalism” (after the earlier “New Liberalism” of the Hobhouse school): Keynes aimed to “superimpose a managerial philosophy . . . a philosophy of ad hoc intervention based on disinterested thought . . .” Alec Cairncross (1978: 47–48) states that: “He hated enslavement by rules. He wanted governments to have discretion and he wanted economists to come to their assistance in the exercise of that discretion.” Yet it is precisely the ad hoc nature of Keynes’s approach, his faith in a strangely disembodied “disinterested thought” and his predilection for government “discretion” unencumbered by principled limits that run straight against the grain of the liberal doctrine.12

Authentic liberalism has traditionally harbored a deep distrust for the agents of the state, on the grounds that they lack either competence or detachment or both. Keynes’s airy reliance on economic experts whose sage advice would be put into effect by self-denying politicians flies in the face of this wholly warranted suspicion and all of the historical and theoretical evidence supporting it. In contemporary terms, it contradicts the teachings associated with the school of public choice.13

Keynes’s Utopia

Keynes was often given to ruminations on the nature of the future society. Since his writings are rife with inconsistencies,14 it has been possible for some of his followers to contend that what Keynes basically wanted was merely “to wed full employment to classical liberalism . . . his model was very much ‘capitalism plus full employment,’ and he was relatively sanguine about the feasibility of macro-control’” (Corry 1978: 25, 28).

Throughout Keynes’s career, however, there are clear indications of a longing for a much more radical social order, in his words, a “New Jerusalem” (O’Donnell 1989: 294, 378 n. 27). He confessed that he had played in his mind “with the possibilities of greater social changes than come within the present philosophies” even of Fabian socialist thinkers like Sidney Webb. “The republic of my imagination lies on the extreme left of celestial space,” he mused (1972: 309).

Light is shed on this somewhat obscure avowal by numerous statements strewn over decades. Taken together, they confirm the argument of Joseph Salerno (1992) that Keynes was a millenialist a thinker who viewed social evolution as pursuing a preordained course to what he conceived to be a happy ending: a utopia (O’Donnell 1989: 288–94).

Keynes looked forward (1980: 369) to a condition of “equality of contentment amongst all” (whatever that might conceivably mean), where the problem facing the average person will be “how to occupy the leisure, which science and compound interest will have won for him, to live wisely, agreeably, and well” (1972: 328). Technological progress, fueled by socialized investment, will automatically guarantee adequate consumer goods for all. It is at that point that the serious questions of living will arise:

The natural evolution should be towards a decent level of consumption for everyone; and, when that is high enough, towards the occupation of our energies in the non-economic interests of our lives. Thus we need to be slowly reconstructing our social system with these ends in view. (1982a: 393)

Leaving aside the question of who will decide when the level of consumption is high enough: what techniques did Keynes imagine existed to bring about such a restructuring of society? As always when he pondered his desired future, specifics are nonexistent.15 What is clear is that in the future utopia the state will be the incontestable leader.16 Putting an end to “economic anarchy,” the new “régime [will be one] which deliberately aims at controlling and directing economic forces in the interests of social justice and social stability” (1972: 305).17

The state, according to Keynes, will even decide on the optimal level of population. Regarding eugenics, Keynes occasionally gave the appearance of indecision: “the time may arrive a little later when the community as a whole must pay attention to the innate quality as well as to the mere numbers of its future members” (1972: 292; Salerno 1992: 13–14). At other times, he was quite definite: “The great transition in human history” will begin “when civilized man endeavors to assume conscious control in his own hands, away from the blind instinct of mere predominant survival” (1983: 859),18 a view curiously reminiscent of Leon Trotsky’s at around the same time.19

So, the state—in its guise as “civilized man”—will channel and oversee the reproduction of the human race as well.

In all these matters, the state will, in turn, be guided by wise and farseeing intellectuals of Keynes’s own sort.20 How could it be otherwise? Left to their own devices, the great majority of people are virtually helpless. As Keynes declared: “Nor is it true that self-interest generally is enlightened; more often individuals acting separately to promote their own ends are too ignorant or too weak to attain even these.” (1972: 288; emphasis in original) Since he held that in economic questions “the right solution will involve intellectual and scientific elements which must be above the heads of the vast mass of more or less illiterate voters” (1978: 295), one wonders how much of “the sovereignty of the democracy” could possibly continue to exist in Keynes’s utopia.

Naturally enough, given his own tastes, the arts played a central role in his vision. He complained of the niggardliness of state subsidies to the arts that was defended by “the sub-human denizens of the Treasury.” Such a policy was incompatible with any loftier conception of “the duty and purpose, the honor and glory [sic} of the State.” Art subsidies were a means for the State to fulfill its duty to elevate “the common man,” to lead him to feel himself “finer, more gifted, more splendid, more carefree” (Keynes in Moggridge 1974: 34–35). During the war, Keynes served as a leading spokesman for what afterwards became the Arts Council. “Death to Hollywood” was his slogan. He was immensely gratified to be able to report, implausibly enough, that 3,000 English factory workers in the Midlands had reacted with “wild delight” to a ballet performance (Keynes in Moggridge 1974: 41, 48). In the future, besides state subsidies, there would be inculcation of art appreciation in the schools: going to plays and visiting art galleries “will be a living element in everyone’s upbringing, and regular attendance at the theatre and concerts a part of organized education” (1982b: 371).

The utter banality of this state-sponsored crusade for aesthetic Uplift—a key to the realization of Keynes’s utopia—is exceeded only by its spirit–crushing dreariness.

