===== PAGE 1 =====

yo! \Y4 No

Austrian

Economics Newsletter

planning converted Hayek to laissez-faire, along
with contemporaries like Wilhelm Répke, Lionel
Robbins, and Bertil Ohlin. Hayek became the lead-
ing figure in the “fourth generation” of the Aus-
trian school: Hayek, Gottfried Haberler, Fritz
Machlup, Alexander Mahr, Oskar Morgenstern,
and Paul Rosenstein-Rodan.

It was around this time that Hayek began at-
tending Mises's famed Privatseminar. The list of
regular participants in the seminar, who received
no academic credit or other official recognition for
their time, is now well known: Hayek, Haberler,
Machlup, Morgenstern, Rosenstein-Rodan, Richard
von Strigl, Karl Schlesinger, Felix Kaufmann, Alfred
Schiitz, Erich Voegelin, Karl Menger, Jr., and others
not so famous. For several years the Privatsenznar
enna, attracting such visitors as Robbins from Lon-
don and Howard S. Ellis from Berkeley. Hayek

riedrich August von Hayek, Nobel Laureate became the first of this group to leave Vienna, how-
and the most eminent of the modern Aus ever, accepting Robbing’s invitation to take the Tooke
trian economists, died last year on March 23, at the Chair in Economics and Statistics at the London
age of 92. Student of Friedrich von Wieser, protége School of Economics in 1931. Most of the others,
and colleague of Ludwig von Mises, and foremost along with Mises himself, would also be gone by
among an outstanding generation of Austrian the start of World War II.

school theorists, Hayek was more successful than
anyone in spreading Austrian ideas throughout the
English-speaking world.

Vienna had been one of the world’s leading cen-
ters of scholarship in economics, philosophy, and
law. In London, Hayek was again among a remark-
Hayek's life spanned the twentieth century, and able group of thinkers: Robbins, J. R. Hicks, Ar-

he made his home in some of the great intellectual nold Plant, Dennis Robertson, T. E. Gregory, Abba
communities of our time. Born in 1899 to a distin-

guished family of Viennese intellectuals (one grand-
father, a statistician, was a friend of Eugen von

Béhm-Bawerk; the philosopher Ludwig Wittgen- :
stein was a second cousin), Hayek studied law, eco- Walter Block: Reflections

nomics, and psychology at the University of on Gary Becker's Nobel Prize. .. ..... 3
Vienna, receiving doctorates in 1921 and 1923. As Conference Reports. « « ............ 5
a student he was attracted to the mild Fabian so-

cialism popular among young people who had ex- Book Reviews. . ...........ocnunnn 6
perienced the horrors of World War I. Then, in Book Bites. . .......cvuiiinnnn 9
1922, Mises published his book Socialism. “To none Recommended Reading. . .......... 11
of us young men who read the book when it ap-

peared,” Hayek later recalled, “the world was ever the New and Noteworthy. ............. 14
same again,”' Mises's devastating attack on central Notes and Transitions. . ........... 15


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

Lerner, Kenneth Boulding, and George Shackle, to Hayek thought a better course would be to pro-

name only the most prominent. At the L.S.E. duce an elaboration of Béhm-Bawerk’s capital the-

Hayek lectured on the Mises business-cycle theory, ory, and he began to devote his energies to this

which he was refining and which until the General project. Unfortunately, The Pure Theory of Capital
Theory came out in 1936 was rapidly gaining adher- was not completed until 1941, and by then the 13
ents in Britain and the U.S. and was becoming the Keynesian macro model had become firmly estab- 3

preferred explanation of the Depression. Hayek lished.

and Keynes had sparred in the early 1930s in the About this time the Austrian school began to

pages of the Economic Journal, over Keynes's Treafise fade from the professional scene. Hayek had

on Money, as one of Keynes's leading professional gained world-wide fame with his immensely popu-

full refutation of the General Theory. But he never two best-known Austrian contributions at the time—

did. Part of the explanation for this no doubt lies the cycle theory and the theory of economic calcula-

with Keynes's personal charm and legendary rhe- tion under socialism, also pioneered by

torical skill, along with Hayek's general reluctance Mises—were soon forgotten. Furthermore, the Aus-

to engage in direct confrontation with his col- trian economists had begun to leave Vienna, so

leagues. But first and foremost, as Hayek later ex- that by the early 1940s a school ceased to exist

plained, Keynes was constantly changing his there as such. In 1950 Hayek left London to join

theoretical framework, and Hayek saw no point in an interdisciplinary group at the University of Chi-

working out a detailed critique of the General The- cago, the Committee on Social Thought. Again he

ory, if Keynes might change his mind once again. was at a leading intellectual center: The economics

department at Chicago then featured Frank
Knight, Jacob Viner, Milton Friedman, and George

Austrian Stigler, and Aaron Director was founding the first

| program in law and economics. But Hayek had lost

| wright | | Economics Newsletcer interest in technical economies, focusing instead on
Volume 14, Number 1 philosophy, political theory, law, and psychology.
CONTRIBUTORS TO THIS ISSUE Moreover, the economics profession was entering
Walter Block is associate professor of economics at the its formalist period, and the earlier generations of
College of the Holy Cross in Worcester, Mass. non-mathematical economists became obsolete.

David Gordon is senior fellow at the Mises Institute.

Mark Thornton is O. P. Alford III Assistant Professor of Eco- When the 1974 Nobel! Prize in economics went

nomics at Auburn University and former editor of the AEN. to Hayek and the Swede Gunnar Myrdal, interest
STAFF in the Austrian school was suddenly and unexpect-
Editor; Peter G. Klein / University of California, Berkeley edly revived. While this was not the first event of
Associate Editor: Jeffrey A. Tucker/ Ludwig von Mises Institute the so-called “Austrian revival,” the famous South
Contributing Editors: Doug Butler, Pete Calcagno, Sandy Johnson, Ji en :
ontributing Editors: Doug Butler, Tete -2 cagn? y Johnson, Jim Royalton conference having taken place earlier the

Kee, Laura Minech, Mark Yanochik / Auburn University
Managing Editor: Judith F. Thommesen

CORRESPONDENTS
Matthew Hoffman / George Mason University
Amy Marie Marshall/ University of Notre Dame

same year, the rediscovery of Hayek within the eco-
nomics profession was nonetheless a decisive event
in the renaissance of Austrian economics. Hayek's
writings were taught to new generations, and

Charles Steele/New York University Hayek himself appeared at the early Institute for
Alexander Tabarrok /George Mason University Humane Studies conferences in Menlo Park. He
PERMISSIONS AND SUBMISSIONS continued to write, producing The Fatal Conceit’ in
Change of address requests and subscription requests should
be addressed to Austrian Economics Newsletter, Mises Institute, 1988, at the age of 89.
Auburn University, Auburn, AL 36845-5301. Hayek's legacy in economics is complex. Among
Questions pertaining to submissions of articles and book re- mainstream economists, he is known for The Road to
views should be addressed to Peter G. Klein, Department of . knowl in th
Economics, University of California, Berkeley, CA 94720. Serfdom and for his work on knowledge in the
Articles that are submitted should be double-spaced with 1930s and 1940s.” Modern information theorists
notes and references corresponding to the style found in the often pay a debt to Hayek's work as a preliminary
AEN. Articles that are accepted will be requested on an IBM . atin 3 : : :
format diskette, when possible. There is no submission fee. investigation n this are a, although his conclusions

. are typically disputed.” Within the Austrian school,
Permission to reprint articles is hereby granted provided full y \ ]

Hayek's influence, while undeniably enormous, has

credit and address are given.
Copyright © 1993 Ludwig von Mises Institute, Auburn University, very recently become the subject of some contro-
Auburn, AL 36849-5301; (205) 844-2500; fax (205) 844-2583. versy.” His emphasis on spontaneous order and

I

2 / AUSTRIAN ECONOMICS NEWSLETTER Spring 1993



===== PAGE 3 =====

his work on complex systems has been widely influ- of Chicago Press, 1989). This became vol. 1 of The Collected Works

ential among many Austrians, some of whom have | FA Hoek

3 : » :
: i _ 4 I.e., “Economics and Knowledge,” Econongea N.S. 4 (1937):
moved into hermeneutics and other non-traditional 33-54, and “The Use of Knowledge in Society,” American E

areas. Others have preferred to stress Hayek's work in nomic Review 35 (September 1945): 519-30, Both reprinted in
technical economics, particularly on capital and the busi- F. A. Hayek, Individualism and Economic Order (Chicago: Univer-
ness cycle, citing a tension between some of Hayek's and sity of Chicago Press, 1948).
Mises’s views on the social order.’ (While Mises was a 4See, for example, Sanford Grossman and Joseph Stiglitz,
rationalist and a utilitarian, Hayek focused on the limits “Information and Competitive Price Systems,” American Eco.

