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  /  Top News   /  Misesian Economics in Truly Private Schools

Misesian Economics in Truly Private Schools

A person’s education, wrote Murray Rothbard, is the “entire process of growing up, of developing all the facets of a man’s personality.”1

From the helplessness of infancy, a child learns about himself, others, and the world around him through his actions. In developing ends and discovering means, he forms judgments about others, the environment in which he acts, and his relationships with them. His choices are based on his personality and what he has learned about moral and aesthetic principles and causal relationships between ends and means.

“When he finally reaches adulthood,” Rothbard wrote, “he has developed his faculties to whatever extent he can, and has acquired a set of values, principles, and scientific knowledge.”2

A person is self-educated in the process of living his life. He owns his mind and body and learns through the actions he takes with them. The complementary means he uses in action from his environment condition what he learns but it is his mind that forms judgments about himself and the world in which he acts.

“It is a fundamental fact of human nature,” Rothbard wrote, “that a person’s ideas are formed for himself; others may influence them, but none can determine absolutely the ideas and values which the individual will adopt or maintain through life.”3

Formal Education

If education is a natural part of life, grounded in private property and human action, what is the role of schooling or formal education in learning?

What a child first learns about himself, others, and the world is thymological knowledge, i.e., knowledge acquired through his experience as it relates to the success or failure of his own actions.4 Although thymological knowledge is naturally acquired through the mundane activities of daily life, it is not itself simple, but quite complex. It is a composite of what a person has learned about natural, moral, and praxeological laws and the particular contingent conditions that affect his actions. It takes sustained intellectual effort to separate the distinct elements of thymological knowledge and investigate them on their own terms. That is the role of formal education.

Learning about the various branches of theoretical truth within which experience occurs, requires abstracting theoretical laws from experience. For the laws of praxeology, this is not done primarily to improve one’s action, but to comprehend the operation of the social order. Praxeological laws describe the cause and effect relationships by which the division of labor is created, maintained, and improved. Without sustained intellectual effort, knowledge of these universal laws and what they imply would not develop. Such knowledge cannot be drawn directly from thymological knowledge itself.

Fortunately, although thymological knowledge, being particular to his own actions, can only be acquired by a person through his own experience, praxeological knowledge, being universal to all action, can be constructed by the efforts of others into a vast network of theoretical truth waiting to be learned. The average person would make little progress along these lines by his own effort. He could neither devote sufficient time to it, to the neglect of efforts to satisfy his consumptive ends, nor does he possess the capacities needed to reproduce all praxeological knowledge from scratch. Even the most gifted person would find it economizing to learn praxeological truth from the efforts of others. Reading Human Action is easier than writing it.

Formal instruction of a child too young to grasp advanced theoretical truth is done to prepare him for such systematic intellectual inquiry. It, therefore, begins with the development of his intellectual faculties. He must learn the basic building blocks of reasoning and develop his intellect in a natural progression from facts to reason to application.

The formal education of a child is the natural prerogative of his parents. They possess custodial rights of the child and exercise them for his physical, mental, and spiritual development. Parents are in a position to know their child and care for the development of his personality. They bear the responsibility of attaining this end and are in a position to tailor formal education to the strengths and weaknesses of their child by either their own tutoring or the hiring of appropriate specialists to instruct their child. Parentally directed tutoring, then, is the best type of formal education since it is most apt to result in learning harmonious with the natural development of the child’s personality.

Private primary and elementary schools, with one teacher and many students, have been a compromise from parentally directed tutoring made out of economic necessity. In precapitalist societies only the richest elite had sufficient wealth to indulge in private tutoring. Most parents consumed their day with the labor necessary to scratch out a subsistence living.

As wealth has expanded under capitalism, it has become increasingly possible for middle-class parents to do what the rich have always been able to afford, i.e., private tutoring. Today, middle-class parents are wealthy enough to indulge in substantial private tutoring and could do much more if they were free from the burden of financing state schools. And even where wealth is not yet sufficient and parents choose schools, a market of private schools would suppress the deficiency of schooling as parental spending would guide schools to find the most effective arrangements for developing each child’s personality. As with thymological knowledge that the child gains from his own actions, formal education proceeds naturally and privately.

When the child reaches maturity and is no longer under the custodial care of his parents, he can select schools for further formal education. The diversity of interests and aptitudes among persons would lead them into different specialized intellectual pursuits. And therefore a market for higher education would have a variety of schools catering to these specialized areas, such as medicine, engineering, philosophy, theology, and economics. And a spectrum of these schools would emerge to cater to the different interest and aptitudes of the students.

