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Austrian Economics Newsletter

Fall 1988 B The Ludwig von Mises Institute

“Ludwig von Mises”
by F. A. Hayek
Lisbon, May 1977

Foreward to the German edition of
Ludwig von Mises’s Notes and Recollections

Although without a doubt one of the most important
economists of his generation, in a certain sense Ludwig von
Mises remained an outsider in the academic world until the
end of his unusually long scholarly career—certainly within
the German speaking world-but also during the last third of
his life, when in the United States he raised a larger circle of
students. Before this his strong immediate influence had
essentially been restricted to his Viennese Privatseminar,
whose members for the most part only became attracted to
him once they had completed their original studies.

If it would not have unduly delayed the publication of

Margit von Mises, Friedrich A. Hayek, and
Ludwig von Mises in 1955

these Memoirs, found among his papers, { would have wel- regarding the ten years of his time in Vienna (1921-1931)
comed the opportunity of analyzing the reasons for this during which Iwas closely associated with him. I came to him
+ {iousneglect of one of the mostoriginal thinkers of ourtime rather characteristically not as a student, but as a fresh
wi the field of economics and social philosophy. Butin part the Doctor of Law and a civil servant, subordinate to him, at one
fragmentary autobiography he left provides in itself the of those special institutions that had been created to execute
answer. The reasons why he never acquired a chair at a the provisions of the peace treaty of St. Germain. The letter
German speaking university during the twenties or before of recommendation by my university teacher Friedrich von
1933, while numerous and often indisputably highly unim- Wieser, who described me as a highly promising young
portant persons did, were certainly personal. Hjs appoint- economist, was met by Mises witha smile andthe remarkthat
ment would have been beneficial for every university. Yet the he had never seen me in his lectures. However, when he
instinctive feeling of the professors that he would not quite fit found my interest confirmed and my knowledge satisfactory,
into their circle was not entirely wrong. Even though his he helped me in every regard and contributed much to make
subject-knowledge surpassed that of most occupants of pro- my lengthier visit to the United States possible (before the
fessorial chairs, he was nonetheless never a real specialist. time of the Rockefeller fellowship) towhich I owe a great deal.

When in the realm of the social sciences I look for similar But although I saw him during the first years daily in an
figures in the history of thought, Ido not find them among the official capacity, I had no idea that he was preparing his great

professors, not even in Adam Smith; instead, he must be book on “Socialism” which upon its publication in 1922
compared to thinkers like Voltaire or Montesquieu, Tocque- influenced me decisively.
ville and John Stuart Mill. This is an impression that has by Only after I returned from America in the summer of
no means been reached only in retrospect. But when more 1924 was admitted to that circle, which had been in existence
than fifty years agol tried to explain Mises's position in pretty (Continued on page 2)
much the same words to Wesley Claire Mitchell in New York

n -_ Ik —_
I only encountered-perhaps understandably-a politely INSIDE

ironic skepticism.
Essential to his work is a global interpretation of social

development. In contrast to the few comparable contempo- Eamonn Butler's Ludwig von MiSes ...eeccceeciniins 3

raries such as Max Weber, with whom he was connected by re ee Piha Bating
. re mutual respect, in this Mises had the advantage of a : No apers Update ns
_cnuine knowledge of economic theory. Book REVIEWS rrr :
The following Memoirs say much more about his devel- mock HES on

opment, position and views than I know or could tell. I can
only attempt here to supplement or confirm information



===== PAGE 2 =====

for some time, and through which Mises’s scholarly work in though in the course of time he developed a certain under-
Vienna mainly exerted its influence. This “Mises-Seminar,” standable irritation. But he valued the great early German
as we all called the biweekly nightly discussions in his office, theoreticians like Thuenen, Hermann, Mangoldt or Gossen
is described in detail in his Memoirs. Mises though does not more highly than most of his colleagues, and knew thes
mention the hardly less important regular continuations of better. Also, among his contemporaries he valued a & |
the official discussions that lasted long into the night at a similarly isolated figures such as Dietzel, Pohle, Adolf Weber

Viennese coffee-house. As he correctly describes, these were and Passow, aswell as the sociologist Leopold von Wiese and,
not instructional meetings, but discussions presided over by above all, Max Weber. With Weber a close scholarly relation-
an older friend whose views were by no means shared by all ship had been formed during Weber's short teaching activity
members. Strictly speaking, only Fritz Machlup was origi- in Vienna, in the spring of 1918, which could have meant a

nally Mises’s student. As regards the others, of the regular great deal if Weber had not died so soon. Butin general, there
members only Richard Strigl, Gottfried Haberler, Oskar can be no doubt that he had nothing but contempt for the
Morgenstern, Lene Lieser and Martha Stefanie Braun were majority of the professors who, occupying the chairs of the

specialists in economics. Ewald Schams and Leo Schoenfeld, German universities, pretended to teach theoretical econom-
who belonged to the same highly gifted but early deceased ics. Mises does not exaggerate in his description of the
intermediate generation as Richard Strigl, were, to my teachings of economics as espoused by the historical school.
knowledge, never regular participants in the Mises-Seminar. Just how far the level of theoretical thinking in Germany had

But sociologists like Alfred Schutz, philosophers like Felix sunk is indicated by the fact that it needed the simplifications
Kaufmann and historians like Friedrich Engel-Hanosi were and coarseness of the-herein certainly meritorious-Swede
equally active in the discussions, which frequently dealt with Gustav Cassel in order to again find an audience for theory in

the problems of the methods of the social sciences, but rarely Germany. Notwithstanding his exquisite politeness in soci-
with special problems of economic theory (except those of the ety and his generally great self-control (he could also occa-
subjective theory of value). Questions of economic policy, sionally explode), Mises was not the man to successfully hide
however, were discussed often, and always from the perspec- his contempt.

tive of the influence of different social philosophies upon it. This drove him to increased isolation among professional

economists generally as well as amongthose Viennese circles
with which he had scholarly and professional contacts. He

Because he never occupied a regular became estranged from his cohorts and fellow students when
chair in his field . . . and had to devote he turned away from the advancing ideas of social policy.
most of his time to other than scholarly Twenty-five yearslater I could still feel the emotion and NB
activities . . . Mises remained an outsider his seemingly sudden break had caused—when he had tur. ¥

away from the dominating ideals of the academic youth ofthe
first few years of the century-when his fellow student F. X.
Weiss (the editor of the shorter writings of Boehm-Bawerk)
All thisseemed to be the rare mental distraction ofa man, told me about the event with unconcealed indignation, obvi-
who, during the day, was fully occupied with urgent political ~~ OUSLY In order to prevent me from a similar betrayal of
and economic problems, and who was better informed about ‘social values and an all-too-great sympathy for an “out-
daily politics, modern history and generalideological develop- lived” liberalism. }
ments than most others. What he was working on even Iwho If Carl Menger had not aged relatively early and Boehm-
officially saw him almost daily during those years did not Bawerk had not died so young, Mises probably would have
know, he never spoke about it. We could even less imagine foundsupport amongthem. But theonly survivor of the older
when he would actually write his works. I knew only from his Austrian school was my revered teacher Friedrich von Wie-
secretary that from time to time he had a manuscript typed ser, and he was more a Fabian; proud, as he believed, to have
from his distinctively clear handwriting. But many of his provided a scientific justification for progressive income
works only existed in handwriting until publication, and an taxation with his development of the theory of marginal
important article was considered lost for a long time, until it utility.
finally resurfaced among the papers of a journal editor. No Mises’s return to classical liberalism was not only a
one knew anything regarding his private work methods until reaction to a dominating trend. He completely lacked the
hismarriage. He did not speak about hisliterary activity until adaptability of his brilliant seminar-fellow Josef Schumpe-
he had completed a work. Though he knew that I was most ter, who always quickly accommodated current intellectual
willing to occasionally help him, he only asked me once tolook fashions, as well as Schumpeter’s joy in “e’pater le bour-
up a quote for his work and this was after I mentioned that I geois.” In fact, it appeared to me as if these two most
wanted to consult a work on the canonists in the library. He important representatives of the third generation of leading
never had, at least in Vienna, a scholarly assistant, Austrian economists (one can hardly consider Schumpeter a
The problems with which he concerned himself were member of the “Austrian School” in the narrower serf
mostly problems which he considered the prevailing opinion despite all mutual intellectual respect, both got on e%.)
false. The reader of the following book might gain the other’s nerves.
impression that he was prejudiced against the German social In today’s world Mises and his students are regarded as
sciences as such, This was definitely not the case, even the representatives of the Austrian school, and justifiably so,

in academia.



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although he only represents one of the branches into which understand, whereas an honest misunderstanding of his ar-

Menger’s theories had already been divided by his students, guments was the case.

