Montreal, May 15, 2005 • No 154




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


(Part Two)



by Heidi Lange


          Ludwig von Mises, who was the great champion of Austrian economics in the twentieth century, believed that "the laws of economics are fundamentally logical relationships and not empirical relationships" (Ebeling 1997, xvi.). This means that the uneducated layman, using his natural powers of reason, in principle can deduce the laws of economics from the axiom that "Humans act." In this sense, economics is more of a philosophical science (akin to mathematics) or social science (akin to psychology) than a physical one (such as biology).


          The action axiom "is the fundamental and universal truth that individual men exist and act by making purposive choices among alternatives" (Younkins 2004b, p. 1). For Mises, the action axiom is the "first principle" of economics, from which all other economic truths can be deduced a priori (meaning, roughly, that once you accept the action axiom, these other truths are self-evident and require no sensory evidence to verify them).

          Action implies two important things. First, it implies a values scale; an individual, subjective ranking of values, or goals, which the actor in question desires to reach. Secondly, it implies that a means-end framework is held by the actor. That is, the actor has ends which he wishes to reach, and employs certain means to reach them. These ends (or "values") are subjective; they depend entirely on the desires and preferences of the actor in question. The means which the actor employs to reach his ends are also subjective; whether or not the means actually will assist the actor in achieving his end, he believes that they will, and he is therefore acting rationally. For Mises, to act means "purposeful behavior… or, aiming at ends and goals…" (Mises 1963, p. 11). Action is rational choice in the face of scarcity.

          These two truths (that an actor has a values-scale and a means-end framework which he employs to reach those values) are only two of the many things implied by the action axiom. The importance which Mises placed on human rationality is evident; for him, the rational mind is the all-important tool of the economist.

          Objectivism places a similar importance on rationality. For the objectivist, "Rationality is man's basic virtue, the source of all his other virtues… The virtue of Rationality means the recognition and acceptance of reason as one's only source of knowledge, one's only judge of values and one's only guide to action… It means a commitment to the reality of one's own existence" (Rand 1964, p. 20). The Austrian economist goes so far as to claim rationality as the appropriate method for discovery of economic truth; the objectivist goes further, and asserts that rationality is the appropriate method for discovery of all aspects of reality, in ethics as well as intellectual endeavors. The difference between the two conceptions of reason is that while the Austrian economist bases his methodology on a prioristic reasoning, the objectivist's reasoning is more grounded in empirical truth, and the reality of the physical world. Nonetheless, the two disciples are compatible; the objectivist can quite consistently be an Austrian economist, and vice versa. As Hans Hoppe puts it:

          A priori knowledge must be as much a mental thing as a reflection of the structure of reality, since it is only through actions that the mind comes into contact with reality… Acting is a cognitively guided adjustment of a physical body in a physical reality… a priori knowledge… must indeed correspond to the nature of things. The realistic character of such knowledge would manifest itself not only in the fact that one could not think it to be otherwise, but in the fact that one could not undo its truth (Hoppe 1995, p. 9).

          Knowledge, according to Hoppe, must be based in both reality and the mind, especially knowledge of human action. Economics focuses on human action, and reason, as the tool which man uses to integrate and isolate information received from his senses, is the appropriate tool for this study. Herein lies the connection between the Austrian methodology and the objectivist worldview.

          The objectivist recognizes that reason, the use of his rational mind, is man's tool for choosing and striving after his values. "Rationality is a matter of choice – and the alternative [man's] nature offers him is: rational being or suicidal animal" (Rand 1957, p. 931-932). This ability to choose between life and death, rather than blindly following animal instincts, is what sets man apart in the world. "The ingenuity of man is his noblest and most joyous power" (Rand 1957, p. 682). Man's individual ability to rationally choose among alternatives, and even create new alternatives when he is unsatisfied with those available, is what makes it necessary, and possible, for him to have values and codes of morality (valid or invalid). It is this ability which makes human action possible. And it is this ability which requires that man discover, and adhere to, a rational code of morality which has a strong foundation in reality and truth.

Reality Is Real – Existence Exists

          What Objectivism offers that sets it apart from other philosophical systems is this: Objectivism says that knowledge is achievable – that reality is not only knowable but must be acknowledged. In short, Objectivism accepts and embraces the reality which mainstream philosophy evades. "Objectivism, with its confident assertion that philosophical problems can be solved once and for all – that there are two sides to every question, the right side and the wrong side – is profoundly antithetical to the philosophical tradition of the twentieth century" (Merrill 1991, p. 90).