: ; italism 3 Th noric Review 66, no. 2 (May 1976): 246-53, and Grossman, “On
to reason, basing his defense of cap on its ability to the Impossibility of Informationally Efficient Markets,” ibid. 70,
use limited knowledge and learning by trial and error.) no. 3 (June 1980), In short, this literature tries to test the “infor-
Without a doubt, though, Hayek ranks among the mative content” of price signals, and contends that in general
greatest members of the Austrian school, and among the only perfectly competitive prices convey useful information.
leading economists of the twentieth century. Hayek's 1945 paper is also frequently cited in the new institu-

tional literature emphasizing process and adaptation. See Oliver
E. Williamson, The Economic Institutions of Capitalism (New York:
Free Press, 1985), p. 8.

Notes s
For example, Joseph T. Salerno, “Ludwig von Mises as Social
ioIn Peter G. Klein, ed, The Fortunes of Literals Eenyoon dus. | 40mg oo Gociliam andl the Caleutaton
Works of F A. Hayek (Chicago: University of Chicago Press, and Debate Revisited,” ibid. 5, no. 2 (1981): 51-78.
London: Routledge, 1992), p. 133. ®Much has been written on the subtle and complex Mises
2F A. Hayek, The Fatal Conceit: The Errors of Socialism, ed. W. W. Hayek relationship. For an introduction see The Fortunes of Liber-
Bartley ITI (London: Routledge, 1388, and Chicago: University alism, pp. 7-13, and the references cited therein, A
THE ECONOMIST ASDETECTIVE: out in the competitive struggle of the marketplace,
REFLECTIONS ON GARY BECKER'S as they must pay more for equally able factors of
NOBEL PRIZE production. The market rewards people who are
color blind. Capitalism, then, far from being the
racist, sexist enterprise seen by Marxists, is actually
by Walter Block arather humane endeavor.

One implication for public policy is a particular
sense in which government enterprise is often mis-
guided. When the state takes over large parts of the
economy, the liberating process of the market—
that of penalizing bigots—is confined in scope. It
cannot work in the public sector, due to the ab-
sence of profit and loss.

Pree Gary S. Becker, the winner of the
1992 Nobel Prize in Economics, is like Profes-
sor Moriarty of Sherlock Holmes fame. The latter
“had his hand in practically all crime in the Lon-
don area.” In like manner, the former has cast his
into virtually every nook and cranny of not only
economics, but also social science in general. And

just as the fictional victims of Arthur Conan Doyle's Nor will Becker's work on the family give aid or
novels trembled when Professor Moriarty was comfort to those who attempt to denigrate this tra-
about town, almost no scholar is safe in the fields of ditional institution. He has applied the insights gar-
history, law, sociology, psychology, criminology, de- nered from the study of international trade to

Gary Becker's word processor is turned on. ample. This is the doctrine that shows how coun-

tries can benefit from world-wide specialization
and the division of labor, as some can produce one
item more cheaply while others are more produc-
tive with another. This is why bananas are not pro-
duced in Canada, nor maple syrup in Costa Rica;
each nation specializes in what it does best, and
trades for the specialty of another.

Becker's career of blazing new paths for the
“dismal science” began with his 1957 book The Eco-
nomics of Discrimination. Before this work, the study
of prejudice and discrimination had been the exclu-
sive domain of sociologists and psychologists.
Becker showed that demand and supply, cost and
benefit, and profit and loss could shed profound

light on the subject. Thanks to his efforts we know But this is part and parcel of the economic ex-
that people pay a price for discrimination, whether planation of marriage. According to Becker, the

on the basis of race, sex, or any other criterion. husband typically earns a living specializing in mar-
Those who indulge in such preferences tend to lose ket activities, while he is often “all thumbs” when it

EE —
Spring 1993 AUSTRIAN ECONOMICS NEWSLETTER / 3


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

comes to the kitchen, child rearing, and the like.
The wife, due to job interruption and perhaps dif-
ferent interests, may be less productive than her
spouse outside the home. As a result, her earnings
tend to be less than his. Instead, she complements
his efforts with her own. Together they are
stronger economically, precisely as in the case of a
business partnership where one member charms the
customers while another takes care of manufacturing
and bookkeeping. Becker's “economic imperialism”
(applying microeconomic theory to problems tradi-
tionally monopolized by other social sciences)
knows few bounds, if any. He has also applied it to
the allocation of time, life-cycle patterns, criminal
activity, politics, voting behavior, immigration, edu-
cation, and divorce; the list goes on and on.

Gary S. Becker

and to a large degree in that of Hayek. Some bene-
fits will accrue because the Chicago and Austrian
schools are the only two free-enterprise oriented

By choosing Becker the Stockholm Committee schools of economic thought. Consider first norma-
has continued a fine tradition of awarding the No- ) . .
. . tive economics. What helps one school is bound to
bel Prize to free-market economists who, whether h . .
. . ) elp the other, insofar as they share this commonal-
by accident or design, have studied or taught at the . en . :
: . i i : ity. The direction of influence is mainly one-way, of
University of Chicago. The list up to now includes . .
coyrse, from the Chicago school to the Austrian
Milton Friedman, F. A. Hayek, Theodore Schultz,
. school, and not the other way around. As the joke
George Stigler, and James Buchanan. Gary Becker ab . 3: .
) os out the elephant and mouse indicates (Said the
is a worthy addition to this all-star cast. The won-
) , mouse, perched on the shoulder of an elephant
der is not that he won the Nobel Prize, but that the . . « .
. . crossing a bridge, “Boy, we sure made that bridge
event took go long in coming. Indeed, I am not the ” . .

) shake!”), this is because the one is so much larger
only former student of his who lost money over the and more visible than the other, To the extent that
past several years by betting on him to receive this . ’

d Becker opposes minimum wage laws, rent control,
aware. tariffs, socialism, nationalization of industry, licens-
I first met Gary Becker as an entering graduate ing, and the like, and to the extent that he favors
student at Columbia University in 1965. Already en- markets, privatization, and property rights, this
joying a reputation as an enfant terrible, his courses cannot but help the Austrians in their quest for a
were well known in the local scholarly community. freer society.
He was a member of my orals committee, and later In contrast, with regard to positive economics,
honored me by agreeing to serve as my dissertation there will be no spillover whatsoever. If anything,
‘advisor. Halfway through my gr aduate studies, how- the impact will be negative. This is because the Chi-
ee Chicas, Tors Join the Be ita Uni- cago methodological appro ach is so close to (in-
Isl 1Cag0. y av deed, is indistinguishable from) that of the rest of
Columbia wasn’t big enough for the both of us; one the profession. This isin sharp contrast to Hayek,
of us had ee on subsequent years] Lave boon who se receipt of the prize has correctly been given
€ ) n credit for a large part of the Austrian revival.
with him, at several Mont Pélerin Society meetings . , .
and Liberty Fund conferences. Very loyal to all his As far as Becker is concerned, the an
school might as well not exist. In none of his writ-
colleagues and former students, he has been a os th the dlichtest hint id ¢
arm supporter of mine through the years. I was Ings 18 LAeTe even | ¢ slig Int or evicence
w ally deliehted at th {on h CT d any familiarity or interest in the subject. The
PA N , Pris a i. an on he receve names of Menger, Bohm-Bawerk, Mises, and
p— obe € committee. Hayek never passed his lips in the several years of
at are the implications of this award for Aus- his courses I attended. No, the 1992 Nobel Laure-
trian economics? There will be some positive bene- ate is a neoclassical micro theorist through and
fit, but not much. This recognition of him will through. He is fully immersed in the positivist tra-
enhance the Austrian tradition no more than that dition: mathematical economics, indifference
of Friedman, Stigler, or Coase. The beneficial ef- curves, hypothesis testing, falsifiability, economet-
fects on praxeology will be indirect, not direct as rics, and so on. The only remarkable thing about
they were to a small degree in the case of Buchanan, him—what makes him stand out from virtually all

I

4 / AUSTRIAN ECONOMICS NEWSLETTER Spring 1993



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

others plying this particular trade—is the brilliance
and imagination with which he utilizes these tradi-
tional tools of analysis.

But that does not make him an Austrian. Fur-
ther, he has taken numerous positions that sharply
diverge from those held by readers of this Neuwslei-
ter. Consider the following:

# He holds that rationality and purpose are not re-
quired to understand economic activity in gen-
eral, nor downward-sloping demand curves in
particular. (See his interchange with Israel Kir-
zner in the Journal of Political Economy for August
1962 and February 1963.)

