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

RE

Vol 4%,

Austrian

Economics Newsletter

goal, it was because not enough money had been
spent or because the government had not been
firm enough in enforcing the measure’s provisions.

One of Mises’s assignments at the University
was to research housing conditions in Austria. The
young student discovered that taxes on construc-
tion materials added to the cost of housing, rent
controls made investment in housing unprofitable,
and high taxes on capital gains kept venture capi-
tal from entering the housing market. Not only
were fewer housing units available as a result, but
fewer job opportunities were to be found in con-
struction. Mises began to realize that the shortage
and high cost of housing and construction materi-
als were not the fault of business but of govern-

LUDWIG VON MISES ment interference. Capitalists, entrepreneurs, and
AND THE COMING OF builders wanted to open factories; they wanted to
SOCIALISM IN AUSTRIA hire workers; they wanted to build houses; but
they were hampered at every turn by taxes and
by Bettina Bien Greaves | government regulations. Mises’s study of housing

\ led him to question all government intervention.
(The following was reconstructed from a variety of

published and unpublished sources, including per-
sonal interviews with Ludwig von Mises, conducted
by Mrs. Greaves over several years. The sources of the
direct quotations are Mises’s own recollections, as
recorded by the author)

When Mises was a graduate student, the
Marxists were agitating throughout Europe for a
proletarian (worker) revolution. In Russia, the
communists were trying to unite the workers to
their cause. With the slogan “All the Land to the
Peasants,” they appealed also to the peasants.
They used terror as a weapon, calling strikes, rob-
bing banks, and assassinating government offi-

I n the Vienna of Ludwig von Mises’s youth, po-
cials. In Austria-Hungary, the socialists, members

litical and economic trends were toward more
and more government interference with the mar-
ket, if not toward outright socialism. As a boy,
young Mises heard about the conflict between the
government and the radical Marxian socialists, or
communists. When he was only eleven or twelve,
so young that he had to look up the word “prostitu-

Conference Reports. . ............. 5

tion” in the dictionary, he read Women and Social- P
ism, a popular, much-talked-about book by the David Gordon, John Denson,
Marxist August Bebel. Young Mises was an om- Charles Steele: Book Reviews. ....... 5
nivorous reader and in time became “consciously Peter Boettke, Richard Langlois:
anti-Marxian. Recommended Reading. . .......... 11

However, when he entered the University of Vi- New and Noteworthy. . . . . ......... 13
enna, he was an advocate of social reform like eve-
ryone else; if a government reform fell short of its Notes and Transitions. . ........... 15


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

of the Social Democratic party, were permitted to “What will happen,” Mises asked, “if some day

demonstrate because the government had given another party—using organized force—gains
them the “right to the streets.” On November 28, street autonomy? Wouldn't that mean civil war?”
1905, about 250,000 “socialist workers” took to the “Only a bourgeois could ask such a question,”
streets. Led by Party officials, they marched past Bauer responded. “A bourgeois who doesn’t realize
Parliament around the Ringstrasse in military that the future belongs to us Socialists. What
fashion eight abreast. The city of Vienna was com- party would dare to confront the organized prole-
pletely paralyzed. tariat? Once we come to power, there will be no
That evening in a coffee house young Mises more resistance.”
chanced to meet a fellow student named Otto Several years later, as graduate students
Bauer. Mises was a critic of government interven- Mises, the critic of government interven tion, an d
tion; Bauer was a devoted Marxist. Bauer was , | Bauer, the dedicated socialist, both attended the
elated at the events, Asa result of the workers University seminar of former Austrian Finance
street demonstration, Bauer said, the Party had Minister Eugen von Bshm-Bawerk. Earlier Bshm-
achieved “street autonomy. ” An d they would de- '  Bawerk had written a devastating critique of
fend this achievement, he said, “forever. Marx's value theory, which had “mortally wounded

Marxian economics.”

During the first semester of his economic semi-
nar, Bohm discussed value theory. As seminar

Austrian leader, Bohm played the role of chairman. While
mse || Economics Newslecter participating occasionally in the discussion him-
self, he encouraged seminar participants to speak
Volume 14, Number 2 up. Otto Bauer, the Marxist, did his best in the
CONTRIBUTORS TO THIS ISSUE rm of Samford. D seminar sessions to refute Bshm’s scholarly the-
John V. Denson is a partner in the law firm of Samford, Den- sis. Bohm was serious and thorough. Bauer was
son, Horsley, Pettey & Martin in Opelika, Alabama, a trustee of : brilliant, uch, and well informed. Back and forth

Auburn University, and Vice Chairman of the Mises Institute.
the two men debated, while the other participants

sat and listened. In the end, Bauer probably had

David Gordon is a senior fellow at the Mises Institute.
Bettina Bien Greaves is Distinguished Senior Scholar at the

