WEBVTT NOTE 21. The Epistemological Case for Capitalism 1 00:00:00.000 --> 00:00:04.400 Chapter 21 The Epistemological Case for Capitalism 2 00:00:04.400 --> 00:00:12.160 In the early 1950s, Mises' NYU seminar dealt increasingly with epistemological questions. 3 00:00:12.160 --> 00:00:17.280 As he said to Ludwig Rachman, he felt that the analysis of epistemological problems would 4 00:00:17.280 --> 00:00:22.000 be the number one task in the social sciences in the coming years. He had said this in a 5 00:00:22.000 --> 00:00:27.680 July 1956 meeting with Rachman. It was the topic of his last two monographs, 6 00:00:27.680 --> 00:00:35.840 Theory and History 1957 and The Ultimate Foundation of Economic Science 1962. The subject had been 7 00:00:35.840 --> 00:00:42.480 prominent in his thoughts and reflections since the publication of Sociology and History 1929 8 00:00:43.120 --> 00:00:48.800 and Conception and Understanding 1930. It was one of the two areas in which he felt 9 00:00:48.800 --> 00:00:54.400 contemporary economics was most deficient, the other one being the Theory of Economic Calculation. 10 00:00:54.400 --> 00:00:59.860 In Nutsunado Economy and Human Action, he had stressed the historical significance of 11 00:00:59.860 --> 00:01:00.860 the problem. 12 00:01:00.860 --> 00:01:06.040 It is a complete misunderstanding of the meaning of the debates concerning the essence, scope, 13 00:01:06.040 --> 00:01:10.400 and logical character of economics to dismiss them as the scholastic quibbling of pedantic 14 00:01:10.400 --> 00:01:11.840 professors. 15 00:01:11.840 --> 00:01:16.240 It is a widespread misconception that while pedants squandered useless talks about the 16 00:01:16.240 --> 00:01:21.560 most appropriate methods of procedure, economics itself, indifferent to these idle disputes, 17 00:01:21.560 --> 00:01:23.760 went quietly on its way. 18 00:01:23.760 --> 00:01:28.600 In the mittorrenstreit between the Austrian economists and a Prussian historical school, 19 00:01:28.600 --> 00:01:34.380 the self-styled intellectual bodyguard of the House of Hohenzollern, and in the discussions 20 00:01:34.380 --> 00:01:38.700 between the School of John Bates Clark and American institutionalism, much more was at 21 00:01:38.700 --> 00:01:44.280 stake than the question of what kind of procedure was the most fruitful one. The real issue 22 00:01:44.280 --> 00:01:51.300 was the epistemological foundations of the science of human action and its logical legitimacy. 23 00:01:51.300 --> 00:01:55.340 He had come to the conclusion that political motivations were behind these epistemological 24 00:01:55.340 --> 00:01:57.900 critiques of economic science. 25 00:01:57.900 --> 00:02:03.420 The main motive for the development of the doctrines of polylogism, historicism and irrationalism 26 00:02:03.420 --> 00:02:08.580 was to provide a justification for disregarding the teachings of economics in the determination 27 00:02:08.580 --> 00:02:10.220 of economic policies. 28 00:02:10.220 --> 00:02:15.980 The socialists, racists, nationalists and etatists failed in their endeavors to refute 29 00:02:15.980 --> 00:02:21.260 the theories of the economists and to demonstrate the correctness of their own spurious doctrines 30 00:02:21.260 --> 00:02:26.300 Relations. It was precisely this frustration that prompted them again to negate the logical 31 00:02:26.300 --> 00:02:31.580 and epistemological principles upon which all human reasoning, both in mundane activities 32 00:02:31.580 --> 00:02:36.960 and in scientific research, is founded. Thus the epistemology of economics was not just 33 00:02:36.960 --> 00:02:42.900 an idle pastime for ivory-towered intellectuals, it was of direct fractal call relevance. 34 00:02:42.900 --> 00:02:48.220 How does economic theory relate to reality? Most economists believed, and still believe 35 00:02:48.220 --> 00:03:00.300 To Mises this point of view was paradoxical. It is strange that some schools seem to approve 36 00:03:00.300 --> 00:03:04.980 of this opinion and nonetheless quietly proceed to draw their curves and to formulate their 37 00:03:04.980 --> 00:03:10.260 equations. They do not bother about the meaning of their reasoning and about its reference 38 00:03:10.260 --> 00:03:16.500 to the world of real life and action. He himself felt it was a necessity to explain the epistemology 39 00:03:16.500 --> 00:03:22.540 of Economic Science, and devoted chapters 2 and 3 of Human Action, a total of 62 pages, 40 00:03:22.540 --> 00:03:28.860 to these issues. However, despite its fundamental importance, epistemology did play only an 41 00:03:28.860 --> 00:03:35.220 incidental role in human action. The great organizing theme of human action was the theory 42 00:03:35.220 --> 00:03:41.100 of economic calculation. Mises began with an analysis of the conditions under which 43 00:03:41.100 --> 00:03:45.980 no economic calculation could take place, then turned to the discussion of economic 44 00:03:45.980 --> 00:03:50.740 Economic Calculation in general, then within the market economy, and finally to those social 45 00:03:50.740 --> 00:03:57.380 settings that render economic calculation impossible, socialism, or perverted juice interventionism. 46 00:03:57.380 --> 00:04:01.380 From a philosophical point of view, Human Action made a sweeping case for utilitarian 47 00:04:01.380 --> 00:04:07.480 social philosophy, utilitarian with a distinct Misesian flavour, and the scientific core 48 00:04:07.480 --> 00:04:13.460 of this case was economics and the theory of economic calculation in particular. In 49 00:04:13.460 --> 00:04:19.160 In his new book, Mises made another case for his utilitarian philosophy. This time the 50 00:04:19.160 --> 00:04:25.660 argument turned on the epistemology of social analysis. Mises argued that the only scientific 51 00:04:25.660 --> 00:04:30.920 interpretation of social reality was based on economics and history, and that the conclusions 52 00:04:30.920 --> 00:04:36.080 of both these disciplines led to the more speculative generalisations of utilitarian 53 00:04:36.080 --> 00:04:42.140 philosophy as he understood it. He showed that the major alternative approaches Marxism, 54 00:04:42.140 --> 00:04:47.900 Positivism and Historicism, despite their pretensions to science, were untenable on 55 00:04:47.900 --> 00:04:53.020 epistemological grounds. They were essentially metaphysical doctrines, that is, their claims 56 00:04:53.020 --> 00:05:00.900 were not based on a certain fact, but on speculations, many of which, as Mises would show, were incoherent. 57 00:05:00.900 --> 00:05:05.340 The new book was eventually published under the title Theory and History, and subtitled 58 00:05:05.340 --> 00:05:10.940 An Interpretation of Social and Economic Evolution. It has remained one of his least read and 59 00:05:10.940 --> 00:05:12.780 and at least understood works. 60 00:05:12.780 --> 00:05:16.140 The difficulty lay only partly in the abstract nature of its subject. 61 00:05:16.140 --> 00:05:21.260 The main hurdle was, as in several of his other writings, a lack of pedagogical effort 62 00:05:21.260 --> 00:05:22.880 on his part. 63 00:05:22.880 --> 00:05:27.420 Most people know what to expect when they consult a treatise on economics, but few have 64 00:05:27.420 --> 00:05:34.340 any idea about the relationship between theoretical and historical approaches to social analysis. 65 00:05:34.340 --> 00:05:39.380 Mises's new book was not about narrating mankind's social and economic evolution. 66 00:05:39.380 --> 00:05:45.060 dealt instead with the epistemological problems of the various competing narratives. In Human 67 00:05:45.060 --> 00:05:51.100 Action he had referred to these problems incidentally. He had stressed that economic analysis, starting 68 00:05:51.100 --> 00:05:55.860 from the actions of individual persons, gave a purely fact-based account of the origin 69 00:05:55.860 --> 00:06:01.880 of human society. The holistic approaches had been unable to do this. They explained 70 00:06:01.880 --> 00:06:08.700 society by theological or metaphysical professions of faith. In Theory and History he amplified 71 00:06:08.700 --> 00:06:15.720 is argumented to a sweeping epistemological vindication of the case for liberty and capitalism. 72 00:06:15.720 --> 00:06:20.460 The book is divided into four parts. Part one deals with the central phenomenon of the 73 00:06:20.460 --> 00:06:25.780 social sciences, value. Mises explains the nature of value and studies the implications 74 00:06:25.780 --> 00:06:31.780 for a scientific analysis of human behaviour. In part two he argues that while all endeavours 75 00:06:31.780 --> 00:06:36.860 to discover scientific laws must be built on the assumption of strict determinism, all 76 00:06:36.860 --> 00:06:42.220 All attempts to find laws that determine the origin of ideas and value judgment have been 77 00:06:42.220 --> 00:06:48.240 in vain. Marxist dialectical materialism and other theories that explain ideas in terms 78 00:06:48.240 --> 00:06:53.560 of more fundamental material conditions are merely metaphysical speculation. The same 79 00:06:53.560 --> 00:06:58.540 holds true for those philosophies of history that explain the evolution of society in terms 80 00:06:58.540 --> 00:07:04.800 of some final destination. In part 3, Mises gives an in-depth discussion of the problems 81 00:07:04.800 --> 00:07:26.840 The argument in a nutshell. For Mises the starting point is that any epistemological 82 00:07:26.840 --> 00:07:32.920 speculation must lead to a determinism. This is so because the human mind is the instrument 83 00:07:32.920 --> 00:07:47.160 Whatever the true nature of the universe and of reality may be, man can learn about it 84 00:07:47.160 --> 00:07:52.200 only what the logical structure of his mind makes comprehensible to him. 85 00:07:52.200 --> 00:07:58.600 The logical structure of his mind enjoys upon man determinism, and the category of causality 86 00:07:58.600 --> 00:08:04.800 As man sees it, whatever happens in the universe is the necessary evolution of forces, powers 87 00:08:04.800 --> 00:08:09.480 and qualities which were already present in the initial stage of the X out of which all 88 00:08:09.480 --> 00:08:15.800 things stem. All things in the universe are interconnected and all changes are the effects 89 00:08:15.800 --> 00:08:21.520 of powers inherent in things. No change occurs that would not be the necessary consequence 90 00:08:21.520 --> 00:08:28.440 of the preceding state. All facts are dependent upon and conditioned by their causes. No 91 00:08:28.440 --> 00:08:33.880 No deviation from the necessary course of affairs is possible. Eternal law regulates everything. 