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Volo No3

Austrian Economics Newsletter

Wieser’s Social Economics: A Link to
Modern Austrian Theory?

by
Robert B. Ekelund, Jr.

The influence upon economic theory exercised by von Wieser’s
formulation lies more in the faure than in the past.

W.C. Mitchell (in Wieser, 1927, p. xi)

Introduction

Few works in general economic theory have had as
checkered and interesting a record as Friedrich von
Wieser’s Social Economics. Everyone hails Wieser’s con-
tributions to the theory of input valuation from Natural
Value, but many Austrian economists, in the libertarian
tradition of Hayek and Mises, cringe at the me
JOT BTIOTIICS, DCLICVITIE TU LU Dr aeron

“cal” in nature. Written before World War I
scarcely noticed until Wieser reissued it in 1924 and Wesley
C. Mitchell had Social Economics translated in 1927 (the
translation appearing after Wieser’s death in 1926). Econo-
mists have either praised the book’s so-called institutional-
ist-interventionist proposals (Mitchell, 1917; 1969, pp. 345-

Professor Robert B. Ekelund, Jr.

374), characterized some of its tenets as “enlightened some distance from merely being interested in sociology
absolutism” (Bohm, 1985, p. 256), or declared as “incom- (exemplified in his 1910 work Recht und Macht and en-
prehensible” its origins in the concept of “natural value” larged in Das Gesty der Macht in 1926) Wieser was, in the
(Stigler, 1941, p. 158, n.2). 1920s, merely extending an integration of institutions and

economic theory suggested in Natural Value and substan-

In the late 1960s, ac the encouragement of Oskar Mor- tially completed by 1914 in the original version of Social

genstern, I undertook a careful study of Wieser’s grand

opus (Ekelund, 1970) concluding that Wieser was schizo- Economics.

phrenic on the nature of property rights abrogation and Craven’s recent assessment jarred my memory of Mor-
welfare reform proposals. Morgenstern read my paper with genstern’s sympathetic view of the work and a rereading
sympathy, proclaimed it descriptively accurate and, con- has convinced me that, contrary to both Mitchells and

tinuing to extol the breadth and power of Wieser's ideas,
urged me to do further study some day. Morgenstern, after
all, had been Wieser’s graduate assistant at the time of the
reissue and the English translation of the work and had
been chosen to write Wieser’s obituary in the American
Economic Review (1927). My recollections of Morgenstern’s
spinion of Wieser and his 1914 treatise is that the former

as far more sympathetic and admiring than indicated by
Earlene Craven in her recent “oral history” of the Aus-
trian migration to America (1986, pp. 89, note 28). At

Ludwig von Mises on Adam Smith..eecsrerceeess 3

Hermeneutics Conference Report...ccovvieerreees 3

Murray N. Rothbard on Hermeneutics ........ 12



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Stigler’s views, the Social Economics is nothing less than a
bridge to many of the concerns of contemporary Austrian

economics. Specifically, I argue that the book contains
prescient discussions of how human action creates and

alters property rights, of the role of rivalry in a competitive
process, and of the key position of the entrepreneur in a
system characterized by economic disequilibrium. In an
initial section, I discuss the model through which Wieser
arrived at these inventions and in the following section |
discuss the inventions themselves. In a concluding section, I
argue that, though some anomalies remain, it is possible to
view Wieser’s late work in a new and far more sympathetic
light than commonly held by a number of modern e econo-
mists. Lo

Wieser’s Model of Natural Value
Wieser’s view of economic theory, from the outset of his
major scientific work on the subject, was broader than that

proposed by Menger and the other early marginalists.
While his reputation is firmly established in contributions

to the opportunity-cost based theory of input valua ion

(Stigler, pp. 159-60), the inventive char
relates to value theory. Inde ed, th 3ETet
Wieser’s economics isa normative utility-based idealized
model of economic functioning called natural value. Natu-
ral Value, according to- Wieser, is “that value which arises
from the social relation between amount of goods and

r.of his thought

word * atural” Wieser further a he i )]
model as one in which all market participants | hiad the same
marginal utility of income (or money), similar or identical
tastes, functioning in an ideilized system of completely
decentralized institutions unaffected by distributional con-
siderations. This model, which Wieser compares to those
constructed by the classical economists, is an explicitly
idealized one—one through which the impact of specific
institutions can be compared. He writes of the model that

In its simplicity, purity, and originality-it.is so attrac-
tive, and at the same time so contradictory to all
experience, that it is doubtful whether it can ever be --
more than a dream. So too we shall think of the
communistic state as the perfect state. Everything will
be ordered in the best possible way; there will be no
‘misuse of power on the part of its officials, or selfish
isolation on the part of its individual citizens; no error
or any other kind of friction will éver occur. Natural
value shall be that which would be recognized by a
completely organic and most highly rational commu- ‘
nity (1889, p. 61).

The important point is that Wieser’s model is a perfectly
“neutral” origin from which to evaluate the workings of all

systems. He clearly anticipates, for example, the essence of
the Lange-Lerner-Mises discussion over. socialist calcula-

oe ih my view Wieser made
ie. ‘profound observations me

tion in arguing that communism does not change the fun-
damental (marginal) laws of economics. Opportunity cost
and economic efficiency —given individual evaluations of

- goods—requires that resource allocations be directed tg

highest valued use.’

More importantly, in my view, he recognizes, long be-
fore the elaborations in the Social Economics, that institu-

tions, including those associated with property rights sur-

rounding the market place itself, evolve and are changed
by a multitude of factors including power, an uneven dis-
tribution of utilities, fraud, political rent-seeking and other
factors. The Wieser of Natural Value is the same Wieser of
Social Economics as he contrasts the elements underlying
objective exchange value (price) to those supporting natu-
ral value:

The relation of natural value to exchange value is
clear. Natural value is one element in the formation of
exchange value. It does not, however, enter simply
and thoroughly into exchange value. On the one side,
it is disturbed by human imperfection, by error,
fraud, force, chance, and on the other, by the present
order of society, by the existence of private property,
and by the differences between rich and poor,—as a
consequence of which latter a second element mingles
itself in the formation. of exchange value, namely,
purchasing power. (1889, pp. 61- 62)

J dice theoretical work.
First; he.recognized the radical implications of utility the-
ory: Utility and price are not one (except in idealized con-
ditions) and, even if they were, an antinomy might exist
between the aims of entrepreneurs and the maximization
of consumers’ utility. Second, Wieser recognized that the
real world of institutionally-cum-utility-determined valua-
tions would always diverge from some highly idealized
model of utility maximization.”