Keynes and the Totalitarian “Experiments”

Further grounds for doubting Keynes’s liberalism can be found in his attitude in the 1920s and 30s towards the continental “experiments” in planned economy.

At certain times Keynes displayed an outlook on German National Socialist and Italian Fascist economic policy surprising in a supposed model liberal thinker. Two texts are at issue here: the preface to the German edition of the General Theory (Keynes 1973a: xxv–xxvii), and

the essay, “National Self-Sufficiency” (Keynes 1933; 1982: 233–46).

In the preface, Keynes observes that he is deviating from “the English classical (or orthodox) tradition,” which, he notes, never totally dominated German thought.

The Manchester School and Marxism both derive ultimately from Ricardo.21 . . . But in Germany there has always existed a large section of opinion which has adhered neither to the one nor to the other. . . .Perhaps, therefore, I may expect less resistance from German than from English readers in offering a theory of employment and output as a whole, which departs in important respects from the orthodox tradition. (1973a: xxv–xxvi)

To entice his readers in National Socialist Germany even further, Keynes adds:

much of the following book is illustrated and expounded mainly with reference to the conditions existing in the Anglo-Saxon countries. Nevertheless the theory of output as a whole, which is what the following book purports to provide, is much more easily adapted to the conditions of a totalitarian state, than is the theory of the production and distribution of a given output produced under conditions of free competition and a large measure of laissez-faire. (1973a: xxvi)

Roy Harrod in his earlier biography (1951) chose not mention this preface at all.22 Robert Skidelsky refers to it as “unfortunately worded,” and leaves it at that (1992: 581). Alan Peacock writes of the passage (without quoting it) that Keynes indicated “that the then German (Nazi) government would be more sympathetic to his ideas on the employment-creating effects of public works than the British government” (1993: 7). This, however, runs contrary to the clear meaning of the text: it is not that the Nazi leaders chanced to be more sympathetic to one of Keynes’s particular proposals, but that, in Keynes’s view, his theory “is much more easily adapted to the conditions of a totalitarian state.” Peacock adds “there is some dispute over whether or not the preface was accurately translated.” But that issue in no way affects the excerpt quoted here, which is from Keynes’s English manuscript.23

Nazi economic thinkers sometimes used references to Keynes to support the explicitly anti-liberal economic policies of National Socialism. Otto Wagener, who headed a Nazi economics research bureau before the seizure of power, gave Hitler a copy of Keynes’s book on money, because it was “a very interesting treatise,” conveying the feeling that the author was “far on the road to us, without being familiar with us and our viewpoint” (Barkai 1977: 55, 57, 156). Publication of the German edition of The General Theory received critical reviews from publications that had managed to keep their distance from the official Nazi economic line, while a Nazi apologist at Heidelberg welcomed it “as a vindication of National Socialism.” Keynes himself remarked that the German authorities had permitted publication “on paper rather better than usual, and the price was not much higher than usual” (Skidelsky 1992: 581, 583).

A weightier instance of the difficulty of classifying Keynes as a liberal is his essay on “National Self-Sufficiency” (Keynes 1933, 1982: 233–46).24 Here laissez-faire and free trade are treated with characteristic Bloomsbury derision. In the dismal past they had been viewed “almost as a part of the moral law,” a component of the “bundle of obsolete habiliments one’s mind drags round” (Keynes 1933: 755). Very different, however, is Keynes’s posture towards the doctrines that were all the rage as he wrote. “Each year it becomes more obvious that the world is embarking on a variety of politico-economic experiments,” as the presumptions of nineteenth century free trade are abandoned. What are these “experiments”? They are those underway in Russia, Italy, Ireland, and Germany. Even Britain and America are striving for “a new plan.” Keynes is oddly agnostic on the chances for success of these various projects:

We do not know what will be the outcome. We are—all of us, I expect—about to make many mistakes. No one can tell which of the new systems will prove itself best. . . . We each have our own fancy. Not believing that we are saved already [sic], we each should like to have a try at working out our own salvation. (761–62)

He concedes that “in matters of economic detail, as distinct from the central controls,” he favors “retaining as much private judgment and initiative and enterprise as possible” (762). But

we all need to be as free possible of interference from economic changes elsewhere, in order to make our own favorite experiments towards the ideal social republic of the future . . . (763)

At the time Keynes wrote this article, the doctrine of “national self-sufficiency” that he was preaching was often identified with National Socialism and Italian Fascism. When Franklin Roosevelt “torpedoed” the London Economic Conference of June, 1933, the President of the Reichsbank Hjalmar Schacht smugly told the Völkischer Beobachter (the official newspaper of the Nazi Party) that the American leader had adopted the economic philosophy of Hitler and Mussolini: “Take your economic fate in your own hand and you will help not only yourself but the whole world” (Garraty 1973: 922).

Keynes admits that many errors are being committed in all the contemporary essays in planning. While Mussolini may be “acquiring wisdom teeth,” “Germany is at the mercy of unchained irresponsibles—though it is too soon to judge her.”25 Keynes reserves his harshest criticism for Stalin’s Russia, perhaps a historically unprecedented example of “administrative incompetence and of the sacrifice of almost everything that makes life worth living to wooden heads” (766). “Let Stalin be a terrifying example to all who seek to make experiments,” Keynes declares. (769)

Yet his critique of Stalin—who had just condemned millions to death in the terror famine and was filling Lenin’s Gulag with additional millions—is oddly oblique and off center. What the Soviet and the other socio-economic experiments require above all is “bold, free, and remorseless criticism.” But

Stalin has eliminated every independent, critical mind, even those sympathetic in general outlook. He has produced an environment in which the processes of mind are atrophied. The soft convolutions of the brain are turned to wood. The multiplied bray of the loud-speaker replaces the soft inflections of the human voice. The bleat of propaganda bores even the birds and the beasts of the field into stupefaction. (769)

“Wooden heads . . . brains turned to wood . . . bores . . . into stupefaction.” The reader may judge for himself whether this critique—redolent of John Stuart Mill’s harping on the all-importance of endless discussion and debate—is adequate to the deeds of Josef Stalin and Soviet power as of 1933.

