Montreal, April 15, 2005 • No 153




Heidi Lange is currently a junior at Hillsdale College (Michigan), majoring in Economics and minoring in Biology.


(Part One)


by Heidi Lange


          The Austrian school of economics is well known for its "realistic" approach to the study of human action. This importance which Austrian economists place on reality is very similar to that which followers of the philosophy of Objectivism adhere to. The two schools of thought are very similar in that they both hold that "certainty is a relation between an individual mind and reality" (Kelley 2000, p. 70). That is to say, both Austrian economists and Objectivists believe that truth must be discovered and understood in the context of reality. Austrian economists are well known for their distaste for abstract models, and Objectivists are similarly famous – if also often mocked – for their rigid adherence to reason as a tool of perception.


          Objectivism, then, can be seen as the logical philosophical and ethical extension of Austrian economics, much as laissez-faire libertarianism can be seen as the logical political extension of Austrian economics. Or, viewed from the other side, the reality-based methodology of the Austrian school is the perfect tool for the Objectivist interested in economic studies. Austrian economics and Objectivism fit very well as two aspects of the same worldview(1).

          There are several important areas in which Austrian economists and Objectivists agree, including the importance they place on the virtue of rationality and a priori logic; their embracing of reality as a standard of action and the empirical world as a subject worthy of study; their advocacy of capitalism as the path to a more productive society; and the fact that each discipline (especially Objectivism) discovered a similar way to bridge the problematic mind-body gap, or dichotomy.

What is Austrian economics?

          The Austrian school of economics (so-called because its early members lived in Austria) was founded in the late nineteenth century by Carl Menger (Callahan 204). It is the school of economists who pride themselves on basing their theories and policy recommendations on the reality of human action. In contrast to the followers of the more mainstream schools of economics, who have a tendency to get caught up in abstract thought experiments (commonly making false recommendations and/or inaccurate predictions as a result), Austrians believe that "economics ought to be relevant to real life" (Callahan 204). Austrians base their work on the "Action Axiom," which states very simply that: "Humans act." Ludwig von Mises states it this way:

          Human action is purposive behavior. Or we may say: Action is will put into operation and transformed into an agency, is aiming at ends and goals, is the ego's meaningful response to stimuli and to the conditions of its environment, is a person's conscious adjustment to the state of the universe that determines life (Mises 1963, p. 11).

          For the Austrian, action is purposive, rational, goal-driven behavior. Only the actions of humans interest the Austrian economist, since he can only be certain of humans' rationality. The study of the actions of animals and other apparently non-rational animals is left to the biologist who studies them with far different tools than the economist uses to address his work. Precisely because the economist can apply his knowledge of what it is to be human, he can study the actions of humans in a far different way than he could study the actions of, say, a dog. The economist not only uses his rational mind to address the problems of economics, but he assumes that his subjects have rationality – and employ it – as well. For this reason, the term "human action" is limited to purposive behavior.

          The a priori deductive nature of the Austrian economist's method (using his reason as a tool) is what sets the Austrian school apart from other, more mainstream schools. Economics as a discipline focuses on observing the regularity of what may be called market phenomena. Human action is what causes market phenomena, and the Austrians believe that the best way to study the occurrences of the market is to study their cause: human action in the face of uncertainty. It is this application of reason which sets Austrian economics apart from most other disciplines, which attempt to imitate the scientific method of the biologist or the physicist. The reason-based methodology of the Austrian school is what makes it such an appropriate economic method for the Objectivist to use.

What is Objectivism?

          The philosophy of Objectivism, founded by the twentieth-century philosopher Ayn Rand(2), puts a strong emphasis on reason as a tool of cognition, and on the virtue of rationality as being essential for any productive activity. When Ayn Rand was asked to summarize her philosophy, she answered:

1. Metaphysics: Objective Reality. ('Nature, to be commanded, must be obeyed.')
2. Epistemology: Reason. ('You can't have your cake and eat it too.')
3. Ethics: Self-Interest. ('Man is an end in himself.')
4. Politics: Capitalism. ('Give me liberty or give me death.') (Rand 1989, p. 3)

          Objectivism focuses on the importance of the individual, and the absolute necessity of understanding reality and basing one's rational actions on it.

