Carl Menger - On State Legitimacy

In an earlier post titled "On The Lost "Science of Government," I had drawn my reader's attention to Carl Menger's Lectures to Crown Prince Rudolf of Austria, delivered in 1876, exactly 100 years after the publication of Adam Smith's An Inquiry into the Nature and Causes of the Wealth of Nations, and 100 before I was formally studying Economics in Delhi University.

This book has been produced with painstaking effort by Erich W Streissler, Professor of Economics at the University of Vienna, Austria, from the original 17 notebooks in which the Crown Prince had recorded Menger's lectures. Carl Menger is the acknowledged founder of the Austrian School of Economics, and it is so wonderful to find his ideas alive and well in his native Austria.

Today, the Austrian School is known for its "anarcho-capitalism," perhaps also because The State has gone so wrong.

But in this book, we find Menger to be The Teacher to a future Emperor - and this, because the Empress Elisabeth had personally chosen him for the task, knowing well his strong "liberal" leanings. As Streissler notes, Menger's course of lectures followed basically the outline of Smith's Wealth of Nations - and two later German textbooks which drew much of their substance from Smith. I was previously unaware that Smith was well known in Germany - for John Rae's biography, published in 1905, says that Smith was known only in Hanover, because of that principality's relations with the English Crown. It now seems Smith was once the foundation of all Economics teaching in Germany, and Streissler says he was "the Canon of Western Civilization."

In my earlier post, I had written about the opening lectures.

Today, let me take my reader to the concluding part of Lecture VII, titled "On the Benefits and Limits of Government Intervention in the Economy - Part II." The Crown Prince notes as follows:

[The State's]... First Principle should be: Complete Freedom for the citizen in his activities, support where individual energy is insufficient, and protective prevention when an individual pursues his interests in a manner detrimental to the community.

Observing this Principle will bring about a harmonious, natural relationship between the State and its members. Their awareness that government is represented and headed by wise and enlightened men will lead them to develop the true civic virtues of thrift and honesty and consequently to improve their education; defended by the mighty arm of the State to which they turn for help in dangerous and difficult situations; in good times, however, a modern State in the noblest sense of the word will develop as the arena of the unfettered activities of a genuine citizenry; its parts will consider the whole not as an independent entity but as an organism whose members they are, while the organism will see the parts as elements that make up society.

This situation results from complete mutual trust which the State never spoils by paternalism and controls or by negligence in times of distress.

Representing its individual parts, the State will defend their interests in every way; in turn, they will be willing to make any sacrifice for the power of the State, for the common good.

[Note: Ludwig von Mises fought for his beloved Austria as an artillery officer; was injured; and also decorated for valour.]

This sort of relationship is an ideal every country must strive for; an important prerequisite is for the State to use the right amount of influence on individual activities; usually leaving citizens free to do as they please in their economic endeavours and only very rarely intervening in any direct way.

Signed: Rudolf
Dated: Vienna, 21 February, 1876

Allow me to now quote from the previous lecture VI, "On the Benefits and Limits of Government Intervention in the Economy, Part I":

However carefully designed and well-meant institutions may be, they will never suit everybody, since only the individual knows exactly his interests and the means to promote them.

Innumerable influences, different for everyone, dominate men's activities, and only the individual knows the means for gaining his ends; from unhampered individual development there results a wide range of activities that permit an advanced stage of civilization to be reached. The individual citizen knows best what is of use to him and he will be most industrious when working for his own personal ends. In a civilized country, the knowledge that personal efforts contribute to increasing the general welfare must also be mentioned as considerable incentive to work. This ethical impulse, however, appears only at an advanced stage of civilization, brought about by the free development of the individual. [Emphasis in the original.]

In this sort of situation the whole country will prosper, culture will flower and advance, tended by content, self-confident and industrious men; this will come about, though, by virtue of the Freedom that individual citizens enjoy in their economic endeavours, for then they have the greatest interest in their own well-being and thereby that of the State; but if government were to take the erroneous course of paternalism and of controlling the citizen's most private affairs with the intent of helping, though actually harming, him, the bureaucracy as an agent of government would have to take charge of economic affairs and interfere with individual activities.

The variety of work performed follows from the variety of individuals and, from its very manifoldness, promotes progress in every way; it would be altogether lost with comprehensive bureaucratic controls. Even the most devoted civil servant is but a blind tool within a big machine who treats all problems in a stereotyped manner according to regulations and instructions and can cope neither with the requirements of contemporary progress nor with the diversity of practical life.

Next, these concluding paragraphs of Lecture V, "On the Origin of Money and Coins." After expounding on the origin of money in trade, first as domestic animals, progressing to metals, later precisely measured in coins, Menger proceeds to instruct the future Hapsburg Emperor of his moral duties in this regard:

But above all else, we must regard honesty on the part of the rulers of states as the main and necessary prerequisite in coining. Morality and the possibility of general justice come to an end when the ruler deceives his very subjects by false coinage instead of appearing immaculate to the eyes of the world, a symbol and protector of law and order.

In addition to undermining all moral sense of right and wrong, such action destroys confidence in the government at home and abroad, thus impeding trade and leading to poverty.

The monarch who has recourse to such methods undermines his own position and sinks to the level of a common swindler.

At present such grave offences no longer occur, but the so-called honest Middle Ages and the beginnings of the Modern Age provide enough pertinent examples.

Signed: Rudolf
Dated: Vienna, 9 February, 1876

Here is something from Lecture III. Menger discusses why individual thrift is better for society's long-term interests and improvidence is harmful, and then exhorts the future Emperor to be very careful as to how he spends tax revenues:

Public squandering, i.e. when a government is careless with its revenue and spends it irresponsibly, is an inexcusable crime against all members of society and an offence against mankind and its progress.

Finally, from the last section of Lecture I - the very first notebook - "On the Institution and Economic Importance of Private Property":

No amount of assets, be there ever so many, is sufficient to satisfy all the desires and needs of its owner; therefore he develops and activity that we call economy; a part of it is striving to guard property from perils of all sorts, especially against trespass by third persons.

But the individual cannot provide such protection out of his own means and would therefore be exposed to assaults by anyone stronger than himself; and in that case all efforts to accumulate wealth by work would be in vain. Therefore, the national economy will truly prosper only if and when the State protects the citizens' property and thereby spurs them to thrift, moderation, and industry.

For this reason, such protection is one of the most important economic duties of any government. [Emphasis in the original.]

Obviously, our The State doesn't know its Art from its Elbow!

And this bunch of compleat failures want to Teach!