Finally, there is a passage in this essay as it appeared in its first version, in The Yale Review, which is omitted from The Collected Writings26:

But I bring my criticisms to bear, as one whose heart is friendly and sympathetic to the desperate experiments of the contemporary world, who wishes them well and would like them to succeed, who has his own experiments in view, and who in the last resort prefers anything on earth to what the financial reports are wont to call “the best opinion in Wall Street.” (Keynes 1933: 766)27

Skidelsky’s comment (1992: 483) on this essay is brief and bland: “As Keynes noted in his ‘National Self-Sufficiency’ articles [the essay appeared in two parts in The New Statesman and Nation], social experiments were in fashion; all of them, whatever their political provenance, envisaged a much enlarged role for government, and a greatly restricted role for free commerce.” This hardly seems sufficient.

The question at this point is this: how can someone who expressed a wistful sympathy for the “experiments” of the Nazis, Fascists, and Stalinist Communists, and whose threadbare Bloomsbury mockery was reserved for the freely functioning society of laissez-faire be considered a clear-cut example of a liberal, or any liberal at all?28

Soviet Communism

Questions are also raised by the tone and substance of some of Keynes’s more extended remarks on Soviet Communism. Following a trip to the Soviet Union in 1925, he published, A Short View of Russia (1972: 253–71). Skidelsky calls this, with astonishing implausibility, “one of the most searing attacks on Soviet communism ever penned” (1994: 235).

It is true that Keynes perceives some grave flaws of the Soviet regime, especially the persecution of dissenters and the general oppressiveness. But these he holds to be in part the fruit of revolution and of “some beastliness in the Russian nature—or in the Russian and Jewish natures when, as now, they are allied.” It is “one face” of the “superb seriousness of Red Russia.” Such seriousness can be dour, “crude and stupid and boring in the extreme,” witness the Methodists (270)—another Bloomsbury touch. Keynes gives no sign that despotism might be the natural consequence, the entirely predictable result, of such a concentration of power in the state as the Bolsheviks had effected in Russia. This view has been a mainstay of liberal thought from at least the time of Montesquieu and Madison, through Mises and Hayek, and on to the present day. One would expect a liberal to highlight the point.

Instead, Keynes gushes over the Soviets’ will to engage in bold “experiments” in social engineering. In Russia, “the method of trial-and-error is unreservedly employed. No one has ever been more frankly experimentalist than Lenin.” As for the catastrophically failed “experiments” of the first years of Bolshevik rule, which had compelled the shift from “war communism” to the then-current system of the New Economic Policy (NEP), Keynes describes them in the most anodyne terms: earlier “errors” had now been corrected and “confusions” dissipated (262).29 Keynes is dazzled by the regime’s character as “the laboratory of life,” and concludes that Soviet Communism has “just a chance” of success. Still, he asserts in this “searing attack,” “even a chance gives to what is happening in Russia more importance than what is happening (let us say) in the United States of America” (270).30

What was at the root of Keynes’s sympathy for the Soviet experiment? A hint is given at the beginning of his essay, when Keynes playfully suggests that the Archbishop of Canterbury might deserve to be called a “Bolshevist,” “if he seriously pursues the Gospel precepts.” (Jesus Christ as the first Chekist?) What moves Keynes most deeply is the “religious” element in Leninism, whose “emotional and ethical essenceemotional and ethical essence centers about the individual’s and the community’s attitude towards the love of money” (259; emphasis in the original). The Communists have transcended “materialistic egotism” and brought about “a real change in the predominant attitude towards money. . . . A society of which this is even partially true is a tremendous innovation”:

in the Russia of the future it is intended that the career of money-making, as such, will simply not occur to a respectable young man as a possible opening, any more than the career of a gentleman burglar or acquiring skill in forgery or embezzlement. . . . Everyone should work for the community—the new creed runs—and, if he does his duty, the community will uphold him. (260–61)

In contrast to this inspiring religiosity, “modern capitalism is absolutely irreligious,” lacking in any sense of solidarity and public spirit:

it seems clearer every day that the moral problem of our age is concerned with the love of money, with the habitual appeal of the money motive in nine-tenths of the activities of life, with the universal striving after individual economic security as the prime object of endeavor, with the social approbation of money as the measure of constructive success, with the social appeal to the hoarding instinct as the foundation of the necessary provision for the family and for the future. (268–29)

This preference for Communist over capitalist morality was to remain with Keynes for years.

In 1928, Keynes paid a second visit to Russia, which produced a less favorable assessment. But while Skidelsky (1992: 235–36) assures us that “the romance was clearly over,” that is another of his little exercises in disinformation. The romance continued at least to 1936, with Keynes’s review of Soviet Communism, by his friends Sidney and Beatrice Webb. None of those who argue for Keynes’s liberalism has frankly confronted his quite unambiguous pronouncement,31 included in a brief radio talk delivered for the BBC in June, 1936, in the “Books and Authors” series (1982: 333–34).

