The Subjectivism of the Austrian School and the Next 50 Years

    

I would, again, like to thank David Henderson, Geoffrey Lea, and Mario Rizzo for both their responses to my original lead essay and their other comments and discussion points over the month.

Geoffrey brought up and David commented also on my reference to “the remnant.” I wonder, now, whether that was the best choice in the passing use of a particular phrase. I simply meant that in the 1960s and 1970s, those interested in the Austrian tradition were a small and dispersed group of people, many of whom had come across the ideas of the Austrian School – from Carl Menger to Ludwig von Mises and Friedrich A. Hayek – on their own or by a chance reference in something they read or from someone they talked to. The “remnant” also meant that those interested in the Austrian perspective were a small handful due to the fact that in the post-World War II period the mainstream of the economics profession had moved in very different methodological, theoretical, and applied directions that had eclipsed the earlier Austrian Economic approach.

As I mentioned, in my case it was the happenstance of meeting two people who suggested my reading Ayn Rand, whose non-fiction works led me to some of the Austrians. It was fortunate that I decided to take the time to go through her Capitalism: The Unknown Ideal (1967) and notice the footnote references to Ludwig von Mises and others.

I understand how both Geoffrey and David zeroed in on Albert Jay Nock’s use of the remnant in his well-known essay, “Isaiah’s Job” (1936), since that is the context in which it is often known.  The theme of “Isaiah’s Job” is being on a “mission” to share the truth as one knows it, and the despondency of feeling it’s all for nought. But in fact, Nock argues, you never know who may hear what you say when talking about ideas with someone; and while it may seem that the listener is not interested in or opposes your arguments, you never know if something you said rattles around in their head, and in some way influences them at some point in the future, about which you will never know a thing.  This certainly applies to the written word, since you can never know many, if any, of the people who read something you have put down on paper (or its digital equivalent nowadays).

Thus, even if it seems that you are a minority of one, that should not dissuade you from thinking about, developing, and sharing ideas that you think shed important light on aspects of reality and the world. Carl Menger found himself in that situation in the 1870s after the publication of his Grundsätze der Volkswirtschaftslehre [Principles of Economics] (1871) when it was at first either ignored or rejected by a good number of the members of the German Historical School who dominated the universities in the German-speaking world at that time.

Mises remarks in The Historical Setting of the Austrian School (1969) that he once mentioned to Menger in a conversation before the First World War about the informal discussion groups among some of the younger economists in Vienna about the ideas of the Austrian School. Menger replied, “When I was your age, nobody in Vienna cared about these things.” Mises adds, “Until the end of the [1870s] there was no ‘Austrian School.’ There was only Carl Menger” (Mises, 1969, 1).

Yet, when the American sociologist, Albion Small, spent a day with Menger in 1903, Menger concluded their discussion of his ideas by saying, “It is entirely indifferent to me whether the name Austrian School be preserved. The important thing is that every economist worthy of the name has now virtually adopted every essential thing that I stood for” (Small, 1924, 172-173). How could Menger have known in 1871 that two young economists, Eugen von Böhm-Bawerk and Friedrich von Wieser, would come across his book and make it part of their life’s work to refine, develope and expound Menger’s subjectivist marginalism to the point that the “Austrian School” had received international recognition within the economics profession by the end of the nineteenth and the beginning of the twentieth centuries? (Wieser, 1926). This was, of course, assisted by two British economists, James Bonar (1888) and William Smart (1891), who introduced “Austrian” ideas to the English-speaking world. Menger had no way to imagine Bonar and Smart in the 1870s.

Likewise, how could Ludwig von Mises have anticipated or known that in September 1954, a graduate student studying business administration at New York University would take a course of his and become one of his most important protégées and a leading contributor to this reborn Austrian School? Israel M. Kirzner recounted that in the first evening of Mises’s graduate seminar, Mises began his opening remarks by saying, “The market is a process.” Kirzner later explained:

That evening led Kirzner to study under Mises, earn his PhD in economics, and later publish Competition and Entrepreneurship (1973), a year before the South Royalton conference in June 1974, a book that has been the inspiration for part of the revived Austrian research agenda over the last half century.

We can extend this backward to Mises’s presence in the United States. In the 1920s and 1930s, Mises was one of the most widely known and respected economists on the European continent, primarily because of his theory of money, credit and the business cycle and his critique of any attempt to try to successfully implement socialist central planning. But these works were only translated from German into English in the mid-1930s and were considered background to Hayek’s more already well known writings on the same themes from his position at the London School of Economics. As a result, Mises’s direct intellectual influence outside of Central Europe was minimal, and this was certainly the case in America.