92 00:08:33.880 --> 00:08:39.380 In this sense, determinism is the epistemological basis of the human search for knowledge. 93 00:08:39.380 --> 00:08:45.060 Man cannot even conceive the image of an undetermined universe. In such a world, there could not 94 00:08:45.060 --> 00:08:51.920 be any awareness of material things and their changes. It would appear a senseless chaos. 95 00:08:51.920 --> 00:08:56.240 Nothing could be identified and distinguished from anything else. Nothing could be expected 96 00:08:56.240 --> 00:09:00.400 and Predicted In the midst of such an environment, man would 97 00:09:00.400 --> 00:09:04.800 be as helpless as if spoken to in an unknown language. 98 00:09:04.800 --> 00:09:09.180 No action could be designed still less put into execution. 99 00:09:09.180 --> 00:09:14.920 Man is what he is because he lives in a world of regularity and has the mental power to 100 00:09:14.920 --> 00:09:17.580 conceive the relation of cause and effect. 101 00:09:17.580 --> 00:09:22.080 He emphasised that from the point of view of a perfect being, such as God, things might 102 00:09:22.080 --> 00:09:23.860 look completely different. 103 00:09:23.860 --> 00:09:29.120 This position can best be characterized as a Leibnizian rationalism. 104 00:09:29.120 --> 00:09:33.820 This point of view implies that human action could be explained, at least in theory, in 105 00:09:33.820 --> 00:09:36.620 terms of underlying material forces. 106 00:09:36.620 --> 00:09:41.460 We know that human action is immediately determined by the ideas and value judgments of the acting 107 00:09:41.460 --> 00:09:42.460 individuals. 108 00:09:42.460 --> 00:09:47.480 But these ideas and value judgments must in turn be determined by more fundamental causes. 109 00:09:47.480 --> 00:09:52.220 If such causes were physical or chemical processes, then the explanation of human behavior could 110 00:09:52.220 --> 00:09:57.060 should become a branch of applied physics or applied chemistry. However, and this is 111 00:09:57.060 --> 00:10:02.860 the crucial consideration that Mises had stressed already in previous work, at present nobody 112 00:10:02.860 --> 00:10:08.100 knows anything about the more fundamental causes of human behaviour. Up to now all attempts 113 00:10:08.100 --> 00:10:12.780 to identify laws that would explain ideas and value judgements in terms of physical, 114 00:10:12.780 --> 00:10:18.480 chemical or other processes have been in vain. There are various hypotheses about what such 115 00:10:18.480 --> 00:10:30.240 13 years before he had written, we may reasonably assume as hypotheses that man's mental abilities 116 00:10:30.240 --> 00:10:34.620 are the outcome of his bodily features. Of course we cannot demonstrate the correctness 117 00:10:34.620 --> 00:10:39.480 of this hypothesis, but neither is it possible to demonstrate the correctness of the opposite 118 00:10:39.480 --> 00:10:45.240 view as expressed in the theological hypothesis. We are forced to recognize that we do not 119 00:10:45.240 --> 00:10:51.280 know how out of physiological processes thoughts result. We have some vague notions of the 120 00:10:51.280 --> 00:10:56.000 detrimental effects produced by traumatic or other damage inflicted on certain bodily 121 00:10:56.000 --> 00:11:01.120 organs. We know that such damage may restrict or completely destroy the mental abilities 122 00:11:01.120 --> 00:11:07.620 and functions of men, but that is all. All such hypotheses are therefore mere speculation. 123 00:11:07.620 --> 00:11:13.520 They are philosophical or metaphysical constructs, not scientific knowledge. This point also 124 00:11:13.520 --> 00:11:18.920 also applied to F.R. Hayek's The Sensory Order, a book that Mises did not cite. Hayek 125 00:11:18.920 --> 00:11:24.040 had attempted to analyse the mechanism through which physiological impulses come to be translated 126 00:11:24.040 --> 00:11:28.680 into mental perception. Apparently, Mises was not convinced that Hayek delivered more 127 00:11:28.680 --> 00:11:33.440 than metaphysical speculation. Our deficient knowledge about the more remote causes of 128 00:11:33.440 --> 00:11:38.820 human behaviour has two straightforward methodological implications. All efforts to explain the causes 129 00:11:38.820 --> 00:11:43.420 and consequences of human behaviour must, at least for the time being, take individual 130 00:11:43.420 --> 00:11:47.660 Methodological Human Behaviour as an ultimate point of departure. They must accept the principle 131 00:11:47.660 --> 00:11:52.900 of methodological individualism. The older economists had applied this principle intuitively 132 00:11:52.900 --> 00:11:57.780 and even Schumpeter, who coined the term, defended it merely on grounds of expediency. 133 00:11:57.780 --> 00:12:04.180 Mises delivered an epistemological demonstration of its necessity. Methodological individualism 134 00:12:04.180 --> 00:12:09.860 is rooted in deficient human knowledge. The causal analysis of individual human behaviour 135 00:12:09.860 --> 00:12:15.100 We must take account of the fact that any human action has certain invariant consequences, 136 00:12:15.100 --> 00:12:20.820 that is, consequences that result from like action at any place and any time. For example, 137 00:12:20.820 --> 00:12:25.620 an increase in the quantity of money tends to entail an increase of the price level above 138 00:12:25.620 --> 00:12:30.140 the level it would otherwise have reached, irrespective of when and where the money supply 139 00:12:30.140 --> 00:12:36.580 is increased. The study of such consequences is the task of praxeology and economic science. 140 00:12:36.580 --> 00:12:54.580 Human action also has contingent causes and consequences. The very same action increasing the quantity of money can be inspired by very different ideas and value judgments, and the objective consequences resulting from any action can provoke very different individual reactions at different times and places. 141 00:12:54.580 --> 00:13:01.580 In other words, the causal chains through which ideas and value judgments are connected with human action are contingent. 142 00:13:01.580 --> 00:13:07.920 The elicitation of these contingent causal chains is the task of historical research. 143 00:13:07.920 --> 00:13:12.840 Individual value judgments and actions are ultimately given, as they cannot be traced 144 00:13:12.840 --> 00:13:17.840 back to something of which they would appear to be the necessary consequence. If this were 145 00:13:17.840 --> 00:13:22.420 not the case, it would not be permissible to call them an ultimate given. But they are 146 00:13:22.420 --> 00:13:28.660 not, like the ultimate given in the natural sciences, a stopping point for human reflection. 147 00:13:28.660 --> 00:13:34.760 They are the starting point of a specific mode of reflection, of the specific understanding 148 00:13:34.760 --> 00:13:38.500 of the historical sciences of human action. 149 00:13:38.500 --> 00:13:44.220 Mises stressed that this is as far as scientific analysis of human action can go. 150 00:13:44.220 --> 00:13:48.200 Starting from observable human behaviour, we can explain its invariant consequences 151 00:13:48.200 --> 00:13:53.460 with the help of economics, we can also explain its contingent consequences by historical 152 00:13:53.460 --> 00:13:58.500 understanding and we can to some extent explain how this behaviour resulted from the ideas 153 00:13:58.500 --> 00:14:02.940 and Value Judgments of the Acting Person in the particular case under consideration, again 154 00:14:02.940 --> 00:14:05.320 by understanding. 155 00:14:05.320 --> 00:14:10.480 Mises did not exclude the possibility that individual value judgments and ideas had invariant 156 00:14:10.480 --> 00:14:15.400 causes, but again neither he himself nor anybody else knew what they were. 157 00:14:15.400 --> 00:14:19.880 At present only some of the contingent causes of human action could be identified by historical 158 00:14:19.880 --> 00:14:24.320 understanding on a case-by-case basis, and even this analysis was not likely to give 159 00:14:24.320 --> 00:14:25.920 the full picture. 160 00:14:25.920 --> 00:14:33.160 There was an unfathomable remnant that defied any explanation whatever, historical individuality. 