Classical Liberalism and the Austrian School

 

7	Ludwig von Mises’s Liberalism on Fascism, Democracy, and Imperialism

Mises’s Liberalism

Ludwig von Mises’s exposition of liberal economic and political philosophy, Liberalism,1 is noteworthy for a number of reasons.

In the first place, there can be no doubt that Mises was among the foremost liberal thinkers of the twentieth century, if not the foremost.2 Second, although F.A. Hayek (1992: 145) characterized it as “rather hastily written,”3 Liberalism remains Mises’s most systematic attempt “to present a concise statement of the essential meaning” of his social philosophy, and to restate liberalism for the contemporary world (Mises 1978a: 3). Moreover, as will be seen, Mises’s presentation raises a number of highly important issues regarding his version of the liberal doctrine.

Mises’s starting point is itself rather interesting:

The program of liberalism, therefore, if condensed into a single word, would have to read: property, that is, private ownership in the means of production. . . . All the other demands of liberalism result from this fundamental demand. (19, emphasis in the original)

Whether deliberate or not, Mises’s statement parallels Marx and Engels’s dictum in the Manifesto, that the Communist program can be “summarized in a single expression: Abolition of private property” (1848: 22). Just as the two founders of Marxism held that socialism would benefit the great majority of the members of society, so Mises maintained that liberalism, founded on the right to property, was in the general interest. In this respect, his position stands in sharp contrast to two much more famous works on the subject published around the same time.

In his History of European Liberalism (1959), which first appeared two years earlier than Liberalism, the Italian philosopher Guido de Ruggiero chose to deal with liberalism in an “idealistic” fashion, limiting his treatment of its economic aspect to a few pedestrian and hostile remarks.4 In 1936, in what was to become another standard work, The Rise of Liberalism, Harold Laski did indeed stress the economic dimension of his subject. But, as the book’s subtitle—The Philosophy of a Business Civilization—suggests, Laski reflected the climate of opinion of his time. He simply assumed with no argument that, as the “product” of the middle or “bourgeois” classes, liberalism served the interests of those classes alone.

In English-speaking countries, Mises’s approach goes against the grain of the venerable tradition traceable to John Stuart Mill’s On Liberty. In that presumptuously titled work, Mill focuses on freedom of discussion and “experiments in living,” while explicitly banning from the debate economic freedom—freedom of labor, exchange, and contract, property ownership, etc.—areas of much more urgent concern to the vast majority of mankind. More than anyone else, it was the “muddleheaded Mill,” as Murray Rothbard (1995: 277–95) aptly termed him,5 whose great influence has produced the present-day’s conceptual morass, with the virtual obliteration of any distinction between liberalism and social democracy (see the essay on “Liberalism True and False,” in the present volume).

Following in Mill’s footsteps, many expositors of the liberal idea have deemed it possible to discuss the subject while virtually ignoring property rights. That they have viewed as the higher, more ethically elevated road, a choice which has the advantage of not miring the would-be liberal in any embarrassing defense of the rights of property owners. Such is the case, for example, with Isaiah Berlin, in his day celebrated as the premier liberal thinker in Britain. A critic of liberalism has shrewdly noted how, in his vindication of Benjamin Constant, Berlin focuses on Constant’s championing of intellectual freedom and personal privacy, “discreetly overlooking, or underplaying, Constant’s firm commitment to property power [sic] and a wholly unregulated market” (Arblaster 1984: 234 and 317 n. 29). Like countless other writers, Berlin preferred to carry on his discussion of liberalism in terms of “the value-neutrality of state policy” and “the needs of the human personality.” On this side of the Atlantic, the currently most acclaimed liberal writer John Rawls in his major work (1971: 258) is able to state that, “Throughout the choice between a private-property economy and socialism is left open. . .”6

Mises and Italian Fascism.

In 1925, a Soviet writer had already labeled Mises “a theorist of fascism” (Kapelush 2002). The publication of Liberalism furnished his enemies with considerably more ammunition. Strangely enough, practically the only context in which this work has been mentioned in recent decades is in connection with the short chapter on “The Argument of Fascism” (47–51). Here Mises declares (51):

It cannot be denied that [Italian] Fascism and similar movements aiming at the establishment of dictatorships are full of the best intentions and that their intervention has for the moment, saved European civilization. The merit that Fascism has thereby won for itself will live on eternally in history.7

That Fascism “saved European civilization” from Bolshevism was a commonly held view among anti-Communists of the period. In the same year that Liberalism first appeared, for instance, Winston Churchill, visited Italy, met with Mussolini, and publicly lauded “Fascismo’s triumphant struggle against the bestial appetites and passions of Leninism,” claiming that “it proved the necessary antidote to the Communist poison” (New York Times 1927; cf. Hughes 1955: 119–23).

Nonetheless, Mises’s remarks in Liberalism and a few similar passages from his other writings have given rise to harsh criticism from some socialist writers. In a 1934 article, later republished, Herbert Marcuse (1968: 10) cited this passage in an attempt to show the fundamental congruence of liberalism and fascism. Perry Anderson (1992: 8) has alluded to Mises’s early position on Fascism in a discussion of the “Intransigent Right” in twentieth century political thought:

There was no more outspoken champion of classical liberalism in the German-speaking world of the Twenties [than Mises]. Yet the Austrian political scene, dominated as it was by the conflict between a social-democratic Left and a clerical Right, left little room for this outlook. Here Mises had no hesitation; in the struggle against the labor movement, authoritarian rule might well be required. Looking across the border, he could see the virtues of Mussolini. The blackshirts had for the moment saved European civilisation for the principle of private property: “the merit that Fascism has thereby won for itself will live on eternally in history.” Advisor to Monsignor Seipel, the prelate who ran Austria in the late Twenties, Mises approved Dollfuss’s crushing of labor and democracy8 in the Thirties, blaming the repression of 1934 which installed a clerical dictatorship on the folly of the Social Democrats in contesting his alliance with Italy.9

The most aggressive critic of Mises on this score has been a German writer on twentieth century economic thought, Claus-Dieter Krohn. In a translated work, Krohn asserts that Mises’s sympathy for Italian Fascism is attributable to his fear of “the masses’ demands for participation in a modern industrial society and the need for collective regulation of potential social conflicts.” Citing the passage from Liberalism quoted above, Krohn (1993: 47) states that “as early as 1927 Mises detected in Italian Fascism a welcome bulwark against advancing collectivism,” suggesting, deceptively, that Mises continued to support Fascism afterwards.10

Krohn presents a more detailed, and venomous, critique of Mises in an earlier work (Krohn 1981: 33–38, 111–17). Here he states that Mises attained the high point of his influence later in America, “in the phase of the Cold War,” when he belonged to the group promoting “the so-called totalitarianism theory,” which was “less an analytical theory than an irrational defensive-evasive ideology [Abwehrideologie].” Mises, in Krohn’s view, was always not so much in the tradition of liberalism as in that of the German bourgeoisie, which, out of fear of the “‘Red Republic’ had often sought protection under the wide wings of the authoritarian state”:

His conceptions of the social order reduced to an apology for private property necessarily required for their realization an authoritarian complement. Just as the great [special] interest-groups from the end of the thirties revealed a growing interest in Italian corporatism, so Mises also demonstrated in this period not merely latent sympathies for Fascism. (Krohn 1981: 37)

Unlike Marcuse and Anderson, Krohn acknowledges that Mises’s gratitude to the Fascists was based on their opposition to the perceived Communist threat of the time. He then goes on, however, to misrepresent Mises’s position in a paraphrase. According to Mises:

The fascist movements in Germany11 and Italy are the progressive force of the future, because they alone have found the élan, in the extreme exigency of the situation, to do away with the traditional limits of justice and morality and to be prepared for “bloody counter-actions.” Even if from the standpoint of the liberal some excesses must be condemned, these are in any case only momentary “reflex-actions,” and committed in the heat of passion. As the initial anger blows away, Fascist policy would “take on a more moderate course and will probably become even more so with the passage of time,” for it cannot be denied “that Fascism and similar movements aiming at the establishment of dictatorships are full of the best intentions and that their intervention has for the moment, saved European civilization. The merit that Fascism has thereby won for itself will live on eternally in history.” (Krohn 1981: 37–38)

It should be pointed out at once that Mises’s alleged reference to the German and Italian fascist movements as “the progressive force of the future” is pure invention on Krohn’s part.

It should also be made clear that the excerpt from Mises occurs in the context of an attack on Italian Fascism. Mises criticized and rejected Fascism on a number of crucial grounds: for its illiberal and interventionist economic program, its foreign policy based on force, which “cannot fail to give rise to an endless series of wars,” and, most fundamentally, its “complete faith in the decisive power of violence” instead of rational argument to gain ultimate victory (49–51).12

While Krohn does at least allude to Mises’s reasoning, by referring to his belief in the Communist menace of the early 1920s, he does not, of course, do justice to Mises’s argument. This is in keeping with the prevalent contemporary habit of ignoring the role of international Communism in engendering a violent radical-right backlash.

A half-century ago, the great English historian Herbert Butterfield (1952: 50) complained that ideological bias was leading to a serious distortion of the history of the interwar years:

It is unfortunate that the partisanship of so much of our historical writing has led to the burying of many significant facts which were well known to the world a few decades ago. Amongst them is the fact that the repeated attempts of the communists to call the mob out into the streets created a desperate problem for the early Weimar republic; indeed they help explain the development of those counter-revolutionary armed bands which at the next stage in the story so assisted the purposes of Hitler. Similarly, the extravagances and outrages of communism in Italy in the years after the First World War helped to provoke a counter-movement so serious that it almost blotted out the memory of them—there emerged the violent bands that followed the leadership of Mussolini.

Butterfield is surely correct here. As the events of the decades preceding the Second World War—and of the war itself—are more and more reduced to set of Hollywood stereotypes, any sense of a dialectical process at work fades away. Thus, the circumstances that occasioned—and justified—Mises’s approval of the Fascists at an early historical juncture are today virtually forgotten. For this reason, and because it raises questions of fundamental importance for liberal theory, the issue merits extended discussion.

Mises begins by pointing out that Italian Fascism (and to an extent similar movements in other countries, such as the Freikorps in Germany) gained prominence in response to what many millions in Europe perceived as a mortal challenge. In 1919, Lenin formed the Third, or Communist, International (Comintern), constituted of the Communist parties throughout the world and openly aiming at world revolution by any means necessary. As Mises states (47), the Comintern parties did not shrink from “the frank espousal of a policy of annihilating opponents.”13

Already “in December 1917, Lenin had launched a campaign of incitement to terror, encouraging the masses to take the law into their own hands, “to ‘rob the robbers’ [i.e., despoil the landowners and the bourgeoisie], to perpetrate ‘street justice’ [practice lynch law], against ‘speculators’ [i.e., black marketeers], and in general to engage in fratricidal class carnage in town and village” (Leggett: 1981: 54). Grigory Zinoviev, first head of the Comintern, declared, in 1918, that, if necessary, the Bolsheviks would exterminate 10,000,000 people in Russia (Nolte 1987: 558–59 n. 41). In the end, the total was considerably higher. The creation in 1918 of the Cheka—the first incarnation of the Soviet secret police—began the conversion of the Red Terror into a system. This, and economic transformations that wrecked the economy and produced mass famine, was what the Comintern promised to bring to the nations of Europe, and then the world.14

Communist uprisings broke out in various parts of Germany, and Soviet Republics were established, briefly, in Bavaria and Hungary. In 1920, Lenin turned the Polish-Soviet war into a campaign for the conquest and Communization of Poland, as a prelude to further expansion westwards (Pipes 1993: 177–83, 187–93). He called for the “merciless liquidation of landlords and kulaks [successful farmers],” and proposed paying bounties to murderers of “class enemies” (Pipes 1993: 188). The Poles, however, stood firm and stopped the Red Army at the gates of Warsaw.

The Threat of Communist Revolution in Italy

Lenin and the other Bolshevik leaders looked on Italy as a particularly promising area for revolution. The Italian Socialist Party (PSI) fell under the control of the “maximalists,” who considered themselves Leninists and looked to the Comintern for ideological direction.

In the program adopted at the Sixteenth Party Congress, in Bologna, in October, 1919, the PSI proclaimed the start of “a period of revolutionary struggle, to bring about the forcible suppression of the bourgeoisie within a short time,” and called for the “armed insurrection of the proletarian masses and proletarian soldiers,” to institute the dictatorship of the proletariat (cited in Peterson 1982: 279).15 The Socialists declared that “the proletariat must have recourse to the use of violence for the conquest of power over the bourgeoisie. . .we must use new and proletarian organizations such as workers’ soviets, and we must adhere to the Third International” (cited in Smith 1959: 327–28).

With the general elections of 1919, the PSI became the largest party in parliament, as well as the best organized.16 Its spokesmen and agitators heralded the coming socialist revolution, as the PSI worked to destabilize state institutions, including parliament as a prelude (Morgan 1995: 11).17 The party newspaper, Avanti!, went so far as to state that “soon all the parties will be eliminated” (Settembrini 1978: 125–26 and 125 n. 5). When the left-leaning Francesco Nitti was made prime minister, the party’s leading intellectual, Antonio Gramsci, hailed him as the Kerensky of the impending Italian Communist revolution (Smith 1959: 330).

