Rothbard economic controversies (2011)

Economic

Controversies

The Ludwig von Mises Institute dedicates this volumeto all of its generous donors and wishes to thank these

Patrons, in particular:

Andreas AcavalosHenry Ahler

Wesley and Terri AlexanderDonald E. BentlySteven R. Berger

Dr. Karl BlasiusJohn H. Bolstad

Herbert BorbeRoman J. Bowser

John Edward BurgessCarl S. CreagerJeremy S. Davis

Satyabodhi DensmoreDr. Edward E. Donaldson

Dr. Larry J. EshelmanLee A. Everhart

Ernest A. FataIn memory of John David Fernandez

Steven FrazerMr. and Mrs. Joel Gompert

David W. GroffJames E. Hall

Mark L. Hart IIIDr. Frederic Herman

Jonathon B. HurleyMr. and Mrs. Robert S. James

Richard J. Kossmann, M.D.Daniel Krawisz

Bailey B. Liipfert, Jr.Arthur L. Loeb

Patrick T. Mahon, Jr.Naju G. MancherilPeter and Deborah MartinWilliam W. Massey, Jr.Samuel Medrano, M.D.

in honor of Rodolfo and Noemi MedranoMichael L. MerrittBrian E. MillsapWiley L. MossyPaul F. PeppardNicholas PusateriEdward W. RehakSheldon RoseKaren C. Ross, Ph.D.

in memory of Philip F. Bagwell, Ph.D.Thomas S. RossJesusOnTaxes.comJames A. SadowskyMr. and Mrs. Joseph P. SchirrickNorman K. SingletonCarlton M. SmithGeb SommerMr. and Mrs. Dennis A. SperdutoReginald Thatcher and Nancy Dale

Thatcher 1981 TrustDavid W. TiceQuinten and Marian WardWilliam P. WeidnerDr. Thomas L. WenckMr. and Mrs. Walter F. Woodul III

Joseph Edward Paul Melvilletop dogTM

Stefano Quadrio Curzio

LvMIMISES INSTITUTE

Economic

Controversies

Murray N. Rothbard

Copyright 2011 Ludwig von Mises Institute and published underthe Creative Commons Attribution License 3.0. http://creativecommons.org/licenses/by/3.0/

Published by Ludwig von Mises Institute518 West Magnolia AvenueAuburn, Alabama 36832Mises.org

ISBN: 978-1-933550-96-1

vIntroduction by Gene Epstein . . . . . . . . . . . . . . . . . . . . . . . . . . . .ix

Section One: Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1. The Mantle of Science . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

2. What is the Proper Way to Study Man? . . . . . . . . . . . . . . . .25

3. Praxeology as the Method of the Social Sciences . . . . . . . .29

4. Praxeology: The Methodology of Austrian Economics . . . .59

5. Praxeology, Value Judgments, and Public Policy . . . . . . . . .81

6. In Defense of Extreme Apriorism . . . . . . . . . . . . . . . . . .103

7. Praxeology: Reply to Mr. Schuller . . . . . . . . . . . . . . . . . . . .113

8. The Hermeneutical Invasion of Philosophyand Economics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .119

Section Two: The Austrian School . . . . . . . . . . . . . . . 137

9. New Light on the Prehistory of the Austrian School . . . . .139

10. The Present State of Austrian Economics . . . . . . . . . . . . .161

11. Ludwig von Mises and the Paradigm for Our Age . . . . . . .225

12. Value Implications of Economic Theory . . . . . . . . . . . . . . .241

13. The Myth of Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . .253

14. Breaking Out of the Walrasian Box: Schumpeterand Hansen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .261

15. Professor Rolph on the Discounted MarginalProductivity Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .277

Contents

vi Economic Controversies

16. Professor Kirzner on Entrepreneurship . . . . . . . . . . . . . . . .281

17. Toward a Reconstruction of Utility and WelfareEconomics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .289

Section Three: Property and the Public Sector . . 335

18. The Politics of Political Economists . . . . . . . . . . . . . . . . . .337

19. Justice and Property Rights . . . . . . . . . . . . . . . . . . . . . . . . .347

20. Law, Property Rights, and Air Pollution . . . . . . . . . . . . . . .367

21. The Fallacy of the Public Sector . . . . . . . . . . . . . . . . . . .419

22. Statistics: Achilless Heel of Government . . . . . . . . . . . . .427

23. How and How Not to Desocialize . . . . . . . . . . . . . . . . . . .433

Section Four: Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . 447

24. The Myth of Neutral Taxation . . . . . . . . . . . . . . . . . . . . . .449

25. The Myth of Tax Reform . . . . . . . . . . . . . . . . . . . . . . . . .503

26. The Consumption Tax: A Critique . . . . . . . . . . . . . . . . . .515

27. The Case Against the Flat Tax . . . . . . . . . . . . . . . . . . . . . .533

28. The Uneasy Case for Degressive Taxation:A Critique of Blum and Kalven . . . . . . . . . . . . . . . . . . . . .551

29. The Single Tax: Economic and Moral Implications . . . . . .575

30. The Value-Added Tax is Not the Answer . . . . . . . . . . . . .587

31. A Reply to Georgist Criticisms . . . . . . . . . . . . . . . . . . . . . .593

Section Five: Trade and Freedom . . . . . . . . . . . . . . . . 599

32. Freedom, Inequality, Primitivism,and the Division of Labor . . . . . . . . . . . . . . . . . . . . . . . . . .601

33. Restrictionist Pricing of Labor . . . . . . . . . . . . . . . . . . . . . .635

34. Mercantilism: A Lesson for Our Times? . . . . . . . . . . . . . . .641

35. Capitalism versus Statism . . . . . . . . . . . . . . . . . . . . . . . . . .655

36. A Future of Peace and Capitalism . . . . . . . . . . . . . . . . . . .671

Contents vii

Section Six: Money, Banking, and Calculation . . . 683

37. The Austrian Theory of Money . . . . . . . . . . . . . . . . . . . . .685

38. Money, the State, and Modern Mercantilism . . . . . . . . . . .709

39. Austrian Definitions of the Supply of Money . . . . . . . . . . .727

40. Gold vs. Fluctuating Fiat Exchange Rates . . . . . . . . . . . . .741

41. The Case For a Genuine Gold Dollar . . . . . . . . . . . . . . . . .755

42. Inflation and the Business Cycle:The Collapse of the Keynesian Paradigm . . . . . . . . . . . . .775

43. Lange, Mises and Praxeology:The Retreat from Marxism . . . . . . . . . . . . . . . . . . . . . . . . .801

44. Ludwig von Mises and Economic CalculationUnder Socialism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .815

45. The End of Socialism and the CalculationDebate Revisited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .827

46. The Myth of Free Banking in Scotland . . . . . . . . . . . . . . .859

47. Aurophobia: Or, Free Banking on What Standard? . . . . . .879

Section Seven: Criticism . . . . . . . . . . . . . . . . . . . . . . . . . 893

48. Milton Friedman Unraveled . . . . . . . . . . . . . . . . . . . . . . . .895

49. Paul Samuelsons Economics, Ninth Edition . . . . . . . . . . . .913

50. Heilbroners Economic Means and Social Ends . . . . . . . . . .919

51. Buchanan and Tullocks The Calculus of Consent . . . . . . . .927

Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .933

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .961

It was nearly forty years ago that Murray Rothbard changed mylife. I was then a PhD candidate in economics at the New Schoolfor Social Research in downtown Manhattan, while also teachingPrinciples courses at a local university. And I was rapidly losinginterest in the whole subject.

Bored by the prattling of the left-wing crowd who dominated theNew School, I could find nothing very satisfying in mainstream eco-nomics either. The New Schools left-wingers certainly cared aboutachieving a free society. But their radical agenda mainly consisted ofthe instrumentalist ideas of the econ departments emeritus profes-sor Adolph Lowe, which boiled down to coercing people into follow-ing the dictates of elitists like him.

My only real objection to conventional economics was that italso bored me. If a theory like perfect competition was remote fromreality, it seemed like a judgment on the imperfections of capitalism.After all, to the degree that capitalism was not perfectly competitive,it fell prey to the evils of imperfect competition, which mightrequire intervention from antitrust. As a typically zonked-out prod-uct of conventional schooling, I vaguely believed, that to the degreethat any textbook theory failed to explain reality, so much the worsefor reality. (Not long ago I spoke with an econ grad student who,when pressed, believed this quite explicitly.)

Always a compulsive book-browser, I had more than once leafedthrough a two-volume work titled Man, Economy, and State in theNew School library, whose author, Murray Rothbard, I had barelyheard of. After the third or fourth look, I finally began reading thebookand experienced one eureka moment after another. Two

Introduction

ix

x Economic Controversies

especially memorable moments reflected the leftist tradition inwhich I was then mired.

First, I learned that, if leftists thought capital deserved noshare of the economic bounty, they were in a sense more right thanthey knew. Rothbard explained that, in a free market, there were nofinancial returns to owners of capital goods as such. Since capitalgoods consisted of such items as factories, machinery, offices, anddesks, these goods were entirely the product of labor and land (orresources). So the monetary value of newly created capital goods isentirely attributable to the purchase of land and labor, with nothingremaining for capital goods owners.

