Robbins vs. Harrod: The War Over Epistemology, 1938

0:00Pat Barnett, who is the wonderful lady who coordinates all of these events, sent me an email two nights ago saying, would I be needing a PowerPoint projection system? And I pointed out to her that I've never learned how to use an overhead projector, so that this will be a true Austrian presentation. No graphs, no charts, no equations. Just, just good talk.

0:39Hello, don't you know I'm in the middle of giving a speech? Hello? No, everybody clap. Can I talk to you later? Thank you. Bye. My wife. As an aside, I go to... Yeah, it was real. I will hear about this later. It was for real. I love to go to an offbeat entertainment which is related to Scottish background folks and they have a lot of bagpipes and there is a sub-phenomenon called a bagpipe rock and roll. It really does exist. It's quite lively. And whenever this one group stands up and begins, there'll always be one person whose phone goes off.

1:38And the lead guy who plays the pipe stops the pipe, not during, of course you can't hear anyone playing it, but he stops, walks into the audience, grabs the phone and says, Don't you know this is a bagpipe concert, and closes it, and you can see every other guy in the room clicking it to the off setting, so I understand it. The talk that I'm giving today is on epistemology, which is the famous philosophical question of what do we know and how can we know it. You would imagine that in academia, that this would be an important topic that would be introduced early, certainly by upper division level, in any program in America, in whatever field you're dealing with.

2:34Yet in terms of the actual curriculum programs across the country, it's almost never discussed. At best, a student will be given a course on methodology, which means essentially, how do you do some research? If it's related to mathematics or pseudo-mathematics of the social sciences, there'll be discussions of How You Use Mathematical Terminology, How You Run Regression Procedures, and so forth, all on the assumption that the methodology in question leads to some kind of knowledge of the external world. But in terms of presenting the case for that, it is virtually never done.

3:24Even at the upper division level, you don't see it. Even at the graduate school level, you rarely have a course on it, and if anybody offered In Austrian economic circles, this is not true. Because many of us have come to our knowledge of economics by way of Mises and ultimately by way of human action, we always face that first hundred pages of human action, which which are all devoted to the question of epistemology. I believe those 100 pages serve much the same function as the book of Leviticus does for the guy who says I'm going to read the Bible cover to cover and he gets to Leviticus and he stops.

4:19Time and time again this is the problem facing the new student who is beginning to read Human in Action, and he can't get over that first hump of the section on epistemology. And there's no other book that I've ever found in any of the social sciences which devotes a comparable amount of space to epistemology and certainly not during the first hundred pages. It's unique. Now why is this the case? The reason for this is that Mises made a fundamental break in his lifetime, certainly by the middle of the 20th Century with what we know as the kind of experimental, step-by-step, inductionist approach that virtually all of modern economics, econometrics, all of the modern practices go to this collection of data and relating the collection of data to theories which may may or may not correspond to the data. It's the old line about, I've seen it happen, now I'm going to devise the theory to explain it. And Mises' approach, as you know, was deductivist. A handful of axioms, which he used then to deduce from a very simple number

5:42of axioms and few corollaries, this 900-page book, as Murray Rothbard said very early, on a Theory of Everything, and that was unique to Mises, and that is unique to our movement. So that when we focus on epistemology, we are not doing economics the way that most economists do it. Let me give you an example, which I did not know until this morning, but I thought I'd test it. You go onto Google and you search for economics epistemology. In the first ten hits, which is how most of us have our Google page set up, there are four references to Mises' book, Epistemological Problems of Economics.

6:32There is one link to my website on the Coase theorem and the other five, you have never heard of any of them. Now this is bizarre because Google, there are 900 and some thousand hits, but Mises is forty percent of the first page. This is unique to what we do. Now I say that as background because I'm going to be raising the story of an issue and the issue is still a live issue but it is only folks like us to discuss the issue. Let's go back almost in fact almost exactly a century let us go back to 1912. Two books came out that year. We of course love the first one, The Theory of Money and Credit by Mises. The second one we are not so fond of, that's A. A. C. Pigou's book on the economics of welfare. In Pigou's book he extends an insight that was made by by Marshall, with respect to the doctrine of marginal utility, which of course is marginal

7:46declining utility, a fundamental feature of modern economic thought had been since the 1870s when Menger and Jevons began reworking modern economic thought in terms of subjective Value Theory and, obviously, declining marginal value was an important point. And here is how the argument was used, both by Marshall, but especially by Pigou. The logic said if a millionaire gets one pound extra beyond his million pounds of income for the year. It is worth almost nothing to him. He's fulfilled all of the desires he had for the previous money. He's hardly aware of that extra pound. Now you take a man, poor man, making 25 pounds a year, and he gets an extra pound. That is a very, very valuable asset to him because he has many things he wants to buy, many unfulfilled desires. Then Then came the fast break, the sleight of hand.

