The Utilitarian Method of Social Analysis

In a highly developed civilization operating under an international division of labor, it was in no one's interest to wage war or pursue empire. Neither was it in Germany's interest to cultivate resentments against its present oppressors, nor later to seek revenge. And it was against the considered self-interests of the victorious western allies that they themselves pursued imperialism. Mises believed that such purely utilitarian considerations make a much stronger case for pacifism than any ethical appeal to the powerful to refrain from exercising power.

Mises's rationalist utilitarianism must not be confused with the utilitarianism of Jeremy Bentham, a British philosopher of the late eighteenth- and early-nineteenth century. Bentham had given political utilitarianism its most famous expression, claiming that the purpose of politics should be to promote the greatest happiness of the greatest number of citizens (a normative claim). Although Mises was inspired by Bentham's work, he was not primarily interested in justifying the application of utilitarianism in politics.¹⁴

Max Weber's work had alerted him to the necessity of discarding normative questions from scientific analysis. Science had to deal with the world as it is, not as it should be. Mises was therefore not interested in whether utilitarianism should guide politics, but in its application: is the policy under consideration suitable to attain the proposed end? This, he saw, was the kind of question that could be answered objectively. Any other approach risked entanglement in normative questions. Therefore the value of utilitarianism for the social sciences did not consist in any ready-made political programs advertised under its banner, but in the practical perspective it offered on social problems. Utilitarianism, as Mises understood it, was not a doctrine, but a point of view.¹⁵ It was the perspective of rational suitability analysis; its categories were means and ends.

These questions had a venerable tradition in economic thought. John Locke, in his analysis of the debasement of coinage (monetary inflation) had stressed that the crucial question was whether this policy “would at all serve to those Ends for which it is propos'd”¹⁶ and went on to show that this was not the case. Similarly, Adam Smith stressed that colonial trade monopolies reduced national income in all nations, even in those that were meant to benefit from them.¹⁷ At the end of a thorough review of the interventionist trade policies of his time he concluded:

It is thus that every system which endeavours, either, by extraordinary encouragements, to draw toward a particular species of industry a greater share of the capital of the society than would naturally go to it; or, by extraordinary restraints, to force from a particular species of industry some share of the capital which would otherwise be employed in it; is in reality subversive of the great purpose which it means to promote. It retards, instead of accelerating, the progress of the society toward real wealth and greatness; and diminishes, instead of increasing, the real value of the annual produce of its land and labour.¹⁸

The same approach characterized the policy analysis of subsequent generations of economists up to Carl Menger, who had also been a utilitarian in the Misesian sense. In his Investigations and several other writings, Menger had argued that economic science deals with exact economic laws, and that these laws in turn concern the optimal use of available means to attain a given end.¹⁹ Menger noticed with great satisfaction that his colleague Heinrich Dietzel championed the same view in two papers he published at the same time that Investigations appeared.²⁰ Dietzel argued that economists need not postulate that human behavior is prompted by primordial “economic” motivations. Economic science is not about motives; it is about finding the optimal means to attain a given end. In short, Dietzel saw economic science as a sort of social technology, and he eventually proposed to rename the science “socio-economics.”²¹

Menger's and Dietzel's writings had influenced those younger German-language economists who were outside the ambit of the Historical School, most notably Ludwig Pohle, who criticized the Socialists of the Chair for assuming that good intentions would make for sound policy. Pohle stressed that it was necessary to analyze whether a proposed policy really had the beneficial consequences that its advocates intended.²²

Hence, in his utilitarian stance, Mises continued a tradition that reached back well beyond Menger. In Nation, State, and Economy, as well as many subsequent works, he showed that suitability analysis was extremely useful for the rational assessment of all the major political questions. In fact, the utilitarian method provided the only possible common ground for a rational comparison of liberalism, socialism, and government interventionism. Mises repeatedly argued that these political systems are merely different strategies for the realization of a common goal: the greatest happiness of the greatest number.²³ Therefore only the utilitarian method of social analysis makes possible a rational choice between these different means:

It may be that socialism represents a better form of organization of human labor. Let whoever asserts this try to prove it rationally. If the proof should succeed, then the world, democratically united by liberalism, will not hesitate to implement the communist community. In a democratic state, who could oppose a reform that would be bound to bring the greatest gain to by far the overwhelming majority? Political rationalism does not reject socialism on principle.²⁴