Socialist violence had long been a feature of public life in Italy. Directed against employers’ property and especially against non-striking workers, it had been systematically practiced by labor unions during industrial disputes. In 1906, the premier Italian social scientist, Vilfredo Pareto (1974: 97–98), complained that the right to strike had turned into “the freedom, for the strikers, to bash in the brains of workers who wish to continue to work and to set fire to the factories with impunity.” A decade and a half later, the situation had not improved. In one of his last essays, Pareto again protested that the right to strike had come to be understood as including “the ability to constrain others to do so and to punish strikebreakers.” All manner of pressure and violence was permitted the strikers and justified as necessary “to promote the strike, to set conditions advantageous to labor, to facilitate ‘the ascent of the proletariat,’ the transformations demanded by ‘modernity’” (Pareto 1981: 141). In his day, the only ones left to defend the freedom to work were, Pareto ironically wrote, “those abominable Manchesterians” (i.e., the supporters of laissez-faire) (Pareto 1992: 328).

This endemic labor union violence—not limited to Italy, of course—has vanished from the commonly held picture of the rise of Fascism, as well as of the history of the twentieth century in general. The cause of such an Orwellian gap in historical consciousness is to be sought in the mediating intellectual class which has produced the benign picture of “labor” violence (mainly against other workers), and which has always been deeply committed to the same pro-union prejudices that Pareto condemned.

Union violence in Italy was not confined to the industrial centers. Systematic coercion had already been introduced into large parts of the countryside by the Socialist agricultural unions. A writer sympathetic to these unions has written, of the lands of the Po valley, subject to a chronic labor surplus:

By a remarkable tour de force, the Socialist peasant leagues had overcome this difficulty in the first two decades of the century. But their achievement had a price. The need to maintain cohesion in the face of the constant threat of blacklegging [sic] by unemployed or migrant workers made necessary extremely harsh methods of discipline. Boycotting and violent intimidation were frequent in the “red” provinces. (Lyttelton 1982: 258)

The period 1919–1920 is known as the biennio rosso, “the two Red years.” Strikes and demonstrations were conducted in an atmosphere of wild rhetoric and “messianic revolutionary expectations” (Morgan 1995: 21–34; Lyttelton 1982: 258). Italy was pounded by a veritable “strikeomania” (scioperomania), an incessant series of politically-motivated strikes that, besides creating an economic shambles, claimed many victims killed and wounded (Salvatorelli and Mira 1964: 127–35, 148–49). Socialist excesses in the northern and central countryside and cities, and the lack of any adequate government response, led many to fear an imminent revolutionary takeover.

Membership in the Socialist agricultural union, the Federterra, surged; by 1920 it had recruited close to a million members. Its ultimate aim was to collectivize all the farm land, which would be worked by co-operatives of laborers. One strike in July 1920, involving most of the farm workers of Tuscany, ended with a contract which the landowners felt “destroyed the very viability of the commercialized sharecropping system.” What the employers especially resented was the Federterra’s demand to control the labor supply and employment opportunities. In the end, the employers were forced “to recognise the employment offices run by the Federterra as the exclusive source of the supply of labor, and . . . year-round employment quotas [were imposed] on all farmers, large and small . . .” (Morgan 25–26; see also De Grand 1982: 28–29). As one historian has written:

An absolute labor monopoly was so crucial yet so precarious in the overpopulated countryside, that it could only be maintained by the discipline and control of the whole agricultural sector, including small peasants who had to be prevented from exchanging labor and thereby avoiding the quota. The system had to be watertight to function at all. This accounted for the coercive aspects of the [Socialist] leagues’ attempts to secure and retain the labor monopoly, through fining, boycotting, and sabotaging the crops, livestock, and property of those farmers employing non-union labor and those “blackleg” workers who agreed to work for them. (Morgan 1995: 26)18

Another historian observes that violence against employers and non-strikers “often extended to an intolerance of political or religious dissent. . . . Even where the local [Socialist] leadership professed reformist principles, their methods of control were scarcely compatible with the bourgeois liberal order” (Lyttelton 1982: 258–59; see also Joes 1982: 168–70).

In July 1920, representatives of the Italian General Confederation of Labor (CGL) signed a pact in Moscow, adhering to the social revolution and the universal republic of soviets. In September, union workers in Milan, Turin, and Genoa hoisted the Red Flag, seized control of factories, and proceeded to try to run them. “In order to protect the experiment, the works were put in a state of defense, with Red Guards and, in some cases, barbed wire and machine guns” (Salvatorelli and Mira 1964: 152). The Socialist unions demanded control of employment and challenged the owners’ direction of production. In Turin, workers’ councils were formed, which Gramsci and other Communist intellectuals welcomed as the Italian version of the Russian soviets (Morgan 1995: 27).

The local elections of November, 1920 put control of nearly one-third of communal and half of all the provincial councils in the hands of the PSI. Since Socialist influence in the South was minimal, this amounted to Red domination of many of the northern and central districts, especially in Tuscany, Lombardy, Emilia, and the Romagna. Sometimes declaring their towns revolutionary “republics,” the local Socialists “announced their intention to use the communes as a springboard for revolution” (Lyttelton 1982: 259). “Socialist councils used their powers to raise taxes on wealth and property, increased spending on public services, favored workers’ co-operatives in municipal contracts, and subsidized consumer co-operatives to undercut the private retail and distribution trades” (Morgan 1995: 27).19

Millions in the middle classes became convinced that Bolshevism was on the point of overwhelming the country. Nowadays, it has become customary to maintain that the Communist threat was all bluff and posturing, mere “verbal revolutionism” (Knox 2000: 34),20 “all bark and no bite” (Smith 1959: 328).21 This was not, however, the view of contemporaries.22 As Philip Morgan (1995: 27) writes, of the real prospect of a Bolshevik Italy: “in late 1920, after the propertied classes had suffered disastrous economic and political defeats in north and central Italy, this was exactly the perception of recent events. At a local and provincial level, the Socialist revolution was being inaugurated; it was already under way.”23

Meanwhile, the government vacillated. A decree of 1919 permitted “temporary occupation of uncultivated land,” which had the predictable effect of inciting more occupations. The government officially assumed a posture of “neutrality” in labor disputes, which meant scant protection for the rights of property or of non-striking workers. In the seizure of the factories, it refused to use force to evict the workers, and in fact supported their right to share in running the factories (Lyttelton 1973: 38; Salvatorelli and Mira 1964: 40–41).

The Fascist Reaction as Middle-Class Self-Help

The events of the biennio rosso provided the occasion for the spectacular rise of the Fascist movement, which until then had lacked focus and support. It is astonishing but symptomatic that the torrent of Socialist violence goes unmentioned in a standard work on Mussolini by Denis Mack Smith, of All Souls College, Oxford, the doyen of Anglophone historians of modern Italy.24

The great increase in Fascist membership and influence came initially in the rural areas, where Fascist squads (squadre) were formed. (This element of the overall Fascist movement is referred to as squadrismo, and the members of the squadre as squadristi.)

The squads were gangs of mainly middle-class young men, many of whom had served as lower-rank officers during the war. They were university and secondary school students, sons of the professional people, local traders, officials, businessmen and farmers who supported or sympathized with Fascism’s drive against socialism. (Morgan 1995: 50)

The Socialist program had alienated even many sharecroppers and tenant farmers, who, together with other agrarians and local businessmen, financed and equipped the Fascist squadre. Especially in the Po valley, the squadre were often supported and joined by small proprietors, leaseholders, and sharecroppers, as a defensive measure against the Socialists’ mobilization of the day laborers and their long-range goal of collectivizing the land.25

Farmers and local businessmen complained bitterly of the failure of the government to protect their property. For them, supporting the squadre was “a kind of middle-class self-help” (Morgan 1995: 56; see also Lyttelton 1973: 37, 60–61). In Carrara, where the local Socialist authorities threatened outright expropriation of the marble quarries, the squadristi very forcefully disrupted their plans. In Genoa, the squads, largely composed of non-union workers, broke the union monopoly over the docks, winning the acclaim of the workers who had until then been excluded (Lyttelton 1973: 70–71).

The counter-actions of the squadre were by no means merely defensive in any narrow sense. Instead, they undertook a successful campaign of violence to root out the Socialist “infrastructure.” Applying physical force that their opponents could not match, the Fascists destroyed Socialist-run town halls, union headquarters, newspapers, and “cultural centers.”

It goes without saying that the Fascists can be sharply and legitimately criticized on a number of counts, including their violent excesses and their ultimate statist program. It is odd, however, to read in a standard history of the Fascist coming to power of “the sordid facts behind squadrismo,” namely, its “dependence on official police connivance and funds from industrialists or agrarians” (Lyttelton 1973: 54). One wonders what exactly was “sordid” about property owners resorting to the only means open to them to safeguard their rights. Such rebukes—and they are routine—bring to mind the French saying:

Cet animal est très méchant;
Quand on l’attaque il se défend.
This animal is quite vicious;
When attacked it defends itself.26

The Italian Economists and “the Insurrection against Bolshevism”

How to maintain liberal constitutional principles in the face of a radical-socialist movement menacing the foundations of the social order—above all, private property—had deeply troubled liberals in central and eastern Europe in the later nineteenth century. Confronted with a rising socialist party in a German Empire, where the Reichstag was elected by universal manhood suffrage, John Prince Smith, the founder of the German free-trade movement and its leader for over three decades, ended as an advocate of the military-authoritarian state (Raico 1999: 77–86).27 In Russia, Boris Chicherin, eminent legal historian and social philosopher and the leading Russian liberal of his time, declared: “At the sight of this communist movement nothing remains for the sincere liberal but to support [Tsarist] absolutism . . .” (Leontovitsch 1957: 142). In the crisis produced by radical socialism in Italy, liberals—including notables like Benedetto Croce and Luigi Albertini—reacted similarly, welcoming Fascism to one degree or another (Benedetti 1967; Cannistraro (ed.) 1982; Lyttelton 1973: 38).28 Among the more enthusiastic supporters of the Fascist movement were the Italian liberal economists.

In his History of Economic Analysis, Joseph Schumpeter (1954: 855) wrote:

The most benevolent observer could not have paid any compliments to Italian economics in the early 1870s; the most malevolent observer could not have denied that it was second to none by 1914.

Most of the noted Italian economists Schumpeter had in mind were politically speaking classical economic liberals, or, in the Italian terminology, liberisti.29

A small but prestigious economic-liberal movement had existed in Italy throughout the nineteenth century. In the later decades of the century, the writers in this camp were harsh critics both of the interventionist Italian state, with its corrupt support of capitalist special interests at the expense of taxpayers and consumers, and of the incipient socialist movement.

With the Leninist turn of the PSI after the First World War and the emergence of the Fascist movement, the liberal economists began openly to side with the latter. A particularly distinguished member of the group was Maffeo Pantaleoni, whom Hayek referred to (1991: 360) as the author of “one of the most brilliant summaries of economic theory that has ever appeared.”30 Pantaleoni, the longtime friend of Vilfredo Pareto, to whom he introduced the writings of Walras, was among Fascism’s earliest and most fervent supporters. “If it had not been for the intervention of Fascism,” he wrote (1922: vii), “Italy would have suffered not merely an economic and political catastrophe, but rather a catastrophe of its very civilization, equal in its kind to that of Russia and Hungary.”31

The most famous (or notorious) liberal supporter of Fascism, Pareto himself, was by no means the most committed. Yet in the end he endorsed the Fascist takeover, and, a year before his death, permitted Mussolini to appoint him to the Senate.

At the beginning of his career as an economist, Pareto was, ideologically, a crusading liberal doctrinaire, an Italian version of the Journal des Économistes writers like Gustave de Molinari, with whom he was in close contact and whom he addressed as cher maître. Pareto contributed frequently to that Parisian journal, the flagship of the laissez-faire idea in Europe, and even occasionally to Liberty, the organ of the American individualist-anarchist movement headed by Benjamin Tucker. He revealed his idealistic motives to his friend Pantaleoni (Pareto 1962, 1: 103): “What is the use even if we advance economic science, if then we are alone, the few of us, to know the truth? Isn’t it our duty to have others know it as well? To strive so that justice vanquishes the corruption and injustice that oppresses us?” His chief animus was reserved for the thieving interventionist, “pro-business” establishment, while he expressed admiration for the courage and sincerity of the young Italians who were becoming converts to socialism. During the persecution of the left by the Italian government in the late 1890s, he personally assisted socialist refugees in his home in Lausanne, as Pantaleoni did in Geneva. (Pareto 1962, 1: 500; 2: 197).32

But Pareto soon began to grow skeptical of the good faith of the socialists. Even while the Italian government was oppressing socialists, in Geneva socialist-led workers, including many Italians, were physically assaulting workers who refused to join a strike of masons: “The socialist gentlemen in Italy ask only for liberty; here [in Switzerland] they have it, and look at them becoming the tyrants. They cease being victims only to become persecutors . . . the violent acts of the socialists in Geneva, in France, etc., will finish with justifying the Italian and German governments” in their suppression of socialism. By 1898 he had already concluded that: “Against force there remains nothing to oppose but force” (Pareto 1962, 2: 224–25).33

In the years that followed, Pareto became embittered and thoroughly disillusioned. The astonishing popularity of Marxism in Italy led him to recast his sociological views to emphasize the priority of the irrational in human affairs (Finer 1966: 11, Finer 1968: 447–48; and Rothbard 1995: 455–59). Social and economic theories are deployed in political struggles not in virtue of their “objective value,” but “rather principally for the quality they may have of evoking emotions” (Pareto 1974: 98).

