The Philosophical Origins of Austrian Economics

My discussion of the economic doctrines of the German Historical School relies mainly on two works by Ludwig von Mises: The Historical Setting of the Austrian School of Economics (Auburn: Ludwig von Mises Institute, 1984), and Omnipotent Government (New Haven: Yale University Press, 1944). Erich Streissler contends that Mises’s strictures on the German Historical School apply only to the later Historical School. The earlier Historical School was much more sympathetic to economic theory. See Streissler’s essay in B. Caldwell, ed. Carl Menger and His Legacy (History of Political Economy, Annual Supplement to Volume 22, Durham, N.C.: Duke University Press, 1990), pp. 31-68. “The Influence of German Economics in the Work of Menger and Marshall” (Glencoe, Ill.: Free Press, 1951).

As for Werner Sombart, see the discussion by Mortin J. Plotnick, Werner Sombart and His Type of Economics (New York: EcoPress, 1937). Sombart’s approach may be sampled in his The Jews and Modern Capitalism (New York: EcoPress, 1962) and The Quintessence of Capitalism (London: T. F. Unwin, Ltd., 1915). These combine a vast amount of historical data with little analysis. Sombart wound up as a supporter of Hitler: see A New Social Philosophy (Princeton: Princeton University Press, 1937).

Very little of Othmar Spann is available in English; but his History of Economics (New York: Norton 1930) makes clear how strongly he was influenced by German Romantic thought, especially by Adam Mueller. Hegel’s relation to Romanticism is a complicated issue not discussed in this essay. For an important treatment, the chapter “Expressionism” in Charles Taylor, Hegel (Cambridge: Cambridge University Press, 1975) should be consulted. Lewis Hinchman, Hegel’s Critique of the Enlightenment (Gainesville: University Presses of Florida, 1984) is also excellent.

For Hegel’s study of economics, Laurence Dickey, Hegel: Religion, Economics and the Politics of Spirit 1770-1807 (Cambridge: Cambridge University Press, 1987) is a very thoroughly documented account. It stresses Hegel’s attempt to adjust his religious and philosophical beliefs to his economic and historical investigations.

On the doctrine of internal relations, H.H. Joachim, The Nature of Truth (Oxford: Clarendon Press, 1906) presents a strong defense of the theory. G.E. Moore “Internal and External Relations” in his Philosophical Studies (New York: Harcourt, Brace, 1922) is a very important criticism. Moore contends that the internal relations view rests on a fallacy: To say that something will be different if it lacks any property that it in fact has is a trivial truth. It does not follow that a thing without any of its relational properties would be some other thing. Brand Blanshard, Reason and Analysis (La Salle, Ill.: Open Court, 1973), upholds the doctrine against all detractors.

The doctrine of internal relations is closely related to the notion of organic unity. On organic unity in Hegel’s philosophy, one of the best treatments is by J.M.E. McTaggart, a philosopher of outstanding merit in his own right. See his Studies in the Hegelian Dialectic (Cambridge: Cambridge University Press, 1922) and Studies in Hegelian Cosmology (Cambridge: Cambridge University Press, 1901). I should warn the reader that my admiration for McTaggart as a commentator on Hegel is not universally shared.

A strong defense of Hegel’s use of organic unity by a writer thoroughly familiar with modern logic is Errol Harris, Formal, Transcendental, and Dialectical Logic (Albany, N.Y.: State University of New York Press, 1987). I reviewed this work in International Philosophical Quarterly 30 (December 1990): 503-507. Harris responded in “Reply to Gordon: Formal and Dialectical Logic,” International Philosophical Quarterly 31 (1991); not to be outdone, I answered in “Reply to Harris: On Formal and Transcendental Logic,” International Philosophical Quarterly 32 (1992). This exchange covers a number of the main issues in dispute between proponents of an “organic” approach to logic and their opponents. Harris’s excellent Cosmos and Anthropos (Atlantic Highlands, N. J.: Humanities Press, 1991) should also be consulted for its Hegelian analysis of science.

As mentioned in the text, Karl Popper offers a contrasting interpretation of Hegel’s philosophy of history from the one I favor. In his The Poverty of Historicism (New York: Harper, 1964), he attempted to demonstrate that we cannot “predict the future course of history” (p. vii). In my opinion, his argument fails: it relies on an equivocation in “future results of science.” Nevertheless, the book is highly recommended. By far the best work about Hegel’s influence on nineteenth century German philosophy is John Toews, Hegelianism (Cambridge: Cambridge University Press, 1980). Herbert Marcuse assesses Hegel’s influence from a “left-Hegelian” standpoint in Reason and Revolution: Hegel and the Rise of Social Theory (Boston: Beacon Press, 1960). Although the book has some valuable insights, its constant repetition of “the power of negative thinking” in Hegel is little short of obsessive. Karl Löwith, From Hegel to Nietzsche (New York: Anchor, 1967) is a work of deep learning.

