Some Austrian thoughts for Americans Analyzing the first day after the passage of National Health Care Plan


Words cannot describe my COMPLETE lack of Surprise that Obamacare, National Health Care, passed.  It was Hillary Clinton’s priority in 1992-95, 18-15 years ago, and look where she is now?  The Oligarchy has imposed Collectivism on an unwilling Majority, certain, like Barbara Boxer, that the members of the Elite know so much better than the ignorant masses how to govern themselves than the people could possibly do themselves.  Individual Freedom, Individual Autonomy, the importance of the individual itself—all of these are obstacles.  Individualism must give way to acquiescence in the greater good, as if the “greater good” were not the sum total of individual well-being.  I say, as I so often have said in this blog, “Cry, the Beloved Country.”  We are on a path of self-destruction and ruination. 162 years after the Communist Manifesto, Barack Obama is President, Hillary Clinton is Secretary of State.  Cass Sunstein is a Czar….

National Health Care is the logical outcome and conclusion of the process that began with Social Security, and it is no more mandatory, coercive, or invasive of private liberty than the Social Security “tax”—universally forced purchase of a rather modest retirement pension which the government periodically loots and which has never been managed by true fiduciary standards at all.  Rather than talk about the wretched details, I would prefer to contemplate the radical roots of the problem: the replacement of Classical Liberalism with Socialism, which is no kind of “liberalism” at all.   The full article is quite long and I only intend to give a taste here.  The balance can be read at: http://mises.org/daily/4113, but (even though my current attempt to run as a candidate against Barbara Boxer has stumbled and doesn’t seem to be getting off the ground very well) I will continue my candidacy for U.S. Senator from California (realistic target date 2012 against Feinstein?) and I will work in support of a plan of Classical Economic Liberalism, in fact for “Capitalism and Freedom” to borrow the title of Milton Friedman’s book, and I hope that we will eventually escape from the wreckage that IS the Obamanation of today.

Austrian Economics and Classical Liberalism

Mises Daily: Thursday, March 04, 2010 by 

I. Introduction

Classical liberalism — which we shall call here simply liberalism — is based on the conception of civil society as, by and large, self-regulating when its members are free to act within very wide bounds of their individual rights. Among these the right to private property, including freedom of contract and free disposition of one’s own labor, is given a very high priority. Historically, liberalism has manifested a hostility to state action, which, it insists, should be reduced to a minimum (Raico 1992, 1994).

Austrian economics is the name given to the school, or strand, of economic theory that began with Carl Menger (Kirzner 1987; Hayek 1968), and it has often been linked — both by adherents and opponents — to the liberal doctrine. The purpose of this paper is to examine some of the connections that exist, or have been held to exist, between Austrian economics and liberalism.

II. Austrian Economics and Wertfreiheit

Writers have sometimes freely referred to “the Austrian ethical position” (Shand 1984, p. 221) and the “moral and ethical stance” of the Austrian economists (Reekie 1984, p. 176), denoting a position with strong (liberal) implications for politics. At first glance, this is surprising, since Austrian economists have been at pains to affirm the Wertfreiheit (value neutrality) of their theory, and thus its conformity to Weberian strictures on the character of scientific theories (Kirzner 1992b). Ludwig von Mises, for instance (1949, p. 881), stated that, “economics is apolitical or nonpolitical … it is perfectly neutral with regard to judgments of value, as it refers always to means and never to the choice of ultimate ends.”

That said, however, the fact is that all of the major figures in the development of Austrian economics habitually took positions on policy issues that they held to be somehow grounded in their economic doctrines. Mises, for instance, is widely recognized as probably the premier liberal thinker of the 20th century. In his magnum opus, Human Action (1949), he shed light on the connection between value-free economics and liberal politics:

While praxeology, and therefore economics too, uses the terms happiness and removal of uneasiness in a purely formal sense, liberalism attaches to them a concrete meaning. It presupposes that people prefer life to death, health to sickness, nourishment to starvation, abundance to poverty. It teaches man how to act in accordance with these valuations.… The liberals do not assert that men ought to strive after the goals mentioned above. What they maintain is that the immense majority prefer [them]. (p. 154)

According to Mises, economics teaches the means necessary for the promotion of the values most people endorse. Those means comprise, basically, preservation of a free-market economy. Thus, the economist per se passes no value judgments, including political value judgments. He only proposes hypothetical imperatives (if you wish to achieve A, and B is the necessary means for the achievement of A, then do B) (Rothbard 1962, volume 2, pp. 880–881, 1976b). A question that will concern us is whether the division between Austrian theory and liberal principles is as surgically clean-cut as this seems to suggest.

III. Methodological Individualism

Methodological individualism has been a keystone of Austrian economics since the publication of the first Austrian work, Menger’s Principles, in 1871. As Menger wrote in his Investigations,

The nation as such is not a large subject that has needs, that works, practices economy, and consumes.… Thus the phenomena of “national economy” … are, rather, the results of all the innumerable individual economic efforts in the nation … [and] must also be theoretically interpreted in this light.… Whoever wants to understand theoretically the phenomena of “national economy” … must for this reason attempt to go back to their trueelements, to the singular economies in the nation, and to investigate the laws by which the former are built up from the latter. (Menger 1985, p. 93, emphasis in original)

Methodological individualism was endorsed by the other leaders of Austrianism, to the point where Fritz Machlup (1981) could list it as the first of “the most typical requirements for a true adherent of the Austrian school.”