The only work that Keynes deals with at any length is the Webbs’ recently published massive tome, Soviet Communism. (The first edition carried the subtitle, A New Civilisation?; in later editions, the question mark was dropped.) As leaders of the Fabian Society, the Webbs had toiled for decades to bring about a socialist Britain. In the 1930s, they turned into ardent propagandists for the new regime in Communist Russia—in Beatrice’s words, they had “fallen in love with Soviet Communism” (Muggeridge 1968: 245). What she called “love” their nephew by marriage, Malcolm Muggeridge 1973: 72, labeled “besotted adulation.” During their three-week visit to Russia, where, Sidney boasted, they were treated like “a new type of royalty,” the Soviet authorities supplied them with the imaginary facts and figures for their book (Cole 1946: 194; Muggeridge 1968: 245). The Stalinist apparatchiks were well satisfied with the final result. In Russia itself, Soviet Communism was translated, published, and promoted by the regime; as Beatrice smugly declared: “Sidney and I have become ikons in the Soviet Union” (Muggeridge 1973: 206).32

Ever since it first appeared, Soviet Communism has been seen as probably the prime example of the aid and comfort lavished by literary fellow travelers on the Stalinist terror state. If Keynes had been a liberal and a lover of the free society, one would expect his review, despite his friendship with the authors, to be a scathing denunciation. But the opposite is the case. As Beatrice was pleased to note, Maynard, “in his attractive way, boomed our book in his recent radio talk” (Webb 1985: 370).

In fact, Keynes advised the British public that Soviet Communism was a work “which every serious citizen will do well to look into”:

Until recently events in Russia were moving too fast and the gap between paper professions and actual achievements was too wide for a proper account to be possible. But the new system is now sufficiently crystallised to be reviewed. The result is impressive. The Russian innovators have passed, not only from the revolutionary stage, but also from the doctrinaire stage. There is little or nothing left which bears any special relation to Marx and Marxism as distinguished from other systems of socialism. They are engaged in the vast administrative task of making a completely new set of social and economic institutions work smoothly and successfully over a territory so extensive that it covers one sixth of the land surface of the world.

There is, yet again, fulsome praise for Soviet “experimentation”:

Methods are still changing rapidly in response to experience. The largest scale empiricism and experimentalism which has ever been attempted by disinterested administrators is in operation. Meanwhile, the Webbs have enabled us to see the direction in which things appear to be moving and how far they have got. (Keynes 1982b: 333–34)

Britain, Keynes feels, has much to learn from the Webbs’ work:

It leaves me with a strong desire and hope that we in this country may discover how to combine an unlimited readiness to experiment with changes in political and economic methods and institutions, whilst preserving traditionalism and a sort of careful conservatism, thrifty of everything which has human experience behind it, in every branch of feeling and of action. (334)

One should note, incidentally, the studied backtracking and basic confusion typical of much of Keynes’s social philosophizing—an “unlimited readiness to experiment” is somehow to be combined with “traditionalism” and “careful conservatism.”

By 1936 no one had to depend on the Webbs’ deceitful propaganda for information on the Stalinist system. Eugene Lyons, William Henry Chamberlin, Malcolm Muggeridge himself, the world’s conservative, social democratic, Catholic, and left-anarchist press had revealed the grim truth about of the charnel house presided over by Keynes’s “innovators” and “disinterested administrators.”33 Anyone willing to listen could learn the facts regarding the terror famine of the early 1930s, the vast system of slave labor camps, and the near-universal misery that followed on the abolition of private property. For those not blinded by “love,” the evidence was unmistakable that Stalin was perfecting the model killer-state of the twentieth century.

The Hatred of Money

What explains Keynes’s praise for the Webbs’ book and the Soviet system? There can be little doubt that the major reason is, once again, his deep-seated aversion to profit-seeking and moneymaking, an attitude shared by the Fabian couple.

According to their friend and fellow Fabian, Margaret Cole, the Webbs looked on Soviet Russia as, morally and spiritually, “the hope of the world” (Cole 1946: 198). For them, “most exciting” of all was the role of the Communist Party, which, Beatrice held, was a “religious order,” engaged in creating a “Communist Conscience.” By 1932, Beatrice could announce that: “It is because I believe that the day has arrived for the changeover from egotism to altruism—as the mainspring of human life—that I am a Communist” (cited in Nord 1985: 242–44). In Soviet Communism, the Webbs gush over the replacement of monetary incentives by the rituals of “shaming the delinquent” and Communist self-criticism (Webb and Webb 1936: 761–62). Up to the very end of her life, in 1943, Beatrice was still lauding the Soviet Union for “its multiform democracy, its sex, class, and racial equality, its planned production for community consumption, and above all its penalization of the profitmaking motive” (Webb 1948: 491). And, after her death, Keynes eulogized her as “the greatest woman of the generation which is now passing.”34

Like the Webbs, Keynes identified religiosity with the individual’s self-abnegation for the good of the community. In economic terms, this translated into working for non-pecuniary rewards, in this way transcending the sordid motivation of “nine-tenths of the activities of life” in capitalist societies. For Keynes, as for the Webbs, this was the essence of the “religious” and “moral” element they detected and admired in Communism.

In his passion to malign moneymaking, Keynes even resorted to calling on psychoanalysis for support. Fascinated like most of the Bloomsbury circle by the work of Sigmund Freud, Keynes valued it above all for the “intuitions” which paralleled his own, especially on the significance of the love of money. In his Treatise on Money, Keynes refers to a passage in a 1908 paper by Freud, in which he writes of the “connections which exist between the complexes of interest in money and of defaecation” and the unconscious “identification of gold with faeces.” (Freud 1924: 49–50; Keynes 1971b: 258 and n. 1; Skidelsky 1992: 188, 234, 237, 414).35 This psychoanalytical “finding”—by the man Vladimir Nabokov correctly identified as the Viennese Fraud—permitted Keynes to assert that love of money was condemned not only by religion but by “science” as well. Thus, besides constituting “the central ethical problem of modern society” (cited in O’Donnell 1989: 377, n. 14), the preoccupation with money was also a fit subject for the alienist.