» He takes the typical Chicago view that monopoly
(defined as a highly concentrated industry) is a vio-
lation of economic freedom and should be pro-
scribed through antitrust law. He would perhaps
radically reform, but not repeal, such legislation.

¢ He maintains that the political sphere is just as
amenable to economic analysis as any other type of
activity. By this he means that political parties are
akin to business firms, ballot box votes are like dol-
lar votes, and being elected is analogous to earn-
ing profits. In short, the government is just one
more institutional arrangement, alongside the
church, the family, social clubs, the Boy Scouts,
and the like, As part and parcel of this view, he ad-
vocated in one of his most recent Business Week col-
umns the auctioning of U.S. citizenship rights.

» On a whole host of issues—the gold standard, re-
peal of the Federal Reserve System, fixed ex-
change rates—his views are indistinguishable from
those of his colleague Milton Friedman.

All economists must give an enthusiastic three
cheers for this richly deserved Nobel Prize. In ar-
eas of normative economics, this event will give a
sharp boost to many of the free-market views held
by Austrians. But as far as positive economic analy-
gis is concerned, there is no help here for the
praxeological school, a

Conference Reports

he Mises Institute hosted an Austrian Schol-

ars Conference in October 1992, as part of
its tenth anniversary celebration in New York City.
The papers: Murray N. Rothbard (University of Ne-
vada, Las Vegas), “The Present State of Austrian Eco-
nomics”; Bruce Benson (Florida State University),
“Private Property and Ethical Behavior in a Market
Economy: Natural Law, Government Law, or Evolv-
ing Self-Interest?”; Elisabeth Krecke (University of
Aix-en-Provence, France), “Law and the Market

Order: An Austrian Critique of the Economic Analy-
gis of Law”; Don Bellante (University of South Flor-
ida), “Sticky Wages, Efficiency Wages, and Market
Processes”; Randall Holcombe (Florida State),

“The Theory of Social Welfare”; Paul Cantor (Uni-
versity of Virginia), “Hyperinflation and Hyperreal-
ity: Thomas Mann in Light of Austrian

Economics”; David Gordon (Mises Institute), “The
Philosophical Contributions of Ludwig von Mises”;
Bettina Greaves (Foundation for Economic Educa-
tion), “Capitalism vs. Our Semi-Capitalistic Market
Economy”; George Selgin (University of Georgia),
“On Introducing a New Fiat Money: Lessons from
Mises's Regression Theorem”; and Joseph T.
Salerno (Pace University), “Ludwig von Mises's
Monetary Thought in Light of Neoclassical
Thought.” The proceedings will appear in a confer-
ence volume later this year.

In May 1992 the Mises Institute sponsored a
conference on the origins and legacy of the Federal
Reserve System. Participants gathered at Jekyll Is-
land, Georgia, the site of the secret meeting in
1910 between Senator Aldrich and the powerful
New York bankers and associates who drafted the
Federal Reserve Act. Murray Rothbard spoke on
the creation of the Fed; Richard Ebeling (Hillsdale
College) outlined the practices and performance of
the nineteenth-century, pre-Fed, banking system;
Joseph Salerno presented a brief history of mone-
tary theory; David Fand (George Mason University)
discussed more recent Fed policies and performance;
Roger Garrison (Auburn University) compared mone-
tary policy during the “boom” of the 1980s with that
of the 1920s; and Hans-Hermann Hoppe (University
of Nevada, Las Vegas) defended a 100% reserve gold
standard in place of various fractional-reserve sys-
tems. Former U.S. Congressman Ron Paul, Texas
Republican from 1976 to 1984, gave a luncheon
speech about his experiences with the Fed and Paul
Volcker during his four terms, including his work
on the U.S. Gold Commission.

The Institute also hosted its annual summer in-
structional conference, the “Mises University,” at
Stanford, July 4-11 1992. Students created their
own schedules from a list of 48 classes, twelve semi-
nars, three plenary lectures, and two panel discus-
sions, taught by Robert Batemarco, Walter Block,
Roy Cordato, Thomas DiLorenzo, Roger Garrison,
David Gordon, Jeffrey Herbener, Robert Higgs,
Hans-Hermann Hoppe, Yuri Maltsev, Lew Rock-
well, Murray Rothbard, Joseph Salerno, and Mark
Thornton. The 1993 summer conference will be at
Claremont-McKenna College in Claremont, Califor-
nia, on July 17 to 24. a

Spring 1983

AUSTRIAN ECONOMICS NEWSLETTER / 5


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

think tanks (at least those not funded primarily by
the government) that while small in number and
budgets, have substantial “intellectual influence.”

Book Reviews

Impostors in the Temple: He finds that these groups have “carved out a con-
American Intellectuals Are siderable role for themselves” because of market
Destroying Our Universi- competition, flexibility, and specialization. These or-
ties and Cheating Our ganizations outperform the universities because
Students of Their Future they have to justify the donations they receive, and
Martin Anderson because think-tank intellectuals (“research fellows”)
Simon & Schuster, 1992 are allowed to specialize in writing or editorial
" work.
Reviewed by Mark Thornton The work of academic intellectuals, by contrast,
is largely irrelevant for the real world. Anderson
T he expanding assault on the credibility of the correctly describes the “top” journals in economics
academy is, unfortunately, all too well de- as small clubs of specialists in mathematical eco-
served. Martin Anderson’s Impostors in the Temple nomics who review and publish each other's work.
follows in the tradition of A. Bartlett Giamatti’'s A The dirty secret of the academic intellectual is that
Free and Ordered Space, Charles Sykes's ProfScam, much of what is done in the “best” journals is “in-
Bruce Wilshire’s The Moral Collapse of the Univer- consequential and trifling.” In all his years as a
sity, and Dinesh D’Souza’s Illiberal Education. As an Presidential economic advisor, not once was an aca-
inside observer and economist who resists unneces- demic journal article even mentioned to Anderson
sary moralizing, Anderson has written the most ap- during policy meetings. To illustrate that no one ac-
pealing book of the group. Even those intimately tually reads these journal articles, Anderson con-
familiar with the problems of the university will be ducted over the years an informal survey of top
entertained by his examples and the details of his academic economists. He would ask, “What 1s the
case against academia. most important journal in your field?” The reply

would usually be the American Economic Review. He
then asks, “Over the last five years (and several
hundred articles), what do you consider the most
important article that you have read?” The answer
typically involves a great deal of hemming and haw-
ing, with most respondents ultimately failing to cite
a single significant article that they have read and
can remember.

The picture of higher education he paints is of
a little good news and seemingly endless bad news.
The good news is that university education in the
U.S. is the best available in the world. The bad
news, according to Anderson, is that university edu-
cation is rotten to the core, with little hope for the
future. It is inefficient, unproductive, and becom-

ing worse by the day.

The author has had extensive experience with The role of graduate students is also central to
both of his categories of intellectuals, “profes- Anderson’s critique of the unversity. Graduate stu-
sional” and “academic.” He was a member of the dents today typically do much of the professor's

faculty at Columbia University, an advisor to Presi- job, including teaching, grading, and research assis-
dents, and is now a research fellow at the Hoover tance. Anderson bitterly complains about “students
Institution at Stanford University. Anderson’s “aca- teaching students.” Spending $20,000 per year for
demic intellectuals” hold out in the ivory tower of instruction by marginally qualified graduate stu-
the temple (the university), a socialist world of peer dents should shock most parents, and should also
management, inflexible rules, and an absence of mar- be disconcerting for students, many of whom flunk

ket tests. He does not consider all academic intellectu- out of college before ever seeing a real professor.
als lazy or unproductive. The problem is that most of Also lost in this process is graduate education,

them (and therefore the universities as a whole) where doctorates on average now take 7.5 years of
produce little or nothing of real value. Higher edu- enrollment and 12 years total to complete. There is

something wrong when it takes 15 years to get a

cation in America has become a gargantuan illustra-
doctorate in political science. Even sadder are the

tion of Mises's calculation argument (giving new

meaning to the statement that the only remaining students who never obtain a degree after years of
Marxists are located in American universities). kneeling at the altar.

