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Source link: http://archive.mises.org/5193/the-philosophical-origins-of-austrian-economics/

The Philosophical Origins of Austrian Economics

June 16, 2006 by

The Austrian School of economics arose in opposition to the German Historical School; and Carl Menger developed his methodological views in combat with the rival group. David Gordon first discusses the philosophical doctrines of the Historical School, since this will deepen our comprehension of the contrasting Austrian position. He then discusses the Aristotelian influences on the Austrian School. FULL ARTICLE


Mark Sunwall June 16, 2006 at 8:51 pm

Gordon’s article is of key importance in summarizing the relationship of the Austrian school of economics to philosophy, particularly ontology. I seem to recall having read it somewhere else, and it is nice to see it up front for all to view at Mises.com.

In spite of the fact that it is “essential (in the sense of must) reading” I think Gordon’s thesis is wrong in its primary premise. Austrian economics and libertarian theory ought not to trap itself in an ontological cul de sac by rejecting the principle of internal relations. With the advent of quantum theory notions such as non-locality this principle is more defensable today than ever. It really doesn’t matter, from the point of view of the defense of individual liberty against predatory collectives, whether the individual is ultimately a nodal intersection of all the impinging influences of the cosmos or not. Even as hard headed a thinker as Carl Sagan was wont to say “we are all starstuff.” Essence and accident ought to be seen as a contiunuum…as in proximat versus remote causes. Of course that butterfly fluttering in China is not going to have a major impact on the logic of what you choose for breakfast today. No serious supporter of internal relations would go to the mat on that kind of issue.

As far as Hegel is concerned, he was a brillian sythesist and expositor of philosophy, and much of the contents of his works are unobjectionable, even from a libertarian point of view. As he became older he became more and more obsessed with making his dialectical schematic tighter and perfectly harmonious. A more serious faul was his sell out to the statist academic establishment of his day.

But then, isn’t that just “the way of all flesh”? It’s not the sell-outs like Hegel but those who work in academic environments without compromising themselves who are the miracles: Like Rothbard who worked for Nevada State and resisted both the allurs of political conformity and (as far as I know), the high time preference ambiance of Los Vegas.

Allen Weingarten June 17, 2006 at 5:44 am

I concur with Popper that to say something ‘about the physical world’ requires falsification. I also concur with Mises that there are a-priori truths that are necessary for explaining what happens in the world. There is no contradiction, for *a-priori truths may or may not apply to reality*. For example, arithmetic and Euclidean geometry, are necessarily true. So when they correspond to something in reality, their theorems apply. However, there are models wherein such truths do not apply.

A simpler example is that man acts, so we may fruitfully interpret an action as stemming from such an intention, as when someone picks up a glass to take a drink. However, he might have done so inadvertently, as when unconsciously swinging his hand. So the a-priori model of intention would be inapplicable. Whether or not an analytic, or a-priori, model applies to reality is a falsifiable matter, rather than something that can be foretold by aprioristic reasoning.

Daniel M. Ryan June 17, 2006 at 8:02 am

It was nice to learn that later philosophers’ hostility to “system-building” was the result of Hegel’s own system falling apart thanks to later scientific discoveries. (Eg: the necessity for there to be seven planets in the solar system.)

“Once burned, twice shy.”

David C June 17, 2006 at 11:09 am

One mistake I see made thruout this is the failure to understand that just because existence is rational doesn’t mean that it’s deterministic. How the parts of a body rely on each other may not be totally determinable if each part is looked at individually, but it does not mean that the parts have no rational measurable functions. Economics may rest on the assumption of free will, but that does not mean that economics has an irrational foundation. When people use scientific thought, they must make the assumption on faith that existence is rational. I don’t think that is any more radical than assuming that existence is non-deterministic and working from there. A quick look at the self shows that we act and live off the assumption that our actions are not deterministic thousands of times per day. Perhaps it could be argued that is just the way we percieve our pre-determined situation, but still it is a natural way for us to look at things and I see no way to refute a non-deterministc assumption than I do an existence is rational assumption when it comes to the way the universe works.