Most importantly in my interpretation, Wieser leaves
the implication —largely undeveloped until the Social Eco-
nomics—that any given set of constantly evolving property
rights are essentially the product of past free choice and
that property rights within a free competitive system are
closest to the ideal model of natural value in production,
distribution, and consumption. He notes that “it will be of
interest to investigate closely to what extent the phenom-
ena of exchange value are of natural origin, and how great,
accordingly, is the formative power of natural value in
existing conditions of society. I believe the sequel {presum-
ably, Social Economics] will show that it is enormously
greater than is usually supposed” (1889, p. 62). And, reaf-
firming the benefits of a generalized competitive system, hd eg
states that

{Continued on page 4)

i


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~ Why Read Adam Smith Today?
by
J Ludwig von Mises

od A popular legend calls Adam Smith the Father of Politi-
cal Economy and his two great books— The Theory of Moral
Sentiments, first published in 1759, and An Inquiry into the
Nature and Causes of the Wealth of Nations, first published in
1776 —epoch-making in economic history as well as in the
evolution of economic thought. However, this is not quite
correct. Smith did not inaugurate a new chapter in social
philosophy and did not sow on land hitherto left unculti-
vated. His books were rather the consummation, summa-
rization, and perfection of lines of thought developed by
eminent—mostly British—authors over a period of more
than a hundred years. They did not lay the foundation
stone, but the keystone, of a marvelous system of ideas.
Their eminence is to be seen precisely in the fact that they
integrated the main body of these ideas into a systematic
whole. They presented, with admirable logical clarity and
in an impeccable literary form, the essence of the ideology

of freedom, individualism, and prosperity.

It was this ideology that blew up the institutional barri-
ers to the display of the individual citizen's initiative and
thereby to economic improvement. It paved the way for

the unprecedented achi

to the policies of economic freedom, even to less capable
and less industrious people a standard of living higher than
that of the well-to-do of the “good old” days. The average
American wage-earner wotld not: like to'dwell in the dirty,
badly lighted and heated palatial: iouses in which the

ents of laissez-faire ca italism.

fopniation figures and secured, in the countries committed )

members of the privileged English and French aristocracy

lived two hundred years ago, or to do without those prod-
ucts of capitalist big business that render his life comfort-
able. |

The ideas that found their classical expression in the two
books of Adam Smith demolished the traditional philoso-
phy of mercantilism and opened the way for capitalist mass
production for the needs of the masses. Under capitalism
the common man is the much-talked-about customer who
“is always right.” His buying makes efficient entrepreneurs
rich, and his abstention from buying forces inefficient en-
trepreneurs to go out of business. Consumers’ sovereignty,
which is the characteristic mark of business in a free world,
is the signature of production activities in the countries of
Western Civilization.

This civilization is today furiously atcacked by Eastern

\
arbarians from without and by domestic self-styled pro-
gressives from within. Their aim is, as one of their intellec-
tual leaders, the Frenchman Georges Sorel; put it, to de-
stroy what exists. They want to substitute central planning

by the government for the autonomy of the individual
citizens, and totalitarianism for democracy. As their
muddy and unwarranted schemes cannot stand the criti-
cism levelled by sound economics, they exult in smearing
and calumniating all their opponents.

Adam Smith too is a target of these smear campaigns.
One of the most passionate advocates of destructionism
had the nerve to call him—in the Introduction to a cheap
edition of the Wealth of Nations: “an unconscious merce-
nary in the service of a rising capitalist class” and to add
that “he gave a new dignity to greed and a new sanctifica-
tion to the predatory impulses.” Other leftists resort even
to still ruder insults.

As against such shallow opinions it may be appropriate
to quote the verdict of wiser judges. Buckle declared “that
this solitary Scotchman has, by the publication of one
single work, contributed more toward the happiness of
man than has been effected by the united abilities of all the
statesmen and legislators of whom history has presented an
authentic record.” Walter Bagehot said about the Wealth of
Nations: “The life of almost everyone in England —perhaps
of everyone—is different and better in consequence of it.”

A work that has been praised in such a way by eminent
authors must not be left on the shelves of libraries for the
perusal of specialists and historians only. At least its most

be read by all those who are
whriepast-There can hardly
be found another book that could initiate a man better
into the study of the history of modern ideas and the
prosperity created by industrialization. Its publication
date—1776, the year of the American Declaration of Inde-
pendence —marks the dawn. of freedom both political and
economic. There is no Western nation that has not bene-
fited by policies inspired by the ideas that received their

“classical formulation in this unique treatise.

However, a warning must be given. Nobody should be-
lieve that he will find in Smith’s Inquiry information about
present-day economics or about present-day problems of
economic policy. Reading Smith is no more a substitute for
studying economics than reading Euclid is a substitute for
the study of mathematics. It is at best a historical introduc-
tion into the study of modern ideas and policies. Neither

“will the reader find in the Wealth of Nations a refutation of

the teachings of Marx, Veblen, Keynes, and their followers.
It is one of the tricks of the socialists to make people
believe that there are no other writings recommending
economic freedom than those of eighteenth-century au-
thors and that in their—of course, unsuccessful —attempts
to refute Smith they have done all that is needed to prove
the correctness of their own point of view. Socialist profes-
sors withheld from their students—not only in the coun-
tries behind the Iron Curtain—any knowledge about the
. (Continued on page. 4)



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nb

MiSES .....oooorrrrrerenrecinnns continued from page 3 What valid substitute may we offer for the individual-
existence of contemporary economists who deal with the istic theory of society? In its naive formulation it has
problems concerned in an unbiased scientific way and have become inadequate. But one cannot get away from its
devastatingly exploded the spurious schemes of all brands fundamental concept, that the individual is the sub-
of socialism and interventionism. If they are blamed for ject of social intercourse. The individuals who com- /
their partiality, they protest their innocence. “Did we not prise society are the sole POSSESSOLs of all conscious-
read in class some chapters of Adam Smith?” they retort, ness and of all will. The “organic” explanation {Marx-
In their pedagogy the reading of Smith serves as a blind for ian-Hegelian}, which seeks to make society as such,
ignoring all sound contemporary economics, - without reference to individuals, the subject of social
Read the great book of Smith. But don’t think that this activity, has. patently proved a failure. (Social Eco-
may save you the trouble of seriously studying modern nomics, p. 154)
economic books. Smith sapped the prestige of eighteenth- The modified individualism of which Wieser speaks is
century government controls. He does not say anything nothing but the classical (or Mengerian) conception joined
about the controls of 1952 and about the Communist to Veblenian-Spencerian institutional and sociological the-
challenge. | : ory. In Wieser’s view man is a maximizer but within con-
straints developed within ever-changing institutions--the
This essay appeared as the introduction to a now out-of- collective results of individual human action. Individual
print 1952 edition of Wealth of Nations. (Henry Regnery economic actions under constantly developing constraints
Company, Chicago, Illinois.) oo created institutions under which some level of utility maxi-
mization was possiblé as in the Figure.
Ekelund...........cccooneeneu... continued from page 2 : a

