Review of Austrian Economics

The Philosophical Contributions of Ludwig von Mises

David Gordon

A central theme unites Ludwig von Mises’s frequent ventures into philosophy. Mises believed that economics as he practiced it gave access to “a third class of the laws of nature.”1 The method of economics differed fundamentally from that of physics and biology, the sources of the other classes of natural law. A sound theory of knowledge thus must place proper stress on deductive inquiry into human action, the method of economics. The place of economics in ethical theory is less direct; but here too, the results of economic analysis closely circumscribe the available options in value theory.

In sum, Mises wrote philosophy as an economist. Unlike his great rival John Maynard Keynes, who held philosophical opinions that molded his economic views, for Mises the direction of causation went in the opposite way: economics determined philosophy.2 I shall endeavor to illustrate Mises’s distinctive angle on philosophical questions, concentrating principally on the theory of knowledge and ethics.

The guiding thread in Mises’s theory of knowledge was the defense of economics. His discipline needed to be guarded against metaphysical assault and scientific attempts to eliminate the category of human action. In Mises’s opinion metaphysical arguments cannot be used to challenge economics, since human beings cannot attain the ultimate truth that metaphysicians seek. “It is beyond the pale of a rational inquiry to enter into an analysis of any variety of metaphysics, to appraise its value or its tenability and to affirm or to reject it.”3 Thus all-embracing schemes, e.g., Hegel’s depiction of the growth of the Absolute Idea to full self-consciousness, cannot rightly be used to challenge economics. To claim, with Werner Sombart, that economics rests on a “method of isolation” which correct philosophy has exposed as fallacious is illegitimate.4 Economics, not metaphysics, sits in the driver’s seat.

But why? How does Mises know that metaphysical inquiry is sterile? His argument is the following: In order to survive, human beings identify regularities in the world. Unless one can anticipate that objects will behave in a fixed manner, action is impossible. One can do nothing if the world is, in William James’s phrase, “a booming, buzzing confusion.” The assumption that objects operate in a regular order, however, cannot be proved. “There is no deductive demonstration possible of the principle of causality and of the ampliative inferences of perfect induction; there is only recourse to the no less indemonstrable statement that there is a strict regularity in the conjunction of all natural phenomena.”5

The assumption of regularity is not the only principle human beings use to categorize the world, but all other principles depend on it. Thus, if it cannot be proved that the world really is regular, none of the other categories can be deductively derived. From the fact that human beings must think about the world in a certain way, it does not follow that the world really has the attributes we ascribe to it. “In epistemology . . . we are dealing neither with eternity nor with conditions in parts of the universe from which no sign reaches our orbit nor with what may possibly happen in future aeons.”6 It is this limitation of our thought that closes our access to truth about metaphysics.

Like Immanuel Kant, then, Mises thought that the human mind grasped the world only through its own categories. But this similarity hardly suffices to make Mises a strict Kantian. Unlike his great predecessor, Mises did not claim that a particular set of categories is a necessary presupposition of experience. To Mises, the categories are ones that human beings now in fact use. He essays no transcendental argument in the style of the Critique of Pure Reason to derive them.7 Indeed, as we have seen, he specifically denies that the causal principle can be demonstrated.

Instead of a logical derivation of the categories, Mises offers an evolutionary “just so” story. Human beings who did not use the assumption of regularity would be unable to survive. Their more fortunate relatives who did use this category would by comparison flourish. Through a process analogous to biological selection, a set of common categories gradually became entrenched in the human mind.8

At first sight, one might be inclined to object to Mises’s evolutionary argument in this way: If people who use the regularity principle survive, while these who do not do so perish, what is the explanation of this fact? Does it not show that the regularity principle is true? If so, how can Mises assert that the principle cannot be proved?