Mises Institute and Resident Scholar at the Foundation for Eco- to admit to himself that the Marxian labor theory
nomic Education. | | of value did not hold up. Yet his Marxist faith and
Char ee erie is a graduate student in economics at New his determination to bring about a proletarian
revolution remained unshaken.
STAFF .
Editor: Peter G. Klein/ University of California, Berkeley After World War I, the old Austro-Hungarian
Associate Editor: Jeffrey A. Tucker/ Ludwig von Mises Institute armies were swept away by the chaos of defeat
Contributing Editors: Mark Brandly, Doug Butler, Pete Calcagno, and revolution. Retreating troops broke discipline
Sandy Johnson, Jim Kee, Doug Walker / Auburn University . Cf . hei
Managing Editor: Judith F. Thommesen in their rantic efforts to return to their homes.
Prisoners of war, their camps unguarded, were
CORRESPONDENTS :oined by politicians and common criminals. All
Amy M. Boswell/ University of Notre Dame Jo ¥ pole n i . tT
Charles Steele/ New York University scattered around the countryside seeking their
Alexander Tabarrok / George Mason University homes throughout the shattered empire. Trucks

and trains were commandeered by troops. Soldiers

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Send questions pertaining to submissions of articles and book
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Copyright © 1994 Ludwig von Mises Institute, Aubum University, the huge Austro-Hungarian empire. After the
Auburn, AL 36849-5301; (205) 844-2500; fax (205) 844-2583. War. she was a large city in a small country with
J

SE

2 { AUSTRIAN ECONOMICS NEWSLETTER Spring 1994

ar md as rp—p


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

no industrial base, a city occupied primarily by of the Hungarian Soviet Republic proclaimed that

government offices and unemployed bureaucrats. “by socializing private property throughout Hun-
The Viennese were impoverished, discouraged, de- gary, the Hungarian government has become the
moralized. Inflation was wrecking their money richest and thus the most credit-worthy in the
and destroying their savings. Many were unem- world.”

ployed, starving, hungry. There were bread lines
and food riots. Once as a mounted policeman was
making his rounds in Vienna, his horse stumbled
and fell. A crowd immediately pounced on the
horse, killed it, and hacked it to pieces. The lucky
scavengers took chunks of horse meat home to
their hungry families.

Mises’s Marxist friend Otto Bauer was deter-
mined to bring about a proletarian revolution in
Austria similar to the one in Russia. Mises, by
then a severe critic of big government, was just as
determined to prevent a Bolshevist takeover of
Austria.

“You know what is at stake,” Mises told Bauer.
“Austria cannot feed herself; she depends on im-
ports of food. If private property is confiscated and
private enterprises are socialized, production will
stop. Farmers will no lenger bring produce to mar-
kets. Trade with foreign countries will come to a
halt. Within a few days Bolshevism in Vienna
would create starvation and terror. Plundering
hordes would soon roam the streets and a second
blood bath would destroy the remnants of Vien-
nese culture and civilization.”

The Allies’ rigid blockade of the already starv-
ing Austrian population continued throughout the
hard winter of 1918. The blockade was even rein-
forced by Austria’s old comrades in arms. The
Czechs and Poles cut off its coal and oil supplies.
The Hungarian, Czech, and Yugoslav governments
cut off its corn supplies. Defeat, revolution, disinte-
gration, blockage, starvation, denial of raw materi-
als and markets—such was the bitter pill Austria
was forced to swallow.

In the midst of this widespread destitution,
the Austrian communists offered a ray of hope.
The Communist Revolution had just taken place
in Russia. Communism was hailed as ushering in
a new utopia. Under communism, all property
would be commonly owned; there would be no
more poverty, hunger, or unemployment; there
would be neither “rich” nor “poor”; all would share
and share alike in the fruits of production. Com-
munist agitators in Vienna called on the people to
rebel, to take to the streets, to do away with pri-
vate property, and join the march toward commu-
nism. Communism, or socialism, was “the wave of

Mises met evening after evening with Bauer
and his wife, Helene Gumplowicz, to discuss these
problems. They agreed that Austria was in chaos,
that she was torn apart by conflicts of nationality
among persons of differing religions, cultures, and
languages. They knew it was imperative for Aus-
tria to improve production and trade. And they
agreed that workers sometimes had to migrate
to find work. However, they disagreed over
how to accomplish this without friction. Bauer
argued vigorously for a proletarian revolution,
and Gumplowicz encouraged and supported
Bauer in his determination. Communism,

the fiskure, they claimed, would alleviate economic suffering

Everyone was convinced that Bolshevism was and at the same time help to reduce national con-
coming. They bent all their efforts on trying to ob- flicts. Mises sympathized with the plight of the
tain good positions in the new order. The Catholic people but disagreed that a communist revolution
Church and even the Social Democrats’ opposition, was the answer. Communism, Mises held, would
the Christian-Social Party, were ready to welcome not, and could not, live up to the Bauers’ expecta-
Bolshevism. So were businessmen. One prominent tions.

Austrian industrial consultant announced that he “Th blem.” B d. “is that und
would rather serve the people than stockholders. © probiem, Sauer argued, 1s that under
Bank directors and big industrialists looked forward capitalism the resetlemen ¢ of workers follows the
to being “manag ers” in a Bolshevist regime blindly ruling laws of capitalist competition,

) These laws violate the nationality principle and

The pressure for socialism in Austria was has- the will of the nation. Under socialism, migration
tened along by developments in Hungary. There would be consciously planned. With emigration
the Bolshevists, with Bela Kun at their head, pro- and immigration regulated deliberately, society
claimed on March 21, 1919, a “Dictatorship of the would gain power over its language and national
Proletariat.” They hailed the communization of boundaries. Social migrations would then reflect
land, factories, shops, houses, bank accounts, and the will of the nation and no longer violate the na-
even jewelry over a certain value. A leading official tionality principle and cause conflicts.”

