Chapter ǵ: Henry George and Austrian Economics ȅȄis not an assumption that people behave like the economic man of the
familiar caricature or that they act only on selfish motives.Ȁǿ
George and Menger, as well as Mises and other later Austrians, help
clarify the nature of so-called armchair theorizing. Economists can dis-
cover basic facts by observation of their own and other people’s deci-
sionmaking. Ļey even have the advantage of being able to observe the
basic elements of their theoretical generalizations (human individuals and
their strivings) directly, while the natural scientists must postulate or infer
their basic but not directly observable elements from whatever phenom-
ena they can observe directly. Much as geometers deduce many theo-
rems from a few axioms, so economists deduce a powerful body of theory
from a relatively few empirical generalizations, ones so crushingly obvi-
ous that their failure to hold true is almost inconceivable in the world
as we know it. Ļe axioms underpinning economic theory include ones
like George’s least-exertion principle and the fact that labor continued
beyond some point becomes irksome (as well as others that could be
added to George’s list, such as the fact of scarcity itself and the princi-
ple of eventually diminishing marginal returns). (Ļe banality of empir-
ical observations is not related inversely to the scope and importance of
their implications in economics; indeed, one might argue that a direct
relation is the more plausible.) Armchair theorizing need not be the mere
sterile juggling of arbitrary assumptions; it can have a sound empirical
basis.
George considers how economists can disentangle the complex inter-
mingling of many causes and many effects that occurs in the real world. He
explains the method of “mental or imaginative experiment,” the method
of testing “the working of known principles by mentally separating, com-
bining or eliminating conditions” (SPE, p.Ȁǿǿ;PFT, pp.ȁȆ–ȁȈ).
George and Menger share a skeptical attitude toward the “organic”
conception of society. Both recognize how an economic system seems to
have a life and purpose and orderliness of its own, as if it had been shaped
and were operating by deliberate design. Yet they do not join the holists
and institutionalists in supposing that this apparent organic unity requires
concentrating research on the system’s overall institutional arrangements
and supposed evolutionary trends. Instead of taking the coherence and
order of a market economy for granted, they regard these as among the
ȀǿSeeSPE, esp. pp.ȈȀ,ȈȈ. In this respect George anticipated WicksteedȀȈȀǿ/ȀȈȂȂ, esp.
chap.Ȅ.