Under free competition, social utility: will be—as’ it [UTILITY MAXIMIZATION |

ought to be—the first principle of economic life. Here
each of the competing undertakers is bound to strive
to widen to the utmost the compass of his undertak-
ing. The increase of supply which the individual pro-
ducer causes is, in relation to supply as a whole, too
trifling to have, amy-material effect in. lowering prices;,
‘while it materially increases the amount ‘which the”
individuals have to sell. Thus every one" calculates,
and, on the strength of this calculation, production is

stretched to the utmost possible extent. The economic | | HUMAN ACTION

INSTITUTIONS

e.g., social classes, morals, . |
contracts, pone

history of our own time is rich in examples which and economic individualism
prove that competition can press prices far on the under constraints of
down grade of exchange value. (1889, pp. 55-56) natural endowments, power, and
The working out of this view within an evolving institu- developing institutions
tional process was the topic of Social Economics. How, in
other words, was value the product and the producer of This schema describes the dynamic nature of Wieser’s
institutions? oo depiction of the socio-economic system as I interpret it i
| . . (Wieser, 1927, pp. 149-348). Man creates (at bottom) and |
Individualism, Institutions, and destroys institutions through individual actions, economic |
the Economic Process : individualism, and through his or her nature. The long I
It is significant that Wieser's first intellectual romance evolution of the institutions of any real society {as opposed
was with history. But his early enchantment with mass to one in which natural value prevailed) began with indi-
historical movements, exemplified in Virgil, Homer, the viduals diverse in abilities and natural powers and endow-
Niebelungenlied, and Tolstoy's “history of the anonymous ments, These individual actions give rise to institutions, i
masses,” could seriously mislead scholars into believing economic and otherwise, that begin to have “power” or to
that Wieser’s unit of social analysis was collective in na- constrain individuals in recognized and unrecognized ways. |
eure.’ It is far more likely that Herbert Spencer's Darwinian These are the natural controls (Freiheitsmachte) and the
individualism, and its critical insight that any social state institutions that individuals initially create and, in later
must be examined in order to understand the institutional generations, are born into. Property rights systems an
forces underlying culture, was the controlling factor in contracts, law, a moral system, a financial system (see the

Wieser’s thought. Wieser steadfastly maintained that the discussion of money below) are some of these creations, as
ground of society was economic and individualistic: (Continued on page 9)



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Hermeneutics: a Conference Report tual life, but their real breakthrough did not come until
by Sven Thommesen, John MeCallie, : the rebellious 1960s. The latest stage is the development in
and Dipesh Shah France (by Michel Foucault et al.) of “Deconstruction-

ly On Friday, March 28, a roximately 100 students and ism” —a school which undermines all the previous ideas
professors or all over on met at George Mason and which emphasizes the primacy of consciousness rather

University in Fairfax, Virginia to participate in a confer- than the primacy of external reality.

ence on Interpretation, Human Agency and Economics. Levine then went on to describe 10 different historical
The conference was sponsored by the Society for Interpre- and current offshoots or branches of Hermeneutics i in phi-
tive Economics (SIE) and the Center for the Study of losophy:

Market Processes (CSMP) at George Mason University e Weberian Sociology (“Interpretive Understanding”).

(GMU), who wanted to bring together Austrian econo: e The Phenomenology of Edmund Husserl, Martin Hei-
mists and Hermeneutical philosophers to exchange views degger and Alfred Schutz, which introduces the “Life
and perhaps discover common ground. The following is a World” concept of Husserl (II) into sociology
report on what was presented at the conference and some e The “Sociology of knowledge” school of Berger and
of our thoughts on the extent to which the philosophy of Luckmann, which holds that reality itself is a “social con-
Hermeneutics might contribute to Austrian economics. struct.”
| The Conference . Hermeneutics as textual interpretation, which has ed
) some philosophers to see reality itself as a “text” to be
In his opening remarks, Professor Jack High (director of nterprete d p y

the CSMP) said that Hermeneutical philosophy has had ® The “Ethno-methodology” of Harold Garfinkel, which

i i ears. He
an influence on Austrian economics for many yea claims that there are different situational modes of knowl-
stated that Ludwig von Mises and Ludwig Lachmann were edge

poet. heavily infuenced by Vilhelm Dike and Max e Radical Historicism, which views history as a series of
eber, and Frotessor Lon Lavoie and his StuGents at radical discontinuities, and hence holds that it is illegiti-
GMU are influenced by both Mises and Lachmann. High Co ) :
d that the SIE h ke H mate to speak of historical “periods.”
stated € unde © Opes to a | © Hermeneutics ° British Action Theory, which distinguishes reflexive |
scepomicsprotes | “bebavior’ from A ul “action.” Social sciences are | _

sharply distinguished from the natural sciences and posi-
in fashion.
tivism.

The: first major talk was given by Thelma Z. Levine, ¢ The “critical theory” of the Frankfurt School (Herbert
Professor of Philosophy at GMU, who gave an historical Marcuse, Erich Fromm, Jurgen Habermas) which tries to
account of what’ she called the. “Interpretive Turn” and an integrate the theories of Marx, Weber and Freud.
overview of the current status of Hermeneutics: In describ- ® Thomas Kuhn’s theory of discontinuous paradigm shifts
ing the four stages of the philosophical evolution of in science, which “deconstructs” the history of science by
Hermeneutics, she started with Immanuel Kant, who tried showing that there is no constant accretion of knowledge.
to mount a defense of reason against Humean skepticism. ¢ The Deconstructionism of Michel Foucault, which em-
Kant held that ves, there is a real world out there, and we phasizes textual interpretation and which attacks as “logo-
can have true knowledge of it because we are born with centricity”’ any effort to establish logical methods for ac-
certain “categories” of interpretation built into the mind. quiring knowledge. :

The next step was introduced in the early 20th century Next, Professor Don Lavoie from GMU spoke on “The
by Wilhelm Dilthey, who applied the techniques and cate- Present Status of Interpretation in. Economics.” He la-
gories of Biblical exegesis (textual interpretation) to the mented that economics is perhaps more positivistic than
study of history and sociology. Edmund Husserl (the fa- any other social science today. {Though that may, as Don-
ther of modern phenomenology), who had failed in his ald McCloskey has pointed out, be more a question of
efforts to demonstrate that we can have absolutely certain what economists say they do than what they actually do.}
knowledge, introduced the concept of ’Life-World’ ‘He pointed out the degeneration of interpretive skills that
(Lebenswelt) into sociology. (Later developments were pro- has taken place over successive generations of economists,
vided by Martin Heidegger and Hans-Georg Gadamer.) citing as an example the development of the Chicago

school from Frank Knight down through Milton Friedman
and Robert Lucas to the current crop of “Rational Expec-
tations” model- builders.

