The Relationship between Austrian Economics and Libertarianism

How economics, politics, and rhetoric make use of positive and normative claims

by Jonathan Newman

First Things First

Let’s get on the same page before we start throwing terms around.

Austrian Economics

Austrian economics is a specific set of claims that are/were arrived at by a specific method. The foundational claim at the center of Austrian economics is that humans act and the method is logical deduction.

Ludwig von Mises gave us a great definition for human action:

“Human action is purposeful behavior.”

It’s one of those undeniably true facts of life. You can’t argue against human action without acting purposefully. You also can’t intentionally not act, because having an intention makes it action.

Further claims that branch out from this incontrovertible center are logically deduced from this claim with the help of a few very safe corollary claims along the way, like “we prefer leisure to labor,” or “we have a variety of means capable of satisfying our desires.”

We can proceed from “humans act” like this:

1. Humans act.
2. Humans act by employing means to satisfy an end.
3. The chosen end is necessarily preferred to forgone ends.
4. The means employed could have gone toward the satisfaction of another, lower ranked end.
5. A larger stock of means can be employed for the satisfaction of more ends.
6. The satisfaction of more ends is preferred to the satisfaction of fewer ends.
7. A larger stock of means can be employed for the satisfaction of more ends, but those ends are necessarily lower ranked than the ends that would be satisfied with a smaller stock of means.
8. A marginal increase in the stock of means will go toward the satisfaction of a lower ranked end.

And so on, until an entire interrelated structure of claims is laid out.

Some notable claims that can be deduced along these lines involve the determination of interest rates, the effects of monetary inflation, how profit and loss signal consumer preferences, and even the causes of business cycles.

The key feature of all of these claims is that they are independent of what we like or dislike. The claims of Austrian economics are value-free, objective, or “positive”.

Libertarianism

Libertarianism, like Austrian economics, is a set of claims. The claims of libertarianism are different than the claims of Austrian economics, in the same way that ethical claims are different than mathematical claims.

At the center of libertarianism is the non-aggression principle, as all of the “extra” claims in libertarian political thought may be traced back to it.

Libertarian claims include that the initiation of violence is always illegitimate, people can only delegate authority that they already have, war is bad, and unhampered markets are better than hampered markets. Libertarians call for smaller government, less taxation, less war, more freedom, and widespread respect for property rights.

Where do these claims come from, though? In economics, the claims are generated by logical deduction from some central axiom(s). What generates claims like “we should start fewer wars”?

The answer may disappoint you. The claims of libertarianism are just statements of preferences — they are based on values, subjective, or “normative”. To say “war is bad” is to say “I don’t like war, therefore war is bad.” To say “the initiation of violence is always illegitimate” is to say “I don’t like it when people initiate violence against other people, therefore I do not regard any such action as legitimate or defensible.”

This does not mean that libertarian claims are somehow less true or that libertarianism is less suited to be adopted by society at large. All political statements are statements of preferences. All political ideologies have at their center preferences, and only preferences. Everything else is rhetoric and hand-waving.

To the left and to the right of libertarianism, you’ll find claims like “the initiation of violence is sometimes legitimate” and “taxes are a necessary and important part of society”. These, too, are statements of preference.

These sorts of statements are called normative claims, while the statements of economics are called positive claims.

Normative vs. Positive Claims

Normative claims can be called “should” or “ought” claims because they may be appropriately boiled down to “we should do things this way” or “you shouldn't do that.” They are statements of preference, like recommendations.

If your child is about to touch a hot stove eye, you might exclaim and make use of a normative claim: “Don’t touch that!” You may not use the word “should”, but it is implied in your claim, or your recommendation. You are saying “You shouldn't touch that, because I don’t want you to, because I don’t want you to burn yourself.”

Positive claims may be called “is” claims because they may be appropriately boiled down to “this is this” or “the cause of this is that.” They are statements of equality and causal explanations, like definitions and if-then statements.

If your child asks you why the sky is blue, you might make use of a positive claim: “The air molecules reflect the light from the sun as blue.” You may not use the word “is”, but it is implied in your claim, or your explanation. You are saying “The cause of the sky appearing blue is the fact that air molecules reflect blue.”

The title of this piece is “The Relationship between Austrian Economics and Libertarianism,” and at this point you might be inclined to think that there is some sort of overlap. Austrian economics is one set of claims and libertarianism is another set, but maybe there are some claims that are both, right?

No.

Economics is made up of exclusively positive claims, while political positions and recommendations are only normative claims. And one claim cannot be both positive and normative. Something can’t be based on values and be independent of values at the same time.

So, although both libertarianism and Austrian economics exist as sets of claims, there can be no overlap. There is a connection between the two — a healthy, fruitful relationship — but no overlap.

I want to make something clear at this point, because a lot of people get the wrong grip on the difference between positive and normative claims. Many confuse the difference between “is” and “should” statements as facts versus opinions.

The problem with this is that both positive and normative statements can be facts and both can be opinions. Even opinions can be factual, so there’s overlap all around.

I can express an opinion, and that opinion can be a fact. “My opinion is that the sky is blue.” My opinion is correct and factual.

I can also express an opinion and be incorrect — “I think the sky is green.”

In the same way, claims in economics (positive) and politics (normative) can be correct or incorrect, but they can also be expressions of an opinion.