          Objectivism holds reality itself as a philosophical standard of value. Values come from reality, and so are not subjective in a broad sense, but only in an individual one. That is to say: good and evil are objective, but the individual good (or "value") which each man pursues is a subjective choice which he makes for himself. Man's choice of values is indeed subjective, but the values which he may choose among are not. Once he has chosen his goal, reality imposes on him a standard which dictates how he may or may not reach that goal. "Since values are determined by the nature of reality, it is reality that serves as men's ultimate arbiter" (Rand 1967, p. 24).

          Values which a man may strive toward exist in reality before he chooses among them. He may choose to live or to die; life and death exist as possible choices regardless of his decision. He may choose to accept and act upon the choices presented to him by reality or he may choose to deny them and "live" in the non-rational surreality which the philosophers of the twentieth century would have him believe is his only option; insanity and rationality exist as possibilities no matter what he decides. Reality will not change to make way for his subjective whim (if he desires something which is impossible); existence exists. The power of the individual is the power of choice, and of striving towards the chosen values. Reality is necessarily man's standard of choice as well as his source of values to choose among. It is this unflinching claim on reality as a moral standard which is Objectivism's distinction in the fields of philosophy and ethics.

          It is precisely this adherence to reality which makes Austrian economics unique in its field; the object of economics, for the Austrian, is to obtain valid knowledge about the real world and how humans interact with it. As Mises said, "[t]he end of science is to know reality" (Mises 1963, p. 65). The ultimate aim of the observing economist is to think his way to objective and rational truth, in the form of economic laws and theories. Mises defined the subject matter of economics (rather awkwardly) as follows: "The elucidation and the categorical and formal examination of… the regularity of phenomena with regard to the interconnectedness of means and ends… is the subject matter of economics" (Mises 1963, p. 885). In other words, economics is interested in reality; specifically that aspect of reality which is evident in the way that humans use means to achieve ends. Formally observing the regularity of human action in this respect is what the economist does; this is the truth which he searches for. For the economist as well as for the objectivist, truth "is the recognition of reality; reason, man's only means of knowledge, is his only means of truth" (Rand 1961, p. 126) For the Austrian economist, reason is both his subject of study (specifically, how humans employ reason as one means to achieve their subjectively acquired values) and his means of study (since for Mises, economic thought is aprioristic in nature, and relies solely on the action of reason to reach a logical conclusion or assertion).

          Reason and rationality, though, are even more important than this. It is through the proper understanding of reason that both Mises and Rand managed to successfully bridge the so-called mind-body dichotomy which had bothered philosophers for centuries. The relationship between value and reason is what made this possible; value is based implicitly on the relationship between rational man and reality. It is rational valuation which bridges the problematic mind-body gap.

The Mind-Body Dichotomy and Its Answer

          The mind-body gap (or dichotomy) is only one of three dichotomies which nineteenth century philosophers grappled with. Ayn Rand argues that all three are invalid. The first is the analytic-synthetic dichotomy, which we will not touch on in this paper; the second is the mind-body dichotomy, which states that man must choose between his mind and/or soul (which serves as the symbol of spiritual things) and his body (which serves as the symbol of material things); and the third is the is-ought problem, which stems directly from the mind-body dichotomy, and which states, essentially, that since one cannot know reality (since there is no connection between the mind and physical reality), then one cannot advocate codes of behavior for oneself or other humans. David Hume is one of the most important philosophers involved in the beginning of this debate; it was he who pointed out that even if one can know reality, such knowledge is not enough to determine moral oughts. An argument along the lines of "man is a living being, therefore one ought not to kill him," is an invalid argument. How can one use an argument based on what 'is' to determine what one 'ought' to do? So goes the argument based on the mind-body/is-ought argument, which Mises and Rand both solved satisfactorily.

          The mind-body dichotomy began, historically, with the French philosopher René Descartes. Famous for arguing that a thing must be true, if he was capable of conceiving a clear and distinct idea of it(1), he wrote that:

          because, on the one hand, I have a clear and distinct idea of myself, in as far as I am only a thinking and unextended thing, and as, on the other hand, I possess a distinct idea of body, in as far as it is only an extended and unthinking thing, it is certain that 'I'… that is, my mind, by which I am what I am… is entirely and truly distinct from my body, and may exist without it (Descartes 1974 p. 165).

          Descartes believed that since he had a "clear and distinct idea" of his body and his mind existing separately, then mind and body must indeed be two separate substances; and in this logically invalid argument one can see the source of the unnecessary problem which vexed philosophers for centuries to come.