Pareto was particularly disgusted by the growing “humanitarianism” of the bourgeoisie, which expressed itself in sympathy for the excesses of unionized labor and even in a “sentimental mania” for the criminal element. The bourgeoisie manifested its decadence through its support of educators who taught that capitalism was founded on theft and of writers who besmirched every decent social value and undermined the very foundations of society (Pareto 1981: 90–95). Instead of fighting manfully for its rights, the bourgeoisie was basely surrendering to its socialist enemies. Pareto was fond of quoting the Genoese proverb: “He who plays the sheep will find the butcher.”34

The decay of the Italian bourgeoisie could be traced in the transformation of its political expression, the Liberal party, according to Pareto. “In the time of Cavour, the party that called itself liberal aimed at respecting the liberty to dispose of one’s own goods, then it limited it more and more, finally permitting the occupation of the lands and factories and the infinite acts of demagogic insolence of the biennio 1919–20” (Pareto 1981: 157). In fact, he came to see liberalism as having paved the way for “the demagogic oppression” of his own time. The liberals who demanded equality of taxation on behalf of the poor, for instance, “did not imagine that they would obtain progressive taxation to the disadvantage of the well-off, and that they would end up with an arrangement in which taxes are voted by those who do not pay them” (Pareto 1974: 97–98).

Witnessing the birth of the Fascist movement (he died in 1923), Pareto looked on it as a healthy reaction to the crisis of the Italian body politic:

One of the principal ends of every government is the protection of persons and property; if it neglects this, then from the bosom of the people there arise forces capable of making good the deficiency. . . . [Fascism arose] as a spontaneous and somewhat anarchical reaction of a part of the population to the “Red tyranny,” which the government permitted to run rampant, leaving it to private individuals alone to defend themselves. (Pareto 1981: 148)35

Fascism was a welcome sign that at least a certain physical courage was not lacking in the Italian bourgeoisie. But, essentially a classical liberal to the end, in one of his last articles Pareto warned the Fascist leaders against the dangers of abuses of power and of entanglement in foreign military adventures. To avoid such mistakes, he urged provision of “an ample freedom of the press” (Pareto 1981: 160).

Another leading free-trade economist was Antonio de Viti de Marco. Looking back after a decade, de Viti de Marco described the “fearful period of complete anarchy” of the biennio rosso, when the authority of the law had given way “to the arbitrary will of private groups, even to the destructive instinct of the slums and the violent men of every private group.” Railroad and telegraph workers considered themselves the bosses of the public services, strikes were called to intimidate the public, the homeless occupied the homes of private citizens, shops were ransacked under the eyes of the police, the workers took over the factories, and the agricultural laborers took over the land (de Viti de Marco 1929: viii-ix).

Against the chaos there rose up Fascism, the private organization of resistance, without doubt a sign of vitality in the nation. With squadrismo one had the phenomena typical of a civil war. The victorious party re-established public order and took the place of the state that had practically disappeared; then it shaped it little by little in its image. (de Viti de Marco 1929: ix)

Of all the Italian free-trade economists, Luigi Einaudi was to become the most prominent and achieve the greatest political influence. After the Second World War, Einaudi became the first president of the Italian Republic and probably the best known liberal in Europe. Though he was no “dogmatic” liberal, he shared the views of the liberisti school both on the basic malignancy of the Italian political and economic order and the dangers of socialism for his country. The sinister alliance of the parasitism of the industrialists and the privileged unionized workers was a special target of his attacks. Together with the other economists, Einaudi hailed the emergence of the Fascist movement and Mussolini’s ascent to power. Revolted by the Socialists, who were preoccupied with “obtaining funds and loans and works and favors for their co-operatives, influence over economic affairs for their organizers, even at the cost of ruining industry with their controls,” Einaudi extolled the Black Shirts as “those ardent youths who summoned the Italians to insurrection against Bolshevism.” The struggle between the Fascists and Socialists he characterized as a conflict between “the spirit of liberty and the spirit of oppression” (Decleva 1965: 218; Vivarelli 1981: 309–10).36

Thus, Mises was hardly alone among liberal thinkers in praising Fascism at an early stage of the movement. In fact, he was simply reiterating the views of those in Italy in the best position to know. His critics, however, whether out of pure ignorance or bad faith, have neglected to acquaint themselves with that fact.

The Impasse of the Italian Rent-Seeking State

The condemnation of the Italian “liberal” state by the liberal economists stemmed from their fundamental social philosophy. Drawing on the rich nineteenth century liberal tradition of social analysis, including the thought of Herbert Spencer, the liberisti stressed that society prospers and progresses through creative human production and exchange. Yet historically, much of this advance has been rendered nugatory by the process of spogliazione, or plunder—by wandering bands of barbarians, by criminals, or by those who make use of the state power for their own rapacious ends. The decades following unification, they believed, had seen the creation of a multifaceted system of plunder, organized by the governing class for the benefit of various parasitic categories of the populace (Vivarelli 1981: 241–53 and passim).37

The domination of Italian politics by special interests was evident virtually from the beginnings of the Italian constitutional monarchy. Later, under the “liberal” regime of Giovanni Giolitti, the Chamber of Deputies was turned into a permanent carnival of shameless rent-seekers and their agents. As de Viti de Marco (1929: vii) sketched it:

The advance of the liberal and democratic idea [in Italy] has consisted in the gradual extension of legislative favors, passing from the major to the minor groups, from the older established groups to the newly established ones, from the landed proprietors to the industrialists, to the state functionaries, to the laborers’ co-operatives, to the proletarian organizations. There was the hierarchy of the great, the medium, and the little privileges. Parliament became, logically, the marketplace where state favors, great and small, were bargained for, the costs of which were paid for by the great mass of consumers and taxpayers. The defense of the latter was banished from the parliamentary arena.

Typical of the Italian economists, Pareto was a fierce, even fanatical opponent of the “plutocracy,” or “pluto-democracy” that reigned in Italy (Femia 1998). Tariffs, government contracts, naval and military spending, nationalized industries, tax policy, social welfare, the legal privileging of labor unions were among the means at the disposal of the governing class to exploit the public at large for the benefit of its various clienteles. As one scholar noted, in Pareto’s view:

Parliament is a necessary part of this arrangement, for it acts as a forum in which these transactions and arrangements between the various clienteles . . . are “aggregated” and it also acts as a platform by which the masses are persuaded to assent to them. (Finer 1968: 447–48)

Thus, from the outset liberals like Pareto had no great love for “parliamentary democracy.”

For a time, Mussolini gave the impression that he intended to cleanse the Augean stables of the Italian rent-seeking state. He spoke of privatizing public services, including secondary education, of slashing spending, taxes, and bureaucracy, even of reducing the state to, in his phrase, the “Manchesterian conception.” There were suggestions of a “Paretian” revolution in the offing, with Mussolini calling for a new front of “producers” to combat the “parasites” of the political class and the Socialist communal bureaucracy (Smith 1959: 350–51; Morgan 1995: 48, 51).38

The Fascist economic program of July, 1922, elaborated by Ottavio Corgini and Massimo Rocca, two economic liberals, seemed to herald such a revolution (Papa 1970: 66). Einaudi endorsed the program enthusiastically, describing it as a return “to the old-fashioned liberal traditions . . . to the pristine sources of the modern state” (Decleva 1965: 228). Mussolini’s appointment of the liberista Alberto de Stefani as Minister of Finance was seen in the same welcome light.39 Looked on by his admirers as a modern-day Turgot, de Stefani was, unfortunately, doomed to suffer the same fate as Turgot had in the France of the 1770s, when his program of liberalization collided with the hard realities of entrenched special interest politics.

Edoardo Giretti was probably came closer than anyone else to being an Italian version of Richard Cobden, although it is deeply disappointing that Giretti, like the other liberal economists, supported his country’s disastrous entry into the European War, a position that Cobden would not have countenanced for a minute.40 For decades a tireless crusader for free trade, Giretti was a leading participant in the Italian peace movement, a bitter opponent of military expenditures and colonial adventures, particularly the Libyan war of 1911 (Cooper 1986: 210–11). He was fond of the “sublime motto” of William the Silent: “There is no need of hope in order to endeavor, nor of success in order to persevere.” In an obituary notice, his friend Luigi Einaudi said that the motto applied perfectly to Giretti’s life (Einaudi 1941: 67. See also Josephson [ed.] [1985] s.v. “Giretti, Edoardo”).

Giretti’s initial support of the Fascist movement is highly illuminating:

I am more than ever convinced that without economic liberty, liberalism is an abstraction devoid of any real content, when it is not a mere electoral hypocrisy and imposture. If Mussolini with his political dictatorship will give us a regime of greater economic freedom than that which we have had from the dominant parliamentary mafias in the last one hundred years, the sum of good which the country could derive from his government would surpass by far that of evil. (Papa 1970: 67)41

Thus, at this early point, Giretti, like the other liberisti, shared the interpretation of Fascism which one scholar has attributed to Luigi Albertini, editor of Italy’s most influential newspaper Corriere della Sera, that it was “a movement at once anti-Bolshevik (in the name of the authority of the state) and economically liberal, capable, that is, of giving a new vigor” to the liberal idea in Italy (Decleva 1965: 233).

A major early Fascist figure who was also an economic liberal was Leandro Arpinati, leader of the squadristi of Bologna. Arpinati later broke with Mussolini over the latter’s increasingly interventionist economic policies and was placed under close Fascist surveillance. He was murdered in 1945, during the liberation, by Communist partisans (Iraci 1970).

Democratic Quandaries

The episode of Fascism and the support it garnered from the liberal economists suggests certain problems for democratic theory, particularly as set forth by Mises in Liberalism.

According to Mises (1978a: 39), a liberal state “must not only be able to protect private property; it must also be so constituted that the smooth and peaceful course of its development is never interrupted by civil wars, revolutions, or insurrections.” Mises was no adherent of the “classical republican,” or “civic humanist” ideal. Unlike Benjamin Constant and particularly Alexis de Tocqueville, for instance, he makes no mention of the value of democratic participation in elevating and helping perfect the character of the citizens. In Mises’s analysis (41–42), the fundamental justification of democracy is that, when it comes down to it, “the majority will have the power to carry out its wishes by force. . . . Democracy is that form of political constitution which makes possible the adaptation of the government to the wishes of the governed without violent struggles . . . no civil war is necessary to put into office those who are willing to work to suit the majority.”42

While it is true that in Italy during the biennio rosso the Socialists never enjoyed a parliamentary majority,43 they nevertheless did obtain majorities in numerous city and district elections. Pareto (1981: 150) describes how the victorious Socialists conducted themselves:

The conquest of the municipalities was for [the Socialists] merely the occasion for plunder, for dividing among themselves the product of taxes, increasing them beyond any measure, and squandering the endowments of the charitable institutions and hospitals. There was a moment when Milan and Bologna became little states independent of the central power.44

Some questions suggest themselves. On what basis is a liberal required to submit to the “majority will” in cases such as this? Is it possible that the course adopted by the Fascist squadre, of disrupting the democratically elected Socialist administrations, was preferable to permitting them to plunder property at will? Suppose that the Italian Socialists had acquired a majority in the country at large and proceeded to implement a Leninist economic program through parliamentary means: would their opponents have been obliged to accede to this?

The question had already been raised and answerd by Pareto’s mentor, Gustave de Molinari, in this famous essay “On the Production of Security,” the first exposition of the anarcho-capitalist argument. Molinari strenuously rejects the notion that property owners were in any way obliged to accede passively to the confiscatory measures of a socialist democratic majority. This point is discussed in the essay on “The Centrality of French Liberalism,” in the present volume.

Today the question of the legitimacy of the democratic regime—of the moral right of the democratic state to the obedience of its subjects—becomes more pressing as that state lays claim to ever greater portions of its subjects’ property and ever deeper levels of their freedom. At what point are citizens morally justified in replying with force to the state’s expropriation of their wealth for redistributionist purposes—or of its assumption of ever greater control over the minds and character of themselves and of their children? What recourse legitimately remains to citizens if the democratic state should, for example, decide to confiscate all firearms in private hands?

