On Freedom and Free Enterprise: Essays in Honor of Ludwig von Mises

VIII The Place of Economics Among the Sciences

by WILHELM RÖPKE

(from the German by George D. Huncke)

 

TO ANNOUNCE an essay on the place of economics among the sciences may seem to be short of reckless temerity. For there is hardly any subject which offers a more seductive invitation to be verbose, pedantic, and boring. Such an invitation virtually amounts to an authorization to iterate observations which have been made often enough to need no further emphasis. To be sure, it would be very malicious of me to apply to economics the characterization once levelled at philosophy which defined it as “the continuous abuse of a terminology created for that express purpose.” But it must be admitted that philosophy and economics exhibit certain common features which distinguish both from most other sciences. One of these is that it can be said of each that the history of its doctrines constitutes an essential part of the science itself. Another is the highly characteristic tendency of each toward excessive and incessant preoccupation with itself, its nature and its methods. Both sciences resemble the introvert whose gaze is ever turned inward, whose conscience, staggering under the load of its own sins, is forever engaging in a searching of its own soul. No science outdoes economics in this sort of “soul-searching,” in puzzling at the crossroads about signposts and direction-pointers, in discussing the whence, the whither, the whereby, and the where-for. No science is more persistent in its repetition of a query whose general formula has been made famous by Schiller in his opening lecture, “What is, and for what purpose do we study, economics?”

If, despite all that, we again broach that question today, there must be some especially cogent reason to justify us. And in order to recognize that reason clearly, we should do well to consider two facts which are as conspicuous as they are important. One of them is a source of pride to the economist; the other spells humiliation for him and danger to the position accorded to his branch of knowledge among the sciences in general, and in the estimation of society at large.

For on the one hand we note that throughout the civilized world there has been an increase in the last few decades in the technical equipment of economic science such as we older economists would not have dreamed possible when we started our career. Thirty years ago a university might have twenty to thirty students registered in courses in economics, and their existence would be regarded by a faculty of law or philosophy as a bizarre appendage to be tolerated rather than respected.1 Each year doctorates were conferred upon a dozen or so candidates who were thereby launched on a practice that was nearly as difficult to define as their science itself. Today the enormously augmented scope which organized research, instruction, and dissemination have attained in the field of economics is no less remarkable than the corresponding increase in the student body. In numbers that are positively unwieldy they swarm about our “chairs in economics,” crowd into seminars, huddle over our library tables, and despite the immeasurably increased amount of scientific material to be mastered, including even algebra and geometry, they make heroic efforts to plumb the meaning of all of it.

That is one of the two facts that demand our consideration. In contrast to it stands the other which is no less striking but for that very reason highly disquieting. I refer to the fact that the extraordinary expansion of economics in research, organization, expert personnel, and practical effectiveness has taken place at a stage which could not conceivably be more critical in the development of a science which already has a history replete with crises and critical turning points.

The fact that our science has attained such a high rank in public esteem at the very moment when it is less sure of itself than ever before must appear striking to anyone who concerns himself with economics—a science which may truly lay claim, by reason of its maturity, experience, and methods, to a place second to none among the sciences which seek to establish the essential laws that govern society itself. Are we not here faced with a very serious contradiction which might almost move us to disapproval and gloomy foreboding? Are we not accustomed to feeling extremely uneasy whenever outward appearance does not correspond to inner solidarity? The question itself is no more than natural, yet the contradiction is only apparent. Would it not be more accurate to say that both facts are attributable to a common cause, namely, the profound crisis which confronts society itself? And that they are so attributable for the very reason that economics revolves about society, and especially about those of its problems which are most amenable to rational analysis?

In the course of the last two decades significant changes in the political, economic and social structure of our society have taken place, and these still continue to exert marked influence. It is to these changes that we may ascribe the extraordinary increase in the importance which our times accord to economic science. But it is those same changes, too, and the profundity of the intellectual sources from which they arise and the conflicts to which they lead, that are reflected in the altered appearance of that science, in its tensions, its problems and—let us openly admit—its errors. What at first seems to be a contradiction between external appearance and inner content is in fact an inevitably indissoluble combination that lies in the very nature of the science itself. Recourse is eagerly taken to economics in the expectation that it will furnish orientation for problems arising in an era of confusion which looks upon the birth of much that is new and the death of much that is old. And there is an intensely practical justification of that expectation. It lies in the new economic structure of society with its ever-increasing organization, institutionalization, and collectivization; and it lies in the fact that those characteristics give rise to an exceptionally augmented need for trained personnel capable of handling the problems these changes bring, as well as capable of publicly representing the interests that thereby come into play.