161 00:14:33.160 --> 00:14:38.400 Mises explained, the characteristics of individual men, their ideas and judgments of value as 162 00:14:38.400 --> 00:14:43.400 well as the actions guided by those ideas and judgments, cannot be traced back to something 163 00:14:43.400 --> 00:14:48.040 of which they would be the derivatives. There is no answer to the question why Frederick 164 00:14:48.040 --> 00:14:55.260 II invaded Silesia, except because he was Frederick II. It follows that the social sciences 165 00:14:55.260 --> 00:14:59.220 Social analysis, at least for the time being, cannot be bound with the natural sciences 166 00:14:59.220 --> 00:15:01.700 into a unified body of scientific knowledge. 167 00:15:01.700 --> 00:15:06.980 This ignorance splits the realm of knowledge into two separate fields, the realm of external 168 00:15:06.980 --> 00:15:11.820 events, commonly called nature, and to the realm of human thought and action. 169 00:15:11.820 --> 00:15:16.260 For methodological reasons, the social sciences are separate from the natural sciences. 170 00:15:16.260 --> 00:15:20.460 Mises called this the principle of methodological dualism. 171 00:15:20.460 --> 00:15:25.100 Social analysis, if it just sticks to the known facts, must explain all social phenomena 172 00:15:25.100 --> 00:15:30.380 as resulting from individual action, and the causal chain of events must start and end 173 00:15:30.380 --> 00:15:36.700 with the ideas and value judgments of individuals. Scientific endeavours within the constraints 174 00:15:36.700 --> 00:15:42.380 of methodological individualism and methodological dualism entail the development of the disciplines 175 00:15:42.380 --> 00:15:47.780 called praxeology and history. The former is the discipline that describes the invariant 176 00:15:47.780 --> 00:15:52.740 consequences of human action that result regardless of time and place. The latter is 177 00:15:52.740 --> 00:16:12.140 History describes in retrospect how the acting person perceived the situation in which he 178 00:16:12.140 --> 00:16:18.180 had to act, what he aimed at, what he believed to be the means at his disposition, and it 179 00:16:18.180 --> 00:16:23.660 Ludwig uses the general laws provided by economics and the natural sciences to describe the objective 180 00:16:23.660 --> 00:16:27.580 impact that the acting person had through his behaviour. 181 00:16:27.580 --> 00:16:33.540 Thus, the mission of history is to describe the drama of social and economic evolution 182 00:16:33.540 --> 00:16:36.940 from the point of view of its protagonist. 183 00:16:36.940 --> 00:16:43.060 Its specific tool is psychology, or specific understanding, or Mises' favourite expression 184 00:16:43.060 --> 00:16:45.500 – thymology. 185 00:16:45.500 --> 00:16:50.540 Of the two disciplines, economics had the most momentous practical implications. 186 00:16:50.540 --> 00:16:53.260 Mises, in Theory and History 187 00:16:53.260 --> 00:16:56.820 Thymology has no special relation to praxeology and economics. 188 00:16:56.820 --> 00:17:01.740 The popular belief that modern, subjective economics, the marginal utility school, is 189 00:17:01.740 --> 00:17:06.660 founded on or closely connected with psychology is mistaken. 190 00:17:06.660 --> 00:17:11.340 Praxeology is not concerned with the events which, within a man's soul or mind or brain, 191 00:17:11.340 --> 00:17:14.820 produce a definite decision between an A and a B. 192 00:17:14.820 --> 00:17:20.140 It takes it for granted that the nature of the universe enjoins upon man choosing between 193 00:17:20.140 --> 00:17:22.200 incompatible ends. 194 00:17:22.200 --> 00:17:28.040 Its subject is not the content of these acts of choosing, but what results from them, action. 195 00:17:28.040 --> 00:17:32.640 It does not care about what a man chooses, but about the fact that he chooses and acts 196 00:17:32.640 --> 00:17:35.000 in compliance with a choice made. 197 00:17:35.000 --> 00:17:39.100 The thymological analysis of man is essential in this study of history. 198 00:17:39.100 --> 00:17:44.320 It conveys all we can know about the ultimate ends and judgments of value, but as has been 199 00:17:44.320 --> 00:17:59.120 In human action Mises had shown that economic analysis leads directly to laissez-faire conclusions. 200 00:17:59.120 --> 00:18:04.620 He demonstrated that government intervention entails consequences that are unwanted even 201 00:18:04.620 --> 00:18:09.660 from the point of view of the champions of these interventions. In theory and history 202 00:18:09.660 --> 00:18:15.180 he completed the case for capitalism from the epistemological point of view. In particular 203 00:18:15.180 --> 00:18:21.220 he took on those theories that were grounded on an explicit or implicit rejection of methodological 204 00:18:21.220 --> 00:18:28.420 individualism and methodological dualism. His basic argument against the approaches of Marxism, 205 00:18:28.420 --> 00:18:34.660 teleological philosophies of history and positivism was that they had no scientific underpinning 206 00:18:34.660 --> 00:18:40.720 Whatever. They were based on certain beliefs about social and economic evolution, but they 207 00:18:40.720 --> 00:18:46.740 had not delivered the goods. Their most fundamental tenets could neither be refuted nor verified 208 00:18:46.740 --> 00:18:53.380 with the tools of science, reason and observation. Moreover, to the extent that they did make 209 00:18:53.380 --> 00:18:59.500 propositions about ascertainable facts, they were wrong or incoherent at the crucial junctures 210 00:18:59.500 --> 00:19:04.500 of the Argument. For example, Marxism, and the various philosophies of history, could 211 00:19:04.500 --> 00:19:09.480 not explain how the general direction in which they believed society was moving resulted 212 00:19:09.480 --> 00:19:15.900 from individual action. Positivism blithely disregarded the fact that there are no constant 213 00:19:15.900 --> 00:19:21.580 relationships in observable human behaviour. The champions of historicism contradicted 214 00:19:21.580 --> 00:19:27.880 themselves whenever they championed any government policy whatever, while holding to the notion 215 00:19:27.880 --> 00:19:34.280 that there was no such thing as economic law. Strictly speaking, these were metaphysical 216 00:19:34.280 --> 00:19:43.040 or quasi-religious doctrines, not science. Science and the Culture of Salatory Descent 217 00:19:43.040 --> 00:19:48.560 As Mises saw it, the task of metaphysics, philosophy and religion was to slake the unquenchable 218 00:19:48.560 --> 00:19:54.280 human thirst for knowledge and certainty, he remarked. Those divines who saw that nothing 219 00:19:54.280 --> 00:19:59.480 Nothing but revelation could provide man with perfect certainty were right. Human scientific 220 00:19:59.480 --> 00:20:05.440 inquiry cannot proceed beyond the limits drawn by the insufficiency of man's senses and 221 00:20:05.440 --> 00:20:11.140 the narrowness of his mind. And even more clearly, a few years later, the human mind 222 00:20:11.140 --> 00:20:16.320 in its search for knowledge resorts to philosophy or theology precisely because it aims at an 223 00:20:16.320 --> 00:20:21.820 explanation of problems that the natural sciences cannot answer. There were questions to which 224 00:20:21.820 --> 00:20:26.380 which science had not yet provided an answer, what determines the behaviour of atoms, and 225 00:20:26.380 --> 00:20:31.460 there were questions to which science could not give any answers. Was there a beginning 226 00:20:31.460 --> 00:20:36.820 of time? Does the soul die? Science could give answers only to the extent that it could 227 00:20:36.820 --> 00:20:42.660 rely on ascertainable facts. There was a scientific interpretation of social and economic evolution 228 00:20:42.660 --> 00:20:48.580 only to the extent that there were ascertainable facts that warranted this interpretation. 229 00:20:48.580 --> 00:20:52.900 But even then there were basic assumptions underlying any scientific analysis of facts 230 00:20:52.900 --> 00:20:58.460 that could not themselves be demonstrated. It is contradictory to expect that logic could 231 00:20:58.460 --> 00:21:04.940 be of any service in demonstrating the correctness or validity of the fundamental logical principles. 232 00:21:04.940 --> 00:21:09.260 All that can be said about them is that to deny their correctness or validity appears 233 00:21:09.260 --> 00:21:15.700 to the human mind nonsensical and that thinking guided by them has led to modes of successful 234 00:21:15.700 --> 00:21:45.280 Now, Mises did believe that metaphysics, philosophy and religion also relate to reality in some 235 00:21:45.280 --> 00:21:51.080 some way, but the problem is that their interpretation of reality cannot be verified by reason and 236 00:21:51.080 --> 00:21:58.280 observation. Therefore, they cannot be demonstrated as a scientific proposition can be demonstrated. 237 00:21:58.280 --> 00:22:03.180 And the espousal of a metaphysical or religious doctrine, therefore, cannot be grounded on 238 00:22:03.180 --> 00:22:07.460 such a demonstration, but must rely essentially on a value judgment. 239 00:22:07.460 --> 00:22:13.300 And Mises insisted that value judgments and ultimate ends are beyond any rational examination. 240 00:22:13.300 --> 00:22:17.540 They could only be examined by applying some standard of evaluation, but as soon as one 241 00:22:17.540 --> 00:22:23.200 applies such a standard, the end under consideration would no longer be an ultimate end, rather 242 00:22:23.200 --> 00:22:27.360 it would become a means for the attainment of the proposed standard. 243 00:22:27.360 --> 00:22:32.200 It follows that truly ultimate ends could not possibly be demonstrated by reason and 244 00:22:32.200 --> 00:22:33.460 observation. 