My Path to the Austrian School of Economics
[This talk was delivered 23 November at the Palais Coburg in Vienna, Austria, at an event commemorating the 70th anniversary of the publication of Mises's Human Action.]
Nowadays, it’s not uncommon for people as young as 20 or 30 to feel they have to share their memories with the world. Even at an advanced age, I prefer not to talk publicly about personal things and experiences in my life, but to reserve this for private conversations.
But on the occasion of this event I would like to tell you something about my intellectual development: about my development from a child of his time, who through his encounter with Ludwig von Mises and the Austrian School of Economics became an intellectual exotic – some would say a dangerous madman – apparently from a different time. And to this end a little biographical background is appropriate.
I was born in 1949 in post-war Germany, the same year that Ludwig von Mises' magnum opus Human Action was published, which I was to discover almost 30 years later, and which had a decisive influence on my intellectual development, and which today, on this occasion, is to be presented for the first time translated into German.
My parents were both refugees from the area of the former GDR, who after the war had ended up in a small village in Lower Saxony, West Germany. My father was a self-employed master tailor – among many other things, a common feature I have with Roland Baader, whose father was also a master tailor – who after having been a prisoner of war did not return to his Soviet-occupied hometown. The family of my mother, who was later to become a primary school teacher, had been expropriated by the Soviets in 1946 as so-called east-Elbian Junkers and had been driven out of their homes and farms, carrying nothing more than their backpacks. Until our move to the nearby district town, seven years after my birth, we lived in great poverty, with an outhouse outside the tiny workshop apartment. But as a boy I didn't really notice that. On the contrary, I remember my first years as a little village boy as a very happy time. Since the early fifties my family, thanks to the enormous hard work of my parents and their life-long practiced resolute and disciplined thriftiness, experienced an economic upswing year after year.
The local edition of the Hannoversche Allgemeine was read regularly in my parents' house and every Monday Der Spiegel magazine fluttered into the house. There were also a number of books, classical literature like that of Lessing, Goethe, Schiller, Kleist and Fontane, and modern literature like that of Thomas and Heinrich Mann, Max Frisch, Böll and Grass. There were also a few works on German, European, and ancient history, as well as various reference works and atlases. My parents were eager readers themselves and always encouraged me to read, whereby history always fascinated me more than literature (and this has remained so to this day). We did not have a television until I was 16 or 17 years old. But my parents were not intellectuals who could have guided me in my reading, disciplined me or sharpened my judgment. And I would pass the same judgment on my grammar school teachers, almost all of whom came from the war and pre-war generation. The history lessons at school strengthened my interest in studying history, the biology lessons drew my attention to Konrad Lorenz and ethology, and the religious instruction given by a Protestant theologian awakened my interest in philosophy for the first time.
It was however not least this burgeoning interest in philosophical questions that also led to my increasing intellectual dissatisfaction and disorientation. Many of the answers and explanations I received for my questions seemed arbitrary, more opinion than knowledge, contradictory or inconsistent. Where did these contradictions and disputes come from, on the basis of which criteria could they possibly be resolved and decided, or was there perhaps no clear answer to certain questions? Above all, however, I missed something like an intellectual systematization, an overall view of all things and connections, and it was especially this need and the search for a solution that made me – initially and for some years – a typical child of my time: the time of student rebellion, which began in the late 1960s, during my final two school years, and reached its peak in 1968, the year in which I began my university studies, and whose spiritual products were later to be called the 68 generation.
Inspired by the leading figures of the student rebellion, I first began to study Marx and then the theorists of the new left, the so-called cultural Marxists of the Frankfurt School: Marcuse, Fromm, Horkheimer, Adorno, Habermas, etc., assuming I would find an answer to my questions from them. I became (temporarily) a socialist, albeit not a follower of the ‘real existing socialism’ as practiced in the former GDR, which I knew from my own experience from regular visits of relatives and whose miserable, pitiful economy of scarcity and its proletarian leaders disgusted me. Instead, I became a follower of, as it was called, "humane democratic socialism," led by a supposedly wise elite of philosophers. And so it came to pass that Jürgen Habermas, at that time the rising young star of the new left and today the high priest of social democratic statism and politically correct virtue-signalling, became my most important first philosophy teacher and dissertation supervisor. In 1974, the year of my PhD, my socialist phase was of course already over, and my dissertation on an epistemological topic – a critique of empiricism – had nothing to do with socialism or ‘the "left."
