RAE7_2_7 (1)

7/29/2019 RAE7_2_7 (1)

1/6

The Philosophyof Austrian EconomicsThe Philosophical Origins of Austrian Economics. B yDavid Gordon. Auburn, Alabama: Ludwig vonMises Institute, 1993.Barry Smith

This is a useful, clearly written study of the philosophicalorigins of Menger's theorizing in economics. As the authorpoints out in his conclusion: philosophy has been an accom-panying presence at every stage in the development of Austrianeconomics. Moreover, "Action, that leitmotif of praxeology, has i n theAustrian tradition received a distinctly Aristotelian analysis. Aus-tr ian economics and a realist ic philosophy seem made for each other."Gordon packs considerable material into a short span, and inevi-tably some simplifications arise. Thus in defending a view accordingto which Austrian economics arose in reaction to the "Hegelianism"of the German Historical School, he ignores the differences whichexisted between the views of Knies, Roscher, Schmoller and othermembers of the German school, as he ignores also recent scholarshipwhich points to hitherto unnoticed similarities between the work ofsome of these thinkers and th at of Menger.

Underlying Gordon's trea tment of nineteenth-century philosophi-cal thinking in the German-speaking world is the idea of a divisioninto two camps. On the one hand (and here I, too, am guilty of somesimplification in expounding Gordon's views) is the camp of Germanphilosophy, which Gordon sees as being Hegelian, anti-science, and

7/29/2019 RAE7_2_7 (1)

2/6

128 The Review of Au strian Economics Vol. 7 , No. 2

are described as having embraced a Hegelian position inimical to thedevelopment of economic science. Menger, in contrast, falls squarelyin the latter camp, and is presented as having shown the way towardsa genuinely scientific theory of the "principlesn of economics, a theorycapable of being applied a t all times and to all cultures.

The simplification involved in this two-camp hypothesis can beseen already in the fact that Brentano, normally and correctly re-garded as the Austrian philosopher (and as the philosophical repre-sentative ofAustrianAristote1ianism)parexcellence, was in fact bornin Germany, and his Aristotelianism was decisively influenced by thethinking of the German metaphysician F. A. Trendelenburg. What ismore, Hegel himself was seen by his contemporaries as having beenresponsible precisely for a revival ofAristotelianism, and Aristotelianelements are quite clearly present in the thinking of those whom heinfluenced (not least, as Meikle and others have shown, in that ofMarx).Interestingly, the two schools of Brentanian philosophy and ofMengerian economics were in a number of ways intertwined-to theextent that the Brentano school was dubbed the "second" Austrianschool of value by analogy with the "first" school of Menger. It isdifficult to establish the degree to which Brentano influenced Menger(the history of philosophy is, as Gordon himself points out, not anapodictic science), and in my own writings on this matter I havepreferred to leave this question open. Gordon writes (p. 27 ) thatBrentano revived the study of Aristotle in Austria; this, too, is asimplification: a certain institutionalized Aristotelianism had sur-vived in Austria (a Catholic country), as it had not survived in thoseProtestant parts of the German-speaking world influenced by Kantand by the Kantian criticism of all "metaphysics." Both Menger andBrentano were able to flourish in Austria in part because of thisAristotelian background, but all of this makes still more urgent the

7/29/2019 RAE7_2_7 (1)

3/6

129mith: The Philosophy of Austrian Economics

and contrasted with mere statements of fact and with inductivehypotheses.)Both groups held th at we can know what the world is like in virtue

of its conformity to laws, so that the laws are i n some sense intelligi-ble, a mat ter of what is accessible to reason. And both held fur therthat general essences do not exist in isolation from what is individual.Thus they each embraced a variety of immanent realism: they wereinterested in essences and laws as these are manifested in this world,and not in any separate realm of incorporeal Ideal Forms of the sortwhich would absorb the attentions of philosophers of a Platonisticbent.

Both groups would thus stand opposed to the positivism whichha s been dominant in philosophical circles for the bulk of the presentcentury and serves as the unquestioned background of almost allcontemporary theorizing among scientists themselves. For positiviststhe world consists of elements that are associated together in acci-dental and unintelligible ways; all intelligible structures and allnecessities are the result of thought-constructions introduced byman, and the necessities involved can accordingly be exposed withoutremainder a s matters of logic and definition. The positivist sees onlyone sort of structure i n re , the structure of accidental association. Thetwo groups of Aristotelians, in contrast, see also non-trivial yetintelligible and law-governed worldly structures, of a sort t hat onecan understand. Hence where the positivist sees only one sort ofchange-accidental change (for example of the sort which occurswhen a horse is run over by a truck)-the Aristotelian sees in additionintelligible or law-governed change, as, for example, when a foalgrows up into a horse (or when a state-managed currency begins tolose it s value in relat ion to other goods). The presence of intelligiblechange implies, moreover, that there is no "problem of induction" foreither group of Aristotelians. When we unders tand a phenomenon as

7/29/2019 RAE7_2_7 (1)