Anderson is impressed with the “for profit” pro- Anderson proposes several solutions to restore
fessional intellectuals in the media and policy insti- the quality of the university. First, he would elimi-
tutes. He is quick to praise the “valiant band” of nate the fifty-year-old system of tenure (but would

| ——

6 / AUSTRIAN ECONOMICS NEWSLETTER Spring 1993



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

grandfather all current tenured faculty). Second,

he would prohibit graduate students from teach-
ing, and require all students to graduate on time.
Third, he proposes two types of doctorates, the
regular doctorate and a doctorate with “research
distinction,” which would require writing a disserta-
tion. These two types of degrees would in turn be
used for more specialized university positions. The
degree holders with research distinction would be
hired as “fellows” and would specialize in research.
The regular Ph.D.s would be hired solely for the
purpose of teaching (and would be paid more, by
the way, than the research fellows). Furthermore,
the research fellows’ publications would be re-
viewed outside the university. The final and argu-
ably most important suggestion concerns the
ownership arrangement of the university, involving
changes to make the trustees more accountable
through incentives, punishments, and a better selec-
tion process.

Many of Anderson’s suggestions are on the
mark. However, some of his suggestions regarding
university decision-making fall short due to a fail-
ure to understand the economic calculation argu-
ment. Anderson lays most of the blame on the
intellectual elite rather than government owner-
ship, even though he points out that the typical uni-
versity receives 60% of its budget from government
and only 15% from tuition and fees (25% comes
from gifts and other sources). This means that gov-
ernment, not the consumer (students and parents),
has control of the university. The difficult decisions
concerning how much research to conduct, what
types of research, how to evaluate it, and who
should teach, can never be efficiently answered in
the socialist world of the university. Only through
private ownership, private control, and the with-
drawal of government funds can the university re-
turn to anything resembling a sane foundation for
decision making. a

Liberty and Nature:
An Aristotelian Defense of Liberal Order

Douglas B. Rasrrmssen and Douglas J. Den Uyl
Open Court, 1991

Reviewed by David Gordon

A ustrian economists will find that Liberty and
Nature, the new volume by the philoso-
phers Douglas Rasmussen and Douglas Den Uyl, re-
pays careful study. The authors support a system of
laissez-faire capitalism, as did Ludwig von Mises,

Spring 1993

but they do so by means of philosophical doctrines
very different from his. Broadly speaking, Ras-
mussen and Den Uyl are followers of Ayn Rand,
and accordingly they use Aristotelian ethics to jus-
tify very non-Aristotelian political conclusions,
Comparison of their position with that of Mises illu-
minates both views.

For Mises, reason plays a vital but limited role
in the study of human action. Only after a goal has
been specified does reason enter the scene. Since
values are purely subjective, the category of ration-
ality does not apply to them. In this respect, Mises
i8 within the mainstream of
social science. Herbert Si-
mon, for example, en-
dorses precisely the same
account of the scope for
reason: “Reason is wholly
instrumental. It cannot tell
us where to go; at best it
can tell us how to get
there. It is a gun for hire
that can be employed in
the service of any goals we
have, good or bad.”"

Rasmussen and Den Uyl maintain that this doe-
trine unduly restricts the range of reason. It is not
the case, they argue, that ends are a matter of sub-
jective preference, immune from rational assess-
ment. Quite the contrary; ends may be “weighed in
the balance and found wanting.” But why take val-
ues to be objective? Our authors reply to this ques-
tion by posing another: What are values for?
Unless the issue of function is addressed, the exist
ence of value will be inexplicable. Once it is ad-
dressed, ethical subjectivism ceases to be a live
option. Each living organism has a natural end: to
maintain itself in existence. Human beings, how-
ever, confront a problem that other animals avoid.
Instinct does not guide our behavior: Instead we
depend on reason to survive. Our choices, guided
by reason, have as their purpose the promotion of
our natural end. “It is important to note here that
human freedom for an Aristotelian natural-end eth-
ics isnot . . . a freedom with respect to what is the
natural function or end of a human being. . . .
[V]olition as an inherent power of a human being
is for the sake of human well-being and fulfillment”
(p. 48).

Rasmussen and Den Uyl’s view seems diametri-
cally opposed to Mises’s position. They maintain
that nature sets the ultimate goal of human action,
while Mises thinks that ultimate ends are subjec-
tive. Given this difference, one might anticipate

AUSTRIAN ECONOMICS NEWSLETTER / 7



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

that Rasmussen and Den Uyl will radically diverge through the back door: Though they do not grant
from Mises in the political theory they advocate. people moral rights, they offer what in most cir-
But this is not the case: From a non-Misesian start- cumstances will turn out to be “just as good.”

ing point they arrive at results that Mises would Moreover, they carefully elaborate the legal
have approved. rights that pertain to the society the meta-norma-

To arrive at any conclusion at all about social tive framework bids us to establish. The right to
policy, however, our authors must first remove an own property ranks among the foremost of these,
obstacle. Each person, they think, ought to fulfill and their defense of property rights will be familiar
his natural end: Our duty lies not to others, but to to readers of Israel Kirzner. Like Kirzner, they con-
ourselves. How, then, do the rights of other people tend that resources do not exist until someone de-
enter the scene? The fact that I aim to flourish im- vises a use for them. Before the invention of oil
poses no obligation on others to assist me in my drilling, for example, oil in the ground had no
task, nor have I any duty of helping others to fulfill value. The original appropriator of property, then,
their natural ends. Does egoistic ethics then reduce may justly “keep the consequences” of his free ac-
to a solipsism, in the style of Max Stirner? Certainly tion. Since hig activity brings what he produces into
not, our authors contend. being, he deprives others of nothing.

It is quite true, they aver, that persons have no It is not my purpose here to assess this Kir-
direct moral obligations to others. But in order to znerian view which, as the authors point out, was
flourish, each person needs a sphere of action in anticipated by Rand (p. 248, note 90). I wish in-
which he can pursue happiness, free from the forc- stead to call attention to the remarkable similarity
ible interference of others. Moreover, while the use of their conclusions to those of Mises. Although
of coercion renders virtuous action impossible, vol- Mises thought that ultimate values are subjective,
untary cooperation enables people to achieve bene- he also maintained that nearly everyone has the
fits far in excess of what anyone could accomplish same ultimate goal: one’s own well-being or happi-
alone. Thus, though we have no direct duty to oth- ness. To achieve this end, social cooperation is nec-
ers, we do have an obligation to establish or main- essary; apart from society, individuals cannot exist,
tain a society in which people can flourish. And this let alone flourish. And not just any form of social
type of society will be one granting legal rights to cooperation will do. Only a regime of laissez-faire
individuals. Though strictly speaking people have capitalism is acceptable, and no competing system
no moral rights, they do have an obligation to estab- will work. This Mises claimed to show through
lish legal rights. Rasmussen and Den Uyl call their value-free argument. Yet Mises in effect arrived at
view “meta-normative.” They neatly bring in rights a very close substitute for the objective ethics he re-

pudiated. Though he recognized no objective ends,
he could say, “If you want peace and prosperity, es-
tablish a free-market economy and a legal system
with individual property rights.” And since in his
UPCOMING EVENTS view almost everyone does ultimately want peace
and prosperity, Mises’s subjective ethics differs only
by a hairsbreadth from an objective ethics that says,

Western Economic Association

“Economics and Organizational “Since everyone ought to fulfill his natural end, we

Innovation” ought to establish the social system of laissez-faire
June 20-24, Lake Tahoe, Nevada capitalism, in which people can best do so.”

History of Economics Society There is much more to Liberty and Nature than
June 24-26, Temple University the theme I have traced here.” But the unmistak-
Philadelphia able similarity in social ethics between our authors’

“Mises University” Aristotelian position and Miseg’s subjectivism is sur-
July 17-24, Claremont, California prising and enlightening.

History of Economic Thought Society
September, 1993, UK Notes

Southern Economic Association "Herbert Simon, Rationality in Human Affairs (Stanford: Stan-
November 21-23, New Orleans ford University Press, 1983), pp. 7-8.

Ina longer review of Liberty and Nature, forthcoming in the
Journal of Libertarian Studies, I discuss the central arguments of
/ the book in greater detail. A

—
8 / AUSTRIAN ECONOMICS NEWSLETTER Spring 1993



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

Book Bites for bargaining, rather than for government solu-
tions to property rights conflicts.

Ellickson also makes extensive use of game the-

Order Without Law: ory. He elaborates on the well-known strategy of
How Neighbors Settle Disputes “tit-for-tat” to show how cooperation can emerge
Robert C. Ellickson when agreements cannot be directly enforced. But
Harvard University Press, 1991 he also considers other repeated games and their

appropriate strategies. For example, he considers a

Co game called “even-up,” in which unilateral defec-

lassical liberal scholars have long observed tions can enhance a player's total wealth; he argues

that it is possible to have law without legisla- that players would then make side payments to pre-
tion. Several analysts, such as Bruno Leoni, Mur- serve cooperation. Happily, Ellickson’s forays into

ray Rothbard, David Friedman, and most recently
Bruce Benson, have applied economic analysis to
customary and judge-made law. Robert Ellickson,
professor of law at Yale University, takes the argu-
ment one step further in his book Order Without
Law. Not only is legislation unnecessary for law, he
claims, but law itself is unnecessary for order. Ellick-
son studied dispute resolution among ranchers and
farmers in Shasta County, California, and realized
that most people find the costs of learning about
the law (judge-made or statutory) and submitting
to formal resolution procedures so high that it is
easier to fall back on common-sense norms. He
found that all three functions of law—dispute reso-
lution, rule formation, and enforcement—get sup-
plied by means of these informal norms.

game theory remain quite readable, and he care-
fully chooses games and strategies that have plausi-
ble real-world applications.

