Home > economics, political-economy > Ludwig von Mises and the demise of the Austrian School (2)

Ludwig von Mises and the demise of the Austrian School (2)


Part Two: “Lies, damned lies and statistics”

In part one of this series I made four points:

  1. Critical socialism is not the same thing as socialism proper: the first is a political criticism of capitalism, the second is a process created by capitalism itself.
  2. Socialism proper is nothing more than a transition from individual production and exchange to directly social production and results from the historical action of the capitalist mode of production itself on the conditions of labor.
  3. As against Mises’s argument that inequality of talents and abilities among the members of society is the precondition and determining force of social life, Marx argues the development of the productive forces obscures religious, social, intellectual and individual differences.
  4. When confronting this universal leveling power of the productive forces, the old dying order makes futile attempts to check or break it by political means, i.e., by employing the state power to protect its privileges.

In this part, I will show how Mises falsified empirical evidence, misrepresented Marx’s theory of capitalist concentration and centralization of capital, and some thoughts on why I think the Austrian school as a whole serves only as ideological cover for the apologists of the fascist state. The Austrian school provides these fascists with a conveniently pessimistic model of the real state of society in the absence of the state that is employed solely to discourage the working class from recognizing the need for its abolition. In short, Austrian theory reinforces the argument that there is no alternative to the fascist state.

Survey says?: How the empirical evidence “supported” Mises against Marx

Since Marx aimed to demonstrate that capitalism itself, not the state, was creating the material basis for communism Mises had to show this is not the case and to do so by actually denying capitalist laws of development. As Mises points out in a summary of what he says is Marx’s own argument:

“Marx seeks to establish an economic foundation for the thesis that the evolution towards Socialism is inevitable, by demonstrating the progressive concentration of capital. Capitalism has succeeded in depriving the worker of private ownership in the means of production; it has consummated the “expropriation of the direct producers.” As soon as this process is completed “the further socialization of labour and the further transformation of land and other agents into socially exploited and therefore collective means of production, together with the ensuing expropriation of private owners, assume a new form. That which is now to be expropriated is no longer the worker labouring independently but the capitalist exploiting the worker. This expropriation is carried out by the play of the inherent forces of capitalist production itself; by the centralization of capital, each individual capitalist deals the death-blow to a number of others.” Hand in hand with this goes the socialization of production. The number of the “capitalist magnates” is continually decreasing. “The centralization of the means of production and the socialization of labour reach a point where they become incompatible with their capitalist framework. They burst it. The last hour of capitalist private property has arrived. The expropriators are expropriated.” This is the “expropriation of the few usurpers by the mass of the people,” through the “transformation of capitalist ownership, which actually rests already on social production, into social ownership,” a process much less “lengthy, hard, and difficult” than was, in its own time, the process that transformed the private ownership of individuals doing their own work into capitalist ownership. “

Having given Marx’s argument its due, Mises must now prove this argument is fundamentally flawed. So Mises dismisses Marx’s argument based on what? On empirical evidence derived from the available data? Well, not so much. Mises does insist the data does refute Marx:

“Let no one suppose that the Marxian doctrine of the concentration of capital can be verified by the simple method of consulting the statistics of establishments, incomes, and fortunes. The statistics of incomes and fortunes utterly contradict it.

But while Mises assures us the data refutes Marx and conclusively sides with Mises against Marx, he adds a caveat:

This can be definitely asserted in spite of all the imperfections of present statistical methods and all the difficulties which fluctuations in the value of money place in the way of using the material. With equal confidence one can say that the counterpart of the theory of concentration, the much discussed theory of increasing poverty—in which even orthodox Marxists can hardly continue to believe—is incompatible with the results of statistical investigation. The statistics of agricultural holdings also contradict the Marxian assumptions. Those giving the number of the establishments in industry, mining and transport appear to confirm it. But figures that indicate a particular evolution during a limited period cannot be conclusive. The development in this brief span might run contrary to the long term trend.” (My emphasis.)