If students are interested in learning the truth about the world, for its own sake as in philosophy or for its usefulness as in engineering, then by their demands schools will be dominated by the search for and transmission of truth.

In such a setting, Misesian economics, which explains the nature and working of the natural social order, can develop.

Education and the State

State interference in education usurps the child’s rights and displaces the custodial role of the parents in exercising those rights. That the state would seize the custodial rights from the parents demonstrates that it has its own interests in mind. The state must resort to force because neither the child nor the parents want the natural arrangement to be overturned. Because the state rests on compulsion its activity extinguishes the very basis for the development of the personalities of children, which is freedom.

Moreover, state officials lack the knowledge of and concern for the child possessed by his parents. The state has no interest in developing the personalities of children or in catering to their interests and aptitudes. The state does not desire them to participate in the social order by their free associations. The state funds and regulates formal education to further its own interests and attain its own ends. Even if it did adopt the natural, privately secured ends of education, no method of instruction it adopted could improve upon the private system of education. Short of mass enslavement, the state could not provide individual tutoring to children and would have to resort to schooling. Instead of the diversity of schools in the market striving to develop the personalities of students, the state is interested in uniformity of schooling and the concomitant suppression of individual personalities to produce a homogeneous citizenry serving the ends of the state.

As the state has no interest in developing the personalities and learning faculties of children, it has no interest in fostering their pursuit of truth as adults. It will support truth that increases its power and suppress truth that challenges its power. It will also support lies that increase its power. Sound engineering will find a place in state-controlled higher education, since the state needs engineers to achieve its own technological projects. The state will welcome Keynesian economics since it justifies the exercise of state power. But, sound economics will not find a home in state-controlled higher education. Misesian economics is a foremost threat to the state for it explains the working of the natural order of society and the crippling effects of state interference.

The Rise of Formal Education in the West

From time immemorial, the education of children has been done by their parents. In the ancient world, private schools first arose to train priests for religious service and to educate the children of nobility. They typically centered around a teacher or group of teachers renowned for their wisdom. State schools came into being to train bureaucrats to operate the state apparatus. Throughout the ancient world, state schools waxed and waned and private schools stagnated and progressed according to whether the state was weak or strong.5

In the oriental despotism of China, state education was training for civil service. In the totalitarian collectivism of Sparta, the state controlled education for military training. When the state was weaker in Athens, private education came to the fore. The sophists organized formal education in the natural way, a group of students congregating under a teacher whose wisdom they believed was worth paying for. Hellenistic formal education developed along natural lines which would form the foundation for education in the Middle Ages.

In the Roman Republic, where the state was relatively weak, education was done naturally in the family and, for the children of the elite, by tutors after family education was complete. By the Late Roman Empire, however, the state had erected a system of education to train civil servants. After the fall of the Roman Empire, state-controlled education declined and formal education was again done privately.

Christianity revived the Israelite moral imperative for parents to instruct their children.6 And as the Jews had established schools for the training of rabbis, Christians set up church schools throughout the monasteries and cathedrals of Europe after the fall of Rome.7

After Moslem invasion led to the decline of the monastic and cathedral schools, Charlemagne revived them, but put them into service for the empire as training centers for those who would become his officials.8 As the empire declined, the Catholic Church reasserted the traditional function of the monastic and cathedral schools and extended formal education to the poor. These institutions constituted formal education in the medieval period.9

From these church schools an intellectual movement blossomed that provided the seeds for the renaissance of the 12th century.10 Central to this rebirth was the development of the university system. The rise of the universities depended not only upon the recovery of lost ancient works, but on peace, political and legal improvements, and also the creation of wealth set in motion by the rise of capitalism. Greater prosperity not only provided additional means to be devoted to formal education — such as books, travel, and charitable funds — but also more leisure time to pursue it.11

Groups of teachers and students congregated to devote themselves to studies beyond the liberal arts: law at Bologna and theology at Paris at the beginning; and then, by the end of the Middle Ages, eighty universities had been established throughout Europe.12

The scholastic project begun within the university system was to search out all of God’s truth and transform the world to make it conform to these truths. The crucial presupposition they held was that truth is decreed by God, embedded into the nature of creation, and discoverable by man’s reason.