Mises admits (45) that “if judicious men see their nation . . . on the road to destruction” they may well be tempted to use forcible means to avert general disaster. But this enlightened minority will not, he holds, be able to maintain itself in power unless it convinces the majority. Yet, is this necessarily so? Doesn’t everything here depend on the particular circumstances of the case, the relative passivity of the majority and the unflinching resolve of the minority threatened in its rights?45

Similar questions arise in regard to the second consideration on the minds of the Italian economists: the possibility of using Fascism to break the impasse of the rent-seeking state. In reality, that did not come about; instead, under Mussolini the state became even more interventionist and burdensome than before, besides embroiling Italy in absurd and catastrophic military adventures. However, such an outcome would not appear to be inevitable, given different historical conditions.

It would seem, then, that a liberal of Mises’s way of thinking owes an answer to Pareto’s proposition (1981: 154), set forth after Mussolini’s assumption of power: “A coup d’état can be useful or damaging to the country, depending on the use that is made of power obtained by it. For now, it seems that in Italy, one is on the right road.”

But How Is a Liberal Order to be Maintained?

In his memoirs, Mises wrote (1978c: 68), of the great questions of politics:

The people must decide. It is true, economists have the duty to inform their fellow men. But what happens if these economists do not measure up to the dialectic task and are pushed aside by demagogues? Or if the masses lack the intelligence to understand the teachings of the economists? Is the attempt to guide the people on the right road not hopeless, especially when we recognize that men like John Maynard Keynes, Bertrand Russell, Harold Laski and Albert Einstein could not comprehend economic problems?

This was an expression of the despair that assailed Mises at the time of the First World War. By what means could the masses in democratic societies be won for the principles of private property and the free market? It was a problem that had claimed the attention of liberals from at least the time of the Idéologues around 1800, in France. Richard Cobden and the German liberal leader Eugen Richter were among those who followed these French writers in proposing the use of the public education system to instill the principles of sound economics in the masses.46 More generally, it was supposed to be the task of all true liberals to foster “public enlightenment” in order to forestall popular acceptance of disastrous economic and social policies. Mises (1978c: 69, emphasis added) considers this option:

It has been said that the problem lies with public education and information. But we are badly deceived to believe that more schools and lectures, or a popularization of books and journals could promote the right doctrine to victory. In fact, false doctrines can recruit their followers the same way. The evil consists precisely in the people’s intellectual disqualifications to choose the means that lead to the desired objectives. The fact that facile decisions can be foisted onto the people demonstrates that they are incapable of independent judgment. This is precisely the great danger.

Mises candidly concedes the logical implication of this view, as far as he was personally concerned: “I thus had arrived at this hopeless pessimism that for a long time had burdened the best minds of Europe.” What escape could there be from this pessimism? He tells us that in his Gymnasium days he had chosen as his personal motto a verse from Virgil: Tu ne cede malis sed contra audentior ito (“Do not yield to the bad, but always oppose it with courage”). He resolved to “do everything an economist could do. I would not tire in professing what I knew to be right.” He proceeded with his plan to write a major work on socialism (Mises 1978c: 69–70), which in fact accomplished much good (see Hayek’s foreword to Mises 1981: xix).

Still, the question remains: in the long run what guarantees for liberty and property can exist in a democratic regime?

Mises ends Liberalism (193) by speaking of the future of the ideology, and what it must do in order to prevail. Liberalism, he holds, is in a radically different position from its rivals:

No sect and no political party has believed that it could afford to forgo advancing its cause by appealing to men’s senses. Rhetorical bombast, music and song resound, banners wave, flowers and colors serve as symbols, and the leaders seek to attach their followers to their own person. Liberalism has nothing to do with all this. It has no party flower and no party color, no party song and no party idols, no symbols and no slogans. It has the substance and the arguments. These must lead it to victory.

Thus, having overcome his personal pessimism with a kind of existential leap of faith in the value of rational argument in the ideological struggle, Mises imputes this austere position to liberalism as a whole. Unfortunately, this does not appear to be satisfactory.

In Capitalism, Socialism and Democracy, Joseph Schumpeter (1950: 144) addressed the very question at issue here:

Why should the capitalist order need any protection by extracapitalist powers or extra-rational loyalties? Can it not come out of the trial with flying colors? Does not our own previous argument sufficiently show that it has plenty of utilitarian credentials to present? Cannot a perfectly good case be made out for it?

His Schumpeterian answer to these questions is: “Yes—certainly, only all that is quite irrelevant.”

He provides a number of reasons for this negative response. With virtually no knowledge of or interest in history, the masses simply take their unprecedented high living standards under capitalism for granted. Moreover, the inevitable petty resentments arising from every day life are often directed against the capitalist system because “emotional attachment to the social order” is something capitalism is “constitutionally unable to produce” (1950: 145, emphasis in original).

Two of Schumpeter’s further reasons are ones that Mises could have endorsed. First, the attack on capitalism often arises from “extra-rational” grounds, and “utilitarian reason” is no match for such extra-rational grounds of action. Mises himself conceded as much in the section of Liberalism on “The Psychological Roots of Antiliberalism” (13–17), where he expatiates on the “Fourier complex.” Psychoanalysis is unhelpful here, because “the number of those afflicted with [this complex] is far too great.” Again, the solution Mises proposes (17) is a purely rationalistic one: “Through self-knowledge [the afflicted individual] must learn to endure his lot in life without looking for a scapegoat on which he can lay all the blame, and he must endeavor to grasp the fundamental laws of social cooperation.” Since such an understanding appears to be beyond the ken of average, non-“neurotic” individuals, not to mention the likes of Bertrand Russell and Albert Einstein, it is a mystery what hope this could hold out for the liberal order.

Schumpeter, perhaps more realistically, sees no solution at all. It is in this context that he pronounces (1950: 144) his famous judgment that “capitalism stands its trial before judges who have the sentence of death in their pockets.” Furthermore, the ethos promoted by the market economy exacerbates the problem, because it causes the anti-rational, anti-capitalist impulses to gain the upper hand by subverting traditional and religious restraints.

Schumpeter’s goes on to observe that the case for capitalism “could never be made simple.” Here (1950: 144) he echoes Mises at his gloomiest:

People at large would have to be possessed of an insight and a power of analysis which are altogether beyond them. Why, practically every nonsense that has ever been said about capitalism has been championed by some professed economist.

Connected to this is the fact that “any pro-capitalist argument must rest on long-run considerations . . . the unemployed of today would have completely to forget his personal fate and the politician of today his personal ambition . . . for the masses, it is the short-run view that counts . . . from the standpoint of individualist utilitarianism they are of course being perfectly rational if they feel like that” (1950: 144–45).47

Walter Sulzbach’s Critique

The same point had already been made in the most extensive review of Mises’s Liberalism, by the sympathetic Austrian economist, Walter Sulzbach (1928). Sulzbach expresses his agreement with Mises on a wide array of important issues, such as private property as the basic demand of liberalism, liberalism’s class-neutral character, and the nature of the state. “The fact is that the most important of the fundamental theses of liberalism remain unrefuted.” Despite its evident successes, however, it has fallen on hard times: “liberalism once ruled and was voluntarily abandoned.” There are various reasons for this, according to Sulzbach, but one that he presents impugns the Misesian system most seriously. He asks: “Are the interests of all individuals really identical in the last analysis? That is the central question of liberalism” (383, 385, 389).

The affirmative answer to this question is the motif running through Liberalism. Mises even asserts (1962: 22) that: “We [liberals] attack involuntary servitude, not in spite of the fact that it is advantageous to the ‘masters,’ but because we are convinced that, in the last analysis, it hurts the interests of all members of human society, including the ‘masters.’“The same holds for all those who enjoy special privileges: unionized workers, workers shielded from the competition of immigrants, “protected” industrialists, and so on.

Yet it is impossible to deny that these groups are in an important sense benefited by their various privileges. Mises’s claim is that the renunciation of these advantages is only “provisional,” that it is “very quickly compensated for by higher and lasting gains.” But this will not work, according to Sulzbach (390):

For a particular group to behave in a way that is useful to the “whole,” what is required is an appeal to their conscience, not enlightenment, as rationalistically-oriented liberalism in the end always believed . . . the problem is less that of a present sacrifice in favor of the future than that of a personal sacrifice in favor of the greater social grouping, and thus it is less a question of an enlightened understanding than of the readiness for personal renunciation. . . . At best liberalism could show in a logically compelling way that, if the interests of mankind are to be safeguarded, free competition is the correct path to this goal. But where does the postulate come from that the individual or the small group should sacrifice itself for mankind—if its justification is not to be found in the religious sphere or in metaphysics?

Thus, Sulzbach persuasivly argues (391), Mises’s alleged grounding of liberalism on the bedrock of science is a mirage. In reality, “it is the old Christian-theological doctrine of the special election of the human soul that lives in all liberal and democratic enlightenment, and which, because it has forgotten its origin, considers itself the result of ‘science.’“

The Question of Unlimited Immigration

Serious problems, again involving the democratic state, arise for Mises on the question of unlimited immigration. His position in Liberalism (130–34) is that free trade, with the international division of labor, was only a starting point for liberalism. The ultimate liberal ideal is a world where not only goods but also capital and particularly labor are free to move to the areas of their highest productivity. The liberal demand is “that every person have the right to live wherever he wants” (137).48

Mises considers the counter-argument of “national interests”: that with open borders immigrants would “inundate,” for example, Australia and the United States, that “they would come in such great numbers that it would not longer be possible to count on their assimilation.”

As regards America, he states that such fear are “perhaps exaggerated” (presumably because of its much larger population).49 But with Australia, which had about as many people as Austria when Mises was writing, the case is quite different: “If Australia were thrown open to immigration, it can be assumed with great probability that its population would in a few years consist mostly of Japanese, Chinese, and Malayans” (139–40). It is not just the labor unions that oppose this prospect: “the entire nation . . . is unanimous in fearing inundation by foreigners.” There is an obvious “aversion” to members of other nations and especially other races (140–41).

Yet Mises seems to place sole blame for the existence of a problem on the interventionist state (142):50

It cannot be denied that these fears are justified. Because of the enormous power that today stands at the command of the state, a national minority must expect the worst from a majority of a different nationality. As long as the state is granted the vast powers which it has today and which public opinion considers to be its right, the thought of having to live in a state whose government is in the hands of members of a foreign nationality is positively terrifying.

Mises’s solution (142) is the adoption of laissez-faire in economic and social life—the reduction of governmental functions to the protection of life and property—whereupon any problems connected with free immigration would “completely disappear.” “In an Australia governed according to liberal principles, what difficulties could arise from the fact that in some parts of the continent Japanese and in other parts Englishmen were in the majority?”

This rhetorical question appears peculiarly constructed. Since Mises has no theory of what forces tend to create and maintain a liberal society—aside from incessant rational economic argumentation—he has no reason to suppose that an Australia governed at a certain point according to liberal principles would continue to be so governed. But if Australia should, by some off chance, slip back into interventionism, then the “national minority [now Australians of European descent] must expect the worst” from the majority of Japanese, Malayans, and others. Yet Mises does not consider what, dynamically, might go into the creation of a political majority in a country with free immigration. Many years later he conceded (1944: 244) that “the maintenance of migration barriers against totalitarian nations aiming at world conquest is indispensable to political and military defense.” But what then of cases in which the liberal social order is threatened by the influx of immigrants who are unlikely, because of history and culture, to support that order?

Free immigration would seem to be in a different category from other policy decisions in that its consequences permanently and radically alter the very composition of the democratic political body that assumes the authority to make those decisions. The liberal order, wherever and to whatever degree it exists, is the product of a highly complex cultural development. That Mises implied the need to assimilate new immigrants to the culture of host countries like Australia and the United States suggests that he was well aware of this fact.

Yet today proponents of free immigration seem heedless of its potential for damaging structural change in the recipient country. One wonders, for instance, what would become of the relatively liberal society of Switzerland under a regime of “open borders.”

Was Mises an Imperialist?

In Liberalism Mises (125) has harsh words for the practices of the European colonial powers (“No chapter of history is steeped further in blood than the history of colonialism,” etc.). At the time he was writing, western colonialism, though destined to crumble in a few decades, was still at its height. The British Empire alone covered a quarter of the globe, while the French Empire included vast territories in Africa and holdings elsewhere, and the Dutch, Portuguese, and others ruled over smaller colonial areas.

Despite imperialism’s atrocious record, Mises contends (127–28) that the withdrawal of the western powers from their overseas territories is out of the question: “The economy of Europe today is based, to a great extent, on the inclusion of Africa and large parts of Asia in the world economy as suppliers of raw materials of all kinds. . . . European officials, troops, and police must remain in these areas, as far as their presence is necessary in order to maintain the legal and political conditions required to insure the participation of the colonial territories in international trade.”

Mises had expressed himself even more forcefully in favor of imperialist rule at an earlier point. In Socialism (1981: 207), he heaps extravagant praise on British imperialism: “The wars waged by England during the era of Liberalism to extend her colonial empire and to open up territories which refused to admit foreign trade laid the foundations of the modern world economy. To measure the true significance of these wars, one has only to imagine what would have happened if India and China and their hinterland had remained closed to world commerce.” He insists (1981: 208) that

Liberalism aims to open all doors closed to trade. . . . Its antagonism is confined to those governments which, by imposing prohibition and other limitations on trade, exclude their subjects from the advantages of taking part in world commerce.