It is indeed encouraging to see work of this
kind coming from a professor at one of the most
prestigious law schools. Though not himself a classi-
cal liberal, he shows appreciation of classical liberal
thinkers throughout the book. But Ellickson does
not merely repeat and popularize the same points
that earlier thinkers have made. He explores the
frontiers of our understanding of the social order,
and the aid that economics may give for that under-
standing. The only weakness of the work is that the
author has no economic theory to explain how effi-
cient norms tend to out-compete inefficient ones.

i i } ] } Perhaps we may look forward to such a theory in
Ellickson derives this observation about the im- his next book.

portance of informal dispute resolution from “law

and society” scholars, but firmly rejects their char- —Bnan Caplan
acteristic disinterest in economic analysis. The fre-

quent use of informal rules is in fact an Carl Menger and the Origin

implication of the Coase theorem, though one of Austrian Economics

that Coase himself did not recognize. Says Ellick-
son: “Coase overstates the influence of law. His
error lies in his implicit assumption that people
can effortlessly learn and enforce their initial le-
gal entitlements, and that they confront transac-
tion costs only when they attempt to bargain

Max Alter
Westview Press, 1990

ax Alter’s book may be the last of its kind:
a work that relies on speculation concern-

from their legal starting positions. In a world ing what Menger might have meant when he lived
of costly information, however, one cannot as- and wrote. The book was completed prior to the
sume that people will both know and honor opening of the Menger archives at Duke University
law” (p. 281). Among law and economics schol- (as the author himself is quick to point out). Like
ars, the usual debate is whether transaction costs many who have written on Menger, he relies heav-
under bilateral monopoly are high or low: If low, ily on existing English translations; where these are
the argument goes, the government should let ac- unavailable, he provides the text in the original
tors solve their own problems by bargaining; if German, though without benefit of a translation
high, the government should intervene by picking for the reader. While Alter does provide “chrono-
the proper laws. What Ellickson points out is that if logical descriptions” of those works by Menger criti-
the transaction costs of learning the law are high, cal to the book, the reader is still left with pages of
then there is little use for government re-molding text in German, which results in a convoluted text
of the law, since actors will ignore it anyway. that is difficult to navigate. This is not meant to dis-
Hence, the presence of high transaction costs (of courage the potential reader. However, anyone pick-
learning and using the law) becomes an argument ing up this book in the hope of finding a history of

Le _________________________________________________________________________________________________________________________ |
Spring 1993 AUSTRIAN ECONOMICS NEWSLETTER / 9


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

the early Austrian school will be disappointed. The wheat (marginalism) from the chaff (absolute

book is less a history of Menger and the origins of truth), and ends up not with a reconstruction, but
Austrian economics than a reconstruction of what a dismantling of Menger’s theories and subsequent
Menger should have said, seen from the perspective theory based on Menger. In fact, Alter does more
of neoclassical economics. than jettison Menger’s essentialism. He jettisons

Menger completely in favor of Wieser and Bohm-
Bawerk, in an attempt to formulate a hybrid eco-
nomics that combines the most palatable aspects of
Austrian theory with the most successful of neoclas-
sical theory. The resulting combination has little
relevance for the Austrian scholar.

The author posits a concern with the influence of
values, culture, and ideas upon the economic theorist
and how these factors work together to influence the
ruling paradigm of economic theory. He writes that
“the interaction of the forces shaping the human
mind at a specific time and place are the elements

through which we can understand a vision of the ~—Amy Marie Marshall
economic process” (p. 1). Despite his stated concern
with the influence of such factors on the formation Economics Through the Looking Glass:
of economic theory, Alter does not consistently inter- The Distorted Perspective of the
pret Menger in this way. He leans instead towards N ew Palgrave Dictionary of Economics
an anachronistic reinterpretation of the Austrian Mark Blaug
school founder, in an apparent attempt to bring Institute of Economic Affairs, 1988
Menger into the mainstream of economic theory.
In “What Do We Know About Menger?”, a paper TT: little pamphlet, number 78 of I.E.A.s Oc-
written for the 1988 Duke conference on Menger casional Paper Series, should be required
and subsequently published in the annual supple- reading for every regular user of the New Palgrave
ment on Menger in History of Political Econony in dictionary. Mark Blaug, the distinguished historian
1990, Alter wrote that “the main drawback of of economic thought, read all 4,100 pages and
Menger's approach is that we have not even begun fo about 4 million words of the massive four-volume
explore where it would lead us, while the general set, and reached an unequivocal conclusion: On bal-
equilibrium model has certainly produced a few ance, the New Palgrave does not provide a useful, bal-
poserful results.” Three of the sections in the present anced overview of economics, nor is it a particularly
volume grew out of that essay. In these sections Alter effective research tool. Instead it is poorly organized,
explores Menger’s motives, as shaped by the time in needlessly technical, and disproportionately devoted
which he lived; Menger’s method, as a contribution to Karl Marx and the obscure Italian-born Cam-
to Roscher’s historical economics rather than as the bridge economist Piero Sraffa.
foundation of the Aus an school; and na The three New Palgrave editors, the Englishmen
dandrd of neoclassical ceonomics po concludes John Eatwell, Murray Milgate, and Peter Newman,
that Menger’s work is but a prelu do to Wieser and are all in fact disciples of Sraffa, two of them explic-
Bshm-Bawerk, the “true” founders of the Anstri itly so. As Blaug points out, asking three Sraffians
givin to head the project “is roughly equivalent to asking
school. three atheists to edit an encyclopedia of Christian-
Alter is deeply troubled by Menger’s “methodo- ity” (p. 14). And it shows: Marx and Sraffa are in-
logical essentialism,” and its presupposition of abso- deed quoted much more often than Adam Smith,
lute truth. He concludes that such a presupposition, Marshall, Walras, Friedman, Samuelson, or anyone
in light of the successful development of the ra- else of note (p. 15). Marx and Sraffa even figure
tional-empirical framework, destroys the possibility more prominently than Ricardo and Keynes, who
for any coherence in Menger’s work. Alter’s goal is for Sraffians are, respectively, an important precur-
to reconstruct Menger to bypass “the point where sor and a fellow traveler. The editors avoid con-
the essentialism of [Menger’s] conception of values fronting the issue of balance by presenting for most
becomes self-destructing because it poses a transfor- topics several essays, with different titles, many of
mation problem from values to prices which remains them admittedly polemics rather than real survey
insurmountable within his own methodological and pieces. Though a cross-referencing system is pro-
theoretical framework. . . . To resolve this transfor- vided, many users (the present writer, for example)
mation problem, one has to jettison Menger’s es- have found it cumbersome and tiring. Furthermore,
sentialism . . . , effectively giving up his conception the editors demand an extremely high level of mathe-
of ‘exact’ theory” (pp. 5-6). Alter succeeds in carv- matical competence from the reader. As Blaug recog-
ing up Menger’s work, intent on separating the nizes, the kind of formalism predominant in the