9:10They said therefore if the government establishes a graduated income tax and redistributes that one pound of income from the millionaire to the man making only 25 pounds a year, there is a net increase of social utility because the millionaire will hardly miss that extra

10:01A Generation of Economists and Pigou got away with it for 20 years and then in 1932 Lionel Robbins brought out his small book, classic book, an essay on the nature and significance of economic science. It is on the Mises website and it should be on the Mises website. This was a A revolutionary book, it had almost no equations, he kept it to 150 pages of argumentation, and he wrote it in order to be understood by non-economists, which is a unique set of propositions.

10:48And he was able, by the few pages in the final chapter, chapter 6, to deal with Pigou's and he argued as follows, while it is true that there is declining marginal utility for the income of an individual, there is no way to make interpersonal comparisons of subjective utility. There is no measuring device, objective measuring device, because modern economics teaches that all valuation is is subjective and there's no way to compare the value scale of one man versus another man or how he imputes value to his next pound or shilling of income.

11:39And so he said you cannot make a scientific statement based on the scientific logic of economics to justify the graduated income tax based on the theory of declining marginal utility. And in terms of what the original founders in the 1870s had said of the doctrine of marginal utility and that it did apply to an individual and they never branched out to say that it applied to something as broad and collective as social utility, the argument was consistent with the foundations of economics. And basically he overturned in just a few paragraphs the logic of both Marshall and Pigou.

12:33And there it stood. And it stood for six years. And then in 1938, Roy Herod, not yet Sir Roy Herod, just Roy Herod, the student, never really actually got a degree in economics, never got a Ph.D., but back in those days he got a great fellowship, so he was able to spend his life teaching economics, which in fact was following Keynes's tradition, who also didn't get a degree in economics. So they basically captured between them British economic opinion because Keynes edited the economic journal for years and then in 1945 Roy Herrod took over the editing of it and took it for another 15 or 16 powerful men intellectually.

13:26Inhered in a long article that was the outcome of a speech that he had given to what was peculiarly known as Section F, the British Society, which was the economics section of the British Association. He was the president. It was his presidential address. He gave a long paper and a longer speech called The Scope and Method of Economics, and it was published later in the year, in August, of the Economic Journal. Keynes put that one on a real fast track. And most of the article is imminently forgettable.

14:12It had no impact at all. But there was one section of the article in which he deliberately and specifically targeted Robbins and the argument that Robbins had presented in his book in 1932. And he said, well, if Robbins really believes this, that you cannot make interpersonal comparisons of Subjective Utility. And if he is really consistent with this position, then it is impossible for an economist in a scientific sense to make any kind of statement about the wisdom or lack of wisdom of any policy affecting more than one person, namely himself.

15:04that there is no scientific basis, therefore, for anything like practical advisory economics that there, in other words, there's no function for the economist whatsoever in any kind of a collective association. Now he didn't say the argument was wrong. He said the argument had implications. And then he backed off and he said, now let's tell you how we really do these things as as economists, we assume that there is an equality among men, and that men are sufficiently alike that we can make some kind of judgment about the effects of declining marginal utility in more than one individual, and of course what he was really saying, in the lives of millions of individuals if that would be necessary.

15:56That was his basic criticism of the position. Now that's a powerful argument, because it is consistent. It is consistent with the logic that Robbins had presented. That then it really means that you can't be in a position of making judgments or recommendations on policy unless you assume an equality in some loose sense unifying mankind. And once you make that assumption of equality, then you can make kind of accurate sort of of Reliable Judgments about the Redistribution of Income or anything else, Free Trade Policy, he gave that as an example.

16:43Now Robbins had to respond. And Robbins responded in December of 38 with about a six-page article defending himself knowing obviously that he was the target of it, and there's no doubt about it that he And he was the target of it because he had inflicted considerable epistemological pain on those Keynesians who were trying to redistribute income. So yeah, all right, they went after him. Now how did he respond? He responded by saying, well that's right, yeah you're right.

17:30And therefore, he said, the logic of economics, which is neutral and value free, cannot stand alone but must appeal to an ethical system that is outside the purview of economics and which is imported into economics in order to give meaning, ethical meaning, to the unified Humanity, who then we are going to provide advice for in the basis of the logic of value-free economics. That is, he surrendered the position of value-free economics with respect to any kind of policy matter and transferred it to an unnamed external ethical system, which he never defined and did not cite anybody as the example that he was going to use.