Indeed, British imperialism could not even rightly be called by that name: “The Liberal policy has nothing in common with Imperialism. On the contrary, it is designed to overthrow Imperialism and expel it from the sphere of international trade.” This implies that, in Mises’s personal usage, “imperialism” does not retain its customary significance, but instead means something like protectionism applied to colonial territories.

Mises claims that this was, historically, the position of classical liberalism. Yet the most famous nineteenth century free-traders—Richard Cobden and John Bright, the leaders of the Manchester school, or Bastiat in France—were staunch opponents of any use of state power to extend commerce. It is ironic that Mises (1981: 207 n. 2) defends the English Opium Wars against China, which were bitterly assailed by Cobden as examples of the rankest imperialism.

Overall, it must be said that Mises’s views on these questions are in sharp contrast to the traditional liberal perspective represented by Cobden and his school, which held that any government involvement in international trade was illegitimate (Hobson 1968 and Dawson 1927). Furthermore, Mises is open to a standard objection to the “free-trade” imperialists: would Britain have been justified in the later nineteenth century in applying diplomatic or even military pressure on the United States to abandon protectionism and open up its market to foreign goods? Is the only objection to such a hypothetical British policy the fact that the United States was too powerful for such a stratagem to succeed, while Imperial China was satisfactorily weak?

A great part of Mises’s problem here, as occasionally elsewhere, lies in his antiseptic conception of the state. For him, the state is simply “the apparatus of compulsion and coercion.” He contemptuously rejects (57) Nietzsche’s dictum that “the state is the coldest of all cold monsters”: “The state is neither cold nor warm. . . . All state activity is human activity,” and its goal is “the preservation of society.”

But what if the state apparatus has a dynamism of its own? What if imperialism and the military and civilian bureaucracies it brings into being lead to state activism far beyond merely assuring free trade? As Schumpeter wrote of the evolution of imperialism (1951: 25, emphasis in original): “Created by wars that required it, the machine now created the wars it required.” Yet none of this appears to have entered into Mises’s economic calculations.

Nor does he consider the historical effect of British imperialism as a model and spur to expansionist strivings in other nations, the United States and others, above all Germany, with all of the baleful consequences that followed.

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51First published as Liberalismus in 1927, in Jena by Gustav Fischer and republished in German in 1997, with an important introduction by Hans-Hermann Hoppe. The first edition in English, translated by myself, (Mises 1962) was titled, on Mises’s suggestion, The Free and Prosperous Commonwealth. In its second edition (1978a), the English version was titled, Liberalism: A Socio-Economic Exposition, with a foreword by Louis M. Spadaro. The third edition (1985), with a preface by Bettina Bien Greaves, carried the title, Liberalism. In the Classical Tradition. Citations in the text will be from the 1978 edition.

52F.A. Hayek 1992: 127, for instance, noted that already with the publication in 1922 of Socialism, Mises was marked as “the leading interpreter and defender of the free enterprise system.” See also the tributes to Mises in Sennholz (ed.), 1956.

53Hayek also states that it was “less successful” than Socialism, hardly a major criticism.

54The original Italian edition dates from 1925. Ruggiero’s consistently antagonistic attitude towards economic liberalism is reflected in his assault on Frédéric Bastiat. According to Ruggiero 1951: 187, the works of the great French liberal “very properly became a butt for the satire of Socialists,” since in them “the hostility towards the State which marks the earlier Liberalism finds . . . a singularly crude and grotesque expression.”

55Rothbard (277) singles out for scorn Mill’s famous agility at intellectual “synthesis” for producing “a vast kitchen midden of diverse and contradictory positions.” A good example of this trait in Mill is his assertion (1977: 308) of the desirability of “possess[ing] permanently a skillful and efficient body of functionaries—above all, a body able to originate and willing to adopt improvements”—this after pages of warning of the many dangers of state bureaucracy.

56The appallingly anti-individualist implications of Rawls’s system are convincingly demonstrated by Antony Flew 1989.

57When I undertook to translate Liberalismus into English in the late 1950s, Mises at one point suggested that I include a translator’s note explaining the historical context of these and similar remarks on Italian Fascism. My reply, in retrospect mistaken, was that such a note was superfluous, since the grounds for the views he expressed in 1927 were obvious. The English translation appeared, unfortunately, without any such explanation. I had vastly underestimated the prevelance of historical cluelessness among Mises’s socialist critics.

58As is customary among writers on modern history, by “labor” and “the labor movement” Anderson means coercive labor unionism. By “democracy,” he seems to have in mind the socialist-dominated regime in the Vienna of the times, which employed its coercive authority to plunder property owners; see the remarks by Richard M. Ebeling, note 403, below.

59See also Anderson 1993: 17–18. This is a translated version of the English-language essay, with footnotes added. (I am grateful to Professor Anderson for this reference.) Anderson goes on to claim that Mises also attempted an “exculpation of Austria,” by incriminating only Germany in the deeds of the Nazis. He cites Mises’s claim that the Austrians were “‘the only people on the European continent who—in the days of the Heimwehr—’seriously resisted Hitler.’” (Cf. Mises 1978c: 142.) On this fairly trivial point, Mises can perhaps be forgiven his Austrian patriotism. On his implicit support for the Austrian government in suppressing the Social Democrats, it should be noted that Mises held (1978c: 140–41), correctly, that Mussolini’s “was the only government ready to support Austria in her fight against a Nazi take-over” in 1934, and that the Social Democrats’ violent opposition to the alliance with Mussolini threatened to lead to a Nazi absorption of Austria, which eventually came to pass.

60In any case, Krohn’s statement is characteristically misleading, since Mises’s remarks pertain to the period 1919–22, before the establishment of the Fascist regime.

61This is only one of many examples of Krohn’s outright dishonesty. The common understanding of “German fascism” today, especially in Germany, is National Socialism, or Nazism. Mises, of course, always vehemently rejected Nazism in every respect. When he referred to the German movement that was similar to Italian Fascism in its aggressive opposition to Communism, he had in mind (48) the “militarists and nationalists” of the first years following World War I, particularly the Freikorps. As he presents the situation in Omnipotent Government (1944: 198–200, 206–07), the danger of a Bolshevik conquest of Germany in January, 1919 was very real. The German Communists had risen in armed revolt and were in control of most of Berlin besides other centers. “But for the nationalist gangs and troops and for the remnants of the old army, they could have seized power throughout Germany. There was but one factor that could stop their assault and that really did stop it: the armed forces of the Right” (1944: 200–01). See also his praise as well as criticism of the Freikorps bands (1944: 206–07). Mises’s interpretation of the role of the rightist forces in putting down the Communist uprising of 1919 is supported by the historian of Weimar, Hagen Schulze 1982: 180–82.

62See also Murray N. Rothbard 1981: 251, n. 3, for a defense of Mises against Marcuse on this issue. A much more balanced critic of Mises, Gerald Mozetic (1992: 33–34 and 36 n. 22 and 33) refers to Mises’s assertion that Fascism and similar movements in Germany could never become as brutal as Bolshevism, since they developed in countries with a thousand years of civilization behind them. As Mozetic states, this was “unfortunately, a prognostic disaster,” but he notes that “Mises shared this opinion with Karl Renner [the Austrian Social Democratic leader], who also considered the advanced culture of the Germans an insuperable obstacle to fascism, and with many other contemporaries.”

63Mises’s analysis of the character of Leninism and the Comintern is confirmed by Stanley G. Payne (1995: 77–78), who writes that among the many oppressive policies introduced by Lenin into the European political equation were “systematic mass terror and mass murder, with institutionalized permanent concentration camps for political prisoners, featuring large-scale forced labor combined with liquidationist policies,” and “the liquidation or elimination of entire classes and categories of people . . . the [Communist] International created a persistent challenge and menace from the extreme revolutionary left that had never existed before. . . . The response was not simply more rigorous and repressive policies by many governments, but the formation of new rightist anti-Communist groups ready to practice violence in turn . . .”

64In the summer of 1919, Zinoviev (later murdered by Stalin) stated (quoted in Pipes 1993: 174–75): “The movement advances with such a dizzying speed that one can confidently say: in a year . . . all Europe shall be Communist. And the struggle for Communism shall be transferred to America, and perhaps to Asia and other parts of the world.”

65Petersen emphasizes, however, that “de facto nothing had happened to give this rhetoric of revolution and violence a firm base on which to plan and act.” See also Salvatorelli and Mira 1964: 103–04.

66It is worth noting that the Bolsheviks had obtained only about 25% of the votes for the Constituent Assembly that met in Petrograd in January, 1918.

67On the leftwing of the Catholic Party (PPI), there were those who joined the Leninist struggle on behalf of the “Christian proletariat” (Morgan 1995: 19).

68Cf. another historian sympathetic to the Socialist unions, Lyttelton 1973: 62–63: “The discipline of the [Socialist] leagues, in order to avoid blacklegging [sic], had been extremely harsh; and many individual workers had suffered.” Cf. Settembrini 1978: 154: “The Socialist leagues in fact based their power on the monopoly of manual labor, exercised through harassment whether of the landed proprietors, large and small, and even the share-croppers and tenant farmers, or of the laborers themselves.”

69Maffeo Pantaleoni (1922: xxxvi) noted that the Socialist administration in Milan went so far as to raise a loan in the United States, “in order to eat up even the future revenue of the taxpayers.” Interestingly, as Richard M. Ebeling points out (2002: xxix-xxxi), the Social Democrats who controlled post-World War I Vienna pursued a similar program, massively subsidizing their clienteles through an array of welfare programs and rent control and other regulations. The heavy burden of new taxes and other measures amounted to the large scale plundering of those considered relatively affluent. Naturally, Mises was a close observer of these events and strenuously fought against the socialists, but, as he finally admitted, to little avail. See also Hoppe 1993: 21.

70Cf. Vivarelli 1991: 40: “a vast number of monographs on local situations as well as on general aspects of socialist policy during the years 1918–22 have proved beyond any doubt how fatally damaging revolutionary socialism was in upsetting the Italian parliamentary regime and in spreading all over the country the fear of civil war. It is well known how well this fear played into the hands of the fascists.”

71In a later work (1982: 41), Smith continues to maintain that it should have been obvious that “Italy’s trade unionists and socialists were not of Lenin’s ilk and would never seize control of the state: they were revolutionaries only in name and would be defenseless if the fascist armed squads went into action against them.” He adds (55), concerning widespread public support for Mussolini’s seizure of power in 1922: “Fear of communism can have been only a minor motive as there was no communist threat.” This is an astonishing non sequitur for such a famous historian to have committed. Leaving aside the question of the reality of a Communist threat, what is more obvious than that people’s actions are conditioned by their perceptions and subjective estimations and not merely by the “objective” situation?

72Settembrini (1978: 125–29) states that the only contemporary who understood the real position of the Socialists in Italy was—Mussolini, the ex-Socialist, who composed a sophisticated analysis of the political realities confronting his former comrades.

73Philip Morgan writes (1995: 34): “Socialism provided the platform for the counter-reaction of Fascism. It created the fears on which Fascism grew, and almost literally set the stage for Fascism.” Cf. Carsten 1967: 55: “It is thus somewhat superficial to consider the fears of the middle classes unjustified and exaggerated. In retrospect they certainly were, but at the time the middle classes’ existence seemed at stake, and the Bolshevist danger appeared very real.” See also the arguments of an early liberal Fascist, Leandro Arpinati, that Fascism prevented a Communist takeover, in Iraci 1970: 41–45.

74See his Mussolini 1982: 35–56, including his extraordinary statement (36) that the Socialists were “essentially pacifists.” In an earlier work 1959: 348, Smith asserted: “Socialist counter-violence [sic] in the countryside was equally horrible and inexcusable . . . whoever started the reign of terror, the fascists were certainly better organized, better armed, and had more money . . .” Somehow or other, two decades later, Smith had lost sight of the “horrible and inexcusable” “counterviolence” of the Socialist “pacifists.” Jan Petersen’s conclusion 1982: 278 seems very much to the point: “the fact that the violence of Left and Right existed both successively and simultaneously, that its causes and justifications are inextricably tangled, constitutes a very singular feature which so far has not been adequately studied . . .” In a remarkably uninformed piece, Oxford don John Gray (1996: 14) is able to treat European fascism with no mention at all of any Communist threat anywhere in the 1920s and 30s, and no mention whatever of the Comintern. Instead, he finds room in his review to castigate the followers of Herbert Spencer and Albert Jay Nock as dangers to present-day democracy.

75Cf. Lyttelton 1982: 267: “Here it is impossible to overlook the contribution of socialist violence to the genesis of agrarian squadrismo. In Ferrara at least it was the small [anti-Socialist] leaseholders who were most in danger of their lives . . .” The Socialists often attacked even members of the Catholic peasant organizations. Salvatorelli and Mira (1964: 171) point out that in the Po valley many older landowners, fearing the Socialists, had sold out to tenants and share-croppers: “in defending the possessions they had finally acquired, with the rights and interests attached to them, the new proprietors displayed a combativeness unknown to their predecessors.”