How, then, did capital goods owners make any money at all? Themoney they received came in two forms: interest payments foradvancing resources in the present and profits for their entrepre-neurial foresightunless, of course, they were unsuccessful entre-preneurs and suffered losses.

Second was Rothbards devastating refutation of the theory ofimperfect or monopolistic competitiondear to leftists hearts,since it highlighted the irrationality of capitalism. A cornerstone ofthis theory is that a monopolistic competitor like Marioni BrothersBarbershop (monopolistic because there is only one set of MarioniBrothers; competitive, since there are many barbershops), alwaysoperate with excess capacity.

Economist Paul Samuelson had in fact targeted barber shops inhis best-selling Principles text, observing that The barbershop hasexcess capacity, with empty chairs much of the time, as he inveighedagainst the wasteful social losses resulting.1

Even before I read Rothbard, it occurred to me that, in this caseat least, Professor Samuelson may have been missing something.Given his flexible work schedule, he may have had a habit of goingfor his haircut on a weekday, which would explain why he kept notic-ing empty chairs. Had he gone instead on Saturdays, he might havenoticed that all the barber chairs were full, and that business wasactually backed up. It then might have occurred to him that our

1Paul A. Samuelson, Economics, 9th ed. (New York: McGraw-Hill,1973), p. 518.

Introduction xi

hypothetical Marioni Brothers were not so dumb as to waste theirmoney on excess capacity.

The problem they actually faced as businessmen was the classictradeoff between peaks and troughs in demand. Had they not hadempty chairs during the week, they wouldnt have been able to takeadvantage of the glut in demand on weekends.

Such were my tentative doubts. What Rothbard exposed was thepreposterousness of the whole formulation. For why assume that allsuch monopolistic competitors necessarily invest in excess capacity?To plan a plant for producing x units, he quotes economist RoyHarrod observing, while knowing that it will only be possible tomaintain an output of x y units, is surely to suffer from schizophre-nia.2 It made no more sense to believe that all such businessmenwould waste funds on excess as it was to believe that they would allconsistently underinvest and plan on inadequate capacity.

Then came what for merobotically drawing all those cost anddemand curves with the aid of differential calculuswas the coup degrace. Rothbard demonstrated that the whole nave error hinged onthe technicalities of geometry. The theory was simply a prisoner ofthe way the demand curve was made tangent to the cost curve! Hethen adroitly showed two different ways of drawing the graph, with-out violating any of the assumptions. The miraculous result: Themonopolistic competitor was now operating at the low point of hisaverage cost curve, or at full capacity.3

I found such moments profoundly empowering, making me real-ize that, whenever I thought about economics outside formal strait-jackets, I naturally fell back on modes of reasoning used by Rothbardand his mentor, Ludwig von Mises. Thats why the very term, Aus-trian economics, is a kind of redundancy. Whenever people thinksensibly about economics, they think like Austriansone key reasonwhy even the mainstream can have a few things to teach us, espe-cially when theyre writing mere journalism.

2Murray Rothbard, Man, Economy, and State (Los Angeles: Nash,1970), p. 642; combined with Power and Market to become the scholars edi-tion (Auburn, Ala.: Ludwig von Mises Institute, 2009), p. 732.

3Rothbard, Man, Economy, and State, pp. 64245; scholars edition, pp.73236.

xii Economic Controversies

After finishing Man, Economy, and State, I discovered the Laissez-Faire bookshop, then a well-stocked store on Mercer Street, whichregrettably shut down years ago. Browsing at that bookshop virtuallyevery Saturday, I gradually bought up all the Rothbard I could find,plus all the Mises, F.A. Hayek, and Israel Kirzner.

I formed a reading group in Austrian economics, attended late-afternoon seminars chaired by Kirzner at New York Universityandeven barged into one of Rothbards classes at Brooklyn PolytechnicInstitute, where he taught for many years.

I say barged in because somehow I forgot to ask him if I couldsit in and audit. That might explain why he gave me a perplexed lookwhen I raised my hand to ask a question, a reaction that discouragedme from chatting with him afterward. (The session must have beensomewhere in the middle of the semester, since it was devotedentirely to the mundane task of reviewing the material to preparestudents for the mid-term exam.)

When I became a senior economist at the New York StockExchange, the director I reported to once told me, Gene, youre theonly guy I ever met who reads economics for fun. I was honestly sur-prised, and might have remarked that if everyone read Rothbard andthe Austrians, they might have just as much fun.

My only real, albeit brief, conversation with Rothbard occurredover the phone in October 1993, by which point he was teaching atthe University of Nevada in Las Vegas, and I had just begun as a jour-nalist at Barrons. University of Chicago economist Gary Becker hadjust won the economics Nobel, partly in recognition of his insightthat a family was like a firm. (But how much more intriguing to the-orize that a firm is like a family?)

Asking Rothbard what he thought of Beckers win, I expectedhim to tell me that he thought applying economics to non-economicissues was foolish. Instead he began by saying that it was gratifying tosee a free market-oriented economist like Becker gain such recogni-tion.

Then I asked, But what do you think of the theory that a fam-ily is like a firm?

Rothbard answered, I think its nuts! And I was thus treated,first-hand, to that nasal voice going squeaky.

I had already become familiar with that nasal voice in the scoresof audio-tapes Id heard of Rothbards lectures, along with the saltyinsights tossed off with dazzling ease, punctuated by the signaturegiggle. To me, the joy in that giggle bespeaks an indefatigable spirit.

In Rothards lectures on economic history, I caught him in a raremoment of hypocrisy. While he blasted the use of price indexes in hiswritings, he never hesitated to use a price index to prove a pointabout historical trends. He was of course quite right to criticize thepseudo-science of price indexes. But he might have acknowledgedmore explicitly that they sometimes come in handy as a roughapproximation of price trends.

To get a sense of the fun it must have been to be Murray Roth-bard or to merely know him, try listening to one of his best lectures,The Meaning of Ludwig von Mises.4

We all know there could be no Murray Rothbard the great writerand thinker without his great teacher, Ludwig von Mises. Those whoread and love Rothbard would be cheating themselves if they did notalso read Misess many books. In my case, reading Misess magnumopus, Human Action, for the first time, I found his discussion of wagesfinally cemented my understanding of why wages inevitably rise in afree market with rising productivityan insight that helped seal myconversion to libertarianism.

Its remarkable that Misess books read as well as they do, bothin translation and in the English he began to write in at age 60. Roth-bard had the advantage of being an extraordinary writer in the lan-guage he grew up in, as well as a devoted student of Mises. It wastherefore left to him to render Misess great theories in clear, acces-sible prose, while often bringing those theories to a new level.

So I think of Rothbard as having been Plato to MisessSocratesan analogy I might push further if Rothbard were not socritical of Plato. Try his discussion of Aristotles refutation of Platoscommunism in Economic Thought Before Adam Smith, the first of histwo books on the history of economic thought. Among all of Roth-bards writingsthe second volume is called Classical Economicsthese two books are the ones I prefer to dip into again when Im look-ing for something diverting to reread.

Introduction xiii

4This lecture is available for download at the Mises Institute website.

The whole informed guided tour of the way people thoughtabout economics is vastly entertaining. My favorite part is probablythe devastating dissection of the supposed father of economics,Adam Smith. Its tragic that Rothbard didnt live to complete thethird and final volume, which would have dealt with economicthought in the modern era.

Which brings us to the tome you hold in your hand. It containsall of Rothbards best essays. If there is any single book worthy ofbeing called a companion volume to Man, Economy, and State, this isit.

You should start, as the book does, with the magisterial essayThe Mantle of Science, in which Rothbard lays the groundwork onhow to think about economics. After finishing this essay, you mightreflect that all the writer has really done is make explicit a mode ofthinking that comes naturally to us all. And just as I felt after I fin-ished Man, Economy, and State, you might find it similarly empower-ing.

Mainstream economics suffers from two main handicaps: (a) thedesire to sound like a branch of physics, which feeds the elitist fan-tasies of those who aspire to be professional economists, and (b) thedesire to sit at the tables of power la John Maynard Keynes andAlan Greenspan, which spawns such top-down monstrosities asmacroeconomics.

Given these handicaps, its remarkable, as mentioned, that main-stream economists can still be insightful at times, especially in theirjournalism. I submit its because even they are still capable of usingthe mode of thinking Rothbard sets forth in The Mantle of Sci-ence.

You might then jump, for comic relief, to The HermeneuticalInvasion of Philosophy and Economics. In that essay, Rothbardmakes fun of the heavy thinkers who keep telling us, in effect, thatwords have no meaning. Of course, if they are right that words haveno meaning, we can only respond that this key message of theirs isincomprehensible.

For me the greatest eureka moment of all is when I first readRothbards essay The Austrian Theory of Money. That was when Ifully grasped Misess most beautiful insight, called the regressiontheorem, in which Mises was able to show that all money must have

xiv Economic Controversies

originated in some commodity (gold, seashells), that if you regressbackward in time, youll find this had to have been the case. Whatpeople think of as government-created money (dollars, euros) isnothing of the kind, but came from those same commodities. For me,the beauty of the regression theorem lies in its power to infer histor-ical fact from simple logic about human action.

