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The Historical Setting of the Austrian School of Economics
Ludwig von Mises

The Conflict with the German
Historical School

5. The Liberalism of
the Austrian Economists

Plato dreamed of the benevolent tyrant who would entrust the wise philosopher with the power to establish the perfect social system. The Enlightenment did not put its hopes upon the more or less accidental emergence of well-intentioned rulers and provident sages. Its optimism concerning mankind's future was founded upon the double faith in the goodness of man and in his rational mind. In the past a minority of villains?crooked kings, sacrilegious priests, corrupt noblemen?were able to make mischief. But now?according to Enlightenment doctrine?as man has become aware of the power of his reason, a relapse into the darkness and failings of ages gone by is no longer to be feared. Every new generation will add something to the good accomplished by its ancestors. Thus mankind is on the eve of a continuous advance toward more satisfactory conditions. To progress steadily is the nature of man. It is vain to complain about the alleged lost bliss of a fabulous golden age. The ideal state of society is before us, not behind us.

Most of the nineteenth-century liberal, progressive, and democratic politicians who advocated representative government and universal suffrage were guided by a firm confidence in the infallibility of the common man's rational mind. In their eyes majorities could not err. Ideas that originated from the people and were approved by the voters could not but be beneficial to the commonweal.

It is important to realize that the arguments brought forward in favor of representative government by the small group of liberal philosophers were quite different and did not imply any reference to an alleged infallibility of majorities. Hume had pointed out that government is always founded upon opinion. In the long run the opinion of the many always wins out. A government that is not supported by the opinion of the majority must sooner or later lose its power; if it does not abdicate, it is violently overthrown by the many. Peoples have the power eventually to put those men at the helm who are prepared to rule according to the principles that the majority considers adequate. There is, in the long run, no such thing as an unpopular government maintaining a system that the multitude condemns as unfair. The rationale of representative government is not that majorities are God-like and infallible. It is the intent to bring about by peaceful methods the ultimately unavoidable adjustment of the political system and the men operating its steering mechanism to the ideology of the majority, The horrors of revolution and civil war can be avoided if a disliked government can be smoothly dislodged at the next election.

The true liberals firmly held that the market economy, the only economic system that warrants a steadily progressing improvement of mankind's material welfare, can work only in an atmosphere of undisturbed peace. They advocated government by the people's elected representatives because they took it for granted that only this system will lastingly preserve peace both in domestic and in foreign affairs.

What separated these true liberals from the blind majority-worship of the self-styled radicals was that they based their optimism concerning mankind's future not upon the mystic confidence in the infallibility of majorities but upon the belief that the power of sound logical argument is irresistible. They did not fail to see that the immense majority of common men are both too dull and too indolent to follow and to absorb long chains of reasoning. But they hoped that these masses, precisely on account of their dullness and indolence, could not help endorsing the ideas that the intellectuals brought to them. From the sound judgment of the cultured minority and from their ability to persuade the majority, the great leaders of the nineteenth-century liberal movement expected the steady improvement of human affairs.

In this regard there was full agreement between Carl Menger and his two earliest followers, Wieser and Böhm-Bawerk. Among the unpublished papers of Menger, Professor Hayek discovered a note that reads: "There is no better means to disclose the absurdity of a mode of reasoning than to let it pursue its full course to the end." All three of them liked to refer to Spinoza's argumentation in the first book of his Ethics that ends in the famous dictum, "Sane sicut lux se ipsam et tenebras manifestat, sic veritas norma sui et falsi." They looked calmly upon the passionate propaganda of both the Historical School and Marxism. They were fully convinced that the logically indefensible dogmas of these factions would eventually be rejected by all reasonable men precisely on account of their absurdity and that the masses of common men would necessarily follow the lead of the intellectuals.[12]

The wisdom of this mode of arguing is to be seen in the avoidance of the popular practice of playing off an alleged psychology against logical reasoning. It is true that often errors in reasoning are caused by the individual's disposition to prefer an erroneous conclusion to the correct one. There are even hosts of people whose affections simply prevent them from straight thinking. But it is a far cry from the establishment of these facts to the doctrines that in the last generation were taught under the label "sociology of knowledge." Human thinking and reasoning, human science and technology are the product of a social process insofar as the individual thinker faces both the achievements and the errors of his predecessors and enters into a virtual discussion with them either in assenting or dissenting. It is possible for the history of ideas to make understandable a man's failings as well as his exploits by analyzing the conditions under which he lived and worked. In this sense only is it permissible to refer to what is called the spirit of an age, of a nation, of a milieu. But it is circular reasoning if one tries to explain the emergence of an idea, still less to justify it, by referring to its author's environment. Ideas always spring from the mind of an individual, and history cannot say anything more about them than that they were generated at a definite instant of time by a definite individual. There is no other excuse for a man's erroneous thinking than what an Austrian Government once declared with regard to the case of a defeated general?that nobody is answerable for not being a genius. Psychology may help us to explain why a man failed in his thinking. But no such explanation can convert what is false into truth.

The Austrian economists unconditionally rejected the logical relativism implied in the teachings of the Prussian Historical School. As against the declarations of Schmoller and his followers, they maintained that there is a body of economic theorems that are valid for all human action irrespective of time and place, the national and racial characteristics of the actors, and their religious, philosophical, and ethical ideologies.

The greatness of the service these three Austrian economists have rendered by maintaining the cause of economics against the vain critique of Historicism cannot be overrated. They did not infer from their epistemological convictions any optimism concerning mankind's future evolution. Whatever is to be said in favor of correct logical thinking does not prove that the coming generations of men will surpass their ancestors in intellectual effort and achievements. History shows that again and again periods of marvelous mental accomplishments were followed by periods of decay and retrogression. We do not know whether the next generation will beget people who are able to continue along the lines of the geniuses who made the last centuries so glorious. We do not know anything about the biological conditions that enable a man to make one step forward in the march of intellectual advancement. We cannot preclude the assumption that there may be limits to man's further intellectual ascent. And certainly we do not know whether in this ascent there is not a point beyond which the intellectual leaders can no longer succeed in convincing the masses and making them follow their lead.

The inference drawn from these premises by the Austrian economists was, that while it is the duty of a pioneering mind to do all that his faculties enable him to perform, it is not incumbent upon him to propagandize for his ideas, still less to use questionable methods in order to make his thoughts palatable to people. They were not concerned about the circulation of their writings. Menger did not publish a second edition of his famous Grunds?tze, although the book was long since out of print, second-hand copies sold at high prices, and the publisher urged him again and again to consent.

The main and only concern of the Austrian economists was to contribute to the advancement of economics. They never tried to win the support of anybody by other means than by the convincing power developed in their books and articles. They looked with indifference upon the fact that the universities of the German-speaking countries, even many of the Austrian universities, were hostile to economics as such and still more so to the new economic doctrines of subjectivism.

[12] There is need to add that Menger, Böhm-Bawerk, and Wieser looked with the utmost pessimism upon the political future of the Austrian Empire. But this problem cannot be dealt with in this essay.

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