My short leftist phase was followed by an equally short ‘moderate’ phase. Instead of the Frankfurt School, my intellectual curiosity was now increasingly focused on the Viennese School. More specifically: to the so-called Viennese circle around Moritz Schlick, and even more specifically to Karl Popper's philosophy, which is located at the edge of this circle of logical positivists. The core of Popper's philosophy, which to this day is probably the most widespread and influential worldview, especially in the non-academic field, is the following double thesis: All statements about reality are of a hypothetical nature, i.e. they can be refuted or falsified by experience. Conversely, all non-hypothetical, a priori or apodictic statements, i.e. statements which in principle are not exposed to falsification, are statements without reference to reality.
I was by no means prepared to accept the universality of this thesis. (By the way: Is this a hypothetical or an apodictic statement?) Even while working on my doctoral dissertation, I came across Paul Lorenzen and the so-called Erlangen School, which made the validity of the Popper thesis appear highly doubtful, especially in the field of natural sciences. Isn't it necessary to first collect and measure data and carry out controlled experiments in order to test a hypothesis regarding causal connections? Doesn't the knowledge regarding the construction of measuring instruments and the performance of controlled experiments come methodically before the hypothesis test? And doesn't the falsifiability of hypotheses owe itself to the non-falsifiability of the construction of measuring instruments and the methodology of experimenting?
Today I consider the importance of these questions to be greater than I did then, but this is not the place or the opportunity to pursue this subject (or any higher philosophy at all). Then (as now), my main interest was in the social sciences, and as far as that is concerned, I was to a large extent initially willing to follow Popper. Like Popper, I thought that social science statements were generally hypothetical, in principle falsifiable ‘if then’ statements, and that practical social research must be, as Popper put it, “piecemeal social engineering.” One must always test one's hypotheses before either proving them for the time being (but never definitively) or falsifying and revising them. Non-falsifiable statements, on the other hand, especially those that relate to reality, i.e. about real objects, do not exist in the social sciences.
Today I consider this thesis of Popper’s, apparently so tolerant and open to experience, not only to be wrong, but I also consider it to be downright disastrous or even dangerous.
First, a small example from everyday experience to demonstrate their error. No one will want to expose the statement “a person cannot be in two different places at the same time” to falsification. Instead, we accept it as an "apodictic" or "a priori" true statement. And yet it undoubtedly has a reference to reality, as every fan of crime thrillers knows. For if Mr Meier was stabbed to death in Vienna on January 1, 2019 and Mr Müller was in New York at that time, then Mr Müller cannot be considered a murderer in this case: not only hypothetically not, but clearly and categorically not. This statement forms the basis of the so-called alibi principle, which repeatedly provides us with infallible help in everyday life.
My complete break with Popperism came about while working on my habilitation thesis on the foundations of sociology and economics. On the one hand, it became clear to me that when explaining human action one cannot in principle do without the categories of choice, purpose or goal, means, success or failure, whereas natural events and natural processes "are as they are" and must be explained causally, without any reference to choice, goal, means, success or failure. On the other hand, less obvious and of incomparably far greater significance, it became clear to me that the sciences of human action contain a segment: the economy (in contrast to history and sociology), in which one can very well make apodictic statements and judgments, in such a way that one does not have to test something in order to know how it ends, but where one knows the result from the outset, ‘a priori,’ and is able to predict it with certainty.
While studying economics I came across statements such as the quantity theory of money, according to which an increase in the money supply leads to a reduction in purchasing power per monetary unit. For me it was obvious that this statement is a logically true statement, which cannot be falsified by any ‘empirical data,’ and nevertheless a statement with a clear reference to reality, about real things. But wherever I looked in contemporary literature, whether on the left by Paul Samuelson or on the right by Milton Friedman, the entire guild of economists was, to put it bluntly, in love with the Viennese philosophy of logical positivism or Popperism, according to which such apodictically true real statements are impossible or scientifically inadmissible. For them, this statement was instead either a mere tautology, a definition of words made up of other words (without any reference to reality), or a hypothesis to be tested that could be empirically falsified.
However, the intellectual tension and irritation which initially arose from this apparent discrepancy quickly dissipated to my full satisfaction. On winding paths I had finally come across Mises's Human Action in my studies – in the library of the University of Michigan. Mises not only confirmed my judgment about the logical character of central economic statements, he also presented a whole system of apodictic or a priori statements (his so-called praxeology) and explained the errors and disastrous consequences of the positivist philosophy of Viennese provenance, the central protagonists of which he, as their contemporary, was intimately familiar with.
The discovery of Mises and, immediately afterwards, that of his American students, in particular of Murray Rothbard, brought me, on the one hand, a great intellectual relief – here was finally the long-awaited integrated, coherent overview of all things, an architectonic of human knowledge! – on the other hand, however, it also brought with it much anger and disappointment and led to an increasing alienation from the academic-university business and prevailing public opinion.