245 00:22:33.460 --> 00:22:38.160 The characteristic mark of ultimate ends is that they depend entirely on each individual's 246 00:22:38.160 --> 00:22:42.820 Mises' personal and subjective judgment, which cannot be examined, measured, still 247 00:22:42.820 --> 00:22:49.080 less corrected by any other person. Each individual is the only and final arbiter in matters concerning 248 00:22:49.080 --> 00:22:55.260 his own satisfaction and happiness. Notice that Mises admitted the existence of errors 249 00:22:55.260 --> 00:23:01.240 in regard to one's value judgments. He also took it for granted that one could enjoy art. 250 00:23:01.240 --> 00:23:07.440 The point was, again, that each individual is his own judge. Even the venerable idea 251 00:23:07.440 --> 00:23:13.080 of Justice interpreted as an ultimate end cannot be demonstrated. One has to rely on 252 00:23:13.080 --> 00:23:18.300 intuition and interpretation of one's inner voice. Yet how can disagreements between different 253 00:23:18.300 --> 00:23:24.280 intuitions and different inner voices be settled? Moreover, and most importantly, justice is 254 00:23:24.280 --> 00:23:30.160 not an ultimate end. It is a means for the attainment of social cooperation. 255 00:23:30.160 --> 00:23:34.260 All these ethical doctrines have failed to comprehend that there is, outside of social 256 00:23:34.260 --> 00:23:43.940 Biological Bonds and proceeding temporally or logically the existence of society, nothing 257 00:23:43.940 --> 00:23:50.180 to which the epithet just can be given. A hypothetical isolated individual must under 258 00:23:50.180 --> 00:23:55.640 the pressure of biological competition look upon all other people as deadly foes. His 259 00:23:55.640 --> 00:24:01.840 only concern is to preserve his own life and health. He does not need to heed the consequences 260 00:24:01.840 --> 00:24:07.520 which his own survival has for other men. He has no use for justice. His only solicitudes 261 00:24:07.520 --> 00:24:13.840 are hygiene and defence. But in social cooperation with other men, the individual is forced to 262 00:24:13.840 --> 00:24:20.080 abstain from conduct incompatible with life in society. Only then does the distinction 263 00:24:20.080 --> 00:24:26.920 between what is just and what is unjust emerge. It invariably refers to inter-human social 264 00:24:26.920 --> 00:24:31.600 Social Relations. What is beneficial to the individual without affecting his fellows, such 265 00:24:31.600 --> 00:24:37.520 as the observance of certain rules in the use of some drugs, remains hygiene. 266 00:24:37.520 --> 00:24:44.200 The ultimate yardstick of justice is conduciveness to the preservation of social cooperation. 267 00:24:44.200 --> 00:24:49.480 Conduct suited to preserve social cooperation is just. Conduct detrimental to the preservation 268 00:24:49.480 --> 00:24:55.720 of society is unjust. This raises an important practical problem for all systems of social 269 00:24:55.720 --> 00:25:08.540 The problem appears as soon as one raises the question, how do the members of such systems 270 00:25:08.540 --> 00:25:14.100 deal with dissenters? The question concerns the particular members of different collectivist 271 00:25:14.100 --> 00:25:19.440 systems of social organisation. Their starting point is the moral postulate that the collective 272 00:25:19.440 --> 00:25:25.040 takes precedence over the individual. If a man assigns a higher value to the concern 273 00:25:25.040 --> 00:25:30.540 of a collective, then, to his other concerns, and acts accordingly, that is his affair. 274 00:25:30.540 --> 00:25:35.360 So long as the collectivist philosophers proceed in this way, no objection can be raised, but 275 00:25:35.360 --> 00:25:40.420 they argue differently. They elevate their personal judgements of value to the dignity 276 00:25:40.420 --> 00:25:45.160 of an absolute standard of value. They urge other people to stop valuing according to 277 00:25:45.160 --> 00:25:50.700 their own will, and to adopt unconditionally the precepts to which collectivism has assigned 278 00:25:50.700 --> 00:25:55.420 Absolute Eternal Validity. What happens, though, when individuals are reluctant to 279 00:25:55.420 --> 00:26:01.500 espouse the collectivist agenda? Mises emphasized that the collectivists depend on violence 280 00:26:01.500 --> 00:26:06.180 to solve this problem. There is, of course, but one way to make one's own judgments 281 00:26:06.180 --> 00:26:13.140 of value supreme. One must beat into submission all those dissenting. This is what all representatives 282 00:26:13.140 --> 00:26:17.620 of the various collectivist doctrines are striving for. They ultimately recommend the 283 00:26:17.620 --> 00:26:23.620 the use of violence and pitiless annihilation of all those whom they condemn as heretics. 284 00:26:23.620 --> 00:26:29.060 Collectivism is a doctrine of war, intolerance and persecution. If any of the collectivist 285 00:26:29.060 --> 00:26:34.820 creeds should succeed in its endeavours, all people but the great dictator would be deprived 286 00:26:34.820 --> 00:26:39.740 of their essential human quality. They would become mere soulless pawns in the hands of 287 00:26:39.740 --> 00:26:45.860 a monster. Again, the basic problem of all collectivist schemes is that, in their argument, 288 00:26:45.860 --> 00:26:50.460 We willy-nilly have to rely on value judgments, and value judgments cannot be proven to be 289 00:26:50.460 --> 00:26:56.500 right or wrong. In contrast, the facts of science are ascertainable by all people. Anyone 290 00:26:56.500 --> 00:27:02.060 can check for himself the veracity of what the scientists say. He can convince himself 291 00:27:02.060 --> 00:27:07.300 that one course of action is feasible while another is not, or that one course of action 292 00:27:07.300 --> 00:27:12.860 leads to a desired outcome while another one fails to do so. Science has nothing to say 293 00:27:12.860 --> 00:27:17.920 It may about ultimate ends or value judgments, but it does provide knowledge about the earthly 294 00:27:17.920 --> 00:27:20.860 means to attain earthly ends. 295 00:27:20.860 --> 00:27:25.780 It is therefore the foremost tool for men to find a minimal agreement for cooperation 296 00:27:25.780 --> 00:27:30.300 in the world, despite their differences in beliefs and value judgments. 297 00:27:30.300 --> 00:27:35.300 Catholics, Protestants, Jews and Muslims might not agree on theological questions, but all 298 00:27:35.300 --> 00:27:39.660 of them can check for themselves that a greater division of labour is more productive than 299 00:27:39.660 --> 00:27:50.900 The 300 00:27:50.900 --> 00:27:55.900 characteristic feature of a free society is that it can function in spite of the fact 301 00:27:55.900 --> 00:28:01.220 that its members disagree in many judgments of value. In the market economy, business 302 00:28:01.220 --> 00:28:06.620 serves not only the majority but also various minorities, provided they are not too small 303 00:28:06.620 --> 00:28:28.540 A few years later, Mises went beyond this defense of dissent to a position of advocacy. 304 00:28:28.540 --> 00:28:32.820 Not only is dissent compatible with the functioning of a free society, it was actually the driving 305 00:28:32.820 --> 00:28:44.060 What transformed the stagnant conditions of the good old days into the activism of capitalism 306 00:28:44.060 --> 00:28:49.180 was not changes in the natural sciences and in technology but the adoption of the free 307 00:28:49.180 --> 00:28:54.760 enterprise principle. The great ideological movement that started with the Renaissance 308 00:28:54.760 --> 00:28:59.380 continued in the Enlightenment and in the nineteenth century culminated in liberalism 309 00:28:59.380 --> 00:29:05.260 produced both capitalism, the free market economy, and its political corollary or, as 310 00:29:05.260 --> 00:29:10.460 the Marxians have to say, its political superstructure, representative government and the individual's 311 00:29:10.460 --> 00:29:16.760 civic rights, freedom of conscience, of thought, of speech, and of all other methods of communication. 312 00:29:16.760 --> 00:29:22.100 It was in the climate created by this capitalistic system of individualism that all the modern 313 00:29:22.100 --> 00:29:27.040 intellectual achievements thrived. Never before had mankind lived under conditions like those 314 00:29:27.040 --> 00:29:50.400 This culture of sanitary dissent was ultimately the product of freedom and thought and speech. 315 00:29:50.400 --> 00:29:56.300 But its more proximate cause was the discovery and dissemination of economic science. 316 00:29:56.300 --> 00:30:00.940 The development and practical application of this new discipline, concluded Mises, was 317 00:30:00.940 --> 00:30:05.540 the most spectacular event of modern history. 318 00:30:05.540 --> 00:30:11.860 Heroic Elites in a Mass Democracy Yet by the mid-1950s, capitalism and classical 319 00:30:11.860 --> 00:30:16.820 liberalism were everywhere on the retreat. How was it possible that the great majority 320 00:30:16.820 --> 00:30:22.480 of Westerners had forgotten or failed to appreciate the most spectacular event of modern history? 321 00:30:22.480 --> 00:30:27.600 In Theory and History, Mises outlined his account of the rise and fall of classical liberalism. 322 00:30:27.600 --> 00:30:32.720 In the centre of his reflection was the relationship between elites and masses, a relationship 323 00:30:32.720 --> 00:30:38.540 that he analysed within the framework of his epistemological reflection. In other writings, 324 00:30:38.540 --> 00:30:43.280 he had already stressed the fundamental historical fact that social progress, in particular the 325 00:30:43.280 --> 00:30:48.560 rise of capitalism, had resulted from the efforts of a small group of individuals. 