          Objectivism is often falsely accused of being nothing but a new and more complex form of hedonism. It is important before continuing that we address this question, and show that Objectivism is not a form of hedonism.

          Hedonism is the ethical doctrine which states that "pleasure is the ultimate good for humans" (Feinburg 2002, p. 781). In practice, hedonism is the doctrine followed by those who base their actions only on the idea that each man must do what will bring him the most happiness, as subjectively determined by his own desires. The hedonist does not sacrifice himself for others' welfare, but if he sees fit, he may sacrifice others for his own welfare.

          In contrast, Objectivism states explicitly that a man must not sacrifice others for his own welfare.

          Central to Rand's ideal of benevolent egoism are the following two principles:

P1: I should never sacrifice myself for the benefit of others.
P2: I should never sacrifice others for the benefit of myself. (Huemer 2001, p. 1)

          Objectivism is, in fact, a combination of two principles which had seemed to be mutually exclusive until combined in this form. On the one hand, the objectivist believes (as do most followers of traditional Western Judeo-Christian religions) that he may not prey upon his fellow rational beings for his own benefit. On the other hand, he believes (as does the hedonist) that he must seek his own highest good, and that he may not allow his fellow rational beings to prey upon him. This set of rational principles is the base of Objectivism and as we will see, the cause of Objectivism's close kinship with Austrian economics.

Values as goals

          At first appraisal, there appears to be a conflict between Mises' value-neutrality (or value-subjectivity) and Rand's argument for the importance of objectivity. However, on closer observation it is apparent that the difference is in the respective function of the values in question. While both Rand and Mises focus on the acting man, Mises recommends values for the observer of the action as an observer (namely, value-neutrality), whereas Rand recommends values for the actor himself as an actor (namely, objective and life-enhancing values). When Mises advocates value-neutrality, he refers to the idea that the good economist refrains from imposing his own subjective preferences on those acting humans whom he observes. The economist may not observe a tribal shaman and conclude that "a rain dance will not work." He may simply watch; he may describe; he may explain the shaman's actions within the scope of economics, saying, "The shaman employs the rain dance as a means to obtain the end of a rainstorm occurring."

"Both Austrian economics and Objectivism recognize that only the human individual can hold and act upon the kind of values which are worthy of study. Values cannot be held collectively; neither can the values of two different rational beings be compared to one another."

          For the economist, value-neutrality (understanding that each actor's values are subjective and that, as an economist, one may not condemn those individual values) is much like the imaginary construct of the Evenly Rotating Economy; it is a necessary methodological tool for use in economic appraisal. It is not a source of facts; it is not meant as a basis for real-world action; it does not affect reality. Rather, "value freedom is a methodological device designed to separate and isolate an economist's scientific work from the personal preferences of the given economic researcher" (Younkins 2004a, p. 3).

          Mises' value-neutrality in the economic realm does not mean that his ideas cannot be integrated with Objectivism's strong value-objectivity. Indeed, his definition of value as "the importance that acting man attaches to ultimate ends" (Mises 1963, p. 96) is perfectly complementary to Rand's definition of value as "that which one acts to gain and/or keep" (Rand 1964, p. 27). Each school of thought uses the concept of "value" to describe the goals which acting man strives towards. "A value is an object of human action" (Merrill 1991, p. 100). Each man's goals are subjective in the sense that they relate to his specific circumstances, and objective in the sense that they relate to concrete reality.

