Classical Liberalism and the Austrian School

by Ralph Raico

Preface by David Gordon

0001_classical_liberalism_and_the_austrian_schoolRalph 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 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 economics 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 classical 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 developed 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 damaging 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 Open Society and Its Enemies, Popper wrote that Marx’s protests against capitalist oppression “will secure him forever a place among the liberators 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 . . .’” (p.29)

In “Liberalism: True and False,” Raico advances further in his quest for conceptual clarity about liberalism. Nowadays, supporters of the welfare state usually call themselves liberals, but Raico maintains they are not entitled to the name. To accede to their takeover of the term from its nineteenth-century usage promotes confusion.

Instead, we should, learning from Max Weber, construct an ideal type for liberalism. If we do so, we will discover that “modern” liberals differ too far from the standard to be included. “The ideal type of liberalism should express a coherent concept, based on what is most characteristic and distinctive in the liberal doctrine—what Weber refers to as the ‘essential tendencies.’ . . . Historically, where monarchical absolutism had insisted that the state was the engine of society and the necessary overseer of the religious, cultural, and, not least, economic life of its subjects, liberalism posited a starkly contrasting view: that the most desirable regime was one in which civil society—that is, the whole of the social order based on private property and voluntary exchange—by and large runs itself.” (p.65, emphasis in original)

How did the current confusion over liberalism develop? Raico ascribes a good deal of the blame to the “saint of rationalism,” John  Stuart Mill, of whom he is decidedly no admirer. Following the Mill revisionists Maurice Cowling, Joseph Hamburger, and Linda Raeder, Raico contends that Mill was very far from bring a friend of liberty. Despite his frequent paeans to individual autonomy, he had an ultimately conformist ideology. He aimed to demolish religious faith, especially Christianity, and received mores, on the way to erecting a social order based on “the religion of humanity.” (p. 53)

Mill’s disdain for tradition, expressed especially in On Liberty [which Raico calls “presumptuously titled” (p. 166)] led naturally to the new liberalism, with its reliance on the state and displacement of property rights from their formerly central position. “It [Mill’s view of tradition] also forges an offensive alliance between liberalism and the state, even if perhaps contrary to Mill’s intentions, since it is difficult to imagine the uprooting of traditional norms except through the massive use of political power.” (p. 53)

Raico has constructed an ideal type of liberalism, but of course the historical phenomenon that this ideal type encapsulates did not arise fully grown but developed through a long process. And this process occurred in a particular place, namely Western Europe, though the principles of liberalism claim universal validity. Why did liberalism first arise there?

Raico’s response emphasizes the Christian roots of liberalism. John Neville Figgis famously claimed that “Political liberty is the residuary legatee of ecclesiastical animosities”; but, unlike Figgis, Raico does not look to the Reformation and its quarrels for the source of freedom. Rather, he focuses on the universal Church as an alternative source of loyalty to the state in medieval Europe. “That culture was the West—the Europe that arose in communion with the Bishop of Rome. . . . The essence of the European experience is that a civilization developed that felt itself to be a unity and yet was politically decentralized. The continent devolved into a mosaic of separate and competing jurisdictions and polities whose internal divisions themselves resisted central control.” (p.59)

Classical liberalism, one suspects most readers of this book will agree, is a very appealing system. Unfortunately, most intellectuals dissent: they spurn capitalism and its brand of freedom. More than a few intellectuals lacked the sense to resist the blandishments of Stalin and Mao. In the third chapter, “Intellectuals and the Marketplace,” Raico carefully surveys the main contending theories that endeavor to account for the intellectuals’ opposition to the free market. Naturally enough, he devotes careful attention to the views of Mises (to whom the book is dedicated). In The Anti-Capitalistic Mentality, Mises stressed the resentment and envy felt by failed intellectuals. Raico does not dismiss this, but he prefers an analysis that Mises advanced in an earlier article. “Citing Cicero’s De officiis as an exemplary text, he [Mises] identifies the contempt for moneymaking deeply ingrained in western culture as the source of the hostility towards capitalists, trade, and speculation ‘which today dominates our whole public life, politics, and the written word.’” (p. 85)