"The difference between the two conceptions of reason is that while the Austrian economist bases his methodology on a prioristic reasoning, the objectivist's reasoning is more grounded in empirical truth, and the reality of the physical world. Nonetheless, the two disciples are compatible; the objectivist can quite consistently be an Austrian economist, and vice versa."

          The dichotomy continued to perplex philosophers because they failed to recognize the close relationship between human life and reality. Mises wrote that, in his time, "the relation between reason and experience has long been one of the fundamental philosophical problems" (Mises 1963, p. 39). The advocates of philosophies which are not based on the connection between reason and reality took this distinction to its logical conclusion when, over the centuries, they advocated that man either totally abandon himself to the pursuits of physical pleasure (as, for instance, hedonism recommends) or completely give himself over to the activities of the mind and spirit (it is this last which many forms of spiritual aestheticism occupied themselves with). The mind-body dichotomy "cut man in two, setting one half against the other. [It has] taught him that his body and his consciousness are two enemies engaged in deadly conflict, two antagonists of opposite natures, contradictory claims, incompatible needs, that to benefit one is to injure the other, that his soul belongs to a supernatural realm, but his body is an evil prison holding it in bondage to this earth – and that the good is to defeat his body, to undermine it by years of patient struggle, digging his way to that glorious jail-break which leads into the freedom of the grave" (Rand 1961, p. 138). Rand, as we can see from this quote, was most concerned about the tendency to reject the body in favor of the mind (since, at the time when she wrote, the alternative – rejecting the mind/soul in favor of material excess – was not a common philosophical stand, however common it may have been in everyday life). If the mind and body are divided in this way, there is indeed a conflict between them. There is only one way to overcome the mind-body problem: the acceptance of a synthesis of rational and empirical fact and the re-acknowledgement of the inseparability of reason and reality.

          The objectivist understands that there is no gap between mind and body, or between reason and experience, because it is not possible to consider the one out of the context of the other. It is irrational to drop the context of the argument (or the situation at hand). Man is "an indivisible entity of matter and consciousness" (Rand 1961, p. 142). It is simply nonsensical to try to consider a choice between the material world and the world of the mind. "Ideas divorced from consequent action are fraudulent, and that action divorced from ideas is suicidal" (Rand 1961, p. 51). Rationality is the tool which man uses to value; values are what guide human action. The empirical world and the intellectual world are simply not divisible. Without one, the other has no purpose.

          The Austrian economist, too, understands the necessary relationship between reason and reality. As early as Carl Menger, the first Austrian economist, this dichotomy was resolved: "Menger's theory explains the inextricable ontological connection between the realm of cognition and the sphere of objective causal processes that results from valuation and economizing" (Younkins 2004a, p. 3). However, it is the work of Hans Hoppe, a contemporary Austrian economist, which really solidified the connection between mind and body. Hoppe explains that the action axiom itself requires that there be a connection between mind and body:

          …in substituting the model of the mind of an actor acting by means of a physical body for the traditional rationalist model of an active mind a priori knowledge immediately becomes realistic knowledge (Hoppe 1995, p. 10).

          Since Austrian economics and Objectivism have a similar understanding of the relationship between value, rationality, and reality, it is only to be expected that philosophers in both disciplines would reach a solution for the mind-body gap, and consequently, the is-ought problem.

          Objectivism holds that there are moral absolutes, and that they are based on the relationship of man to reality. Man's nature as a human being in the abstract determines what these moral absolutes are – each man, to achieve the goal of happiness, must act in favor of his own rational self-interest, in accordance with these moral principles. "[Rand's] theory of rational egoism eliminates the breach between interest and idealism: our happiness is to be achieved by fidelity to moral absolutes that are grounded in man's nature as a living being" (Kelley 2000, p. 75). The mind-body dichotomy is proven false by the relationship of man's consciousness to reality. Man needs reality to determine what actions are morally appropriate for him to undertake; his soul cannot survive without his body. "A body with out a soul is a corpse, a soul without a body is a ghost…" (Rand 1961, p. 138). Man is neither corpse nor ghost – man is an acting being of volitional consciousness, existing in a reality which is concrete and necessary.

          If, as Mises and Rand argue, it is possible to maintain the connection between the human mind and reality, then it is also possible to specify what political-economic system is demanded by reality; if man's mind can know reality, then it can identify how he ought to live. By solving the mind-body problem, Mises and Rand discovered how to determine the 'ought' from the 'is.'(2)

Laissez-nous faire!

