Two Friedrichs and a Ludwig: Nietzsche and the Austrians

A couple of years ago I posted here a series of entries on the origins of capitalism, or more precisely on the evolution of Western thought regarding capitalism, from Adam Smith through Ayn Rand. Looking back, I see that that series excluded some important contributors to this intellectual current, in particular the authors of the “marginal revolution” in late nineteenth-century economics and the creators of the “Austrian school” of the twentieth century. I neglected the former group because I didn't know anything about them at the time, and the latter because I assumed their importance had declined relative to the Nietzschian novelist and cult leader Ayn Rand, about whom I wrote at length. In May 2013, however, political scientist Cory Robin published in The Nation a provocative essay joining all of these men and women – the marginalists, the Austrians, Nietzsche, Rand – into a single school of reactionary thought. “Nietzsche's Marginal Children” became the subject of a forum on Crooked Timber, and generated such hostile commentary there that the author published another long essay in Jacobin magazine defending his conclusions. All deserve some commentary here, if only as a coda to my earlier series and a reflection on the illiberal nature of capitalism.

The marginalists, more specifically William Jevons, Carl Menger, and Leon Walras, introduced to economics the concept of marginal utility, which tied the price of a good or service to the usefulness of one additional unit of that commodity to the consumer. Marginal analysis stipulated that the price of a good depends both on its importance and its scarcity, which is why water is cheaper than diamonds, even though the former is more universally useful. Marginal analysis suggested that labor, being more abundant than land and capital – or, rather, owned by more people than land or capital – should command a lower-unit market price than those latter commodities. It was thus a useful concept for elitists who feared that the revolutions of 1789 and 1848 had destroyed the values of the ancien regime and substituted only Marx's labor theory of value, which gave entirely too much power to the working class – to the mob. Marginalism promoted instead the idea that scarcity and the making of difficult choices determined value.

The same fear the mob lay behind the elitism of Friedrich Nietzsche, whose philosophical works argued that the masses, obsessed with their “finite” lives, could not create anything of enduring value. Value, Nietzsche admitted, was a human invention, but it came only from the works and the esteem of “exalted men of culture,” a tiny minority of warriors, statesmen and artists whose thoughts and struggles were the only sources of beauty and dignity. The purpose of a society, he insisted, was to serve as the support structure for this aristocracy. To borrow a phrase from Theodosius Dobzhansky, Nietzsche believed that common people were “a manured soil in which to grow a few graceful flowers of refined culture” (quoted in Fernand Braudel, The Structures of Everyday Life [U. of California Press, 1992], 186.) A democrat he was not.

Nietzsche had a considerable influence on early twentieth-century European fascists, and on several important American philosophers, notably Leo Strauss and Ayn Rand. His impact on the Austrian economists, particularly the ur-libertarians Ludwig von Mises and Friedrich Hayek, is harder to prove, and Robin argues that Nietzsche did not directly influence them. The three men instead came of age in the same problematized intellectual environment, that of late nineteenth-century middle-European gentry struggling to defend their position and their culture against the working class. The Austrian economists took their initial cues from the marginalists, who argued that landowners and capitalists were more economically valuable (because scarcer) than an equal number of laborers. The marginalists also imparted a certain romance to the marketplace, insofar as “economic man” had to make sacrifices in order to determine what was economically valuable to him.

What Mises and Hayek added to these assumptions was the belief, alien to Nietzsche and unnecessary to the marginalists, that the capitalist market economy was a moral system. Morality, Hayek argued, concerned the ordering of ends, or goals, and because scarcity determines marginal utility, a free market forces individuals to prioritize and rank their goals. “The economy,” Robin observes, thus “becomes a theater of self-disclosure...It is not in the casual chatter of a seminar or the cloistered pews of a church that we determine our values; it is in the duress—the ordeal—of our lived lives, those moments when we are not only free to choose but forced to choose.” Economic man became through his choices a moralist and (because the market was actually a moral theater) an artist.