EEE EEE aa EEE ™
Spring 1994 AUSTRIAN ECONOMICS NEWSLETTER / 3

a er EE :


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

“But,” Mises responded, “if the deliberate regu-
lation of the migration of workers is guided ration-
ally, that is if economic efficiency is the goal, then
it will sometimes have to go against the wishes of
the people. If so, it too will lead to nationality
problems.”

Bauer was not convinced. “Under socialism,”
he said, “the deliberate regulation of migrations
by the socialist community would take the place of
those migrations that are dominated by the
blindly prevailing laws of capitalist competition.
Immigrants would be moved to places where they
will increase the productivity of labor; workers
will be induced to leave places where productivity
is declining.”

“But that is precisely what competition accom-
plishes under capitalism,” Mises said. “If the plan-
ners in a socialist world state decided, for
instance, that spinning and iron production were
to be cut back in Germany and expanded in the
United States, then German workers would have
to be resettled in Anglo-Saxon territory. That
could lead to national friction. To assume that the
migration of workers across national boundaries,
even when decided upon consciously and deliber-
ately according to plan, would not lead to conflict
under socialism, as it does under capitalism, is
downright utopian.”

Mises continued. “Only if the socialist commu-
nity is non-democratic, may we assume that no
national frictions would arise. The people in
such an undemocratic socialist society would be
either planners or those who must submit to the
plans. Such an undemocratic socialist society
would be an empire of general servitude. It would
keep the peace only by transforming the people
into slaves.”

Mises reminded Bauer: “Bela Kun’s Bolshevist
regime, launched in Hungary with such high
hopes, has suffered economic and financial chaos,
widespread starvation, and terror. It collapsed
after little more than four months. Austria’s
situation may be even more precarious than
Hungary's. At no time during the first nine
months after the Armistice has Vienna had a
supply of food for more than eight or nine days.
Austria depends on the importation of food from
abroad, which is possible only with the assistance
of her former enemies. Without lifting a finger,
they could force the surrender of a Bolshevist re-
gime in Vienna.”

As a young man Otto Bauer had made up his
mind never to betray his Marxian conviction,

4 / AUSTRIAN ECONOMICS NEWSLETTER

A young Ludwig
von Mises

never to compromise. However, he was too intelli-
gent not to realize that Mises was right. Thus,
Mises was finally able to convince Bauer and Gum-
plowicz that a Bolshevist experiment in Austria
would collapse in short order, perhaps in only a
few days, and that Austria would be destroyed in
the process.

The events lay in the hands of Otto Bauer,
loyal Austrian and leader of the Social-Democratic
Party. When Bauer presented his proposal to the
Constituent Assembly in 1919, he called for “grad-
ual” socialization only. Various schemes were
drawn up for putting his program into execution,
but none was ever adopted. Except for rent con-
trols, which Bauer recognized expropriated the
property of landlords, little actual socialization
was put into effect in Austria. Mises had won his
battle against the Bolshevist threat.

Publicly, Bauer attributed his rejection of so-
cialization to Austria’s desperate economic plight
and her dependence on foreign credit. Socializa-
tion, he admitted, had to be postponed because pri-
vate trade was so much more superior at getting
supplies into the country. Forced to choose be-
tween private capitalism and socialism, the social-
ist leader decided that, in an economically
wrecked country, capitalism had to be repaired
and maintained—at least for the time being. The
alternative would have literally condemned thou-
sands to starvation. In the end, it was Bauer’s re-
jection of the extreme communism he had
advocated up until the end of World War I that
saved Austria.

Because it was Mises who had persuaded
Bauer to give up proletarian revolution as a goal,
because it was Mises who had persuaded Bauer to
compromise his extreme socialist principles,
Bauer could never forgive Mises. The two men did
not speak to each other ever again. ,

Spring 1994

en ———————


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

C f R rt Roger Garrison (Auburn University), David Gor-
onierence eporis don, Jeffrey Herbener (Washington and Jefferson
College), Hans-Hermann Hoppe, Yuri N. Maltsev

(Carthage College), Murray N. Rothbard, Joseph T.
he Mises Institute hosted a conference on Salerno, and Mark Thornton (Auburn University).
the problems of the Welfare State in April For information on the 1994 conference write the

1993 in Lake Bluff, Illinois {near Chicago). Ralph Mises Institute, Auburn, Alabama 36849. a

Raico (SUNY, College at Buffalo) spoke on “The

German Origins of the Welfare State”; Allan C.

Carlson (Rockford Institute) on “Internal Contra- :

dictions of the Modern Welfare State”; Hans-Her- Book Reviews
mann Hoppe (University of Nevada, Las Vegas) on

