How to be a value-free advocate of laissez faire: Ludwig von Mises's solution

American Journal of Economics and Sociology, The, July, 2005 by J. Patrick Gunning

In a seminal paper in neo-Austrian economics, Murray Rothbard criticized Mises. We analyze Rothbard's argument partly as a means of elucidating Mises's views and argue that Rothbard misinterpreted Mises and quoted him out of context. Rothbard failed to adequately support his claim that Mises held the beliefs that Rothbard attributed to him. Moreover, Rothbard's paper undermined the value freedom that Mises regarded as a crucial characteristic of economics.

I

Introduction

LUDWIG VON MISES MAINTAINED THAT PRAXEOLOGY (the logic of human action) and economics (the logic of action applied to particular circumstances) are value free. He went on to argue that sound, value-free economic reasoning leads one to favor laissez faire. This paper presents the reasoning that enabled him to reach this apparently paradoxical conclusion. To my knowledge the reasoning is unique to Mises.

One of Mises's staunchest defenders and "champions," Murray Rothbard, (1) criticized Mises on this issue. An examination of Mises's and Rothbard's arguments will show that Rothbard did not understand Mises's approach to the problem, apparently because he failed to consider the key passages on this issue in Human Action and because he misinterpreted the passages he did consider.

Mises's argument that an economist could advocate laissez faire and still remain value free stemmed from his conception of the goal of economics. In his view, the goal is to debunk false views about how people in a society can achieve their non ascetic ends. To do this, economics must elucidate the nature of human cooperation under laissez faire by means of the division of labor under the conditions of private property. Then it must compare this with the means people would use to achieve such ends under the alternatives of socialism and interventionism. The economist could advocate laissez faire because economic reasoning shows that it enables people in a society to achieve their nonascetic ends to a greater extent than the alternatives. As long as the economist pursues the goal of comparing the systems with respect to their capacity to achieve these ends, and as long as his or her comparison employs the logic of praxeology, the economist need not worry about making value judgments.

Mises's argument is presented in Section II of this paper. Section III presents Rothbard's view that value-free economics is a tool of ethics. Section IV describes and evaluates Rothbard's critique of Mises, showing how Rothbard misunderstood Mises's position and misinterpreted his arguments. Section V tries to explain Rothbard's misinterpretation by suggesting that his thought was unduly influenced by his acceptance of the welfare economics of his day. Section VI presents a brief conclusion.

II

Mises on Laissez Faire and Value-Free Economics

TO UNDERSTAND MISES'S VIEWS ON LAISSEZ FAIRE, it is sufficient to read the passages referred to in the index of Human Action ([1949] 1966). In most places, he refers to it as an ideology of the old liberal economists. This ideology, in his view, helped to eliminate the restrictions of medieval times, facilitating the emergence of a private property system and free enterprise. He writes that "laissez faire philosophy had opened the way for capitalism by utterly destroying the fallacies of restrictionism" ([1949] 1966: 840). Similarly, "[t]he laissez faire ideology and its offshoot, the 'Industrial Revolution,' blasted the ideological and institutional barriers to progress and welfare" ([1949] 1966: 620). Note that in this last statement, Mises refers to laissez faire as an "ideology" and that he speaks of "progress." A brief discussion of these ideas will help clarify his argument.

In Human Action, Mises defines ideology in relation to what he calls a world view:

   A world view is an interpretation of all things, and as a precept
   for action, an opinion concerning the best means for removing
   uneasiness as much as possible.... Religion, metaphysics, and
   philosophy aim at providing a world view. They interpret the
   universe and they advise men how to act.

      The concept of an ideology is narrower than that of a world
   view. In speaking of ideology we have in view only human action
   and social cooperation and disregard the problems of metaphysics,
   religious dogma, the natural sciences, and the technologies
   derived from them. Ideology is the totality of our doctrines
   concerning individual conduct and social relations. ([1949]
   1966: 178)

Other ideologies besides laissez faire are socialism and interventionism:

   In the field of society's economic organization there are the
   liberals advocating private ownership of the means of production,
   the socialists advocating public ownership of the means of
   production, and the interventionists advocating a third system
   which, they contend, is as far from socialism as it is from
   capitalism. ([1949] 1966: 183) (2)

It is worth noting that Mises uses the term "socialism" here to refer to both an ideology and a system. He contrasts socialism as an ideology with the ideologies of laissez faire and liberalism, and he contrasts the socialist system with the system of capitalism.