But by the same token it need not be too astonishing that the science to which recourse is taken is itself caught in the maelstrom of this era of confusion, and that it, too, is subject to turbulation and fluctuation. Such would not necessarily have to be the case. And there is every reason for us to combat with all our power the forces that tend to sweep economic science from its moorings. There is no justification for treating as mere cause and effect the relationship between the cultural and social upheaval of our times, on the one hand, and the dubious aberrations, on the other, of which economic science has been guilty. However, it can hardly be denied that some such relationship does exist and that we are thereby put upon notice as to our obligation to establish the higher truth which must reconcile the paradox. And such denial becomes all the more out of the question when we consider the possibility of the reciprocal influence of the two members of the paradox. For attention must be called to the probability that certain tendencies exhibited by economic science, while much in accord with the spirit of our times, are themselves in no small measure responsible for some of the spasmodic manifestations exhibited by our society and our economy.

I now propose that we explore the two facts of our paradox, one after the other, in order to discover what problems they present. And I suggest that we begin with the second, the internal conditions of economic science as they affect its position in relation to its fellow sciences. A few observations respecting the first member of our paradox may constitute our concluding paragraphs.

With respect to the present situation in economics and to its position among the sciences, we may state that it is pregnant with questions to the point of crisis; but we need not linger unduly long over a number of well-known matters of a general nature. It is easy to state in general terms what economics is concerned with, even though great difficulty may be encountered in the treatment of its specific problems. The commonest point of departure for the latter is the general scarcity of goods, which can in turn be attributed to the scarcity of forces of production except, of course, for the absolutely rare goods. Thence follow those inescapable rules of all economic activity which constitute the uttermost in generality—such as the necessity for evaluation, the exercise of choice among alternatives, optimum utilization of scarce forces of production, and the like. These are the imperatives which even a collectivist economy cannot disregard with impunity. In this sense it is, of course, a mistake to think of economics as a science whose scope is limited to one definite method of responding to those general imperatives, that is to say, as the science of a market economy controlled by free prices and competition. Quite on the contrary, a purely collectivist economic system is better fitted than any other to place those supreme imperatives in the correct light and so progress to a better understanding of how a market economy functions. And it is so fitted, if for no other reason than that a collectivist economy is in itself a demonstration that it cannot satisfactorily control those imperatives and hence that it must necessarily result in disorder and poverty. There could hardly be anything better calculated to further contemporary science than this inordinately costly and painful “instruction by the case method” which makes whole nations the guinea pigs on which to demonstrate so utterly convincingly the modus operandi and the irreplaceable functions of free determination of price and of the presuppositions behind it.

However, the difference in practice between these two opposing economic systems finds its counterpart in theory. Only a market economy makes it possible for economic science to go beyond those general and platitudinous truths and to discover relationships that have the objective definitiveness and validity which a market economy actually establishes by means of the mechanism of price. Only a market economy makes of economic science an analytical social science rather than a science which is merely a descriptive-understanding one having a logical structure like that of historiography. In the collectivistic state the science of economics is condemned to limit the scope of its activity to two extreme positions. The first of these is the preliminary and introductory stages of instruction which do not go beyond the general truths and their imperatives; the other is the doctrine of an economy controlled for the attainment of certain political objectives, not unlike the cameralism of the old absolute and paternalistic state.

But in saying this much we have not yet told the whole truth. In fact, we shall see later that it is dangerous to exaggerate the truth of what we have found so far. But it is indisputable that economics is, in the main, a science which is rooted in our market economy. It is, to speak with Ludwig von Mises, pre-eminently catalactics. That is the field where its actual scientific discoveries have been made; and it is still true that we can forget only at our dire peril what really constitutes the content of economic theory, namely, the economic organization which functions through a system of determined and determining prices, wages, rates of interest, and other magnitudes of value. We are, of course, aware that reality differs to a greater or lesser degree from our theoretical pattern of a free price mechanism which complies in every respect with the laws of unhampered competition. Nevertheless that pattern is indispensable to us if we are to arrive at any reasoned judgment at all concerning the importance of the degree to which, in every case, reality does so differ from the pattern of free and competitive markets.

We have thus more or less determined the intellectual site of the field where actual economic thinking takes place, and which constantly serves as its point of reference for reorientation. Let us then proceed a step further in order to characterize that thinking as to its individuality, its difficulties, its pitfalls. As Keynes once observed, economics is not difficult in the same sense as, say, theoretical physics is difficult. But 1 believe I can hazard a judgment based on my experience at our own university, where students of international problems have the option of approaching them from the point of view of law, of economics, or of “Political Science.” And within that group of the social sciences, at least, economics has the reputation of presenting heights that are particularly difficult to scale. If I charitably debar the supposition that the reason might lie in the professors, then we are confronted by a problem which deserves considerable reflection.