Keynes looked forward to the time when the love of money as mere possession “will be recognized for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease” (Keynes 1972: 329). Sad to say, in all of this rubbish Keynes finds no space to elaborate on the treatment he anticipates such specialists will mete out to the deranged persons diagnosed as suffering from this mental affliction.

In Keynes’s pro-Soviet remarks and in the lack of any concern about them among his devotees, we find, once again, the grotesque double standard that continues to be nearly universal (Applebaum 1997; Malia 1999; Courtois 1999). If in the mid-1930s a celebrated writer had expressed himself towards Nazi Germany in the occasionally benevolent terms Keynes used for the Soviet Union, he would have been pilloried and his name would reek to this day. Yet as evil as the Nazis were to become, in 1936 their victims amounted to a small fraction of the victims of the Soviet regime.36

In fact, the case of Keynes is worse than that of someone who merely praised Hitler, say, for alleged successes in curing the unemployment problem or restoring German self-respect, or for whatever other “achievements” National Socialism might have claimed. The real analogue to Keynes, in his mixture of criticism and sympathy in regard to Soviet Communism, would be a writer who decried the persecutions and suppression of freedom of thought under the Nazis, while praising them for their “awareness” of the “racial question,” from which we might derive some hope for the future. For the very thing that Keynes found admirable in Soviet Russia—the iron will to suppress moneymaking and the profit motive—was the main source of the horrors.

As adherents of a variant of Marxism, Lenin, and after him, Stalin, shared Marx’s loathing of money. The aim of Communism was to abolish money, along with profit-seeking and private exchange—the whole market system—that money made possible. Soviet Communism selected its prey chiefly from among those marked by their love of money and profits: the bourgeoisie and the landlords of the old regime; the “speculators” and “hoarders” of the years of “war communism” and the first Red Terror; then the NEPmen and “kulaks” of the period of collectivization and the introduction of the Plans (Leggett 1981; Conquest 1986; Malia 1994: 129–33). How could Keynes have overlooked the link between individual wealth-seeking and state-inflicted torment that was the rule in Soviet Russia—particularly considering that, in the book he reviewed in his radio address, the authors glorify Stalin’s decision to proceed to “the liquidation of the kulaks as a class”(Webb and Webb 1936: 561–72)?

A notable feature of Keynes’s complimentary comments on the Soviet system here and elsewhere is their total lack of any economic analysis. Keynes was blithely unaware that there might exist a problem of rational economic calculation under socialism. This was a question that had already occupied continental scholars for some time, and was the focus of lively discussion at the London School of Economics.

The year before Keynes’s radio address, a volume appeared in English edited by F.A. Hayek, Collectivist Economic Planning (Hayek 1935), which featured a translation of the seminal 1920 essay by Ludwig von Mises, “Economic Calculation in the Socialist Commonwealth.” At the London School, Hayek was already giving a course of “The Problems of a Collectivist Economy,” starting in 1933–34. A seminar directed by Hayek, Lionel Robbins, and Arnold Plant, chiefly devoted to the same subject, had been offered in 1932–33 (Moggridge 2004).

Keynes gives no indication he had the slightest inkling of the debate or was even in the least interested in the question.37 Instead, what matters for Keynes is the excitement of the Soviet experiment—was there ever any other economist, or purported liberal thinker, who so often invoked “excitement” and “boredom” as criteria for judging social systems?—the awe-inspiring scope of the social changes directed by those “disinterested administrators,” and the path-breaking ethical advance of abolishing the profit motive.

Does this mean that Keynes was at any point ever a Communist? Of course not. But his clearly expressed sympathy with the Soviet system (as well as, to a much lesser extent, with other totalitarian states), when added to his state-furthering economic theory and his state-dominated utopian vision, should embarrass those who unhesitatingly, and ignorantly, enlist him in the liberal ranks. Viewing Keynes as “the model liberal of the twentieth century”—or as any liberal at all—can only render an indispensable historical concept incoherent.

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38This is a modified version of an essay that originally appeared in The Independent Review, Fall, 2008.

Cf. the anthology by Bullock and Shock 1956. Numerous other scholars, such as E.K. Bramsted and K.J. Melhuish 1978 treat Keynes as a major twentieth century (and hence presumably more relevant) representative of the sequence that begins with the Levellers or Locke. The biographer of Locke, Maurice Cranston (1978: 101) categorizes Keynes, like Locke, as a liberal. B. Corry (1978: 26) goes so far as to term Keynes “essentially an economic liberal arguing for specific non-liberal measures solely in periods of unemployment . . .” Douglas Den Uyl and Stuart Warner (1987: 263) include Keynes in their list of “clear-cut” liberals, along with Adam Smith, Turgot, Benjamin Constant and others. John Gray (1986: xi) insists that Keynes’s position is one that must be accommodated in defining the creed. Logically enough, Gray’s definition of liberalism omits any mention of belief in private property. Anthony Arblaster (1984: 292), however, remarks that while Keynes was a “convinced Liberal,” “it was, in the end, social democracy which inherited the legacy of his thought.”