76Cf. Salvatorelli and Mira 1964: 177: “Many of the bourgeoisie, especially the young and war veterans” came to believe that “the neutrality of the government in the class conflict [was] . . . by now incapable of guaranteeing respect for the law and the constituted order, and turned to fascism.” By 1921, Pantaleoni 1922: 108 was exulting that the fascist counter-attack had demonstrated how “discredited is by now the theory that the [Italian] bourgeoisie, like the French aristocracy of 1789, would of its own climb into the wagon carrying it to the guillotine.”

77The first important liberal thinker to have evolved into a supporter of an authoritarian state under the perceived threat of socialism may well have been Charles Dunoyer; see Edgard Allix 1911 and the essay on “The Conflict of Classes: Liberal vs. Marxist Theories,” in the present work.

78Denis Mack Smith 1959: 360–61 professes to be baffled by this general support for the early fascist movement by Italian liberals; it shows, he claims, that they “put riches and comfort before liberty.” Given that the liberals believed that Italy might very well be on the verge of a Leninist revolution—with all the terror, persecution, mass murder, and famine that implied—it is amazing how little historical Verstehen for the motives of the Italian liberals Smith displays in his naïve “analysis.”

79Italian appears to be the only language in which a distinction is drawn between liberale, liberalismo (liberal, liberalism), on the one hand, and liberista, liberismo (economic liberal, economic liberalism), on the other.

80Hayek had in mind Pantaleoni’s Principii di economia pura (1889). Schumpeter, too, (1954: 857 and n. 4) had a high opinion of this work, as of Pantaleoni’s scientific contributions in general. He endorsed Edgeworth’s judgment that the Principi was a “gem,” and wrote that Pantaleoni “understood ‘pure theory’ as few people ever did.” It should be noted, however, that Pantaleoni’s methodology was essentially Walrasian and by no means in the tradition of the Austrian school.

81Pantaleoni adds (1922: viii, xxxi emphasis in original): “I say: a catastrophe of the Russian or Hungarian kind, because with us it would have been even graver, by reason of the enormous density of our population.” Italy was saved from the “destructive hurricane” of Bolshevism “only by fascism and by the heroism of the fascists who died pro libertate Patriae in the struggle of civil war.” On Pantaleoni’s politics, see the Enciclopedia Italiana and Ricci 1939: 15–16, 25, where Pantaleoni is referred to as a “friend of Mussolini and of Fascism.” Pantaleoni’s position was similar to that of Mises, e.g., when the Italian economist states 1922: 131–32: “As regards socialism in action, there is no other remedy than to oppose force to force. And it is here that, in the present state of affairs, the work of fascism is the most useful work of all for the salvation of the civilization of our country. When the Bolshevik assault—whose preparation over many years we tolerated—shall have been stopped, then our work of education, of propaganda, and of vigilance can be effective in forming sentiments different from the present ones and in enlarging the sphere of influence of logical actions.”

82See also Pareto 1980: 108. This work is an excellent compilation of the essentially liberal Pareto in the various phases of his career.

83Another inkling of Pareto’s later pro-Fascist position is his suggestion that the author of an article in the socialist paper Avanti! endorsing the strikers’ violence should be taken care of by General Bava Beccaris, who had just supervised a massacre of violently protesting socialists in Milan.

84Cf. Pareto’s statement 1991: 93: “To lack the courage needed to defend oneself, to abandon any resistance, to submit to the generosity of the victor, even more, to carry cowardice to the point of assisting him and facilitating his victory, is the characteristic of the feeble and degenerate man. Such an individual merits nothing but scorn, and for the good of society it is useful that he should disappear as quickly as possible.”

85Cf. Femia 1998: 160, who writes that it was small wonder that Pareto “welcomed fascism as the only possible savior of values he held dear—sound money, public probity, market discipline, personal responsibility. Pareto thus became a fascist by default. . . . The totalitarian nature of fascism was not self-evident in those embryonic stages.”

86Most of the liberals, including Einaudi and the other economists, broke with the Fascist regime, in most cases rather quickly. They were disillusioned by the dictatorial methods, and, in the case of the economists, by the continuation and even intensification of parasitism under the new regime. De Viti de Marco 1929: ix clearly distinguished the two aspects of the liberisti relationship to Fascism: “These are two distinct phases: in the first, fascism confronted socialism that had degenerated into Bolshevism; in the second, it opposes those who place the liberties of the individual at the foundation of the state. We had in common with fascism a point of departure: the critique and the struggle against the old regime.”

87It was no accident, of course, that a number of these liberal economists were among the pioneers of the “Scienza delle finanze,” which James Buchanan 1960: 24–74 credits with influencing his public choice orientation. However, in discussing “the theory of the ruling class” of the Italian economists (32–33), Buchanan, in this early essay, neglects the real derivation of that approach, which is from Dunoyer and Charles Comte, via Bastiat, Molinari, and Francesco Ferrara; here the key concept was spoliation. Buchanan also confuses the issue by suggesting that democratic decision-making would, in the Italian theory, provide a solution for the problems of ruling-class government. Pantaleoni, for one, was a bitter opponent of universal suffrage precisely because of the immense vista it opens up for lower-class plunder of the economically successful.

88Mussolini’s major pronouncement in this direction was his speech of June 21, 1921 in the Chamber, which Pantaleoni 1922: 211–13, unsurprisingly, praised profusely. Interestingly, he endorsed (212) Mussolini’s demand that the state cease acting as “the monopolizer and censor of thought with [its control of] the post and the school.” Pantaleoni was also happy to report (249) that in a speech of November 8, 1921, Mussolini stated: “In economic matters, we are liberals in the more classical sense of the word.”

89Industrial interests forced De Stefani out of office in 1925, on account of his opposition to tariffs and subsidies. See Cannistraro (ed.) 1982, s.v. “De Stefani, Alberto.”

90In taking a pro-war position, the Italian liberals were tragically misled by their equation of Germany with statism and Britain and France with “liberalism.” In this case, they were oblivious not only to the dynamics of the mobilization of the state for war, but also to the “law of unintended consequences” that rules in politics.

91The term used by Giretti that is here translated as “mafias” is camorre, and refers to the Neapolitan version of the Sicilian mafia.

92Hans-Hermann Hoppe (2001: 79–80) states, on the basis of some of Mises’s earlier writings and of the section in Liberalism on “The Right of Self-Determination” (108–10) that Mises’s proclamation of a virtually unlimited right of secession (down to “a single village, a whole district, or a series of adjacent districts”) would obviate the dangers to liberty and property posed by democratic rule in the conventional sense. But Mises also asserts that selfdetermination in his sense would lead to “the formation of states composed of a single nationality” (110). Moreover, he writes that realization of self-determination “is the only feasible and effective way of preventing revolutions and civil and international wars” (109). How might this apply to post-World War I Italy? Could a liberal order have been preserved by, say, the secession of the wealthier districts in Milan and Bologna from the socialist municipal jurisdictions? Would their secession have prevented civil war in those areas?

93In Germany in 1919, it is certain that the Communists did not have the support of the majority of the population.

94Pareto held that, instead of proceeding to seize power in Italy, the Socialists busied themselves with immediately dividing the spoils of their victories.

95Mises (1978a: 45–46) cites the Bolsheviks as an example of the futility of attempts at minority rule: they were forced against their will to concede private ownership of land because of the irresistible demands of the peasants. But Mises wrote this in 1927; a very few years later the Soviets totally reversed their policy on the land question, carried out unprecedented terrorism and mass murder of the peasantry, and ruled for another sixty years.

96This course foundered, among other reasons, because the direction of public education in western countries was eventually assumed by forces hostile to liberal ideals. Benjamin Constant, in the early nineteenth century, had already warned against the use of state power—including the educational system—to promote a desirable ideology for the very reason that it was in this sense a two-edged sword. Montalembert, leader of the French Liberal Catholics in the mid-nineteenth century, understood why state education and state teachers undermined both religion and property rights. See the essay “The Centrality of French Liberalism,” in the present book.

97Schumpeter makes the ancillary but highly significant point: “The long-run interests of society are so entirely lodged with the upper strata of bourgeois society that it is perfectly natural for people to look upon them as the interests of that class only.”

98In asserting this, Mises doubtless did not have in mind the current situation in every Western country, where a panoply of “civil rights” laws have abolished the right to personal racial, ethnic, and other discrimination and where a munificent welfare state attracts hordes of immigrants seeking to live without participating in the social division of labor.

99Mises appears to base this statement on the very large population of the United States at that time (over 100 million, according to the 1920 census), and the relatively limited number of potential immigrants. It is an open question how Mises would have dealt with the present-day situation, including the low-birth rate of native Americans relative to immigrants, and the eagerness of tens of millions south of the Rio Grande to emigrate to America (see Brimelow 1996).

100Cf. the remark by Milton Friedman (Forbes 1997), objecting to the “open borders” stand of The Wall Street Journal as “an idée fixe”: “It’s just obvious that you can’t have free immigration and a welfare state.” The notion that supporters of the free market must necessarily also support free immigration is rife in both pro- and anti-immigration camps but is nonetheless fallacious; see, for instance, Hoppe 1998 and other contributors to that issue of The Journal of Libertarian Studies.