Mises, who had made his living as a senior economic analyst at the Vienna Chamber of Commerce, had accepted his first full time professorship at the Graduate Institute of International Studies in Geneva, Switzerland in the autumn of 1934. He spent the next six years writing a major economic treatise, Nationalökonomie: Theorie des Handelns und Wirtschaftens, which was published in May of 1940, just as the German invasion of Western Europe was beginning, with the fall of France in the middle of June 1940. Mises had been on the Nazi wanted list since the German occupation and annexation of Austria in March 1938. With the Germans in control of most of France in June 1940, it was feared that Adolf Hitler’s gaze might turn to Switzerland as his next target for the unification of all German-speaking people into the Third Reich.

Mises and his wife, Margit, therefore, crossed unoccupied France, entered Spain, and went on to Lisbon, Portugal, where they boarded a ship that brought them to America in August 1940. After five difficult years, Mises was able to obtain a visiting professorship in the Graduate School of Business Administration at New York University, a visiting position that he held until his retirement in 1969, at the age of 89. It was from this teaching position that Israel Kirzner ended up becoming a student of Ludwig von Mises.

But if not for the European tragedy of the Second World War, if not for the concerns about a possible Nazi invasion of Switzerland – which, no doubt, if such an invasion had happened and Mises had stayed in Geneva, would have resulted in his arrest and certain death at Nazi hands – he might never have come to America. If he had not come to America, there may not have been an English-language version of his 1940 treatise, which this year is marking 75 years since its publication under the title, Human Action: A Treatise on Economics in September 1949 (Ebeling, 2010, 141-148; 2020).

If not for the presence of Mises at New York University, if not for the publication of Human Action in English, if not for young scholars like Israel Kirzner and Murray Rothbard being drawn to Mises’s articulation of the ideas of the Austrian School and interacting with him at NYU, there would most likely not have been that conference at South Royalton, Vermont, and no revival of the Austrian School as it has been experienced over the last half-century.

Geoffrey Lea, drawing upon some remarks made by Peter Boettke, emphasized that if there is to be a vibrant and successful scientific research agenda, three elements must be present: ideas, funding and academic positions. This is most certainly true. If not for funding from an organization such as the Institute for Humane Studies in 1974, there likely would not have been a South Royalton conference. The establishment of Austrian graduate economic programs like the one at George Mason University or non-profit educational groups like The Mises Institute at Auburn, Alabama have been crucial in offering places where interested young minds can learn from informed and articulate proponents of the Austrian School for a continuance of the Austrian tradition. Academic positions from which a new generation of professors may pursue their scholarly interests and attract new generations of young Austrians in the classroom, along with professional associations as outlets for new scholars to try out ideas, have been essential to the vitality of this reborn Austrian School. Similarly, an institution like Liberty Fund has helped keep the literature of liberty in general and Austrian Economics in particular readily available, including through such forums as Liberty Matters.

But we should not lose sight of the fact that intellectual movements, including their directions and successes, cannot be fully anticipated or centrally planned. My examples of Carl Menger, Israel Kirzner, and Ludwig von Mises should remind us of a whole variety of things that are inescapably unknowable and unpredictable. They are instances of that essential Austrian theme: the unintended consequences of human action.

We also see in the examples I offered the significance of “path dependency,” that is, future events and outcomes are not completely independent of the events that preceded them, and which lead to some directions being possibly taken and developed by human actors rather than others. But, again, what those directions may be and which developments may emerge can never be fully known or anticipated. This depends upon human ideas, which reminds us of one of Ludwig Lachmann’s famous phrases that the future is imaginable but not knowable.

Which one of us knows what all our own thoughts and deeds will be five years from now, one year from now, next month or a week from now, or even tomorrow? As Karl Popper and others have pointed out, tomorrow’s knowledge and the actions arising from that knowledge, cannot be fully known today. Because our knowledge tomorrow will be the product of new or modified ideas, beliefs, experiences, and plans between today and tomorrow. And none of us can know perfectly what we will think or do next. Otherwise, tomorrow’s knowledge would already be part of today’s knowledge (Popper, 1957, vi-viii; Lachmann, 1959, 81-93; Nisbet, 1968, 12-13). This also means that we have little way of knowing with any degree of certainty what the next fifty years holds in store for the Austrian School as an approach to social and economic theory or its success or failure vis-a-vie the mainstream of the economics profession.