 —

10 / AUSTRIAN ECONOMICS NEWSLETTER Spring 1993



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

New Palgrave is a “revelling in technique for tech- a set of conversations

nique’s sake.” He concludes: “The mind-boggling between the author
obscurity of many of the articles is part and parcel and the octogenarian
of the editors’ master plan: Its purpose is to dispel Bernstein, who super-
the worry that mainstream economists might other- vised the preparation
wise have felt about a dictionary edited by three of the text known as
Sraffians” (p. 17). the “White Plan” that
Economics Through the Looking Glass also includes later became the basis
an admirably readable survey of the Sraffian doc- of the Bretton Woods
trine itself—namely, that only supply and not de- Agreements. Bern-
mand affects price, and that all production exhibits stein recounts fascinat- Joseph T. Salerno
constant-returns-to-scale technology. Blaug also ing details about his
provides brief notes on Marx and Keynes, and a interactions with Harry Dexter White, Alger Hiss,
summary of his views on the “Cambridge capital and John Maynard Keynes, among others. He
controversy” or “switching debate,” subjects treated also dispels the common misconception that the
more fully in his earlier pamphlet The Cambridge Bretton Woods system was a creation of Keynes-
Revolution: Success or Failure? (Hobart Paperback ian economic thinking by revealing that he and
no. 6; second edition, London: I.E.A., 1975). his former graduate student and close associate
There is also a critical chapter on equilibrium the- at the Treasury in the 1940s, Earl Hicks, were
ory in general, with favorable references to Hayek, Fisherian quantity theorists or, in his own words,
Kirzner, and Lavoie on the modern Austrian cri- “monetarists.”
tique of equilibrium as opposed to process analysis. D. P. O’Brien, Lionel Robbins (St. Martin's Press,
None of this, of course, 18 meant to suggest that 1988). Despite its title, this book is neither a full-
there is nothing of value in the New Palgrave. It scale biography of Robbins nor an account of his in-
does indeed contain some excellent entries, as one tellectual evolution; it is a treatment of Robbing's
might expect given its sheer size and the number contributions of economics and political philoso-
of contributors, The point is simply that it is not phy, arranged topically. It is especially valuable be-
what it pretends to be—a comprehensive, authorita- cause the author, an eminent historian of thought,
tive, and useful guide to the world of economics. It emphasizes the Austrian-Wicksteedian influences
could have been so much more. on Robbins’s economic thought and demonstrates

that these influences persisted into the post-war pe-
riod even in Robbins’s macroeconomic writings
and notwithstanding his renunciation of his earlier
Misesian analysis of the Great Depression.

Mark Blaug has something of a reputation for
intolerance on methodological issues, and this has
perhaps prevented some readers of this Newsletter
from appreciating both the amazing breadth of his

knowledge and his gift for turning a phrase. The Carlo M. Cipolla, Money in Sixteenth-Century
present pamphlet, in particular, is informative and Florence (University of California Press, 1989). This
highly readable, and after spending time with it, short work describes the monetary system of six-
the reader will never look at the New Palgrave quite teenth-century Florence and the problems it con-
the same way again. fronted. Of special interest to Austrians, the book

—Peter Klein A concludes with a chapter outlining a particularly
prolonged and severe Austrian-style boom-bust cy-
cle that is attributed to credit expansion by private

Recommended Reading | Florentine banks, which appear to have operated
in a competitive environment relatively free of po-

litical control.
i mot et bei is variety of papers Lt Kevin L. Kliesen and John A. Tatom, “The Re-
vant to Austrian economics they have recently encountered.) cent Credit Crunch: The Neglected Dimensions,”
Review of the Federal Reserve Bank of St. Louis 74

Joseph T. Salerno (September/October, 1992): 18-36. This article re-

Associate Professor of Economics futes the commonly made assertion that the cur-

Pace University: rent recession was either precipitated or

Stanley W. Black, A Levite among the Priests: Ed- intensified by a “credit crunch,” defined as a re-
ward M. Bernstein and the Origins of the Bretton Woods duction in the supply of credit. The authors con-
System (Westview Press, 1991). This book comprises vincingly argue that the observed reduction in
|
Spring 1993 AUSTRIAN ECONOMICS NEWSLETTER / 11


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

bank loans to business that has marked all post-war come when one takes into account the additional

recesgions, including the latest, has not been the re- costs incurred by the regulatory agency.
sult of a greater reluctance on the part of banks to G. R. Steele, “Hayek's Contribution to Business Cy-
lend, but of a decrease in the demand for credit by cle Theory: A Modern Assessment,” History of Political
business. Economy 24 (Summer 1992): 466-91. This article con-
Robert A. Mundell, “The Great Exchange Rate tains a generally insightful exposition of Hayekian cy-
Controversy: Trade Balances and the International cle theory in terms of modern investment appraisal
Monetary System,” in C. Fred Bergsten, ed., Inter- criteria that emphasizes the effect of monetary ex-
national Adjustment and Financing: The Lessons of pansion in distorting the time structure of produc-
1985-1991 (Institute for International Econom- tion as the key to explaining cyclical fluctuations.

ics, 1991), pp. 187-238. A broad-ranging and eru-
dite, if somewhat rambling, survey of the issues

surrounding the perennial debate over the role Bruce J. Caldwell

and the effects of exchange-rate variations in the Professor of Economics

international adjustment process. Mundell is a University of North Carolina, Greensboro:
proponent of a fixed-rate international monetary The Fortunes of Liberalism: Essays on Austrian Eco-
system based on gold and is the founder of the nomics and the Ideal of Freedom, vol. 4 of The Collected
monetary approach to analyzing the balance of pay- Works of E A. Hayek, ed. Peter G. Klein (University
ments and exchange rates, which bears important of Chicago Press, and Routledge, 1992). The intro-
similarities to the Misesian analysis. duction is very solid, and the prologue and the arti-

cles in the first section on the Austrian school of
economics are well worth reading or rereading as
the case may be. I think that most Austrians will

Salim Rashid, “Adam Smith and the Market
Mechanism,” History of Political Economy 24 (Spring

1992): 129-52. This article challenges the claim find something in the book either that they didn’t
that Smith is due credit as an innovator in eco- know, or that they knew once but had forgotten. In
nomic theory. The author also disputes the general I think the volumes in the Collected Works
weaker claim that Smith was a competent exposi- promise to be good sources for Austrians: Even

tor of the most advanced thought of his predeces- those familiar with the texts will have complete cita-

sors and tontemporaries, arguing, to the tions, plus editor’s introductions which include
contrary, that Smith’s work represented a degen- their own lists of recommended readings.

eration from such thought. In a related piece,

“The Wealth of Nations and Historical Fact,” Jour- Critical Review, any issue. | would reco mmend
nal of the History of Economic Thought 14 (Fall that anyone seriously interested in Austrian eco-
1992): 226-43, Rashid rejects the conventional nomics get their own subscription. I am constantly

delighted by the high quality of the contributions.

iew that Smith li i
view that Smith was an accomplished economic What I like best is that I can read work in fields

historian as well as theorist and that the political- : :
economic views expressed in The Wealth of Nations that touch but are diferent from economics, from
are supported not only by theoretical inference political philosophy to ethics to history to the phi-
but also by a wealth of painstakingly marshalled fac- losophy of science. One of the benefits of the Aus-
tual evidence. In fact, according to the author, not trian approac his Hat i encourages

only is the book marred by significant factual inac- interdisciplinary grazing, and this is as good a
curacies or selective reading of the known facts, but source of fodder as any. Three of my favorite re-
Smith did very little of his own historical research cent articles appear in the same issue (vol. 4, nos. 1

and, in some cases, miginterpreted the selected & 2, Winter-

authorities he consulted or used his theory to for- Spring 1990:

mulate a conjectural history which he in turn used “nto or bod ji

to confirm his theory. Relativian and the
Robert Tollison and Richard E. Wagner, “The Social Sciences,

Logic of Natural Monopoly Regulation,” Eastern Eco- Gregory

nomic Journal 17 (October/December 1891); 483-90. ee Johnson on her-

Applying public choice principles, the authors dem- meneutics, and

onstrate that even “activist” regulation of natural mo- Barry Smith on
nopoly, which attempts to monitor and regulate the the Austrianness
monopolist's costs, will not be able to prevent the of Austrian eco-
emergence of the monopolistic price/quantity ocut- nomics,

LL ___________
12 / AUSTRIAN ECONOMICS NEWSLETTER Spring 1993


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

I also mention two forthcoming volumes. The freedom in eco-
first is edited by myself with Stephan Boehm for nomic theory with
Kluwer entitled Austrian Economics: Tensions and New the presupposition-
Directions. 1 feel comfortable with this shameless act alism of Calvinist Murray N
of self-promotion because the papers are written by Reconstructionist ~~ Rothbard
others, and many of them are, in my opinion, quite epistemology.
good. We tried to confront Austrian views with criti- James C. W.
cism from informed outsiders, and to discover in Ahiakpor, “Rashid
what new directions Austrian economics might on Adam Smith:
move in the future. The other is a two-volume col- In Need of Proof,”
lection of papers from a conference on Hayek held Journal of Libertar-
last summer in Italy. The editors are Marina Co- ian Studies 10, no. 2 (Fall 1992): 171-80, and Salim
lonna, Omar Hamouda, and Harald Hagemann, Rashid, “Adam Smith and Neo-Plagiarism: A Re-
and the volumes will be published by Edward El- ply,” ibid , 181-90. A dispute over Rashid’s continu-
gar. There are some good papers in the group, and ing revisionist research on Smith, in particular
others are of interest because of their provocative Smith's systemic plagiarism.
content. In the latter category I particularly en- Richard M. Ebeling, ed. in Economics: A

joyed one by the English realist Tony Lawson, who
interprets Hayek in the “Scientism” essay as a “posi-
tivist hermeneut.” (I liked it but I also disagree
with it.) There is also a paper by John Eatwell and
Murray Milgate that, if it is published in the form it

Reader (Hillsdale College Press, 1991). A comprehen-
sive and thoughtfully selected reader of over 680
pages, covering mainstream Austrian economics from
Mises to the present. Invaluable for students.

appeared for the conference, is a splendid example Mark Thornton, The Economics of Prohibition
of an egregious and studiously mean-spirited misin- (University of Utah Press, 1991). Not only expands
terpretation of Hayek's views. Austrian economic theory to provide a theory of

prohibition, but also deals with the current public
policy debate on drug prohibition, as well as a his-

Murray N. Rothbard tory of the origins and development of alcohol and

8. J Hall Distinguished Professor of Economics

University of Nevada, Las Vegas: drug prohibition in the U.S.