This ambivalent development – increasing intellectual certainty on the one hand coupled with increased social alienation on the other – can be illustrated and explained on the basis of a small list of examples of apodictic or quasi-apodictic statements, as brought to light by the Mises-Rothbard School – the so-called Austro-Libertarians. For each of the following examples, a more detailed explanation exists as to how far the statement in question is not a falsifiable statement in Popper's sense, but I simply trust here that this circumstance is always immediately, intuitively understandable, and that in any case the concentrated power of the various examples is sufficient to recognize that one by no means has to try and tolerate everything in order to know how it ends (and also how it definitely does not end).
Thus, for example, the previously mentioned quantity theory leads to the statement that it is impossible to increase social prosperity by increasing the money supply. How else should one explain that despite the existing possibility of any amount of increase in paper money, poverty continues to exist in some places, unchanged. An increase in the amount of money can only ever lead to a redistribution of a given stock of welfare goods. It favors the first and early recipients of the new, additional money at the expense of the last and late users.
Let me continue with a whole battery of statements of similar, i.e. apodictic or quasi-apodictic, quality.
Human action is the conscious pursuit with scarce resources of goals regarded as valuable.
No one can deliberately not act.
Every action strives to increase the subjective well-being of the actor.
A larger quantity of a good is always preferred to a smaller quantity of the same good.
The earlier attainment of a given goal by given means is preferred to its later attainment.
Production must always precede consumption.
Only those who save – spend less than they earn – can increase their prosperity permanently (unless they steal).
What is consumed today cannot be consumed again tomorrow.
Price fixings above the market price, such as minimum wages, lead to unsalable surpluses, i.e. to forced unemployment.
Price-fixing below the market price, such as rent ceilings, leads to shortages and a persistent shortage of rented housing.
Without private ownership of production factors – in classical socialism – there can be no factor prices and without factor prices an economic calculation is impossible.
Taxes – compulsory charges – are a burden on income producers and/or property owners and reduce production and capital formation.
No form of taxation is compatible with the principle of equality before the law, because any taxation involves the creation of two unequal classes of persons with conflicting interests: those of the (net) taxpayer on the one hand, for whom taxes are a burden one seeks to reduce, and on the other hand the class of recipients or rather consumers of (net) tax, for whom taxes qua source of income are a delight that one seeks instead to increase as much as possible.
Democracy – majority rule – is incompatible with private property – individual property and self-determination – and leads to creeping socialism, i.e. to ongoing redistribution and the progressive erosion of all private property rights.
Whatever is subsidized by taxes, such as lounging about or doing things for which there is no profitable customer demand, is further encouraged and strengthened by the subsidy.
Whoever is not personally liable for the repayment and redemption of so-called public debts incurred by him or with his participation, as is the case today with all politicians and parliamentarians, will frivolously and without hesitation take up debts for his own present advantage and to the detriment of an impersonal future public.
Whoever controls a territorial money printing monopoly enforced by state power, like all so-called central banks, will also make use of this privilege and, even if an increase in the amount of money can never increase social prosperity as a whole, but can only redistribute it, will still print more and more new money for his own benefit and that of his direct affiliates and closest business partners.
And finally, there’s this: Whoever or whichever institution has a territorial monopoly on the use of force and jurisdiction, as actually claimed by all states, will also make use of it. I.e. he will not only exert violence himself, but he will also declare his exertion of violence to be lawful by virtue of his ultimate legal representative. And in all conflicts and disputes of a private person with representatives of this institution (the state) no independent, neutral third party decides on good and evil, or about the guilt and innocence of the opponents, but always and invariably an employee, i.e. a dependent representative, one of the two conflict parties (the state) itself, with a corresponding, reliably predictable partisan, "state-supporting" result.
The list of such apodictic or quasi-apodictic statements could easily be continued, but it should be long enough to see what kind of consequences arise from this ensemble of elementary insights of social science.
Obviously, these insights are in blatant conflict with social reality. In this reality there are monopolies of violence, monopolies of money printing, taxes, taxpayers and tax consumers, tax-subsidized idleness and uselessness, majority rule (democracy), public debt, politicians and parliamentarians exempt from liability, capital consumption (consumption without saving), redistribution of property, minimum wages and maximum rents. And what's more, all these acts and institutions are not subject to constant criticism. On the contrary, they are, almost monotonously and from all quarters, presented and praised as self-evident, correct, good and wise.
The consequence of these insights and their comparison with social reality should be clear. To put it colloquially: one is – and I myself was – at first simply flabbergasted. It became increasingly clear to me what blatant madness prevails in the present world. And I was flabbergasted at the time and effort it had taken me to arrive at this in fact obvious insight.
