Philosophy against Misosophy



Essays by Me

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Review of Austrian Economics: Historical and Philoso-phical Background, Wolfgang Grassl and Barry Smith, eds., London: Croom Helm, pp. 250.  From Journal of Applied Philosophy, Vol. 4, No. 2, 1987, 248-50.

Austrian Economics: Historical and Philosophical Background

Murray N. Rothbard

The title of this volume should in reality be reversed; for this is basically a book on nineteenth century Austrian philosophy and its guiding influence on the development of the Austrian School of economics.  Until recent years, the dominant historiography of economic thought has claimed that economic theories and methods have developed purely internally, influenced only by the techniques and problems of economic analysis itself.  Any admission of influence from outside economics: whether social problems, ideology, religion, or philosophy, was thought to detract from the strictly “scientific” nature of economics.  This narrow, scientistic view of the history of economics is still predominant, but it has recently been challenged from a broader and more convincing framework: Joseph Schumpeter’s justly famous History of Economic Analysis (1954), while officially committed to this internal analytic view, pioneered in demonstrating, in convincing and unforgettable fashion, the enormous influence of late scholastic philosophy on the founding of a subjective utility theory of value, as well as an understanding, of, and committment to, the working of the free market economy.

Lesser-known but more penetrating work by Emil Kauder during the same period went further, and showed the enormous influence of religion, religious values and philosophy on the development of various schools of economic thought.  It was no accident, Kauder pointed out, that the essentialist, natural law, and eudaemonist approach of Aristotelian-Thomist philosophy gave rise to a subjective utility and free market tradition on the Continent of Europe, particularly in the Catholic countries of France, Spain, and Italy; nor that it should be the Calvinist country of Scotland that incubated the cost of production and labour quantity theories of value in the midst of a world-view that glorified labour for its own sake and deprecated consumption beyond whatever is required to keep labour and production going.  Kauder also pointed out a crucial difference between the development of economic thought in late nineteenth-century Austria as compared to that of the Austrians’ linguistic and cultural cousins in Germany: namely, that in Austria Aristotle, not Hegel, was still the guiding philosopher.  Carl Menger, the founder of Austrian economics, was steeped in Aristotelian epistemology and method, an immersion which accounts for the enormous differences, of which we are now becoming aware, between the “marginalism” of Menger and that of the Benthamite Jevons or Walras.

The current volume is, at its heart, a welcome and valuable development of Kauder’s insights. For many years, Barry Smith and his colleagues have endeavoured to “bring back Brentano,” that is, to demonstrate the importance of the long-forgotten late ninetenth-century Austrian philosopher Franz Brentano and his numerous followers in the development of a realist, as opposed to a hermeneutical, form of phenomenology.  This volume has convinced me that it was not simply Aristotle per se, but the Aristotelian Franz Brentano, a Catholic priest, born in southern Germany, who formed the dominating milieu of Austrian philosophy and provided Carl Menger with his basic philosophic framework.  In the most notable contribution to the volume, Barry Smith, in “Austrian economics and Austrian philosophy,” establishes the remarkable parallels between Menger’s epistemology and Brentano’s. The other highly valuable contribution is the substantial essay by Reinhard Fabian & Peter Simons, who demonstrate the close relationship between Menger’s and Brentano’s theories of value, and also reveal the interrelations between Mengerian economists and the various prominent followers of Brentano.

These essays make up the first two chapters, and virtually one-half, of the book.  The other contributions serve largely as filler.  The political philosophy of Carl Menger is not very important or interesting in any event, and J. C. Nyiri does not help his case by offering the reactionary, anti-libertarian, Austrian “liberalism” of Széchenyi, Eötvös, or Grillparzer as some sort of guide for our time.  Roderick M. Chisholm offers a slight gloss on Brentano’s value theory, of little relevance to economics, while Rudolf Haller resurrects the forgotten economist Emanuel Hermann, only to show, unwittingly, that Hermann’s and Menger’s methods and principles were in almost diametric opposition.  The two final essays are devoted to F. A. Hayek.  Jeremy Shearmur does his best to clear up the muddles in Hayek’s social philosophy which, despite its current fame, is not nearly as strong a part of his work as his economics.  Once again, the problem is that Shearmur tries to resolve the problem by falling back on Menger’s cryptic and ambivalent remarks.  Ludwig M. Lachmann devotes a few pages to a long-forgotten duel over economic theory between Hayek and Piero Sraffa in the early 1930’s.  While Lachmann shrewdly exposes Sraffa’s strategy and hidden agenda, he unfortunately confuses the current Paretian theory of general equilibrium with the very different Austrian view Hayek shared with Menger and Bohm-Bawerk.  Lachmann muddles the issue further by adopting an essentially Keynesian theory of interest and savings.  He also omits a crucial part of the story by saying nothing about Hayek’s devastating demolition of Keynes’s Treatise on Money in the early 1930s, which forced Keynes to go back to the drawing board and return with the obfuscations of his General Theory.  In general, the volume deals far more capably and fully with the nineteenth-century Austrians than with twentieth century figures such as Hayek.  The most interesting as well as substantial essay after the first two is that of Wolfgang Grassl, who tries to derive an ethical system from the Austrian as opposed to the Benthamite public choice wing of marginalist economics.  Unfortunately, Grassl’s proposal of a “moral market” founders on a failure to recognise that a diminishing marginal balancing of the various virtues in human action cannot work when confronting absolute prohibitions in ethics.  The fact that we can combine virtues in various proportions does not imply that we can permissibly mix into our actions marginal or moderate doses of theft, rape or murder.

Economists will eventually have to face the unpleasant fact that, as fascinating, broadly sweeping, and significant as our discipline is, there are more things in heaven and earth, or that are vital for human action, than can be encompassed in our “philosophy.”  Recent attempts by McKenzie and Tullock, or by Posner in legal theory, or even Grassl in ethics, are unfortunate examples of a new form of “economic man” and “economic imperialism,” in which economics attempts to fashion ethics and political philosophy in its own image.  The truth is precisely the reverse; in human affairs, it must be ethics and political philosophy that are overriding, that establish the matrix of property rights and of permissible action within which individuals can choose, trade, or co-operate.

Posted August 16, 2007


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