I did not read Rothbards 1972 essay Heilbroners EconomicMeans and Social Ends until years after it was first published. Its adevastating critique of a book edited by New School economics Pro-fessor Robert Heilbroner, about the ideas of the abovementionedAdolph Lowe.

Here, too, Plato comes up. Professor Lowes political econom-ics, observes Rothbard, is of a piece with an unfortunate penchantof intellectuals since the days of Plato: to impose their own arbitraryand static order upon the rest of society, to freeze and annul changeby their coercive fiat. Had I read this essay when it first came out,it probably would have gotten me to read more of Rothbard, even ifI hadnt been lucky enough to find his economic treatise in thestacks.

There are many first books on libertarianism in general andAustrian economics in particular. Which one is most suitabledepends on the individual. For me, the way in was Man, Economy,and State, which had a great deal to do with me and my circum-stances at the time. If my counterpart today finds that book and thisone in the stacks, I would say that Economic Controversies is probablythe better way in. Man, Economy, and State can come a bit later.

Gene EpsteinEconomics Editor

BarronsNew York

September 2010

Introduction xv

Section One

Method

Originally appeared as a chapter in Scientism and Values, Helmut Schoeckand James W. Wiggins, eds. (Princeton, N.J.: D. Van Nostrand, 1960).

1Human action, therefore, does not occur apart from cause; humanbeings must choose at any given moment, although the contents of thechoice are self-determined.

In our proper condemnation of scientism in the study of man, weshould not make the mistake of dismissing science as well. For ifwe do so, we credit scientism too highly and accept at face valueits claim to be the one and only scientific method. If scientism is,as we believe it to be, an improper method, then it cannot be trulyscientific. Science, after all, means scientia, correct knowledge; it isolder and wiser than the positivist-pragmatist attempt to monopolizethe term.

Scientism is the profoundly unscientific attempt to transferuncritically the methodology of the physical sciences to the study ofhuman action. Both fields of inquiry must, it is true, be studied by theuse of reasonthe minds identification of reality. But then itbecomes crucially important, in reason, not to neglect the criticalattribute of human action: that, alone in nature, human beings pos-sess a rational consciousness. Stones, molecules, planets cannotchoose their courses; their behavior is strictly and mechanically deter-mined for them. Only human beings possess free will and conscious-ness: for they are conscious, and they can, and indeed must, choosetheir course of action.1 To ignore this primordial fact about thenature of manto ignore his volition, his free willis to miscon-strue the facts of reality and therefore to be profoundly and radicallyunscientific.

The Mantle of Science

1

3

4 Economic Controversies

Mans necessity to choose means that, at any given time, he isacting to bring about some end in the immediate or distant future,that is, that he has purposes. The steps that he takes to achieve hisends are his means. Man is born with no innate knowledge of whatends to choose or how to use which means to attain them. Havingno inborn knowledge of how to survive and prosper, he must learnwhat ends and means to adopt, and he is liable to make errors alongthe way. But only his reasoning mind can show him his goals and howto attain them.

We have already begun to build the first blocks of the many-sto-ried edifice of the true sciences of manand they are all groundedon the fact of mans volition.2 On the formal fact that man usesmeans to attain ends we ground the science of praxeology, or eco-nomics; psychology is the study of how and why man chooses the con-tents of his ends; technology tells what concrete means will lead tovarious ends; and ethics employs all the data of the various sciencesto guide man toward the ends he should seek to attain, and there-fore, by imputation, toward his proper means. None of these disci-plines can make any sense whatever on scientistic premises. If menare like stones, if they are not purposive beings and do not strive forends, then there is no economics, no psychology, no ethics, no tech-nology, no science of man whatever.

THE PROBLEM OF FREE WILL

Before proceeding further, we must pause to consider the valid-ity of free will, for it is curious that the determinist dogma has sooften been accepted as the uniquely scientific position. And whilemany philosophers have demonstrated the existence of free will, theconcept has all too rarely been applied to the social sciences.

In the first place, each human being knows universally fromintrospection that he chooses. The positivists and behaviorists mayscoff at introspection all they wish, but it remains true that the intro-spective knowledge of a conscious man that he is conscious and acts

2The sciences which deal with the functioning of mans automaticorgansphysiology, anatomy, and so onmay be included in the physicalsciences, for they are not based on mans willalthough even here, psy-chosomatic medicine traces definite causal relations stemming from manschoices.

Method 5

is a fact of reality. What, indeed, do the determinists have to offer toset against introspective fact? Only a poor and misleading analogyfrom the physical sciences. It is true that all mindless matter is deter-mined and purposeless. But it is highly inappropriate, and moreoverquestion-begging, simply and uncritically to apply the model ofphysics to man.

Why, indeed, should we accept determinism in nature? The rea-son we say that things are determined is that every existing thingmust have a specific existence. Having a specific existence, it musthave certain definite, definable, delimitable attributes, that is, everything must have a specific nature. Every being, then, can act orbehave only in accordance with its nature, and any two beings caninteract only in accord with their respective natures. Therefore, theactions of every being are caused by, determined by, its nature.3

But while most things have no consciousness and therefore pur-sue no goals, it is an essential attribute of mans nature that he hasconsciousness, and therefore that his actions are self-determined bythe choices his mind makes.

At very best, the application of determinism to man is just anagenda for the future. After several centuries of arrogant proclama-tions, no determinist has come up with anything like a theory deter-mining all of mens actions. Surely the burden of proof must rest onthe one advancing a theory, particularly when the theory contradictsmans primary impressions. Surely we can, at the very least, tell thedeterminists to keep quiet until they can offer their determinationsincluding, of course, their advance determinations of each of ourreactions to their determining theory. But there is far more that canbe said. For determinism, as applied to man, is a self-contradictory

3See Andrew G. Van Melsen, The Philosophy of Nature (Pittsburgh,Penn.: Duquesne University Press, 1953), pp. 208ff., 235ff.

While free will must be upheld for man, determination must be equallyupheld for physical nature. For a critique of the recent fallacious notion,based on the Heisenberg Uncertainty Principle, that atomic or sub-atomicparticles have free will, see Ludwig von Mises, Theory and History (NewHaven, Conn.: Yale University Press, 1957), pp. 8792; and Albert H.Hobbs, Social Problems and Scientism (Harrisburg, Penn.: Stackpole, 1953),pp. 22032.


thesis, since the man who employs it relies implicitly on the existenceof free will.

If we are determined in the ideas we accept, then X, the deter-minist, is determined to believe in determinism, while Y, the believerin free will, is also determined to believe in his own doctrine. Sincemans mind is, according to determinism, not free to think and cometo conclusions about reality, it is absurd for X to try to convince Y oranyone else of the truth of determinism. In short, the deterministmust rely, for the spread of his ideas, on the nondetermined, free-willchoices of others, on their free will to adopt or reject ideas.4 In thesame way, the various brands of deterministsbehaviorists, posi-tivists, Marxists, and so onimplicitly claim special exemption forthemselves from their own determined systems.5 But if a man cannotaffirm a proposition without employing its negation, he is not onlycaught in an inextricable self-contradiction; he is conceding to thenegation the status of an axiom.6

4Francis L. Harmon, Principles of Psychology (Milwaukee: Bruce Pub-lishing, 1938), p. 487, and pp. 49399.

Even the controversial writings of the mechanists themselvesappear to be intended for readers endowed with powers ofchoice. In other words, the determinist who would win others tohis way of thinking must write as if he himself, and his readers atleast, had freedom of choice, while all the rest of mankind aremechanistically determined in thought and in conduct.

Also see Joseph D. Hassett, S.J., Robert A. Mitchell, S.J., and J. DonaldMonan, S.J., The Philosophy of Human Knowing (Westminster, Maryland:Newman Press, 1953), pp. 7273.

5See Mises, Theory and History, pp. 25860; and Mises, Human Action(New Haven, Conn.: Yale University Press, 1949), pp. 74ff.

6Phillips therefore calls this attribute of an axiom a boomerang princi-ple . . . for even though we cast it away from us, it returns to us again, andillustrates by showing that an attempt to deny the Aristotelian law of non-contradiction must end by assuming it. R.P. Phillips, Modern Thomistic Phi-losophy (Westminister, Maryland: Newman Bookshop, 193435), vol. 2, pp.3637. Also see John J. Toohey, S.J., Notes on Epistemology (Washington,D.C.: Georgetown University Press, 1952), passim, and Murray N. Roth-bard, In Defense of Extreme Apriorism, Southern Economic Journal (Jan-uary 1957): 318; reprinted in this volume as chapter 6.

Method 7

A corollary self-contradiction: the determinists profess to beable, some day, to determine what mans choices and actions will be.But, on their own grounds, their own knowledge of this determiningtheory is itself determined. How then can they aspire to know all, ifthe extent of their own knowledge is itself determined, and thereforearbitrarily delimited? In fact, if our ideas are determined, then wehave no way of freely revising our judgments and of learning truthwhether the truth of determinism or of anything else.7

Thus, the determinist, to advocate his doctrine, must place him-self and his theory outside the allegedly universally determined realm,that is, he must employ free will. This reliance of determinism on itsnegation is an instance of a wider truth: that it is self-contradictory touse reason in any attempt to deny the validity of reason as a means ofattaining knowledge. Such self-contradiction is implicit in such cur-rently fashionable sentiments as reason shows us that reason is weak,or the more we know, the more we know how little we know.8

Some may object that man is not really free because he mustobey natural laws. To say that man is not free because he is not ableto do anything he may possibly desire, however, confuses freedomand power.9 It is clearly absurd to employ as a definition of freedom

7In the course of a critique of determinism, Phillips wrote: What pur-pose . . . could advice serve if we were unable to revise a judgment we hadformed, and so act in a different way to which we at first intended? Phillips,Modern Thomistic Philosophy, vol. 1, p. 282.