          The 'ought' which Rand determined was appropriate for the life of a rational, acting being, is capitalism. Mises qualifies his endorsement of capitalism by pointing out that "All that social policy can do is the remove the outer causes of pain and suffering; it can further a system that feeds the hungry, clothes the naked, and houses the homeless." (Mises 1997, p. xx) – that is to say, capitalism is only the best alternative if one is in favor of feeding, clothing, and housing the population. If one is in favor of a state of affairs which would end in material comfort, then capitalism is the society which the rational being must favor. According to modern Austrian economist and objectivist George Reisman:

          capitalism is a social system based on private ownership of the means of production. It is characterized by the pursuit of material self-interest under freedom and it rests on a foundation of the cultural influence of reason. (Reisman 1996, p. 19)

          Under this setup, the ideal economic system is one without unnecessary government interference of any kind, where the free market treats each individual in the same manner – it judges him by what he brings to market. Capitalism is an inherently peaceful system (since war is punished by economic disincentives), and it rewards citizens of the system for fair interaction with one another. Under capitalism, each citizen's cry is simply: Laissez-nous faire!(3)

          Economics is value-neutral in the sense that the economist does not force his personal, subjective value scale on the acting men he observes. This does not mean, however, that Austrian economics is value-neutral when it comes to recommending a governmental system. The Austrian economist bases his recommendation on the idea that material happiness (feeding the hungry, clothing the naked, housing the homeless, etc.) is the goal of a government, and as a result finds himself compelled to recommend a governmental system which also respects individual rights(4). Only a government focused on protecting individual liberty and property rights is such a system. Mises tells us that "As far as the government… confines the exercise of its violence and the threat of such violence to the suppression and prevention of anti-social action, there prevails what reasonably and meaningfully can be called liberty" (Mises 1963, p. 281). Liberty is a very simple concept: when a man is free from the initiation of force against him by others, he exists in a state of liberty. "The task of the state consists solely and exclusively in guaranteeing the protection of life, health, liberty, and private property against violent attacks. Everything that goes beyond this is an evil" (Mises 1997, p. 52). This implies that a free society, for Mises, is one in which no man may lawfully initiate the use of force against others.

          Objectivism even more explicitly advocates capitalism and a free society based on the principle of non-initiation of force. In order for a moral society to exist, it is necessary to have a system wherein "no man may initiate the use of physical force against others" (Rand 1964, p. 36, emphasis in original). Rand's solution to the mind-body dichotomy makes it possible for Objectivism to derive "ought" from "is" – that is, to take empirically valid facts about the reality which is, and determine from those facts a moral code for how men should act. This moral code is what the objectivist bases his argument for a capitalistic free market government on. "The objectivist ethical code constitutes a valid, verifiable morality, in which the distinction between 'good' and 'bad' is not arbitrary or intuitive but logically derivable from the facts of reality" (Merrill 1991, p. 106). The only good/bad distinction which Objectivism makes that is relevant to the appropriate-ness of a governmental system is the principle of non-initiation of force.

          Capitalism is the only type of society in history which has been based upon this principle. Thus, it is capitalism which is the social incarnation of the objectivist ethics. "The free market represents the social application of an objective theory of values" (Rand 1967, p. 24). The free market and the principle of non-initiation of force are the logical conclusions (in a societal sense) of the common principles which Objectivism and Austrian economics share.

The Simple Synthesis

          It is these shared values which make Objectivism and Austrian economics compatible: their respect for rationality; free choice; subjective and objective values, in their appropriate contexts; reality; and most important in a practical sense, a governmental system which allows for and protects a capitalistic free market. Both objectivists and Austrian economists understand that human action is the driving force of the universe; that "every day human acts shape the world anew" (Lachman 1997, p. 29).


1. It is important to realize that Descartes' argument, although now discredited, is not as simple as it first seems. The nuances of the argument lie in his very specific definition of "clear and distinct idea."
2. Mises referred to himself as a utilitarian, but this does not mean that he necessarily endorsed the is-ought dichotomy. A utilitarian merely qualifies his argument with a reference to total happiness. For instance, his argument might read as follows: "If I want to maximize happiness, and X is B, then I ought to Y."
3. The expression "laissez-faire capitalism" reputedly comes from an incident at an overly regulated French factory, when a government official asked the factory workers how else the government could assist them, and they replied: "Laissez-nous faire!" ("Leave us alone!")
4. While there are definite exceptions to the assertion that Austrians are in favor of capitalism and free markets, notably in such economists as Hans Meyer, it is reasonable for my purposes here to make the generalization that, in a broad sense, Austrians advocate governments based on the principle of non-initiation of force.



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