326 00:30:48.560 --> 00:30:52.720 The most amazing thing concerning the unprecedented change in earthly conditions brought about 327 00:30:52.720 --> 00:30:58.200 by capitalism is the fact that it was accomplished by a small number of authors and a hardly 328 00:30:58.200 --> 00:31:02.160 greater number of statesmen who had assimilated their teachings. 329 00:31:02.160 --> 00:31:07.000 Not only the sluggish masses, but also most of the businessmen who, by their trading, 330 00:31:07.000 --> 00:31:11.040 made the laissez-faire principles effective, failed to comprehend the essential features 331 00:31:11.040 --> 00:31:12.600 of their operation. 332 00:31:12.600 --> 00:31:16.900 Even in the heyday of liberalism, only a few people had a full grasp of the functioning 333 00:31:16.900 --> 00:31:21.900 of the Market Economy. Western civilization adopted capitalism upon recommendation on 334 00:31:21.900 --> 00:31:29.780 the part of a small elite. How is this possible? Because ultimately society is ruled by ideas. 335 00:31:29.780 --> 00:31:34.660 Small groups who spread their ideas can therefore have, in due time, a disproportionate impact 336 00:31:34.660 --> 00:31:40.860 on social organization. A rather superficial and shallow view of the problems of government 337 00:31:40.860 --> 00:31:45.860 saw the distinction between freedom and despotism in an outward feature of the system of rule 338 00:31:45.860 --> 00:31:50.580 and Administration, namely, in the number of people exercising direct control of the 339 00:31:50.580 --> 00:31:55.740 social apparatus of coercion and compulsion. The way to a realistic distinction between 340 00:31:55.740 --> 00:32:00.940 freedom and bondage was opened two hundred years ago by David Hume's immortal essay 341 00:32:00.940 --> 00:32:06.620 on the first principles of government. Government, taught Hume, is always government of the many 342 00:32:06.620 --> 00:32:12.460 by the few. Power is therefore always ultimately on the side of the governed, and the governors 343 00:32:12.460 --> 00:32:15.700 have nothing to support them but opinion. 344 00:32:15.700 --> 00:32:21.920 Now Mises combined this insight with his epistemology of the social sciences. If Hume was right, 345 00:32:21.920 --> 00:32:26.940 that ideas rule society, and if it was true that no scientific account could be given 346 00:32:26.940 --> 00:32:32.380 on how new ideas emerge in general, then it follows that new ideas were the true driving 347 00:32:32.380 --> 00:32:35.180 force in human history. 348 00:32:35.180 --> 00:32:39.480 History is the record of human action. Human action is the conscious effort of man to substitute 349 00:32:39.480 --> 00:32:43.960 more satisfactory conditions for less satisfactory ones. 350 00:32:43.960 --> 00:32:48.040 Ideas determine what are to be considered more and less satisfactory conditions and 351 00:32:48.040 --> 00:32:50.920 what means are to be resorted to alter them. 352 00:32:50.920 --> 00:32:54.440 Thus, ideas are the main theme of this study of history. 353 00:32:54.440 --> 00:32:57.040 The genesis of every new idea is an innovation. 354 00:32:57.040 --> 00:33:01.980 It adds something new and unheard of before to the course of world affairs. 355 00:33:01.980 --> 00:33:07.260 The reason history does not repeat itself is that every historical state is the consummation 356 00:33:07.260 --> 00:33:13.820 of the operation of ideas different from those that operated in other historical states. 357 00:33:13.820 --> 00:33:19.300 The essence of civilization is ideas. If we try to distinguish different civilizations, 358 00:33:19.300 --> 00:33:25.140 the differential specifica can be found only in the different meanings of the ideas that 359 00:33:25.140 --> 00:33:30.820 determine them. It follows that intellectual elites were the true elites in comparison 360 00:33:30.820 --> 00:33:35.520 to which the mighty and powerful of any age are just the executors of ideas developed 361 00:33:35.520 --> 00:33:42.660 in Previous Ages. The creative genius was the hero, the true driving force of history. 362 00:33:42.660 --> 00:33:47.240 Every man, whether great or small, lives and acts within the frame of his age's historical 363 00:33:47.240 --> 00:33:52.760 circumstances. These circumstances are determined by all the ideas and events of the preceding 364 00:33:52.760 --> 00:33:58.480 ages, as well as by those of his own age. The titan may outweigh each of his contemporaries. 365 00:33:58.480 --> 00:34:04.120 He is no match for the united forces of the dwarfs. A statesman can succeed only insofar 366 00:34:04.120 --> 00:34:08.840 as his plans are adjusted to the climate of opinion of his time, that is, to the ideas 367 00:34:08.840 --> 00:34:13.440 that have got hold of his fellows' minds. He can become a leader only if he is prepared 368 00:34:13.440 --> 00:34:18.480 to guide people along the paths they want to walk and toward the goal they want to attain. 369 00:34:18.480 --> 00:34:24.660 A statesman who antagonizes public opinion is doomed to failure. No matter whether he 370 00:34:24.660 --> 00:34:29.920 is an autocrat or an officer of a democracy, the politician must give the people what they 371 00:34:29.920 --> 00:34:41.960 It is different with the pioneers of new ways of thinking and new modes of art and literature. 372 00:34:41.960 --> 00:34:47.080 The path-breaker who disdains the applause he may get from the crowd of his contemporaries 373 00:34:47.080 --> 00:34:52.400 does not depend on his own age's ideas. The genius work, too, is embedded in this sequence 374 00:34:52.400 --> 00:34:57.460 of historical events. It is conditioned by the achievements of preceding generations 375 00:34:57.460 --> 00:35:02.460 and is merely a chapter in the evolution of ideas, but it adds something new and unheard 376 00:35:02.460 --> 00:35:07.880 of to the treasure of thoughts and may in this essence be called creative. The genuine 377 00:35:07.880 --> 00:35:13.580 history of mankind is the history of ideas, and in searching for their origin we inevitably 378 00:35:13.580 --> 00:35:20.420 come to a point at which all that can be asserted is that a man had an idea, whether the name 379 00:35:20.420 --> 00:35:26.140 of this man is known or not is of secondary importance. In Mises's worldview, in which 380 00:35:26.140 --> 00:35:32.140 Which all things and all thoughts are the necessary consequence of antecedent causes, 381 00:35:32.140 --> 00:35:37.200 ideas were the one dynamic element of social evolution. The discoverers and promoters of 382 00:35:37.200 --> 00:35:43.380 new ideas, the creative geniuses, were the social vanguard, the elite that led humanity 383 00:35:43.380 --> 00:35:47.540 onto new paths, both good and bad. 384 00:35:47.540 --> 00:35:52.580 Mises's stress on the particularities of the genius is a pervasive feature of his thought, 385 00:35:52.580 --> 00:35:58.940 starting from Gemeinwirtschaft via Human Action, 1949, to Theory and History, 1957, and Ultimate 386 00:35:58.940 --> 00:36:05.120 Foundation of Economic Science, 1962. It is not known where his inspiration came from, 387 00:36:05.120 --> 00:36:09.060 but it cannot be excluded that he took it for granted that educated people would know 388 00:36:09.060 --> 00:36:15.100 the theoretician who had insisted on the categorical difference between mere talents, be it ever 389 00:36:15.100 --> 00:36:20.900 so great, and true genius. Weininger wrote at the beginning of the century, 390 00:36:20.900 --> 00:36:42.900 Someone may have a talent, for example, the mathematical talent by birth, and to an extraordinary degree, he will then be able to digest the most difficult chapters of this science with but small effort, but it does not follow that for this reason he has any genius, which is the same thing as originality, individuality, and condition of his own productivity. 391 00:36:42.900 --> 00:36:47.780 Conversely, there are great geniuses who have not developed any special talent to a high 392 00:36:47.780 --> 00:36:54.420 degree. Just think of Novalis or Jean-Paul. Talent is hereditary. It may be the common 393 00:36:54.420 --> 00:37:01.980 good of a family, the Bachs. Genius is not transferable. It is never general, but always 394 00:37:01.980 --> 00:37:07.860 individual, Johann Sebastian. But in order to play this role, they had to be aware of 395 00:37:07.860 --> 00:37:12.400 their responsibility. Now, the problem was that the majority of the rationalist philosophers 396 00:37:12.400 --> 00:37:36.920 They assumed that all men are endowed with the same power of reasoning. They ignored the 397 00:37:36.920 --> 00:37:41.800 difference between clever people and dullards, even that between the pioneering genius and 398 00:37:41.800 --> 00:37:46.940 and the vast crowds of simple routinists, who at best can espouse the doctrines developed 399 00:37:46.940 --> 00:37:52.200 by the great thinkers, but more often are incapable of comprehending them. As the rationalists 400 00:37:52.200 --> 00:37:57.200 saw it, every sane adult was intelligent enough to grasp the meaning of the most complicated 401 00:37:57.200 --> 00:38:03.680 theory. If he failed to achieve it, the fault lay not in his intellect, but in his education. 