»3d the close personal friendship between Eugen von Boehm- I must admit that I myself often initially did not think his
werk and Friedrich von Wieser. I only admit this with arguments to be completely convincing and only slowly

some hesitation, because I expected much of the tradition of learned that he was mostly right and that, after some reflec-

Wieser, which his successor Hans Mayer attempted to ad- tion, a justification could be found that he had not made

. explicit. And today, considering the kind of battle that he had
vance. But these expectations have not yet become fulfilled, ’ } . :
even though those stimuli may perhaps still prove more had to lead, I also unde d that he was driven to certain

fruitful than they have been so far. Today’s active “Austrian exaggerations, like that of the a priori character of economic

School,” almost exclusively in the United States, is at base a theory, where I could not follow him.

Mises-School which goes back to Boehm-Bawerk, while the se r Mises's friends of pis lates Rey after hus [ariage
man in whom Wieser had set such great hopes and who had andihesuccesso ericana ty had softened him, the

succeeded him in his chair never really fulfilled the promises sharp outburstsin the following Memoirs, written at the time
. ev . of his greatest bitterness and hopelessness, might come asa

Because he never occupied a regular chair in his field, in . . .
the German speaking world, and had to devote most of his shock. But the Mises who speaks from thefollowing pages is
time to other than scholarly activities until his late fifties, our duestion the Wises we ew hom the Vienna of the
Mises remained an outsider in academia. Other reasons twenties; of course without the tactful reservation that he

i . . TY cee 1 invariably displayed in oral expression; but the honest and
contributed to isolating him in his position in public life and . X
as a representative of a great social-philosophical project. A Open expression of what he felt and thougat. . 0a ceriain
Jewish intel | who adv 1 socialist id had his extent this may explain his neglect, even though it does not

respected placein the Vienna of the first third of this century, Shouse Thon ho knew him pefler, wero at fimes outraged,
a place that was accorded to him as a matter of course. : ge » J Y

Likewise, the Jewish banker or businessman who (bad surprisad He had too much to criticize about the representa
’ I Lo . tives of the profession into which he was seeking entrance to

enough!) defended capitalism had his rights. But a Jewish \ . .

intellectual who justified capitalism appeared to most as appear acceptable to them. And he fought againstan intellec-

some sort of monstrosity, something unnatural, which could tual which h now Shading hot least Thon Tor of his
not be categorized and with which one did not know how to SEOrES, ov wile he much too powe then for one
deal. His undisputed subject-knowledge wasimpressive, and individ pe succe A ink ¢ oo.
e could not avoid consulting him in critical economic . at ey Bad one of the great thinkers of our those ia
tations. butra relywas his advice understood and followed. their midst, the Viennese have never understood.
Mostly he was regarded as somewhat of an eccentric whose
“old-fashioned” ideas were impracticable “today.” That he
himself had constructed, in long years of hard work, his own
social philosophy was only known by very few and perhaps

F.A. Hayek is one of Mises's greatest students and the recipient of
the 1974 Nobel Prize in Economic Science. This article was
recently translated from German by Professor Hans-Hermann

could not be understood by distant observers until 1340, Hoppe and is published here for the first time, It will also become
when in his Nationaloekonomie he presented fdr the first part of the series now being compiled by the Hoover Institution
time his system of ideas in its entirety. But by this time he that will incorporate all of the works of F. A. Hayek. This
could nolongerreach readersin Germany and Austria. Apart “Introduction”was written by F. A. Hayek in May of 1977 for pub-
from the small circle of young theoreticians who met at his lication in the new German edition of Mises's Notes and Recollec-
office, and some highly gifted friends in the business world tions (Erinnerungen von Ludwig von Mises, Gustav Fischer Verlag:
who were similarly concerned about the future and who are Stuttgart, 1978). i

mentioned in the following, he only encountered genuine
understanding among occasional foreign visitors like the
Frankfurt banker Albert Hahn, whose work in monetary

theory he smiled at, however, as a vain sin of youth. Ludwig von Mises:
Yet he did not always make it easy for them. The argu- Fountainhead of the
ments by which he supported his unpopular views were not Modern Microeconomic Revolution

always completely conclusive, even though some reflection
could have shown that he was right. But when he was
convinced of his conclusions and had presented them in clear
and plain language—a gift that he possessed to a high de-
gree-he believed that this would also have to convince others

by Eamonn Butler
Gower Publishing, 1988

and only prejudice and stubbornness prevented them from Reviewed by Richard M. Ebeling
“~derstanding. Fortoo long he had lacked the opportunity of When Friedrich A. Hayek was sorting through the un-
3 .cussing problems with intellectual equals who shared his published papers of Carl Menger after the death of the
basic moral convictions in order to see how even small founder ofthe Austrian School in 1921, hefound thefollowing
differences in one’simplicit assumptions can lead to different note: “There is only one sure method for the final victory of

results, This manifested itself in a certain impatience that ascientificidea, namely, by letting every contrary proposition
was easily suspected of being an unwillingness to run a free and full course.”



===== PAGE 4 =====

A hundred years ago economists were offered two vari- have slowly been approaching the center of attention. And,
ations on the emerging marginalist theme: the “Austrian” at the same time, a new generation of young Austrian econo-
and the Walrasian. Both insisted that economic analysis mists has entered the arena as well. .
needed to begin with the economizing acts of individual men; A reflection of this resurgent interest in the Austf
both emphasized that choice involved decision makingat “the approach has been a series of books summarizing, elaborat-
margin”; and both argued that only from such beginnings ing, and critically evaluating the contributions of various
could a theory of market phenomena be successfully con- members of the Austrian School. Yet, in the fifteen-year
structed. renaissance of Austrian economics, not one comprehensive

But their conceptions of the methods most appropriate study dealing with the contributions of Ludwig von Mises has
for fulfillment of this task sent each school in its own direc- appeared. A student of Boehm-Bawerk before 1914, aleading

tion. Starting with Menger, the Austrians stated that the figure of the inter war generation of the Austrian School, and
tools of analysis should be constructed to fit the nature of the the major force and inspiration for the preservation of the
subject matter under investigation. Those who took their Austrian tradition in the decades after World War II, Ludwig
inspiration from Walras argued that the tools that had served von Mises and his writings have set the tone and direction for
so well in the natural sciences should be applied to the social practically all work in the Austrian approach for sixty years.
sciences as well. This iswhat makes Eamonn Butler’s Ludwig von Mises:

: Fountainhead of the Modern Microeconomic Revolution
such a notable volume. Forwhat Mr, Butler offers is nothing
short ofa comprehensive summary of practically every aspect
of Mises’s writings. Whether it is Mises’s discussions of
socialism and interventionism, his analysis of entrepre-
neurship and the competitive process, his theory of capital
and interest, money and the business cycle, or methodology
and nature of the social sciences, the author demonstrates a
wide reading and mastering of all of Mises’s principal works.
Equally evident on almost every page is that the author has
approached his subject with a sympathetic eye, wishing to
make Mises both intelligible to the reader and demonstrably
relevant to problems of the contemporary real world. In less
than three hundred pages, Mr. Butler has constructei
volume that comes close to being a detailed encyclopedia of

Looking for those characteristics that distinguished the contributions of Ludwig von Mises.
human action from other types of phenomena, the Austrians Unfortunately, comprehensiveness does not mean the-
focused on the intentionality of man. To order and under- matic. And it is in these areas—analytical integration and

stand the logic of human action, the analyst's starting point thematicinterpretation-that Mr. Butler, asimportantand as
had to be the subjective meanings of men—-megnings that useful as his book is, falls short. This is in contrast, it should
gave structure, orientation and intelligibility to everything be said, to his earlier work, Hayek: His Contribution to the

that men doina setting of competing ends desired and limited Political and Economic Thought of Our Time (Universe
means available. Books, 1983). In that volume, the author clearly understood
Searching for what human activity shared in common that if Hayek's contribution was to be appreciated it was
with other types of phenomena, the Walrasians focused on necessary to take the reader on an intellectual journey that
the quantitative dimension of human choices. The logic of began with Hayek’s broad conceptions concerning man,
choice was cast in the mold of mathematical relationships. knowledge and social order. Mr. Butler only then, proceeded
The crucial questions became those concerning points of to explain and demonstrate how Hayek's views about the
maximum benefits and minimum costs; states of equilibrium market process, socialist planning, monetary and cycle the-
between various magnitudes; and whether these states ex- ory, etc., all naturally flowed as the logical implications and
isted and were stable and unique. applications of a vision of society in which knowledge is both
Theappeal of mathematical determinatenessin an intel- imperfect and divided among a multitude of men, and in
lectual climate heavy with Positivism meant that the vast which social order and change often occur as the unintended
majority of economists took the Walrasian path throughout consequences of human action.
most of the twentieth century. Now, at the threshold of the No such thematic principle is as clearly shown to run
twenty-first century, the mathematical variation of the through and connect the various works of Ludwig von Mises.