And there were obviously two reasons for this insanity. One was simply human stupidity. Although the ends one supposedly pursued might have been well-meaning, one was mistaken in the choice of means. It was stupid, for example, to try to fight unemployment with minimum wages or housing shortages with rent caps. It was stupid to expect more general prosperity from an increase in the money supply or more economic growth from an expansion of credit (without increased savings). It was stupid to introduce democracy as a means to protect property. And it was also stupid to expect a reduction in violence or even justice, i.e. impartial conflict resolution, from the establishment of a monopolist on the use of force and the judiciary (i.e. a state); because taxes, i.e. the threat and use of force, and partisanship in conflict resolution are essential characteristics of any state.
But it was by no means (and unfortunately) only stupidity or ignorance that was responsible for the rule of madness. There was also deliberate deception, lies and fraud. There were also liars and deceivers who knew all this. They knew that the aforementioned measures and institutions could not, and could never, lead to the benevolent results hoped for by their simpler contemporaries, who nevertheless or precisely because of that propagated and supported them vigorously, because they themselves and their friends and followers could profit from them – even if only at the expense and to the chagrin of others. And, of course, it became immediately clear to me who the people and circles, who were these crooks and their minions, were.
And another thing I understood through my studies of Mises and his school of thought: the reason for the popularity and the affectionate promotion of Popperism especially in these circles. For it is not only this philosophy that allows any insane assertion to be considered hypothetically possible and any nonsense to be tried out. On the contrary, it also allows, quite contrary to its alleged receptivity and openness to experience, to protect any nonsense with cheap excuses against refutation. If minimum wages do not reduce unemployment or poverty, it is because they are not high enough. If money or credit expansion does not lead to increased prosperity, it is because it is too small. If socialism leads to impoverishment instead of prosperity, it is only because it was executed by the wrong people, or because climate change or some other ‘intervening variable’ has intervened, etc., etc.
However, as already indicated, all this knowledge and understanding and the inner peace, satisfaction and yes, joy, which one, which I, experienced through my encounter with Mises's work, also had its price. For once you have understood your Mises and learned to see the world with Austrian eyes, you will quickly notice, at least if you admit to it, that in many respects you are quite lonely and isolated.
Not only was one faced with the opposition of all (these) political crooks, but also of large sections of their various minions, especially the entire, almost exclusively tax-financed academic-university establishment, which I tried to find a way into. An academic career was difficult, if not impossible, and it took considerable courage, willingness to fight, and sacrifice not to resign or give up. In Germany – let alone Austria – I was at that time out on a limb. I therefore decided to move to America. And so Mises became not only an intellectual but also a personal role model for me.
Mises had been denied a regular academic career in Austria and, after the National Socialists seized power, was forced to emigrate to the US. Even there, in the heartland of capitalism, it was difficult for him to gain a foothold. But his courage and will to fight were unbroken and he managed to make his work increasingly heard and to raise a new generation of students, especially the brilliant Murray Rothbard. Rothbard, too, had been obstructed throughout his life, and his academic career had been rather bumpy. But it was Rothbard who now took me under his wing in the USA, helped me to obtain a professorship and in particular connected me with the Ludwig von Mises Institute, founded by Lew Rockwell in 1982 and inspired by him, Rothbard, as academic director.
It is, essentially, thanks to the work of the Mises Institute, with which I have remained closely connected from its humble beginnings to the present day, and which, under the direction of the incomparable Lew Rockwell, has grown into an institution with worldwide appeal and connections, that an event like this one can once again take place in Austria today. Thanks to his work, the names and works of Mises and Rothbard are much better known today than they were during their lifetimes. In fact, there is no country in the world where there are no Misesians or Rothbardians. My own writings are now also available in more than 30 languages. And it is certainly also an indicator of the progress that the Austrian school has since made, when an audience of 1,500 attended a lecture that I recently gave, in Moscow of all places, and a few hundred more even had to be turned away due to lack of space.
In spite of this undeniable progress, one cannot, of course, hide the fact that the Misesian Austrian School still represents an intellectual outsider-position. Indeed, especially as an "Austrian" one has every reason to be pessimistic about the further development of the Western world, at least in the short and medium term. For we are currently living through a period in which the normal madness, which I have already mentioned, is once more intensified by the crazy doctrine of political correctness and the pathological, quasi-religious climate mania of infantile so-called climate protectors, confronted with whom one often no longer knows whether to simply howl and cry, or instead crack up laughing.
However, today there is no more stopping the Mises School. And when the truth finally wins out, because only what is true can also work smoothly in the long run, then the hour of the Austrian School of Economics will have come.
(Translated from German by Robert Grözinger.)