Indubitably economics demands a kind of thinking which, if not difficult, is certainly peculiar to itself and which must be the product of training as well as of intensive practice. Such must inevitably be the case since its subject, economic activity, is so prodigiously varied and complex that it eludes our best efforts to grasp it by the methods customary in scientific study generally. The same Keynes who made the remark about economics and theoretical physics told us on another occasion (Economic Journal, 1924) that a man like Professor Planck, the famous originator of the Quantum Theory, confessed to him that he thought of studying economics but found it too difficult. He could have mastered, says Keynes, the whole corpus of mathematical economics in a few days, but what he seems to have found so difficult was the “amalgam of logic and intuition and the wide knowledge of facts, most of which are not precise, which is required for economic interpretation in its highest form.”

“Thee, boundless Nature, how make thee my own? Where you, ye breasts?. . . .”

The descriptive method does not advance our cause. Experimentation is ruled out by the very nature of the subject. The weaving of a fabric spun from ingeniously devised lines of thought only too often proves an escape from what is relevant and factual. When confronted by that difficulty, the mind of the untutored and the unsuspecting is prone to take refuge in the dangerous world of analogy, of metaphor, of the unwarranted transfer of what is manifest and what is observed in individual experience to economic activity of the community as a whole. But the latter field is the very place where the determining influence is exerted, not by that which is obvious, but by something that must be logically deduced, and where that which is valid in particular is not necessarily valid in general. Under these circumstances we get that dreaded “homegrown economics” which bristles with all the obvious blunders that characterize the mercantilist thinking of which David Hume and Adam Smith disposed once and for all and against which the best antidote is still that collection of essays published a century ago by Bastiat under the eloquent title “Ce qu’on voit et ce qu’on ne voit pas.” That kind of thinking is the source of one of the most disastrous of economic fallacies to be designated, perhaps, as anthropomorphism, or as “realism of conception” or by Whitehead’s phrase “fallacy of misplaced concreteness.” It is especially to be encountered where discussions treat questions of international economic relations, and unfortunately it rears its ugly head even within the ranks of the professional economists themselves.2 Indeed, the latter have unfortunately and in no inconsiderable numbers succumbed to the blandishments of still another influence which I shall describe shortly; and they have betrayed a tendency to relapse anew into the mercantilistic thinking that antedated the attainment by economics of its scientific maturity.

The present occasion is not the one on which to describe what methods economics does employ in lieu of those erroneous ones, nor to describe how our science makes use of abstraction, idealization, typification and the creation of models, in order to make a gradual approach to reality. But it is in order, on this occasion, to emphasize that in this process economic science requires the constant application of supreme attentiveness and a large dose of that intuitive power which enables us to keep our eyes on all the complicated threads at once, and to emulate the juggler who never loses sight of a single one of the balls he is keeping aloft. If that power forsakes the economist, the result is that commonest of economic errors which consists in a failure to think an economic process through to its conclusion and hence to lose sight of an important part of it. Such an error arises, for instance, if we conclude that profit must have a deflationary effect because (and this is the everlasting fallacy of all underconsumption theories) demand is thereby barred from reaching the market. The truth of the matter is that we are dealing with a demand which is expressing itself in a different direction—and a direction, incidentally, which as a rule means greater economic progress. The particular intellectual effort required of us economists consists in recognizing that economic science deals essentially, not with constants but with functions, with relations, with interdependent forces. The logic peculiar to economic science is the logic of relationships. As one scholar of my generation somewhat exaggerately puts it, “such thinking in terms of relationships . . . undoubtedly” is one of “the most difficult problems the human intellect can encounter.”3

Small wonder, then, that it is at this very point that the economic reasoning of the untrained mind most frequently comes to grief, whereas the trained economist is most clearly to be recognized by the fact that thinking in terms of relationships has become second nature with him. He knows that imports and exports, or that wages and employment are most intimately and reciprocally related. And the diagrams setting forth the mutual interdependence of supply, demand, and price are as much a part of the economist’s mental “stock-in-trade” as, let us say, is for the jurist the distinction between claims ad personam and those ad rem. The economist will not commit the fundamental error of considering the demand for a particular good in any other light than the relative demand with respect to a certain price and with respect to the conditions which determine the demand curve itself. He does not need to be told that one cannot speak of a “shortage,” of a “scarcity of dollars” or of a “deficit in the balance of payments” as something absolute. He knows that those terms apply only with respect to a definite price which is fixed in such a way as to inhibit the normal function of price, which is to equalize supply and demand. And he knows that this is so even if, in view of certain social or political postulates, it seems preferable to deprive price of that function and to assign the latter to a governmental agency, if not to such agents as the black market, political corruption, “influence” or the mere physical prowess of those who, at that price, can force their way into the market. The economist who is trained to reason along such lines must indeed wince when he reads—as it was possible for him to do in 1943, for instance, in the London Economist—of a “scarcity of dollars” which is destined to be permanent because the United States “needs” so little from other countries, while the latter “need” so much from the United States. Just as if this “needing” had any sense at all, except with respect to certain prices and, in this case of international economic relations, with respect to a certain rate of exchange; and as if it were not the theory of comparative costs (that incontrovertible basic law of international trade) which alone can explain the necessity, even under these unusual circumstances, of establishing an equilibrium in international trade.