The third stage came when World War II forced many
uropean scholars to emigrate. Some of them came to the
US bearing philosophical gifts in the form of methodologi-
cal theories opposed to the then reigning positivism. Over Lavoie idencified two brands of positivism extant in the
the years their ideas were slowly injected into US intellec- profession today: the “Euclideans” (General Equilibrium,



===== PAGE 6 =====

He)

Game Theory) who build elegant, formal models that are observable phenomena) in light of the plans (the “web of
becoming more and more removed from reality; and the thought”) which sustain them. (A problem occurs in an-
“N ' + + ’ 3s - + ' . . . ‘ + ' .
aive Falsificationists” (Popperians) who seek predictive alyzing actions in which different actors have different
power in empirical investigations that are becoming more meanings, e.g. in conflict situations.) ) }
/

and more limited in scope. Both are in his opinion method-
ological dead ends. :

How might an economics based on Hermeneutical in-
sights be different? “Climbing out on a limb,” Lavoie iden-
tified three possible ways:

The natural sciences strive for as high a level of abstrac-
tion as possible in order to gain generality; so should the
social sciences—but they must not go so far as to abstract
from meaning! This is the main problem of Neoclassical
economics today. As an example, in Consumer Theory we
1. Perspectives: As students of Hermeneutics, we would take “tastes” as given; in doing so we are abstracting from

realize that to fully understand someone else’s theory the plans and intentions of the actors.

we need to “learn his language” instead of translating

his ideas into our own framework. We would see

more dialogue between different schools of thought
in economics.

In an historical perspective, Lachmann saw the triumph
of subjective value theory 110 years ago as a success for the
interpretive method. During the 1930s, the realization that
diverging expectations could be a problem was another

2. History: Instead of cranking out mathematical successful application of Hermeneutics. Unfortunately, a
growth models or collecting reams of UN statistics, a whole generation of economists have been brought up
Development economist might investigate the devel- since without any interpretive skills.

opment of the concept of development in the History
of Thought, as well as the ideological history of vari-
ous countries. Historical evidence becomes relevant
when we want to investigate the meaning of actions.

Professor Lachmann identified three “destroyers” in
economics: Vilfredo Pareto, Joseph Schumpeter and Paul
Samuelson. He also identified three “heroes” of this cen-
tury : Frank Knight, ].M. Keynes and G.L.S. Shackle. (He

3. Language: the use of plain English has advantages lauded Shackle as “the really gréat hermeneutical thinker
over the use of mathematics, because natural lan- of this ¢éntury.”) Lachmann suggested that we should tie
guage has greater “evocative power” —we always our advocacy of Hermeneutics to the work of the three
mean more than we say or write; there are always “heroes” in our efforts to make economists aware of {*
‘more insights:inra text than what the-author meant. Herterieuties: asan available alert GET SLT if
Hence we would see a shift toward more “literary” oo
The next speaker was Professor Richard Ebeling of the

£COonomics.
| University of Dallas, who gave an example of the Herme-

Lavoie identified three schools in which he sees hopeful neutical approach to economic reasoning. His topic was

signs of interpretive ideas being adopted: the Marxists, the “What is a Price? Explanation and Understanding.” The
post-Keynesians, and the Austrians. Unfortunately, all first part of Professor Ebeling’s talk focused on interpreta-
three are “too radical” for the neoclassicals, making the tion as a search for meaning. He pointed out that in verbal
introduction of Hermeneutics into the mainstream difh- communication we are able to convey meaning accurately
cule. Lavoie suggested that we need to follow Donald Me- through an iterative process aided by feedback, whereas in
Closkey and Arjo Kiamer: economists need to “talk to written communication we have only an “intention to say”
each other” instead of just writing scholarly monologues which must be interpreted by the reader. The reader must
for the journals. oo look for “intentionalities” by looking at the text as a narra-

The keynote address entitled “Economics as a Herme- tive, empathizing with the authors. As observers of human
neutical Discipline” was given by Professor Ludwig Lach- behavior, we have the same problem of interpreting the
mann from New York University. Professor Lachmann intentions of the actors; only by doing so can we under-
pointed out that Hermeneutics and Austrian Economics stand the meaning of the actions.

are not synonymous. Hermeneutics is a valid method in the
social sciences, but not the only method. It is, however, a
particularly appropriate one for economics.

Turning to economics, Ebeling pointed out that our
explanations must start from the Logic of Choice. The
price of an act is the opportunity cost, which is internal and

The natural sciences try to establish (find) order only, subjective. Mental pictures of imagined possibilities are
while the social sciences also try to establish meaning. The maps to action; men create their own prices. Exchanges in
meaning of a human act is the meaning of that act to the the market take place only after exchange takes place in ,.
actor. In the natural sciences, effects always follow causes in the mind of each participant, i.e. “consummation {of exh /
time, whereas in human action the “cause” of an action lies changes} requires that intentionalities meet.” Prices are a
in the future: the actor expects the act to have certain means for communicating your intentions to others. But

consequences. We must therefore interpret actions (the market prices, rather than being signals of what actions to



===== PAGE 7 =====

take, are indicators of intentions. The market process is
best seen as the competitive rivalry between different inter-
pretations of market data.

iby Finally, Professor Ebeling discussed the “automated” na-
ture of our interactions with others. We learn as children to
see the same meanings in objects and actions as others do.
In interacting with the world on a daily basis, we rely on
varying degrees of interpersonal intimacy: we build up
“ideal types” of others in our minds, from the very specific
(“my mother") to very general, depersonalized ones (“the
bank teller”, “the policeman’). These ideal types guide our
expectations of how other people will act and our interpre-
tations of their actions. As market participants, we special-
ize in gathering knowledge of the particulars of time and
circumstance; this process entails building appropriate
ideal types of others.

The final speaker of the day was Professor of Philosophy
Gary B. Madison from McMaster University in Toronto.
His topic was “Hans-Georg Gadamer’s Contribution to
Philosophy and its Significance for Economics.” Professor
Madison was highly critical of Professor Levine's Kantian-
ism, and he said among other things that:

e There are no “facts in themselves”; all concepts are “the-

ory-laden”. There is no “truth out there” in the social

sciences.

~ All understandin -and knowledge is is “intersubjective,”
ependent on ' consensus.” OFjectivis 1 me

cal naivete.”

® There is no such thing as a “correct” or a “best” hypoth-

esis, even in the natural sciences; at best one hypothesis

may be more “persuasive” than another.

e If we have to give up reality and knowledge, so much the

better.

o If there were such a thing as “economic reality,” there

would be no need for entrepreneurship. |

e Statistics are not natural, objective data: they are not

facts but interpretations of facts.