marginalist theme has run a free and full course. The finish Obviously wishing to make the reader believe that Mises is
line has been found to be a dead end. The prize awarded has topical, relevant, and “modern,” Mr. Butler structures the
been the present crisis in economic theory and policy. book with policy issues first-socialism, interventionism,;

Austrian economics, after a long eclipse, has again en- eralism, welfare statism-then descends into the “theoreh-
tered the arena of legitimacy and respectability in the eyes of cal”-subjective value, entrepreneurship and the market
the economics profession. The types of questions asked and process, capital and interest and monetary theory-and fi-
methods proposed that were long denigrated as “Austrian” nally concludes with methodology and the state of economic

S—



===== PAGE 5 =====

science today. rary viewpoints in the philosophy of science, Mr. Butler
The volume, therefore, often seems disjointed and the judges and evaluates Mises from the standpoint of post-
readerisieft wondering exactly how Mises “fits all together.” Popperian philosophy of science. And by this standard he
 therthan being shown tobe a coherent system of thought, finds Mises wanting. He argues that “certain knowledge”

* .disesian Economics” often appears ambiguous, contradic- cannot be derived from an axiomatic-deductive approach
tory and unsystematic and not Ludwig von Mises. For because there exists more than one system of logic with which
example, in a brief “overview” chapter right at the beginning one can interpret the relationships of the empirical world.
of the volume, Mr. Butler explains that “subjectivism” is an And sincethe cruder forms of empiricism and positivism have
essential ingredient in Mises’s approach. Yetin chapter two, long ago been removed from the philosophic arena, the issue
on socialism, Mr. Butler accuses Mises of not appreciating now is how to best devise ways to test hypotheses against
that costs are “subjective.” But in a later chapter evaluating . reality in a setting in which it is accepted that all “facts” are
Mises’s writings on subjective value, the author contends “theory-laden” and all evidential conclusions are only tenta-
that in Mises's framework valuation and action must always tive.
be conceived from the actor’s point of view and, therefore, for That there are numerous ways to order “the facts” of the
Mises costs are subjective. world, and that those ordered ‘facts’ can be constructed into

Inthe chapter devoted to Mises’s critique of intervention- various forms of relationships is obvious. But Mises argued
ism, on the other hand, Mr. Butler creates the impression forcefully that social scientific inquiry was more than a game;

that Mises’s analysis of price controls is at least ambiguous its goal was truth. The question then was, was there any
and possibly flawed. Observing that not every introduction avenue through which the true relationships underlying

of price controls has led to central planning, he argues that economic phenomena could be comprehended? Mises
Mises’s contention that price intervention leads to socialism claimed therewas. All study of human actionand all resulting
is untenable. But itis Mr. Butler’s conclusion that is flawed, economic relationships start, for Mises, from the insight that
because he has failed to appreciate Mises’s distinction be- all “action” is ultimately reason applied to purpose. What

tween theory and history. The role of economic theory, in
Mises’s framework, is to trace out all of the logical implica-
tions that follow from the system’s axioms, various subsidi-
ary postulates and alternative contextual assumptions.
History is the story of past human actions made intelligible
and interpretively understandable with the aid of theory.

(  Mises’stheory of price controls traces out logical implica-
“ons, not historical necessities. The heart of Mises’s argu-
ment concerns the interdependency of market phenomena
and the insight that isolated controls on resource or final
goods prices disrupts the market tendency to bring selling
prices and resource prices into a coordinated balance. The
resulting shortages or surplus could only he compensated for,
assumingthe controls are not to be lifted, by their éxtensions
tothe markets upon which the presently controlled market is
dependent. That governments do not always do so does not
refute the theory. It just shows that in the historical flow of
events there are other political and economic forces prevent-
ing or retarding what the logic of price controls conceptually
dictates.

But, perhaps, the most flagrant failure on Mr. Butler's
part to appreciate how the various strands of Mises’s work
necessarily fit together and are inseparable are his chapters
on “Individual Values in Economics” and “The Scientific

‘3

Richard Ebeling spoke on * Eugen von Boehm-Bawerk’s Critique
of Karl Marx,” at the Mises Institute’s recent conference on Marx-

Foundation of Economics.” In the earlier chapter, Mr, Butler ism, in New York City in October.
explains that for Mises all study of human action is grounded
in methodological individualism and subjectivism. That is, gives that reason an axiomatic quality in praxeological and
all economic phenomena originatein the actions of individual economic theory are the conditions under which reason is
men and that men are guided in their actions by their applied to purpose; i.e., a setting in which a variety of imag-
purposes and their “subjective” (i.e., personal) point of view ined ends are desired in an environment in which the per-
concerning the value of ends, the nature of means, and their ceived means are evaluated as insufficient to attain all the
. “ceptions (in a world of uncertainty) concerning the possi- desired ends. Logic “dictates” an ordering of the ends in
* ties before them. termsofimportance and an application of the meansavailable
Rather than try to apply Mises’s methodological ap- in amanner that no means be applied to an end when the cost
proach to understand Mises’s conception of the scientific is too high, i.e., when there is an end that the means could
basis of economics and how his view differs from contempo- satisfy that is ranked higher than the one for which they were



===== PAGE 6 =====

going to be used. The conditions under which action occurs Update on the Menger Papers
imposes a single logical form to all economic activity; there-

fore, insight into that form generates “certain knowledge” by Mark D. Hughes

concerning the general structure of all conscious human

conduct. Its “truthfulness” is verified by the introspective Last winter Duke University at Durham, North Carol!
refelction that any and every individual could undertake con- acquired the personal papers of Carl Menger. This was
cerning the logical principles guiding his own conscious largely due to the efforts of Professor Roy Weintraub and
behavior. Professor Craufurd Goodwin. According to Duke University

It is the possibility for this type of “grounding” of eco- archivist Robert Byrd, not much archival work has been done
nomic theory that makes most of contemporary philosophy of on the collection since our last report in January 1988, This
science inapplicable for judging the “scientific foundation” of is because Goodwin and Byrd have had difficulty finding an

the social sciences. The philosophy of science, eveninits most archivist who is not only fluent in German but also familiar
modern forms, it needs to be remembered, is still primarily with the Austrian School of Economics. The position has not
concerned with knowledge-acquisition in the natural sci- yet been filled. Any Austrian economist who is fluent in
ences. German, has some familiarity with U.S. archival standards,
This also means that “prediction” must be understood in and is interested in working on the Menger collection should
a specific mannerin economics aswell. Whatis “predictable” contact Robert Byrd or Craufurd Goodwin at Duke Univer-
in an absolute sense is that all human action will conform to sity.
thelogical relationships thatareinherentin the general ends- Mr. Byrd informed the AEN that a list of all the artifacts
means configuration. But that is all that can be predicted has been made but that the collection itself remains unorgan-
with “apodictic certainty.” All other more specific predic- ized and without an index. He said the collection is in good
tions concerning the concretes of ends, means, actions and re- physical condition and that it is open to scholars who wish to
sponses in, e.g., the area of trade and exchange is dependent study it.
upon “understanding.” And understanding, in a forward- In celebration of its acquisition of the Menger papers,
looking perspective, means interpretive insight acquired Duke University is hosting a conference on Carl Menger

through study of and experience with “others” whose specific scheduled for April 14-16, 1989. The conference, which will
behavior the actor or analyst is attempting to anticipate. In be directed by Professor Bruce Caldwell of the University of
both Human Action and Theory and History Mises analyzes North Carolina at Greensboro, was originally to coincide with
the problem of predictive understanding under the heading the publication of the Menger Papers once they had been

of the “ideal type.” translated. Unfortunately, the collection will probably a
Interestingly, this is a particular aspect of Mises’s writ- ready by then.

ings that is almost completely ignored in Mr. Butler’s book. Fourteen papers will be presented with Axel

If he had pursued this theme it would have become clearto =~ Leijonhufvud offering the closing remarks. Other notable

him that the standard arguments concerning empirical cor- participants will be Roger Garrison of Auburn University,

roboration or falsification as found in contemporary philoso- Barry Smith of the University of Manchester, Karen Vaughn

phy of science are inapplicable to economics. Because of George Mason University, and Erich Streissler who will
“empirical” in the realm of “understanding” rdfers to the present two papers. The conference is by invitation only due
“subjective meanings” of others and the analysis of the to limited space.

consequences of actions arising from behavior initiated on the Duke University has also recently acquired the personal
basis of those subjective meanings. Here the “test” of applied papers of Austrian fellow traveler and Mises student Oscar
theory in a particular context is dependent upon the persua- Morgenstern. If all goes well with the Menger conference,
siveness of the historian’s account. Thisis what Mises meant Professor Caldwell hopes it will be the first in a series of
when he said that there is no empirically correct historical annual conferencesat Duke University on historically signifi-
interpretation not open to challenge. cant economists. A conference on Oscar Morgenstern and

It is the logical structure that emerges from the analysis game theory is tentatively planned for 1990. | |

ofactionand theinsight that action arisesout ofthe subjective
meanings of men that are the thematic chords that connect

and integrate all of Mises’s writings. It is also the reason why "Keynes and Keynesianism"

an appreciation of Mises must begin with an understanding

of this theme if his system and all of its developments and April 28-29, 1989

applications are to be seen as an integrated whole. It is also

why what Mr, Butler concludes his volume with is where his Cutman Conference Center

volume should have begun. Intentionality, purposeful action, at Harvard Square

hasbeen the cornerstone of the Austrian School since Menger Cambridge, Massachusetts

penned his famous Grundsatze in 1871. And it is the key to

a successful analysis of the contributions of Ludwig von For more information and details contact Pat 9
Mises. | Heckman at Auburn University, Auburn, Ala-

bama 36849 or by telephone at (205) 826-2500.