To be sure, that all sounds a lot simpler than it really is. For it is another difficulty of economic science that we are everlastingly confronted by a painful dilemma. As Alfred Marshall once observed, all simple statements in economics are erroneous. But when we modify them and make them conform to pertinent relationships, we soon arrive at a point where the process gets out of control and where it would be possible to reason out economic justification for any abuse that assumes the name of economic policy. To the field of economics we can perhaps apply more aptly than to any other the dictum which Leibnitz applied to the entire system of human knowledge. There is no truth, said Leibnitz, which does not have something erroneous commingled with it, and no error which does not contain a bit of truth. If we recognize that, we ought to be secure against all extremes and eccentricities. But it is just as important for us to shun a thoroughly debilitating relativity. And if we are to do that, it is imperative from each occasion to the next, that we distinguish clearly between that which is our fundamental thesis and our general truth, and that which is a modification of the fundamental thesis. It is equally imperative that we be aware that the particular circumstances decide in each case how much practical significance attaches to the qualifying modification.

But that demands of the economist a further special virtue. He must possess judgment, sound common sense, a feeling of proportion and perspective—in a word, qualities that are the exact opposite of those which so often characterize the average type of modern intellectual.4 In the words of Solomon,5 “To everything there is a season, and a time to every purpose under the heaven.” That which is ordinarily folly, may by exception be wisdom, and vice versa. In a desperate situation, such as the depression of 1930–1933, it may be correct to place every emphasis on a policy of “spending” and not on saving. But the economist must possess sufficient judgment not to make that into an article of faith, but must promptly recall the general truth, only temporarily modified, which teaches the exact opposite. Or let us choose a different example. It is, of course, quite correct, that a “passive balance of payments” can be brought about not only, as Ricardo taught, through the internal financial and money policy of a state, but also, as his opponent Malthus emphasized, by “real” factors which lie completely outside the sphere of things for which such a policy is responsible. But the more stubborn and more pronounced this passivity is, the more does the monetary policy operate causatively, and the more importance is to be attributed to the responsibility borne by the state and its central bank. In the long run, Ricardo’s position is right and Malthus’s wrong; and this is all the more true the more violent the departure from the norm. In the period of the German inflation which followed World War I, the most primitive conception of the quantity theory laying the entire blame for the soaring prices and the disruption of foreign exchange on the increase in the issue of currency, was a thousand times superior to the most ingeniously worked out theory that looked for the trouble elsewhere, e.g., in the “passive” balance of payments. And even today time is running out for those countries in Europe that want to excuse the stubbornly continuing “dollar scarcity” on the ground that it is an effect of the war or the result of other “real” factors.

These things, unfortunately, require emphasis, even among professional economists. For it cannot be denied that these very qualities—the ability to exercise judgment, of “bon sens” and of a sense of reality—have suffered diminution. They have tended to cede their position to a formalistic facility in the manipulation of methods which have been unwarrantably adopted from the natural sciences and used in economics. That brings me to the painful subject of a revolution in the field of economics which, on the whole, invites severe criticism, and which has led to an undeniable crisis in the status of economic science. I need not do more than mention the name of Lord Keynes to indicate the origin and character of that revolution. It is a broad subject, and as any adequate treatment of it would go far beyond the limits of my present observations, I shall therefore restrict myself to a few remarks which shall serve to bring out what is important for us in this connection.6

Keynes, more than any other one person, became responsible for a certain lamentable development in the economic science of our day. It is probable that he did so contrary to his own basic intention, but that is at this point irrelevant. That development takes on the high-sounding name of “the new economics” or “Macroëconomics” and consists of a tendency to regard the whole economic process as something purely objective and mechanical. Hence purely mathematical and statistical methods, it seems, can be applied and the whole economic process can therefore be quantitatively determined and even pre-determined. Under those circumstances an economic system readily takes on the appearance of a sort of huge waterworks, and the science which treats of that economic system quite logically assumes the appearance of a kind of engineering science, which teems with equations in ever-increasing profusion. And so oblivion threatens to engulf what, as I see it, is the actual fruit of a century and a half of intellectual effort in the field of economics, namely, the doctrine of the movement of individual prices.

That brings in its train a number of other tendencies well calculated to arouse anxiety. One of these is an ever-increasing specialization in research which promotes a sort of fragmentation process throughout the field of the social sciences. Another phenomenon, inevitably consequent to the first, is an occultism which at times positively glories in the esoteric incomprehensibility of its presentation and proudly points to its use of mathematics as something which raises the “new economics” almost to the dazzling heights of physics itself. We encounter, too, a species of intellectualism or scholasticism which is bereft of all sense of proportion, loses itself in a maze of hair-splitting, and sets up “models” or “patterns” which abandon any possible approach to reality. And that leads, finally, to a stiff-necked intolerance which can justly be termed a “rabies economica” since it is no whit less intransigently bigoted than the comparable “rabies theologica.” It has come to the point where we must often ask ourselves, as we open the pages of one of the technical publications of our science, whether we have not inadvertantly gotten hold of a technical journal on chemistry or hydraulics.