So actually it turns out that when Mises calls upon the data to make its argument against Marx, it was spotty and unreliable when it was not entirely inconclusive; and money itself had been replaced by an inconvertible valueless currency that depreciated and rendered both wages and prices suspect. And more: even in the cases where the data appears to support Marx’s argument, Mises warns us this is only a special case where statistics momentarily belie the long-term historical trend. Thus, according to Mises, although the data refutes Marx on both the concentration and centralization of capital, and on the increasing poverty of the mass of society, an actual examination of this faulty data miserably fails to give confirmation to the argument against Marx’s thesis. In any case, Mises never shows us any data at all.

Austrians who accept this nonsense argument by Mises have to explain why, for example, the data on agricultural holdings does not support Mises argument in the least. Private labor on farms in the US, since 1930, fell from 30 million individuals, on 6.3 million farms, with farmers making up 21% of the labor force in 1930 to 3 million individuals, on 2 million farms, with farmers making up less than 3% of the labor force by 1992. Between 1930 and 1950 alone the farm labor force fell from just over 10 million to just under 7 million, according to census data published in 1950 to which Mises would have had access when he wrote his book.

Even if we ignore Mises’s complete distortion of the available empirical evidence on agriculture, how can he demonstrate the absence of growing poverty among the working class since he already admitted money no longer expresses the value of wages? Further, this assertion itself leads to a basic contradiction in his own argument that has to be acknowledged by the Austrian school: Mises was making the argument that poverty was decreasing at the point in history when the state’s role in “the economy” was greater than ever previously in history, having more than doubled since 1929 from 11% that year to 23% in 1949 — a condition he assured us must lead to catastrophe.

So Mises must argue two contradictory things at once: things have never been better for the mass of society and increasing state control of ‘the economy’ must make things worse for the mass of society. Austrians have no idea how this circle can be squared since, on the one hand, society is said to be hurtling to collapse while, on the other hand, workers — of whom this society is almost entirely composed — have never had it so good.

However, despite the fact that, by his own admission, the data in defense of his assertions are sketchy and inconclusive, Mises is very generous to Marx: he offers to set aside the voluminous statistics he claims can support his argument and examine the theory itself.

“We shall do better, therefore, to leave statistics on both sides, both for and against. For it must not be forgotten that there is a theory underlying every statistical demonstration. Figures alone prove or disprove nothing. Only the conclusions drawn from the collected material can do this. And these are theoretical.”

Well, in theory, at least?

You have to give Mises credit: he is not going to let a little thing like imperfect statistical methods, valueless currency and data that, although decisively undermining his argument, represents information that is at odds with what he has already determined are long term trends. Despite all of the seeming insurmountable obstacles to exposing Marx as the high priest of a new religion, Mises now sets his sights on disposing of Marx on theoretical grounds alone.

According to Mises, if we strip Marx of all that dialectical mumbo-jombo:

“there remains the fact that the concentration of establishments, enterprises, and fortunes is inevitable. (Marx does not distinguish between these three and obviously regards them as identical.) This concentration would eventually lead to Socialism, as the world, once it was transformed into one single gigantic enterprise, could be taken over by society with perfect ease; but before that stage has been reached, the result will have been achieved by “the revolt of the ever-expanding working class which has been schooled, united, and organized by the very mechanism of the capitalist production.”

He then goes on to cite Kautsky to support this assertion:

To Kautsky it is clear that “capitalist production tends to unite the means of production, which have become the monopoly of the capitalist class, into fewer and fewer hands. This evolution finally makes all the means of production of a nation, indeed of the whole world economy, the private property of a single individual or company, which disposes of them arbitrarily. The whole economy will be drawn together into one colossal undertaking, in which everything has to serve one master. In capitalist society private ownership in the means of production ends with all except one person being propertyless. It thus leads to its own abolition, to the lack of property by all and to the enslavement of all.” This is a condition towards which we are rapidly advancing “more rapidly than most people believe.” Of course, we are told, the matter will not go so far. “For the mere approach to this condition must increase the sufferings, conflicts, and contradictions in society to such an extent, that they become intolerable and society bursts its bounds and falls to pieces” unless evolution has previously been given a different direction.