Richard Ebeling is Ludwig von Mises professor of economics at
Hillsdale College,



===== PAGE 7 =====

7. Publication of the Essai two decades after Cantillon’s

. supposed “death” was no random event. It was part of a
Book Reviews concerted effort by Vincent de Gournay to bring to light
substantive treatments of le commerce which could, in turn,

. ) serve to launch economics as a science.
JER— . ] Murphy presents convincing, though sometimes merely
Richard Cantillon: E nireprene ur and circumstantial, evidence for each of these findings, and
Economist his detailed account of the labyrinthian course of eventsin

By Antoin E, Murphy
Clarendon Press, 1986

Reviewed by Robert F. Hebert

Ever since Jevons “rediscovered” Cantillon in 1881,
there has been little doubt of the significance of his contribu-
tions to economic theory. However, the life and works of
Richard Cantillon have been shrouded in mystery for over
two centuries. Musing on the origin and nationality of
sconomic science, and Cantillon’s role in its development,
Jevons declared: “The first systematic Treatise on Econom-
ics was probably written by a banker of Spanish name, born
from an Irish family of the County Kerry, bred we know not
where, carrying on business in Paris, but clearly murderedin
Albemarle Street [London].”

Despite Jevons’ “careful and laborious inquiries” on
Cantillon, followed in due course by Henry Higgs’ investiga-
tions into Cantillon’s background, a number of inaccuracies
remained in the standard accounts. Now comes Antoin , ’
Murphy (like Cantillon, a son of Ireland) who has done a Robert F. Hebert
superb piece of detective work on the peripatetic eighteenth

\[ §ntury banker and economist. To the extent that it seems Francebetween 1718-1720 occupies a major part of the book.
“ possible at this late date, Murphy has cleared up a number of During this period Law controlled the debt management

issues surrounding the circumstances of Cantillon’s birth, policies of the French government; exercising the absolute
business career, literary works, and death. Among his most power of a central banker as he manipulated the quantity of
significant findings are the following: money, interest rates, and exchange rates. When Law's

1. Althoughwe remain in the dark about the precise year elaborate, but fragile, fiscal apparatus began to totterin 1720,
of Cantillon’s birth, we can confidently place that event it was Cantillon that he called upon to help save the system.

between 1680 and 1690. Prudently, Cantillon declined. Throughout the entire epi-
2, Irish by birth, Cantillon took out French citizenship in sode, Law remained the major player, and Cantillon the
1708. shrewd insider. Murphy uncovers the full range of
3. Cantillon’s reputation for shrewdness in financial Cantillon’s operations, including his ability to survive and
dealings is justified, although his speculative profits in Euro- prosper, with interests in Europe, the New World, and
pean stock markets have been exaggerated. (Cantillon made perhaps, even in South America.
several fortunes speculating in both the Mississippi and Antoin Murphy has been following Cantillon’s trail for
South Sea Bubbles, but in both cases he liquidated his nigh untoa decade now, and his persistence has paid offin this
investment at share prices far below the market highs.) delightful book that is both scholarly and interesting. It
4. Cantillon’s Essai is chiefly an attempt to explain the should appeal not only to “Cantillon buffs” like myself, but
economic effects of John Law’s monetary policies in France. also to those who enjoy a good “whodunit”, The book is first
(Cantillon was the first to recognize the risks to the economy and foremost a biography, but it contains a dissective chapter
of a combined system of paper money and a credit-creating on the contents of Cantillon’s Essai, and it helps to illuminate
banking system.) some of the problems historiographers must inevitably face
5. There is a distinct possibility that Cantillon was not in practicing their craft.
murdered in Albemarle Street, but rather faked his own Finally, Cantillon should be of particular interest to read-
death in order to avoid prolonged legal battles with his ersof the AEN, because his ideas had a substantial impact on
enemies in France and England. the development of Austrian economics.! The Essai is num-

' yy 6. Cantillon’s Essai was not translated from English nor bered among the many books in Menger’s library? and of
"sliblished in London, as commonly supposed. Rather, the course, Hayek patterned hismonetary theory after Cantillon.
impression of foreign publication was carefully concocted in It also appears that Mises based his conception of the entre-
order to circumvent French censorship laws. (The publisher preneur on Cantillon’s early statement of the notion, even
was most likely Guillyn of Paris.) though Mises did not credit Cantillon in this regard.

bru



===== PAGE 8 =====

This book should be read by all those who are interested foreign nonprofit organizations.
in the intellectual roots of Austrian economics, and of eco- Most of the scholars present their theoretical approaches
nomics in general. Economists everywhere are indebted to in an unbiased manner. Some, however, are predisposed to
Antoin Murphy for remaining on a trail that obviously grew the notion that the nonprofit sector hasa closer relation to
cold longago. His undaunted sleuthing has onceagain proven government sector than the voluntary for-profit marker.

the old adage that “t’is better late than never.” Thus they neglect the literature which views the nonprofit
sector within the framework of the market process. One
Notes important exception is the essay by James Douglas, “Political

Theories of Nonprofit Organizations” which argues:
1, See my article, “Was Richard Cantillon an Austrian Econo-

2. See Katalog der Carl Menger-Bibliothek in der Handels- service is that it can invoke the coercive powers of
Universitat Tokio, Vol. 1, p. 559. law.... This power is most frequently used to commandeer

money through compulsory taxation. Organizations in
the private sector [both for-profit and nonprofit) have no

Robert F. Hebert is Russell Professor of Economics at Auburn such power to commandeer the resourcesthey need. They
University and a member of the Editorial Board of the Review of must either exchange something they own (or to which
Austrian Economics. He was recently elected as a member of the they have some form of title) for something they need or
Southern Economic Association. |
This perspective challenges the view that America’s
The Nonprofit Sector: socioeconomic structure is built on three distinct and sepa-
A Research Handbook rate categories—for-profit, government, and nonprofit. This

view is perhaps an overzealous use of taxonomy, It is more
accurate to depict this structure in terms of only two sectors:
the private sector, where action is voluntary, and the govern-
ment sector, where action is coerced. The private sector
contains both the nonprofit and the for-profit sectors. As
Professor Douglas writes: “exchange also plays a partin the
transactions of the voluntary nonprofit sector. Indeed if we
use the term exchange in a sufficiently broad sense, it cani{g )
made to cover even the most altruistic of voluntary endeav-
ors” (p.44).