39Cf. Karl Brunner’s conclusion (1987: 28) that, in his logically rigorous terminological schema, Keynes’s “rejection of the liberal solution” is readily discoverable, since: “He finds the severe limitation imposed on government unacceptable. The matter requires, in his judgment, a thoroughly fresh approach.”

40Cf. Rowley 1987: 154, who writes that Keynes promoted “a belief in a fundamentally flawed, non-self-correcting market economy, continually in need of government intervention if it was not to degenerate into chaos. . . . Neomercantilism once again was waging war against the invisible hand, much as it had in pre-Smithian England.”

41Despite the statement cited in note 162, Cranston (1978: 113) implicitly surrendered on the question of Keynes’s fundamental liberalism: “Keynes really belonged with Francis Bacon, and the philosophes, and the utilitarians and the Fabians, to that class of intellectual which believes that intellectuals should rule.” A number of more or less classical liberal writers have also held that Keynes could not be denied the title of liberal, see, e.g., Gottfried Habeler 1946: 193.

42On the disastrous consequences of the exchange-rate error, see Harry Johnson (1975: 100, 122) who states: “Had the exchange value of the pound been fixed realistically in the 1920s—a prescription fully in accord with orthodox economic theory—there would have been no need for mass unemployment, hence no need for a revolutionary new theory to explain it, and no triggering force for much subsequent British political and economic history. . . . Britain has paid a heavy long-run price for the transient glory of the Keynesian Revolution, in terms both of the corruption of standards of scientific work in economics and encouragement to the indulgence of the belief of the political process that economic policy can transcend the laws of economics with the aid of sufficient economic cleverness . . .” Regarding unemployment benefits, Benjamin and Kochin (1979: 468–72) point out that Edwin Cannan (an economist much admired by Hayek) was one of the few contemporaries to understand the part played by the dole in creating excess unemployment. For his pains, Cannan continues to be condemned by Keynesian writers such as Donald Winch as hard-hearted and lacking in compassion (ibid. 468, n. 40).

43Some of the key errors were rooted in Keynes’s methodology, his conclusion, for instance, that an unmanaged market economy was incapable of achieving intertemporal coordination. In the view of Roger Garrison 1985, the mechanisms by which such coordination is, in fact, brought about by market processes were concealed by Keynes’s operating with higher levels of aggregation, while the real coordinating processes were set forth by Hayek. Hayek himself 1995: 246–47 believed that Keynes’s most basic mistake was methodological, pursuing the “pseudo-exactness” of apparently measurable magnitudes, while disregarding the real interconnections of the economic system. Keynes’s approach rested on the assumption that there exist constant functional relationships between total demand, investment, output, etc. In this way, it tended “to conceal nearly all that really matters,” leading to the “obliteration of many important insights which we had already achieved and which we shall then have painfully to regain.”

44See also Seccareccia 1993, where the author rebuts the common view of Keynes as a would-be or actual savior of capitalism.

45Cf. Brunner 1987: 47: “None of [Keynes’s] essays ever elaborates in the slightest the content of this proposal [to socialize investment]. We do not know in what form the socialization should be implemented. The institutional choices are never examined . . . [and we have no way] to assess the consequences of such socialization.”

46The author adds, concerning the role of the Christian Democrats for decades, that they “helped the technocrats maintain their hold over the economy. They became the arch-defenders of the IRI,” the vast state holding company that was by far the largest firm in Italy (1989: 222).

47It is another, theoretically perhaps more important, question whether these goals of liberalism could ever have been compatible with the continued existence of an institution based on monopoly power and the authority to tax, i.e., the state. On this question, see the pioneering work of Hans-Hermann Hoppe 2001, especially 229–34.

48Cf. Bruce Caldwell 1995: 41: “Keynes was famous, and not just among economists, for changing his mind. Indeed, mutability was part and parcel of his public persona . . .”

49In an appreciation of Keynes, The Economist 1993: 110 perversely declared that “a theme that recurs in his work is a preference (echoing Hayek, please note, whose work he praised) for rules over discretion in economic policy . . .”

50Cf. Rowley 1987a: 119, 123, where the author describes Keynes as being “about as far away from the approach of modern public choice as an individual conceivably could be,” and accuses him of ignoring “the dangerous discretion that his theories had placed in the hands of voteseeking politicians.” Donald Winch 1989: 124, a defender of Keynes against the charge of statism, seems to concede that the logic of Keynesian thought leads in a statist direction: “When the technocratic interpretation of state capacity associated with Keynes himself is mixed with politics, can Keynes’ own minimalist [sic] position be sustained? Are not left-Keynesians (and their monetarist opponents for that matter) correct in believing that the logic of Keynesianism leads to greater intervention, such that what may have begun as macroeconomic management requires extension into microeconomic intervention to ensure success?”

51See the peculiar judgment on Keynes by Thomas Balogh 1978: 67: “His strength and infinite, yet tantalizing, charm lay in being able to discard views (and people) at the drop of a hat.” This does not seem far from Rothbard’s characterization of Keynes as an intellectual “buccaneer.”

52Keynes’s approach here is characteristic of critics of the market economy. As Roger Garrison 1993: 478 observes: “His failure to explain in any detail just how this ideal system would work is consistent with socialist thought in general, which has always focused on the perceived failings of the actual system rather than on the allegedly superior workings of the imagined one.”

53Cf. O’Donnell 1989: 299–300: “At bottom, Keynes’s prescription was that the state should act as the guardian, supervisor, and promoter of civilized society. . .it was an active supervisor with an ethically directed program of gradual evolutionary change, including modification of the rules of the game.”