For stress on free will as freedom to think, to employ reason, see RobertL. Humphrey, Human Nature in American Thought, Political ScienceQuarterly (June 1954): 269; Readings in Ethics, J.F. Leibell, ed. (Chicago:Loyola University Press, 1926), pp. 90, 103, 109; Robert Edward Brennan,O.P., Thomistic Psychology (New York: Macmillan, 1941), pp. 22122; VanMelsen, The Philosophy of Nature, pp. 23536; and Mises, Theory and His-tory, pp. 17779.

8A man involves himself in a contradiction when he uses the reason-ing of the intellect to prove that that reasoning cannot be relied upon(Toohey, Notes on Epistemology, p. 29). Also see Phillips, Modern ThomisticPhilosophy, vol. 2, p. 16; and Frank Thilly, A History of Philosophy (New York:Henry Holt, 1914), p. 586.

9See F.A. Hayek, The Road to Serfdom (Chicago: University of ChicagoPress, 1944), p. 26.


the power of an entity to perform an impossible action, to violate itsnature.10

Determinists often imply that a mans ideas are necessarily deter-mined by the ideas of others, of society. Yet A and B can hear thesame idea propounded; A can adopt it as valid while B will not. Eachman, therefore, has the free choice of adopting or not adopting anidea or value. It is true that many men may uncritically adopt theideas of others; yet this process cannot regress infinitely. At somepoint in time, the idea originated, that is, the idea was not taken fromothers, but was arrived at by some mind independently and cre-atively. This is logically necessary for any given idea. Society, there-fore, cannot dictate ideas. If someone grows up in a world where peo-ple generally believe that all redheads are demons, he is free, as hegrows up, to rethink the problem and arrive at a different conclusion.If this were not true, ideas, once adopted, could never have beenchanged.

We conclude, therefore, that true science decrees determinismfor physical nature and free will for man, and for the same reason:that every thing must act in accordance with its specific nature.And since men are free to adopt ideas and to act upon them, it isnever events or stimuli external to the mind that cause its ideas;rather the mind freely adopts ideas about external events. A savage,an infant, and a civilized man will each react in entirely differentways to the sight of the same stimulusbe it a fountain pen, analarm clock, or a machine gun, for each mind has different ideasabout the objects meaning and qualities.11 Let us therefore neveragain say that the Great Depression of the 1930s caused men toadopt socialism or interventionism (or that poverty causes people toadopt Communism). The depression existed, and men were movedto think about this striking event; but that they adopted socialismor its equivalent as the way out was not determined by the event;they might just as well have chosen laissez-faire or Buddhism or any

10John G. Vance, Freedom, quoted in Leibell, Readings in Ethics, pp.98100. Also see Van Melsen, The Philosophy of Nature, p. 236, and MichaelMaher, Psychology, quoted in Leibell, Readings in Ethics.

11Thus, cf., C.I. Lewis, Mind and the World Order (New York: DoverPublications, 1956), pp. 4951.

Method 9

other attempted solution. The deciding factor was the idea that peo-ple chose to adopt.

What led the people to adopt particular ideas? Here the histo-rian may enumerate and weigh various factors, but he must alwaysstop short at the ultimate freedom of the will. Thus, in any givenmatter, a person may freely decide either to think about a problemindependently or to accept uncritically the ideas offered by others.Certainly, the bulk of the people, especially in abstract matters,choose to follow the ideas offered by the intellectuals. At the time ofthe Great Depression, there was a host of intellectuals offering thenostrum of statism or socialism as a cure for the depression, whilevery few suggested laissez-faire or absolute monarchy.

The realization that ideas, freely adopted, determine social insti-tutions, and not vice versa, illuminates many critical areas of thestudy of man. Rousseau and his host of modern followers, who holdthat man is good, but corrupted by his institutions, must finallywither under the query: And who but men created these institutions?The tendency of many modern intellectuals to worship the primitive(also the childlikeespecially the child progressively educatedthe natural life of the noble savage of the South Seas, and so on)has perhaps the same roots. We are also told repeatedly that differ-ences between largely isolated tribes and ethnic groups are cultur-ally determined: tribe X being intelligent or peaceful because of itsX-culture; tribe Y, dull or warlike because of Y-culture. If we fullyrealize that the men of each tribe created its own culture (unless weare to assume its creation by some mystic deus ex machina), we seethat this popular explanation is no better than explaining thesleep-inducing properties of opium by its dormitive power. Indeed,it is worse, because it adds the error of social determinism.

It will undoubtedly be charged that this discussion of free willand determinism is one-sided and that it leaves out the alleged factthat all of life is multicausal and interdependent. We must not forget,however, that the very goal of science is simpler explanations ofwider phenomena. In this case, we are confronted with the fact thatthere can logically be only one ultimate sovereign over a mans actions:either his own free will or some cause outside that will. There is noother alternative, there is no middle ground, and therefore the fash-ionable eclecticism of modern scholarship must in this case yield tothe hard realities of the Law of the Excluded Middle.


If free will has been vindicated, how can we prove the existenceof consciousness itself? The answer is simple: to prove means to makeevident something not yet evident. Yet some propositions may bealready evident to the self, that is, self-evident. A self-evident axiom,as we have indicated, will be a proposition which cannot be contra-dicted without employing the axiom itself in the attempt. And theexistence of consciousness is not only evident to all of us throughdirect introspection, but is also a fundamental axiom, for the very actof doubting consciousness must itself be performed by a conscious-ness.12 Thus, the behaviorist who spurns consciousness for objec-tive laboratory data must rely on the consciousness of his laboratoryassociates to report the data to him.

The key to scientism is its denial of the existence of individualconsciousness and will.13 This takes two main forms: applyingmechanical analogies from the physical sciences to individual men,and applying organismic analogies to such fictional collective wholesas society. The latter course attributes consciousness and will, notto individuals, but to some collective organic whole of which theindividual is merely a determined cell. Both methods are aspects ofthe rejection of individual consciousness.

THE FALSE MECHANICAL ANALOGIES OF SCIENTISM

The scientistic method in the study of man is almost wholly oneof building on analogies from the physical sciences. Some of the com-mon mechanistic analogies follow.

Man as Servomechanism: Just as Bertrand Russell, one of the lead-ers of scientism, reverses reality by attributing determinism to men,and free will to physical particles, so it has recently become the fash-ion to say that modern machines think, while man is merely a com-plex form of machine, or servomechanism.14 What is overlooked

12See Hassett, Mitchell, and Monan, The Philosophy of Human Know-ing, pp. 3335. Also see Phillips, Modern Thomistic Philosophy, vol. 1, pp.5051; Toohey, Notes on Epistemology, pp. 5, 36, 101, and 10708; andThilly, A History of Philosophy, p. 363.

13Professor Strausz-Hup also makes this point in his paper, Social Sci-ence Versus the Obsession of Scientism, in Schoeck and Wiggins, eds., Sci-entism and Values.

14Mises, Theory and History, p. 92.

Method 11

here is that machines, no matter how complex, are simply devicesmade by man to serve mans purposes and goals; their actions are pre-set by their creators, and the machines can never act in any otherway or suddenly adopt new goals and act upon them. They cannotdo so, finally, because the machines are not alive and are thereforecertainly not conscious. If men are machines, on the other hand,then the determinists, in addition to meeting the above critique,must answer the question: Who created men and for what pur-pose?a rather embarrassing question for materialists to answer.15

Social Engineering: This term implies that men are no differentfrom stones or other physical objects, and therefore that they shouldbe blueprinted and reshaped in the same way as objects by socialengineers. When Rex Tugwell wrote in his famous poem during theflush days of the New Deal:

I have gathered my tools and my charts,My plans are finished and practical.I shall roll up my sleevesmake America over,

one wonders whether his admiring readers thought themselves to beamong the directing engineers or among the raw material that wouldbe made over.16

Model-Building: Economics, and recently political science, havebeen beset by a plague of model-building.17 People do not construct

15Ibid., pp. 9495:

A machine is a device made by man. It is the realization of adesign and it runs precisely according to the plan of its authors.What produces the product of its operation is not somethingwithin it but the purpose the constructor wanted to realize bymeans of its construction. It is the constructor and operatorwho create and produce, not the machine. To ascribe to amachine any activity is anthropomorphism and animism. Themachine . . . does not move; it is put into motion by men.

16See ibid., pp. 24950.17On this and many other points in this paper I am greatly indebted to

Professor Ludwig von Mises and to his development of the science of prax-eology. See Ludwig von Mises, Comment about the Mathematical Treat-ment of Economic Problems, Studium Generale 4, no. 2 (1953); Mises,


theories any more; they build models of the society or economy. Yetno one seems to notice the peculiar inaptness of the concept. Anengineering model is an exact replica, in miniature, that is, in exactquantitative proportion, of the relationships existing in the givenstructure in the real world; but the models of economic and polit-ical theory are simply a few equations and concepts which, at thevery best, could only approximate a few of the numerous relations inthe economy or society.