The praxeological method of Austrian economies, with

Edited by Walter W. Powell
Yale University Press, 1987

Reviewed by Mark D. Hughes

Economists have focused almost exclusively on two sec-
tors of society--the private for-profit sector and the govern-
ment sector-to the neglect of the nonprofit sector. It is this
“third sector” where people choose, individually or collec-
tively, free of state compulsion or the incentive of monetary
as of charity and hilanthrony, Considering its focus on voluntary action, is uniquely suited to study and

. . understanding of nonprofit activity. Indeed Ludwig von
this ortance of the a eo rioth emodern Mises understood that praxeology enables the economist to

explain a very broad range of human endeavors, including

One exception to the rule is the Program on Non-Profit . . Ted
Organizations based at the Institution for Social and Policy those not directly rel ated to material well-being. In Human

Studies at Yale University. The Nonprofit Sector: A Research
Handbook is a useful compendium of their literature. The

It is the sci f kind of h ction. Choosi
editor Walter Powell has brought together twenty-four es- is the science of every kin uman action. Choosing

determines all human decisions. In making his choice

says by twenty-eight authors to “produce a state-of-the-art man chooses not only between various material things
review and assessment of scholarly research on the nonprofit and services. All human values are offered for option...
sector.” Nothingthat men aim at or want to avoid remains outside
The handbook is organized into six parts. Part one this arrangement into a unique scale of graduated prefer-
provides an overview of the nonprofit sector: historical ences. The modern theory of value widens the scientific
perspective, economic and political theory, and empirical horizon and enlarges the field of economic studies (p. 3).
data from the U.S. experience. Part two looks at the tax
treatment of nonprofit organizations, how government and The Nonprofit Sector: A Research Handbook providesa
the nonprofit sector interact, and compares and contrasts the useful resource guide to the existing rather scattered litera-
nonprofit and for-profit sectors. Part three covers theadmin- ture on the nonprofit sector. It is a welcome addition to the
istrative side of nonprofit organizations, including the gov- library of anyone interested in nonprofit organizations and to
ernance function of boards of directors, measurements of Austrians who see this field as a potentially fruitful research
nonprofit organization performance, executive leadership, program. -
and organizational change. Parts four and five thoroughly WU
examine the sociology of the nonprofit sector, for example, :
culture, health care, personal social services, education, Mark Hughes is a graduate student at George Mason University

neighborhood organizations, and policy advocacy and and a Ludwig von Mises fellow.



===== PAGE 9 =====

bureaucracy serves the purpose of calling for an Austrian

Bookbites refutation. As an overview of some of the best scholarship

from this radical school of thought, Democracy and Public

‘0 Choice should be of special interest to Austrians wanting to
! sharpen their own critique of action in the political market-
place. JAT [|

TATA Ny

Essays in Honor of Gordon Tullock \

\
Edited with contributions by Charles K. Rowley \ oA, ™
Basil Blackwell, 1987 \

Gordon Tullock is Karl Eller Professor of Economics q
and Political Science at the University of Arizona, and is co-
founder, with Nobel Laureate James Buchanan (presently at cr
George Mason University), of the Virginia School of Political ST .
Economy. Democracy and Public Choice is his festschrift. It Christians for ] dom: ]
is an attempt to distill uniquely Tullockian insights-and ~~ Late-Scholastic Economics
there are dozens—from the broad and diversified framework by Alejandro J. Chafuen

of Public Choice theory. Taken together, these essays, by Introduction by Michael Novak

seventeen distinguished economists, carve out a special place Ignatius Press, 1986

for Gordon Tullock within the Public Choice school. They go

beyond his famous contributions to the Calculus of Consent Despite the misleading title, this is a serious and ground-

(1962), and examine his theories of voting behavior, interest breaking study of the economic thought of the late-scholastic

groups, rent-seeking, bureaucracies, the welfare state, and Catholic academics, whose work centered around the Span-
| legal institutions. ish universities of Salamanca, Complutense at Alcala, and

others, from 1400 to 1650. Dr. Chafuen formerly taught
economics at the University of Argentina and is now a
resident fellow at the Institute for Humane Studies. He is
fluent in Spanish, Latin, and English and his extensive
research into the writings of the late-scholastics—-sometimes
called the Schoolmen or the Doctors-goes far beyond other
studies on the subject,

Thebook’s thesis is that the late-scholastics were precur-
sors to Austrian economists in virtually every area of theory

and policy. And not just in an abstract way. Scholars like St.
The subject matter is indeed wide-ranging, But as Bernardino of Siena, Tomas de Mercado, Luisde Lolina, Juan
Charles Rowley of George Mason University points out in his de Mariana, and Domingo de Soto wrote with remarkable
informative introduction, Tullock’s ideas and insights have specificity about the subjective nature of value, the theory of
consistently centered around his attempt to maintain the marginal utility, the quantity theory of money, the function
integrity of the Public Choice axiom of komo economicus and of prices and wages, the harmful effects of taxation and infla-

to use this self-secking assumption to analyze political mar- tion, and the problems inherent in collective ownership.
kets. Itisthis “protected core,” as Rowley callgit, which leads Their only major misunderstanding relates to the theory of
to an ideology of “profound skepticism concerning the role of interest, a flaw which has unjustly tarnished their reputation
government,’ and a “systematic preference for market over in the history of thought. Through the years the wisdom of
non-market decision making.” the late-scholastics was apparently lost. Adam Smith, for
The contributionsto this volume arefarabove the puffery example, didn’t know that the theoretical problems he found
of some festschriften. Each reviews the relevant literature most puzzling were solved by the Schoolmen 300 years
and ideasin the respective topic, as in Dennis Mueller’s essay earlier. With few exceptions, it wasn’t until the late nine-
on the “Voting Paradox,” and many extend the analysis to teenth century, with the marginal revolution, that econo-
solve some new problem or pose new questions, asin Richard mists developed an equally sophisticated understanding of
Wagner's thoughtful handling of interest groups and consti- the basics of economic theory.
tutional contracts. The back-to-back essays on rent-seeking Chafuen has discovered and organized a mass of quotes

by Robert Tollison and Michael Crew put the theory in a toprove hiscase. Infact, the evidence is so overwhelming that
i tshell and evaluate its place in the future of economic Michael Novak is right in pointing out in the Introduction
Yfeory. Buchanan's revealing contribution brings out that Chafuen has understated the importance of his discov-
Tullock’s personal peculiarities and some of Buchanan's own eries. The book is weak in placing the school in the history of
disagreements with Tullock’s alleged extremism. Even economic thought and in how the Schoolmen’s insights were
William Niskanan’s ill-informed stab at Mises’s theory of lost alongthe way. He hasleft that work for others. But given

—



===== PAGE 10 =====

his pathbreaking research, it will be a shame if the title-or lyzed by Garcia, and England looks at the changing economic

the fact that Ignatius Press is a traditionalist Catholic pub- environment facing the banking industry and argues that
lishing house-preventsDr, Chafuen’sbook from securingthe banking regulation is currently out of step.
reams of economic citations it deserves. JAT | Inthelast section, the contributors look tothe future wig, |

a discussion of various reforms. Litan suggests alternatives
to unite commercial and investment banking, while Huertas

: : : ype downplays the problem with holding companies. And finally,

The Financial Services Revolution. England discusses how depositors might protect themselves
Policy Directions for the Future in the absence of federal deposit insurance.

Edited by Catherine England and Thomas Huertas The volume has more than credibly accomplished the

Kluwer Academic Publishers, 1988 goal that it set for itself. The rigorous analyses has given a

fresh look at some old assumptions regarding financial serv-

Contributorstothis volumeare: James R. Barth, Michael ices. Focusing primarily on domestic issues, it leaves some

D. Bordo, Robert A. Eisenbeis, Bert Ely, Gillian Garcia, Roger international aspects for further study. Nonetheless, a stu-
W. Garrison, Marvin Goodfriend, William S. Haraf, Thomas dent in the field, as well as a central banker, can find
F. Huertas, George G. Kaufman, Robert E. Litan, A. James significant contributions in this most understandable work.
Meigs, Gerald P. O’Driscoll Jr., Catherine England, Martin When global economic pressures become increasingly more
A. Regalia, Angela Redish, Eugenie D. Short, William F. complex, it becomes more imperative to ascertain the impact
Shugart II, Richard H. Timberlake, and Mark Toma. of public policy on financial services.JMcC Hn
Alan Greenspan, chairman ofthe Federal Reserve Board, -
highlights the rapid changes in adjustments that are now
occurring in international trade in a recent commentary in
the Wall Street Journal (October 24, 1988). He remarks that
recent innovations in the extraordinary “downsizing” of
goods expands the possibility of integrated production proc-
ess, makes protectionism harder to sustain and hence miti-
gates much of the wrenching effects caused by governments.
What the central banker neglects to discuss is the notable
advancements made in the financial markets as well as the
various implications these may have for monetary policy.
The Financial Services Revolution: Policy Directions for . - IF: .
the Future rigorously addresses this timely issue. The book Austrian Economcs: Historical and
was the outcome of a Cato Institute conference held February Philosophical Background
1987. The general theme of the book is the examination of Edited by Wolfgang Grass] and Barry Smith
common assumptions about the banking industry and the New York University Press, 1986
general conclusion that the present regulatory system is not
in the best interest of the United States, It analyzes both the Since the revival of Austrian economics began in 1974, it
old and new in its fourteen chapters hy tackling such ques- has been a necessary but difficult task to reconstruct the
tions as: who should beallowed to own a bank; what activities historical and philosophical background. It is necessary
should a bank’s affiliates be allowed to engage; and how because Austrian economics achieves its greatest distinction

&

should banking organization be regulated and supervised. initsphilosophical rigor. Butitis difficult because thestrands
The primary focus is on domestic areas, although interna- which weave the philosophical backdrop to Austrianism vary
tional implications are scattered throughout. in texture and color, and don’t always appear to fit together.