Central to the unimpeded pursuit of the truth was independence from the state. From the time of the papal charter of the University of Paris, the common method of securing independence was to obtain a charter from the pope.13

Like all private enterprises, the universities had to facilitate the mutual benefit of those who participated in them. Students received detailed contractual conditions to ensure professors delivered the education they paid for, and exercised the power of boycott and required professors to post bonds to enforce these conditions.14 Professors received acceptable compensation and working conditions.15 The university system built by the Catholic Church gave wide scope to intellectual inquiry and generated an international community of scholars that gave birth to the natural and social sciences.16

For any state-sponsored effort to succeed as part of this system it had to meet its high standards. Lacking the power to coercively interfere with the system, state-sponsored schools had to compete for professors and students. As so it was that centuries after the establishment of the university system, a group of Scholastics gathered at the University of Salamanca. Given their Christian presuppositions and the freedom of inquiry the system permitted, they began the project of Austrian economics in trying to explain the consequences to the social order of the 16th-century monetary inflation in Spain.

Misesian economics was born in the private university system of the High Middle Ages. The Spanish Scholastics not only explained the natural order of markets, but the harmful consequences of state interference with it. Scholars who did not fear to write openly about the conditions under which rulers could be assassinated, felt no constraint to denounce price and wage controls as state interference with the working of God’s natural laws.17 Such antistate views were unthinkable in the state schools of the ancient world and never would have arisen outside of truly private schools.

The Fall of Formal Education in the West

The fateful turning point for the medieval university system came when the reformers, Martin Luther and John Calvin, accepted state control of education as a means of advancing their own doctrines. Luther’s Saxony School Plan of 1528 became the pattern for most of the Protestant states in Germany and Calvin established state schools in Geneva and inspired movements to establish compulsory schooling in France, Holland, Scotland, and New England.

State control of formal education in Europe proceeded furthest in Prussia where the state was the strongest. The Prussian state passed compulsory attendance laws, centralized and bureaucratized control of formal education, suppressed private schools, examined and certified teachers, used graduation exams to control entry into the professions and civil service, and used the system to enforce uniformity in language and culture. The Prussian system was extended to all of Germany with the formation of the centralized German state.18 Consolidation made state control over the German universities strong enough to entirely suppress laissez-faire views. University positions in economics came to be reserved for members of the German historical school, appointed on the advice of Gustov Schmoller himself.19

The Rise of Misesian Economics

Misesian economics could not arise in such a setting and was barely able to gain a foothold at the University of Vienna, as Guido Hülsmann chronicles in his magnificent biography of Mises.20 By the time Mises attended the university it had been controlled by the state for nearly a century. Economics was taught in the department of law and government science. The professors were civil servants impossible to fire, collecting their paychecks regardless of their performance, a far cry from Paris and Bologna in the 12th century.

Mises’s main professor in the early years of his studies, Carl Grünberg, had been hired to bring German historicism to Vienna. The other main influence on Mises at the university at the time was Eugen Philippovich. Although he was not a historicist, his views were decidedly interventionist. In spite of the influence of his teachers, Mises found economic theory on his own by reading Carl Menger’s Principles of Economics. Menger was something of an anomaly at the university, a throwback to the traditional view of economics, which saw the economy as a natural order and was skeptical of government intervention, a view that had arisen, as we have seen, in the medieval university system and was characteristic of classical economic thought. Menger faced opposition in the department as a candidate for the position and during his tenure at the university only reaching the secure position of full professor because of his service to the emperor as a tutor for his son. Menger then used his personal influence to secure positions at the university for Eugen von Böhm-Bawerk and Friedrich von Wieser. Böhm-Bawerk, the Mengerian of the two, was appointed only with difficulty and, as Hülsmann writes, “After the death of Böhm-Bawerk, academia had little use for the Mengerian tradition that Mises maintained and developed.”21

Mises would have to become a private scholar, supporting his writing with full-time occupation mainly at the chamber of commerce. The only regular academic position Mises ever held was at the Graduate Institute of International Studies in Geneva. The Institute was overseen by the University of Geneva, but privately funded by the Rockefeller Foundation which was its main financial sponsor for nearly twenty years. Hülsmann writes, “during the Geneva years Mises’s salary was paid to a large extent out of Rockefeller money, and so things would remain for the next decade.”22

Conditions were hardly better in American academia where educational reformers had adopted the Prussian model of formal education and German universities had served as a training ground in social engineering to the first generation of American PhDs who became professors in American universities. The state’s control of formal education marched hand-in-hand with the expansion of federal government power during the twentieth century. Private universities came to surrender their independence from the state to receive its largess. State control inverted the medieval system from one in which state-sponsored universities conformed to the private system to one in which private universities conformed to the state-controlled system. Only those few who refused state favors retained a modicum of their independence.