402 00:38:03.680 --> 00:38:08.840 Once all people have enjoyed a perfect education, all will be as wise and judicious as the most 403 00:38:08.840 --> 00:38:14.520 Eminent Sage, He added, The second shortcoming of rationalism was its neglect of the problem 404 00:38:14.520 --> 00:38:19.740 of erroneous thinking. Most of the rationalist philosophers failed to see that even honest 405 00:38:19.740 --> 00:38:26.200 men sincerely devoted to the search for truth could err. This prepossession prevented them 406 00:38:26.200 --> 00:38:31.000 from doing justice to the ideologies and the metaphysical doctrines of the past. A doctrine 407 00:38:31.000 --> 00:38:35.840 of which they disapproved could, in their opinion, have been promoted only by purpose 408 00:38:35.840 --> 00:38:47.180 Schumpeter had discussed the shortcomings of the classical doctrine of democracy along 409 00:38:47.180 --> 00:38:48.780 very similar lines. 410 00:38:48.780 --> 00:38:52.860 Both Schumpeter and Mises would highlight the crucial role of leadership in the operation 411 00:38:52.860 --> 00:38:54.820 of the market and in politics. 412 00:38:54.820 --> 00:38:59.860 In distinct contrast to Schumpeter, however, Mises stressed intellectual leadership. 413 00:38:59.860 --> 00:39:03.020 He also insisted that leadership could be good or bad. 414 00:39:03.020 --> 00:39:07.940 It could promote the preservation and flourishing of society, but it could also hurt and destroy 415 00:39:07.940 --> 00:39:08.940 it. 416 00:39:08.940 --> 00:39:14.300 Mises held that as a consequence of this error of the 18th century rationalists and perpetuated 417 00:39:14.300 --> 00:39:20.380 by the 19th century socialists, the dull masses were increasingly reluctant to accept intellectual 418 00:39:20.380 --> 00:39:23.680 leadership from anyone but those who flattered them. 419 00:39:23.680 --> 00:39:28.340 They were imbued with the mystical notion that the mass of the people can never be wrong, 420 00:39:28.340 --> 00:39:32.660 that society could do without the guidance of intellectuals. 421 00:39:32.660 --> 00:39:37.800 Faced with this situation, the classical liberals still endorsed democracy, and so did Mises. 422 00:39:37.800 --> 00:39:42.460 It was true that mass democracy had led straight to the dictatorship of the proletariat and 423 00:39:42.460 --> 00:39:47.440 the autocracy of Hitler, Mussolini, Peron and other modern successors of the Greek tyrants, 424 00:39:47.440 --> 00:39:52.340 but the crucial question was whether any alternative political system could have prevented these 425 00:39:52.340 --> 00:39:53.900 excesses. 426 00:39:53.900 --> 00:39:58.960 Despite the political and humanitarian catastrophes of the 20th century, Mises did not abandon 427 00:39:58.960 --> 00:40:03.960 and the case for democracy. Rather, he appealed to the elites to accept their responsibilities 428 00:40:03.960 --> 00:40:09.200 by engaging in public debate and enlightening their fellow citizens about the right cause 429 00:40:09.200 --> 00:40:15.480 of action. If the small minority of enlightened citizens who are able to conceive sound principles 430 00:40:15.480 --> 00:40:19.720 of political management do not succeed in winning the support of their fellow citizens 431 00:40:19.720 --> 00:40:24.540 and converting them to the endorsement of policies that bring and preserve prosperity, 432 00:40:24.540 --> 00:40:30.180 The cause of mankind and civilization is hopeless. There is no other means to safeguard a propitious 433 00:40:30.180 --> 00:40:35.540 development of human affairs than to make the masses of inferior people adopt the ideas 434 00:40:35.540 --> 00:40:40.860 of the elite. This has to be achieved by convincing them. It cannot be accomplished by a despotic 435 00:40:40.860 --> 00:40:46.060 regime that instead of enlightening the masses beats them into submission. In the long run 436 00:40:46.060 --> 00:40:52.260 the ideas of the majority, however detrimental they may be, will carry on. The future of 437 00:40:52.260 --> 00:40:58.980 of mankind depends on the ability of the elite to influence public opinion in the right direction. 438 00:40:58.980 --> 00:41:03.120 What does this imply more specifically for libertarian intellectuals, who wish to steer 439 00:41:03.120 --> 00:41:07.820 social evolution toward greater freedom? Do they have to make the case for a particular 440 00:41:07.820 --> 00:41:13.180 form of government or for a particular design of constitutions? Mises would have none of 441 00:41:13.180 --> 00:41:18.420 this. The form of government was a completely secondary problem, because tyranny could exist 442 00:41:18.420 --> 00:41:23.460 under any of the possible system. He argued that the primary challenge for libertarian 443 00:41:23.460 --> 00:41:29.540 intellectuals was to preserve a climate of opinion that tolerated dissent. Hume's insight 444 00:41:29.540 --> 00:41:35.660 that governors have nothing to support them but opinion, logically followed to its conclusion, 445 00:41:35.660 --> 00:41:41.260 completely changed the discussion concerning liberty. The mechanical and arithmetical point 446 00:41:41.260 --> 00:41:46.020 of view was abandoned. If public opinion is ultimately responsible for the structure of 447 00:41:46.020 --> 00:41:51.860 of Government, it is also the agency that determines whether there is freedom or bondage. 448 00:41:51.860 --> 00:41:57.440 There is virtually only one factor that has the power to make people unfree, tyrannical 449 00:41:57.440 --> 00:42:02.340 public opinion. The struggle for freedom is ultimately not resistance to autocrats or 450 00:42:02.340 --> 00:42:07.320 olycarchs, but resistance to the despotism of public opinion. It is not the struggle 451 00:42:07.320 --> 00:42:13.840 of the many against the few, but of minorities, sometimes of a minority of but one man, against 452 00:42:13.840 --> 00:42:17.880 The Majority The worst and most dangerous form of absolutist 453 00:42:17.880 --> 00:42:21.360 rule is that of an intolerant majority. 454 00:42:21.360 --> 00:42:27.120 Such is the conclusion arrived at by Tocqueville and John Stuart Mill. 455 00:42:27.120 --> 00:42:31.080 Without an elite defending tolerance, there could be no culture of dissent, no competition 456 00:42:31.080 --> 00:42:34.280 and progress in the economic sphere. 457 00:42:34.280 --> 00:42:38.640 Mises was not being naïve in ascribing this responsibility to intellectuals. 458 00:42:38.640 --> 00:42:43.280 They were the heroes of the drama of human history, yes, but they also had to be truly 459 00:42:43.280 --> 00:42:53.280 He knew from bitter personal experience that a pro-capitalist intellectual could not expect lavish material rewards. 460 00:42:53.280 --> 00:42:59.280 A case in point was the commercial book market. A true pioneer could not expect a high income on a free market. 461 00:42:59.280 --> 00:43:04.280 Reverence to the great authors and artists has always been limited to small groups. 462 00:43:04.280 --> 00:43:09.280 The book market is flooded by a downpour of trivial fiction for the semi-barbarians, 463 00:43:09.280 --> 00:43:14.800 Barbarians, but this does not prevent great authors from creating imperishable works. 464 00:43:14.800 --> 00:43:20.880 The decisive consideration was again that no alternative social system held better promise. 465 00:43:20.880 --> 00:43:25.260 It is of course true that in the market economy not those fare best who from the point of 466 00:43:25.260 --> 00:43:29.640 view of an enlightened judgment ought to be considered as the most eminent individuals 467 00:43:29.640 --> 00:43:35.580 of the human species. The uncouth hordes of common men are not fit to recognise duly the 468 00:43:35.580 --> 00:43:39.060 and the merits of those who eclipse their own wretchedness. 469 00:43:39.060 --> 00:43:43.660 They judge everybody from the point of view of the satisfaction of their desires. 470 00:43:43.660 --> 00:43:49.060 Thus boxing champions and authors of detective stories enjoy a higher prestige and earn more 471 00:43:49.060 --> 00:43:51.980 money than philosophers and poets. 472 00:43:51.980 --> 00:43:56.860 Those who bemoan these facts are certainly right, but no social system could be devised 473 00:43:56.860 --> 00:44:01.860 that would fairly reward the contributions of the innovator whose genius leads mankind 474 00:44:01.860 --> 00:44:09.260 and to ideas unknown before and therefore first rejected by all those who lack the same inspiration. 475 00:44:09.260 --> 00:44:13.920 The only consolidation for great but unsuccessful intellectuals was that the pioneers in business 476 00:44:13.920 --> 00:44:16.260 did not fare any better. 477 00:44:16.260 --> 00:44:21.040 The much defamed acquisitiveness of promoters and speculators succeeds daily in providing 478 00:44:21.040 --> 00:44:25.040 the masses with commodities and services unknown before. 479 00:44:25.040 --> 00:44:29.520 A horde of plenty is poured upon people for whom the methods by means of which all these 480 00:44:29.520 --> 00:44:35.600 These marvellous gadgets are produced are incomprehensible. These dull beneficiaries of the capitalistic 481 00:44:35.600 --> 00:44:40.520 system indulge in the delusion that it is their own performance of routine jobs that 482 00:44:40.520 --> 00:44:45.860 creates all these marvels. They cast their votes for rulers who are committed to a policy 483 00:44:45.860 --> 00:44:51.600 of sabotage and destruction. They look upon big business necessarily committed to catering 484 00:44:51.600 --> 00:44:57.200 to mass consumption as upon the foremost public enemy and to prove of every measure that, 485 00:44:57.200 --> 00:45:05.040 The Study of History 486 00:45:05.040 --> 00:45:10.560 Mises devoted all of part three to the discussion of the nature, scope and methods of historical 487 00:45:10.560 --> 00:45:15.920 research. This might be surprising from the pen of an economist, but keep in mind that 488 00:45:15.920 --> 00:45:21.880 Mises was interested in economics as a tool to guide action. In his early years as a student 489 00:45:21.880 --> 00:45:26.680 at the University of Vienna, this practical concern had made him dissatisfied with the 490 00:45:26.680 --> 00:45:32.360 are methods taught by the historical school. A passage from theory and history sums up 491 00:45:32.360 --> 00:45:33.360 the problem. 