• 1Ludwig von Mises
• 2Raico’s profound and extensive knowledge of intellectual, political, and economic history are evident in each of the following essays and, in fact, virtually on each page of this book. His readers will also appreciate the warm passion he brings to the study of his subject, as well as his dry wit. Drawing from original sources in German, French, and Italian, as well as English, Professor Raico provides us with original scholarship on the history of liberalism from a decidedly liberal, though not exclusively Anglo-Saxon perspective. What is more, he definitely has the talent to rouse his readers to emulate the deeds of earlier generations. It was through Raico’s book Die Partei der Freiheit (The Party of Freedom) that I and many other Germans first heard of Eugen Richter, the champion of true liberalism in fin de siècle Germany. Forgotten by virtually everyone except for his social-democratic detractors, Richter has made a comeback in the past ten years and some of his major writings are again in print. Today his words and deeds inspire a new generation of intellectuals and politicians. Thank you for that lesson, Professor Raico! If Germany returns to the tradition of true liberalism, we shall have in Berlin a Raico Straße leading to the Richter Platz.
• 3Erich Streissler 1990a.: 60 has even maintained that it is in this area that Menger’s achievement is to be found, and not in co-initiating the marginalist revolution.
• 4Eugen von Böhm-Bawerk, for instance, stated (1891: 380–81): “We must not weary of studying the microcosm if we wish rightly to understand the macrocosm of a developed economic order . . . we must seek an understanding of the phenomena of great things in the study of the world of small things.” F.A. Hayek, who probably did more than anyone else to identify Austrianism with methodological individualism, wrote (1973: 8): “The consistent use of the intelligible conduct of individuals as the building stones from which to construct models of complex market structures is of course the essence of the method that Menger himself described as ‘atomistic’ (or occasionally, in manuscript notes, as ‘compositive’) and that later came to be known as methodological individualism.”
• 5Elster makes the important point (1985: 5; emphasis in original): “It is not only our confidence in the explanation, but our understanding of it that is enhanced when we go from macro to micro, from longer to shorter time-lags. To explain is to provide a mechanism, to open up the black box and show the nuts and bolts, the cogs and wheels, the desires and beliefs that generate the aggregate outcomes.”
• 6The Austrian method also involves a universalism that has strong affinities with liberalism, in contrast to certain forms of conservatism. As Mises stated (1969: 38): “As against the declarations of Schmoller and his followers, [the Austrians] maintained that there is a body of economic theorems that are valid for all human action irrespective of time and place, the national and racial characteristics of the actors, and their religious, philosophical, and ethical ideologies.”
• 7On the general philosophical background of the Austrian School, see especially Gordon 1993, also Smith 1994c. Pearson 1997: 31 attempts to minimize the differences between the German Historical School and the early marginalists (including the Austrians), maintaining that both were allegedly reacting against the Classical School (of mainly British political economy), rather than one another. His analysis fails to inspire confidence, however, since it is based on his assumption that the marginalists “displace[d] interest away from ‘value,’ that transcendent quality that had never quite lost the imprint of natural law, and toward ‘price,’ a frankly social phenomenon . . .”
• 8See Gellner 1968: 256 n. 4, where M. Ginsberg is cited: “those who refuse to accept methodological individualism . . . are well aware . . . of the dangers of concentrated power. But they deny that the only choice open to us is between a spontaneous competitive order on the one hand, and a system of all-pervading control on the other.” See also Gellner’s own comment on the same page: “[Methodological] individualists who attempt to save us, in the name of logic and liberty, from misconstruing our situation, are not wholly free at all times from suspicion that a little propaganda for laissez-faire is being hitched on to those very general issues.”
• 9In his account of the Great Depression (1963), as well as other works, Rothbard applies theory to help explain quite concrete historical events, often interpreting those events in the light of the “class” (or, “caste,” in the stricter, Misesian-Rothbardian terminology) interests involved. See also the comment by Garrison and Kirzner (1989: 121) that, among other scientific merits, “Hayek’s business cycle theory provided a basis for interpreting much of 19th-and 20th-century economic history.”
• 10Cf. White 1984: 4: “The subjective approach to economic phenomena builds economic analysis upon the insight that every individual chooses and acts purposively. . . . This approach has been the hallmark of the Austrian School from its inception in the 1870s to the present day, although different members have defended their method in different ways.” Cf. also Vaughn 1990: 382: “The human being that is the subject of Menger’s study . . . cannot be summarized by a static and fully defined preference function. . . . He is an active creator both of himself and of his world. And creation is a process rather than a state of affairs.”
• 11In contrast to Pareto, in the Austrian view, consumers are viewed, not as fixed loci of consumption functions, but as sources of incessant change, who also play an entrepreneurial role (Mises 1949: 253–54). As for Pareto, despite the positivism and apparent “anti-individualism” of his methodology, he was all his life a fervent economic liberal; see Finer 1968 and the essay on “Ludwig von Mises’s Liberalism on Fascism, Democracy, and Imperialism,” in the present volume.
• 12Cf. Kirzner’s remarks 1976b: 59: “It is easy to see how foreign the notion of the ‘automatic maintenance of capital’ [the Clark-Knight concept] must have appeared to Mises. An approach that concentrates analytical attention—as Austrian economics does—on the purposive and deliberate decisions of individual human beings when accounting for all social economic phenomena must treat the notion of capital as a spontaneously growing plant as not merely factually incorrect but simply absurd.”
• 13Cf. the statement of the self-described Austrian “fellow traveler,” Leland Yeager 1995: 219: “economics deals with human choices and actions, not with mechanistically dependable relations. The economy is no machine whose ‘structure’ can be ascertained and manipulated with warranted confidence.” There are no constants in economics comparable to those in the natural sciences, and “no amount of cleverness with econometrics can make the nonexistent exist after all.” See also Yeager 1997, where, after a judicious evaluation of Austrian economics, the author suggests some reasons for the relative neglect of the Austrian school by the mainstream of the profession.
• 14See especially the works attempting to develop Misesian ideas on this topic by Israel M. Kirzner, beginning with Kirzner 1973; and the exposition by Rothbard 1997, 2: 245–53. Jaffé 1976 argues that decisive differences between the Austrian and neoclassical approaches that existed from the start have been overlooked because of the tendency to “homogenize” Menger, Jevons, and Walras as co-founders of “the marginalist revolution.”
• 15For an informative discussion of other contrasts between Austrianism and neoclassicism, see Huerta de Soto 1998.
• 16Herbert Matis remarks (1974: 257) of the early Austrian school that “this new intellectual approach in economics was subjective, relative, and psychological, since it started from the human being and not from abstract concepts; it signified, therefore, to that degree a departure from classical liberalism.” The confusions evident here are not untypical of the superficial treatment of liberalism by many writers on its history.
• 17Cf., for instance, Edward G. Dolan’s critique 1976b: 6, 11 of “mainstream economics”: “it necessarily omits an important component of reality—the concept of purposive action,” while Austrianism “insists on laying bare the true causal relationships at work in the social world and is not content to simply establish empirical regularities among dubious statistical aggregates.” Austrianism offers “a microeconomic approach to macroeconomic problems.”
• 18See also the trenchant analysis in two essays on the subject by Rothbard 1997, 2: 180–84 and 217–25.
• 19Cf. the perceptive and important comment by Lawrence Birken (1988: 256): “Only with the emergence of marginalism was individual taste decidedly emancipated from the idea of universal need. With occasional exceptions, pre-marginalist thought had ignored or downplayed the significance of the idiosyncratic consumer, thus precluding the recognition of consumer preference as a mark of individuality. Early economic thought, functioning as a kind of secular morality which sought to uphold the idea of the ‘normal,’ conceived of need or utility in universal terms. . . . Only with the advent of marginalism do we see the emergence of a genuinely individualistic desire.” Birken’s analysis, however, would appear to apply much more to the Austrian than the neoclassical variant of marginalism.
• 20Hayek himself lent some support to Hutchison’s distinction between Mises and “Hayek II” in his foreword to a reprint of Mises’s Socialism (Mises 1981: xxiii-xxiv), when he criticized Mises’s claim that “all social cooperation [is] an emanation of rationally recognized utility,” as both “factually mistaken” and an expression of Mises’s “extreme rationalism.” But the general thrust of this passage is to downplay his disagreement with Mises. Hayek states, for instance, that Mises “largely emancipated himself from that rationalist-constructivist starting point,” and that “Mises as much as anybody has helped us to understand something which we have not designed.”
• 21Mises never claimed that the specific motivations of human action, in the psychological sense, were relevant to economics; rather it was a question of preferences as demonstrated in action.
• 22It should be noted that Friedman expressed these views in a popular address. Still, it is difficult to see how his argument could be made substantially more rigorous or coherent. Friedman declares, for example, that we must “beware of intolerance [such as Mises supposedly displayed] if we’re going to be really effective in persuading people,” yet concedes, very graciously, that “there is no doubt in my mind that Ludwig von Mises has done more to spread the fundamental ideas of free markets than any other individual” (1991: 18). Friedman’s brief account of Ayn Rand’s allegedly a priori philosophy is simply uninformed and incorrect.
• 23To those familiar with Mises’s achievements (see Rothbard 1988; Hoppe 1993; Reisman 1998; Zlabinger 1994; Ebeling 1981), the attempt of Hutchison and others to minimize them is more ludicrous than troubling, e.g., Erich Streissler’s assertion, regarding Mises (1990b: 109; see also 1988: 200) that, “not without truth, though certainly with little charity, [he] might be called the arch-lobbyist for entrepreneurial concerns in interwar Austria.”
• 24On the question of apriorism, it is worth noting that Hayek (1955: 221 n.1) wrote of John Locke that he regarded “the moral sciences” (ethics, political theory, etc.) “as a priori sciences comparable with mathematics and of equal certainty with it.” The context makes it clear that Hayek is here passing a favorable judgment on Locke. It is doubtful whether either Hayek or Hutchison would have wished to classify Locke as “a false individualist.”
• 25For an incisive critique of Popperian falsificationism, see Gordon 1993: 34–41.
• 26See also de Jasay 1991b. Gerard Radnitzky 1995: 49–84, especially 50, 64, 83, has criticized Popper’s oft-repeated praise of Marx as a “humanist,” as well as his political philosophy in general. He holds Popper’s concessions to “a not thought-through social democracy” to have been a “survival strategy,” which permitted him to find a wide readership for his views. This Radnitzky contrasts to Mises, who simply refused to compromise with the statist spirit of the times. Radnitzky’s view paints Popper as a hypocrite and an opportunist, which does not seem right.
• 27Popper’s knowledge of the history of liberal thought was astonishingly deficient. He held, for instance, 1992: 10 that Hayek originated the notion that complete socialism entailed political enslavement (and that Mises derived it from Hayek). But this idea was a commonplace among late-nineteenth century liberals, as evidenced by Herbert Spencer’s essay, “The Coming Slavery,” Yves Guyot’s La tyrannie socialiste, Eugen Richter’s Pictures of a Social-Democratic Future, and other works.
• 28On the influence of Capitalism and the Historians, see Taylor 1997: 162–64. In a learned study, Jeremy Shearmur (1996) has argued that, despite Popper’s evident social-democratic attitudes, the implications of his ideas are more closely related to classical liberalism than Popper himself understood. Whatever the validity or scope of that claim, there is the anterior and more fundamental question—whether Popper’s ideas on politics, based as they are on grossly incorrect historical and economic notions, are even important enough to warrant extended examination in the first place. Popper’s superficiality in dealing with political issues is nowhere more obvious than in his 1956 tour d’ horizon of the world scene, “The History of Our Time: An Optimist’s View” (1962: 364–76). Here he declares that “our own social world is the best that has ever been”—neglecting, among other things, the Chinese, around one-fifth of the human race and then living under the Maoist terror regime. He not only implies, for no good reason, that the disappearance of “class differences” is desirable, but announces, absurdly, that in the United States (and elsewhere) “we have, in fact, something approaching classless societies.” Similarly, in a tribute to Hayek (Popper 1997: 321, from a talk given in 1992), Popper recalls that often in conversations with Hayek, he criticized Mises’s conduct of the fight against “what was then called . . . protectionism, or state-protectionism” (sic—presumably, Popper is referring to what everyone else calls interventionism), because “in a complex society, anything approaching a free market could only exist if it enjoyed the protection of laws, and therefore of the state. Thus the term ‘free market’ should always be placed in inverted commas, since it was always bound, or limited, by a legal framework and made possible only by this framework.” On Popper’s “logic,” then, terms like “freedom of the press” and “religious freedom” should also always be placed in inverted commas, for the same reason.
• 29On some differences between Mises and Hayek in connection with the famous debate, see Keizer 1994.
• 30For a statement of this position, see März 1991: 101–05, where the author, in what purports to be a scholarly work, adopts the Marxist polemical tactic of characterizing Mises as having launched “the theoretical and ideological counter-offensive of the Austrian bourgeoisie” in his critique of socialist planning.
• 31Karen Vaughn 1994 maintains that the use by socialist writers of neoclassical theory to derive market socialist responses to the Austrian assault sensitized both Mises and Hayek to the distinctively Austrian components of their argument.
• 32Cf. Dasgupta 1985: 80: in contrast to classical economics, “consumption, not accumulation, appears in marginalist economics as the mainspring of economic activity. The new system, so to say, substitutes ‘consumers’ sovereignty’ for ‘capitalists’ sovereignty.’”
• 33It should be noted that by including the state in the same category as such social formations as language and markets, Menger is obscuring the crucial liberal distinction between state and civil society, coercion and voluntarism.
• 34Emil Kauder 1965: 61 points out that Menger opposed religious bigotry, anti-Semitism, militarism, dueling, and the glorification of war, and “was very critical of the feudal pillars of the Habsburg monarchy—clergy, army, and nobility.” A number of these are traditions or institutions which, it could well be argued, had developed “spontaneously.”
• 35In his last work on politics, Considerations on the Government of Poland, Rousseau, who is still viewed by many as a serious political thinker, continued his idolization of Lycurgus, while spelling out the totalitarian implications of his childish infatuation: “He showed them [the Spartans] their country unceasingly, in their laws, their games, their homes, their loves, their feasts. He did not allow them a moment to be by themselves alone. And from this continual constraint, ennobled by its object, was born that ardent love of country . . .” See Crocker 1973: 335.
• 36Wieser maintained 1923: 91–92 that, before Menger, all the schools of economic thought “pursued the interests of one of the great economic parties . . . [and] sought evidence for their partisan interest.” Very oddly, he even employs the Marxist terminology of “bourgeois” and “proletarian” economists, going so far as to assert that the “proletarian,” i.e. socialist, economists, will be able to learn from Menger’s economic theory, without “in any way giving up their fundamental standpoint”; rather, they will be able to “strengthen their standpoint.”
• 37It was left for Erich Streissler among non-socialists to impute a class interest to the Austrian economists (1988: 200–01): “after the end of the monarchy the members of the School belonged to the old ruling class dispossessed of power and mostly expropriated through the hyperinflation which had abolished their rentier capital. No wonder they were particularly critical of the state.”