I will say this is a very interesting argument, but it appears to be Kautsky’s, not Marx’s. Marx’s theory is about the concentration and centralization of capital, not the concentration and centralization of “establishments, enterprises, and fortunes”, as Mises asserted. Which pretty much invalidates Mises’s argument in this and the next four chapters of his book — all told chapters 22-26. I mean, Marx really was not talking about concentrations of establishments based on optimal size, he wasn’t talking about horizontal or vertical concentration of enterprises, and he wasn’t talking about concentration of fortunes. Finally, Marx was not talking about monopoly price formation. In fact, much of the territory Mises covers in five separate chapters of his book that he alleges refutes Marx’s argument, have no relation to Marx’s theory’s at all. There may or may not be limits on the vertical integration and the optimal size of a particular enterprise, but what does this have to do with limits on the concentration and centralization of capital?

Since we are interested in Karl Marx’s theory, not Karl Kautsky’s, let’s have another go at the subject — this time employing Engels’ book, Socialism Utopian and Scientific: As the labor process becomes increasingly socialized, society is forced to recognize its social character; the capital class itself increasingly begins to treat the forces of production as social productive forces. The growth of social production, credit and economic crises themselves tends to force “socialization” of the management of the means of production in the different kinds of joint-stock companies. Later this form itself becomes insufficient: joint-stock companies give way to trusts that regulate production. These latter organizations generally break up in crises, and give way to one gigantic joint-stock company controlling an entire industry. In short, with the extension of social production, production according to a plan is extended to include the greater share of production. This latter extension does not come from outside — imposed by the state — but arises from within the mode of production itself, naturally. Eventually the forces of production outstrip all private control. Sooner or later, says Engels, “the official representative of capitalist society — the state — will ultimately have to undertake the direction of production.” It will be forced to take on this function by economic events itself. As national capitalist. the state “forces out the capitalists, and reduces them, just as it reduced the workers, to the ranks of the surplus-population, although not immediately into those of the industrial reserve army.”

At the end of the line, in other words, there is not some hugely wealthy oligarch who has managed to be the last man standing after the smoke clears, but the state itself, which will be compelled by events to undertake the direction of production. In fact Engels is pretty clear about this and about the circumstances that forces the state to assume this function. In a separate footnote Engels explains:

I say “have to”. For only when the means of production and distribution have actually outgrown the form of management by joint-stock companies, and when, therefore, the taking them over by the State has become economically inevitable, only then — even if it is the State of today that effects this — is there an economic advance, the attainment of another step preliminary to the taking over of all productive forces by society itself.

The state, says Engels. must sooner or later become not just the ideal representative of the capitalist class, but the national capitalist:

The more it proceeds to the taking over of productive forces, the more does it actually become the national capitalist, the more citizens does it exploit. The workers remain wage-workers — proletarians. The capitalist relation is not done away with. It is, rather, brought to a head. But, brought to a head, it topples over. State-ownership of the productive forces is not the solution of the conflict, but concealed within it are the technical conditions that form the elements of that solution.

So, according to Engels, the increasingly social character of the labor process must, in the end, result in the state assuming the role of capitalist. The capitalist class itself is shunted aside and rendered an entirely superfluous mass of speculators and coupon clippers. In the end, the working class comes face to face, not with some oligarch who has managed to acquire complete control of the process of social production, but the state itself, who exploits them no less cruelly than did the patriarchal owner of the mid-19th century.

Which brings me to an observation.

The ideological function of Austrian economics

I have demonstrated, I think, that not only was Mises wrong on every point of his argument against scientific socialism, he was wrong in exactly the same way bourgeois apologists in general are wrong and also, in most cases, even Marxists themselves. Thus Austrian economic theory shares the assumptions common to both the bourgeois apologists for the fascist state as well as the Marxist school and serves as the general template for apologists who defend the fascist state itself and its role as social capitalist. The ideological significance of the Austrian school is that it provides a model of society for both the critics and defenders of modern capitalism that describes how society must function in the absence of the state. The social model provided by the Austrian school serves primarily to legitimize statist political arguments and narrow the discussion to choices between various statist alternatives to capitalism.

This ideological effect can be seen in a recent article on the solutions to the present crisis offered by the Austrian school:

“When recession hits or a financial crisis threatens, Austrian theory demands, as summarized by the Financial Times’ Martin Wolf, “that the right response is to let everything rotten be liquidated, while continuing to balance the budget as the economy implodes.” Other elements of hardcore Austrian economics include a return to the gold standard, a free market in competitive currency creation (that is, no government monopoly over the printing press) and, of course, no central banking whatsoever. The core belief: Government creates the ups and downs of the business cycle.