The Review of Political Econonyy, a British post- Bettina Bien Greaves and Robert W. McGee, com-
Keynesian journal published by Cambridge Univer- pilers, Mises: An Annotated Bibliography (Foundation
gity Press, is new and little known in the U.S. In for Economic Education, 1993). A monumental, 390-
their hostility to orthodox neoclassicism, the RPE page work, providing not only a complete, fully anno-
usually has at least one article in each (quarterly) is- tated bibliography of all of Mises's work, but also of
sue devoted to Austrian economics, in a not unsym- all book reviews and articles about Mises, the latter
pathetic way. Particularly interesting is David through 1981. Not only are the annotations detailed,
Young, “Austrian Views on Monopoly: Insights and often quoting the source, but all the important Ger-
Problems,” vol. 4, no. 2 (1992): 203-25. man reviews of and articles on Mises are translated in

Richard Vedder and Lowell Gallaway, Out of full. A remarkable accomplishment and virtually the
Work: Unemployment and Government in Twentieth- Cen- life work of Mrs. Greaves.
tury America (Independent Institute, 1993). A com- Donald Gilles, ed., Revolutions in Mathematics
prehensive, lucidly written demolition of the {Clarendon Press, 1992). A fascinating work, requir-
popular and Keynesian views of unemployment, ing no mathematical expertise for the reader, apply-
and a presentation of the Austrian view that unem- ing Kuhnian “scientific revolution” theory to the
ployment is caused by real wage rates kept above history of mathematics. Particularly interesting for
the market rate. Covers both theory and details of showing that the triumph of formalism in mathe-
twentieth-century American history. Use of econo- matics (clearly relevant to formalism in economic

‘ metrics is refreshingly clear and from a common- theory) in the twentieth century was driven, not by
sense perspective. strictly mathematical criteria, but by the general

Gary North, The Coase Theorem: A Study in Eco- philosophical revolution in t he Western world that
nomic Episterrology (Institute for Christian Econom- discarded classical realism for epistemological sub-
ics, 1992). A sparkling polemic against the Coase jectivism, formalism, and quasi-nihilism. In particu-
Theorem from an unusual point of view: a blend of lar, see Herbert Breger, “A Restoration that Failed:
uncompromising Austrian subjectivism and value Paul Finsler’s Theory of Sets” (pp. 249-64), which

nn
Spring 1993 AUSTRIAN ECONOMICS NEWSLETTER / 13


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

demonstrates that the eminent German mathemati- while “loyal” ones were held in reserve, Lincoln

cian Finsler’s rehabilitation of classical set theory in was able to exercise discretion over casualty rates. In
the 1920s was brusquely dismissed because it was one instance, 10,000 troops were sent home to Pennsyl-
grounded in the philosophical realism that had ani- vania for the 1864 election in which the state’s electoral
mated mathematics before the twentieth century, vote was decided by a mere 6,000 votes.

and was notin accord with the anti-realist, formal- Richard Bensel, Yankee Leviathan: The Origins of
ist revolution. Central State Authority in America, 1859-1877 (Cam-

Mark T bridge University Press, 1990). Bensel finds the

0. P. Alford III Assistant Prof of - Civil War as a watershed for the growth of govern-
Auburn University: ment. Useful for anyone interested in the timely is-

Robert Higgs, “Wartime Prosperity? A Reassess- Sues of the war economy, fhe role of monetary
ment of the U.S. Economy in the 1940s,” Jburnal of policy in public finance, and the political economy
Economic History 52 (March 1992): 41-60. Higgs re- of succession. 4
futes the Keynesian notion that World War II got
us out of the Great Depression. He successfully
challenges the notion that the war had any benefi- New and Noteworthy
cial effect on employment, production, or consump-
tion, showing in the process that the economy did
not in fact recover until the war was over. Defends

(Other recent books and articles of interest, recommended by

Mises's dictum that “[w]ar prosperity is like the
prosperity that an earthquake or a plague brings.” the a ! of the ANN. Readers are encouraged to forward

Randall Holcombe, “The Distributive Model of
Government: Evidence from the Confederate Con-
stitution,” Southern Economic Journal 58 (January
1992): 762-69. Selected as the paper of the year in
the SEJ Holcombe demonstrates that the Confeder-
ates greatly respected the U.S. Constitution but
modified it in some important areas, such as omit-
ting the general welfare clause. Interestingly, the
problems that the Confederates tried to fix are
those identified by modern observers as the prob-
lems of today, such as special interest politics and
the growth of government. For more details, one
might consult Marshall DeRosa’s The Confederate
Constitution: An Inquiry into American Constitutional

- gteban F. Thomsen, Prices and Knowledge: A
Market- Process Perspective (Routledge, 1992).

Revised version of the author’s Ph.D. thesis at
N.Y.U. Explores the relationship between knowl-
edge and the price system, including recent neo-
classical critiques of Hayek's views by Sanford
Grossman and Joseph Stiglitz. Compares Austrian
concepts with Herbert Simon’s “bounded rational-
ity” and the evolutionary theory of Richard Nelson
and Sidney Winter. Part of a new Routledge series
called “Foundations of the Market Economy,” ed-
ited by Mario Rizzo and Lawrence H. White.

ism (University of Missouri Press, 1991). Israel M. Kirzner, The Meaning of Market Process:
Gary Anderson and Robert Tollison, “Political Essays i the Developner) of Modern . Econom
Influence on Civil War Mortality Rates: The Elec- ics (Routledge, 1991). Newest collection of essays by

Kirzner. Includes survey of the Austrian school writ-
ten for the New Palgrave. Part of the “Foundations
of the Market Economy” series.

toral College as a Battlefield,” Defense Economics 2
(1991): 219-233. I give this the Thornton Award
for the most politically incorrect article of 1991. An-

derson and Tollison provide evidence suggesting Roy E. Cordato, “Knowledge Problems and the
that Lincoln ma- Problem of Social Cost,” Journal of the History of Eco-
nipulated mili- nomic Thought 14 (Fall 1992): 209-24. Criticism of
tary strategy to the “Coase theorem” and the Chicago school of law
increase his elec- and economics from an Austrian school perspec-
toral vote total tive. Argues that Coase and Hayek are largely irrec-
in the 1864 elec- oncilable on matters of property rights and liability.
tion. By directing Concise statement of issues developed at greater
military strategy length in the author’s recent book Welfare Economics
to encourage the and Externalities in an Open-Ended Universe (1992).
use of Demo- Larry J. Sechrest, “Free Banking in Scotland: A
cratic troops in Dissenting View,” Cato Journal 10, no. 3 (Winter
the front lines 1991): 799-824. Criticizes the interpretation of the

=n
14 / AUSTRIAN ECONOMICS NEWSLETTER Spring 1993



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

Scottish free banking experience offered by that private legal systems, similar to those develop-