Hegel’s work on politics and economics has in recent years aroused enormous interest. William Maker, ed. Hegel on Economics and Freedom (Macon, Ga.: Mercer University Press, 1987) presents a number of different interpretations. One of the most interesting contributions to the volume is by Richard Dien Winfield; in his Reason and Justice (Albany, N.Y.: State University New York Press, 1988) he presents a full-scale defense of Hegelian economics. Although Winfield is not a full supporter of the free market, he sympathizes with capitalism much more than is customary among contemporary Hegelians; and he develops some excellent criticisms of Marx. Harry Brod, Hegel’s Philosophy of Politics (Boulder, Colo.: Westview Press, 1992) claims that Hegel offers a “middle way” between liberalism and Marxism. Steven Smith, Hegel’s Critique of Liberalism (Chicago: University of Chicago Press, 1989) is a very carefully crafted book. George Armstrong Kelly, Hegel’s Retreat from Eleusis (Princeton: Princeton University Press, 1978) contrasts Hegel with later political thinkers.

Although in the text I could do no more than mention “civil society,” the reader should be aware that this has become a very “hot topic” in contemporary political philosophy. A gigantic work on the subject is Andrew Arato and Jean Cohen, Civil Society and Political Theory (Cambridge, Mass.: MIT Press, 1992). Another large-scale volume, like Cohen and Arato written from a socialist viewpoint, is John Keane, Democracy and Civil Society (London: Verso, 1988). Z.A. Pelczynski, ed., The State and Civil Society: Studies in Hegel’s Political Philosophy (Cambridge: Cambridge University Press, 1984) generally defends Hegel against the charge of supporting an all-powerful state. Norbert Waszek, The Scottish Enlightenment and Hegel’s Account of ‘Civil Society’ (Boston: Kluwer, 1988) is valuable not only for the topic announced in its title but also for Hegel’s study of the classical economists.

When we move from Hegel to Brentano, in my opinion the philosophical atmosphere changes for the better. Brentano’s major work is available in English translation: Franz Brentano, Psychology from an Empirical Standpoint, trans. A.C. Rancurello et al., (London: Routledge, 1973). Brentano’s discussion of “correct” and “incorrect” value judgments is in The Origin of Our Knowledge of Right and Wrong, R.M. Chisholm and Elizabeth Schneewind, trans., (Atlantic Highlands, N. J.: Humanities Press, 1969). G.E. Moore reviewed Brentano’s value theory in International Journal of Ethics Vol. 14 (1903), pp. 115-123. Brentano’s belief in the objectivity of values heavily influenced Moore and, for a time, Bertrand Russell as well. Thomas L. Carson, The Status of Morality (Dordrecht: D. Reidel, 1984) defends a Brentanist value theory. Ludwig von Mises was of a different mind on this topic: in Theory and History (Washington, D.C.: Ludwig von Mises Institute, 1985) p. 36, n.1, he rejects Brentano’s theory. Unfortunately, Mises did not discuss Brentano’s arguments. Brentano’s doctrine of intentionality, probably his key contribution to philosophy, is discussed in detail in David Bell, Husserl (London: Routledge, 1990).

Locke’s and Hume’s views on the theory of knowledge are, I fear, grossly oversimplified in the text. For a correction, see H.H. Price, Hume’s Theory of the External World (Oxford: Clarendon, 1940). This work shows how Hume built up a world out of sense-data: it is a beautifully written book and a personal favorite. Very different interpretations of Hume’s epistemology from Price’s, whom I follow in the text, are given by John Wright, Hume’s Skeptical Realism (Manchester: Manchester University Press, 1983) and Galen Strawson, The Secret Connexion: Causation, Realism and Hume (Oxford: Oxford University Press, 1989). Michael Ayres, Locke, Volume I: Epistemology (London: Routledge, 1991) is by far the best book on Locke’s theory of knowledge. Along with its companion volume Ontology, it is a major philosophical treatise. Ayres defends Lockean positions against many currently fashionable views.

I am not aware of any comprehensive account of W.S. Jevons’s philosophy. His own most important work on the theory of knowledge is The Principles of Science 2 vols. (London: MacMillan, 1874). His views on utility are in The Theory of Political Economy (London: MacMillan, 1871). A vital work for understanding nineteenth century British empiricism is John Skorupski, John Stuart Mill (London: Routledge, 1989). Skorupski defends many of the characteristic theories of the empiricists. A very useful book that contrasts the British empiricists with the German Romantics in the theory of knowledge is Hans Aarsleff, From Locke to Saussure (Minneapolis: University of Minnesota Press, 1982).