In Part I, on “Banking History,” the United States and Can Mises’s Kantianism and Husserlianism be fully recon-
Canadian experience in the 1930s is examined to analyze ciled with Rothbard’s neo-Thomism? And how can

theories of bank runs and causes of the depression. The Lachmann’s hermeneutics be reconciled with the rational-
general conclusion is that public policy toward banking was ism of every Austrian from Menger to Selgin, having, as
the main culprit in the U. S. Perhaps there is toc much hermeneutics does, so much in common with the historicism
emphasis on public policy rather than on underlying causes. against which Mises so vigorously fought?

- Twas disappointed by the fact that Bert Ely so readily indicts The logical place to begin the reconstruction is with Carl

the gold standard and argues that the gold clauses should Menger, the founder of the Austrian school. Yet it is surpris-
have been abrogated much earlier. Abrogation did much to ing that, until Austrian Economics, Menger’s own philo-

destroy the confidence of the credit markets. sophical position has not been thoroughly examined. Barry
O'Driscoll, Garrison, and Short discussin detail the vari- Smith, lecturer in the Department of Philosophy at the
ous economic implications of the federal deposit insurance University of Manchester, England, whose essay is the c(# -
systemin the section on “CurrentRegulation.” Tomaalso ex- of this book, takes a close look at Mengarian philosophy, wa
amines the significance of the new monopoly control of impressive results. Menger’s Aristotelianism is well known.
reserve requirements by the Federal Reserve. The wide- Less known is that Menger relied heavily on the Catholic
spread insolvency in the Savings and Loan industry is ana- scholar and priest, Franz Brentano, in developing his theory

10


===== PAGE 11 =====

CT

of valuation and method. Smith’s contribution isin showing
the remarkable similarities between the two theorists and
where and why they differed.

/@& PeterSimmonsand Reinhard Fabian back Smithup with
'"®iengthy essay on the “Second School” of Austrian value
theorists (Alexius von Meinong, Christian von Ehrenfels,
and Oskar Kraus), all of whom trace their roots to Brentano.
The essay also contains helpful bibliographies of each of the : LE
School's members. [ a

Most of the book’s other essays are spin-offs on the theme Discovery and the Capitalist Process

and all are important in their own right. Especially notable by Israel M. Kirzner
essays are Roderick Chisholm on Brentano’s own value University of Chicago Press, 1985
theory, Jeremy Shearmur on Menger and Hayek, and

Wolfgang Grass! on the ethical implications of the Austrian With the exception of the chapter “Entrepreneurship,
view of markets. Economics, and Economists,” Israel M. Kirzner’s Discovery

Thisbook breathes fresh airinto the continuing scholarly and the Capitalist Process is a collection of previously pub-
inquiry into the foundations of Austrian philosophy. Consid- lished essays. Itis helpful to have them collected here because
ering all the new material between its covers, Austrian some of the best were originally published in books many

Economics qualifies as a landmark contribution. JAT HW Austrians might not purchase.

Kirzner notes in the Preface, “What unites the seven
papers offered in this volume is a particular positive vision of
capitalism-absorbed from the ‘Austrian’ tradition in modern

A Nation in Debt: Economists economic thought-that they express.” There are articles on
Debate the Federal Budget Deficit pure theory that show capitalism and entrepreneurship to be
Edited by Richard H. Fink and Jack C. High an ongoing process of “creative discovery.” The history of
University Publications of America, 1987 thought piece explores reasons for the neglect of entrepre-
neurship by economists in the half century following 1920,
o. . and its recent reappearance in the literature. Thereare even
A Nation in Debt contains twenty-seven essays on articles on public-policy issues, including an analysis of how
4A rious aspects of government deficit financing, aswell as an different “patterns of taxation” affect the capitalist process.
“utroductory essay by the editors. The essays are arranged One highlight is the essay showing how regulation distorts
into seven chapters: The Classical Masters,” “The Keyne- decision making and creates inefficiency and confusion-even
sian Revolution,” “Modern Controversies,” “International when regulators are treated as public spirited.
Consequences,” “Constitutional Reform,” and ‘Legislative Except for some repetition, this book provides a good
Reform.” The final chapter consists of one essay on current overview of Kirzner’s recent work, especially the extension of
highlights in the battle over the budget in Washiggton, D.C. his theory of entrepreneurship into public-policy issues. GBL
The contributors range from Karl Marx, the father of So- : Bu

cialism to Peter Boettke who only recently received his Ph.D.
Notable Keynesians include Abba Lerner, James Tobin, and
John Maynard Keynes, while the Austrian school is repre-
sented by Ludwig von Mises, Friedrich von Hayek, and
Henry Hazlitt. A host of neoclassicals and public choice
economists round out the field. Notable contributions miss-
ing from the volume are the “deficits don’t matter” school :
which includes David Ricardo from the classical peried, and pe AT
Robert Barro his modern proponent. | oan
The various issues concerning the causes, effects, and Conversations With Economists
cures for government deficit financing isa long and confusing b Kla
list, this book does a good job of covering most of them. While y Arjo Rlamer
the book is actually not economists debating the federal Rowman and Allanheld, 1983
deficit and debt, it does provide easy access to the positions of
many of the most important contributors in the history of Conversations with Economists reports, almost verba-
economic thought and modern contributions. If one is re- tim, Arjo Klamer’s personal interviews with eleven promi-
morse about our future in light of growing deficits and a nent and influential economists. Though it pits New Classi-
| @ons federal debt this will not be the cure. If one is cal (Rational Expectations) theorists against their Keynesian
{king for a simple single explanation or cure for the deficit and Monetarists opponents in an intriguing way, this is not

this will not provide such a conclusion. However, if you seek a book of debates. Primarily, these transcripts reveal the
to understand the issues and attempt a contribution, this candid thought of these economists on economic theory,
volume is a useful tool. MT | | policy, method and the conflicts that arise between competing

11


===== PAGE 12 =====

schools. The result is a vivid picture of what is happening in pattern of the cycle.”
economics today. After constructing these three-decade cycles, Batra pro-
Klamer has chosen Robert Lucas, Thomas Sargent and vides his explanation for depressions: the concentration of
Robert Townsend to represent the New Classical school. wealth resulting from the speculative loans made by gli
Lucas and Sargent are “obvious choices” he says, and banking industry. Batra’s analysis suffers both from
Townsend was chosen to “speak forthe younger generation.” methodology and his philosophical premises. The concentra-
He also divides the neo-Keynesians, with James Tobin, tion of wealth is only a by-product, not a cause. While most
Franco Modigliani, and Robert Solow representing the older business cycletheories have somekernel of truth, they are not
generation, and Alan Blinder and John Taylor representing good explanations of the basic causes that lead to the cycles
the younger generation. Klamer admits that Taylor objects themselves and are a faulty basis for policy recommenda-

to this label, and recognizes that Taylor’s work is closer to tions. The dramatic increase in loans and investments that
Rational Expectations, though he justifies his decision onthe set the stage for the Great Depression can only be understood
grounds that Taylor produces neo-Keynesian conclusions. by examining a variety of economic forces, with priority
Karl Brunner, and unfortunately not Milton Friedman, is resting with the actions of the central bank and the Federal
chosen to represent Monetarism, the role of the non-main- Reserve System (before and after the stock market crash).

stream economist is granted to Marxist David M, Gordon, Batra’s book was not written for academic economists, in
and no Austrians are interviewed. The most intriguing fact it contains only six references to academic sources, but
conversation is with Leonard Rapping, who worked very rather for the layman. It contains elements of various refuted

closely with Robert Lucas in the late 1360s and helped Lucas theories such as historical determinism, class analysis, and
lay the foundations of the New Classical economics. He the underconsumption theory of the business cycle. While
trained at UCLA and Chicago, but abandoned Friedmanite histhree-decade cyclesare interesting, many flawsare appar-
economics for a socialist political outlook and institutionalist/ ent and one is constantly reminded of long-cyele analysis and
neo-Keynesian economics. Today Rapping remains one of its lack of value to economic theory. A valuable part of the

the most interesting opponents of New Classical economics. book is Batra’s appendices on the wholesale price index, the
Guesswork best describes what students too often must chronology of regulatory bodies, and the chronology of regu-
do when looking for the real intentions of economists, Con- latory legislation. MT B

versations with Economists transcends the cryptic verbiage
of economic journals to uncover each economist’s assump-
tions and beliefs about their discipline and their world. MDH

|

The Great Depression: ¢
Will We Repeat It?
The Great Depression of 1990 by Hans F. Sennholz
by Ravi Batra Libertarian Press, 1988

Bantam Doubleday Dell Publishing, 1987
: - Hans Sennholz’s The Great Depression: Will We Repeat