492 00:45:33.360 --> 00:45:37.880 The historicist's fateful error consisted in the belief that this analysis of the past 493 00:45:37.880 --> 00:45:43.600 in itself conveys information about the course future action has to take. What the historical 494 00:45:43.600 --> 00:45:48.240 account provides is the description of the situation. The reaction depends on the meaning 495 00:45:48.240 --> 00:45:54.200 the actor gives it, on the ends he wants to attain, and on the means he chooses for their 496 00:45:54.200 --> 00:46:00.400 attainment. By the 1950s a sort of neo-historicism was in full swing and about to conquer Western 497 00:46:00.400 --> 00:46:07.040 academia. The new movement was led by statisticians and econometricians who held precisely the 498 00:46:07.040 --> 00:46:12.000 views that Mises had rejected more than 50 years earlier. In correspondence with Neumeier 499 00:46:12.000 --> 00:46:13.000 he lamented, 500 00:46:13.000 --> 00:46:19.040 They are full of contempt for what they call metaphysical economics. Only facts, they say, 501 00:46:19.040 --> 00:46:27.040 that these facts are history, and not facts in the sense in which the natural sciences employ this term, remains unknown to them. 502 00:46:27.040 --> 00:46:34.040 The official doctrine of all these research institutions, government economists, university economists and so on, 503 00:46:34.040 --> 00:46:41.040 is, for instance, that the socialist program is not to be refuted by metaphysics, but by facts. 504 00:46:41.040 --> 00:46:48.040 They point out, for instance, that profits are only X percent of the national income of only Y percent of the sales dollar 505 00:46:48.040 --> 00:47:05.560 Mises had turned to economics because this discipline provided knowledge about something 506 00:47:05.560 --> 00:47:11.800 on which historical research was mute, even with the advanced techniques of econometrics, 507 00:47:11.800 --> 00:47:17.160 namely the objective suitability of means to attain social ends, yet the same overarching 508 00:47:17.160 --> 00:47:21.760 and Practical Motivation preserved his lifelong interest in the study of history. 509 00:47:21.760 --> 00:47:26.920 In Theory and History, Mises set out to explain why and how historical knowledge had to complement 510 00:47:26.920 --> 00:47:32.240 economics as a guide for human action, thus he closed a great parenthesis opened during 511 00:47:32.240 --> 00:47:35.520 his days in the Grünberg seminar. 512 00:47:35.520 --> 00:47:39.720 In his previous works, he had outlined the division of labour between praxeology and 513 00:47:39.720 --> 00:47:40.720 history. 514 00:47:40.720 --> 00:47:45.480 He had presented history as a sort of residual discipline that sought to come to grips with 515 00:47:45.480 --> 00:47:50.600 Problems that could not be addressed by the exact disciplines, Mises wrote on page 50 of 516 00:47:50.600 --> 00:47:55.160 Human Action, The scope of understanding is the mental grasp of phenomena which cannot 517 00:47:55.160 --> 00:48:01.080 be totally elucidated by logic, mathematics, praxeology, and the natural sciences to the 518 00:48:01.080 --> 00:48:06.800 extent that they cannot be cleared up by all these other sciences. It must never contradict 519 00:48:06.800 --> 00:48:11.640 the teachings of these other branches of knowledge. He had singled out in particular the problem 520 00:48:11.640 --> 00:48:15.920 Problem of assigning relative quantitative weights to different causes that combine into 521 00:48:15.920 --> 00:48:21.480 an observable effect. Mises called this the problem of relevance. The only way to tackle 522 00:48:21.480 --> 00:48:27.920 this was to apply the specific tool of the historian – understanding or verstehen. 523 00:48:27.920 --> 00:48:32.480 The historian can enumerate all the factors which cooperated in bringing about a known 524 00:48:32.480 --> 00:48:37.520 effect and all the factors which worked against them and may have resulted in delaying and 525 00:48:37.520 --> 00:48:39.640 and Mitigating the Final Outcome. 526 00:48:39.640 --> 00:48:44.760 But he cannot coordinate, except by understanding, the various causative factors in a quantitative 527 00:48:44.760 --> 00:48:47.280 way to the effects produced. 528 00:48:47.280 --> 00:48:52.840 He cannot accept by understanding, assigned to each of n factors, its role in producing 529 00:48:52.840 --> 00:48:54.540 the effect p. 530 00:48:54.540 --> 00:48:59.640 Understanding is in the realm of history the equivalent, as it were, of quantitative analysis 531 00:48:59.640 --> 00:49:01.280 and measurement. 532 00:49:01.280 --> 00:49:06.120 But the understanding of the relative quantitative contribution of any one cause to a combined 533 00:49:06.120 --> 00:49:09.320 Effect could not be independently verified or refuted. 534 00:49:09.320 --> 00:49:14.520 As a consequence, the problem of relevance was the source of insuperable disagreement 535 00:49:14.520 --> 00:49:19.880 between men of science, and Mises stressed that it was in fact the only source of lasting 536 00:49:19.880 --> 00:49:22.160 disagreement. 537 00:49:22.160 --> 00:49:27.720 Historical understanding can never produce results which must be accepted by all men. 538 00:49:27.720 --> 00:49:31.720 Historians may disagree for various reasons, they may hold different views with regard 539 00:49:31.720 --> 00:49:34.920 to the teachings of the non-historical sciences. 540 00:49:34.920 --> 00:49:40.020 They may base their reasoning on a more or less complete familiarity with the records. 541 00:49:40.020 --> 00:49:44.020 They may differ in the understanding of the motives and aims of the acting men, and of 542 00:49:44.020 --> 00:49:45.960 the means applied by them. 543 00:49:45.960 --> 00:49:50.080 All these differences are open to a settlement by objective reasoning. 544 00:49:50.080 --> 00:49:54.940 It is possible to reach a universal agreement with regard to them, but as far as historians 545 00:49:54.940 --> 00:50:00.260 disagree with regard to judgments of relevance, it is impossible to find a solution which 546 00:50:00.260 --> 00:50:06.200 all sane men must accept, and in theory and history speaking of the same problem, the 547 00:50:06.200 --> 00:50:11.280 precariousness of forecasting is mainly due to the intricacy of this problem. It is not 548 00:50:11.280 --> 00:50:16.540 only a rather puzzling question in forecasting future events, it is no less puzzling in retrospect 549 00:50:16.540 --> 00:50:20.620 for the historian. In theory and history, Mises wanted to flesh 550 00:50:20.620 --> 00:50:25.840 out his theory of understanding. He did not believe that the necessarily subjective judgments 551 00:50:25.840 --> 00:50:32.160 of Relevance, somehow made history root-use. Despite its deficiencies, only the discipline 552 00:50:32.160 --> 00:50:37.240 of history could solve certain problems that were of utmost practical importance. In particular, 553 00:50:37.240 --> 00:50:42.520 history alone could provide an analysis of the context of action. Mises stressed that 554 00:50:42.520 --> 00:50:47.900 human action was always embedded in concrete circumstances of time and place. Action was 555 00:50:47.900 --> 00:50:53.720 a conscious response to a given situation, and it could succeed only if the acting person 556 00:50:53.720 --> 00:51:00.000 and understood the present. But there is no such thing as a non-historical analysis of 557 00:51:00.000 --> 00:51:05.400 the present state of affairs. The examination and description of the present are necessarily 558 00:51:05.400 --> 00:51:11.320 a historical account of the past, ending with the instant just past. The description of 559 00:51:11.320 --> 00:51:15.700 the present state of politics, or of business, is inevitably the narration of the events 560 00:51:15.700 --> 00:51:20.920 that have brought about the present state. If, in business or in government, a new man 561 00:51:20.920 --> 00:51:24.580 When the businessman takes the helm, his first task is to find out what has been done up 562 00:51:24.580 --> 00:51:26.320 to the last minute. 563 00:51:26.320 --> 00:51:30.940 The statesman as well as the businessman learns about the present situation from studying 564 00:51:30.940 --> 00:51:33.380 the records of the past. 565 00:51:33.380 --> 00:51:35.640 Mises knew what he was talking about. 566 00:51:35.640 --> 00:51:39.520 Reporting on current business and political conditions had been his daily bread for many 567 00:51:39.520 --> 00:51:40.520 years. 