If Raico is attracted to Mises’s earlier account, Hayek fares less ell at his hands. In The Counter-Revolution of Science, Hayek described an engineering frame of mind that to a large extent, in his opinion, attracted intellectuals to socialism. Scientific experiments and engineering projects require conscious planning: why not extend such planning to society as a whole? With characteristic acuity, Raico raises a strong objection: “from the fact that many particular engineering projects have succeeded it does not follow that a single vast engineering project, one subsuming all particular projects, is likely to succeed; nor does it seem likely that most people will find such a claim plausible.” (p. 79)

As we have already seen, Raico places great emphasis on the distinction between true liberalism and its modern counterfeits. It should not then be difficult to surmise his answer to the question posed in his next chapter, “Was Keynes a Liberal?” According to Robert Skidelsky, among many others, Keynes fully adhered to liberal values. True enough, he rejected laissez-faire; but his interventionist measures aimed to cure a defect of capitalism, not to replace that system with socialism or some other revolutionary alternative.

It at once follows from Raico’s characterization of liberalism that Skidelsky et hoc genus omne are radically mistaken. Regardless of his supposed love of the English liberal tradition, someone who relied on the state to the extent that Keynes did could hardly have believed that civil society has no great need for the state. But Raico does not leave it  at that. Keynes, far from being a wholehearted lover of freedom, viewed with some sympathy the fascist and Communist ‘experiments’ of the 1930s. In a notorious article, “National Self-Sufficiency,” which appeared in The Yale Review for 1933, Keynes wrote: “But I bring my criticisms to bear, as one whose heart is friendly and sympathetic to the desperate experiments of the contemporary world, who wishes them well and would like them to succeed, who has his own experiments in view, and who in the last resort prefers anything on earth to what the financial reports are wont to call ‘the best opinion in Wall Street’.” (p. 109). This passage, Raico notes, has been omitted from the version of the article in The Collected Writings.

Nor was this the only occasion on which Keynes had good things to say about totalitarians. In a broadcast for the BBC in June1 936, he praised highly the notorious apologia for Soviet tyranny written by Sidney and Beatrice Webb,  Soviet Communism: A New Civilization?

What lay at the basis of Keynes’ hostility to capitalism? As he did in the previous chapter, Raico finds the answer in disdain for money. Keynes went so far as to appeal to Freudian psychology to account for the supposed “irrational” desire for money. Raico amusingly comments, “This psychoanalytical ‘finding’—by the man Vladimir Nabokov correctly identified as the Viennese Fraud—permitted Keynes to assert that love of money was condemned not only by religion but by ‘science’ as well.” (p. 113)

Marxists would respond to the analysis Raico has so far pursued with an objection. Raico has spoken of ideas as if they possessed an independent existence; but in fact, are not ideas really reflections of class interest? Does not classical liberalism embody the interests of the bourgeoisie of a certain period, rather than enshrine some universal truth? In “The Conflict of Classes; Liberal vs. Marxist Theories,” Raico directly confronts this challenge. Ideas do not, as Marxists imagine, reflect the interests of conflicting economic classes. The free market rests, not on irreparable class conflict, but on a fundamental harmony of interests of people who benefit from social cooperation.

It remain true, nevertheless, that class conflict is a fundamental motor of history. Marx and Engels were not altogether wrong when in the Manifesto they said, “The history of all hitherto existing society is the history of class struggles.” But the conflict lies not among conflicting groups in the free market but rather between producers and those who seize their wealth, principally through statist predation.