          Where Austrian economics is primarily descriptive in nature, Objectivism goes on to prescribe what acting humans ought to value. The objectivist believes that for each man, his own life is the highest value he may strive toward. Each man makes a basic choice: to live or to die. The man who chooses to live, must (to be rationally consistent) also choose those smaller ends which will further the ultimate value which he has chosen, his own life. "The fact that living entities exist and function necessitates the existence of values and of an ultimate value which for any given living entity is its own life" (Rand 1964, p. 27). Rand's position on this is the same as that of Aristotle; she holds that value is objective in the sense that there is one ultimate value that correlates with the natural end ("telos," or goal) of the entity. The ultimate end for a living entity is to continue its existence.

          Although this appears at first glace to be a circular argument ("a living entities lives in order to continue its own life"), and hence a pointless claim, one can see after some thought that it is not a meaningless argument, when applied to human beings. Humans can, and in fact often do, act contrary to the furtherance of their own lives. Rand controversially used the term "altruism" to refer to non-life enhancing behavior of a particular sort which she felt to be the most common. Altruism, in the objectivist sense, is the approach to life which places sacrifice as the highest ideal.

          The basic principle of altruism is that man has no right to exist for his own sake, that service to others is the only justification of his existence, and that self-sacrifice is his highest moral duty, virtue and value (Rand 1982, p. 61).

          The important thing to remember when discussing the objectivist concept of altruism is that there is a very strong difference between "altruism" and "benevolence." The objectivist does not claim that, for instance, Mother Theresa acted irrationally. Her actions were benevolent: she simply desired the happiness of others as her goal. She did not act to destroy herself – she acted to help others. This is a concept which any economist understands perfectly; no human acts contrary to reason or to the laws of economics when he or she desires the happiness of others. However, the objectivist believes that when a human acts according to the principles of altruism, he is acting contrary to reason, since he is denying (in deed, if not in word) that his life is his highest value. For the altruist, sacrifice is his highest value; since sacrifice means giving up a higher value in favor of a lesser, then the logical conclusion of altruism is death.

          This is why it is important to state the principle that "an ultimate value… for any given living entity is its own life" (Rand 1964, p. 27). Man, of all the animals, has the strange option of choosing to act contrary to his own welfare on a continual basis, or of choosing to live according to principles which will help him achieve his own highest value: his life. Thus we see that for the objectivist, as well as for the Austrian economist, the term "value," when used in reference to man, means "goal pursued by a acting being with volitional consciousness" – values are goals, not ethical codes of action.

          Interestingly enough, it is not Mises, but his predecessor Carl Menger who agrees more explicitly with Ayn Rand's value theory. "Menger and Rand agree that the ultimate standard of value is the life of the valuer" (Younkins 2004b, p. 7). Menger specifies in his definition of value that man's life is its source. Following in the footsteps of Aristotle, he claims that:

          the attempt to provide for the satisfaction of our needs is synonymous with the attempt to provide for our lives and well-being. It is the most important of all human endeavors, since it is the prerequisite and foundation of all others (Menger 1981, p. 77).

          For Menger, "Man… becomes the ultimate cause as well as the ultimate end in the process of want satisfaction" (Younkins 2004b, p. 1). Without human beings, who are capable of choice and subjective desires, the concept of value is nonsensical. It is the fact that existence exists which makes valuation possible – which makes choice possible – which makes the desire for economic activity and satisfaction of economic wants possible. Without human life there would not be human action; Menger recognizes this and bases his value theory on man much more explicitly than does Mises. It is "life, the process of self-sustaining and self-generated action, which makes the concept of 'value' meaningful" (Younkins 2004a, p. 7). Value is necessarily based on life.

The importance of the individual and his volitional consciousness

          Both Austrian economics and Objectivism recognize that only the human individual can hold and act upon the kind of values which are worthy of study(3). Values cannot be held collectively; neither can the values of two different rational beings be compared to one another. The study of the individual actor is therefore of utmost importance to both the Austrian economist and the objectivist.