There is pressing need, then, for calm reflection and critical deliberation.7 Their starting point must be the self-evident fact that economics belongs to the estimable family of the Geisteswissenschaften and that it is a “moral science” in the sense that it deals with man as an intellectual and moral being. But our reflection and deliberation must also not lose sight of the point previously established, that economics occupies a special position, in that it deals with that institution which we call a market economy. Now that is an institution which goes so far in translating subjective feelings into objective actions, that we economists are able to employ methods which are foreign to other moral sciences. And this special position makes economics truly a “border science” with all the attractive possibilities the term implies, but also subject to all the great dangers inherent therein. Economics does, in actual fact, permit of recourse to mathematics to illustrate and to formulate with precision causal relationships of a quantitative character. And there are indeed few modern economists who would reject all utilization of mathematics. But this very method is open to question because it will lure the unwary into pushing forward unduly the frontier that delimits the border territory, the zone between what is human and what is mechanical. They will thus advance too far into the region of the mechanical, the statistical, the mathematical, and they will be prone to neglect that which lies on the hither side of the boundary, that which is human and unmathematical, that which is intellectual and moral and hence not quantitatively measurable. There should be a readiness to forgo the technique and methods of the natural sciences except occasionally and for illustrative purposes, particularly in view of the fact that the possible gain from their employment involves disproportionate danger of gross error. “Parturient montes—nascetur ridiculus mus” is truly an apothegm that should be borne in mind by those who engage in studies of this kind.

And it is an error to attempt to defend mathematical economics by pointing out that our science does, after all, deal with quantities. That statement is true. But it is true in even greater measure of strategy, and yet battles are no mere mathematical problem of computation that can be consigned to the care of an electronic calculating machine. The determining factor in economic activity is furnished by things that are as downright unmathematical as a love letter or a Christmas festival, by forces that are moral and intellectual, by reactions and opinions that simply have no place in curves and equations, but lie in the domain of the everlastingly incalculable and unpredictable. We must not, in our “border science,” demand more from the mathematical method than it can accomplish. I know of no really effectual economic theory that could be discovered by that method alone, nor indeed any that has actually been so discovered. There are profound reasons for this, for any economic doctrine deserves the jaundiced eye of suspicion if it can be demonstrated only mathematically without being at the same time unmathematically comprehensible. Wherever any attempt is made to advance such a doctrine, it would be well to apply the wise principle laid down by a brilliant Viennese economist who used to say in such cases, “Before I marvel, I’d rather disbelieve.”

I find equally sound that remark of Voltaire’s which Goethe once quoted in the course of a letter to Zelter, “J’ai toujours remarqué que la géometrie laisse l’esprit où elle le trouve.” As one of our contemporary economists, L. A. Hahn, wittily remarks, mathematical economics all too often resembles the game of egg-hiding that children play at Easter. How they shout for joy when they find the eggs in the very place where they hid them! But even that is one of the most innocent objections that can be raised against this method. Its worst feature is, that it deludes us into a dehumanization of economic science. To rediscover hidden Easter eggs is an innocent pleasure that we need not, after all, begrudge anyone. But it becomes a serious matter when the game exposes us to the danger of sticking our hands into a rattlesnake’s nest.8

The French statesman Philippe Berthelot once said, after the First World War, “un homme qui meurt—ça m’émeut. Quinze-cent mille hommes—c’est de la statistique.” It is an observation as bitter as it is true, and the economist is the last person who should be deaf to the warning it contains. Of course, we economists cannot avoid the use of a species of technical shorthand. We speak of supply and demand, of the purchasing power of money, of the amount of production, the volume of savings, the volume of investment, not to mention a pork sector, and we cannot forever be emphasizing that behind all these pseudo-mechanical concepts there stand individual human beings with their feelings, their deliberations, their appraisals of value, their collective suggestions and decisions. But neither should we ever forget those things ourselves, nor play heedlessly with these collective symbols as children do with building blocks. Certain economists today speak of “coefficients of elasticity,” “marginal propensities,” “multipliers,” “accelerators,” and other ingenious devices, just as if it were a question of physical constants, so to speak, with which they were going through mathematical procedures. Then the moment has come when we have to express our disapproval in no uncertain terms.