But this objection fails: Mises is entirely right. From the fact that using a principle aids survival, it does not follow that the principle accurately characterizes reality. We do however know that the world has this property: those in it who use the principle have an advantage over nonusers. Perhaps the best explanation of the success of our categories is that they accurately describe the world, but this is very far from a proof that they do.9 Further, as Mises well knew, the entire evolutionary scheme is speculative.10

In spite of Mises’s claim that the principle of regularity cannot be proved, he places great stress on it. The “strict regularity” that he finds in all natural phenomena leads him to reject indeterminism in quantum mechanics. The Heisenberg uncertainty principle limits our knowledge: it does not show that the law of causality is false for subatomic particles.11

Mises’s position appears vulnerable. He thinks that the principle of regularity is an essential category of the human mind; we must think in accord with it. But if this is right, should we not consider indeterminacy in nature unthinkable? Even if Mises is right to reject real uncertainty in nature, how does he account for the fact that the opinion he opposes can be genuinely considered? On his view it is absurd on its face. He might respond that, after all, quantum mechanics is very counter-intuitive. The paradoxes we encounter in this field illustrate Mises’s contention that our categories of thought apply only to the world we know.

But what has all this to do with economics? Mises’s account of regularity in nature sets the stage for a contrast. The study of human action does not proceed by inductive generalization from perceived regularities. Instead, its method is deductive and its starting point the concept of action. Through an analysis of this concept, the principles of economics can be deduced. “Action and reason are congeneric and homogeneous; they may even be called two different aspects of the same thing.”12

Can Mises maintain consistently his contrast between the study of human action and the sciences of natural phenomena? Human beings are part of the natural world: why then do they stand immune from the principle of regularity? Mises believes that “determinism is the epistemological basis of the human search for knowledge.”13 If he is right, has he not undermined his fundamental philosophical goal—the defense of Austrian economics?

Mises’s response provides a key to understanding his thought. Determinism does apply to human beings: “What a man does at any instant of his life is entirely dependent on his past, that is, on his physiological inheritance as well as of all he went through in his previous days.”14 But we do not know how human thought and action are determined by these factors. Determinism is thus of no use in the study of human action. Instead, we must assume that the mind operates autonomously. To claim this is not to assert that the mind really is independent of the physical world: this contradicts what Mises takes to be a basic assumption of science.

Instead, “[m]ethodological dualism refrains from any proposition concerning essences and metaphysical constructs. It merely takes into account the fact that we do not know how external events . . . affect human thoughts, ideas, and judgments of value.”15 Mises’s vindication of praxeology, then, is this: In spite of the principle of regularity, we do not know how human thought is determined. Theories that assign particular causes to thought thus are metaphysical, not scientific, and must be rejected. Two features of this argument require stress. First, in line with his wish to defend economics rather than support a philosophy of his own, Mises assumes as little as possible. He does not assert that human beings are metaphysically free: he contents himself with the claim that in economics they must be treated as rational actors. More questionably, he manifests a strong hostility to metaphysics.

Mises’s view of human action provides additional evidence that he is not a strict Kantian. As we have just seen, Mises’s position is that human beings must be treated as rational actors, since we do not know how action is determined. Kant’s was in part the reverse. He thought that the real or noumenal self is not determined. It is not that we have no access to the laws that determine human action, as Mises believes: we really are free.16 In the world as we know it, i.e., the phenomenal world, the situation is otherwise. Human action is determined by the desire for happiness.17

In this latter view, Kant and Mises are quite close. Mises likewise assumes that “[h]appiness . . . is the only ultimate end.”18 We always aim to achieve the highest ranked of our preferences that we think attainable. Mises does not assume that we can freely choose our preferences: freedom, as he conceives it, is the use of reason to achieve our goals. But this similarity, to my mind, is not sufficient to place Mises in the Kantian camp.19

In the theory of knowledge, then, Mises is satisfied with a very modest conclusion: neither physical science nor metaphysics pose a challenge to economics. The limited nature of Mises’s claim, however, failed to secure him immunity from attack. The logical positivists (the “Vienna Circle”) advanced views that, if accepted, placed praxeology in peril. Mises regarded it as a vital task to reply to positivism, and I think his efforts in this area constitute his most valuable contribution to the theory of knowledge.