Think about that quote from Carl Menger in 1903, that he cared little about whether the name “Austrian School” survived or not, because in his view virtually all economists by that time had adopted the essential elements of his own contributions to economics. So, by implication in those early years of the twentieth century, “Austrian Economics” had become the economics as generally understood and practiced by most members of the economics profession.

In retrospect, we understand Menger was wrong about his perception of the economics profession in his own time and certainly over the twentieth century and into the twenty-first. The Walrasian and Paretian variations on the marginalist themes, with their insistence on mathematics as the most appropriate language for economic science and the increasing focus on mathematically determined states of general economic equilibrium were slowly capturing the imagination of a growing number of economists looking for the holy grail of determinate economic “solutions.” The same was the case with the emergence of the perfect competition model in the 1920s and its formalization as the benchmark for economic efficiency and optimization. Or with the growing emphasis on quantitative measurement and statistical analysis of aggregate economic relationships culminating in the triumph of the new Keynesian macroeconomics in the 1930s, 1940s, and 1950s. And, of course, there has been the shift from a general default position held by many economists that, unless otherwise demonstrated, a free market economy was the most effective in assuring freedom and prosperity, to a presumption that extensive government regulation and even central economic planning were superior to an unhampered market system.

The siren call of scientism – the misguided application of the methods of the natural sciences to the social and human sciences – overwhelmed the subjectivist strands in existence in economics before and during the 1920s and 1930s (Mises, 1942, 3-15; Hayek, 1955). Hayek had shown that if one makes the types of assumptions that underlay the perfect competition model, especially that all market agents possess “perfect” or “sufficient” knowledge never to make buying and selling errors, such essential questions as how competitive markets move toward a hypothetically successful overall coordination has been assumed away (Hayek, 1946, 105-116).

From the time of Carl Menger, the Austrians had built their theories on different assumptions: that the human actors have less than perfect knowledge, that they must imagine ends to pursue and search out useful means to try to apply in the attempt to attain those ends. That the ends-means nexus implies causal relationships, and that causality includes the existence and reality of time (the periods before, during, and after when selected means are set to work to try to achieve a desired end) have all been hallmarks of the “Austrian” approach to economic analysis.

The Austrians have insisted that knowledge is imperfect and, again, as Hayek emphasized, divided and dispersed among all those participating in the social system of division of labor; how individuals see, understand, and interpret the world in which they live and act, opens up a wider notion of subjectivism than merely the subjectivity of tastes and preferences (Hayek, 1943, 78-92; 1945, 93-104). Or, in Mises’s words:

All human interactions arise from and are dependent upon how the actors view the intentions and actions of themselves and others. That is, the subjective meanings they see in all they do. Someone is running towards you waving his arms late at night in a dark alley. Is he a threatening attacker, or a long lost relative rapidly approaching to embrace you? The man standing over you has a pointed, sharp object in his hand. Is he planning to use this knife to kill you, or is he a surgeon about to make an incision with a scalpel to save your life? Are a group of people jumping up and down in a circle performing a war dance or celebrating at a wedding? The meanings seen in one’s own actions and that of others, and in the objects used in all that we do, defines and determines the type of social and economic interactions they are, and which influences the respective actions each individual plans and undertakes.

By this standard, the Austrian focus on “subjectivism” in its various dimensions – meaning, understanding, and interpretation – places the Austrian approach to social and economic analysis outside the realm of the “positive” science followed by most of the mainstream economics profession. For the Austrians, however, it seems impossible not to see the relevance and reality of this subjectivist dimension to the study of human action and the market process. To ignore or minimize it is to leave out an essential and inescapable aspect of the human condition, whether the focus of analysis is on the marketplace, the political arena, or the general institutional order in all its forms and facets.

The rebirth of the Austrian School that began at the South Royalton conference fifty years ago in June of 1974, represents a return to this methodological subjectivist approach that began with Carl Menger and was carried on by many of the Austrian Economists of the interwar and immediate postwar period, most especially Mises and Hayek. Will it succeed in winning greater recognition and application by a growing number of economists in the next half century? As we suggested, no one can know the answer today about the future of Austrian Economics. But its vibrancy and the increasing number of younger economists who have taken up the Austrian approach and have been applying it in a wide variety of directions, as we outlined in the lead essay to this series, suggests that the next half century offers a wide horizon for a successful development of the methodological subjectivism of the Austrian Economists.