¢ Invoking Hayek, he referred to meaning as “a result of

human action but not of human design.”

o He denied that institutions are merely the total sum of

individual actions : “the whole is more than the sum of its

parts.”

e Man is an interpretive animal who constantly interprets

himself to himself. |

An Evaluation

Both during the conference and in later discussions,
certain questions regarding the nature of Hermeneutical
“philosophy and its relation to Austrian economics and to
iconomics in general have presented themselves. In the
spirit of dialogue we list some of these questions below, in
the hope that they will generate debate and perhaps some
clarification. We are of course aware that a one-day confer-

etho ole ~

ence is hardly enough time to “learn the language” of a
new and complex subject. We therefore invite comments
and criticism of this review.

The first point to be raised must be that no clear defini-
tion of “Hermeneutics” was offered at the conference; we
had to infer from the presentations that it has something
to do with ‘a concern with “Interpretation” as a method.’
Also, as was evident from Professor Levine's talk, there are
several different brands of Hermeneutics available today,
some of which do not go well together. We were not told
which ones we are to accept into Austrian economics (al-
though at the Saturday discussion, most of the GMU
economists present disavowed Deconstructionism).

We appreciate the concern which the sponsors of the
conference have for replacing mechanistic, mathematical
positivism with a more fruitful approach in economics.
However, we are not sure to what extent Hermeneutics
provides us with useful insights not already stated by
Menger, Mises, or Hayek. Nor is it quite clear to us exactly
what the much talked about “interpretive skills” consist
of: one could easily get the impression that they are some-
how inversely related to the use of mathematics—but
surely that is not all?

One distinction that was not clearly made and which
therefore confused some of the discussion is the distinction
between “meaning” and ‘'significance.” The insight that
ITAA ACHGNS caf Gly be understood in light of the plans
of the actors, the “web of thought” that sustains them, is
undeniably crucial to economic science. But asking for the
“meaning” of a market price is to wipe out completely
Havyek’s distinction between intended and unintended con-
sequences of human action.

By definition, the “meaning” of an action is to be under-
stood in terms of the actor’s plans. Observing an individual
act, we can attempt to deduce its meaning in light of what
we know about the actor and his possible plans. His act will
also have significance to us, in the sense that it may cause
us to alter our own plans. Market data, however, cannot
have any meaning (unless we posit, with Bishop Berkeley, a

- God of the Market as the ultimate Actor and provider of

Meaning). They do, however, have significance to the ex-
tent that they impinge on the plans of individual actors.

If, on the other hand, we are asking for the meaning of
an individual price (bid or asked), it is difficult to see how
Hermeneutics can give us general economic insights be-
yond what is already offered by Praxeology (or by Neoclas-
sical economics, for that matter). One can too easily get lost
in psychologizing about the mental states of individual
actors.

A debate has been going on for many years among Aus-
trian economists over whether the supposed Kantianism of
Mises or the Aristotelianism of Menger and Rothbard is

+ mf —



===== PAGE 8 =====

the better foundation for economics. But Professor Madi- the conference. The utility of natural language, if used

son wants to-do away with foundations altogether! As the properly and with precision, is that it aptly describes eco-
quotes show, he wants to throw reality and knowledge out nomic phenomena—not that it conveys more than the
the window; he held that all knowledge is “intersubjective” author intended. Natural language has no advantage “)
and subject to “consensus.” oo mathematics if it is used improperly, as when the author i
We are puzzled. Are we to understand that truth is to be mistaken | his ideas, or fails to convey chem clearly to his
determined by majority vote, and that reality is something
we ourselves create in our own minds? If so, what is left of On a more “tactical” level, we were puzzled by the un-
economics as a science-is science even possible or mean- qualified endorsements which Marx, Keynes, and Shackle
ingful under such a view? Furthermore, it is not clear on seemed to be getting. It may well be that these thinkers
this view by what standards we can argue that Herme- have had some valuable insights of which Austrians can
neutics is “better” than, say, Positivism. Professor Madi- make use. But we believe Professor Barry Smith had a valid
son’s answer was that theories must be judged on their point when he reminded us that virtually all those who
“persuasiveness.” But surely this merely begs the question. have embraced Hermeneutics have espoused historicism,
For what is the standard for persuasiveness when references relativism, or Marxism {or some other brand of collectiv-
to the real world are ruled out? We suspect that the field is ism). He suggested that this is no accident—that there is a
left wide open for demagoguery. logical link between these views and the premises of

Hermeneutics. Here is another “slippery slope” to watch
out for, at least if one's current leanings are toward some
form of classical liberalism. Individualism in politics is nor-

Common to many Hermeneuticians seems to be the idea
that “all is text.” Professor Levine warned against the “slip-

pery slope” toward subjectivism to which the epistemologi- mally founded on philosophical realism; philosophical
cal problems inherent in such a view can lead. In her subjectivism is apt to lead to collectivist politics. It was,
opinion, interpretation of literature is not a good model for perhaps, no accident that Professor Madison decried “un-
economic method. We concur. scientific adherence to laissez-faire doctrines.” |
At this point, we should perhaps emphasize that we are In conclusion, let us say that we found the talks by
not finding fault with the methodological subjectivism Lavoie, Lachmann, and Ebeling to contain valuable in
which is the hallmark of good economics, but rather with sights. But we believe it would be extremely harmful to th
the psychological” and philosophical subjectivism pro- Austrian school if Hermeneutics were allowed to take over,
pounded by some of the speakers. | or even sail under, the “Austrian” flag. We are concerned

with the lack of clarity of what exactly this alternative
method is, and we have strong objections to the philosoph-
ical premises and other tenets that were presented. We
cheerfully admit to the charge of “methodological na-
ivete” —in our view, metaphysics and epistemology as es-
poused by Professor Madison must of necessity degenerate
into pure nonsense.

This philosophical subjectivism has implications for the
Hermeneuticians’ insistence that more “dialogue” will con-
tribute to better understanding and hence to better theory.
As Professor Levine put it, “Are we talking about reality or
are we talking about talking?” When objective reality is
ruled out, and truth-by-consensus is asserted, we are at a
loss to see why dialogue would not degenerate into point-

less language games—meaningful dialogue is quite simply The fundamental concern of Positivism is, after all, with
impossible. If economics is to amount to more than just reality, even if some of its current practitioners have forgot-
talk, to more than sitting around the camp fire telling call ten Aristotle’s dictum that the method of inquiry must be
tales to each other, we must have some notion of concepts suited to the subject under investigation. We believe the
having referents out there in the real world. But this seems Austrian school has many valuable contributions to offer
to be what Professor Madison wants to rule out! to contemporary economics. It would be a shame if some

Austrians are heard to assert that there are as many truths
as there are interpreters. They will be dismissed by serious
scholars—and rightfully so.

