In his classic work, SOCIALISM, Ludwig von Mises argues that a socialist economic system cannot function because there cannot be a viable price system for purposes of the proper allocation of resources. Mises argues economically. But there is a moral formulation of the same argument without which the Misesian argument is not conclusive.
Mises' argument falls short of proving the unworkability of socialism. He fails to show that for those who run the economy it is wrong to do so. If it is not wrong to plan, then the resulting "inviable" price system is not wrong either. In short, the inviability of a price system is not, in itself, grounds for rejecting it. The assumption which underlies Mises' conclusion that socialism ought to be avoided is a prior moral principle, namely that it is wrong to undertake such inviable courses of action as planning an economy. Furthermore, the metaphysical assumption underlying the inviability of the price system is intricately tied to the reason for and purpose of a viable price system, respectively (a) the accommodation of man's nature as an agent (or choosing being) and (b) the possibility of choosing rightly when various alternatives exist (which is the purpose of the viable price system, i.e., making possible the exercise of good choices in the market place).
Mises and others assume the Objectivist ethics and politics, that is why they consider socialism irrational: it does not satisfy human needs or wants. But they fail to realize that the results of socialism can be considered undesirable and to be avoided only because it is morally right to create political and economic systems which are right for people as people. Laissez-faire economics presumes that it is right for man to pursue the goal of satisfying his needs and wants. Its underlying moral principle is that it is right for man to live, to choose freely between alternatives available to him, and to strive for happiness. As Rand puts it, the standard of morality is human life, and its purpose is human happiness (for each moral agent individually).
For Mises and some of the Chicagoites to claim that economics is a "value-free science" and then argue for the free market economy is to be involved in a contradiction (at least implicitly): for how would we determine if the free market is more viable or effective if no standard of viability and/or effectiveness exists? What would such a standard have to be if not a standard of what is right or better for human beings? And what is this if not moral philosophy?
Many libertarians hold that moral principles ("preferences") are indefensible in line with scientific standards. The radical breach between fact and value rests on their mistaken epistemologies (Kantian for Mises, logical positivist for Friedman, operationalist for others, etc.). These epistemologies still divorce rationality from reality and entail that knowledge is possible only by reference either to first principles (a coherence theory of truth) or experience (the correspondence theory).
Pure logic (rationalism) will not render ethics a truly scientific study, since ethics concerns itself with man's life, with a biological phenomenon. Pure experience (empiricism) won't render ethics scientific because it cannot account for causality and so it must either consider morality irrational or non-existent (in line with the empiricist's Humean determinism). The former turn is taken by the Existentialists, especially by Sartre, the latter by behaviorists, emotivists, mystics, etc.
However, if neither pure reason nor pure experience is possible for human beings nor capable of explaining scientific knowledge, then neither can be considered a source of knowledge. This is why it would be incorrect to claim that knowledge of moral (and other) values is impossible simply on the grounds that what we consider knowledge of values is not obtained in the way rationalists and empiricists claim that knowledge must be gained. Kantian and positivist theories cannot account for scientific knowledge even when it comes to physics or biology. It is quite despite their expressed epistemological foundations that the scientists' activities produce knowledge; they are, after all, human beings and can gain knowledge even if they and others fail to explain correctly how they gain it. It has been shown, by Thomas Kuhn for example, that the philosophy of science is in serious need of revisionism. The ideas of contextual certainty, of contextual definition, and of the function of free will in human consciousness need to be made applicable to the methodology of the sciences, including ethics.
(An excellent work which deals with the philosophy of the social sciences, including the role of values in studying man and his social life, is Explanation and Human Action A.R. Louch, UC Press, 1969.)
It is possible, then, to understand why so many economists claim that economics is "value-free". They must mean simply that it is not within economics as such that the basic moral presuppositions of human life, including economic life, are justified. Therefore, they do not proceed with an explicit concern for and with moral values. But they certainly presume them; and their presumptions are (often) clearly identifiable.
It is their attempt to deny this dependence and commitment, in the case of free market economists to political (therefore also economic) liberty, that sets them at odds with those libertarians who are convinced that the moral bases of a free society are scientifically defensible.