The clash of the positivists with praxeology resulted from their theory of meaning.20 Briefly put, they held that deduction cannot give us any knowledge about the empirical world. All necessary truths are analytic; they are tautologies that are empirically meaningless. Since praxeology proceeds by deduction from a necessarily true axiom, the threat posed by positivism is apparent. Economics is supposed to apply to the world: it is not “an unearthly ghostdance of bloodless categories.” If the method it uses must fail of its purpose, Misesian economics is ruined.

Mises’s most important argument against the positivists was a simple one. They purport to banish metaphysics and follow science, but their own position is metaphysical. “[T]he epistemology of positivism is itself based on a definite brand of metaphysics.”21 If positivists accurately took note of praxeology, they would be forced to abandon their views. Praxeology is a deductive discipline that, contrary to positivist dogma, does give us knowledge of the real world. To declare illegitimate an existing science because it violates a philosophical doctrine is itself illegitimate: Metaphysics cannot overturn science.

The force of Mises’s point is twofold. First, he himself agrees with the positivists that philosophy is subordinate to science. When he claims that a philosophic doctrine cannot overturn a conclusion of science, he speaks on his own behalf. But, more fundamentally, his argument works against the positivists even if one disagrees with Mises’s view about the relation of science to philosophy. The positivists do agree with him here: his argument is thus an effective ad hominem retort against them. They, the opponents of metaphysics, are themselves engaged in metaphysics if they reject praxeology.22

Mises uses the same response to Karl Popper’s falsifiability criterion. Popper, unlike the positivists, did not take all metaphysical statements to be meaningless. He instead adopted the more limited position that all scientific statements must be capable of being proved false. The theorems of praxeology, insofar as they are deductively derived from a self-evident axiom, fail this test: nothing can falsify them.

Mises’s reply is characteristically forthright. If Popper wishes to classify praxeology as unscientific, that is his affair. The proper tests of praxeology are the truth of its axioms and the validity of its arguments. Why should it matter whether praxeology meets the criterion of science proposed by a particular writer? Why does it count against a statement that it is metaphysical in Popper’s sense?

Here once more Mises uses an ad hominem argument. Like the positivists, Popper contended that definitions do not describe real essences: they are arbitrary proposals for the use of a term.23 Mises cleverly uses this view against Popper to show that his own characterization of scientific statements is an arbitrary proposal.

Mises has another argument that uses positivist doctrine against itself. “[T]he proposition that there are no synthetic a priori propositions is itself a . . . synthetic a priori proposition, for it can manifestly not be established by experience.”24 A positivist might deny this and assert that the claim was an inductive generalization. But then what justifies him in rejecting standard examples of a priori propositions, e.g., “whatever is colored is extended,” not to mention the theorems of praxeology? Alternatively, a positivist might claim that the disputed statement is analytic, but it is unclear what would ground this assertion.

Mises does not confine his criticism to refutations of the kind just described. He directly examines the main contentions of the logical positivists and finds them wanting. The positivists claim that the propositions of mathematics and logic are tautologies. But even if this is true, we can learn something new from mathematical or logical investigation.25 Even if all the theorems of geometry are restatements of the axioms used in their proofs, it does not follow that we can at once grasp the theorems when we learn the axioms. The distinction Mises draws here resemble Aquinas’s separation of propositions “self-evident in themselves” from those “self-evident to us.”26

Mises’s criticism of the positivists seem eminently well taken; but even if one adheres to that philosophy, Mises has the resources to protect praxeology. He calls the propositions of economics synthetic a priori truths, but it is not at all clear that he has in mind what the positivists wish to exclude. What does Mises mean by a “synthetic” proposition? As discussed above, he replies to the claim that mathematical propositions are tautologies with the point that we can learn something new from some tautologies. Does he mean by a synthetic proposition, then, one that gives us new knowledge? If he does, his position is perfectly consistent with that of his positivist foes. They are concerned to exclude propositions that, in their sense of the terms, are both necessary and non-analytic. So far as I can determine, Mises did not take a position on this issue; he neither asserts nor denies, e.g., that the predicate of the action axiom is “contained” in the subject. He offers no formal account of synthetic propositions, however, so the suggestion that praxeology is immune from positivist attack in this way is conjectural.