It is not clear to us in what sense the use of natural
language is more useful or “meaningful,” if such language
is just as far removed from reality as the mathematical
theorizing it is supposed to replace. We find the distinction

made between natural language and mathematics to be - For those who would like to delve further into the sub-
confusing and unwarranted. It is the quality of the thought ject matter of Hermeneutics, several working papers on
expressed, and not its mode of expression, that should Interpretation and Hermeneutics are available from the _
concern us. The use of mathematics in economic theorizing Market Process Center at George Mason University. —
has limited usefulness because human action is devoid of : SE :

quantitative relationships—not because mathematics is Sven Thommesen, John McCallie, and Dipesh Shah are graduate stu-

“unnatural” because Man invented it, as was suggested at dents in economics at Auburn University.



===== PAGE 9 =====

[IRI TITER)

TLE

continued from page 4

are the rigidities, behavior patterns, and habituation of

+ social classes. True freedom consists in the individual's

itecognition that such controls (read constraints) lead to his
or her further development, progress, and preservation.
Domination or compulsive controls are, of course, visited
on societies from time to time (such as in evil oligarchies or
dictatorships); these may not contribute to freedom or to
development, but they are initiated by individual decisions
as well. (They are “natural controls” gone amuck).

Wieser is explicit that although controls and institutions
put a stamp upon any given age and form constraints on
individuals, controls are malleable with human behavior
and change over time. Leadership, which is equivalent to
economic, political, and moral “entrepreneurship,” creates
change in all institutions and “leadership is impossible
without some inequality” (1927, p. 157). Progress, further,
is made possible by man’s inventive spirit and action (p. 41)
and institutions form and change through spontaneous
action producing unconscious order. In the Figure these
dynamics are represented by the reciprocal arrows from
the ground in individual action to the institutional frame-
work which are, in turn, the constraints faced by decision
makers at any one time. They “react back” upon decision
making as new “controls” over economic and social behav-
ior. oo

Menger and Wieser. In his Untersuchungen Menger ob-
served that

... natural organisms almost without exception ex-
hibit, when closely observed, a really admirable func-
tionality of all parts with respect to the whole, a
functionality which is not, however, the result of hu-
man calculation, but of a natural process. Similarly we
can observe in numerous social institutions a striking
apparent functionality with respect to the whole. But
with closer consideration they still do not prove to be
the result of an intention aimed at this purpose, i.e.
the result of an agreement of members of society or of
positive legislation, They, too, present themselves
rather as natural products (in a certain sense), as unin-
tended results of historical development (1883, p.
130).

Institutions, both social and economic, are formed as the
unintended result of human action. Menger’s famous ex-
ample of this process was a transactions cost explanation of
the origin of money (1891; Jones, 1976).

Wieser accepted the kernel of this individualistic ex-
planation but argued that it did not go far enough. With
respect to the development of money, he maintained that
leader-inventors of money did not dream

...nor could have dreamed of a universal medium of

LVN critical point in Wieser’s model is that it is economic
theory which illuminates sociology and not sociology
which illuminates economic behavior. Individuals are, sim-
ply and in all things, maximizers of utility under con-
straints. Institutions and “controls” at any one time pro-
duce some given level of total utility in society. Wieser’s
whole canon may be interpreted within this central, or-
ganizing principle. However, my (admittedly more limited)
purpose here is to show that, in working out this scenario,
Wieser developed and/or contributed to economic themes
which have become the warp and woof of modern Aus-
trian concerns, as close or closer than those of Menger or
Bohm-Bawerk. Consider some of these themes.

Neo-Austrian Themes in
Wieser’s Social Economics

Three interrelated themes in modern neo-Austrian eco-
nomics have included (a) the emergence of institutions as
the result of spontaneous order; (b) the depiction of com-
petition as a rivalrous process opposed to (simply) a static
model, and; (c) the key role of the entrepreneur in the
economic process. These themes are clearly set out in
Wieser’s classic.

ir The Emergence and Alteration of Institutions

The idea of spontaneous order, brought to full flower by
Hayek and Mises, finds its origins in the writings of both

Cesc Fre wittr4t &binding power “that could compel ~~
them like all others to make use of it. The tremendous
influence of the mass practice which grew up ex-
tended the final result far beyond their expectations.
None of them would recognize in the final form of
money an exact embodiment of their purpose. The
final form of money is not a mere resultant; because of
the universal social resonance that it awoke it repre-
sents a tremendous strengthening of their endeavors.
..» The mass never acts with a clear consciousness of
aim. It is not teleological. Rather it follows the path of
success opened by the leaders without measuring its
operation. In following this course they give it the
weight of their mass and release a power which pro-
duces results far beyond those set by the masses or
desired by the leaders. Only a part of the force that
builds social institutions is directed by purpose; the
final decisive mass-influence operates beyond the pur-
pose (1927, p. 165).

Wieser did not deny that individualistic behavior creates
institutions over time. He goes further, however, to argue
that institutions are an unintended presence and form con-
straints on maximizing behavior at any point in time. Men
always make decisions in the context of institutions which
are themselves only partially the result of human action. In
Wieser’s words; “Men always act with diverse emotions.
They act under the control of the more or less felt influ-



===== PAGE 10 =====

ence of the natural controls or compulsion that give them
the power or force them to decision” (1927, p. 165). Social
institutions, such as the (Veblenian) interdependent tastes
found within: classes, constrain individual choice to a
greater or lesser extent. Economic institutions, such as con-
tracts (1927, p. 163) or price (1927, pp. 188-189) are created
and developed by human action and constrain choice in
the same manner. This does not mean, however, that insti-
tutions are not themselves altered through time by leader-
ship or through entrepreneurial activity. Indeed, Wieser is
emphatic that institutions are changed by new ideas and by
enlightened leaders and entrepreneurs (1927, p. 166) under
the ideal conditions of market freedom (1927, p. 156). Here
the role of competition as rivalry is given a key role in free
economic and social evolution.

Rivalrous Competition and Entrepreneurship

In a manner similar in general outlines to Professor
Kirzner’s recent and interesting studies (1973), Wieser de-
veloped a model of the competitive system in which com-
petition is not depicted as a situation but as a rivalrous
activity wherein the entrepreneur is the mover of the com-
petitive process.

In Wieser’s view, inequality is necessary for society to
progress and all gradations of leaders may be found in
society. In economic terms, entrepreneurs are those of su-
perior abilities and creativity who are better able to utilize
the competitive process to their own énds. They are fol-
lowed by the masses of imitators within a regime of compe-
tition. Smithian atomism was at variance with Wieser's
observations of cartel and other economic structures of his
day and he sought to provide a clearer explanation. In
doing so he invented a very adequate concept of imperfect
competition long before Straffa, Chamberlin and Robin-
son.