“Risk, Insurance, and Welfare”; Samuel Francis

(Washington Times) on “Welfare as Cultural Ther- The Market, Competition

apy”; David Gordon (Mises Institute) on “The Eth- and Democracy: A Critique

ics of Welfare”; Paul Gottfried (Elizabethtown of Neo-Austrian Economics

College) on “The Therapeutic Welfare State”; Stavros Ioannides

Joseph T. Salerno (Pace University) on “Problems Edward Elgar, 1991

of Economic Calculation in the Welfare State”; and

Murray N. Rothbard (University of Las Vegas, Ne- Reviewed by David Gordon

vada) on “The Origins of the Welfare State in hen a Marxist appraises Austrian eco-
America.” The papers will appear in a conference i nomics, readers may expess unremitting

volume in late 1994. hostility. Stavros Ioannides, a Lecturer in Political

The 1992 Allied Social Sciences Associa- Science at the Pantion University in Athens, un-
tion meeting in New Orleans featured “The Road dertakes this task and does not altogether disap-
Back from Serfdom,” a special tribute to F. A. point. He regards the Austrians as ideologists of
Hayek, with papers by Abram Bergson (Harvard the New Right, and he constantly preaches the
University) on “Communist Economic Efficiency Re- gospel according to St. Karl. But he is not alto-
visited”; Ronald I. McKinnon (Stanford University) gether opposed to the Austrian approach. He finds
on “Spontaneous Order and the Road Back from much value in Austrian criticisms of neoclassical
Serfdom: An Asian Perspective”; and Sir Karl Pop- economics, a school which his Marxist confréres
per (London School of Economics) on “The Commu- likewise reject. Further, he acquired in the course
nist Road to Self-Enslavement.” Janos Kornai of his study a “love-hate relationship” (p. xi) with
(Harvard University) and George Melloan (The Wall | the work of F. A. Hayek.

Street Journal) were discussants. All the papers ex- : While his interest in Hayek makes him more
cept Popper's were published in the Spring 1993 is- sympathetic to Austrian economics than is custom-
sue of the American Economic Review; Popper's ary among Marxists, it at the same time endan-
appeared in the May/June 1992 issue of the Cato gers his project. Given that Hayek's work

Policy Report. This year’s ASSA meeting in Boston encompasses many subjects besides economics,
included a session on “The Voluntary Provision of ranging from the nature of perception to the philoso-
Public Goods,” organized by Randall Kroszner (Uni- phy of law, Ioannides must decide whether he in-
versity of Chicago), with papers by David Beito (Uni- tends to write about Austrian economics or about
versity of Nevada, Las Vegas) and Daniel Klein and Hayek’s system of thought. If he does both, he

Chi Yin (University of California, Irvine) and com- must be careful to distinguish the two subjects.
ments by Donald McCloskey (University of Iowa) | Faced with this key decision, Ioannides blunders
and Peter Boettke (New York University). badly. He confuses Hayek’s philosophical views

The Mises Institute’s annual summer instruc- with the tenets of Austrian economics, moving
tional conference, the “Mises University,” was from one to the other without discrimination.
held in 1993 at Claremont McKenna College in This flaw emerges quickly in chapter two, “Ori-
Claremont, California. For the week-long confer- gins and Methodological Principles of Neo-Aus-
ence, students chose individualized schedules from a trian Theory.” He offers a detailed account of
list of thirty-eight lectures and ten seminars. The Hayek’s theory of social evolution, a matter out-
faculty were Roy E. Cordato (Campbell University), side the scope of economics proper. To his credit,
Thomas J. DiLorenzo (Loyola College, Baltimore), Ioannides knows that not all Austrian economists

XE
Spring 1994 AUSTRIAN ECONOMICS NEWSLETTER / §

TE ———— www ww = reas


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

“share Hayek's beliefs about uncon-

new opportunities and the results of
scious rules and tradition, and he

that perception. Only the latter can

rightly stresses Mises’s rationalism The Market become “objectified”; the former is
as a contrast (p. 25). But he misses C om prin precisely what is not available
the fundamental point: Even if all and Democracy through a formula that can be “bot-

Austrian economists in fact held

identical opinions about the nature
of law, the importance of tradition,
and so on, these subjects would re-
main independent of economics. By
the close of chapter two, then, I re-

A Cte of Hee Austrian Frantmcs tled and sold.” Ioannides can, if he

4 likes, deny the existence or impor-
tance of entrepreneurial innovation;
but to mount an effective argument
he would at least need to understand
the concepts at issue. More impor-

{7

STAVROS IOANNIDES

garded Ioannides’s book with the ut- tant, he offers no argument to ex-
most suspicion. This passage did not plain why larger firms should be
allay my misgivings: “It is easily seen, therefore, able to purchase this “objectified” knowledge at
that the main methodological cleavage between lower cost than their smaller rivals. [oannides as-
Wieser and Bshm-Bawerk, on the one hand, and sumes exactly what he claims to prove, namely
Menger himself, on the other, is the abandonment | that larger firms are more efficient.

by the former of Menger’s individualist methodol-
ogy” (p. 28). Has loannides read a line of B6hm-
Bawerk’s explanation of value and price?

However mistaken Ioannides’s argument here,
at least he attempts to support his views with rea-
sons. Often his remarks do not rise to the level