Measurement: The Econometric Societys original motto wasScience is measurement, this ideal having been transferred intactfrom the natural sciences. The frantic and vain attempts to measureintensive psychic magnitudes in psychology and in economics woulddisappear if it were realized that the very concept of measurementimplies the necessity for an objective extensive unit to serve as ameasure. But the magnitudes in consciousness are necessarily inten-sive and therefore not capable of measurement.18

The Mathematical Method: Not only measurement but the use ofmathematics in general in the social sciences and philosophy today,is an illegitimate transfer from physics. In the first place, a mathe-matical equation implies the existence of quantities that can beequated, which in turn implies a unit of measurement for these quan-tities. Second, mathematical relations are functional; that is, variablesare interdependent, and identifying the causal variable depends onwhich is held as given and which is changed. This methodology isappropriate in physics, where entities do not themselves provide thecauses for their actions, but instead are determined by discoverablequantitative laws of their nature and the nature of the interacting

Human Action, passim; and Mises, Theory and History, pp. 24063. Thefoundations of praxeology as a method were laid by the English classicaleconomist, Nassau Senior. Unfortunately, the positivistic John Stuart Millsside of their methodological debate became much better known thanSeniors. See Marian Rowley, Nassau Senior and Classical Economics (NewYork: Augustus M. Kelley, 1949), chap. 1, esp. pp. 6465.

18For a critique of recent attempts to fashion a new theory of measure-ment for intensive magnitudes, see Murray N. Rothbard, Toward a Recon-struction of Utility and Welfare Economics, in On Freedom and Free Enter-prise: Essays in Honor of Ludwig von Mises, Mary Sennholz, ed. (Princeton,N.J.: D. Van Nostrand, 1956), pp. 24143; reprinted in this volume as chap-ter 17.

Method 13

entities. But in human action, the free-will choice of the human con-sciousness is the cause, and this cause generates certain effects. Themathematical concept of an interdetermining function is thereforeinappropriate.

Indeed, the very concept of variable used so frequently ineconometrics is illegitimate, for physics is able to arrive at laws onlyby discovering constants. The concept of variable only makes senseif there are some things that are not variable, but constant. Yet inhuman action, free will precludes any quantitative constants (includ-ing constant units of measurement). All attempts to discover suchconstants (such as the strict quantity theory of money or the Keyne-sian consumption function) were inherently doomed to failure.

Finally such staples of mathematical economics as the calculusare completely inappropriate for human action because they assumeinfinitely small continuity; while such concepts may legitimatelydescribe the completely determined path of a physical particle, theyare seriously misleading in describing the willed action of a humanbeing. Such willed action can occur only in discrete, non-infinitely-small steps, steps large enough to be perceivable by a human con-sciousness. Hence the continuity assumptions of calculus are inap-propriate for the study of man.

Other metaphors bodily and misleadingly transplanted fromphysics include: equilibrium, elasticity, statics and dynamics,velocity of circulation, and friction. Equilibrium in physics is astate in which an entity remains; but in economics or politics thereis never really such an equilibrium state existing; there is but a ten-dency in that direction. Moreover, the term equilibrium has emo-tional connotations, and so it was only a brief step to the furthermischief of holding up equilibrium as not only possible, but as theideal by which to gauge all existing institutions. But since man, byhis very nature, must keep acting, he cannot be in equilibrium whilehe lives, and therefore the ideal, being impossible, is also inappro-priate.

The concept of friction is used in a similar way. Some econo-mists, for example, have assumed that men have perfect knowl-edge, that the factors of production have perfect mobility, and soon, and then have airily dismissed all difficulties in applying theseabsurdities to the real world as simple problems of friction, just asthe physical sciences bring in friction to add to their perfect


framework. These assumptions in fact make omniscience the standardor ideal, and this cannot exist by the nature of man.

THE FALSE ORGANISMIC ANALOGIES OF SCIENTISM

The organismic analogies attribute consciousness, or otherorganic qualities, to social wholes which are really only labels forthe interrelations of individuals.19 Just as in the mechanisticmetaphors, individual men are subsumed and determined, here theybecome mindless cells in some sort of social organism. While fewpeople today would assert flatly that society is an organism, mostsocial theorists hold doctrines that imply this. Note, for example,such phrases as: Society determines the values of its individualmembers; or The individuals actions are determined by the role heplays in the group to which he belongs, and so on. Such concepts asthe public good, the common good, social welfare, and so on,are also endemic. All these concepts rest on the implicit premise thatthere exists, somewhere, a living organic entity known as society,the group, the public, the community, and that that entity hasvalues and pursues ends.

Not only are these terms held up as living entities; they are sup-posed to exist more fundamentally than mere individuals, and cer-tainly their goals take precedence over individual ones. It is ironicthat the self-proclaimed apostles of science should pursue the sheermysticism of assuming the living reality of these concepts.20 Suchconcepts as public good, general welfare, and so on, should,therefore, be discarded as grossly unscientific, and the next timesomeone preaches the priority of public good over the individualgood, we must ask: Who is the public in this case? We mustremember that in the slogan justifying the public debt that rose to

19On the fallacy of conceptual realism (or Platonic ultra-realism)involved here, and on the necessity for methodological individualism, seeF.A. Hayek, The Counter-Revolution of Science (Glencoe, Ill.: The Free Press,1952), passim, and Mises, Human Action, pp. 41ff. and 45.

20We may therefore say with Frank Chodorov that society are people.Frank Chodorov, Society Are People (Philadelphia: Intercollegiate Society ofIndividualists, n.d.). For a critique of the mystique of society, see Mises,Theory and History, pp. 250ff.

Method 15

fame in the 1930s: We owe it only to ourselves, it makes a big dif-ference for every man whether he is a member of the we or of theourselves.21

A similar fallacy is committed, alike by friends and by foes of themarket economy, when the market is called impersonal. Thus,people often complain that the market is too impersonal because itdoes not grant to them a greater share of worldly goods. It is over-looked that the market is not some sort of living entity makinggood or bad decisions, but is simply a label for individual persons andtheir voluntary interactions. If A thinks that the impersonal mar-ket is not paying him enough, he is really saying that individuals B,C, and D are not willing to pay him as much as he would like toreceive. The market is individuals acting. Similarly, if B thinks thatthe market is not paying A enough, B is perfectly free to step in andsupply the difference. He is not blocked in this effort by some mon-ster named market.

One example of the widespread use of the organismic fallacy isin discussions of international trade. Thus, during the gold-standardera, how often did the cry go up that England or France or someother country was in mortal danger because it was losing gold?What was actually happening was that Englishmen or Frenchmenwere voluntarily shipping gold overseas and thus threatening thebanks in those countries with the necessity of meeting obligations (topay in gold) which they could not possibly fulfill. But the use of theorganismic metaphor converted a grave problem of banking into avague national crisis for which every citizen was somehow responsi-ble.22

21See the delightful essay by Frank Chodorov, We Lose It to Our-selves, analysis (June 1950): 3.

22A similar error of metaphor prevails in foreign policy matters. Thus:

When one uses the simple monosyllabic France one thinks ofFrance as a unit, an entity. When . . . we say France sent hertroops to conquer Tuniswe impute not only unity but person-ality to the country. The very words conceal the facts and makeinternational relations a glamorous drama in which personalizednations are the actors, and all too easily we forget the flesh-and-blood men and women who are the true actors . . . if we had nosuch word as France . . . then we should more accurately


So far we have been discussing those organismic concepts whichassume the existence of a fictive consciousness in some collectivewhole. There are also numerous examples of other misleading bio-logical analogies in the study of man. We hear much, for example, ofyoung and old nations, as if an American aged twenty is some-how younger than a Frenchman of the same age. We read ofmature economies, as if an economy must grow rapidly and thenbecome mature. The current fashion of an economics of growthpresumes that every economy is somehow destined, like a livingorganism, to grow in some predetermined manner at a definiterate. (In the enthusiasm it is overlooked that too many economiesgrow backward.) That all of these analogies are attempts to negateindividual will and consciousness has been pointed out by Mrs. Pen-rose. Referring to biological analogies as applied to business firms,she writes:

where explicit biological analogies crop up in economics they aredrawn exclusively from that aspect of biology which deals with thenonmotivated behavior of organisms. . . . So it is with the life-cycleanalogy. We have no reason whatever for thinking that the growthpattern of a biological organism is willed by the organism itself. Onthe other hand, we have every reason for thinking that the growthof a firm is willed by those who make the decisions of the firm . . .and the proof of this lies in the fact that no one can describe thedevelopment of any given firm . . . except in terms of decisionstaken by individual men.23

describe the Tunis expedition in some such way as this: A fewof . . . thirty-eight million persons sent thirty thousand others toconquer Tunis. This way of putting the fact immediately sug-gests a question, or rather a series of questions. Who are thefew? Why did they send the thirty thousand to Tunis? Andwhy did these obey? Empire-building is done not by nations,but by men. The problem before us is to discover the men, theactive, interested minorities in each nation, who are directlyinterested in imperialism and then to analyze the reasons whythe majorities pay the expenses and fight the wars. (ParkerThomas Moon, Imperialism and World Politics [New York:Macmillan, 1930], p. 58)

23Edith Tilton Penrose, Biological Analogies in the Theory of theFirm, American Economic Review (December 1952): 808.