54In this same famous essay, “Am I a Liberal?” Keynes also asserts, with his usual muddle when it comes to his social philosophy, that he is merely striving for “novel measures for safeguarding capitalism” (1972: 299).

55On another occasion, Keynes reiterated the need to confront the problem of overpopulation “with schemes conceived by the mind in place of the undesigned outcome of instinct and individual advantage. . . . It is many generations since men as individuals began to substitute moral and rational motive as their spring of action in the place of blind instinct. They must now do the same thing collectively.” (Keynes 1977: 453

56The Bolshevik leader Leon Trotsky 1960: 254–55 expressed similar eugenic views, although in a more “Promethean” spirit, on the “great transition” to the future utopia: “The human species, the coagulated homo sapiens, will once more enter into a state of radical transformation, and in his [sic] own hands will become an object of the most complicated methods of artificial selection and psycho-physical training. . . . The human race will not have ceased to crawl on all fours before God, kings, and capital, in order later to submit humbly before the dark laws of heredity and a blind sexual selection!” See the essay, “Leon Trotsky: the Ignorance and the Evil,” in my collection, Great Wars and Great Leaders: A Libertarian Rebuttal.

57See Bernard Corry’s comment (1993: 37–38): “Politicians were seen by Bloomsbury as an uneasy mix of fools, opportunists, and knaves; so what are we left with to steer the country? Some sort of intellectual establishment, closely allied to academia (or rather a small part of it with Cambridge roots!), who could give dispassionate, expert advice and control . . . Keynes had a Bloomsbury belief in the power and duty of the intelligentsia to advise and control events . . .”

58This is typical of Keynes’s ignorant and cavalier way with the history of economic thought. Ricardian economics exercised no influence on the thought of Cobden and Bright, leaders of the Manchester School; see Grampp 1960: 7, 106–07. On Keynes’s distortion of Malthus as a precursor of his own position, see Rothbard 1995: 105–06. On Keynes’s ignorance of and lack of interest even in the precursors of his own theories, see Garvey 1975.

59Michael Heilperin, in a long footnote (1960: 127, n. 48), commented on the absence of any reference to this preface in Harrod’s work, the major biography of Keynes at the time he wrote. In view of the suppression of academic and other freedoms in Nazi Germany, Heilperin called Keynes’s ingratiating text “an indelible blot on his record as a liberal.”

60The dispute involves some sentences that appear in the German edition but not in Keynes’s manuscript; but these do not seem to inculpate Keynes any further, except for the use of the phrase “pronounced national leadership [Führung]” with a positive connotation. In any case, it seems likely that Keynes approved of the additions. See Bertram Schefold 1980: 175–76.

61The version in The Collected Writings is from The New Statesman and Nation, July 8 and 15, 1933. The essay was first published, however, in The Yale Review. Quotations here are from this version, Keynes 1933. Heilperin (1960: 111) states that this essay “can well be regarded, for all its brevity, as one of Keynes’s most significant writings,” and observes that Keynes downplays the totalitarian character of the regimes he discusses: “They were experimenting that was the wonderful thing about it!” Here Heilperin captures the essential spirit of this piece and of Keynes’s thought over several years.

62This and similar criticisms of Nazi Germany were omitted in the German translation of the essay, evidently with Keynes’s permission; see Borchardt 1988. Although Borchardt is aware of The Yale Review version, he cites the essay from The Collected Writings and thus overestimates its liberal tenor.

63It should have appeared in Keynes 1982: 244, after: “For I must not be supposed to be endorsing all those things which are being done in the political world today in the name of economic nationalism. Far from it.” The version in The Collected Writings likewise omits a few other passages, of negligible importance, that appear in the Yale Review. The editor of this volume in no way indicates that the version included differs from the one published in The Yale Review; moreover, he incorrectly gives the issue of the Yale Review in question as “Summer 1933.”

64Keynes reiteration during the 1920s and 30s of the wonderfulness of social engineering “experiments” finally becomes almost laughable. Another example: in The End of Laissez-Faire ([1926] 1972: 290, emphasis supplied), he wrote: “I criticize doctrinaire State Socialism, not because it seeks to engage men’s altruistic impulses in the service of society, or because it departs from laissez-faire, or because it takes away from man’s natural liberty to make a million, or because it has courage for bold experiments. All these things I applaud.”

65Throughout his career Keynes was, of course, a relentless critic of the laissez-faire principle. The End of Laissez-Faire (Keynes 1972: 272–94) is perhaps his most famous polemical essay. It was reviewed at the time by the Italian (by no means “doctrinaire”) liberal economist Luigi Einaudi (1926). Einaudi’s critique of Keynes and reaffirmation of the value of laissez-faire in practice is discussed in the essay on “The Centrality of French Liberalism,” in the section on “Laissez-faire as Political Guideline,” in the present volume.

66“Errors” and “confusions” seem hardly adequate terms for what a recent historian of Soviet Communism has characterized as “the titanic descent into chaos” of those years, with the death of millions; see the chapter on “War Communism: A Regime is Born, 1918–1921,” in Malia 1994: 109–39; also the illuminating analysis in “‘War Communism’—Product of Marxian Ideas,” Roberts 1971: 20–47.

67Keynes adds (271) that Soviet Russia is very much to be preferred to Tsarist Russia, from which “nothing could ever emerge.” This is an amazingly dimwitted judgment, especially in view of Keynes’s love of the arts. Old Russia can, of course, boast of great achievements in many fields, including music, dance, and, above all, literature, unequaled by its Soviet successor.