The next chapter, “Competition and Knowl- of mistakes. Thus the Austrian theory of capital
edge,” begins a pattern that continues throughout must be rejected, he claims, because it is not “dy-
the remainder of the book. In every case, Ioan- namic.” A dynamic theory is one able to “sustain
nides contrasts the Austrian position with the neo- the notion of a cyclically repeated process of pro-
classical, awarding honors to the former. Alas, the duction” (p. 101). This is merely a stipulative defi-
Austrians, blinded by ideclogy, have failed to pur- nition of “dynamic”; why would capital ever
sue their insights to the limit, and must in turn reproduce itself automatically? Elsewhere, he
yield to the Marxists. Thus, for example, the Aus- chides the Austrian theory of money for failing
trians rightly reject the model of perfect competi- to separate money fully from other media of ex-
tion; competition is a process, not a state of change; the Austrians view money as a commod-
equilibrium, and Hayek correctly maintains that ity and not unique. But why must an acceptable
“perfect competition is an abstraction which theory uphold “the uniqueness of money” (p. 115)?
misses the most important aspect of competition, Presumably, because Marx told us so. Else-
its dynamic nature” (p. 32). Furthermore, Kir- where, Ioannides offers the following objection
zner’s stress on the entrepreneur exposes a vulner- to the Austrian theory of the business cycle:
able point in the neoclassical view, in that “(tirade cycles [in the Austrian theory] are not
knowledge cannot be taken as fixed but constantly caused by the market process itself but are, in-
changes as entrepreneurs respond to and antici- . stead, produced by exogenous manipulation of the
pate the uncertain future. Nevertheless, the Aus- money supply” (p. 133). To him, a correct theory of
trian view of competition ignores the fact that “the the cycle must view crises as inherent in a capital-
market process, by itself, constantly tends to objec- ist economy.
tly a great part of the knowledge #hich circulates In the final three chapters Ioannides confuses
in the economy” (p. 42). I take it that Ioannides , . . hy with Austri
means that once discovered, information becomes Hayek's social philosophy watt ustrian econom-
available for sale. This, in his view, topples the ics. He first addresses the socialist calculation ar-
Austrian theory. Since people do not have the gument, and surprisingly for a Marxist, he does

+ not hold that the argument fails on its own terms.
Rather, he claims that both Mises and Hayek on
the one hand, and Lange and Lerner on the other,
ignore the real issue. The arrival of socialism does
not depend on the success or failure of abstract
models of the economy. Instead, historical reality

- must be consulted. If we examine history wearing

Ioannides’s argument fails at each step. He proper Marxist spectacles, we shall see that state in-
does not distinguish between the perception of tervention is necessary to promote the reproduction

same access {0 new information, size becomes an
advantage. Large firms acquire “objectified” knowl-
edge and block their smaller competitors from ac-
cess to it. Unable to compete, the smaller firms
exit the market; and businesses in a capitalist
economy increasingly grow larger.

6 / AUSTRIAN ECONOMICS NEWSLETTER Spring 1994

TY em wm em Af dn ————— 4 ©


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

of capital. Further, “participation in the market Hayekian society from publicly advocating its re-

process is inconceivable if the participant is not an placement by socialism?
owner of resources. Therefore, state intervention- As if all of this were not enough, the book's
ism and state ownership are bound to be comple- style can hardly be termed “user-friendly. ” The
mentary concepts” (p. 164). Thus, capitalism leads reader frequently faces sentences like “It is obvi-
to socialism. ous that every member of society obtains the right
Even if this farrago were right, what about the | to express an opinion on the social system only
calculation argument? The contention that soctal- once in his/her lifetime when, at the age of 45,
ism is inevitable does not refute the claim that so- he/she is called upon to elect some of his’her peers
cialism spells disaster. Ioannides does not, to the legislative assembly” (p. 149). Ioannides has
however, concern himself with such narrow techni- read extensively in the Austrian literature, and
calities as whether socialism can work. Instead, his obvious effort to be fair to his political oppo-
he is worried that the capitalist system is undemo- nents deserves respect. But he lacks the resources
cratic. If people have property rights that are not | to carry out successfully the difficult task he has
subject to majority control, then the will of the peo- set for himself. As a result, he displays incompe-
ple has been thwarted. The rule of law which © tence in an unusually wide variety of fields. a

Hayek favors “amounts to the absolute elimina-
tion of the sphere of politics” {p. 149), and as such

is totalitarian. Hayek and the neo-Austrians sur- The Guardian of Every Other Right:
render all power to the capitalists, “with society The Constitutional History of
as a whole not even having the right to express an Property Rights
opinion” (p. 165). : James W. Ely, Jr.

We see here a graphic result of failure to de- Oxford University Press, 1992
limit the topic at hand. Whatever the value of
Hayek's political philosophy, Ioannides’s attack on Reviewed by John V. Denson
it ignores the issue of economic theory raised by
the Austrians. Whether or not the will of the ma- udwig von Mises called the private owner-
jority should be restricted, the question remains: ship of property and its protection the cor-
Can socialism solve the calculation problem? If it nerstone of a free society, and the historian
cannot, how will its conformity to the political im- ' Edward Gibbon observed that “[t]he enslavement
perative Ioannides supports enable it to avoid of man usually begins in the economic sphere.”
economic disaster? Ioannides might have con- The truth of these ideas concerning property
fronted this issue had he grasped the elemen- and liberty are demonstrated in an excellent
tary points that Hayek's political philosophy is new book, The Guardian of Every Other Right: A
not part of Austrian economics, and that adher- Constitutional History of Property Rights, by
ence to Austrian economics does not commit one to James W. Ely, Jr. The author associates the de-
any particular political views. Mises, for example, | cline and fall of American property rights with
favored just the sort of majority-rule democracy the New Deal. This compact, well-researched and
Ioannides endorses; but it does not follow from well-documented history is published in paper-
this fact that Mises’s version of Austrian econom- back by Oxford University Press as a part of the
ics, as against Hayek's, is “democratic.” Normative Organization of American Historians Essays on the
political judgments must be kept apart from eco- Bill of Rights series.
nomic analysis. James W. Ely, Jr. is professor of law and his-