Curt Howland June 18, 2006 at 8:35 pm

David C., science also requires repeatable experiments. If I drop a ball of x weight from y height above the ground, it hits the ground with z energy. Always. Every time. Any variation can be accounted for by friction with air, relative distance from the center of the earth, etc.

The ball does not _act_. It reacts.

While individuals also react to conditions, we do so by _acting_. I may step out of the way of a dropping ball, I may run, I may not get out of the way at all and in fact try to catch it. Science cannot determine what my _action_ will be in reaction to the ball, but the ball will always have the same _reaction_.

Austrian Economics recognizes this essential element. There may be general trends, such as lower price will create greater demand, but there is no way to say that x lower price will create y greater demand.

Even such a well recognized “fact” as the Law of Comparative Advantage, only states that everyone benefits from doing what they do best. What cannot be determined is exactly how much benefit. Let’s face it, I may not enjoy doing what I do best. There is no such consideration when a ball is dropped, or two chemicals mixed.

Roger M June 19, 2006 at 10:39 am

Fascinting article! I learned a lot. The author writes “What are the philosophical roots of methodological individualism? Here, I suggest, we must once more return to Aristotle.” Some historians, especially Catholic ones, suggest that the Protestant Reformation with its emphasis on individual salvation, as opposed the the Catholic Church’s corporate version, created the radical individualism that later philosophers built on. But as he wrote, it’s difficult to trace the origins of ideas.

As I’ve written before, I think praxeology is great! But I also like some aspects of empiricism. Can’t we achieve a reasonable synthesis of the two? I believe I was taught one in school: Empirical research must be guided and interpreted in light of theory. In other words, if I find in my research a demand curve with a positive slope, I should realize that something is wrong with my research, not the theory.

Jim B June 19, 2006 at 1:48 pm

Roger – some questions are empirical, others aren’t. science can’t “prove itself the right method” — so it has to borrow from praxeology.

gene.berman June 25, 2006 at 7:44 am

You are quite right to point out that Mises acknowledged that the universe and all its phenomena might well be entirely deterministic even while demonstrating the superiority–the necessity–of proceeding with economic investigation and analysis on the basis that we do, indeed, make choices inexplicable on any other basis than the somewhat unsatisfactory phrase “free will.”

In my view, the situation is closely related (in a very practical way I’ll get to as the “purpose” of this comment) to the similar (and likewise, Misesian) observation that there are not two methods of reasoning, the deductive and the inductive, as is commonly assumed to be the case; that there is but one, essentially deductive, which admits of a subset (induction) applicable in cases in which one or more relevant elements are imprecisely separable or quantifiable. In my own view, exposition of this aspect of Misesian thought is far more important than indicated by the level of specific attention it has received.

The importance which I’d suggest is in the relationship of economic science to “natural” science, the latter term inclusive of those disciplines proceeding along inductive and quantitative lines (and generally dismissive of pretension to any knowledge not arising along these lines). There is a tendency among those–even of some of the most astute thinkers–to relegate ALL “soft” science to the realm of astrology and numerology AND, when paying any attention at all, to favor those views offering the most scientistic appurtenances (“behavioral” economics, lately).

I am not speaking of wild-eyed positivists. Many among those whose writing I observe are even vigorous supporters of free markets and reduced regulatory intervention (though oddly welcoming of “brave new world” scenarios in which emerging technologies are beneficially wielded by government policy–and at taxpayer expense–to produce some desired result, usually improvements to IQ, cure or elimination of diseases, etc.).

My suggestion is that the “hard science” community is a more important target market for Misesian ideas than is normally acknowledged or addressed. Though a minority of the overall intellectual community shaping public opinion (and policy), their views, especially to the extent demonstrably supportable, have a major, though slow-acting, impact on that larger community.

There is nothing whatever necessarily
incompatible in the views of Misesians and scientists. I believe the latter need to be made more aware of that fact.

gene berman June 25, 2006 at 8:06 am


Pardon my natural nit-picking but you’ve (slightly) mis-stated the Law of Comparative Advantage.