But the correctness of Austrian theory is beside the point. Because if it was ever applied in practice by actual politicians, the voting public would become more than just annoyed. If the response of the Bush and Obama administrations to the financial crisis of 2007-08 had been to allow every beleaguered financial institution to go bankrupt while simultaneously endeavoring to balance the budget while government revenues tanked and social welfare obligations spiked, the economic devastation would have been well nigh unthinkable. There simply would be no political future for politicians who simply abandoned the general public to the viciousness of the free market.”

The point here is obvious: despite the actual role the fascist state has played in this crisis, by bailing out the banksters and imposing mass suffering on the working class populations of every country, if the Austrian solution to the crisis is adopted — removing the fascist state’s management of the economy — the crisis will only lead to the unmediated rule of capital over the working class. Abolishing the state in the present crisis must lead to the unmediated rule of capital. While the Austrian school sees this unmediated rule of capital as natural and necessary to maximize the productive forces of society, the bourgeois apologists of fascism and most Marxists argue the state overcomes the negative effects of this rule without restricting the productive forces. All of them — Austrians, the fascist apologists and Marxists — therefore, make the same argument: the state prevents the unmediated rule of capital.

This problem is by no means limited only to the present discussion. It is a recurring meme within political-economy in the past 100 years or so. We can see it for instance in the discussion on discrimination where both Austrians and fascist ideologues agree the end of the fascist state will lead to an explosion of racist activity and every other sort of regressive attitude toward women, gays, immigrants, etc. The fascist argument is only a sophomoric inversion of the Austrian argument: if the state compels racists to behave socially, fascists simply assert that with the abolition of the state the racist gains an unimpeded “right” to be racist. The abolition of the state is posed as the Austrian “right” to be racist, misogynistic, homophobic, nativist, etc. Despite the abolition of the state, in other words, society continues on much as before. Or, as J. W. Milam stated:

“Me and my folks fought for this country, and we got some rights.”

However, one of the most theoretically significant examples of how the Austrian school’s argument was adopted as the basic assumption of political-economy occurred when Bohm-Bawerk argued Marx’s theory must be invalid because the law of value and the law of the average rate of profit contradicted one another. To this day there are still dumb Marxists trying to find a solution to Bohm-Bawerk’s so-called transformation problem in order to prove the two laws are not in contradiction and that capitalism can last forever.

As the Marxist academic Al Campbell shows, there are two conditions where the two laws do not contradict: the first is when the rate of profit falls to zero; and the second is when no living labor is employed in the production process. However, as Campbell notes, both of these conditions are incompatible with capitalism. If the profit rate falls to zero, there is no realization of surplus value and, therefore, no profit; and this is also true if no living labor is employed in the production process, since, in Marx’s theory, only living labor produces surplus value.

So essentially Marx’s theory states the only stable condition for a system of social production is where no surplus value (profit) is produced. Another way to put this: social labor tends to impose an equilibrium where the profit rate is zero and will tend to enforce this condition until the quantity of labor power employed falls to zero. This is a complete refutation of what Robert Kurz called the illusory Marxist theory of eternal return of capital to its point of departure — the assertion that capitalism can indefinitely restore profitability, or that it is capable of some indefinite dynamic equilibrium.

Surprisingly enough, the refutation of this Marxist stupidity is based on the observation of the Austrian Bohm-Bawerk, who didn’t have a clue that he was actually restating Marx’s fundamental argument: capitalism is self-destructive and must collapse. Bohm-Bawerk thought the problem was with Marx’s theory, not with capitalism itself. The stupidity of Marxist theorists is that they uncritically accepted the argument of the Austrian school.

But, just as they accepted Bohm-Bawerk’s argument that a proper interpretation of the transformation problem meant Marx contradicted himself, so today they accept the Austrian argument that abolishing the state must lead to the unmediated rule of capital. If you buy into the argument of the Austrian school, you end up believing capitalist laws of motion can be overcome through politics, rather than the truth: the state is today the capitalist, just as Engels predicted it would become.

To abolish capital, we must abolish the state.

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