Rhetoric: the Connection

Rhetoric is the act of employing various claims, both positive and normative, to convince somebody of something. If I wanted to convince you that cheating on a test is wrong, I might employ a variety of claims:

1. “If you get caught, you will get a zero on the test and other official consequences you do not want.”
2. “You will feel better if you don’t cheat.”
3. “Cheating is dishonest.”
4. “You shouldn’t be dishonest.”
5. “You will feel guilty for cheating.”
6. “If you cheat, your nose will grow to a permanently larger size.”
7. “A lot of people don’t like cheaters.”
8. “Lying and dishonoring your parents are both sinful.”

Some of these claims are positive, and some are normative. Some are guesses based on my perception and expectations, while others are definitionally true statements. Some are correct, some are incorrect, or could be incorrect depending on how events unfold.

Accepting my normative claims requires you to hold the same values as me. Take #4 for example: “You shouldn’t be dishonest.” In order for this claim to aid in convincing you that you shouldn’t cheat, you would have to first agree with me that dishonesty is wrong.

Accepting some of my positive claims, though, just requires external verification or introspection about the definitions of the words involved. Accepting positive claims as true, though, does not necessarily mean that they will help convince you that cheating is wrong.

You may agree with me about #7: “A lot of people don’t like cheaters.” But what if you don’t care if people like you or not? What if you want people to not like you?

Therefore, I would only employ a positive claim if I estimate that it would have some pull on you in the desired direction. It may seem like positive claims are risky to use in rhetoric, but actually, we can make some pretty safe assumptions about what people value.

What people value

You can almost universally bank on utilitarian grounds for positive claims having an effect on your audience. Almost everybody would agree that people being happier and better off is better than people being sadder and worse off, especially if they are a part of said “people”.

This is where Austrian economics and libertarianism find their connection. The claims of Austrian economics are some of the best rhetorical tools in convincing people that the claims of libertarianism should be adopted by society.

Austrian economics says that when two people make a voluntary exchange, both are better off, or they wouldn’t have made the exchange. Libertarianism says voluntary exchange is good. The connection? People being better off is good (a utilitarian position).

Austrian economics says that artificially low interest rates cause business cycles that make people worse off because of an increase in unemployment and resources leave the lines of production that produce what people want and when they want it. Libertarianism says central banks are a stupid idea. The connection? Making people worse off is a stupid idea (a utilitarian position).

One more example: Austrian economics says that only profit and loss can send the signals to producers that they are producing what people want, and profit and loss can only emerge in markets to the extent they are unhampered by involuntary interventions. Libertarianism says that profits and unhampered markets are good. The connection? People being better off is good (a utilitarian position).

So it’s no surprise that Austrian economists and libertarians are such great friends and even the same people a lot of the time. The results generated by Austrian economics are great ammunition in libertarians’ rhetorical arsenal. And, if you know and understand Austrian economics, then you would have to be misanthropic or sadistic to not be a libertarian.

Theoretically, though, it could happen. Some horrible dictator that likes inflicting pain on his citizens may know and understand the effects of government interventions in markets, and therefore uses Austrian economics maliciously. This possibility showcases the difference between economics and politics, but also the implausibility of somebody being both an Austrian economist and a brutal dictator or the two being friends.

It would be just as preposterous to find a Keynesian libertarian, for similar reasons. The results of Keynesian economics lend themselves to government interventions with both fiscal and monetary policy, both of which are anathema to most libertarians.

Other common ground

Of course, utilitarianism isn’t the only rhetorical common ground for a rhetor and his audience. Finding common ground is a function of knowing your audience. Audiences can be left-leaning, right-leaning, Christian, atheist, pacifistic, militant, well-read, or new to libertarian ideas.

Besides utilitarianism, appealing to natural rights and private property are other safe choices because most people would agree that we own our own bodies and the fruits of our labor.

This is common ground between Austrian economics and libertarianism because both assume the existence of a set of rights before they can make even their first few central claims.

Saying “humans act” first requires (in logical sequence) that humans have control over the means employed toward want-satisfaction. Similarly, the non-aggression principle says that aggression is against somebody’s person or property, both of which would have to be owned by the victim for it to be considered aggression.

Conclusion

Austrian economics and libertarianism are totally separate sets of claims. There is no overlap. One makes exclusively positive claims while the other makes normative claims.

As soon as an economist makes a normative claim, she immediately ceases being an economist (temporarily, of course — for the duration of the claim) because economics is a value-free science, even though it says a lot about value.

You could say economics is meta-value. It makes positive claims about value, but normative claims (which are based on values) are outside of its purview.

Austrian economics and libertarianism find their constructive relationship in the realm of public debate. Rhetoric is the construction site where libertarianism makes skillful use of the tools and materials provided by Austrian economics.

Libertarians can use the compelling results and claims of Austrian economics to help convince people that a free society is not only practical, but moral and justified —

…certainly more practical than the confusing edifice of bureaucracies we have today,

…more moral than the perpetual warfare we are currently mired in which is financed by equally perpetual monetary inflation,

…and more justified than the arbitrary, rights-trampling whims of the powerful few who wield their weapons and “officialness” as a license to expropriate your wealth, regulate your own affairs, and crush your well-being by manipulating crucial economic mechanisms.

Now, who could argue with that?