Considered as political theory, Ioannides’s re- tory at Vanderbilt University. His prose is concise

marks are pretty poor stuff. If the majority of a so- and clear to the general reader, but the legal

ciety wishes to exterminate an ethnic minority, is scholar will find a treasure trove of research in

it totalitarian for constitutional restraints to pre- the footnotes and an excellent bibliography. The
vent it from carrying out its democratic will? If book's title is quoted from one Arthur Lee of Virginia,
people have property rights, why should these who declared during the Revolutionary Era that
rights be subject to what Ioannides is pleased to “(tlhe right of property is the guardian of every

call “social” control? Further, it does not follow other right, and to deprive a people of this right, is
from the fact that a political system restricts the in fact to deprive them of their liberty” (p. 26).
power of the majority that anyone’s freedom of The primary theme of the book is that prop-
opinion is restricted. What prevents people in a erty and economic rights are inseparable parts of

1 —
Spring 1994 AUSTRIAN ECONOMICS NEWSLETTER / 7

Ca a


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

individual liberty, a concept taken The book takes the reader through
from Locke and incorporated into the The Guardian of the Jeffersonian and Jacksonian peri-
orignal meaning of the U. S. Constitu- very Other Right ods with the explanation that Jeffer-
tion. As Ely notes: So son’s “equality” meant “equal rights for
all, special privileges for none.” The Jack-
sonian period continued this tradition of
equality in individual rights, attacking
those who would use government to
benefit the privileged few. Jackson fur-
ther observed that “[e]quality of talents,

of education, of wealth cannot be pro-

Of particular importance [to English
constitutional thought] was the the-
ory of property rights in Locke's politi-
cal philosophy. According to Locke,
private property existed under natural
law before the creation of political
authority. Indeed, the principal pur-

pose of government was to protect duced by human institutions,” and
these natural property rights, which thus opposed the egalitarians of his
' Locke fused with liberty. (p. 17) time. Reformers who subscribed to the laissez-
faire approach to economics in the latter part of
The book performs a biopsy on property rights and the nineteenth century opposed the tariff on the

finds a cancerous growth in the form of the New
Deal. This biopsy (hopefully not autopsy) reveals
that the New Deal attacked property by separating
it from other individual or human rights (freedom of
speech, the right of assembly, and so on) and after
making this division, conquered it by reducing prop-
erty rights to a lesser status unprotected by the

basis that it was unequal class legislation, benefit-
ing manufacturers at the expense of consumers.
These laissez-faire reformers warned that unequal
rights and class legislation would come full circle,
eventually favoring the wage earner at the ex-
pense of the capitalist. The Progressive Era, and

Constitution. The infamous shift by the U. S. Su- later the New Deal, of course confirmed the great-
preme Court, beginning with the Carolene Products est fears of these (unsuccessful) equal rights re-
case in 1937, was labeled by one writer as “the | formers. Ely cites a law review article by Les
switch in time which saved nine.” Ely cites the great : Benedict, who comments on this period that
constitutional lawyer, John W. Davis (the 1924

Democratic nominee for President) as a courageous [o)f all the special legislation sought and ac-
opponent of this shift by the New Deal Supreme quired by business interests, the protective tar-
Court. Davis took issue with the separation of prop- iff was the most colossal fraud. Repudiating the
erty rights from other human rights: “The two are fiction that the tariff was designed to protect
not antagonistic, but parts of one and the same thing the wages of American workers, its laissez-faire
going to make up the bundle of rights which consti- opponents characterized it as “the aggrandize-
tute American liberty. History furnishes no instance ment of capital by law,” and abuse of the taxing
where the right of man to acquire and hold property power by special legislation. Laissez-faire re-

formers warned capitalists that protectionism
was the parent of socialism. “It is a significant
fact that the agitation of the labor question in

had been taken away without the complete destruc-
tion of liberty in all of its forms.”

Ely provides an excellent overview of Supreme | this country comes most urgently from persons
Court decisions from about 1830 through 1936, a employed in those branches of occupation
period when the Court, mainly under the leader- which are most effected by a protective tariff,”
ship of Justice Stephen Field, constitutionalized
the laissez-faire approach to property rights. New Benedict also mentions the famous dissenting opin-
Deal critics of the laissez-faire Supreme Court ion of Oliver Wendell Holmes in the Lochner case
charged that the Court had created these property (1905), Holmes stated that the U. S. Constitution did
rights out of thin air. The New Deal advocates not adopt any particular economic system, nor did it

adopt Herbert Spencer’s Social Statics. Benedict
observes that while the Constitution may not have
adopted a particular economic system as in Adam
Smith’s Wealth of Nations, the Constitution did con-
sider property to be a basic individual right, as did
Spencer. Spencer’s book, Social Statics, talked about

criticized the Court for failing to see the change in
economic and ethical values as America became
wealthy and a great industrial power in the early
part of the twentieth century. These critics alleged
that they were taking a higher moral and ethical

ground by providing for a redistribution of wealth | the “law of equal freedom,” and property was merely
on a more equitable basis. Ely refutes this posi- i one of the basic human rights. While the Constitu-
tion by showing the basis upon which the Su- tion did not adopt a specific economic system, it did
preme Court had protected property rights from require that any economic system implemented re-
the time of the adoption of the Constitution. spect property rights.