568 00:51:40.520 --> 00:51:45.160 Moreover, at two critical junctures he had analyzed the state of affairs in politics 569 00:51:45.160 --> 00:51:52.000 in Nation, State and Economy, 1919, and in Omnipotent Government, 1944, he had analyzed 570 00:51:52.000 --> 00:51:57.080 the forces at work in the rise of aggressive nationalism and statism, as well as their 571 00:51:57.080 --> 00:52:02.600 cataclysmic endings in the two world wars. At the onset of the Cold War, he had added 572 00:52:02.600 --> 00:52:08.520 a third piece, Bland Chaos, 1946, which told the tale of the rise of the Soviet Union to 573 00:52:08.520 --> 00:52:14.200 its position of power. Thus he was in a good position to challenge those of his readers 574 00:52:14.200 --> 00:52:19.600 who might disagree, let those who want to reject their preceding statements undertake 575 00:52:19.600 --> 00:52:25.480 to describe any present situation in philosophy, in politics, on a battlefield, on the stock 576 00:52:25.480 --> 00:52:31.640 exchange, in an individual business enterprise, without reference to the past. 577 00:52:31.640 --> 00:52:36.200 But how far back should history be studied? Was it practical or necessary for statesmen 578 00:52:36.200 --> 00:52:40.760 and business leaders to seek instruction about more than the past few years before they took 579 00:52:40.760 --> 00:52:42.380 Office. 580 00:52:42.380 --> 00:52:47.380 He observed that there is no point in history at which we can stop our investigation fully 581 00:52:47.380 --> 00:52:51.340 satisfied that we have not overlooked any important factor. 582 00:52:51.340 --> 00:52:57.380 There was no a priori rule that could be helpful in deciding where to stop historical research. 583 00:52:57.380 --> 00:53:01.180 The usefulness of further knowledge could only be determined after completion of additional 584 00:53:01.180 --> 00:53:02.360 research. 585 00:53:02.360 --> 00:53:08.260 In any case, it was a grave error to believe that increasing remoteness in time meant decreasing 586 00:53:08.260 --> 00:53:10.300 practical relevance. 587 00:53:10.300 --> 00:53:15.500 The mere fact that an event happened in a distant country and a remote age does not 588 00:53:15.500 --> 00:53:20.980 in itself prove that it has no bearing on the present. Jewish affairs of 3,000 years 589 00:53:20.980 --> 00:53:27.420 ago influenced the lives of millions of present-day Christian Americans more than what happened 590 00:53:27.420 --> 00:53:32.420 to the American Indians as late as in the second part of the 19th century. In the present-day 591 00:53:32.420 --> 00:53:36.820 conflict of the Roman Church and the Soviet, there are elements that trace back to the 592 00:53:36.820 --> 00:53:41.320 The Great Schism of the Eastern and Western Churches that originated more than a thousand 593 00:53:41.320 --> 00:53:43.120 years ago. 594 00:53:43.120 --> 00:53:48.700 The specific intellectual tool applied in historical research was understanding or Verstehen, 595 00:53:48.700 --> 00:53:53.580 the term introduced by the Southwest German School of Historiography. 596 00:53:53.580 --> 00:53:58.300 In his previous writings, Mises had referred to and endorsed the historical works of this 597 00:53:58.300 --> 00:53:59.500 school. 598 00:53:59.500 --> 00:54:04.000 In theory and history, he developed his own account of the theory of Verstehen. 599 00:54:04.000 --> 00:54:08.800 He presented it as a tool to unearth facts provided by introspection and by contact with 600 00:54:08.800 --> 00:54:11.140 other human beings. 601 00:54:11.140 --> 00:54:17.200 It signifies the cognition of human emotions, motivations, ideas, judgments of value and 602 00:54:17.200 --> 00:54:23.120 volitions, a faculty indispensable to everybody in the conduct of daily affairs and no less 603 00:54:23.120 --> 00:54:29.800 indispensable to the authors of poems, novels and plays as well as to historians. 604 00:54:29.800 --> 00:54:34.360 Human Epistemology calls this mental process of the historians the specific understanding 605 00:54:34.360 --> 00:54:39.760 of the historical sciences of human action. However, it is not a mental process exclusively 606 00:54:39.760 --> 00:54:44.760 resorted to by historians. It is applied by everybody in daily intercourse with all his 607 00:54:44.760 --> 00:54:50.420 fellows. It is a technique employed in all inter-human relations. It is practiced by 608 00:54:50.420 --> 00:54:55.280 children in the nursery and kindergarten, by businessmen in trade, by politicians and 609 00:54:55.280 --> 00:55:01.520 Statesmen in Affairs of State. Mises was reluctant to use the word psychology to describe this 610 00:55:01.520 --> 00:55:06.900 approach because by the early 1950s the new discipline of experimental psychology had 611 00:55:06.900 --> 00:55:12.680 become fairly entrenched and was about to become identified with psychology per se. 612 00:55:12.680 --> 00:55:17.920 In order to avoid confusion he introduced a new term to designate the traditional humanistic 613 00:55:17.920 --> 00:55:23.400 discipline of psychology. Cymology is what everybody learns from intercourse with his 614 00:55:23.400 --> 00:55:33.400 It is what a man knows about the way in which people value different conditions, about their wishes and desires, and their plans to realize these wishes and desires. 615 00:55:33.400 --> 00:55:43.400 It is the knowledge of the social environment in which a man lives and acts, all with historians, of a foreign milieu about which he is learned by studying special sources. 616 00:55:43.400 --> 00:55:55.400 Mises observed that the members of the Southwest German School were unaware of the existence of economic theory, but this did not diminish their achievements in the clarification of the logical nature of history. 617 00:55:55.400 --> 00:56:01.400 In theory and history, Mises made an important contribution to the theory of Verstehen. 618 00:56:01.400 --> 00:56:10.400 He pointed out that the main application of Verstehen was not in the analysis of the past, but as a tool for anticipating the future. 619 00:56:10.400 --> 00:56:16.000 There were in fact two types of historians, the historian of the past as well as the historian 620 00:56:16.000 --> 00:56:21.840 of the future, that is, acting man. The South West German School and its followers such 621 00:56:21.840 --> 00:56:27.360 as Alfred Schutz had in their writings exclusively dealt with the historian of the past, but 622 00:56:27.360 --> 00:56:32.900 the most urgent question related to the historian of the future, the main epistemological problem 623 00:56:32.900 --> 00:56:37.480 of this specific understanding is, how can a man have any knowledge of the future value 624 00:56:37.480 --> 00:56:40.760 Judgments and Actions of Other People 625 00:56:40.760 --> 00:56:44.560 The traditional method of dealing with this problem, commonly called the problem of the 626 00:56:44.560 --> 00:56:51.760 alter ego or fremdverstehen, is unsatisfactory. It focused attention upon grasping the meaning 627 00:56:51.760 --> 00:56:56.920 of other people's behaviour in the present or, more correctly, in the past. But the task 628 00:56:56.920 --> 00:57:01.200 with which acting man, that is, everybody, is faced in all relations with his fellows 629 00:57:01.200 --> 00:57:06.960 does not refer to the past, it refers to the future. To know the future reactions of other 630 00:57:06.960 --> 00:57:11.380 Entrepreneurial is the first task of acting man. Knowledge of their past value judgments 631 00:57:11.380 --> 00:57:16.840 and actions, although indispensable, is only a means to this end. 632 00:57:16.840 --> 00:57:22.440 What then is the logical character of the Verstehen of future action? Mises is unequivocal. 633 00:57:22.440 --> 00:57:27.980 The historian of the future is essentially an intellectual entrepreneur. All his knowledge 634 00:57:27.980 --> 00:57:34.340 concerns contingent data of the past that cannot be generalized. How can such information 635 00:57:34.340 --> 00:57:40.220 and about particular circumstances of time and place be used to forecast the future. 636 00:57:40.220 --> 00:57:46.140 There is only one way. The historian of the future must guess what the future will be. 637 00:57:46.140 --> 00:57:51.300 Forecasting is inherently speculative and uncertain when it comes to anticipating future 638 00:57:51.300 --> 00:57:53.860 human behaviour. 639 00:57:53.860 --> 00:57:58.500 Psychology in this sense of thymology is a branch of history. It derives its knowledge 640 00:57:58.500 --> 00:58:04.180 from historical experience. All that thymology can tell us is that in the past definite 641 00:58:04.180 --> 00:58:09.680 What men or groups of men were valuing and acting in a definite way. Whether they will 642 00:58:09.680 --> 00:58:15.220 in the future value and act in the same way remains uncertain. All that can be asserted 643 00:58:15.220 --> 00:58:19.840 about their future conduct is speculative anticipation of the future based on the specific 644 00:58:19.840 --> 00:58:23.500 understanding of the historical branches of the sciences of human action. 645 00:58:23.500 --> 00:58:28.700 He later gave a more operational description of the intellectual process involved. Out 646 00:58:28.700 --> 00:58:33.640 of what we know about a man's past behaviour, we construct a scheme about what we call his 647 00:58:33.640 --> 00:58:39.880 and his character. We assume that this character will not change if no special reasons interfere 648 00:58:39.880 --> 00:58:45.680 and, going a step farther, we even try to foretell how definite changes in conditions 649 00:58:45.680 --> 00:58:50.520 will affect his reactions. This insight delivered a clue to the vexed 650 00:58:50.520 --> 00:58:57.600 problems of cultural history, a discipline riddled with chauvinistic and nihilistic prejudices. 651 00:58:57.600 --> 00:59:02.240 Mises would have nothing of the sort of cultural relativism that the young Levi Strauss had 652 00:59:02.240 --> 00:59:05.160 champion, just a few years before, he believed in the