As suggested in the text, Böhm-Bawerk’s criticism of Marx provides one of the best examples of his analytical method. Later criticism of Marx’s labor theory of values owes much to Böhm-Bawerk, as can be seen from one of the best summaries of recent work on the theory: Jon Elster, Making Sense of Marx (Cambridge: Cambridge University Press, 1985). In my Resurrecting Marx (Rutgers: Transaction Books, 1990), I discuss Böhm-Bawerk’s arguments in more detail than here.

Methodological individualism is of course one of the key doctrines of Austrian economics. Alan Garfinkel, Forms of Explanation (New Haven: Yale University Press, 1981) is an important discussion but does not accept the individualist position. J.W.N. Watkins, “Ideal Types and Historical Explanation” in Alan Ryan, ed., The Philosophy of Social Explanation (Oxford: Oxford University Press, 1973) defends methodological individualism; so does, Jon Elster, in Making Sense of Marx, op. cit. Oddly, Elster claims that Marx was a methodological individualist. Margaret Gilbert, On Social Facts (London: Routledge, 1989) works out an original position on the issue: she argues that social phenomena involve “plural subjects.” See also Robert Nozick, The Examined Life (New York: Simon and Schuster, 1989, p. 73).

Terence Irwin, Aristotle’s First Principles (Oxford: Oxford University Press, 1988) is an extraordinarily detailed guide to Aristotle’s views on proper method in philosophy and science. Irwin’s notions of “weak and strong dialectic” are especially useful in understanding Aristotle. Two of the best recent discussions of the Nicomachean Ethics are Sarah Broadie, Ethics with Aristotle (Oxford: Oxford University Press, 1991) and Richard Kraut, Aristotle on the Human Good (Princeton: Princeton University Press, 1989). Douglas Rasmussen and Douglas Den Uyl, Liberty and Nature (La Salle, Ill.: Open Court, 1991) applies Aristotelian insights to modern political philosophy. For a discussion of Aristotelian and Austrian economics, Barry Smith, “Aristotle, Menger, Mises: An Essay in the Metaphysics of Economics” in B. Caldwell, op. cit. (pp. 263-88) is essential reading.

My remark on p. 23 about self-evident propositions derives from G.E. Moore, Principia Ethica (Cambridge: Cambridge University Press, 1903). Michael Williams, Groundless Belief (Oxford: Oxford University Press, 1977) argues against self-evident propositions. For the viewpoint of hermeneutics, see the chief work of this school: Hans-Georg Gadamer, Truth and Method (New York: Seabury Press, 1975).

My assertion that Mises did not rule out determinism (p. 23) may appear surprising, but it is actually an understatement. Mises was a determinist: he thought however that science was not now in a position to discover the laws by which human thought operates. Hence a space exists for praxeology, a discipline that takes human beings to be rational actors. See Theory and History, op. cit. For an excellent account of Kant’s philosophy, see Paul Guyer, Kant and the Claims of Knowledge (Cambridge: Cambridge University Press, 1987). Mises’s remarks about categories of human thought do not involve him in Kant’s complex arguments.

According to J. Alberto Coffa, The Semantic Tradition from Kant to Carnap (Cambridge: Cambridge University Press, 1991), the logical positivist philosophy arose in opposition to Kant’s claim that a priori knowledge is based on pure intuition. The most famous account of the positivists’ verification principle is A.J. Ayer, Language, Truth and Logic, rev. ed. (Oxford: Oxford University Press, 1946). The revised edition of the book should be consulted for Ayer’s reformulation of the principle in response to criticism. To the end of his life, Ayer upheld the principle: see his “Reply to Dummett” in Lewis Hahn, ed., The Philosophy of A.J. Ayer (LaSalle, Ill.: Open Court, 1992), pp. 149-156. Michael Dummett’s essay in the same volume, “The Metaphysics of Verificationism,” pp. 129-148, should also be consulted. My criticism in the text of the positivist view of meaning owes a great deal to Alvin Plantinga, God and Other Minds (Ithaca, N.Y.: Cornell University Press, 1967).

I claim in the text that Karl Popper’s view of meaning is no better than that of the positivists. For a vigorous argument to the contrary, see W.W. Bartley, III, Unfathomed Knowledge, Unmeasured Wealth (La Salle, Ill.: Open Court, 1990). His “critical rationalism” seems to me to allow one to believe whatever one chooses: the criticism to which beliefs are subjected rests on arbitrary standards.