___________________________________ __________________________________________
8 / AUSTRIAN ECONOMICS NEWSLETTER Spring 1994

WR ma ————


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

Ely’s book could be improved with more empha- william H. Harbaugh, Lawyer's Lawyer: The Life of John W.
sis on the disastrous effects of war on property Dages (Charlottesville: University Frese sEvitginia, 20802. 347.
ights, and particularly to the destruction of eco- ichael Les Benedict, “Laissez-Faire and Liberty: ARe-
rights, P \ Evaluation of the Meaning and Origins of Laissez-Faire Consti-
nomic rights which occurred as a result of World tutionalism,” Law and History Review 3, no. 2 (Fall 1985): 313.
War I. He does document that in 1861 the U. S. James Madison, “Political Observations” [1795], in Letters
government had its first income tax, a flat rate of and Other or es James Madison (New York: R.
3% on income over $800, and that “[t]he exigencies Lo Erom, TESS VOL 5, PR. EINE i
. \ d wid d; . Herman Belz, Property and Liberty Reconsidered,” Vander-
of the Civil War necessitated widespread impair- | bilt Law Review 45, no. 4 (May 1992): 1015. a
ment of existing economic arrangements” (p. 82). |
He further documents how the Civil War upset the
balance of power between the federal government
and the states when the South lost all of its politi-
cal restraint upon the flow of power to the central
government. Furthermore, he notes that “[n]ot un- James A, Tomer
til World War II were middle-class households sub- raeger,

jected to the federal levy on income” (p. 132). Ely

Socialism Revised and Modernized:
The Case for Pragmatic Market Socialism

could have also shown how throughout American Reviewed by Charles N. Steele

history, wars—even those that have been won—

have always been the “crisis” doing the most to W hile schemes for central planning are
produce the “Leviathan” of strong central govern- making something of a comeback in eco-
ment and the consequential loss of freedom. For nomic theory, James A. Yunker’s book Socialism
America, the twentieth century could well be Revised and Modernized attempts something a bit
called the “War and Welfare Century.” It was one different. Professor Yunker presents us with a de-
of the Framers, James Madison, who correctly tailed proposal for a national experiment with
identified the problem of war related to liberty “pragmatic market socialism.” This new socialism

is not quite what we might expect, however. In

and economic rights:
Yunker’s words:

Of all the enemies to the public liberty, war is,
perhaps, the most to be dreaded, because it com-
prises and develops the germ of every other, War
is the parent of armies; from these proceed debts
and taxes; and armies, and debts, and taxes are
the known instrument for bringing the many
under the domination of the few.

It must be tirelessly reiterated that pragmatic
market socialism does not involve Soviet-style
central planning, or any other type of national
or even indicative planning; that it does not im-
ply a giant, paternalistic welfare state; that it
does not intend radical redistribution and egali-
tarianism; that it has no communalistic aspira-
tions; that it would not signify the triumph of

According to the preface, the book is designed bureaucratic homogenization over a healthy
for use by undergraduates; hopefully it will be level of individualistic materialism. (p. 281)
widely used in our colleges. In its provision of ex-
tensive references to both proponents and oppo- What, then, is pragmatic market socialism?

Yunker’s starting point is that capitalism is
research necessary for proponents of individual lib- plagued by a serious ethical lability: All income
erty to re-establish Constitutionally protected derived from ownership of capital is unearned and
property rights in America. The book merits close hence immoral, It is particularly outrageous, in
study, and hopefully will gain the widespread rec- his view, that anyone should be able to live off capi-
ognition it deserves. One reviewer, the University tal property income. Only labor income is truly

of Maryland historian Herman Belz, has already earned and therefore just. Furthermore, Yunker be-
stated that Ely’s book “[is] further evidence of the lieves that private ownership of capital is unneces-
conservative challenge to liberal orthodoxy that sary for the economy to function as it does. Thus
has emerged in recent years in American historiog- he calls for public ownership of all capital goods
raphy. That the book appears under the co-spon- (with certain exceptions, discussed below).

nents of property rights, the book outlines

sorship of the Organization of American Yunker does recognize that capitalism has
Historians, one of the more militantly liberal schol- been tremendously successful in raising living
arly associations in the United States, is a small standards for everyone. He argues that “the level
but significant sign of the change in intellectual of economic efficiency and social welfare in the ad-
climate.” vanced capitalist nations is . . . extraordinarily

CL _____________________________________________________
Spring 1994 AUSTRIAN ECONOMICS NEWSLETTER / 9

My rp pt a +n


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

high, relative to any time or place in human his-
tory” (p. 13). His problem, then, is to develop a sys-
tem of public (government) ownership of capital

which will not disturb the functioning of the exist- THOMAS PAINE REVIEW
ing economic order—there must be no central plan- SEEKS WRITERS

ning of any form, no radical equalization of wealth Thomas Paine Review, a newsletter dedi-
or labor income, no reorganization of business for cated to books promoting “reason,

freedom, and human achievement,”
seeks book reviews of both fiction and
non-fiction works. Survey articles
should be 800 to 3,000 words long,

goals other than profit maximization, and so on.
Yunker states clearly that he wants his system es-
sentially to duplicate modern capitalism, with the

exception of private ownership of capital.
. . Co. . and reviews of individual books
yunker’s solution, in brief, is that all capital should be from 300 to 1,200 words.
ownership be turned over to the government, with Contact Gary McGath; Editor, Thomas

Paine Review, 84 Washington St. #138,
Penacock, NH 03303;
72145, 1014@compuserve. com.