Perhaps because of the connotations of the noun, Austrians have stressed that what is at issue ismethodological individualism. Israel Kirzner (1987, p. 148) cites Machlup’s criteria of Austrianism, including methodological individualism as the first. He warns parenthetically, however, that this is “not to be confused with political or ideological individualism;” it refers merely “to the claim that economic phenomena are to be explained by going back to the actions of individuals.”

Lawrence H. White (1990, p. 356), too, seems to wish to distance methodological individualism from any hint of politics. White criticizes Max Alter for alluding to a “political” battle in this connection, commenting, “in fact the phrase methodological individualism was coined precisely to distinguish it from other varieties of individualism, including the political variety.”

But the interesting question is not whether the characteristic method of the Austrian School isidentical with individualism in the political sense (usually more or less a synonym for liberalism). Obviously, it is not. The question is whether the method itself has any political implications.

It is certainly possible for someone to adopt methodological individualism and not endorse liberalism (Boehm 1985, pp. 252–253). Jon Elster, for instance, is able to insist on the necessity of methodological individualism in the social sciences, while continuing to view himself as a Marxist (Elster 1985, pp. 4–8). Yet it is significant that Elster dismisses certain claims of Marx on the grounds of their inconsistency with methodological individualism.

In general, it seems clear that the Austrian approach in methodology tends to preclude holistic ideologies that happen also to be incompatible with liberalism, such as classical Marxism and certain varieties of racism and hypernationalism. To this extent, then, it is not simplymethodological individualism.

Political factors played a role in the debate over Austrian methodology from the start. The very fact that “nation” and “state,” understood as holistic entities, were not primaries in his system set Menger apart from important currents of economic thought in the German-speaking world of his time. Indeed, it was on the basis of Menger’s methodology that Gustav Schmoller, leader of the German Historical School, instantly politicized the whole debate. In his review of Menger’sInvestigations, Schmoller accused Menger of adhering to Manchestertum (laissez-faire), since his abstract and “atomistic” method might better be called “the Manchesterist-individualist” method (Schmoller 1883, p. 241).

Friedrich von Wieser (1923), himself one of the founders of the Austrian School, introduced a curious political note in discussing the origins of Austrianism. Wieser recalled how, as young economists, both he and Eugen von Böhm-Bawerk had been struck by the contradiction in classical economics:

While the chief accusation that was raised at the time against the classical economists in Germany concerned their [political] individualism, we found that they had become unfaithful to their individualistic creed from the start. As true individualists they would have had to explain the economy from the meaning of the individuals engaged in economic activity who were joined together in the economy. (p. 87)

Many decades later, Hayek, in a sense, concurred with Schmoller and Wieser. The central idea of his most extensive work on methodology, The Counter-Revolution of Science, is precisely the historical and theoretical connections between the denial of methodological individualism and the growth of socialism. Hayek (1955) assails “methodological collectivism,” with

its tendency to treat wholes like “society” or the “economy,” “capitalism” … or a particular “industry” or “class” or “country” as definitely given objects about which we can discover laws by observing their behavior as wholes.… The naive view which regards the complexes which history studies as given wholes naturally leads to the belief that their observation can reveal “laws” of the development of these wholes. (pp. 53, 73)

The supposed discovery of such laws has resulted in the construction of philosophies of history on which major socialist projects have been erected — Marxism, of course, but particularly Saint-Simonianism, the system Hayek dissects in his book. The Saint-Simonians were practitioners par excellence of scientism, the illegitimate application to the study of society of the methods of the natural sciences.

And it is scientism — the negation of methodological individualism — that, according to Hayek, “through its popularizers has done more to create the present trend towards socialism than all the conflicts between economic interests”(Hayek 1955, pp. 100–101). By the same token, political opponents of liberalism, in criticizing Hayek in this area, have assumed that his methodological individualism was closely connected with his political philosophy.

Marxist critics have made a further point regarding Austrian methodology. In their view, it stunts our understanding of social reality. According to Ronald Meek (1972), marginalism — including Austrian economics — took refuge in a schema centering on the psychology of isolated, atomistic individuals, thus (unconsciously) diverting attention from the crucial questions of political economythat had been the focus of classical economics (including Marxism). As a result, “real-life” issues, such as the division of the social product among competing classes — “those great problems of capitalist reality which worried the man in the street” (1972, p. 505) — have been systematically ignored.

This Marxist criticism would seem to be misguided, however. The abstracting approach of Austrianism pertains — necessarily — to its theory. Many Austrians, it may be conceded, have neglected to apply their theory to the understanding of concrete, “real-life” issues. That this failing is not intrinsic to Austrian economics, however, is shown by the fact that at least one well-known Austrian economist, Murray N. Rothbard, has devoted himself not only to “pure economics,” but also to highly important questions of political economy, both on a theoretical level and in specific historical contexts (e.g., Rothbard 1963, 1970; on methodological individualism, see Rothbard 1979).

IV. Subjectivism

Austrian economics begins with and constantly emphasizes the action of the individual human being (Mises 1949, pp. 11–29; Rothbard 1962, pp. 1–8). According to Lachmann (1978), for the Austrian School,

the thought design, the economic calculation or economic plan of the individual, always stands in the foreground of theoretical interest.… The significance of the Austrian school in the history of ideas perhaps finds its most pregnant expression in the statement that here, man as an actor stands at the center of economic events (p. 47, 51).[9]

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