Lawrence White in his 1984 book Free Banking in ing about the same time in America, tended to de-
Scotland. Focuses on high bank failure rates, note in- velop without central government direction.
convertibility, and restrictions on small-denomina- Anthony Brewer, Richard Cantillon: Pioneer of
tion notes, among other issues. Includes responses Economic Theory (Routledge, 1992). The first book-
from White and Kevin Dowd. length analysis of the proto-Austrian Cantillon.
Kevin Dowd, “Models of Banking Instability: A Goes beyond Antoin E. Murphy's 1986 biography
Partial Review of the Literature,” Journal of Eco- in its theoretical treatment.
nongc Surveys 6, no. 2 (1992). Survey of recent theo- Tyler Cowen, “Law as a Public Good: The Eco-
retical literature on banking instability by a leading nomics of Anarchy,” Econonics and Philosophy 8
proponent of free banking. Begins with the cele- (1992): 249-67. Provides an economic analysis of “lib-
brated 1983 paper by Douglas Diamond and Philip ertarian anarchy,” the social system in which protec-
Dybvig. Argues that runs and panics can largely be tion and defense services are privately provided on
prevented by private contracts, rather than govern- the market. Argues that libertarian anarchy is an un-
ment insurance, legal restrictions, and the like. stable equilibrium because competing private protec-
ics in Real Time,” Industrial and Corporate Change 1, facilitated by the development of a common arbitra-

certain aspects of the “new institutional economics,” form, for all practical purposes, a “government.” 4

particularly Oliver Williamson's transaction cost eco-
nomics and the “dynamic capabilities” view of the
firm associated with Edith Penrose and David Teece. Notes and Transitions
Views uncertainty and learning over time, rather

than asset specificity, as the key determinants of the

boundaries of the firm. Appears in the inaugural is- oy Cardato of the Institute for Research on
sue of a new business strategy journal. the Economics of Taxation and Johns Hop-
Martti Vihanto, “Competition Between Local kins University runs the Saturday Morning Austrian
Governments as a Discovery Procedure,” Journal of Colloquium, a seminar in Fairfax, Virginia for local
Institutional and Theoretical Economics 148, no. 3 Austrians. Recent speakers included Richard Lan-
(1992): 411-36. Interesting treatment of local provi- glois of the University of Connecticut on the eco-

sion of public goods, based on a Hayek—Kirzner in- nomics of the semiconductor industry; Paul Cantor
terpretation of the value of competition. Argues of the University of Virginia on culture and the Mis-
that traditional theories of how to provide govern- esian theory of inflation; Michael Krause of George
ment services are biased towards central provision, Mason Law School on command versus spontaneous

because these theories start with a static neoclassi- order in the development of standards; Thomas
cal view of rivalry. DiLorenzo of Loyola College on sustainable develop-
ment; Roy Cordato on externalities; George Selgin of
Gertrude E. Schroeder, “The Dismal Fate of So- the University of Georgia on fiat money acceptance;
viet-Type Economies: Mises Was Right,” Cato Journal and Mario Rizzo of New York University on the ge-
11, no. 1 (Spring/Summer 1991): 13-25. Surveys re- netic-causal tradition in economic theory.

cent work on economic growth, productivity, stand-
ards of living, and income distribution in the former
communist countries of the U.S.S.R. and Eastern
Europe. Seeks to confirm Mises's argument about the
impossibility of economic calculation under socialism
in his 1920 article and his predictions about future
Soviet economic performance.

Peter J Boettke, assistant professor of econom-
ics at New York University, is spending the 1992
93 academic year as a national fellow at the Hoover
Institution at Stanford University. He is presently
editing two volumes on Austrian economics that
are forthcoming in 1993. These are the Companion
of Austrian Economics (Edward Elgar), a dictionary

Sumner J. La Croix, “Property Rights and Insti- of survey articles on various aspects of Austrian the-
tutional Change during Australia’s Gold Rush,” Ex- ory and practice, contributed by over sixty authors,
plorations in Econonic History 29 (1992): 204-27. In organized like the New Palgrave Dictionary of Econom
the “private ordering” tradition of recent work by ics; and an as yet untitled collection of essays on eco-
Bruce Benson and Robert Ellicksen; documents nomic growth and development, to appear as vol. 2
the formation and evolution of property rights to of a new series called “The Political Economy of the
gold in the Australian gold rush of the 1850s. Finds Austrian School,” edited by Mario Rizzo (New York

Le ____________________________________________________________________________________________
Spring 1993 AUSTRIAN ECONOMICS NEWSLETTER / 15

»
a —


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

University Press). Boettke’s new book, Why Fer- December the University named Princeton economic
estroika Failed: The Politics and Economics of Socialist theorist Hugo Sonnenschein as its new president.
Transformation has just been published by Routledge. The Finnish journal Administrative Studies [Hallin-
Bettina Bien Greaves of the Foundation for non Tuthkirmus] devoted an entire issue, vol. 10, no. 4
Economic Education has joined the Mises Institute (1991), to Ludwig von Mises and Austrian econom-
as distinguished senior scholar. ics. The issue is introduced by editor Risto Harisalo

The Austrian Economics Colloquium at Auburn with “Ludwig von Mises: The Theorist of the Next

University has been revived, thanks to the efforts of Century.” Particularly interesting are articlesby
Mark T1 bon, assistant professor of economics at Martti Vihanto on “The Four Approaches to Austrian

Auburn. Speakers at the weekly seminar for the Win- Social Theory,’ Marco de Witt's “On the Misesian
ter quarter 1993 include Thornton on the economics Epistemology,” and Risto Harisalo’s “A Critique of

of slavery, Leland Yeager on “Mises and Hayek on Equality in the Light of the Austrian Theory.”

Calculation and Knowledge,” Joseph Salerno on The March 1992 issue of the South African Jour-
“Mises and Hayek Dehomogenized,” and Roger nal of Economics is a special Ludwig Lachmann me-
Garrison on “Keynesian Splenetics: From Social morial issue. It includes a previously unpublished
Philosophy to Macroeconomics.” paper by Lachmann, “Socialism and the Market: A
Thornton also chaired a session at the July Theme of Economic Sociology Viewed from a We-
1992 Western Economic Association meetings in berian Perspective,” along with essays by Israel Kir-
San Francisco on “The Collapse of Development zner and Mario Rizzo, and a complete bibliography
Planning.” Papers were presented by Thornton of Lachmann’s works. It also contains an interest-
and Manisha Perera, Parth Shah, and David Oster- ing article by A. D. Karayiannis on “Entrepreneur
feld. The discussants were Thornton, Jeffrey Her- ship in Classical Greek Literature.”
bener, and Peter Klein Management guru Tom Peters, author (with
The Spring 1993 schedule for N.Y.U.’s Austrian Robert J. Waterman, Jr.) of the 1982 blockbuster In
Economics Colloquium included Viktor Vanberg Search of Excellence, has come out with his latest
on January 28; Randall Kroszner on February 11; book, called Liberation Management. In this work Pe-
Barry Smith on February 25; Peter Boettke on ters credits Hayek's The Fatal Conceit for revolution-
March 25; and Tibor Macham on April 15. izing his thinking about economics and quotes
The 1993 Mises University summer conference extensively from Hayek's book.
will be held at Claremont-McKenna College, in In October the Mises Institute hosted an Elder-
Claremont California, from July 17-24. See the en- hostel conference, at which senior citizens were
closed insert for details. taught the fundamentals of Austrian monetary the-

ory and history. Mises Institute staff and fellowship

f Pace Universi ized i i
Joseph Salerno of Pace University organized a students provided the instruction.

panel on Austrian economics at the Eastern Eco-

nomics Association in Washington, D.C., March Politically correct “dissent”? Edward Elgar has
1993. Presenters were Salerno, William Butos of just published A Biographical Dictionary of Dissenting
Trinity College, Hartford and Roger Koppl of Economists, edited by Philip Arestis and Malcolm Saw-
Farleigh Dickinson, Roy Cordato, and Thomas yer. Though they define “dissenters” to be all those
DiL orenzo. Commentators were John Egger and outside the neoclassical tradition, no Austrians are
Karen Palasek of Towson State, Donald featured in the Dictionary. Closer inspection reveals
Boudreaux of Clemson University, and Debra that to qualify as a dissenter one must reject methodo-
Walker of Loyola University. logical individualism in any form, so only “institution-

alist, post-Keynesian, Kaleckian, Marxian and
neo-Marxian, Sraffian, and radical political econo-
mists” need apply. Interestingly, the only trait these
groups seem to share is hostility toward the market.

Gary Becker’s receipt of the 1992 Nobel Prize
in economics brings to six the number of Univer-
sity of Chicago faculty to receive that honor.
Becker’s predecessors are Milton Friedman

(1973), Theodore Schultz (1979), George Stigler Meanwhile, socialism continues to survive
(1982), Merton Miller (1990), and Ronald Coase within the academy: See Pranab Bardhan and John
(1991). F. A. Hayek, the 1974 Nobel Laureate, was E. Roemer, “Market Socialism: A Case for Rejuvena-
with the Committee on Social Thought at Chicago tion,” Journal of Econonic Perspectives 6 (Summer
from 1950 to 1962. Two other Chicago economists, 1992); 101-116, and Thomas E. Weisskopf, “Chal-
Robert Lucas and Judge Richard Posner, are good lenges to Market Socialism: A Response to Critics,”
bets to be similarly honored in the near future. In Dissent (Spring 1992): 250-61. a

Eo
18 / AUSTRIAN ECONOMICS NEWSLETTER Spring 1993