Even if this suggestion is rejected, much of praxeology is still under no threat from the positivists. Although “[a]ll the concepts and theorems of praxeology are implied in the concept of human action,” its inquiries are restricted “to the study of acting under those conditions and presuppositions which are given in reality.”27 To accomplish this, subsidiary postulates must be added to the axiom of action, e.g., the assumption that labor has negative utility. But “[t]he disutility of labor is not of a categorical and aprioristic character. We can without contradiction think of a world in which labor does not cause uneasiness, and we can depict the state of affairs prevailing in such a world.”28

If praxeology includes empirical propositions, why would positivists object to it? They do not reject the use of logic in science: they instead think that logic by itself will not provide us with knowledge of the empirical world. But “[e]conomics does not follow the procedure of logic and mathematics. It does not present an integrated system of pure aprioristic ratiocination severed from any reference to reality.”29 The only theorems of praxeology, then, that conflict with positivism are those that do not include any empirical propositions in their derivation. Mises has powerfully argued that logical positivism should not be accepted; and, by extending points that Mises makes, we can show that praxeology is in little danger from it.

Of course economists influenced by positivism have followed methods of inquiry radically at variance with Mises’s precepts. Many of them place great reliance on empirical testing, while Mises thinks this unnecessary and in many cases not possible. Milton Friedman goes so far as to say that the assumptions of an economic theory may be false, as long as the theory generates correct predictions. A greater divergence from Mises would be difficult to imagine. But none of these views follows from the verifiability criterion of meaning. A positivist sympathetic to praxeology might take the axiom of action to be a common sense empirical proposition, known by introspection to be true.30

One further point requires mention. If praxeology is consistent with positivism, does this invalidate one of Mises’s key arguments against the positivists? The very existence of praxeology, he claims, refutes their view of science. But if praxeology is consistent with positivism, must not this argument be withdrawn? As usual, Mises is on safe ground: all that is required is a modification of it. Mises can pose this dilemma to positivist detractors: if praxeology contradicts their views, its existence as a science refutes them; if it does not, they cannot object to it. And in any case, Mises still has intact all his other arguments against the positivists.

Mises’s primary aim in epistemology, I have endeavored to show, was to defend economics. “With regard to praxeology the errors of the philosophers are due to their complete ignorance of economics and very often to their shockingly insufficient knowledge of history.”31 In ethics, his main goal was similar but not identical. In his view, economics does not by itself support any ethical conclusions. But if one acknowledges a value judgment that he thinks almost universally acceptable, the establishment of a free market is imperative. Mises recognized that various schools of ethics had objections to the free market, and his aim in this branch of philosophy was to defend the market from attack. His method was a radical one: he denied the possibility of objective ethics altogether. If Mises is correct, all ethical objections to the free market immediately fail.

In Mises’s view, it makes sense to ask: given a certain end, how can that end be best achieved? If someone wishes to build a house, the question of how he can best use his resources to do so admits of an objective response. Whether to build the house is up to him; how best to do so is not. Rationality is a matter of means, not ends. The matter is, however, somewhat complicated by the fact that an end can itself be a means to a further end.32 Mises in fact holds that “[h]appiness in the purely formal sense in which ethical theory applies the term is the only ultimate end.” Mises meant by this that we want things not for their own sake but for the satisfaction, assessed purely subjectively, which we expect them to bring us.

