Roots of Austrianism

“tacit” rather than explicit. But they are instances of knowledge, nonetheless.

Since intellectuals like Professor Green are interested both in the cognitive process and in the occupational process (job) of articulating and transmitting knowledge, they have unique class interests — interests vigorously advanced by Philip Green.

It is in a statist context that intellectuals can most fully advance these class interests, by attacking as “unjustified” and “irrational” all resort to cognitive processes other than those employed in their own occupation. Green criticizes entrepreneurs “whose own performances have never been explicitly judged by any ‘objective’ standard”; that is, they are not fully susceptible to the kind of cognitive process regularly employed by Professor Green’s class. Professor Green merely seeks to establish and perpetuate a new ruling class, the intellectual class of which he is a member.

That this form of class rule is on the rise is incontestable, for intellectuals have in recent years come to tremendous power through the growth of a bureaucratic state that seeks, not merely the kind of forcible expropriation of resources that has characterized states since the first robber band began to systematically plunder its victims, but the subordination of all social decision making processes to its own power. Such “scientific” regulation of others requires the articulation of knowledge on a previously unprecedented scale. Notice, for example, the specifications for bus seat padding in Chris Hocker’s article on “Transit as if People Mattered” in last month’s LR. The reams and reams of paper required by such a regulation can be the product only of the cognitive process of articulation, the stock-in-trade of the intellectual class.

That Professor Green is simply interested in his own class interests, or privileges, is nowhere more evident than in his claim that an egalitarian socialist state need not violate freedom. His notion of freedom, of course is limited to the pursuit of the occupational interests of intellectuals — the freedom to engage in the articulation and transmission of certain kinds of knowledge. The freedom to work, trade, produce, love, and otherwise express one’s values voluntarily is not to be protected; rather, such voluntary processes of choice are to be totally usurped by the scientific-rational- intellectual-egalitarian- bureaucratic state.

Green’s egalitarian state would in fact prove to be more hierarchical than any previously witnessed. For in state-ruled societies, as Gaetano Mosca pointed out in his classic book The Ruling Class,

[M]inorities rule majorities, rather than majorities minorities. . . . In reality the domain of an organized minority, obeying a single impulse, over the unorganized majority is inevitable. The power of any minority is irresistible as against each single individual in the majority, who stands alone before the totality of the organized minority. At the same time, the minority is organized for the very reason that it is a minority. A hundred men acting uniformly in concert, with a common understanding, will triumph over a thousand men who are not in accord and can therefore be dealt with one by one. Meanwhile it will be easier for the former to act in concert and have a mutual understanding simply because they are a hundred and not a thousand. It follows that the larger a political community, the smaller will be the proportion of the governing minority to the governed majority be, and the more difficult will it be for the majority to organize for reaction against the minority.

Green’s elitism comes out clearly in his discussion of who will do the undesirable “dirty work” in an egalitarian community, and who will hand out the assignments. The question of the “dirty work,” says Green,

is a question that can seem daunting only to someone who is not an egalitarian in the first place. The logic of egalitarianism is that if any job has such an impact on those who do it as to become a degrading trap, then it cannot be a normal career line in an egalitarian society. The answer to the question, in other words, is either that no one

will do such jobs (we will not have a society of equals until we have created machines that eliminate such work); or that everyone will share them out, or will do them in turn at different stages of life (e.g., teenagers by way of national service); or that they will be done by incorrigible criminals by way of punishment (but a more humane punishment than being in prison), or by the truly feeble-minded by way of “treatment” in the community, or by genuine drop-outs who don’t want to do work that entails any responsibility at all. [Emphasis added]

The last four alternatives, of course, are clearly the choices that will be implemented, being both non-utopian (machines, indeed!) and the path of least cost to the decision-makers in the state apparatus (teenagers, for instance, have a lesser capability than their parents of fighting back; that is why they are always the first to be conscripted).

Lest we merely chalk this vision of a future Gulag up to an unfortunate dichotomy between a beautiful theory and the difficulties and exigencies of its practical implementation, it should be pointed out that Green is deliberately condemning all of society’s “square pegs”—everyone who won’t fit into Green’s carefully prepared round holes—to chattel slavery. This is not merely an unfortunate and unintended result of Green’s egalitarianism, it is the logical and intended means of its implementation. The poet whose poetry is not approved by the state, the entrepreneur driven to the black market, the “economic criminal” who saves a few grains of rice for his or her children, the “grumbler” unsatisfied with the job assigned to him or her by the state, the homosexual, the malcontent, and above all, the libertarian, must be forced at gunpoint to labor for the state (that is, for Green and Co.). This is the real meaning of Professor Green’s humanitarianism; there is no humanity here, only the malodorous evil of coercion, exploitation, and naked class domination.

In short, Professor Green has presented us with a subtle attempt to rationalize the creation of a new hierarchical system of masters and slaves— with his class holding the whip —all in the name of humanity, justice, and equality. That he viewed libertarianism and the growing libertarian movement as the most significant obstacle in the path of the intellectuals’ climb to class power (via the convenient political vehicle of egalitarian ideology) is a powerful testament to the emerging acceptance of libertarianism as the champion of freedom, progress, justice, and peace.

Tom Palmer has a fellowship in applied Austrian economics from the Institute of Humane Studies, and writes frequently for libertarian publications.

Principles of Economics, by Carl Menger. New York University Press, 328 pp., $7.00 paper.