By the time he emigrated to America in 1940, American academia had no room for the likes of Mises.23 He found himself in the same position as he had been in in Europe, an independent scholar supported privately. As Rothbard wrote, “For the rest of their careers in American academia, the salaries of both Mises and Hayek were paid for by the William Volker Fund. (After the fund collapsed in 1962, the task of financing Mises’s post at NYU was taken up by [Leonard] Read and a consortium of businessmen.)”24

The situation was little better for Rothbard who toiled in the academic backwater of Brooklyn Polytechnic Institute for decades. His writing was supported privately by the Volker Fund, the Earhart Foundation, and the Lilly Endowment and his position at UNLV was endowed from the wealth of the forestry entrepreneur, S.J. Hall.25 It took the sponsorship of the great oil entrepreneur J. Howard Pew to secure a position for Hans Sennholz at Grove City College.

This precarious foothold for Misesian economics was made secure by Lew Rockwell when he founded the Mises Institute in 1982. The institute is largely responsible for the burgeoning, international resurgence in Misesian thought in the past twenty five years. Thousands of students and scores of professors have learned Misesian thought through the institute’s instructional seminars and topical conferences; millions have read Misesian analyses on its website. The institute’s publishing has been indispensible in keeping Misesian works available to the increasing number of interested readers. The Mises Institute is the premier educational organization dedicated to political and economic truth. And as more and more people take formal education back from the state, the Mises Institute — a truly private school — is the wave of the future, and the economic and political truth it advances is the hope of liberty.

This talk was delivered on October 13, 2007, at the Mises Institute’s 25th Anniversary Celebration.

1. Murray Rothbard, Education Free and Compulsory (Auburn, Ala.: Ludwig von Mises Institute, 1999 [1971]), p. 2.
2. Rothbard, Education Free and Compulsory, p. 2.
3. Rothbard, Education Free and Compulsory, p. 2.
4. Ludwig von Mises, Theory and History (Auburn, Ala.: Mises Institute, 1985), p. 265.
5. On education in the ancient West, see Henri Marrou, A History of Education in Antiquity (Madison: University of Wisconsin Press, 1956). On China, see Karl Wittfogel, Oriental Despotism (New Haven, Conn.: Yale University Press, 1957).
6. Cf. Deut. 11:19 and Eph. 6:4; Col. 5:8.
7. Lowrie J. Daly, The Medieval University (New York: Sheed and Ward, 1961), pp. 1ff.
8. Rosamond McKitterick, The Frankish Kingdoms Under the Carolingians (London: Longman, 1983).
9. Daly, The Medieval University, p. 4.
10. Charles H. Haskins, The Renaissance of the Twelfth Century (Cambridge: Harvard University Press, 1928), pp. 16ff.
11. Haskins, The Renaissance of the Twelfth Century, pp. 13–14.
12. Charles H. Haskins, The Rise of the Universities, (Cornell: Cornell University Press, 1957 [1923]), p. 20.
13. Daly, The Medieval University, p. 22.
14. Haskins, The Rise of the Universities, pp. 9–10.
15. Haskins, The Rise of the Universities, pp. 50–57.
16. Thomas Woods, How the Catholic Church Built Western Civilization (Regnery Publishing, 2005), p. 51.
17. Murray Rothbard, Economic Thought Before Adam Smith (Brookfield, Vt.: Edward Elgar, 1995).
18. Rothbard, Education, Free and Compulsory, pp. 24–28.
19. Ludwig von Mises, The Historical Setting of the Austrian School of Economics (Auburn, Ala.: Mises Institute, 1984 [1969]).
20. Guido Hülsmann, Mises: The Last Knight of Liberalism (Auburn, Ala.: Mises Institute, 2007).
21. Hülsmann, Mises, p. 162.
22. Hülsmann, Mises, p. 689.
23. Ludwig von Mises, Human Action, Scholars Edition (Auburn, Ala.: Mises Institute, 1998), p. 868.
24. Murray Rothbard, The Betrayal of the American Right (Auburn, Ala.: Mises Institute, 2007), p. 67.
25. Joseph Salerno, “The Rebirth of Austrian Economics — In Light of Austrian Economics,” Quarterly Journal of Austrian Economics, Vol. 4, No. 4 (Winter 2002), p. 118.

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