Edited and written by David Gordon, senior fellow of the Mises Institute and author of four books and thousands of essays.

Subjective Values, Objective World

Winter 1998

THE FOUNDATIONS OF AUSTRIAN ECONOMICS FROM MENGER TO MISES: A CRITICO-HISTORICAL RETROSPECTIVE OF SUBJECTIVISM
Allen Oakley
Edward Elgar, 1997, x + 258 pgs.

Have another look at that subtitle. It suggests that readers of Foundations of Austrian Economics are in for a long haul, and I fear that expectation is correct. Professor Oakley writes in an almost impenetrable academic prose. You know at once that you are not browsing through H.L. Mencken's collected works.

But I can forgive Professor Oakley much. (I cannot and will not forgive his use of the barbarism "mitigate against.") Although he does "not like very much the free-market, 'survival-of-the-fittest' ideology that has become identified with most Austrian economists, and their literature" (p. ix), he thinks that Menger and Mises have made essential contributions to economic method. These he endeavors to describe, often in an illuminating fashion.

His admiration for the great Austrians is apparent; he refers, e.g., to "the genius of...Ludwig von Mises," grouping him in that category with Max Weber (p. 232). But he does not think that Menger and Mises were entirely successful. Though they grasped the importance of subjectivism, they failed to carry out their insights to the full extent possible. In this contention, as it seems to me, our author entirely fails.

As Professor Oakley sees matters, many economists have been beguiled by a fata morgana--formalism. They think that economics, to be a true science, must ape the methods of mathematical physics. Unfortunately for those who hold this view, the economy arises from the actions of human beings. And our species, among other faults, does not operate according to rigidly deterministic laws. Instead, human action is creative, and people respond freely to the world as they perceive it.

Correct economic method, then, must start from human action, not differential equations. (You can see why Professor Oakley finds Mises congenial company.) In a phrase to which our author is much partial, neoclassical economists wrongly give precedence to epistemology over ontology. This is just a fancy way of making the point that mathematical physics isn't the appropriate model for economics.

It is the singular merit of Carl Menger, according to Professor Oakley, to have realized this vital truth. "Menger's ontology concerned itself primarily with phenomena that are generated by the deliberations, plans and actions of individual agents in that most fundamental of human preoccupations, the endeavor to satisfy material and other essential life needs and wants" (p. 54). (Well, I warned you that Oakley isn't Mencken.) Menger's stress upon the subjective point of view is all to the good, but his pioneering insight soon left him with a problem, at least according to Oakley. Menger also wished to develop economics as a rigorous science. Professor Oakley maintains that subjectivism and scientific rigor do not fit together well; since human action is creative, subjective, etc., it cannot be reduced to strict laws. At best, we can by empathy with others grasp how they might act in typical situations.

Menger, by failing to realize this, fell into error. Menger's "inconclusive and truncated treatment of his ontological insights into the nature and role of subjectivism and individualism meant that these principles were left only as guideposts for those who were to follow him" (p. 87). Alas, the blandishments of scientific rigor proved too much forour nascent subjectivist.

I cannot think that Professor Oakley's complaint against Menger withstands scrutiny. Our author is of course right that mathematical methods that ignore causality are a poor way to study human action. But it does not follow from that alone that economics cannot be a rigorous science. For Oakley's conclusion to follow validly, he needs the additional premise that the mathematical method he challenges is essential to science. Why not a rigorously developed study of human action that is non-mathematical? The considerations advanced by Professor Oakley leave this possibility entirely open.

Just the path indicated was taken by Menger, a fact of which Oakley is well aware. As an Aristotelian in good standing, Menger held that a true scientist can discern real necessities in nature. Applied to our discipline, the economist can by insight and deduction grasp the essences of the human actions he studies. By doing so, the economist can achieve "an exact orientation that has as its aim 'the determination of strict laws of phenomena'" (p. 81). There we have it: scientific rigor without mathematics. Menger has escaped the dilemma in which Oakley has attempted to imprison him.

Our author is not convinced--you didn't think he would be, did you? He raises an objection to Menger's method that, as far as I can decipher it, amounts to this. Menger cannot show that "hidden variables" do not account for the phenomenon he professes to explain. And even if he could, in a given case, show this, he has not excluded the possibility that something else can cause the phenomenon in other cases.

The first part of Oakley's objection against Menger begs the question. Menger claims to find causal necessities in human action. Oakley answers that he may have overlooked hidden variables. Well, if Menger is right, he didn't. All Oakley's comment amounts to is the triviality that Menger's claim may be wrong.

A similar response applies to the remainder of Oakley's objection. If Menger says that only certain causes produce a given effect, but something else can also produce it, then he is wrong. But the mere unsupported claim that it is always possible that something else produce the effect has by itself no force. Again, all that Oakley is saying is that maybe Menger is wrong. This is not much of an objection.

I shall pass over without extensive comment those chapters that Oakley devotes to Dilthey, Rickert, and Weber. According to our author, Menger might have advanced even further in his study of subjectivism had he known of Dilthey's insights. But as to the nature of these insights, I can make neither hide nor hair. Suffice it to say that Dilthey was a pioneer in hermeneutic philosophy. Verbum sat sapientiae! The mysteries of Heinrich Rickert I shall leave for others to fathom.

Fortunately, Professor Oakley descends to earth and favors us with an informative chapter on Mises. He gives an excellent account of Mises's concept of human action and praises him for his development of subjectivism beyond the point at which Menger had left matters. He singles out one of Mises's insights for special commendation: "It is evident that Mises understood much about the import of time for action and its implications for the empirico-historical human sciences" (p. 203).

But, as with Menger, our author is not fully satisfied with Mises. Again, an Austrian pioneer has failed fully to emancipate himself from scientism. Mises tried to deduce logically a science of praxeology from the axiom of human action. He did not fully realize that the theorems of this science cannot apply completely to particular human actions, since these are "contingent."

Once more, the objection amounts to very little. To say that human actions are contingent, in a sense that defeats praxeology, is just to assume without argument that Mises is wrong. If Mises has derived his theorems properly, then human action is not fully contingent; Oakley has given this term no content other than "not amenable to deductive explanation."

Further, although Oakley rightly discerns neo-Kantian influences on Mises's thought, he wrongly thinks it follows from this influence that Mises considered praxeology a construction rather than part of the real world. The real world that concerns economists is the world to which the categories have been applied. Even if Mises holds, in his neo-Kantian moods, that praxeology depends on a grid of humanly imposed categories, its results are real enough. Professor Oakley also misunderstands a passage in which Mises calls equilibrium an "imaginary construction." His thinking this does not gainsay the fact that praxeology applies with perfect exactitude to the real world.

In sum, we can say of Oakley what he says of Menger and Mises: his work is valuable but flawed.

Back

Image of Mises Coat of Arms Ludwig von Mises Institute
518 West Magnolia Avenue
Auburn, Alabama 36832-4528

334.321.2100 Phone
334.321.2119 Fax
contact@mises.org
AOL-IM: MainMises

Contact us button
Mises.org Menu