We owe the correct account of class struggle to a group of early nineteenth-century French liberals. “Liberal class conflict theory emerged in a polished form in France, in the period of the Bourbon Restoration, following the defeat and final exile of Napoleon. From 1817 to 1819, two young liberals, Charles Comte and Charles Dunoyer, edited the journal Le Censeur Européen; beginning with the second volume (issue), another young liberal, Augustin Thierry, collaborated closely with them.” (p. 124)

As the members of this group saw matters, “In any given society, a sharp distinction can be drawn between those who live by plunder and those who live by production. The first are characterized in various ways by Comte and Dunoyer, including ‘the idle,’ ‘the devouring,’ and ‘the hornets’; the second, are termed, among other things, ‘the industrious’ and ‘the bees.’ (p. 127).

This view of class conflict led Dunoyer and his associates and followers, who were called the Industrialists, to a new theory of the French Revolution. The revolutionaries aimed to secure government positions for themselves: “With the emphasis on state functionaries, a new and surprising interpretation of the Great Revolution is presented by the Industrialist writers. The Declaration of the Rights of Man and of the Citizen of 1791 proclaimed admission to government jobs as a natural and civil right.” (p. 130)

Raico is naturally dismayed that well-known scholars have lavished attention on the inferior Marxist theory of classes, while ignoring the contribution of the classical liberals. Here he excoriates a famous authority for this scholarly lapse: “Needless to say, Professor [Albert O.] Hirschman is equally blithely ignorant that the use of the concept of “spoliation” was as common among the Italian as among the French laissez-faire liberals.” (p. 124)

Raico greatly admires Hayek, especially as an economist; but he differs greatly from Hayek in his understanding of the history of liberalism. In “The Centrality of French Liberalism,” he challenges Hayek’s attempt to “distinguish two traditions of individualism (or liberalism). The first, basically a British and empirical line of thought, represents genuine liberalism; the second, French (and Continental), is a no true liberal tradition, but rather a rationalistic deviation that leads ‘inevitably to collectivism.” (p. 143)

Already in his dissertation, written under Hayek’s direction, Raico had pointed to problems with Hayek’s dichotomy. Thus, he noted that Lord Acton, one of Hayek’s chief exemplars of tradition and common sense, evolved to a more rationalistic position: “By the time he delivered his two lectures on the history of freedom, Acton had revised his view of the supreme role of reason in this area: the achievement of religious freedom in England is ascribed not to fidelity to received ways, but to a deliberate rejection of them.” ( The Place of Religion in the Liberal Philosophy of Constant, Tocqueville, and Acton, Mises Institute, 2010, p. 111).

Hayek was no doubt aware that two of the most eminent French liberals, Constant and Tocqueville, were the opposite of constructivist rationalists, in his pejorative sense; and, in fact, Hayek greatly admired Tocqueville. But these two great figures, Raico makes clear, were far from alone in their respect for tradition. The Comte de Montalembert was a firmly committed Roman Catholic; by no means did he think that all religions of equal validity. “It is highly significant that Montalembert, as he categorically states, refuses to defend religious liberty on the basis of “the ridiculous and culpable doctrines that all religions are equally true and good in themselves, or that the spiritual authority does not obligate conscience.’” (p. 152).

Given this view of religion, why was Montalembert a liberal? Given the unchangeable pluralism of contemporary society, it would be a hopeless project for Catholics to endeavor to establish Catholicism through the use of force directed against non-believers. Moreover, any attempt to do so would be dangerous. Once the principle of state intervention is admitted, would not anti-Catholics, should they gain power, try to suppress the Church? Far better, then, to adopt a principled position of non-intervention; in that way, freedom for all could be assured. Montalembert did not confine his liberalism to the advocacy of religious freedom. He strongly opposed socialism and was a prescient critic of the danger to freedom posed by a state educational monopoly. In the face of Raico’s analysis, it would hardly do for Hayek to defend his dichotomy by pointing out that Montalembert was born in London.