Thus far the Austrians' view could theoretically support social democracy, insofar as it makes ordinary workers' and consumers' economic lives morally significant. Mises and Hayek, of course, were not social democrats. Instead, they viewed the market as “the proving ground of aristocratic action.” In his 1960 work The Constitution of Liberty, Hayek argued that consumers were never free to make all of their own economic choices; instead, the inventors and entrepreneurs who develop complex technologies and the wealthy capitalists who are the leading arbiters of taste shape the choices of the consuming multitudes.* Economic freedom was not an end in itself but a means to an end: the creation of an economic sphere in which an entrepreneurial and cultural elite could flourish. To give Hayek his due, one should note that he was a trickle-down elitist: a flourishing entrepreneurial class and aristocracy would, he believed, create benefits for society as a whole, providing ordinary schmoes with jobs, security, and access to mass-produced consumer goods. Contrast him with Nietzsche, who argued that the highest purpose for hoi polloi was to support the elite, and Ayn Rand, who described the 99% as “moochers and looters” for whom the great-souled elite should feel nothing but contempt.

Since a society could not flourish without nurturing a free-market elite, however, Hayek viewed any government which threatened capital and markets as a menace, and considered its overthrow, even by a dictatorship, as a positive good. He reserved particular contempt for totalitarian systems like Nazi Germany's, but he believed social democracy was also dangerous, insofar as it replaced a rule-based economy favorable to capital with a discretionary political economy controlled by the mob. A temporary dictatorship, Hayek believed, might occasionally become necessary to purge a nation-state of its constitutional “impurities” and restore a free-market economy. In the early 1960s he sent a copy of The Constitution of Liberty to Antonio Salazar of Portugal, hoping to persuade him to become that nation's law-giver, and later Hayek became an influential cheerleader for Augusto Pinochet of Chile. That Pinochet violently deposed his predecessor, Salvador Allende, and then tortured and murdered his political opponents does not appear to have bothered Professor Hayek. A “liberal” dictator, Hayek argued, was preferable in the long run to an illiberal social democracy. Jeanne Kirkpatrick would certainly have approved.

Robin's essay has its shortcomings. His writing style is diffuse, digressive, and occasionally difficult to follow, and I find his connection of the Austrians with Nietzsche both strained and unnecessary. One may successfully argue that Mises and Hayek were elitists without invoking Thus Spake Zarathustra. I think “Nietzsche's Marginal Children” and the sequel that Robin published in Jacobin, "Nietzsche, Hayek, and the Meaning of Conservatism," are noteworthy for other reasons. Fans of the Austrian school of economics generally characterize Mises and Hayek as the intellectual heirs of nineteenth-century liberalism, and Robin persuasively argues that they were not. They were instead reactionaries, for whom a free market was not an instrument for egalitarian social progress but the crucible of aristocracy. Robin also usefully summarizes the work of another, equally influential Austrian economist, Joseph Schumpeter, whom Mises and Hayek found inspiring but with whose historical conclusions they disagreed. Schumpeter attributed technological progress to a small elite of entrepreneurs and inventors, whom he characterized as eccentric, romantic geniuses willing to flout social norms and destroy older industries. Schumpeter argued that a mature capitalist economy had little place for the entrepreneur, but the other Austrians disagreed, asserting that the entire purpose of a free-market society was to nurture such capitalist heroes.

Perhaps Robin's most controversial contribution is his linkage of Hayek with modern dictators, a liaison which actual classical liberals, like John Stuart Mill, would have found appalling. In noting Hayek's fondness for Salazar and Pinochet, Prof. Robin observes that we do not often appreciate the role of violence in creating capitalist societies, or in transforming socialist countries into free-market ones. This is a point addressed by David Graeber and Naomi Klein, and one upon which I would like to expand in a forthcoming blog entry.

**

(The above image, of octogenarian Friedrich Hayek enjoying a sherry and a scowl, is from Wikimedia Commons.)

*  Hayek made analogous observations about free-market price systems: prices are extremely useful for consumers and investors, but they the product of complex socio-economic interactions that most people don't fully understand; one can "use" prices just as one uses advanced technology, without fully understanding the intellectual and social labor that went into them.