Ravi Batra’s book made a big splash aftef the stock It? is a small pamphlet written for the general public.
market crash of October 1987, becoming an instant #1 New Sennholz was a student of Ludwig von Mises, and it is

York Times best seller. Batra, a professor of economics at therefore not surprising that it is written from the Austrian
Southern Methodist University, is well known for hisworkin perspective, with all its warning of government intervention,
the theory of international trade, In this book, however, he deficit spending, and government manipulation of money
seems to have turned from “esoteric mathematical models” and credit.

to history and philosophy to better aid his own economic The lessons of Austrian economics are conveyed by

philosophy. His book is a hodge-podge of Marxian-style class Sennholz’s review of the Roaring 20s and the Hoover-Roose-
analysis, historical determinism, Kondratieff-style cycle velt Depression. The origin of a predicted future depression
analysis, and economic history. While basically a Marxist, is found in the economic policies the 1970s and 1980s.
Batra never fails to throw bones to Keynesians, monetarists, Sennholz clearly points outthe problems of political solutions

and free-marketeers. and our betrayal by the Reagan administration, The seeds of
The “law of social cycles” is the book's key ingredient. destruction are found in the massive increases in federal

This theory divides society into four classes: laborers, warri- spending, deficits, and money supply. These seeds resulted

ors, intellectuals, and acquisitors. Each group takes a turn in the speculative stock market boom and the inevitable stock

dominating society and in turn has pronounced effects on it. market crash.

In chapter 3, “The Long-Run Cycle of Money Growth,” he Sennholz’s analysis describes the current situation as

begins to give us the heart of his analysis: that money growth bleak but not hopeless. We do face the “the dismal 90s”
peaked every third decade throughout U.S. history and this because the government has incurred liabilities to pay in

peak is followed by a steep decline in monetary growth. The future the wealth that it has consumed or destroyed in 9
only exception is the Civil War period. He adds that “the past. Our future is now in the hands of monetary authorities.
creation of the FED simply increased the long-run oscilla- They can either continue the old policy of pumping in more
tions in money supply without in any way disrupting the money, which will result in rampant inflation or abstain from

12


===== PAGE 13 =====

these polices and allow the economy to undergo a recession of Austrian ideas of inflation and monetary theory will appeal to

readjustment. Austrian economists. Legal and economic historians will

» Inthe final chapter Sennholz provides his recommenda- have to respect Vieira’s encyclopedic-like treatment of the
ins for a “New Beginning.” While deficit spending is the subject. And Vieira’s “hard core” conclusions will delight
ey to economic destruction, he is well aware of the shortcom- economic libertarians, Vieira, for example, calls for the
ings of a constitutional amendment to balance the budget. “impeachment and conviction” of all judges of the national

Sennholz notes that only a “revival of public morality” can courts who “incautiously dare to contradict...the monetary
ensure lasting prosperity. He urges the next President to cut provisions of the Constitution,” and says that “from the

his and Congress’s salaries, to freeze all transfer spending, perspective of monetary and fiscal policy the United State is

and to dismantle all transfer programs and economic con- a centralized, totalitarian democracy.”

trols. Pieces of Eight was inspired by the United States Gold
He ends his hook with a recommendation for “A New Commission’s hearings in 1982. It was submitted to the

Monetary Order.” He would strip the FED of monopoly Commission, but too late to have any impact. As Represen-
privileges to issue fiat money and would repeal legal tender tative Ron Paul notes in the introduction, the Commission

laws. He calls for the complete deregulation of the banking “unfortunately, never contemplated the constitutional defi-
system and the privatization of deposit insurance. While ciencies of our present monetary system.” It is extremely
Austrian economists may find minor points of disagreement scholarly-1,763 detailed footnotes will attest to that-and re-
in his analysis and policy recommendations itis a much more markably easy for non-lawyers to read. Its only drawback is
appealing analysis than that provided in the dangerous book that it lacks an index. But this is made less awkward by the
by Ravi Batra. MT | presence of a detailed table of contents. GBL |

av . 1
orl

PIFLER OF
GRY

Non monty A

Tose, &
Zia eyuph Sal

Qieces of Eight: | em

The Monetary Powers and Disabilities The Rule of Experts: |
of the United States Constitution Occupational Licensing in America
by S. David Young

by Edwin Vieira, Jr.

Devin-Adair, 1983 Cato Institute, 1987

2
Co . The most hidden form of government intervention is
Dr. Edwin Vieira, Jr. is the author of Pieces of Eight, a economic regulation, and occupational licensing is a particu-

largely overlooked and yet brilliantly argued study on consti- larly brutal subcategory. It stifles innovation, creates unems-
tutional money. A Harvard Ph.D. and J.D. by training, Vieira ployment, promotes inefficiency, hurts consumers, and
differs from many of hislegal contemporariesin his beliefthat empowers the bureaucrats at the expense of the market. S.
the United States does not need a constitutional amendment David Young, professor of accounting and finance at Tulane
to reestablish silver dollar and gold coin. He carefully ex- University, has written The Rule of Experts, to document

plains how Congress not only has the “constitutional power some of these ill-effects of licensing. He builds onthe critique
to end inflation tomorrow by legislation,” but it also has a of regulation developed by the Chicago School of Law and

constitutional duty to do so. Economics and George Stigler’s view that regulation is a
Thebookis organized intothreesections. “The monetary product of interest groups and not public demand. Young
powers and disabilities in Anglo-American common law and shows the truth of that observation, especially as it concerns
in the Constitution” looks at the original intention of the the sordid history of the American Medical Association. His
Constitution and details the key pieces of monetary legisla- pithy critique covers the effects on service quality, profes-
tive through to the mid-1800s. “The abuses of the monetary sional incomes, the excluded poor, and the failures of licens-
powers under the contemporary Federal Reserve System” ing boards. Although soft on certification, yet another form
continues this analysis, but focuses on the devolution of of intervention, Young maintains a consistent critique of li-
constitutional money to bimetallisin and finally to fiat cur- censing, even for the controversial professions of medicine
SCY. “Reconstruction of a constitutional monetary system” and law.
“opens up a discussion of how to legally return to constitu- The book cites scores of examples of regulatory failures
tional money. oo and reams of empirical studies testifying to the same. But
His well-grounded defense of constitutional money, dis- that strength also turns into a methodological weakness: he
cussion of how to return to it, and consistent application of implies that economic propositions are proven true only
a

13


===== PAGE 14 =====

through empirical research. Thus the book contains no

theoretical grounding of how government regulations must Notes and Transitions

necessarily be discoordinating to free market exchange and CL } =
how these disruptions work themselves out through the logic The Austrian revival is alive and doing well. The b

of action. A presentation of the Misesian theory of interven- evidence is that Austrian economists have their own forum
tionism would have improved this otherwise persuasive for scholarly debate: The Review of Austrian Economics,
work. JAT BH edited by Professor Murray N. Rothbard and Dr. Walter

Block. In his recent book review of Volume One of the RAE,
Warren J. Samuels praises the journal as a “welcome an-
nual,” and says that the RAE “bids fair to become the
principal serial publication dedicated to the promotion and
exploration of Austrian economics” (History of Political
Economy [Summer 1988]: 329-31).

Volume III of the Review of Austrian Economics is avail-
able now. Scholarly journals have always been the way non-
mainstream schools of thought carve out a niche for them-
selves in the profession. That strategy seems to be working
with Austrians as well.

New Mises Institute Publication! Austrian economists are receiving doctoral degrees and

teaching positions at an increased rate. More Austrians and

Austrian fellow travelers have earned Ph.D’s in economics

- . . since 1984 than all of those granted in the 1940s, 50s, 60s, and

Ludwig von Mises: Scholar, Creator, Hero 70s. The Ludwig von Mises Institute has in some way

by Murray N. Rothbard ) supported many of these students. The Mises Institute now

The Ludwig von Mises Institute, 1988 hasthirty adjunct scholars in teaching and research positions
around the country,

Thisis an informative and entertaining look at one of this Parth Shah, assistant editor of the AEN, received the
century’s greatest minds, Its content is both academic and G.T. Management Summer Fellowship, sponsored by the In-

popular. The first and second of Rothbard’s essays on stitute for Humane Studies. He traveled to Hong Kong thi
Mises-“Ludwig von Mises and the Paradigm of Our Age” past summer to investigate recent developmentsin mone
(1971) and “The Essential von Mises,” published independ- institutions, specifically, the monetary system from 1976-

ently (1973)-have become the primary popularintroductions 1981, where several large banks of Hong Kong directly
to Mises’s thought. This current book takes the economic controlled the supply of money.

content of those two, fits it into the history of thought, adds Mark Thornton, editor of the AEN, has accepted a
new information about Mises’s academic experience in Vi- position as visiting assistant professor of economics at Au-
enna, and polishes it off with personal anecdotes burn University for 1988-1989.