68Logically, it should have been discussed by Skidelsky in volume two of his biography, which covers the period to 1937. But while he mentions the Webbs’ Soviet Communism, he does not touch on Keynes’s radio review; Skidelsky 1994: 488. It is passing strange that nowhere in his immense, three-volume biography of Keynes does Skidelsky find space even to mention this highly incriminating piece. It is also absent from his essay on Keynes and the Fabians (1999). The talk is mentioned in O’Donnell 1989: 377, n. 13.

69Even Beatrice’s friend and biographer, Margaret Cole (Cole 1946: 199) stated that the book, while containing some criticisms, was “in some sense, an enormous propaganda pamphlet, defending and praising the Soviet Union.” This was not meant as a criticism, since, as is evident from her biography, Cole shared the Webb’s admiration for Stalinism.

70Eugene Lyons’s comments on the Webbs’ admiration for the “strong faith” and “resolute will” of those who carried out the liquidation of the kulaks, among other mass murders, can be found in Lyons 1937: 284. See also the remarks by Robert Conquest 1986: 317–18, 321. In his novel, Winter in Moscow, Muggeridge (1934) described the world of the foreign fellow traveler who visited the Soviet Union; it was more often “New Liberals” and Fabians rather than non-Communist socialists who were duped by the Soviet regime, he observed.

71In a letter to George Bernard Shaw (Skidelsky 2001: 168). Skidelsky adds, somewhat cryptically, that, though Keynes had arranged for an admiring obituary of Beatrice, he “still hankered after an appreciation of her economics.” (ibid. 527, n. 76) It is entertaining to consider what the economic thought of this silly woman could have consisted in.

72Obviously, if one were to proceed as Keynes did, one would have to probe Keynes’s own unconscious mind for the disreputable sources both of his involvement with the subject of money throughout his professional career, and of his intense, affect-laden rejection of the money motive.

73In a letter dated May 2, 1936 (1961, 403), H.L. Mencken, who was often as astute politically as he was witty in general, wrote: “I am against the violation of civil rights by Hitler and Mussolini as much as you are, and well you know it. . . . You protest, and with justice, every time Hitler jails an opponent, but you forget that Stalin and company have jailed and murdered a thousand times as many. It seems to me, and indeed the evidence is plain, that compared to the Moscow brigands and assassins, Hitler is hardly more than a common Ku Kluxer and Mussolini almost a philanthropist.”

74As late as 1944, in a letter to Hayek commenting on The Road to Serfdom, Keynes stated: “The line of argument you yourself take depends on the very doubtful assumption that planning is not more efficient. Quite likely from the purely economic point of view it is efficient” (Keynes 1980: 386). That Keynes could have referred to this as an “assumption” indicates that he never became aware of—or else refused to think about—the great debate over economic calculation under socialism. The total lack of economic analysis in his reports from Soviet Russia brings to mind Karl Brunner’s conclusion (1987: 47) on Keynes’s notions of social reform: “One would hardly guess from the material of the essays that a social scientist, even economist, had written [them]. Any social dreamer of the intelligentsia could have produced them. Crucial questions . . . are never faced or explored.” There may well be truth in the judgment of his good friend Beatrice Webb (1985: 371), in 1936: “Keynes is not serious about economic problems; he plays a game of chess with it in his leisure hours. The only serious cult with him is aesthetics . . .” For an evaluation of Keynes as “the consummate artist,” aside from the scientific implications of his theory, see Buchanan (1987).

• 1Ludwig von Mises, Theory and History (New Haven: Yale University Press, 1957), p. 294.
• 2R. 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
• 3Methodological individualism has been a keystone of Austrian economics from the start (Christainsen 1994). In his Investigations, Menger wrote:
• 4Methodological 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.”
• 5It 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.
• 6It 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.
• 7Political 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.
• 8Furthermore, 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.
• 9This 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).
• 10the 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)
• 11This 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).
• 12This 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).
• 13Israel 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).
• 14Israel 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).
• 15Israel 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).
• 16In 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.
• 17On 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:
• 18It 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)
• 19Besides 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).
• 20“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).
• 21. . . 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)
• 22How 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.
• 23As 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.
• 24As 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.
• 25To 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.
• 26In 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).
• 27Most 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).
• 28That 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.
• 29The 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).
• 30The 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).
• 31The 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).
• 32a 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)
• 33In 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).
• 34But 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).
• 35The 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)
• 36Their “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).
• 37Like 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).
• 38Ludwig von Mises
• 39Raico’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.
• 40Erich 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.
• 41Eugen 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.”
• 42Elster 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.”
• 43The 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.”
• 44On 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 . . .”
• 45See 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.”
• 46In 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.”
• 47Cf. 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.”
• 48In 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.
• 49Cf. 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.”
• 50Cf. 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.
• 51See 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.”
• 52For an informative discussion of other contrasts between Austrianism and neoclassicism, see Huerta de Soto 1998.
• 53Herbert 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.
• 54Cf., 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.”
• 55See also the trenchant analysis in two essays on the subject by Rothbard 1997, 2: 180–84 and 217–25.
• 56Cf. 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.
• 57Hayek 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.”
• 58Mises 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.
• 59It 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.
• 60To 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.”
• 61On 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.”
• 62For an incisive critique of Popperian falsificationism, see Gordon 1993: 34–41.
• 63See 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.
• 64Popper’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.
• 65On 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.
• 66On some differences between Mises and Hayek in connection with the famous debate, see Keizer 1994.
• 67For 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.
• 68Karen 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.
• 69Cf. 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.’”
• 70It 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.
• 71Emil 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.”
• 72In 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.
• 73Wieser 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.”
• 74It 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.”