Another influential figure who wreaks havoc with Hayek’s schema is Gustave de Molinari. At first, one might surmise that Molinari’s radical denial of the need for government would lead him to dismiss tradition as well. This was decidedly not the case. “This most ‘extreme’ of French or even of all European liberals (Auberon Herbert in Britain would be a close rival) displayed a warm sympathy for tradition and ‘organic’ culture, going so far as to criticize the Napoleonic Code for consolidating the ‘reforms’ of the Revolution by replacing the variegated customs of the provinces with a uniform legislation.” (p. 157)

Mises stood foremost among twentieth-century advocates of classical liberalism, and Marxists have been unable adequately to respond to his challenges to their creed. Instead, they have all too often resorted to smears. In “Ludwig von Mises’s Liberalism on Fascism, Democracy, and Imperialism,” Raico answers one such attack on Mises, advanced by the British Marxist historian Perry Anderson.

Anderson noted that in Liberalism, published in Germany in 1927, Mises said this about Italian fascism: “It cannot be denied that [Italian] Fascism and similar movements aiming at the establishment of dictatorships are full of the best intentions and that their intervention has for the moment, saved European civilization.” (p. 166). Was Mises, the supposed champion of freedom, really a fascist?

Raico’s comment on this issue is simple and straightforward. Mises was of course not a fascist: his criticisms of that system were many, far reaching, and various. But Italy in the years after World War I really was threatened by socialist revolution, or at least many competent observers at the time believed; and Mussolini and his cohorts ended that danger. Anderson, by the way, is in the habit of smearing scholars he deems not far enough to the left. He called the Karl Wittfogel’s great Oriental  Despotism “a vulgar charivari” (Anderson, Lineages of the Absolutist State, Verso, 1974, p. 487)

In “Eugen Richter and the End of German Liberalism,” Raico describes the heroic struggle of the leader of the German liberals against Bismarck’s welfare state. (He has written at length on German classical liberalism in his superb Die Partei der Freiheit.) Advocates of the welfare state often portray it as an effort to shield workers and the poor from the ravages of untrammeled capitalism. To the contrary, state-enforced welfare measures interfered with private welfare programs and threatened to initiate an unsustainable orgy of spending.

As Richter pointed out, “By hindering or restricting the development of independent funds, one pressed along the road of state-help and here awoke growing claims on the State that, in the long run, no political system can satisfy.” (p. 202, emphasis in original). Raico entirely concurs: “One might also reflect on a circumstance that today appears entirely possible: that, after so many fatal “contradictions” of capitalism have failed to materialize, in the end a genuine contradiction has emerged, one that may well destroy the system, namely the incompatibility of capitalism and the limitless state welfarism yielded by the functioning of a democratic order.” (p. 202)

The book concluding chapter, “Arthur Ekirch on American Militarism,” is a tribute to an outstanding historian who has traced the rise of militarism over the course of American history. Ekirch, like Raico, had a strong moral commitment to freedom; and he analyzed the rise of militarism, not as a dispassionate observer, but as a confirmed opponent.

In the course of his tribute to Ekirch, Raico accomplishes a remarkable feat. He offers a brilliant summary of the entire course of America’s foreign policy, culminating in America’s present position of world dominance. A few samples of his comments must here suffice. Of the great advocate of a strong navy, Alfred Thayer Mahan, he says, “Mahan was not much of a naval commander (his ships tended to collide), but he was a superb propagandist for navalism. His work on The Influence of Sea Power Upon History, 1660–1783, was seized upon by navalists in Germany, Japan, France, and elsewhere. It fueled the arms race that led to the First World War, and was no great blessing to mankind.” (p. 214) On Theodore Roosevelt, he is no less unflattering: “Heaven only knows what Theodore Roosevelt is doing on that endlessly reproduced iconic monument on Mount Rushmore, right alongside Jefferson. He despised Jefferson as a weakling, and Jefferson would have despised him as a warmonger.” (p. 214) For much more detail on this and cognate subjects, readers should consult Raico’s outstanding Great Wars and Great Leaders: A Libertarian Rebuttal.

Ralph Raico is an extraordinary thinker and scholar. I first met him in 1979 and was at once impressed by his intelligence, his scholarship, and, not least, his humor. Thirty-two years later, these qualities remain impressive. I have learned a great deal from Ralph and am honored to have him as a friend.

David Gordon
Los Angeles January 2012

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