Human thinking and reasoning, human science and technology are the product of a social process insofar as the individual thinker faces both the achievements and the errors of his predecessors and enters into a virtual discussion with them either in assenting or dissenting. . . . But it is circular reasoning if one tries to explain the emergence of an idea, still less to justify it, by referring to its author’s environment. Ideas always spring from the mind of an individual, and history cannot say anything more about them than that they were generated at a definite instant of time by a definite individual. –Ludwig von Mises, The Historical Setting of the Austrian School
Having been inspired by attending Virtual Mises University a few weeks ago, I felt moved to dust off my Reading Economics Project and make a new post for the first time in forever. In this post I’ll cover Mises’s The Historical Setting of the Austrian School (1969), which is part of the introductory unit of George Reisman’s reading program.
Historical Setting is a short work–a mere 21 pages of text in the PDF version available for free on the Mises Institute’s website. Written near the end of Mises’s long life, it’s an intriguing look back at key authors and events important in the development of the Austrian school of economics, beginning with Karl Menger in the years prior to Mises’s birth and continuing through the interwar period. Despite his own tremendous contributions to this intellectual tradition, Mises keeps the spotlight off himself, making only one explicit reference to events in which he took part and one reference to his own work. The rest of the essay focuses on discussing the accomplishments of others in the tradition and critiquing the school’s ideological enemies.
The essay consists of three chapters. The first is titled “Carl Menger and the Austrian School of Economics.” Mises emphasizes the importance of Menger, who taught at the University of Vienna in intellectual isolation while working out the theory of marginal utility in the early 1870s. Although Menger began to attract some like-minded thinkers eventually, the phrase “Austrian school” did not come into use until the mid-1880s. Menger and his allies operated in a university environment in which professors had recently acquired academic freedom, so despite the unfavorable implications of their scholarship for state interventionist policies, they were tolerated in their positions. Mises’s nostalgia for the intellectual climate of late-19th-century Vienna is evident in his discussion of the many intellectual advances that took place there.
The second chapter, “The Conflict with the German Historical School,” discusses the so-called Methodenstreit, or conflict over methods. Advocates of the rising German Historical School of thought, centered in Prussia, held that no economic theory of human action could be universally valid for all people in all places at all times. They focused their effort on historical research of economic phenomena in Germany in the expectation that they would eventually be able to make predictions specific to Germany that could guide the German state in its policies. Mises summarizes the Austrian response to this thinking:
The Historical School would have been consistent if it had rejected the very idea that such a thing as a science of economics is possible, and if it had scrupulously abstained from making any statements other than reports about what had happened at a definite moment of the past in a definite part of the earth. An anticipation of the effects to be expected from a definite event can be made only on the basis of a theory that claims general validity and not merely validity for what happened in the past in a definite country.
The German Historicists and the Austrians critiqued each other throughout the 1880s, but Mises concluded it was to little effect because certain questions remained unclarified. In the meantime, economics “disappeared entirely” from the German universities in the sense that theoretical work ceased in favor of historical research. Mises illustrates what for him was the intellectual bankruptcy of the German Historical School by tracing the career of Werner Sombart, who began as a shill for the Hohenzollern Dynasty, gravitated toward Marxism around the time of World War I, and ended up a Nazi.
The final chapter is called “The Place of the Austrian School of Economics in the Evolution of Economics.” Mises begins by clarifying that most Austrians were not “Austrians,” and that the “Austrian” school included many non-Austrians. He goes on to write that the Methodenstreit was not a unique event; rather, it was one example of a continually reoccurring struggle between the advocates of peace and voluntarism on the one hand and those who reject the philosophy of peaceful cooperation in favor of state action on the other. The German Historicists who mocked the Austrians also provided intellectual cover for Prussian statism and socialism. Mises concludes with the assertion that statists will never deliver on their promised panaceas; they may boycott and silence the independent economists, “[b]ut truth persists and works, even if nobody is left to utter it.”
When I went over to Auburn for one day of Mises University on-site, I asked David Gordon if Mises had ever responded in writing to Hans-Georg Gadamer’s Truth and Method (1961), the themes of which overlap quite a bit with Mises’s writings on method and epistemology. David said that he didn’t think so; Gadamer’s work appeared after all of Mises’s major works. I teach Gadamer these days and would love to know how Mises would have reacted to him.