Method 17

AXIOMS AND DEDUCTION

The fundamental axiom, then, for the study of man is the exis-tence of individual consciousness, and we have seen the numerousways in which scientism tries to reject or avoid this axiom. Not beingomniscient, a man must learn; he must ever adopt ideas and actupon them, choosing ends and the means to attain these ends. Uponthis simple fundamental axiom a vast deductive edifice can be con-structed. Professor Mises has already done this for economics, whichhe has subsumed under the science of praxeology: this centers on theuniversal formal fact that all men use means for chosen ends, with-out investigating the processes of the concrete choices or the justifi-cation for them. Mises has shown that the entire structure of eco-nomic thought can be deduced from this axiom (with the help of avery few subsidiary axioms).24

Since the fundamental and other axioms are qualitative bynature, it follows that the propositions deduced by the laws of logicfrom these axioms are also qualitative. The laws of human action aretherefore qualitative, and, in fact, it should be clear that free will pre-cludes quantitative laws. Thus, we may set forth the absolute eco-nomic law that an increase in the supply of a good, given thedemand, will lower its price; but if we attempted to prescribe withsimilar generality how much the price would fall, given a definiteincrease in supply, we would shatter against the free-will rock ofvarying valuations by different individuals.

It goes without saying that the axiomatic-deductive method hasbeen in disrepute in recent decades, in all disciplines but mathemat-ics and formal logicand even here the axioms are often supposedto be a mere convention rather than necessary truth. Few discussionsof the history of philosophy or scientific method fail to make the rit-ual attacks on old-fashioned argumentation from self-evident princi-ples. And yet the disciples of scientism themselves implicitly assumeas self-evident not what cannot be contradicted, but simply that themethodology of physics is the only truly scientific methodology. Thismethodology, briefly, is to look at facts, then frame ever more general

24In his Human Action. For a defense of this method, see chapter 6, thisvolume; and Rothbard, Praxeology: Reply to Mr. Schuller, American Eco-nomic Review (December 1951): 94346; reprinted in this volume as chap-ter 7.


hypotheses to account for the facts, and then to test these hypothe-ses by experimentally verifying other deductions made from them.But this method is appropriate only in the physical sciences, wherewe begin by knowing external sense data and then proceed to ourtask of trying to find, as closely as we can, the causal laws of behav-ior of the entities we perceive. We have no way of knowing these lawsdirectly; but fortunately we may verify them by performing controlledlaboratory experiments to test propositions deduced from them. Inthese experiments we can vary one factor, while keeping all other rel-evant factors constant. Yet the process of accumulating knowledge inphysics is always rather tenuous; and, as has happened, as we becomemore and more abstract, there is greater possibility that some otherexplanation will be devised which fits more of the observed facts andwhich may then replace the older theory.

In the study of human action, on the other hand, the proper pro-cedure is the reverse. Here we begin with the primary axioms; weknow that men are the causal agents, that the ideas they adopt byfree will govern their actions. We therefore begin by fully knowingthe abstract axioms, and we may then build upon them by logicaldeduction, introducing a few subsidiary axioms to limit the range ofthe study to the concrete applications we care about. Furthermore,in human affairs, the existence of free will prevents us from con-ducting any controlled experiments; for peoples ideas and valuationsare continually subject to change, and therefore nothing can be heldconstant. The proper theoretical methodology in human affairs,then, is the axiomatic-deductive method. The laws deduced by thismethod are more, not less, firmly grounded than the laws of physics;for since the ultimate causes are known directly as true, their conse-quents are also true.

One of the reasons for the scientistic hatred of the axiomatic-deductive method is historical. Thus, Dr. E.C. Harwood, inveteratebattler for the pragmatic method in economics and the social sci-ences, criticizes Mises as follows:

Like the Greeks, Dr. Mises disparages change. Praxeology is notconcerned with the changing content of acting, but with its pureform and categorical structure. No one who appreciates thelong struggle of man toward more adequate knowing would crit-icize Aristotle for his adoption of a similar viewpoint 2,000 yearsago, but, after all, that was 2,000 years ago; surely economists

Method 19

can do better than seek light on their subject from a beacon thatwas extinguished by the Galilean revolution in the 17th cen-tury.25

Apart from the usual pragmatist antagonism to the apodicticlaws of logic, this quotation embodies a typical historiographicalmyth. The germ of truth in the historical picture of the nobleGalileo versus the antiscientific Church consists largely in twoimportant errors of Aristotle: (a) he thought of physical entities asacting teleologically, and thus in a sense as being causal agents; and(b) he necessarily had no knowledge of the experimental method,which had not yet been developed, and therefore thought that theaxiomatic-deductive-qualitative method was the only one appropri-ate to the physical as well as the human sciences. When the seven-teenth century enthroned quantitative laws and laboratory meth-ods, the partially justified repudiation of Aristotle in physics wasfollowed by the unfortunate expulsion of Aristotle and his method-ology from the human sciences as well.26 This is true apart from his-torical findings that the Scholastics of the Middle Ages were theforerunners, rather than the obscurantist enemies, of experimentalphysical science.27

25E.C. Harwood, Reconstruction of Economics (Great Barrington, Mass.:American Institute for Economic Research, 1955), p. 39. On this and otherexamples of scientism, see Leland B. Yeager, Measurement as ScientificMethod in Economics, American Journal of Economics and Sociology (July1957): 337. Also see Yeager, Reply to Col. Harwood, ibid. (October1957): 10406. As Yeager wisely concludes, Anthropomorphism, rightlyscorned in the natural sciences as prescientific metaphysics, is justified ineconomics because economics is about human action.

26Van Melsen, The Philosophy of Nature, pp. 5458.27As Schumpeter declared: The scholastic science of the Middle Ages

contained all the germs of the laical science of the Renaissance. The exper-imental method was used notably by Friar Roger Bacon and Peter of Mari-court in the thirteenth century; the heliocentric system of astronomy origi-nated inside the Church (Cusanus was a cardinal and Copernicus acanonist); and the Benedictine monks led the way in developing medievalengineering. See Joseph A. Schumpeter, A History of Economic Analysis(New York: Oxford University Press, 1954), pp. 81ff.; and Lynn White, Jr.,Dynamo and Virgin Reconsidered, The American Scholar (Spring, 1958):183212.


One example of concrete law deduced from our fundamentalaxiom is as follows: Since all action is determined by the choice ofthe actor, any particular act demonstrates a persons preference forthis action. From this it follows that if A and B voluntarily agree tomake an exchange (whether the exchange be material or spiritual),both parties are doing so because they expect to benefit.28

SCIENCE AND VALUES: ARBITRARY ETHICS

Having discussed the properly scientific, as contrasted to the sci-entistic, approach to the study of man, we may conclude by brieflyconsidering the age-old question of the relationship between scienceand values. Ever since Max Weber, the dominant position in thesocial sciences, at least de jure, has been Wertfreiheit: that scienceitself must not make value judgments, but confine itself to judgmentsof fact, since ultimate ends can be only sheer personal preference notsubject to rational argument. The classical philosophical view that arational (that is, in the broad sense of the term, a scientific) ethicis possible has been largely discarded. As a result, the critics of Wert-freiheit, having dismissed the possibility of rational ethics as a sepa-rate discipline, have taken to smuggling in arbitrary, ad hoc ethicaljudgments through the back door of each particular science of man.The current fashion is to preserve a faade of Wertfreiheit, while casu-ally adopting value judgments, not as the scientists own decision,but as the consensus of the values of others. Instead of choosing hisown ends and valuing accordingly, the scientist supposedly maintainshis neutrality by adopting the values of the bulk of society. In short,to set forth ones own values is now considered biased and nonob-jective, while to adopt uncritically the slogans of other people is theheight of objectivity. Scientific objectivity no longer means a manspursuit of truth wherever it may lead, but abiding by a Gallup poll ofother, less informed subjectivities.29

28For a refutation of the charge that this is a circular argument, seeRothbard, Toward a Reconstruction of Utility and Welfare Economics.

29When they [the practical scientists] remember their vows of objec-tivity, they get other people to make their judgments for them. AnthonyStanden, Science Is a Sacred Cow (New York: E.P. Dutton, 1958), p. 165.