Those are aberrations which make it very clear why the word “crisis” is hardly too strong a term to describe the present situation in economic science. But we have now arrived at the point where we must revert to a remark I made earlier in these pages. This tendency toward a quantitative and mechanical conception of our branch of the moral sciences is, of course, merely a reflection of a general inclination in the same direction in all the thinking of our era. It expresses itself with especial clarity in all questions bearing on our social life and in this respect runs parallel to developments in the practical politics of our day. The tendencies I deplore in economics are merely one particular case exemplifying the general tendency toward impersonalization, toward collectivization, toward mechanization, toward dehumanization. The spirit of our times is in very fact predominantly collectivistic, predominantly hostile to the human being, the human soul, the human personality. Anyone who perceives in that spirit a threat to human destiny must needs watch vigilantly for every manifestation whereby that spirit expresses itself. And that applies to economic theory just as truly! I make bold to aver that basically Keynes and Picasso both demonstrate that they belong to the same era, and that even in their alternation between classicism and ultramodernism they are remarkably alike. Ortega y Gasset has written a famous essay on “The Banishment of the Human Being from Art.” We economists can well supplement it by making some observations on “The Banishment of the Human Being from Economic Science.” And unfortunately here, too, developments in the field of theory parallel those in the field of its practical application.

That brings us back to the original point of departure for these observations. After we have attempted to explain and appraise the place of economics as a science, it still remains for us to say a concluding word on its place in modern society. What is it accomplishing here? What are its specific functions, and how can it fulfill them?

Let us not linger over the trivial truth that it is the function of economics to provide governments, organized groups, and public opinion with orientation and guidance in all decisions concerning economic policy, and to supply a training ground for the forces that specialize in these pursuits. There still remain two important observations to record.

The first of these is the need for repeating emphatically an old complaint. It is to the effect that hardly any other science has to struggle as hard as does economics against the layman’s stubborn proclivity to adhere to the “home-grown economics” I mentioned earlier. Despite a complete lack of training and in naive reliance on the obvious evidence of his senses, he opposes his own economies to two centuries of not entirely fruitless reflection and research by the economist. For economics is the one field where every layman feels able to render a competent opinion because it is the field where his interests are involved and his sentiments are aroused. And, as Frank H. Knight, then president of the American Economics Association, somewhat bitterly remarked a few years ago, that is all the more remarkable because it is just the more essential economic truths which are of such a nature that people would be bound to understand them without any elucidation by the economist, if they only wanted to. But they will not see “that imports are either paid for by exports, as a method of producing the imported goods more efficiently, or else are received for nothing. Can there be any use in explaining, if it is needful to explain, that fixing a price below the free market level will create a shortage and one above it a surplus?” And Knight adds the further remark, “Let me observe that rent freezing, for example, occurs not at all merely because tenants have more votes than landlords. It reflects a state of mind, a mode of reasoning, even more discouraging then blindness through self-interest.”9

The second point that I feel requires to be recorded is that the task which confronts economic science, difficult enough in itself, becomes virtually impossible of accomplishment if that science itself betrays in its answers the uncertainty that is evident in the critical situation that obtains today. That seems even more emphatically true if economics enrolls under the Keynesian banner and bestows the blessings of mathematical science on the pronouncements of unlettered laymen. It is to be expected that the overwhelming majority of laymen will look upon the “passive balance of payments” as an Act of God. We may further take for granted that in the eyes of those same laymen the only cure for this affliction is an economy that relies on forcible control of exchange rates plus American subsidies. But what are we to think of a science of economics that confirms an ingenious version of that lay theory—a theory already exploded back in the days of David Hume and David Ricardo? Much of what goes today under the name of “New economics” has virtually deprived humanity of every last bit of firm ground on which to stand and combat such things, and there should be no divided opinion as to the crying need for something to heal the rupture they have caused in the body structure of our science as a whole. Fortunately, indications are increasingly numerous that granulation of the wound is progressing apace.

In the meantime economic science has other social functions which far transcend the aforementioned orientation and guidance in matters of economic policy. Thus, it is unquestionable that economics has become indispensable to modern man as a component element of his “culture.” By “culture” I mean here the system of concepts which comprise his universe. In that sense it is the function of economics to provide the individual with that orientation—so supremely important for the genuine inner life—which instructs him concerning the structure and functioning of society and the place which he himself occupies within it.10 It is necessary to add that orientation of that kind is vitally necessary to the existence of society and to economic order itself. For as Lucien Romier justly observed some twenty years ago,11 no cultural system can long survive if the great mass of people who are its bearers no longer understand its inner laws and its essential structure. And it is that very understanding of our economic system which has gradually become lost in the ever-increasing complexity of its own bustling activity.12 One of the primary tasks confronting present-day economic science is to make that system transparently intelligible, to explain its functioning with elementary clarity to every man, and thus to indicate beyond question the place he occupies in his world. But such a task presupposes that the economic scientist is wholeheartedly convinced of the compelling necessity for so presenting economics that it should be clearly intelligible, well synthesized and universal in scope—in short, so that it shall be a living part of the body of our era’s cultural knowledge. And that task imposes on economic science (and here we echo another demand by Ortega y Gasset) the further requirement that it emerge from its esoteric seclusion and recognize the necessity for making such intimate contact with society’s organs of public opinion as to become a vital factor in its intellectual life.