As a law, it directs (i.e., says you’ll do best) not that you do what you do best but that you do that in which your COMPARATIVE ADVANTAGE is greatest.

And the practical matter is that, though the two may often coincide, it’s also quite frequent that they don’t.

A really great example of comparative advantage
understood and exploited?

Babe Ruth was the hottest pitcher ever seen in baseball–seemingly an enormous comparative advantage, even greater than his batting comparison with other players. But because his batting could only be realized in games in which he also pitched (and those were necessarily only a minority of games played), the greatest comparative advantage was gained by changing his position so he could bat in every game.

That’s one of the best things about comparative advantage: usually, you don’t have to “figure it out”–the market will show you where it lies by comparing potential returns in alternate pursuits for which qualified or qualifiable.

Paul Marks June 25, 2006 at 10:57 am

Firstly I thought that the above was a very article.

As for agency “free will” versus “determinism”.

I agree that rationality does not require determinism (in the sense that all actions must be predetermined by prior events rather than being the subject of real choices).

Indeed rationality demands that determinism (in the way it is normally defined) is false.

To be “rational” a creature (a human or whatever) must be an agent (indeed this is just a different way of saying the same thing).

An agent, a being with the capacity of thought – of choice.

These choices are not “illusions” (and if they were, who is having the illusion – if no rational agent exists) and a human being is a different type of thing from say a rock or a the water in a lake.

When a dam is destroyed we say the the water behind the dam is “freed” but this is not “free” in the sense of a thinking creature (an agent – for example a human being).

The water will rush out of the lake if the dam is destroyed – but a human (if a restraining wall is destoyed) has the CHOICE of whether to leave the area or not.

And this choice is NOT entirely determined by prior events “creating his character” (or whatever), there is sometimes an act of choice.

When a person chooses to do something they could have choosen not to (otherwise the concept of choice is false and agency and agents do not exist).

If a person rapes another person they could have made the choice not to rape them – this is why the act of rape is “wrong” in a way that can not be said (for example) of an object happening to fall off a shelf whilst a women is in the bath and getting stuck in her virgina.

To claim that both events are the same (“the consequence of prior events”) is just absurd.

I know that F.A. Hayek denied that determinism denied moral responsibilty and (like David Hume) claimed that determinism (in the full sense) was “compatible” with moral responsibility.

However, Hayek was just wrong.

Paul Marks July 5, 2006 at 8:34 am

I left out “good” in very good article.

It is irritating that the defence of agency against the claim that everything is either predetermined or random has to be made again and again.

Many philosophers seem to be determined to “prove” that no agents (including themselves) exist. I supppose it is considered a mark of being a profound mind to claim that there is no mind.

But men like David Gordon do a good job of pointing at the foolish choice of some philosophers to spend their time claiming that they do not make choices (I suppose the claim is that “we could do no other than write this book defending determinism, prior events meant that we had no choice in the matter”) the old fanatical hatred of what Mises called the “unanalizable I”.

“Analyse” in the sense of the reductionist project of breaking down human conduct into a series of cause-and-effect events or claiming that things (if not predetermined by prior events) must be random. Man as either a piece of clockwork or as atoms moving at random.

The horror at human CHOICE may be connected to the deep dark fear that it may mean the existance of the soul.

Of course many materialists have not denied free will, but there still seems to be a fear that agency denies the “scientific” view of human beings.

I must say that I liked the part of the article that pointed to the difference between Menger’s view of subjective economic value and that of Jevons.

The philosophical point was well made.

Roger M July 5, 2006 at 8:56 am

You’re right on. I think one of the major battles we have to fight today is to preserve the idea of free will. But it seems we’re losing. The real difference between socialism/Marxism and Austrianism is the nature of mankind that each assumes. Socialists cling to determinism. Like you, I’m puzzled as to why people would prefer determinism. I can only guess that it alleviates some guilt by removing responsibility?

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