Method 21

The attitude that value judgments are self-evidently correctbecause the people hold them permeates social science. The socialscientist often claims that he is merely a technician, advising hisclientsthe publichow to attain their ends, whatever they maybe. And he believes that thereby he can take a value position with-out really committing himself to any values of his own. An examplefrom a recent public finance textbook (an area where the economicscientist must constantly confront ethical problems):

The present-day justification for the ability principle (among econ-omists) is simply the fact that . . . it is in accord with consensus ofattitudes toward equity in the distribution of real income and oftax burden. Equity questions always involve value judgments, andtax structures can be evaluated, from an equity standpoint, only interms of their relative conformity with the consensus of thought inthe particular society with respect to equity.30

But the scientist cannot thereby escape making value judgmentsof his own. A man who knowingly advises a criminal gang on the bestmeans of safe-cracking is thereby implicitly endorsing the end: safe-cracking. He is an accessory before the fact. An economist whoadvises the public on the most efficient method of obtaining eco-nomic equality is endorsing the end of economic equality. The econ-omist who advises the Federal Reserve System how most expedi-tiously to manage the economy is thereby endorsing the existence ofthe system and its aim of stabilization. A political scientist whoadvises a government bureau on how to reorganize its staff for greaterefficiency (or less inefficiency) is thereby endorsing the existence andthe success of that bureau. To be convinced of this, consider whatthe proper course would be for an economist who opposes the exis-tence of the Federal Reserve System, or the political scientist whowould like to see the liquidation of the bureau. Wouldnt he bebetraying his principles if he helped what he is against to becomemore efficient? Wouldnt his proper course either be to refuse toadvise it, or perhaps to promote its inefficiencyon the grounds ofthe classical remark by a great American industrialist (speaking ofgovernment corruption): Thank God that we dont get as muchgovernment as we pay for?

30John F. Due, Government Finance (Homewood, Ill.: Richard D. Irwin,1954), p. 122.


It should be realized that values do not become true or legitimatebecause many people hold them; and their popularity does not makethem self-evident. Economics abounds in instances of arbitrary val-ues smuggled into works the authors of which would never think ofengaging in ethical analysis or propounding an ethical system. Thevirtue of equality, as we have indicated, is simply taken for grantedwithout justification; and it is established, not by sense perception ofreality or by showing that its negation is self-contradictorythe truecriteria of self-evidencebut by assuming that anyone who disagreesis a knave and a rogue. Taxation is a realm where arbitrary valuesflourish, and we may illustrate by analyzing the most hallowed andsurely the most commonsensical of all tax ethics: some of AdamSmiths famous canons of justice in taxation.31 These canons havesince been treated as self-evident gospel in practically every work onpublic finance. Take, for example, the canon that the costs of collec-tion of any tax be kept to a minimum. Obvious enough to include inthe most wertfrei treatise? Not at allfor we must not overlook thepoint of view of the tax collectors. They will favor high administrativecosts of taxation, simply because high costs mean greater opportuni-ties for bureaucratic employment. On what possible grounds can wecall the bureaucrat wrong or unjust? Certainly no ethical systemhas been offered. Furthermore, if the tax itself is considered bad onother grounds, then the opponent of the tax may well favor highadministrative costs on the ground that there will then be lesschance for the tax to do damage by being fully collected.

Consider another seemingly obvious Smith canon, namely, thata tax be levied so that payment is convenient. But again, this is by nomeans self-evident. Opponents of a tax, for example, may want thetax to be made purposely inconvenient so as to induce the people torebel against the levy. Or another: that a tax be certain and not arbi-trary, so that the taxpayers know what they will have to pay. But hereagain, further analysis raises many problems. For some may arguethat uncertainty positively benefits the taxpayers, for it makesrequirements more flexible, thus allowing more room for possiblebribery of the tax collector. Another popular maxim is that a tax be

31Adam Smith, The Wealth of Nations (New York: Modern Library,1937), pp. 77779.

Method 23

framed to make it difficult to evade. But again, if a tax is consideredunjust, evasion might be highly beneficial, economically and morally.

The purpose of these strictures has not been to defend high costsof tax collection, inconvenient taxes, bribery, or evasion, but to showthat even the tritest bits of ethical judgments in economics are com-pletely illegitimate. And they are illegitimate whether one believes inWertfreiheit or in the possibility of a rational ethic: for such ad hocethical judgments violate the canons of either school. They are nei-ther wertfrei nor are they supported by any systematic analysis.

CONCLUSION:INDIVIDUALISM VS. COLLECTIVISM IN THE STUDY OF MAN

Surveying the attributes of the proper science of man as againstscientism, one finds a shining, clear theory separating one from theother. The true science of man bases itself upon the existence of indi-vidual human beings, upon individual life and consciousness. Thescientistic brethren (dominant in modern times) range themselvesalways against the meaningful existence of individuals: the biologistsdeny the existence of life, the psychologists deny consciousness, theeconomists deny economics, and the political theorists deny politicalphilosophy. What they affirm is the existence and primacy of socialwholes: society, the collective, the group, the nation. Theindividual, they assert, must be value-free himself, but must take hisvalues from society. The true science of man concentrates on theindividual as of central, epistemological and ethical importance; theadherents of scientism, in contrast, lose no opportunity to denigratethe individual and submerge him in the importance of the collective.With such radically contrasting epistemologies, it is hardly sheercoincidence that the political views of the two opposing camps tendto be individualist and collectivist, respectively.

Originally appear in the September 15, 1961 issue of The National BookFoundation. A review of Ludwig von Misess, Epistemological Problems of Eco-nomics (Princeton, N.J.: D. Van Nostrand, 1960); Essays in European Eco-nomic Thought, Louise Sommer, ed. (Princeton, N.J.: D. Van Nostrand,1960); and Richard von Mises, Probability, Statistics, and Truth, 2nd revisedEnglish edition, prepared by Hilda Geiringer (New York: Macmillan, 1957).

If the proper study of mankind is man, the question immediatelyarises: what is the proper way to study man? In recent genera-tions, the enormous prestige gained by physics in advancing ourknowledge of the material world has led to the uncritical transferof the methods appropriate in the natural sciences to the study ofactions of men. These three books illuminate different aspects of theimportant truth that differences between the nature of human actionand the behavior of unmotivated physical objects require differentmethodologies of scientific study.

The science of economics has always had a separate methodol-ogy of its own; but, as in almost all successful sciences, it did notbegin to examine and analyze its methodology until it had developedthe bulk of its laws and principles. However, if a well-analyzedmethodology is not established in time, a science is in danger offalling into gross error by wandering down plausible but invalidpaths. In an age when many widely divergent and even contradictorypaths of inquiry are open to economists, it is more important thanever that economic science develop a more critical awareness of itsproper methodology. Ludwig von Misess Grundprobleme der Nation-alkonomie, published in 1933, was a monumental achievement in

What is the Proper Wayto Study Man?

2

25


the study of economic methodology. While previous work by Senior,Cairnes, and Menger had vindicated the validity of economic theory,Misess volume was the first to rid the methodology of economics ofall traces of positivism and relativism. For the first time, Misesexplained fully why the laws of human action (economics and, morewidely, praxeology) cannot be tested by reference to statistical orhistorical data. In the behavior of physical objects, science beginsby empirical observation of constant relations, and then frames ten-tative hypotheses of explanatory laws, these hypotheses being alwayssubject to testing and revision by referring their deduced conse-quents to controlled experiments, where all but the relevant, isolatedfactors are held constant. This is the scientific method of physics.But in the study of human action, as Mises shows, the reverse is true;here, we begin by knowing the causal laws: by knowing the fact ofhuman consciousness, of free will, of motivated, purposeful action ofhuman beings in using given means for the attainment of desiredends. On the other hand, the facts of human history are not, as inphysics, controllable and subject to testing; they are the complex andchanging resultants of the interplay of human motives and actions,impinging on the natural environment and on each other. The lawsof economic science, therefore, can only be constructed by startingwith apodictically known axioms and deducing from them a body ofnecessarily true laws.

The best-known modern work on economic methodology in theEnglish-speaking world has been Lionel Robbinss An Essay on theNature and Significance of Economic Science, published at about thesame time as Grundprobleme. But Misess book is a far more profoundand basic work in the same general tradition, and its present transla-tion as Epistemological Problems of Economics therefore fills a vital gapby bringing us the outstanding work on the methodology of econom-ics.

Essays in European Economic Thought brings to the Americanreader translations of seven important European economic essays ofthe past century. Perhaps the outstanding article in the collection isthe brilliant critique of mathematical economics by Paul Painlev, aneminent French mathematician who wrote the essay as the introduc-tion to the French translation of W. Stanley Jevonss Theory of Politi-cal Economy in 1909. Jevonss work was one of the first, and one of theleast harmful, of the increasingly frequent incursions into economics

Method 27

of the mathematical method; and yet, in his critique of Jevons,Painlev already saw the dangers and fallacies. The Austrian, praxe-ological tradition has always recognized that mathematics, and quan-titative methods generally, are appropriate to the physical scienceswhere behavior is continuous and unmotivated; but that verballogic, in contrast, is the appropriate method where one is studyingthe necessarily discrete, motivated, qualitative actions of men. In afield where mathematical economists are too often inclined to dis-miss critics as ignorant of mathematics, the arguments of this distin-guished mathematician carry particular weight.