Mises’s notion of values stands in opposition to two competing types of theory, and he explicitly opposed both. Some philosophers maintain that there are objective goods or ends “out there in the world.” Regardless of what people think, certain things just are good or bad. Franz Brentano, a leading advocate of this position, maintained that value judgments were “correct” or “incorrect,” analogously to the truth or falsity of factual propositions. Mises rejected Bretano’s account; unfortunately he did not discuss Bretano’s arguments.33 Against aesthetic objectivism Mises is scathing: “Only stilted pedants can conceive the idea that there are absolute norms to tell what is beautiful and what is not.”34

Some proponents of objective ethics agree with Mises that values are not properties that objects possess. Nevertheless, ethics is not subjective, since reason can show that we stand under certain obligations, regardless of the ends we happen to have. Mises has little time for this position. He says of its foremost proponent: the “weakest part of Kant’s system is his ethics.”35

By dismissing objective ethics, Mises has prepared the way for his own defense of the free market. Mises’s primary concern to vindicate economics suggests an additional motive for his subjectivist conception of values. Someone who believes in objective values in the style of G. E. Moore but also accepts Austrian economics needs to fit two different kinds of value into his intellectual system. By accepting only subjective values, a drastic intellectual simplification becomes possible; and Mises may have found the temptation to wield Occam’s razor too strong to resist. More prosaically, as an economist Mises was thoroughly familiar with subjective values and may have found any other approach conceptually uncomfortable. This in part accounts for the fact that Mises says little to support his condemnation of objective values: he treats the issue as virtually self-evident.

Although Mises does not usually address in detail the arguments of value-objectivists, on one occasion he does so, with illuminating results.

The political philosopher Leo Strauss claimed that many terms in our language fuse descriptive and evaluative components. If, one calls someone cruel, the judgment rests on factual criteria. Stalin acted cruelly, e.g., in bringing about the death of millions of Russian peasants. This judgment is not, to reiterate, a matter of subjective assessment; but is objective in exactly the same way as “Stalin was Lenin’s successor.” Yet to call someone cruel implies a negative evaluation of him. Thus, contrary to the value subjectivists, language imposes certain value judgments on us. To maintain that all values are subjective is to ignore for a large number of terms the criteria our language establishes.

Mises vigorously dissented. He considered three examples given by Strauss: “cruelty,” “prostitute,” and “pressure group.”36 In each instance, Mises maintained, one can either use the term in question in a value-neutral way or substitute another term that lacks the value-charged nature of the original. It is thus false that linguistic considerations prevent one from separating fact and value.

This is not the place for an assessment of the dispute. Rather, it is the existence of the dispute itself that merits notice. During the late 1950s and early 1960s one of the most important arguments in modern moral philosophy took place between Philippa Foot and Elizabeth Anscombe, on the one hand, and R. M. Hare, on the other. (All three were at the time teachers of philosophy at Oxford University). Foot and Anscombe adopted precisely the position of Strauss: there are criteria for the use of terms such as “rude” or “courageous.” Once a term of this sort is applied, no separate act of evaluation is necessary: the terms are already valuational. Thus descriptive criteria imply an evaluative stance, and the “is-ought dichotomy” is at least in these instances false.

Hare demurred, in terms reminiscent of Mises: “But the primary evaluative words are so classified just because their descriptive meaning is secondary, and is therefore more able to give way when attitudes change, the evaluative meaning remaining unaltered.”37 Like Mises, Hare maintains that no description irrevocably commits us to an evaluation.

In both ethics and epistemology, then, Mises’s contributions arise in the course of a defensive campaign on behalf of Austrian economics and the free market. If so, what lessons can be drawn about the way to study Mises’s philosophy?