The English-language edition of this work, that began the economic tradition which Ludwig von Mises and F. A. Hayek considered themselves part of and did so much to advance, was published by Glencoe Free Press in 1950 and has long been out of print. Fortunately, New York University Press has recently reprinted that edition and added an article by Hayek to serve as an introduction. Originally published in 1871 as Grundsatze der Volkswirtschaftslehre, this book is the pioneering work of what became known as the Austrian school of economics. Substituting Carl Menger’s Principles of Economics for every textbook presently being used in college Introductory Economics courses would, in about 95 percent of the cases, mean an improvement in students’ understanding of the subject. Menger’s work, even though it is now 110 years old, still excels as an accurate outline of the foundations of economic science. Menger’s success can be attributed mainly to his original method of analysis.

Unlike the classical economists who preceded him and the neoclassical, Keynesian, and supply-side economists who followed him, Menger employs a strict methodology of individualism and a corresponding emphasis on subjectivism (the fact that the world is perceived differently by each person) to establish the laws of economics.

Ultimately, the individual is and must be the fundamental unit of economic analysis, according to Menger. Decisions are neither determined nor executed in a non-factorable collective sense, so the economist, when setting out theories of social interaction, must treat it as the product of the decisions of individual actors. But since each individual receives information and responds to it in a wholly independent and subjective way, it is erroneous for economics to deal with such aggregate concepts as utility, wealth, pain, and emotions. The different evaluations that different individuals place on a good is the only basis for voluntary exchange. Menger held that economic theory must never lose touch with these principles of individual action, because when it does, we forfeit our only criteria of knowing with certainty whether or not such theories depict reality.

This methodology is the primary revolutionary contribution of Menger’s book, but, from the time of its publication right up to the present, this aspect of his writing has been either ignored or misrepresented. Instead, Menger has been recognized chiefly for the part the Principles played in the Marginal Revolution, a part that is seldom distinguished from the part played by the works of the other two marginalist authors of the day, W. S. Jevons and L. Walras. Few people realize that Menger’s presentation of marginal analysis is only one of many pathbreaking discoveries that resulted from his Austrian methodology.

Neoclassical microeconomics, which is omnipresent in today’s academic world, may seem to have an approach similar to Menger’s, in that it attempts to establish the rules governing economic reality by beginning with the individual. But in the case of the neoclassicists, a student observing their assumptions and conclusions feels compelled to ask, “Individual whats?” The models in the literature of neoclassical microeconomics certainly bear little resemblance to individual human beings, and don’t help us to understand their interactions. Rather, the individuals of the neoclassical tradition are mechanistic constructs, reactors with perfect knowledge, governed by perfectly quantifiable revenue and cost alternatives, which in turn are comprised of infinitely divisible and costlessly exchanged goods.

But the many human characteristics that are absent in the neoclassical system are actually the starting points of Menger’s work. He sees economic reality as comprised of individuals searching for and engaging in transactions in discrete goods, from which they expect to benefit. As he explains,

“Error and imperfect knowledge may give rise to aberrations, but these are the pathological phenomena of social economy and prove as little against the laws of economics as do the symptoms of a sick body against the laws of physiology.”

This book is primarily an exposition of what was later to be called microeconomics. Menger also, however, provides the basic Austrian analysis of production which forms a framework for macroeconomic generalizations—he was the first to explain how production proceeds through stages, which he called orders. First-order goods are the finished products, consumer goods; second-order goods are those goods which are used to produce first-order goods; third-order goods are those used to produce second-order goods, and so forth. This structure of production, composed of different kinds of interdependent higher order (capital) goods, is the general backbone of modern Austrian capital and monetary theory, which was to be developed by Ludwig von Mises and Nobel prize winner F. A. Hayek.

Contemporary mainstream macroeconomic theorists, Keynesians, and supply-siders would find in Menger little to agree with. Most of them conduct their analyses with grand models which are supposed to portray the “entire economy.” These models usually correspond to either no microeconomic laws or the fallacious ones derived from the neoclassical micro models. The individual, the true driving force of the economy, is obliterated in favor of autonomous aggregates like “consumption,” “investment,” “savings,” and “gross national product.”

Menger and the Austrians who followed him staunchly disapprove of this treatment of important macroeconomic concepts. In regard to wealth, for example, Menger advises that “national wealth . . . be. regarded rather as a complex composite of the wealths of the members of society, and we must direct our attention to the different sizes of these individual wealths.” Austrian macroanalysis sees that different kinds of capital goods are employed in individuals’ investment and production plans, and these plans spontaneously mesh with the plans of other individuals to form production processes of higher and lower stages. Changes in relative prices between stages and industries come about as a consequence of different economic forces acting upon different individuals. The Austrian is then in a position to develop theories of the causes, manifestations, and results of these forces, and the Austrian school, therefore, has a unique, direct bond between its macroeconomic theory and its microeconomic foundations.

Menger’s ideas have not yet received the attention that such a unique and consistent body of thought deserves. The Principles stands as possibly the most original, enlightening, and universal presentation of economic principles published prior to this century—even compared to the works of Menger’s two most prominent students and intellectual heirs, Friedrich von Wieser and Eugen von Böhm-Bawerk, it is less in need of semantic revision. It is to be hoped that the decision to republish this book is a sign that Menger’s great contributions are beginning to be fully appreciated.

Daniel Klein is a student with the Center for Market Processes at George Mason University in Fairfax, Virginia. He is also a research assistant for the Cato Institute.