Classical Liberalism and the Austrian School Classical Liberalism and the Austrian School Ralph Raico Foreword by Jörg Guido Hülsmann Preface by David Gordon LvMI MISES INSTITUTE The cover design by Chad Parish shows the Neptune Fountain, at the Schönbrunn Palace, in Vienna. Copyright © 2012 by the Ludwig von Mises Institute. Permission to reprint in whole or in part is gladly granted, provided full credit is given. Ludwig von Mises Institute 518 West Magnolia Avenue Auburn, Alabama 36832 mises.org ISBN: 978-1-61016-003-2 Dedicated to the memory of the great Ludwig von Mises Table of Contents Foreword by Jörg Guido Hülsmann . ix Preface by David Gordon . xiii Introduction . .xxv 1. Classical Liberalism and the Austrian School . .1 2. Liberalism: True and False . .67 3. Intellectuals and the Marketplace. 111 4. Was Keynes a Liberal? . .149 5. The Conflict of Classes: Liberal vs. Marxist Theories. .183 6. The Centrality of French Liberalism . .219 7. Ludwig von Mises’s Liberalism on Fascism, Democracy, and Imperalism . .255 8. Eugen Richter and the End of German Liberalism. .301 9. Arthur Ekirch on American Militarism . .331 Index. .339 vii Foreword “History looks backward into the past, but the lesson it teaches concerns things to come. It does not teach indolent quietism; it rouses man to emulate the deeds of earlier generations.” Ludwig von Mises1 The present book contains a collection of essays written through- out the past twenty years. I read virtually all of them when they were first published. They have been a central part of my education in the history of liberalism and of the Austrian School of economics, and I consider myself privileged indeed to have encountered Professor Raico and his work early on in my intellectual development. Raico’s profound and extensive knowledge of intellectual, politi- cal, and economic history are evident in each of the following essays and, in fact, virtually on each page of this book. His readers will also appreciate the warm passion he brings to the study of his subject, as well as his dry wit. Drawing from original sources in German, French, and Italian, as well as English, Professor Raico provides us with original scholarship on the history of liberalism from a decidedly liberal, though not exclusively Anglo-Saxon perspective. What is more, he definitely has the talent to rouse his readers to emulate the deeds of earlier genera- tions. It was through Raico’s book Die Partei der Freiheit (The Party of 1 Ludwig von Mises, Theory and History (New Haven: Yale University Press, 1957), p. 294. ix x Classical Liberalism and the Austrian School Freedom)2 that I and many other Germans first heard of Eugen Richter, the champion of true liberalism in fin de siècle Germany. Forgotten by virtually everyone except for his social-democratic detractors, Richter has made a comeback in the past ten years and some of his major writ- ings are again in print. Today his words and deeds inspire a new genera- tion of intellectuals and politicians. Thank you for that lesson, Professor Raico! If Germany returns to the tradition of true liberalism, we shall have in Berlin a Raico Straße leading to the Richter Platz. Ralph Raico’s scholarship did not just appear out of the blue sky. It is the fruit of hard work, and it is also based on the work of pre- decessors and contemporaries. Ralph Raico adds to the legacy of his mentor, Ludwig von Mises, who was himself a distinguished historian and to whose memory the present volume is dedicated. They first met when Raico was still a high-school student in the early 1950s and when despite his young age he was admitted to Mises NYU seminar. There he met Murray Rothbard and many other young intellectuals who in the decades to come would turn into pillars of true liberalism. In the Mises seminar these young men would receive a lesson on the meaning of scholarship. A scholar is not a living inventory of a great number of loosely connected facts, or the crafty technician of some sophisticated method of research, or a member of “the order of discourse” (Foucault) whose main ability is to handle the abstract language of an intellectual sect. A scholar definitely is a master of the nuts and bolts. He is perfectly familiar with all the relevant facts and methods, and he is conversant even with the latest fads of terminology. But, more than that, he truly penetrates his subject. He can explain his facts in terms of cause and consequence rather than merely juxtaposing them. He sees through terminological fads and writes in an unpretentious style, because he does not seek to impress, but to transmit. And he is able to transcend the necessarily narrow realm of any scientific investigation. He is able to put the concrete subjects of his field, and the field itself, into proper context and perspective. He is able to open horizons. 