These structures, which he called monopoloidal, were
unexplainable in the atomistic, static worlds of Adam
Smith and Alfred Marshall or within the static theory of
monopoly. The process of competition created these inter-
mediate (monopoloidal) structures in disequilibrium. (It is
interesting that the whole concept of imperfect compe-
tition and, to a large extent, that of industrial organization,
was born within the Austrian notion of a disequilibrium
process.) Within Wieser’s view of industrial organization,
static theory was a wholly inadequate explanation of a real
world in which entrepreneurial rivalry meant that compet-
itive results are not dependent upon the number of com-
petitors. In Wieser’s words, monopoloid institutions

have in fact traits of monopoly; they confer monop-
olistic power. But at the same time they are subject, in -
other directions, to the pressure of competition or are
otherwise restricted. They are. . . intermediate forms,
lying midway between monopoly and competition.

Neither the theory of pure monopoly nor the theory

of pure competition ...will do them entire justice
(1927, p. 221).

The significant point is that in these monopoloid,
forms—even trusts or cartels—effective competition as ri-
valry flourishes. The steel trust, for example, was clearly
constrained by limit pricing and by cartel-busting encrepre-
neurs .in a dynamic environment of cost and demand
changes over time (1927, pp. 226-227 et passim). Indeed,
rivalrous competition is the key to understanding the
whole market system:

. competition . . . exercises so great an effect as, even
under modern conditions, to entitle it to be classed
among the most important social economic forces. . . .
[I}t performs even to-day the functions of personal
selection; peasant against peasant, master-mechanic

- against master-mechanic, large entrepreneur against
large entrepreneur, each is weighed and measured,
approved or condemned in the fierce struggle of com-
petitive conflict. . . . No economic order, without suf-
fering very great disadvantages, may dispense with the
use, in one way or another, of the supreme power of
competition towards social success (1927, p. 211).

What form does this entrepreneurial activity take? Most
individuals, according to Wieser, are conditioned by the
force of habit—‘so long as they are able, they stick to Tet
accustomed place in life, racher than exert the effort r
quired to gain new vantage points” (p. 208). The entrepre-
neur, in contrast, is one who correctly predicts the prices
and activities of input suppliers, who “has properly esti-
mated the conditions of the demand and divined economic
changes that still lie in the future” (1927, p. 208). The
entrepreneur is a leader who sets the “masses” in motion
with “new methods, new products, new territories, new
points of departure.” Monopoloidal structures are only the
temporary result of competitive (i.e., entrepreneurial} ac-
tivity which, along with constantly evolving technology
and market conditions, engenders new rivalry which de-
stroys any temporary advantages that may accrue to the
innovating individuals or firms. In this Schumpeterian
stance, Wieser more than hints at the fact that a non-
coerced competitive system acts more perfectly than any
other in creating a fluid environment for entrepreneurship
as the modus operandi of economic progress (e.g., pp. 156-
159). It is hardly worth mentioning that these views of
competition and of the role of the entrepreneur are at the
core of certain critical areas of neo-Austrian economics.

Conclusion: Wieser as Visionary

These insights, which have here only been given cursor
coverage, lead me to believe that Wieser was much more
than a “crank sociologist” in his attempt to blend eco-
nomic theory with institutions and general social science.’ |

10


===== PAGE 11 =====

i
i
i

h ~

see Wieser’s life-work-as a quest for an understanding of
the origin and development of institutions. The writings of
Spencer, Darwin and Veblen only reinforced his belief that

fs _‘nstitutional change was important to welfare and was in
heed of an explanation. What better foundation for an
explanation than the Austrian theory of subjective value?
This theory, when combined with a dynamic theory of
competition and entrepreneurship, provided a perfectly
adequate description of European institutions, circa 1914.

Wieser’s special insight was that self-interested, utility-
maximizing behavior created and altered institutions along
semi-predictable lines. These institutions, in turn, con-
strained future economic actors until forward-looking and
creative leader-entrepreneurs were able to break out of the
mold to alter institutions once more. Wieser’s Social Eco-
nomics is nothing less than an elegant intertemporal model,
along the lines of that recently set our by North and
Thomas (1973), wherein Austrian economic theory—
much of it developed by Wieser himself —is set to the task
of unifying a disequilibrium discussion of social and eco-
nomic development. Self-interested, utility-maximizing
motives are at the core of the explanation of social and
political, as well as strictly “economic” institutions.

Wieser’s great work is, in my opinion, one that should be
read from the vantage of the above interpretation and, in

the sentiments of Wieser's 5 student Sekar Morgenstern, it

ould be-tead more Sisal
appreciate the architecture of Wieser’ $ virgin and perfect
state which he used only as a point of reference to discuss
institutional change. Likewise, Mitchell preyed upon what
seemed to be an “interventionist position” in Wieser’s insti-
tutional descriptions, a position which ignores Wieser’s
ever-insistent desire to maintain inherited property righits
systems. The solution, [ maintain, is to let Wieser speak for
himself as a theorist of institutional change. Within this
framework, further, Wieser’s role as a bridge to modern
Austrian economics is evident. |

"Footnotes

Returns to factors in \ this system are necessary payments but are not
necessary receipts. The market, in other words, must be used in order to
arrive at an efficiency calculation (see Natural Value, 1889, p. 63).

It goes without saying that Wieser was in part elaborating (from
Menger} a utility-based refutation of the labor theory of value {e.g.,
1889, pp. 65-66).

fIt is possible that Wieser’s choice of terminology has clouded the
interpretation of his work. Consider his use of the terms “leadership”
and the “masses” —terms which might seem indicative of a collective
interpretation of society or history. Actually Wieser appears to have
weant only “innovator” or “entrepreneur” by the term “leader” and
Wtompetitive imitators” by the term “masses,” His tastes in music paral-

leled his theory of societal progress. Morgenstern told me that Wieser .

was an avid opera buff and that he accompanied the Wieser’s to perfor-
mances of Wagnerian favorites (Wagner was also Jevons’ favorite com-

poser). Sigfried might well have been a mythological model for Wieser’s
real-world leader-entrepreneur.

‘Schumpeter ‘argues (1942, pp. 88-99 et passim) that market forces
and private contracting are sufficient to check costly introductions of
technology and to promote maximum economic growth (see Boudreaux
and Ekelund, 1986). Also see Bohm (1985, p. 255), who suggests a

connection between Wieser and Schumpeter.

In addition to discussion of the impact of certain social institutions
upon “optimal” economic decision making, there are a number of
interesting observations in Wieser’s analysis respecting the impact of
anthropology and racial traits upon economic outcomes (e.g., 1927, pp.

159-60). | |
Bibliography

Bohm, Stephan, “The Political Economy of the Austrian School”, in
Piero Roggi {ed.) Gli economisti e la politica economica (Napoli:

Edizioni Scientifiche Italiane, 1985), pp. 243-260.

Boudreaux, Don and Robert B. Ekelund, Jr., “Regulation as an Exoge-
nous Response to Market ‘Failure’: A Neo-Schumpeterian Perspective”,
Unpublished Manuscript, Auburn University, 1986.