Most fundamentally, his philosophy must be approached through his own writings, taking particular note of the manner in which economic theory suggests to him philosophical positions. The greatest mistake one can make in this area, I venture to suggest, is to assign Mises to a philosophical school and to interpret his economics on that basis. As an example of what must be avoided let us consider the ascription to Mises of a “Bergsonian” view of time. When Mises discusses time in economics, he has in mind time as experienced by human beings, particularly in action. It does not follow from this that Mises should be saddled with either Bergson’s criticism of time in physical science as an abstraction or his defense of the intuitive grasp of real duration.

Mises cites Henri Bergson on just a few occasions, and his remarks hardly constitute a ringing endorsement of his views. He agrees with Bergson that for human beings the real present is grasped in action. But he also states: “it is not recollection that conveys to men the categories of change and of time, but the will to improve the conditions of his life.”38 This in context appears to be a criticism of Bergson.

Again, Mises notes: “it is true, as Bergson has seen with unsurpassed clarity, that between reality and the knowledge that science can convey to us there is an unbridgeable gulf. Science cannot grasp life directly . . . . But if one thinks one has thereby pronounced an unfavorable judgment on science, one is mistaken.”39 Mises’s conclusion is totally un-Bergsonian. The exact similarities and differences between Mises and Bergson are not our present concern. I have touched on the topic simply for purposes of illustration. Some thinkers are best approached through the careful search for sources and influences. At least in philosophy, Mises is not among them.

David Gordon is a senior fellow at the Ludwig von Mises Institute.

This paper was prepared for consideration for a Ludwig von Mises prize that was awared at the Mises Institute’s 10th anniversary conference, October 9–11, 1992. I am grateful to Pat Heckman and Ralph Raico for their very helpful suggestions.