A complex array of problems immediately confront any- Roger Koppl from Auburn University has accepted a
one writing a general essay on Mises. Some of the questions position at Fairleigh Dickenson University in New Jersey as
to be confronted are, Mises did so much, yet why is he so an assistant professor of economics. He recently completed

overlooked? What impact, if any, has he had on mainstream his dissertation on Marginalism, Subjectivism, and the Invis-
thought? Why was he ignored during his life? Why couldn’t ible Hand: Essays in Economic Thought, under the direction
he get a full-time teaching position? Why did his students of Professor Leland Yeager.

abandon him? In light of this, how can the claim of Mises’s Peter Boettke, a recent graduate of George Mason Uni-
brilliance and importance possibly be substantiated? These versity, has accepted a position as an assistant professor of
are questions Rothbard grapples with. The answers don’t economics at Oakland University in Rochester, Michigan. He
come easy, but Rothbard handles the task thoughtfully and recently completed his dissertation, The Political Economyof
thoroughly to produce the closest thing we have to a Mises Soviet Socialism: 1918-1928, under the direction of Don

biography. Lavoie.

The book contains at least one Rothbardian bombshell. Larry Sechrest of the University of Texas at Arlington
Rothbard argues for the Misesian theory of economic calcu- and a Ludwig von Mises Institute Fellow was invited to
lation (made impossible without money prices) as against the presenta paper on Austrian economics at the World Congress
Hayekian theory (made impossible through the “knowledge of Social Economics in York, England. The conference theme
problem”). This difference between the two, argues Roth- was “Economics as Though People Mattered.” Larry's paper

bard, makes Mises’s case against central planning stronger was entitled “The Internal Paradigm of an Austrian Econo-
than Hayek's. The controversy turns on the question of how mist: Economics as if Reality Mattered” which presented ||

much a central planner can, in theory, know-about values, overview of Austrian economics and Austrian criticisms 8%
resources, and existing technology-and still be unable to neo-classical economics.

rationally calculate. Other interested Austrians might do Jeffrey Herbener of Washington and Jefferson Col-
well to pursue this question. JAT [| lege in Pennsylvania joined the Mises Institutes conference

14


===== PAGE 15 =====

faculty this summer. He spoke at the First Introductory
Course in Austrian Economics held at Dartmouth last sum-
mer. His has extensive neoclassical, econometric, and Aus-
@: training and with his growing publications record he is
Welcome addition to our summer conference teaching staff.
Thomas DiLorenzo has been appointed to the Scott
Probasco Chair of Free Enterprise at the University of
Tennessee at Chattanooga. He is also the director of the
Center for Economic Education at the university.

i

Professor Jeffrey Herbener, Washington and Jefferdon College,
joined the Mises Institute’s introductory conference summer
faculty this year. He spoke on “Time Preference,” “Bureaucracy
and Economic Calculation” and “Utility and Welfare.”

Don Bellante, of the University of South Florida spoke
tothe Austrian Economies Colloquium at Auburn University
on November 3-4. His paper was “Externalizing Internali-
ties: The Labor Markets and the Welfare State.” Healso held
a round table discussion on income distribution.

Don Boudreaux, former editor of the Austrian Eco-
nomics Newsletter, has been appointed co-editor of the
Washington Anti-Trust Report, anewsletter published by the
Competitive Enterprise Institute, in Washington, D.C.

Edward Arnold Journals has announced the formation of
a new journal, Review of Political Economy. The editor is
John Phelby of Birmingham Polytechnic. The RPE encour-
ages submissions from “non-orthodox groups such as post-

esians, institutionalist, subjectivist and behaviourial
omists.” Correspondence can be addressed to: Professor
John Pheby, Center for Post-Keynesian Studies, Depart-
ment of Government and Economics, City of Birmingham
Polytechnic, Birmingham B42 28U, United Kingdom.

Hans Hoppe’s article, “The Ethics of Private Property”
(AEN, Vo0l.9, No.2) sparked many comments, some of which
were published in the recent issue of the AEN (Vol.9, No. 3).
The debate continues with Hoppe’s article, “The Ultimate
Justification of Private Property,” in the recent issue of
Liberty.

Margaret and Hans-Hermann Hoppe have com-
pleted the first English translation of Richard von Strigl’s
important work, Capital and Production. The Ludwig von
Mises Institute was commissioned to translate the publica-
tion from German to English in 1986 by Dr, Mark Skousen.
Out of von Strigl’s regular participation in Mises’s famous
“private seminar” in Vienna, fromitsinitial meetingsin 1920
to its close in 1934, Richard von Strigl emerged as an out-
standing student-and personal friend-of Ludwig von Mises.
Itwasin theseseminars that von Strigl grasped the intricacies
of the Austrian theory of economics which enabled him to
write Capital and Production (1934), a complete and far
reaching work.

Strigl highlights the subjective nature of the category of
capital within a thorough, and yet compact, explanation of
Austrian structure of production theory, Eugen von Boehm-
Bawerk’s time-preference theory of interest, and Misesian
business cycle theory. Strigl’s contribution is his skillful
combination of these Austrian principles. Professorand Ms.
Hoppe’s translation is a welcome addition to Austrian schol-
arship in America and we look forward to its future publica-
tion.

There are two new publications, in German, that may be
of interest to Austrian economists. The first is Beitraege Zur
Sozialoekonommik, by Stephen Boehm is an edited collec-
tion of eighteen articles by Joseph A. Schumpeter; there isan
Introduction by Boehm and a Foreword by Gottfried
Haberler. The second is a publication from the Carl Menger
Institute by Erich Streissler, Weltweite Steuerreformen:
Konsequenzen fur Osterreich. In this monograph, Streissler
discusses tax reform and its consequences for Austria.

If you would like to submit an article,
book review, or topic of interest to the
Austrian Economics Newsletter, for
possible publication, please send it to:

Mark Thornton, Editor
Austrian Economics Newsletter
The Ludwig von Mises Institute

Auburn University
Auburn, Alabama 36849

15


===== PAGE 16 =====

The Review of Austrian Economics

Volume III @
Table of Contents

Articles
A Tribute to W. H. Hutt Reply to Comment by Joseph T. Salerno

Morgan O. Reynolds Gordon Tullock
The Austrian Theory of the Business Cycle in the Comment on Professor Timberlake's Squared Rule
Light of Modern Macroeconomics for the Equilibrium Value for the Marginal Utility of

Roger W. Garrison Money

William Barnett 11

A Subjectivist Perspective on the Economies of Crime

Samuel Cameron Marginal Utility Equilibrium between Money and

Goods:A reply to Professor Barnett’s Criticism

The Hermeneutical Invasion of Philosophy and Economics Richard H. Timberlake, Jr.

Murray N. Rothbard
Professor Caldwell on Ludwig von Mises’ Methodology

Antitrust Reform: Predatory Practices and the J. Patrick Gunning
Competitive Process
Dominick T. Armentano Book Review Essays
i E i D ion-Proof
Why the grited 5 tates Economy is Not Depression-Proo In Defense of Extreme Rationalism: Thoughts on
Donald McCloskey’s The Rhetoric of Economics ®
The Efficient-Markets Hypothesis and Entrepreneurship Hans-Hermann Hoppe
E. C. Pasour, Jr. Ce Cr age C
A Look at Subjectivism, Intelligibility and Economic
Trade Unions: The Private Use of Coercive Power . Understanding: Essays in Honor of Ludwig M,
W. H, Hutt Lachmann on his Eightieth Birthday
. Walter Block
Notes and Replies ]
Book Reviews
Mises on the Evenly Rotating Economy
J. Patrick Gunning You'll Find it in the New Palgrave
» Mark Skousen
Subjectivist Cost Revisited
William Barnett IT

The Origins of Language: A Review

Reply to Comment by William Barnett II David Gordon

Leland B. Yi
“ cee The Politics of Hunger: A Review
Comment on Tullock’s “Why Austrians are Wrong Ralph Raico
About Depressions”
Joseph T. Salerno

©Copyright 1988 by the Ludwig von Mises Institute, Auburn University, Auburn, Alabama 36849, (205) 826-2500. Volume
Number 1. Editor: Mark Thornton. Assistant Editor: Parth Shah. Correspondents: Peter Klein (University of Califo
Berkeley), Sven Thommesen (UCLA); Mark D. Hughes, Nancy Oliver, and Jeffrey A. Tucker (George Mason University); John
McCallie (Auburn University); Amy Marshall (University of Nevada, Las Vegas); additional contributor, Graeme B. Littler.
Managing Editor: Judith ¥. Thommesen.

16