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Subjectivism Exposed the Limits of Political Will. Statists Hated It.

In Human Action, Mises suggests that opposition to economic theory intensified as the theory developed. When the subjectivist school showed that economics isn’t limited to a separate sphere, but rather that all human action can be studied scientifically, the opposition went so far as to challenge reason itself.

Before economic theory got started, philosophers studied political and economic affairs from a normative standpoint. They tried to say how society should be organized, in the same way that they devised accounts of how human beings ought to act.

They looked at human things from the viewpoint of government. They were intent upon establishing rules of political action, a technique, as it were, of government and statesmanship. Speculative minds drew ambitious plans for a thorough reform and reconstruction of society. The more modest were satisfied with a collection and systematization of the data of historical experience. But all were fully convinced that there was in the course of social events no such regularity and invariance of phenomena as had already been found in the operation of human reasoning and in the sequence of natural phenomena. They did not search for the laws of social cooperation because they thought that man could organize society as he pleased. If social conditions did not fulfill the wishes of the reformers, if their utopias proved unrealizable, the fault was seen in the moral failure of man. Social problems were considered ethical problems. What was needed in order to construct the ideal society, they thought, were good princes and virtuous citizens. With righteous men any utopia might be realized. (p. 605)

What does Mises mean? Suppose that you think, as many do, that employers should pay their workers a “living wage,” enabling them to support a family on one income. If the employers do not do so, they are denounced as greedy. The presupposition here is that whether to offer a wage of this kind is entirely up to the employers. In what sense might it not be? Surely, an employer is free to make an offer, and the employee to accept or reject it. But according to economic theory, workers earn the discounted marginal value product of their labor. In brief, workers earn what their labor contributes to the value of what they make. If a firm pays a “living wage” above this, it will lose money and will tend to be supplanted by other firms. If a law requires that firms pay a living wage, the economy will be disrupted. There are, then, regularities that limit what political action can achieve. If political actors disregard these laws, they will be unable to get what they want.

The statists could not answer the arguments of the economists but instead challenged their motives. This challenge took two forms. First, it was claimed that the economists were not impartial scholars but were in the pay of the capitalists, who want to pay workers as little as they can get away with. (Such accusations are far from ended: the accusation is a principal theme of Nancy MacLane’s Democracy in Chains [2017].) Second, detractors of economics maintained that there is no such thing as objective reason. All human reasoning is biased, with class and race most often declared to be the source of this bias.

Marxism asserts that a man’s thinking is determined by his class affiliation. Every social class has a logic of its own. The product of thought cannot be anything else than an “ideological disguise” of the selfish class interests of the thinker. It is the task of a “sociology of knowledge” to unmask philosophies and scientific theories and to expose their “ideological” emptiness. Economics is a “bourgeois” makeshift, the economists are “sycophants” of capital. Only the classless society of the socialist utopia will substitute truth for “ideological” lies. (p. 606; the “sociology of knowledge” refers to the work of Karl Mannheim and Max Scheler)

Mises is careful to avoid a counterattack. If he is trying to discredit the opponents of economics by calling attention to their motives, i.e., their wish to promote statist panaceas, can’t he also be accused of doing the same thing as the statists? They said that the economists are biased; he says the critics are biased. What is the difference?

He answers that he is not claiming to refute the opponents of economics by calling attention to their bias. Their arguments need to be answered on their own terms. But this does not preclude inquiry into the motives of those who advance these arguments.

It is not permissible to dispose of these objections merely on the ground of the political motives which inspired them. No scientist is entitled to assume beforehand that a disapprobation of his theories must be unfounded because his critics are imbued by passion and party bias. He is bound to reply to every censure without any regard to its underlying motives or its background. (p. 607)

Before the rise of the subjectivist school in the 1870s, opponents of economics could say that even if there are binding laws of economics, these apply only to one part of human behavior, the pursuit of material wealth. The laws of economics, according to this position, do not apply to nonmaterial goals, and this offers ample scope for state action. After the 1870s, this response collapsed. There is a general science that establishes truth about all human actions. This more sweeping claim has elicited more strident attacks on economics.

For a long time men failed to realize that the transition from the classical theory of value to the subjective theory of value was much more than the substitution of a more satisfactory theory of market exchange for a less satisfactory one…. It is much more than merely a theory of the “economic side” of human endeavors and of man’s striving for commodities and an improvement in his material well-being. It is the science of every kind of human action. (p. 605)

Mises says that the

radicalism of this wholesale condemnation of economics was very soon surpassed by a still more universal nihilism. From time immemorial men in thinking, speaking, and acting had taken the uniformity and immutability of the logical structure of the human mind as an unquestionable fact. All scientific inquiry was based on this assumption. In the discussions about the epistemological character of economics, writers, for the first time in human history, denied this proposition too. (p. 605)