Bonar, James. (1888). “The Austrian Economists and Their View of Value,” Quarterly Review of Economics, October, pp 1-31.

Ebeling, Richard M. (2010). Political Economy, Public Policy, and Monetary Economics: Ludwig von Mises and the Austrian Tradition. London/New York: Routledge.

Ebeling, Richard M. Ebeling. (2020). “Celebrating the Arrival of Ludwig von Mises in America,” Future of Freedom, August, pp. 24-33

 https://www.fff.org/explore-freedom/article/celebrating-the-arrival-of-ludwig-von-mises-in-america/

Ebeling, Richard M. (2023). “The Beginnings of a Reborn Austrian School of Economics,” Future of Freedom, December, pp. 26-39.

Hayek, Friedrich A. ([1943] 2014). “The Facts of the Social Sciences,” reprinted in, Bruce Caldwell, ed., The Collected Works of F. A. Hayek, Vol. 15: The Market and Other Orders. Chicago: University of Chicago Press.

Hayek, Friedrich A. ([1945] 2014) “The Use of Knowledge in Society,” reprinted in, Bruce Caldwell, ed., The Collected Works of F. A. Hayek, Vol. 15: The Market and Other Orders. Chicago: University of Chicago Press.

Hayek, Friedrich A. ([1946] 2014). “The Meaning of Competition,” reprinted in, Bruce Caldwell, ed., The Collected Works of F. A. Hayek, Vol. 15: The Market and Other Orders. Chicago: University of Chicago Press.

Hayek, Friedrich A. ([1955] 2010). The Counter-Revolution of Science, reprinted in Bruce Caldwell, ed., The Collected Works of F. A. Hayek, Vol. 13: Studies in the Abuse and Decline of Reason. Chicago: University of Chicago Press.

Kirzner, Israel M. (1973). Competition and Entrepreneurship. Chicago: University of Chicago Press.

Kirzner, Israel M. ([1996] 2000). “Reflections on the Misesian Legacy in Economics,” reprinted in, The Driving Force of the Market: Essays in Austrian Economics. London/New York: Routledge, pp. 151-164.

Lachmann, Ludwig M. ([1959] 1977). “Professor Shackle on the Economic Significance of Time,” reprinted in Walter E. Grinder, ed., Capital, Expectations, and the Market Process: Essays on the Theory of the Market Economy. Kansas City: Sheed, Andrews, and McMeel.

Menger, Carl. ([1871] 1976). Principles of Economics. New York: New York University Press.

Mises, Ludwig von. ([1940] 1980). Nationalökonomie: Theorie des Handelns und Wirtschaftens. Munich: Philosophia Verlag.

Mises, Ludwig von. ([1942] 1990). “Social Science and Natural Science,” reprinted in, Richard M. Ebeling, ed., Money, Method, and the Market Process: Essays by Ludwig von Mises. Norwell, MA: Kluwer Academic Press.

Mises, Ludwig von. ([1949] 1966.). Human Action: A Treatise on Economics, 3rd ed. Chicago: Henry Regnery.

Mises, Ludwig von. (1969). The Historical Setting of the Austrian School of Economics. New Rochelle, NY: Arlington House.

Nisbet, Robert. (1968). “The Year 2000 and All That,” Commentary Magazine, June.

    https://www.commentary.org/articles/robert-nisbet/the-year-2000-and-all-that/

Nock, Albert Jay. ([1936] 2008). “Isaiah’s Job.”

    https://mises.org/mises-daily/isaiahs-job

Popper, Karl R. (1957). The Poverty of Historicism. London/New York: Routledge.

Rand, Ayn. (1967). Capitalism: The Unknown Ideal. New York: New American Library.

Small. Albion. (1924). Origins of Sociology. Chicago: University of Chicago Press.

Smart, William. (1891). An Introduction to the Theory of Value, on the Lines of Menger, Wieser, and Böhm-Bawerk. London: MacMillan.

Wieser. Friedrich von. ([1926] 2019]. “Carl Menger: A Biographical Appreciation,” translated by Richard M. Ebeling. Great Barrington, MA: American Institute for Economic Research, February 25.

    https://www.aier.org/article/carl-menger-a-biographical-appreciation-by-friedrich-von-wieser/