The Review of Austrian Economics Vol. 7, No. 1 (1994): 95–106

ISSN: 0889–3047

• 1Historical Statistics of the United States, part 1 (Washington, D.C.: 1975), series D-86 for unemployment rates and series F-32 for gross national product. Throughout this article, the standard data series for unemployment rates are used, with recognition that there has been a challenge to the validity of those data during the Great Depression years. See Michael R. Darby, “Three-and-a-Half Million U.S. Employees Have been Mislaid: Or An Explanation of Unemployment, 1934–1941,” Journal of Political Economy 84, 1976.
• 2A.C. Pigou, Industrial Fluctuations, 1st ed. (London: Macmillan, 1927), p. 176.
• 3A.C. Pigou, Theory of Unemployment (London: Macmillan, 1933), p. 252. Pigou makes his arguments in a variety of other places. For example, see his “Real and Money Wage Rates in Relation to Unemployment,” Economic Journal 47, 1937, and “Money Wages in Relation to Unemployment,” Economic Journal 48, 1938.
• 4It is perhaps something of an exaggeration to ascribe this position entirely to Pigou. A number of other economists espoused similar views. Recognizing that the list is incomplete, we cite a few, beginning with Jacob Viner, Balanced Deflation, Inflation, or more Depression (Minneapolis, Minn.: University of Minnesota Press, 1933), especially pp. 12–13. See also W.H. Beveridge, Causes and Cures of Unemployment (London: Longmans, Green and Co., 1931), p. 25, and Unemployment, A Problem of Industry (London: Longmans, Green and Co., 1930), chapter 16; Wilford I. King, The Causes of Economic Fluctuations (New York: Ronald Press Co., 1938), chapter 8; and Lionel Robbins, The Great Depression (New York: Macmillan, 1934).
• 5John A. Hobson, The Economics of Unemployment (New York: Macmillan, 1923), p. 84.
• 6W.T. Foster and W. Catchings, Profits (Boston: Houghton Mifflin, 1925) and Business Without a Buyer (Boston: Houghton Mifflin, 1927); and C.H. Douglas, Credit-Power and Democracy (London: C. Palmer, 1920) and Warning Democracy (London: C.M. Grieve, 1931). A more recent interpretation of the Great Depression with underconsumptionist overtones in John Kenneth Galbraith, The Great Crash, 1929 (Boston: Houghton Mifflin, 1976).
• 7Murray N. Rothbard, America’s Great Depression (Princeton, N.J.: Van Nostrand, 1963), p. 45.
• 8Henry Ford, The New York Times, November 22, 1929, p. 2.
• 9The New York Times, November 22, 1929, p. 1. It is interesting to note that Hoover’s inclinations toward underconsumptionism were recognized and, of course, approved, by trade unionists. Witness a statement by the AFL’s John P. Frey in 1929 relating to a public works scheme of Hoover’s. In effect, Frey argued that the president was in agreement with the AFL’s position that depressions were the result of underconsumption and low wages. See Joseph Dorfman, The Economic Mind in American Civilization (New York: Viking Press, 1959), vol. 4, pp. 349–50. See also Ronald Radosh, “The Development of the Corporate Ideology of American Labor Leaders, 1914–1933” (doctoral dissertation in history, University of Wisconsin, 1967).
• 10Rothbard, America’s Great Depression, chapter 8. Not to be ignored is the fact that ideas such as those that enamored Hoover were not as unorthodox among professional economists as sometimes claimed. See J. Ronnie Davis, The New Economists and the Old Economists (Ames, Iowa: Iowa State University Press, 1971). Davis presents an interesting array of statements by economists and other academics relating to the issue of the impact of wage reductions on the economy (pp. 94–99).
• 11John M. Keynes, The General Theory of Employment, Interest and Money (London: Macmillan, 1936).
• 12Abba P. Lerner, “Mr. Keynes’ ‘General Theory of Employment, Interest and Money,’” International Labor Review 34, 1936. See also W.B. Reddaway, “The General Theory of Employment, Interest and Money,” Economic Record 12, 1936. A systematic description of the thought of this time is contained in Lawrence R. Klein, The Keynesian Revolution (New York: Macmillan, 1947). For a taxonomic description of the various views of the aggregate demand schedule for labor, see Sidney Weintraub, “A Macroeconomic Approach to the Theory of Wages,” American Economic Review 46, 1956.
• 13Paul M. Sweezy, personal letter to John B. Shelley, dated February 11, 1977, cited in Dana C. Hewins and John B. Shelley, “Sweezy’s Kink: Macro Foundations of a Micro Theory,” Economic Inquiry 17, 1979.
• 14For a description of the various dimensions of the Keynesian critique of classical economics, see Alvin H. Hansen, A Guide to Keynes (New York: McGraw-Hill, 1953). More recent appraisals and restatements of the total thrust of Keynesianism are Abba P. Lerner, “From ‘The Treatise on Money’ to ‘The General Theory,’” Journal of Economic Literature 12, 1974; and Hyman P. Minsky, John Maynard Keynes (New York: Columbia University Press, 1975).