18:21He just said we will essentially all appeal to one ethical system or another and that within that framework then we will come back and give our advice as economists. That's the position. Now here's what I'm warning you if you are still in the game of citing footnotes hither Either and Yon, if you cite chapter six of Robin's classic book, you had better be aware of the fact that the critic will come back and say, by the way, in 1938, Robin's surrendered the position.

19:07Don't get caught flat-footed in this debate. And it went even beyond that. He went on to say the following. This was a kind of an interesting statement, I thought, as to what was bugging him. And he was bugged. He was deeply bugged. I want to quote directly from the paper. This is a long story about the genesis of two or three pages in an essay that was written some time ago and which was never expected to be the subject of much discussion.

19:55And if it were a matter of personal defense against all the accusations of imbecility, Social Indifference and even Sinister Interest, which have been made against their author. I certainly should not have thought it any more worthwhile writing now than at any time in the past. But I am distressed that anything that I have said should give rise to recurrent dispute which suggests to the outside world a disunity among economists which I am persuaded does not exist. My essay was meant to defend economics from lay misunderstanding, not to provoke new confusion.

20:44The book some time ago, a few pages, not really meant for public distribution, etc., etc. He had come under the gun and he was feeling the pain. Mises suffered from this through his entire career, Rothbard suffered from this during his entire career, and it in both cases made them probably meaner, tougher, more resistant to Criticism than they had been before. Some people are like steel and it tempers them, other people buckle. Lionel Robbins began the career of buckling. By 1946 and thereafter he became an open Keynesian. He had written the best book, probably the best short book ever written on the Great Depression in 1934 publicly repudiated that book, and finally towards the end of his life came to the conclusion that the best thing that they could do with British tax-paying money would be to subsidize students to go to public universities as a redistribution of wealth.

22:09Now I stand here under the name Lionel Robbins, which under that should say 1927 to 1937. People break under pressure. They break for many reasons. And if you think, when you look back at what he said, what he actually said, he was, in 1932, he was really hardcore. He said, at first the plausibility of the argument is overwhelming, but on closer inspection it has seemed to be merely specious.

22:58Now that's not exactly standard academic language, calling an opponent, namely Pigou, He said the law of diminishing marginal utility, here invoked, does not follow in the least from the fundamental conception of economic goods and it makes assumptions which, whether they are true or false, can never be verified by observation or introspection. He made this fundamental to his epistemology in 1932. By 38, when Herod said, if you hold this, you can't give advice on anything, including free trade, he backs off.

23:45And he says, well, we're going to appeal to an outside ethical system, and then we can offer judgments in terms of the ethical system. And that raises the question, what kind of ethical system? Now, let's be reasonable about this. This battle still goes on in our groups because Mises came in the name of value-free neutral economics which did not appeal to ethics, correct? And Rothbard comes and says, yes you can use the methodology, which is value-free in terms of the logic of human action, but you dare not cut it off from ethics. So, Mises was holding to the older utilitarianism and Rothbard self-consciously goes to natural law theory and bases his entire system of analysis, social system of analysis, in terms of what he presents in the Ethics of Liberty, which is an ethics-based system.

24:48This fight goes on. Now, I like to go around bugging guys myself. I like to bug them saying, why haven't you written this and why haven't you written that and why don't you do a video series and so forth? So, David Gordon, who isn't here, David, you need to do a book on this question. You need to do a book, David, that takes it all the way back to 1871 with the development of marginal utility theory and take it right up to the present on the question of how does ethics interact with supposedly value-free economics based on declining marginal utility. This is a reasonable request. You got it, David? He's not here. I can say this.

25:33But I really mean it. Because David Gordon, I think, of any man that we have had in this movement for the last hundred years, is probably the most qualified philosopher to deal with this question and make it readable for the rest of us because he has that ability. These fights go on. They are not peripheral. The general economic teaching in your standard university, they know nothing of this. Nothing of this. They're not interested in this kind of question because, first of all, it's not stated in mathematical formula and And secondly, it raises the question of ethics. And they don't want either one. It is imperative that we keep struggling with these ideas and dealing with these ideas and not walk away with them, especially in our movement because this movement above all other movements, and this is really not an exaggeration, above all other movements in modern economics, This movement that is Austrian School of Economics is most committed to a systematic defense of an accurate epistemology. And if our guys abandon this battle and don't continue to

26:42work with these issues, then we've really spun our wheels for the last hundred years and I think that's probably not a very good idea. So if anybody wants to do a term paper, Large Report, Small Book, Video, Contact Jeff Tucker. He'll publish anything anyway. That guy wants to get content out so Google gets Mises Org up another notch. Do it. This is a live topic. It is not a dead issue and I encourage any of you, all of you, to get to work on it.