Richard von Misess great classic, Probability, Statistics, and Truth,effected a revolution in the nature of probability theory during the1920s and 1930s. Classical probability theory considered numericalprobability to be derived from equal ignorance about the potentialevents being considered: thus, the probability of obtaining a three-spot upon the throw of a die was considered to be one-sixthbecause there are six possibilities and we do not know if one possi-bility is stronger than another. Mises (the brother of Ludwig vonMises), demonstrating the contradictions of this approach, insistedthat the probability is not one-sixth if the die happens to be loaded,and that the only way to find out if a die is loaded is by tossing it alarge number of times. Thus was born the frequency theory ofnumerical probability, based on knowledge and not on ignorance.The frequency theory implies that to say the probability of a dieshowing three is one-sixth means that, if a die is thrown a greatmany times, the number of occasions on which three is obtainedwill approach one out of every six throws. But this means, thatnumerical and mathematical probability theory cannot really applyto each single case, but only to the proportion of randomly-selectedhomogeneous events as tossing a coin or throwing a die. This fact ismuch more true of the unique, non-random events of ordinaryhuman (and entrepreneurial) action. It becomes evident fromRichard von Misess fundamental work that mathematical probabil-ity theory can never be applicable to economics, or to any otherstudy of human action.

At the present time, when mathematical probability theory isvery heavily used in economics and sociology, the translation of thethird German edition of Misess work is particularly welcome. ForMises here refutes various modern criticisms of his theory and


demolishes the attempts of such philosophers as Carnap andReichenbach to establish a mathematical theory for individual cases,as contrasted to large homogeneous classes, of human actions.

Originally appeared in Phenomenology and the Social Sciences, MauriceNatanson, ed. (Evanston, Ind.: Northwestern University Press, 1973), vol.2, pp. 3161.

THE PRAXEOLOGICAL METHOD

During the past generation, a veritable revolution has takenplace in the discipline of economics. I am referring not somuch to the well-known Keynesian revolution, but to thequieter yet more profound revolution in the methodology ofthe discipline. This change has not occurred simply in the formalwritings of the handful of conscious methodologists; it has spread,largely unnoticed, until it now permeates research and study in allparts of the field. Some effects of this methodological revolution areall too apparent. Let the nonspecialist in economics pick up a jour-nal article or monograph today and contrast it with one of a genera-tion ago, and the first thing that will strike him is the incomprehen-sibility of the modern product. The older work was written inordinary language and, with moderate effort, was comprehensible tothe layman; the current work is virtually all mathematics, algebraicor geometric. As one distinguished economist lamented, Economicsnowadays often seems like a third-rate sub-branch of mathematics,and one, he added, that the mathematician himself does not esteemvery highly.

Of course, economics shares this accelerated mathematizationwith virtually every other field of knowledge, including history andliterature. But, laboring under the common notion that it is a sciencewith a special focus on quantities, economics has proceeded farther

29

Praxeology as the Methodof the Social Sciences

3

and faster than any of its sister disciplines down the mathematicaland statistical road.

The emphasis on mathematics is a symptom of a deeper changein the discipline: the rapid adoption of what we may broadly call pos-itivism as the guide for research and the criterion for the successfulconstruction of economic theory. The growing influence of positivismhas its source in the attempt of all social sciences to mimic the(allegedly) supremely successful science, physics. For social scientists,as for almost all intellectuals, physics has unfortunately all butreplaced philosophy as the queen of the sciences. In the hands ofthe positivists, philosophy has almost come to be an elaborate runningcommentary on and explication of physics, too often serving as thehandmaiden of that prestigious science. What positivists see as themethodology of physics has been elevated, at their hands, to be thescientific method, and any deviant approach has been barred from thestatus of science because it does not meet the rigorous positivist test.

At the risk of oversimplification, the positivist model of the sci-entific method may be summarized as follows:

Step 1. The scientist observes empirical regularities, or laws,between variables.

Step 2. Hypothetical explanatory generalizations are con-structed, from which the empirically observed laws can bededuced and thus explained.

Step 3. Since competing hypotheses can be framed, eachexplaining the body of empirical laws, such coherence orconsistent explanation is not enough; to validate thehypotheses, other deductions must be made from them,which must be testable by empirical observation.

Step 4. From the construction and testing of hypotheses, awider and wider body of generalizations is developed; thesecan be discarded if empirical tests invalidate them, or bereplaced by new explanations covering a still wider range ofphenomena.

Since the number of variables is virtually infinite, the testing inStep 3, as well as much of the observation in Step 1, can only be donein controlled experiments, in which all variables but the onesunder study are held constant. Replicating the experimental condi-tions should then replicate the results.


Method 31

Note that in this methodology we proceed from that which isknown with certaintythe empirical regularitiesup through everwider and more tentative hypotheses. It is this fact that leads the lay-man to believe erroneously that Newton overthrew his predeces-sors and was in his turn overthrown by Einstein. In fact, what hap-pens is not so much substitution as the addition of more generalexplanations for a wider range of phenomena; the generalizations ofa Newton or an Einstein are far more tentative than the fact that twomolecules of hydrogen combine with one molecule of oxygen to pro-duce water.

Now, I am not expert enough in the philosophy of science tochallenge this positivist model of the methodology of physics,although my reading in the philosophy of nature leads me to suspectthat it is highly inadequate.1 My contention is rather that the whole-sale and uncritical application of this model to economics in recentdecades has led the entire discipline badly astray.

There is, however, unbeknownst to most present-day econo-mists, a competing methodological tradition. This tradition, themethod of most of the older classical economists, has been calledpraxeology by Ludwig von Mises, its most eminent modern theoristand practitioner. Praxeology holds that in the social sciences wherehuman beings and human choices are involved, Step 3 is impossible,since even in the most ambitious totalitarian society, it is impossibleto hold all the variables constant. There cannot be controlled exper-iments when we confront the real world of human activity.

Let us take a recent example of a generally unwelcome economicphenomenon: the accelerated price inflation in the United States inthe last few years. There are all manner of competing theoreticalexplanations for this, ranging from increases in the money supply toa sudden increase in greed on the part of the public or various seg-ments thereof. There is no positivist empirical way of decidingbetween these various theories; there is no way of confirming or dis-proving them by keeping all but one supposedly explanatory variableconstant, and then changing that variable to see what happens toprices. In addition, there is the well-known social science analogue

1On this, see Andrew G. Van Melsen, The Philosophy of Nature (Pitts-burgh, Penn.: Duquesne University Press, 1953).

of the Heisenberg uncertainty principle: positivist science containspredictions, but how can predictions be tested when the very act ofprediction itself changes the forces at work? Thus, economist A pre-dicts a severe recession in six months; acting on this, the governmenttakes measures to combat the supposedly imminent recession, thepublic and the stock market react, and so on. The recession thennever takes place. Does that mean that the economist was basing hisprediction on erroneous theories, or that the theories were correctbut inappropriate to the actual data, or that he was really right butthat prompt action forestalled the dreaded event? There is no way todecide.

One further example: Keynesian economists hold that depres-sions can be cured by massive doses of deficit spending by the gov-ernment. The United States government engaged in large-scaledeficit-spending to combat the depression in the late l930s, but to noavail. The anti-Keynesians charge that this failure proves the incor-rectness of Keynesian theory; the Keynesians reply that the doseswere simply not massive enough, and that far greater deficits wouldhave turned the tide. Again, there is no positivist-empirical way todecide between these competing claims.

Praxeologists share the contention of the impossibility of empir-ical testing with other critics of positivism, such as the institutional-ists, who for this reason abandon economic theory altogether andconfine themselves to purely empirical or institutional economicreportage. But the praxeologist does not despair; he turns instead toanother methodology that can yield a correct body of economic the-ory. This methodology begins with the conviction that while theeconomist, unlike the physicist, cannot test his hypotheses in con-trolled experiments, he is, in another sense, in a better position thanthe physicist. For while the physicist is certain of his empirical lawsbut tentative and uncertain of his explanatory generalizations, theeconomist is in the opposite position. He begins, not with detailed,quantitative, empirical regularities, but with broad explanatory gen-eralizations. These fundamental premises he knows with certainty;they have the status of apodictic axioms, on which he can builddeductively with confidence. Beginning with the certain knowledgeof the basic explanatory axiom A, he deduces the implications of A:B, C, and D. From these he deduces further implications, and so on.If he knows that A is true, and if A implies B, C, and D, then he


knows with certainty that B, C, and D are true as well. The positivist,looking through the blinders imposed by his notion of physics, findsit impossible to understand how a science can possibly begin with theexplanatory axioms and work downward to the more concrete empir-ical laws. He therefore dismisses the praxeological approach asmythical and apriorist.

What are these axioms with which the economist can so confi-dently begin? They are the existence, the nature, and the implica-tions of human action. Individual human beings exist. Moreover,they do not simply move, as do unmotivated atoms or molecules;they act, that is, they have goals and they make choices of means toattain their goals. They order their values or ends in a hierarchyaccording to whether they attribute greater or lesser importance tothem; and they have what they believe is technological knowledge toachieve their goals. All of this action must also take place throughtime and in a certain space. It is on this basic and evident axiom ofhuman action that the entire structure of praxeological economictheory is built. We do not know, and may never know with certainty,the ultimate equation that will explain all electromagnetic and grav-itational phenomena; but we do know that people act to achievegoals. And this knowledge is enough to elaborate the body of eco-nomic theory.2

There is considerable controversy over the empirical status ofthe praxeological axiom. Professor Mises, working within a Kantianphilosophical framework, maintained that like the laws of thought,the axiom is a priori to human experience and hence apodictically

Rothbard economic controversies (2011)

Documents

Transcript of Rothbard economic controversies (2011)