And as if that were not enough, economics has, besides, a very specific function to perform in the modern democracy. It has an humble but all the more useful mission. Amidst the passions and self-interest of politics, it must assert the logic of things, it must bring to light all the inconvenient facts and relationships, must put them in their proper place with dispassionate justice, must prick all the soap bubbles, must unmask illusion and confusion, and must defend before all the world the proposition that two and two make four. It should be the one science par excellence which disillusions, which is anti-visionary, anti-Utopian, and anti-ideological. Thus it can render society the priceless service of cooling off political passion, of combating mass superstition, of making life hard for all demagogues, financial wizards, and economic prestidigitators. At the same time it must avoid becoming the willing handmaiden of that social emotionalism of which Solomon says in the 13th canto of Il Paradiso, “E poi l’affetto l’intelletto lega.”

That does not by any means imply that we economists may or can retreat to the ivory tower of an economic neutrality. We, beyond all others, are representatives of the social sciences and under the duty to make up our minds at the great cross-roads of our civilization. It is not enough for us merely to decipher the roadmarkers; we must know whether we are sending society along the road to freedom, to humane living, to unalterable truth, or in the opposite direction and toward slavery, the prostitution of man, and crassest falsehood. To evade that decision would just as assuredly be a “trahison des clercs” as if we were to betray the sanctity that lies in the truth of science to the political passions and the social emotionalism of our era. The performance of that duty means no less than the erection of the most important possible “guide-post” for determining the place of economics among the sciences of today.

 

13 The author is particularly referring to conditions as they existed in Germany.

14 On this point cf. my Internationale Ordnung, new ed. 1954 (Erlenbach—Zurich), pp. 118, 133, 241.

15 O. Morgenstern—Die Grenzen der Wirtschaftspolitik, Vienna, 1934, p. 69.

16 Cf. my Mass und Mitte, Erlenbach-Zurich, 1950, p. 54 et seq. “Celui qui regarde naturellement les choses a le bon sens,” says Vauvenargues (Introduction à la connaissance de l’esprit humain, 1746, VII). Then he adds, “Pour avoir beaucoup de bon sens il faut être fait de manière que la raison domine sur le sentiment, l’expérience sur le raisonnement.”

17 Ecclesiastes 3:1.

18 For a fuller treatment I refer the reader to my essay “Alte und neue Oekonomie” which appeared as a contribution to a symposium entitled Wirtschaft ohne Wunder, Eugen Rentsch, Erlenbach—Zurich, 1953.

19 The reader hardly needs to be told how much the author is indebted to the writings of Ludwig von Mises for much of what follows.

20 On the limitations of the mathematical method cf. G. F. Stigler, Five Lectures on Economic Problems, London, 1950.

21 Frank H. Knight, “The Role of Principles in Economics and Politics,” American Economic Review, March 1951, p. 4.

22 This characterization of economics gives it its proper place in the total program developed by Ortega y Gasset in his book, Schuld und Schuldigkeit der Universität, Munich, 1952.

23 Lucien Romier, Si le capitalisme disparaissait, Paris 1933, “Aucune société, aucune humanité n’a pu vivre longtemps sans savoir pourquoi elle vivait et comment elle devait vivre, sans philosophie et sans moral.” (pp. 156–157.)