4/6

130 The Review of Au strian Economics V ol.7,No. 2

the ideological obfuscations by which the commonsenical mind (as heconceives things) is of necessity affected. Other German philoso-phers saw philosophy itself as a science, indeed as a rigorousscience in something like the Mengerian sense.The first major difference between the two groups concerns theaccount they give of the degree to which the laws of a science suchas economics are strictly universal. For Menger and Brentano (asfor Aristotle before them) str ict universality is the necessary pre-supposition of any scientific theory in the genuine science. Suchuniversality is however denied by Marx, for whom laws are in everycase specific to agiven social organism.'The second such difference concerns the issue of methodologi-cal individualism-a feature which is of course characteristic ofMenger and his school. Note, however, that Menger was opposednot only to the holism or collectivism of the sort that was pro-pounded by (among others) Marx, but also, a t the opposite extreme,to atomistic doctrines of social organization. For methodological in-dividualism deals with individuals not as isolated, independent at-oms, but as nodes in different sorts of complex,cross-leaved rela-tional systems. Society and it s institutions (including the market)are not merely additive structures; they share some of the qualitiesof organisms. The behavior of such structures is, for the methodo-logical individualist, to be understood in the last analysis entirelyin terms of complex systems of desires, reasons, and motivationson the par ts of individuals; bu t the institutional structures them-selves ar e for all that real, and the desires, reasons, and motiva-tions-and thus also the actions-of the constituent members ofsuch structures exist and have the texture and content tha t theyhave only in virtue of the existence of the given institutionalsurroundings. We may recall, in th is connection, Aristotle's view ofthe city-state as an organic entity: these and other organicist

7/29/2019 RAE7_2_7 (1)

5/6

Sm ith: The Philosophy of Au strian Economics 131

The third major difference turns on the fact that , from the per-spective of Menger, the theory of value is to be built up exclusively on"subjectiven foundations, which is to say exclusively on the basis ofthe corresponding mental acts and states of human subjects. Thusvalue for Menger-in stark contrast to Man-is to be accounted forexclusively in terms of the satisfaction of human needs and wants.Economic value, in particular, is seen as being derivative of thevaluing acts of ultimate consumers, and Menger's thinking mightmost adequately be encapsulated as the attempt to defend the possi-bility of an economics which would be a t one and the same time boththeoretical (dealing in universal principles) and subjectivist in thegiven sense. Among the different representatives of the philosophicalschool of value theory in Austria (Brentano, Meinong, Ehrenfels, etc.)subjectivism as here defined takes different forms.' All of them sharewith Menger however the view that value exists only in the nexus ofhuman valuing acts.

Finally, the two groups differ in relation to the question of theexistence of (graspable) laws of historical development. Where Marx,in true Aristotelian spirit, sought to establish the "laws of the phe-nomena," he awarded principal importance to the task of establishinglaws of development, which is to say, laws governing the transitionfrom one "form" or "stagen of society to another. He treats the socialmovement as a process of natural history governed by laws,3 and hesees the social theorist as having the capacity to grasp such laws andtherefore also in principle to sanction large-scale interferences in thesocial organism which is the state. M a n himself thereby saw socialscience as issuing in highly macroscopic laws, for example to theeffect that history must pass through certain well-defined "stages."The Aristotelianism of the Austrians is in this respect more modest:it sees the exact method as being restricted to essences and to simpleand rationally intelligible essential connections only, in ways which

7/29/2019 RAE7_2_7 (1)

6/6

132 Th e Rev iew o fA us t r ian Economics Vol. 7,No. 2

science, not least as a result of the influence of Hegel. Thus forexample, Roscher, as Streissler has shown, developed a subjectivetheory of value along lines very similar to those later taken up byMenger. Such subjectivism was accepted also by Knies. Moreover,Knies and Schmoller agreed with the Austrians in denying the exist-ence of laws of historical development. In all of these respects,therefore, the gulf between Menger and the German historicists ismuch less than has normally been suggested. The German histori-cists are still crucially distinguished from the Austrians, however, inremaining wedded to an inductivistic methodology, regarding historyas providing a basis of fact from out of which mere empirical gener-alizations could be extracted. (Schmoller, especially, attacked the ideaof universal laws or principles of economics.) For an Aristotelian suchas Menger, in contrast, sheer enumerative induction can never yieldthat sort of knowledge of exact law which constitutes a scientifictheory. For this, reason and insight are indispensable to the scienceof economics as the Austrian conceives it ; and (as Mises has stressed)a knowledge of the science of human action is in fact an indispensablepresupposition of that sort of fact-gathering which is the task of thehistorian.ReferencesGrassl , W. and Ba r ry Sm i th , eds. 1986 . Au stri an Economics: Historical and

Philosophical Background. London a n d Sydney: Croom Helm.Meikle, S. 1985. Essen t ia l i sm in th e Thought o f Kar l Marx . London: Duck-worth.Streissler, Erich. 1990. "The Influen ce of G erm an Economics in t h e Work ofMenger and Marsha l l . " In Carl Menger and His Economic Legacy,Bruce Caldwell , ed. Du rha m , N. C. an d London: Duke U niversi ty Press .