Craver, Earlene, “The Emigration of the Austrian Economists”, History
of Political Economy, 18 (Spring 1986), pp. 1-32.

Ekelund, Robert B., Jr, “Power and Utility: The Normative Economics
of Friedrich von Wieser”, Review of Social Economy, 28 (September
1970), pp. 179-196,

Jones, R,, “The Origin and Development of Media of Exchange”, Jour-
nal of Political Economy,” 84 (September 1976), pp. 757-775.

Kiranir, | Iotae} M, 1. Compatiion and { Entreprencurship. (Chicago: University

} 9

Menger, Carl, “On the Origin of Money”, translated by Caroline A.
Foley, Economic Journal, 2 (June 1891), pp. 239-55.

Menger, Carl. Untersuchungen uber die Methode der Socialwissenschaften
und der Polotischen Oekonomie insbesondre (1883), translated as Problems of
Economics and Sociology by Francis J. Nock and edited by Louis Schnei-
der (Urbana: University of Illinois Press, 1963),

Mitchell, W.C. Types of Economics Theory from Mercantilism to Institition-
atism. Vol. II (New York: Augustus M. Kelley Publishers, 1969).

Mitchell, W.C., “Wieser’s Theory of Social Economics”, Political Science
Quarterly, 23 (March 1917).

Morgenstern, Oskar, “Friedrich von Wieser, 1851-1926”, American Eco-
nomic Review, 17 (December 1927), pp. 669-674.

North D.C. and R.P. Thomas. The Rise of the Western World. (Cam-
bridge: Cambridge University Press, 1973).

Schumpeter, Joseph A. Capitalism, Socialism and Democracy. (New
York: Harper & Row, (1942), 3rd edition, 1950).

Stigler, George. Production and Distribution Theories. (New York: The
Macmillan Company, 1941).

Wieser, Friedrich von. Naural Value, (1889) Translated by Christian A.
Malloch (1893). (New York: Kelley & Millman, Inc., 1956).

Wieser, Friedrich von. Social Economics (1914). Translated by A. Ford
Hinrichs with a preface by W.C. Mitchell (New York: Adelphi Com-
pany, 1927).

Robert B. Ekelund, Jr. is Lowder Professor of Economics at Auburn
University.

11


===== PAGE 12 =====

Fo

Murray N. Rothbard on Hermeneutics

Ludwig von Mises—in his person, his politics, and his
methodology —was the epitome of principle. His personal
warmth did not prevent him from being an uncompromis-
ing champion of laissez-faire, liberty, and the absolute
truth of economic law. He was therefore criticized as “in-
transigent,” “dogmatic,” and “doctrinaire.”

His sort of stance is as unfashionable in academia as it is
in Washington, and that is why some Austrian economists
have sought to lead us away from Mises. Their latest"
attempt involves the fuzzy-minded Continental horror
known as hermeneutics.

In the old days, “hermeneutics” meant the discipline of
interpreting the Bible. The meaning has been changed
during the twentieth century, largely by the German phi-
losopher Martin Heidegger, his student Hans-Georg Gada-
mer, and French nihilists Paul Ricoeur and Miche! Fou-
cault. It has swept the field of literary criticism as
“deconstructionism,” thanks to the Yale English faculty,
and has penetrated deeply as well in philosophy, sociology,
political science, history, and now-—-some hope—in eco-
nomics.

The best way to think of this murky crew is thar they
talk and write like villains in an Ayn Rand novel: “There is
no reality,” “every man creates his own reality”, “there is

no truth.” However, Randian villains proclaimed their

views with clarity. The hermeneuticians are a fetid bog, a
miasma of jargon-ridden incoherence. There can be no
style worse than the incomprehensible thicket of
heremeneutical prose. If, as I believe, the style reflects the
thought, and if clarity and lucidity are to be cherished,
then we know how to treat hermeneutics.

The definitive word on all such gabble was written by
H.L. Mencken in his classic demolition of Thornstein Veb-
len, in a sense an early hermeneutician and an institutional-
ist opponent of economic law. What was remarkable about
Veblen’s ideas, Mencken wrote:

was the astoundingly grandiose and rococo manner of their state-
ment, the almost unbelievable tediousness and flatulence of the
gifted headmaster's prose, his unprecedented talent for saying
nothing in an august and heroic manner...

Marx, I daresay, had said a good deal of it long before him, and
what Marx overlooked had been said over and over again by his
heirs and assigns. But Marx; ar this business, labored under a
technical handicap; he wrote in German, a language he actually
understood. Prof. Veblen submitted himself to no such disad-

vantage. Though born, [ believe, in these States, and resident here

all his life, he achieved the effect, perhaps without employing the
means, of thinking in some unearthly foreign language—say Swa-

hili, Sumerian or Old Bulgarian—and then painfully clawing his_. ~~,
thought into a copious and uncertain but book-learned English.
The result was a style thar affected the higher cerebral centers like a
constant roll of subway expresses. The second result was a sort of
bewildered numbness of the senses, as before some fabulous and
unearthly marvel. And the third result, if | make no mistake, was
the celebrity of the professor as a Great Thinker.*

Eg

Indeed, one of the hermeneutician’s great heroes is Karl

Marx. As Professor Barry Smith, an English philosopher

and adherent of Austrian economics, pointed out at a
recent George Mason University hermeneutics conference,
every leading hermeneutician has been a collectivist. In
fact, on the Continent, hermeneutics arose in the twentieth
century as a fallback position for Marxists.

Since no one could defend the labor theory of value or
other “classical” Marxist tenets any more, the “hermeneu-
tical” Marxists declared that the important point is that

there is no truth, there is no economic law. Therefore,

what counts is every man’s interpretation, which create
reality, and which is a matter of personal esthetics. Our
personal esthetics tell us that capitalism is unlovely, and
that socialism will be beautiful!

And if there is no truth or economic law, there is no

bulwark from which to resist the State. ‘Martin Heidegge ~
the father of hermeneutics, found it easy to become
enthusiastic Nazi.

If there is no moral or economic law, what then is the
argument against statism? Only one: that no one knows
anything, and that government knows even less. Somehow,
this strikes me as a weak reed in the defense of liberty.
After all, government can also “interpret” and make its
own reality.

Unlike Mises, the new hermeneuticists can never be
accused of dogmatism (except for the dogmatic view that
there is no truth). Their proclaimed strategy is Dialogue
With Everyone (except with Misesian dogmatists, of
course). Since there is no truth, everyone may as well
engage in endless dialogue with everyone else. (But if all
truth is subjective to each individual, why bother with
dialogue?)

Professor Murray N. Rothbard is vice president for academic affairs of
the Ludwig von Mises Institute.

*H.L. Mencken, “Professor Veblen,” A Mencken Chrestomathy (New
York: Knopf, 1949), 270.