2 R. Raico, Die Partei der Freiheit (Stuttgart : Lucius & Lucius, 1999). The book is available online at http://docs.mises.de/Raico/die_partei_der_freiheit_raico.pdf Foreword xi These are the marks of scholarship that we find in the works of Ludwig von Mises and of Murray Rothbard. These are also the marks that we find on the following pages. Professor Raico covers all aspects of his field: deeds, persons, and ideas. But he is not just a historian, but a great educator within a great tradition. Jörg Guido Hülsmann Angers, France November 2011 Preface Ralph Raico in this brilliant book calls to our attention the dictum of Augustin Thierry: “The great precept that must be given to historians is to distinguish instead of confounding” (p. 136). Thierry, as Raico shows, did not always follow his own advice; but the remark perfectly describes the historical writing of Raico himself. He is master of the fine discriminations that F.R. Leavis thought essential to the task of the critic. His profound scholarship and keen intelligence make him a great historian. Indeed, he is our foremost historian of classical liberalism. Raico begins his work of conceptual clarification by asking, what is classical liberalism; or, better, what is liberalism, since only the classical variety qualifies as liberalism properly so called. “[T]here was no ‘classical’ liberalism, only a single liberalism, based on private property and the free market, that developed organically, from first to last.” (p. 1) Raico answers his definitional question in the book’s initial chapter, “Classical Liberalism and the Austrian School.” Liberals believe that the main institutions of society can function in entire independence of the state: “Liberalism . is based on the conception of civil society as by and large self-regulating when its members are free to act within the very wide bounds of their individual rights. Among these, the right to private property, including freedom of contract and exchange and xiii xiv Classical Liberalism and the Austrian School the free disposition of one’s own labor, is given a high priority. Historically, liberalism has manifested a hostility to state action, which, it insists, should be reduced to a minimum.” ( p. 2) Liberalism, so defined, seems to have an obvious affinity with Austrian economics. But here a problem arises: is not Austrian econom- ics a value-free science? Adherence to liberalism, obviously, entails value judgments. The relation between them, then, cannot be that the economic theory logically implies the political doctrine. Indeed, enemies of clas- sical liberalism have at times embraced tenets of the Austrians. The Fabian Socialist George Bernard Shaw, influenced by Philip Wicksteed, accepted the subjective theory of value; and, Raico notes, the analytical Marxist Jon Elster finds Marxism compatible with methodological individualism. Nevertheless, Raico claims: “On the level of policy, Austrianism’s individualist and subjectivist methodology tends, indirectly at least, to sway decisions in a liberal direction.” (p. 8) Here Raico confronts a challenge. Austrian economics, as devel- oped by its greatest twentieth century exponent, Ludwig von Mises, relies on a priori reasoning. Does not this style of thinking lead to dogmatism and intolerance, inimical to the spirit of classical liberalism? Milton Friedman, himself a noted classical liberal, has pressed exactly this accusation. Raico easily disposes of it: “How such an argument could emanate from such a distinguished source is simply baffling. Among other problems with it: Friedman’s theory would predict the occurrence of incessant bloody brawling among mathematicians and logicians, the non-occurrence which falsifies that theory in Friedman’s own positivist terms” (p. 11) Those who condemn a priori reasoning often champion instead the fallibilism of Karl Popper. Whether they are right to do is eminently questionable, and Popper’s many advocates err grievously when they enroll him in the liberal tradition. As Raico points out, “Most damag- ing to any claim that Popper represents authentic liberalism is the fact that he accepted the traditional mythology of industrial capitalism as a system of oppression of the working class, only gradually made tolerable by social reforms effected in part through socialist agitation. In The Preface xv Open Society and Its Enemies, Popper wrote that Marx’s protests against capitalist oppression “will secure him forever a place among the libera- tors of mankind.” (p. 12) Judged by Raico’s criterion of liberalism, even his mentor Friedrich Hayek falls short. Though an undoubted classical liberal, unlike his friend Popper, he conceded too much to the welfare state. “The state, Hayek insisted, is not solely ‘a coercive apparatus,’ but also ‘a service agency,’ and as such ‘it may assist without harm in the achievement of desirable aims which perhaps could not be achieved otherwise.’ . Predictably, Hayek’s endorsement of state activism in the ‘social’ sphere has provided knowledgeable opponents of the laissez-faire position with a rhetorical argument of the form, ‘even F.A Hayek conceded .