• 15Peter Temin, Did Monetary Forces Cause the Great Depression? (New York: Norton, 1976), p. 140. Temin also attempts to demonstrate that the Great Depression was brought on by an autonomous shift in the consumption function. That view has been challenged (successfully, we think) by Thomas Mayer, “Consumption in the Great Depression,” Journal of Political Economy 86, 1978.
• 16Keynes, The General Theory. In chapter 2, Keynes is very explicit. In reference to the principle that real wages and employment are systematically related, he says, “I am not disputing this vital fact which the classical economists have (rightly) asserted as indefeasible.”
• 17Ludwig von Mises, The Theory of Money and Credit (New Haven, Conn.: Yale University Press, 1953). Permission granted by Mrs. Margit von Mises. Quotes from 1981 Liberty Classics, Indianapolis, edition.
• 18Milton Friedman, “The Role of Monetary Policy,” American Economic Review 58, 1968.
• 19In particular, see Jerome Stein, Monetarist, Keynesian, and New Classical Economics (Cambridge, United Kingdom: B. Blackwell, 1982).
• 20The key assumptions are constant returns to scale and neutral disembodied technical progress.
• 21The underlying statistical models are moderately complex. They are described briefly in the statistical appendix. The logic and structure of the models are more fully developed in Lowell Gallaway and Richard Vedder, The “Natural” Rate of Unemployment, staff study, Subcommittee on Monetary and Fiscal Policy, Joint Economic Committee, Congress of the United States (Washington, D.C.: 1982).
• 22Federal Reserve Bulletin, various issues.
• 23Historical Statistics, series D-86.
• 24The productivity-adjusted real wage rate on a quarterly basis is calculated by dividing the manufacturing wage bill by the product of Federal Reserve Board (not the wage bill) and the index of average labor productivity (not total output) should be used. However, converting the wage bill and the index of industrial production to wage rate and productivity measures involves dividing both of them by the same quantity of labor (L). Since L appears in both the numerator and denominator of the expression for the adjusted real wage rate, it cancels out and can be ignored.
• 25As calculated from Historical Statistics, series D-688.
• 26Ibid,, series D-683 and D-688.
• 27Ibid., series D-724 and Paul A. David and Peter Solar, “A Bicentenary Contribution to the History of the Cost of Living in America” in Paul Uselding, ed., Research in Economic History, vol. 2 (Greenwich, Conn.: JAI Press, 1977), pp. 59–60.
• 28Broadus Mitchell, Depression Decade, vol. 9, The Economic History of the United States (New York: Rinehart, 1947), p. 84; and Arthur Schlesinger, Jr., The Age of Roosevelt: The Crisis of the Old Order, 1919–1933 (Boston: Houghton Mifflin, 1957), p. 249. Interestingly, though, some observers of the period disagree with this assessment. For example, Leo Wolman, Wages in Relation to Economic Recovery (Chicago: 1931) notes, “[I]t is indeed impossible to recall any past depression of similar intensity and duration in which the wages of prosperity were maintained as long as they have been during the depression of 1930–1931.” Similarly, Don Lescohier, “Working Conditions,” vol. 3, History of Labor in the United States, 1896–1932, John R. Commons and Associates, eds. (New York: Macmillan, 1935) states:
• 29Historic Statistics, series D-802, D-813, D-818, and D-824, respectively.
• 30Robbins, The Great Depression, p. 224.
• 31Geoffrey H. Moore, ed., Business Cycle Indicators, vol. 2, Basic Data on Cyclical Indicators (Princeton: Princeton University Press, 1961), p. 129.
• 32Benjamin M. Anderson, Economics and the Public Welfare (New York: Van Nostrand, 1949), p. 72.
• 33Historical Statistics, series D-839.
• 34Anderson, Economics, p. 220.
• 35Without the productivity adjustment, real wages in manufacturing (in 1923 prices) rose from 58.9 cents an hour in December 1929 to 62.5 cents an hour in December 1930. After that, they continued to rise to 66.3 cents an hour in January 1932. Wilford I. King, Causes of Fluctuations, pp. 182–83. See also Sol Shaviro, “Wages and Payroll in the Depression, 1929–1933” (unpublished M.A. essay, Columbia University, 1947).
• 36Milton Friedman and Anna J. Schwartz, A Monetary History of the United States, 1867–1960 (Princeton, N.J.: Princeton University Press, 1963).
• 37U.S. Bureau of the Census, National Income and Product Accounts of the United States, 1929–1976 (Washington, D.C., Department of Commerce, Bureau of Economic Analysis, 1981), p. 308.
• 38Moore, Business Cycle Indicators, p. 106.
• 39Harold Barger, Outlay and Income in the United States, 1921–1938 (New York: National Bureau of Economic Research, 1942), appendix B, table 28. A smaller profit decline is reported in a less comprehensive survey conducted by the Federal Reserve Bank of New York. See Irving Fisher, Booms and Depressions: Some First Principles (New York: Adelphi, 1932), p. 98.