24 Cf. Walter Eucken, Grundsätze der Wirtschaftspolitik, Bern-Tübingen, 1952, p. 194.

• 1Le refus de Ludwig von Mises.
• 2Ludwig von Mises, Human Action. Yale University Press, New Haven, 1949, p. 188.
• 3Stalin, Les problèmes économiques du socialisme en U.S.S.R., Ed. Sociale, p. 4.
• 4Ludwig von Mises, Ibid., p. 187.
• 5Leibnitz, Nouveaux Essais, I.II.12.
• 6Paul Valéry, Monsieur Teste. NR.F., p. 86.
• 7Ibid., p. 104.
• 8Ibid., p. 152.
• 9Ibid., p. 824.
• 10Ibid., p. 828.
• 11Ibid., pp. 821-822.
• 12Ibid., pp. 715 et seq.
• 13The Intransigence of Ludwig von Mises
• 14LUDWIG VON MISES is a rara avis in this twentieth century of ours, for he considers reason a valid and efficacious instrument even in the study of questions that concern economics. According to him, “any given social order was thought out and designed before it could be realized . . . any existing state of social affairs is the product of ideologies previously thought out . . . action is always directed by ideas.”
• 15The very title of his great book, Human Action, is in and of itself both an affirmation and a denial. It indicates what, for its author, constitutes the real economic problem, which is raised by the behavior of men with respect to the things they desire—the things called wealth. And it shows that the real economic problem is completely encompassed within the study of such behavior; that it does not consist only in an analysis “of objective processes taking place quite independently of human will.”
• 16This problem constitutes an object of science and is open to only two kinds of solution—those which are effective, and those which are not. Reason—and only reason—enables us to choose between them. “Man has only one tool to fight error: reason.” It is the task of the economist to tell the politician which system he must set up in order to give men what they want, and not the very opposite.
• 17It would be cruel to insist on learning the reasons for the practically universal renunciation of thinking. Leibnitz already indicated that, “If geometry conflicted with our passions and interests as much as morality does, we would no less question and violate its laws. And this despite all the proofs offered by Euclid and Archimedes, which we would then treat as flights of fancy and believe to be full of fallacies. And in that case Joseph Scaliger, Hobbes, and others who attacked Euclid and Archimedes, would not be so bereft of supporters as they now are.”
• 18In the following words, one of Mr. Teste’s listeners reports the sensations experienced while listening to him. “He shatters my mind with a word, and I feel like a defective vase that the potter has discarded. He is as hard, sir, as an angel. He is unaware of his own strength; he finds unexpected words that are all too true, that overwhelm people, that awaken them in the midst of great folly confronting them, all ensnared in being what they are, in the meshes of living, in foolishness. We live in comfort, each in his own absurdity, like fish in water, and we never become aware, except by chance, of how much stupidity is contained in the life of a reasonable person.” And the same listener goes on to say, “There is in him some appalling purity, detachment, undeniable strength and light. Never have I observed such complete absence of confusion and of doubt in an intelligence that is so deeply industrious. He is awfully quiet! There can be ascribed to him no uneasiness of soul, no shadow in his heart.”
• 19In the following words, one of Mr. Teste’s listeners reports the sensations experienced while listening to him. “He shatters my mind with a word, and I feel like a defective vase that the potter has discarded. He is as hard, sir, as an angel. He is unaware of his own strength; he finds unexpected words that are all too true, that overwhelm people, that awaken them in the midst of great folly confronting them, all ensnared in being what they are, in the meshes of living, in foolishness. We live in comfort, each in his own absurdity, like fish in water, and we never become aware, except by chance, of how much stupidity is contained in the life of a reasonable person.” And the same listener goes on to say, “There is in him some appalling purity, detachment, undeniable strength and light. Never have I observed such complete absence of confusion and of doubt in an intelligence that is so deeply industrious. He is awfully quiet! There can be ascribed to him no uneasiness of soul, no shadow in his heart.”
• 20The alternatives to the liberal and democratic principle of majority rule are the militarist principles of armed conflict and dictatorial oppression.
• 21. . . in the long run war and the preservation of the market economy are incompatible. Capitalism is essentially a scheme for peaceful nations.
• 22Modern civilization is a product of the philosophy of laissez faire. It cannot be preserved under the ideology of government omnipotence. Statolatry owes much to the doctrines of Hegel. However, one may pass over many of Hegel’s inexcusable faults, for Hegel also coined the phrase “the futility of victory” (die Ohnmacht des Sieges). To defeat the aggressors is not enough to make peace durable. The main thing is to discard the ideology that generates war.
• 23But the government deliberately adopted a policy which was bound to make it impossible for it to rely upon the operation of the unhampered market. It resorted to price control and made it illegal to raise commodity prices. Furthermore it was very slow in taxing the incomes swollen by the inflation. It surrendered to the claim of the unions that the workers’ real take-home wages should be kept at a height which would enable them to preserve in the war their prewar standard of living. In fact, the most numerous class of the nation, the class which in peacetime consumed the greatest part of the total amount of goods consumed, had so much more money in their pockets that their power to buy and to consume was greater than in peacetime. The wage earners—and to some extent also the farmers and the owners of plants producing for the government—would have frustrated the government’s endeavors to direct industries toward the production of war materials. They would have induced business to produce more, not less, of those goods which in wartime are considered superfluous luxuries. It was this circumstance that forced the Administration to resort to the systems of priorities and of rationing. The shortcomings of the methods adopted for financing war expenditure made government control of business necessary. If no inflation had been made and if taxation had cut down the income (after taxes) of all citizens, not only of those enjoying higher incomes, to a fraction of their peacetime revenues, these controls would have been supererogatory. The endorsement of the doctrine that the wage earners’ real income must in wartime be even higher than in peacetime made them unavoidable.
• 24There is not, in Human Action, any precise delimitation of the state’s legitimate activities. Von Mises expressly rejects the possibility of regulating this matter in accordance with any norms of right or wrong, just or unjust. Two points, however, stand out very clearly in his exposition. On the one hand, besides the recognized necessity of national defense, the state must protect the individual against the consequences of social disorder and violence. “The only purpose of the laws and the social apparatus of coercion and compulsion is to safeguard the smooth functioning of social cooperation.”