• 38Fetter 1923: 602 noted that the negative implications of the subjective theory for Marxian economics appears more clearly in Wieser’s and Böhm-Bawerk’s works, but maintained that “this application had, however, been recognized from the very beginnings of the subjective school.” While he cites no particular evidence, he may have had in mind, for instance, Menger’s critique of Rodbertus’s claim that capitalists and landowners expropriate the product of labor and thus “live without working.” To this Menger 1981: 168 n. 30 countered that they live “upon the services of their land and capital which have value, just as do labor services, both to individuals and to society.”
• 39Streissler 1990a: 64 makes the peculiar statement that: “Perhaps Bukharin is not that far off the mark after all when he thinks it [Austrian economics] is the economics of the rentier.” However, Günther Chaloupek, an author sympathetic to Marxism, is considerably closer to the mark when he states 1986: 221, in discussing Bukharin’s critique of Austrianism: “But: if the marginal utility school drew attention to demand, this was certainly not in the first instance a symptom of the beginning of age of the rentier, but rather a reflex of the increased standard of living of the masses as well in the train of capitalist expansion.”
• 40Joan Robinson, on the other hand, argued 1962: 52, emphasis in original, that while “the whole point of utility was to justify laisserzfaire,” the theory had inherently egalitarian and redistributionist implications.
• 41That the approach to the history of economic thought centering on the British tradition from Smith to Mill must be abandoned is argued by Murray N. Rothbard (1976a). Rothbard persuasively claims 1976a: 53 that a more informed interpretation would see “Smith and Ricardo, not as founding the science of economics, but as shunting economics onto a tragically wrong track, which it took the Austrians and other marginalists to make right.” Citing works by Marjorie Grice-Hutchinson and Raymond de Roover, Rothbard emphasizes the importance of medieval and early modern thinkers, particularly the Spanish Late Scholastics. These themes also pervade Rothbard’s history of economic thought 1995c, where the Late Scholastics are treated in 1: 97–133. See also Jesús Huerta de Soto 1999.
• 42Oscar Morgenstern 1927: 673–74, however, had a sharply different interpretation of Wieser’s last work, Gesetz der Macht, and incongruously characterized Wieser as a “convinced pacifist.”
• 43Streissler 1986: 100 points out that Wieser’s constant references to “the socialist state of the future” influenced his student Joseph Schumpeter in the latter’s assessment of the probable course of historical development.
• 44Even as regards Wieser’s economic theory, Mises 1978b: 36 concluded that he “could not be called a member of the Austrian School, but was rather a member of the Lausanne School . . .” This viewpoint is cogently set forth in Hoppe and Salerno 1999.
• 45Cf. Streissler’s insightful remark 1987: 24: “Through Menger his school became a vessel of economic liberalism, at a time when in other countries it stood under an unlucky star. This school took over a then ‘lost cause,’ and nursed liberalism at the time of its deepest ebb—especially in the period between the wars.”
• 46Kauder 1965: 64 asserts of Menger: “He was not a consistent defender of free competition, and he was not a socialist, although his brother, the famous socialist Anton Menger, had some influence on him.”
• 47Paul Silverman, however, 1990: 85, 90–91 criticizes Kauder on the nature of the Austrian background of Menger’s work (as well as on Menger’s alleged methodological dependence on Aristotle). Silverman points up the importance in Austrian history of a school of liberal cameralists, including the key figure of Joseph von Sonnenfels, who posited “a system of preestablished social harmony which the state was to watch over and protect.” Josef von Kudler, whose work on economics was the standard textbook in Austrian universities in the decades before the appearance of Menger’s Principles, likewise displayed “a staunchly liberal outlook.” In Silverman’s view, the impact of the “Austrian tradition” on Menger was not in the direction of conservatism, spurring the search for a Metternichian stability; instead, it may mainly have worked to convey the notion of objective, rational ends for man in society. This set a limit to Menger’s subjectivism, leading him, for instance, to differentiate real from imagined needs.
• 48Böhm 1990: 232 n. 2 suggests that Mises’s extreme liberal viewpoint was out of step with the general position of the founders of Austrianism, who tended towards “a kind of ‘enlightened conservatism’ (in the European sense), or ‘paternalistic conservatism’—allegations of laissez faire repeated ad nauseam notwithstanding.”
• 49At the University of Vienna, Hans Mayer, who was all that was left of the Austrian school after the Anschluss with Nazi Germany, also held that Mises’s radical liberal conclusions were not inherent in the school’s teachings (Craver 1986: 10–11). This is easily understandable, given Mayer’s position as a functionary of the new National Socialist regime. The tradition of attempting to disassociate Mises’s “personal,” “Manchester-liberal” world-view from “the objective findings of the Austrian school” was carried on by Weber 1949: 644.
• 50Hans-Hermann Hoppe puts the matter very well. When Mises arrived in the United States in 1940, he was already “an international scientific celebrity,” and his influential works, The Theory of Money and Credit and Socialism had been available in English for years. “But while every third-class European Marxist or ‘Marxian’ of the time found a respectable academic position without any difficulty, in the land of capitalism the American universities and intellectuals plainly and shamelessly turned a cold shoulder to Mises, the great theoretician of liberalism and capitalism.” Mises finally obtained a position at New York University, but only as permanent guest professor, and the university did not pay his salary, which was covered from private sources. Hoppe 1993: 27–28, 30, 34 n. 24. Hayek’s situation was analogous. While he did become a professor on the Committee on Social Thought, he was deemed unsuitable, not “scientific” enough (i.e., not sufficiently positivist) by the economics department of George Stigler and Milton Friedman, and his salary was likewise paid from outside sources.
• 51Ludwig von Mises, Theory and History (New Haven: Yale University Press, 1957), p. 294.
• 52R. 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
• 53Methodological individualism has been a keystone of Austrian economics from the start (Christainsen 1994). In his Investigations, Menger wrote:
• 54Methodological 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.”
• 55It 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.
• 56It 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.
• 57Political 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.
• 58Furthermore, 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.
• 59This 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).
• 60the 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)
• 61This 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).
• 62This 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).
• 63Israel 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).
• 64Israel 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).
• 65Israel 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).
• 66In 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.
• 67On 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:
• 68It 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)
• 69Besides 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).
• 70“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).
• 71. . . 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)
• 72How 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.
• 73As 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.
• 74As 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.
• 75To 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.
• 76In 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).
• 77Most 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).
• 78That 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.
• 79The 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).
• 80The 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).
• 81The 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).
• 82a 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)
• 83In 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).
• 84But 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).
• 85The 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)
• 86Their “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).
• 87Like 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).
• 88Like 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).
• 89From the opposing camp, a long line of socialist critics, from the 1890s on, pilloried marginalism as a mere rationalization for the exploitative capitalist system. The Italian socialist Achille Loria assailed the marginal approach for precluding “the possibility of a deep analysis of social relations” and eliminating “any theoretical threat against the established economic system” (Barucci 1972: 529). Karl Kautsky, the Pope of German Marxism before the First World War, took note of the Austrian challenge in the form of Böhm-Bawerk’s work, declaring: “Böhm-Bawerk’s and Marx’s theories of value are mutually exclusive. . . . That means, therefore: either-or” (cited in Chaloupek 1986: 198–99). Nikolai Bukharin (1927), who attended Böhm-Bawerk’s lectures, labeled Austrianism “the economic theory of the rentier class.” Decades later, Ronald L. Meek claimed, citing Menger and Jevons, that “the founders [of marginalism] were very well aware of the dangerous uses which were currently being made of these doctrines [of classical economics] in certain quarters” (1972: 503).
• 90From the opposing camp, a long line of socialist critics, from the 1890s on, pilloried marginalism as a mere rationalization for the exploitative capitalist system. The Italian socialist Achille Loria assailed the marginal approach for precluding “the possibility of a deep analysis of social relations” and eliminating “any theoretical threat against the established economic system” (Barucci 1972: 529). Karl Kautsky, the Pope of German Marxism before the First World War, took note of the Austrian challenge in the form of Böhm-Bawerk’s work, declaring: “Böhm-Bawerk’s and Marx’s theories of value are mutually exclusive. . . . That means, therefore: either-or” (cited in Chaloupek 1986: 198–99). Nikolai Bukharin (1927), who attended Böhm-Bawerk’s lectures, labeled Austrianism “the economic theory of the rentier class.” Decades later, Ronald L. Meek claimed, citing Menger and Jevons, that “the founders [of marginalism] were very well aware of the dangerous uses which were currently being made of these doctrines [of classical economics] in certain quarters” (1972: 503).
• 91The history of economic thought in the first half or three-quarters of the nineteenth century was and still is often portrayed in very Anglo-centric terms, as though the theories which achieved for so long in Britain such an extraordinary dominance and authority. . .enjoyed a similar hold and authority elsewhere in Europe. This was not the case.
• 92Of the founders—Menger, Böhm-Bawerk, and Wieser—it is Wieser’s views that seem to be the least problematical (Mayer 1929; Streissler 1986: 86–91). Though not a socialist, Wieser firmly believed that the private property, market economy was rife with flaws that cried out for interventionist remedies. Robert B. Ekelund, Jr., has noted that, for Wieser, both consumers and workers were typically tyrannized by the possessors of great concentrations of wealth, and that in Wieser’s view it was the duty of government to reduce the power of these property owners and provide for the “victims of acquisitive capitalism.” Detecting power operating everywhere in market exchanges, Wieser even favored protective tariffs for less developed nations in order to counteract the economic and political domination of the wealthier countries. He tried to deploy marginal utility theory to justify not only progressive taxation, as Hayek noted, but also state subsidies for “projects productive of high total utility” (Ekelund 1992). There seems little reason to dissent from Streissler’s characterization of Wieser as “a statist, who believed in the wisdom of the state machinery guided by a wise bureaucracy (coming from his own caste)” (1987: 14–15).
• 93Of the founders—Menger, Böhm-Bawerk, and Wieser—it is Wieser’s views that seem to be the least problematical (Mayer 1929; Streissler 1986: 86–91). Though not a socialist, Wieser firmly believed that the private property, market economy was rife with flaws that cried out for interventionist remedies. Robert B. Ekelund, Jr., has noted that, for Wieser, both consumers and workers were typically tyrannized by the possessors of great concentrations of wealth, and that in Wieser’s view it was the duty of government to reduce the power of these property owners and provide for the “victims of acquisitive capitalism.” Detecting power operating everywhere in market exchanges, Wieser even favored protective tariffs for less developed nations in order to counteract the economic and political domination of the wealthier countries. He tried to deploy marginal utility theory to justify not only progressive taxation, as Hayek noted, but also state subsidies for “projects productive of high total utility” (Ekelund 1992). There seems little reason to dissent from Streissler’s characterization of Wieser as “a statist, who believed in the wisdom of the state machinery guided by a wise bureaucracy (coming from his own caste)” (1987: 14–15).
• 94Wieser’s last book, The Law of Force, intended as his magnum opus, has been open to widely varying interpretations (Streissler 1986: 86–91; Morgenstern 1927: 673–74; and especially Samuels in Wieser 1983: xiii–xxxvi). In any case, as a confusing hodgepodge in which all of history is explained and the whole future of mankind sketched through an obsessive application of the concepts of “power” and “leadership,” this work is fundamentally outside the tradition of the Austrian school. Menger’s political orientation, on the other hand, has been the most studied and remains the most disputed.
• 95Mises (1969: 18) conveyed the impression that Menger was more or less a classical liberal, asserting that he “heartily disapproved of the interventionist policies that the Austrian Government—like almost all governments of the epoch—had adopted.” Streissler has also argued for a virtually laissez-faire Menger, seeing him as the source of the school’s commitment to the free market. Emil Kauder, on the other hand, saw Menger as a sympathizer with Sozialpolitik (social reform) and a critic of laissez-faire (1965: 62–64).
• 96Mises (1969: 18) conveyed the impression that Menger was more or less a classical liberal, asserting that he “heartily disapproved of the interventionist policies that the Austrian Government—like almost all governments of the epoch—had adopted.” Streissler has also argued for a virtually laissez-faire Menger, seeing him as the source of the school’s commitment to the free market. Emil Kauder, on the other hand, saw Menger as a sympathizer with Sozialpolitik (social reform) and a critic of laissez-faire (1965: 62–64).
• 97But, according to Kauder, the underlying intellectual tradition in Austria was one of state paternalism, to the point where even the expression of the concept of a spontaneous economic order had been actively suppressed. The founders thus “tried to compromise between British [i.e., Smithian] and Austrian tradition.” In the end, Böhm-Bawerk held that social stability was more important than progress, preaching a “social quietism akin to the ideals of the Austrian past” (Kauder 1958: 421–22). To make matters worse, Stephan Böhm points out that “Böhm-Bawerk’s outstanding achievement as Minister of Finance was the introduction of the progressive income tax on the total income of individuals.” (1985: 256; see also Weber 1949: 667)
• 98But, according to Kauder, the underlying intellectual tradition in Austria was one of state paternalism, to the point where even the expression of the concept of a spontaneous economic order had been actively suppressed. The founders thus “tried to compromise between British [i.e., Smithian] and Austrian tradition.” In the end, Böhm-Bawerk held that social stability was more important than progress, preaching a “social quietism akin to the ideals of the Austrian past” (Kauder 1958: 421–22). To make matters worse, Stephan Böhm points out that “Böhm-Bawerk’s outstanding achievement as Minister of Finance was the introduction of the progressive income tax on the total income of individuals.” (1985: 256; see also Weber 1949: 667)
• 99His purpose, Weiss declared, was “to establish that a number of notable representatives [of the Austrian doctrine], among them its founders, did not draw from it the conclusions for economic policy that [Mises] believes he must draw.” Mises’s brief response to Weiss’s critique: “I am not so pious towards authority [autoritätsgläubig] and quotation-minded [zitatenfreudig], and I base my argumentation on logic and not on exegesis.” The interesting implication is that the political consequences of Austrian economics are to be gathered not from the particular views of its major early proponents, subject to the climate of opinion of their times, but from the inner logic of the system itself (Mises and Spiethoff 1933: 51–53, 131, 118).
• 100Beginning with Ludwig von Mises and F.A. Hayek, the links between liberalism and the Austrian School become intense and pervasive, since these two scholars were themselves at once the outstanding Austrian economists and the most distinguished liberal thinkers of the twentieth century. The American academic world, however, deemed none of this sufficient for them to be accorded the kind of positions to which they were clearly entitled. They, and in particular Mises, were also responsible to a greater degree than is generally appreciated for the upsurge of the free-market philosophy in the second half of the century.