          Humans are the only "animals" which are capable of action and rationality; capable of choosing to be or not to be; and capable not only of living, but of choosing how to live. Man may, and generally does, choose life. According to Mises, "To live is for man the outcome of a choice, of a judgment of value;" (Mises 1963, p. 20) or, according to Rand, "Man has to be man by choice…" (Rand 1964 p. 27). It is this unique aspect of mankind which makes the study of human action so fascinating, and so paradoxical.

          The economist cannot go about his work in the same way that, for instance, a biologist can, for a very interesting reason. The economist cannot create scientific experiments, in the sense that a biologist can, because humans act, and more specifically, because humans learn in a sense that no other animal does. If the economist were to attempt to create a valid scientific experiment (even disregarding such issues as the morality or immorality of using humans as experimental subjects), it would be impossible for him to study humans as they act "naturally," since humans act differently when they know they are being observed! The economist could not create a repeatable study, since each human is so drastically different from every other human that the observing economist could never build a controlled experiment. Human action itself prohibits the use of "scientific" methods in the observation of such; the very subject of the economist's study prevents him from using the methods of the traditional, physical sciences. "There cannot be controlled experiments when we confront the real world of human activity" (Rothbard 1977, p. 58). Austrian economics is the only branch of economics which studies man with the special tool available to study him with: namely, reason. Only man can be studied in a completely rational way, because only man is equipped with reason. This is why the scientist cannot study giraffes by relying on reason alone, but must resort to empirical sources for his work. The scientist who wishes to study human action (the economist), however, can study this subject from the inside out, as it were, since he is himself a man and has an understanding of the motivations of other men(4). Each man is an individual entity, not to be compared with other men too closely; each man has a subjective scale of values (different from that of his neighbor) and a means-end framework for achieving those values (also different from that of his neighbor.

          Central to the method of the Austrian economist is the adherence to methodological individualism, meaning that this form of economic study "deals with the actions of individual men" (Mises 1963, p. 41). Man acts as part of a social whole, and the economist must never forget or ignore that fact, but what the individual actions of individual men are what make up the social whole. Human action cannot be studied in the aggregate; the Austrian economist believes that to make sense of his discipline he must focus on the individual man. "A great deal may be learned about society by studying man; but this process cannot be reversed: nothing can be learned about man by studying society" (Rand 1967, p. 15). The Austrian economist always remembers that man is part of a social whole, but he places the emphasis of his study on the individual actor.




1. There is one major historical conflict between Objectivism and Austrian economics which is worth noting, namely that between Murray Rothbard and what he called "the Ayn Rand cult… which flourished for just ten years in the 1960s." While the main philosophical difference between Rothbard and Rand was the issue of anarchism (Rand believed that the market for defense was a natural monopoly, whereas Rothbard felt that it was a market open to competition like any other and that it was inappropriate to have a coercive government), Rothbard's 1972 article "The Sociology of the Ayn Rand Cult" is a poorly defended attack on Rand's personal character and the characters of her closest friends and associates. Rothbard's claim that "the structure and implicit creed, the actual functioning, of the Randian movement, was in striking and diametric opposition to the official, exoteric creed of individuality, [and] independence" ("The Sociology of the Ayn Rand Cult") is most probably correct, but it does not constitute a strong enough difference between Austrian economics and Objectivism for it to be of any note. The behavior of professed followers of a philosophy is hardly an appropriate method by which to judge the philosophy.
2. It must be stressed that for the purposes of this paper, I am referring to the philosophy of Objectivism as such, not the actions of Ayn Rand. It is her ideas which are relevant here, not the details of her sensational private life.
3. When an animal instinctively acts to protect its own life or feed itself it is not, as far as one can observe, acting in a rational manner in the sense that it is choosing between life and death, so it cannot hold values in the sense that a human being can.
4. It is important to point out that psychology, as a science, falls into neither of these categories. It neither entirely relies on reason as a tool to study human action, nor on the methods of biological science to study human behavior. The special case of psychology must acknowledge but is decidedly out of the scope of this paper.



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