Steve

If asked to thumbnail the signature contributions of the “Austrian School” economists – Menger, Bohm-Bawerk, Mises, Rothbard – on whom I cut my teeth in the late 1970s, I would include:

1. Methodological individualism: Humans choose from alternative means to fulfill chosen ends, and their relative individual valuations of present consumption over increased future rewards – “time preference” – from the Crusoe level to the complex global economy, determine the structure and stages of production from higher-order capital goods to consumer goods. Human action is not subject to mathematical constants after the fashion of the physical sciences, a grasp of which distinction reveals the error in the sort of “aggregate thinking” characteristic of the modern engineering approach of mainstream macroeconomics.

2. The monetary theory of the business cycle: Money emerges historically through voluntary exchange, as traders seek a universal medium of exchange enabling an escape from the limitations of pure barter: the value-density and utility embodied in gold and silver saw their historic rise to fill this role. Credit developed as those with low time-preference were willing to save for the future rewards promised tomorrow via financing others’ lengthened processes of production. As the politically-driven expansion of the supply of money and credit led by the fractional-reserve policies of central banks expanded the production of capital goods beyond the real demand for the final consumer goods which is their destination in the structure of production, the resulting “malinvestment” reveals itself in the contraction, or liquidation phase, whose delayed reckoning by the authorities prolongs the pain of necessary correction.

3. The failure of central planning: socialism, in centralising all capital goods in the hands of a single agency, the state, lacks the rational means for allocating productive resources provided by the decentralised, equilibrating dynamic of the price system, and the profit-and-loss test, which alone indicate where true demand lies. No central authority can possibly assimilate the constantly shifting bits of local knowledge dispersed among the millions of economic actors on the ground, as socialist planning reveals itself as a literal groping in the dark, requiring pervasive coercion to sustain itself with any efficiency. Thus the state’s monopoly of the means of production must logically extend to labor, i.e., virtual slavery, as dreams of total liberation bear fruit in total coercion. In an inversion of Marxian prophecies of capitalist doom, the contradictions revealed over the course of socialist development prove irresistible, and every glimmer of light through the cracks dangles one more thread which, when pulled, unravels the entire garment sooner or later.

Recommended reading:

Harry Browne: How You Can Profit From The Coming Devaluation. 1970. Still the best brief bestseller depiction of the monetary cycle.

Henry Hazlitt: Economics In One Lesson. 1946, 1962, 1979. America’s most learned, urbane and verbally gifted economic journalist (1894-1993), “One of the few economists in human history who could really write” (H.L. Mencken, who chose him as successor at his American Mercury), ornament over six decades of The Wall Street Journal, The Nation, The New York Times, and Newsweek, summarises for the intelligent layman the long-term effects of short-term thinking in the “dismal science.” Hazlitt’s other works, on inflation, Keynesian economics, the welfare state, ethics, thinking, will-power, and literary criticism all repay careful absorption.

Ludwig von Mises: Human Action. 1949, 1963, 1966. The logical implications of the fact that human act to fulfill their purposes in time, economics set in the broadest and deepest historic and philosophic sweep. Socialism. 1922, 1936. A work even his socialist adversaries came to acknowledge, some after seventy years, when he could no longer be ignored. Theory and History. 1957. How Marx, and galaxies of his philosophic cousins afflicted with divers forms of nineteenth-century materialist “scientism”, mistook dreams for reality, in plotting man along courses aping those of atoms and algorithms. The Theory of Money and Credit. 1912, 1935. What goes up, must come down, as state-inflated credit blows balloons destined to shatter eardrums when bursting cannot be avoided forever.

Murray N. Rothbard. What Has Government Done To Our Money? 1963. The finest and most readable short exposition of Austrian-school doctrines on money, inflation and the business cycle, by the most influential disciple of von Mises. America’s Great Depression. 1963. The 1920s: pinnacle of laissez-faire – or embodiment of elbow-deep banking manipulation spawning the debacle of the 1930s? Man, Economy and State. 1962. von Mises’ great Human Action advanced and intensified, with a typology of state intervention and its divers effects. Power and Market. 1970. State interventions from Alpha to Omega, annihilated.

Finally, a word in defense of Robert Heilbroner and The Worldly Philosophers. His social-democrat slant on analytic issues should not blind us to the fact that he was an extraordinarily urbane and gifted writer, impeccably civil toward those with whom he disagreed, and humble enough in a 1990 essay in The New Yorker to admit that Mises was right about socialism. We read his classic work on the lives and ideas of the great economists much as we read Suetonius’s The Twelve Caesars, Aubrey’s Brief Lives, Edmund Wilson’s To The Finland Station, or the obituaries in Britain’s Daily Telegraph: for a series of vivid, expertly-stitched, often dreamlike cameos evoking with a storyteller’s gifts the private lives and public times of thinkers whose towers were anything but pure ivory. I recommend it as highly as anything on this list, though for humanist, not doctrinal, reasons. Those inclined to dismiss him out of hand from within the right-wing ghetto do so at risks not just their own – but of those they presume to educate, in any sense worthy of the term deeper than tribalist tub-thumping.

First, the religious zeal is a bit annoying. Some of these guys really are nuts. There is no gray in their analysis, everything is so black and white. I think that is seldom true in life or any kind of social science.

Secondly, if I were starting my own country from scratch, I would lean heavily on libertarian principles. That is not where we are now. There are too many groups that would start off with an unequal stock of capital, social and financial.

Thirdly, I have never seen the Austrians, IMO, adequately address the issue of market dishonesty and manipulation (probably my fault and I just missed it). The invisible hand does not work so well if it is being guided by a select few.

History. We were on a gold standard in the past. We had ups and downs and crashes, same as we do now. Yes, I know, the response will be that there was too much government involvement then also. That government interference was often largely at the behest of business. Businesses are political entities also. How do we stop that influence or is that just part of the competition?

Lastly, the world is larger and more complex, with changes faster than Hayek foresaw. There is danger in the pooled resources of government, but there is also strength. In particular, using government for necessary infrastructure, I would include energy and information flow in that category, has potential.

Steve