the exceptions of small businesses (broadly de-
fined), the press (so as to avoid government con-
trol of information and news), and something

called “entrepreneurial businesses,” which are L
those founded by an individual and which remain
private so long as the founder is actively manag-
ing them. Excepting these, all corporations and

“pragmatic market socialism” is Yunker’s life's

firms are to be owned by the Bureau of Public | work, and has been thirty years in the making-—
Ownership (BPO), a government agency. "but this captures the essence of the system. What
The BPO is the heart of Yunker’s system. It is can be said of it? I will restrict my comments to
to be a two-tiered organization, divided into a cen- the sphere of economics, while nolng that Yun-
tral office and numerous decentralized local of- ker § position on the ethics of private capital own-
fices. The central office has two primary functions: ership, as well as the role of government, could
certainly be challenged.

it compiles national business statistics, and it re-
ceives dividend payments from firms and pays
them back out to wage earners as a “social divi-
dend” proportional to their labor incomes. A small
amount of this money—Yunker estimates five per-
cent—is kept by the BPO to cover its administra-
tive costs. This office also levies a “capital use tax”
on all firms not owned by the BPO.

The two main criticisms which have been lev-
eled at socialism from the standpoint of economics
are the Austrian calculation argument and the
public choice view that socialism is plagued by en-
demic rent seeking. Yunker is quite conscious of
the charge that central planning does not work be-
cause planners cannot calculate, and he has gone
to great lengths to avoid central planning of pro-

The second level of the BPO is the real key to duction. In his view, capital markets would con-
Yunker’s plan. He envisions several hundred local | tinue to exist under pragmatic market socialism,
BPO offices, each staffed with ten or so BPO with publicly owned corporations trading among
agents, each agent responsible for ten or 80 COTPO- themselves. Competition for profits and the
rations. The task of an agent is to monitor the eco- threat of bankruptcy would keep corporations
nomic performance of the corporations under his from becoming inefficient, and the provision for
jurisdiction. If a corporation fails to perform well, private “entrepreneurial business” is designed to
(that is, to make profits), the agent can fire the ensure that the system not become stagnant.
CEO or more of top management. Corporate man- One could debate whether Yunker's system, as de-
agement would continue to function as under capi- signed, would constitute a functioning market sys-
talism, including the decision whether or not to tem, but such a debate would likely revolve
pay dividends (to the BPO). The BPO agents around marginal details. In my view, the essential
would receive a percentage of corporate capital in-_ point is that Yunker seeks to avoid establishing
come, ensuring their interest in high profits. Also, any centralized control of the economy, and pre-
BPO personnel at all levels would be forbidden by sumably he would willingly change his system
law from attempting to dictate how a corporation were it shown to contain inherent elements of
is to be run, so as to prevent the system from be- ~ planning.

coming centrally planned. What of the charge that socialist systems are

There is a great deal more to the proposal-— by nature subject to endemic rent seeking? Yunker

Spring 1994

10 / AUSTRIAN ECONOMICS NEWSLETTER


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

lh TEN

proposes placing all capital and all production un- Oddly, he also seems to think they were correct,

der a single government bureau. Control of that and that socialism must absolutely avoid central
bureaucracy would potentially be extraordinarily planning. He misunderstands Kirzner’s theory of
valuable, much more so than the capture of any entrepreneurship, incorrectly assuming it to be a
bureaucracy in, say, present-day America. Were theory about a career role for people with money
this system to be implemented, one would expect (p. 102), rather than a theory about a kind of hu-
vast amounts of resources to be spent by those man action engaged in by all participants in an
competing for control of the BPO. Even worse, any- economy, irrespective of resource ownership. The
one controlling the BPO would have great incen- rest of his discussion of the Austrian school is in
tive to modify Yunker’s finely tuned system for the same vein: It is so misinformed as to be en-
personal advantage. This would be simple, even tirely irrelevant. He was too busy redesigning the
without bureaucratic capture—Congress need only world to acquaint himself with the subject.
slightly amend Yunker’s “Act for Economic Jus- What, then, can be said about Yunker’s book?
tice” and the system could quickly become a de In many respects it is an impressive work. He obvi-
facto central planning system, or even one de jure. ously has given great thought and effort to con-
And certainly it is not going too far to say that structing his scheme, and he has pursued his goal
there are many groups today, including Congress, | ginglemindedly, even fanatically, and avoided be-
that might be willing to usurp a system such as | ing sidetracked into plans to reconstruct all of soci-
Yunker’s for short-run personal gain. | ety. He desires only to abolish his personal
Yunker’s response to this sort of criticism is to : bugaboo, the private ownership of capital, and

dismiss it as “dogmatic” and “begging the ques- that is all that his system is designed to do. a
tion” (p. 79), and “exceptionally closed-minded”

(p. 85). But the questions are neither dogmatic nor
trivial. Yunker proposes to establish a government
bureau, capture of which would potentially give
one control of the entire economy, and a system of
rules which, were it not followed to the letter, or
where changed slightly, would yield some sort of
centrally planned system. He “solves” this prob-
lem by declaring that this would all be forbidden

| Recommended Reading

by statute. He thus ignores an important body of {In this feature of the AEN, a variety of scholars list
well-defined economic theory—public choice— the most interesting books, articles, or working pa-
which should have figured prominently in his en- | pers relevant to Austrian economics they have re-

deavor. The result is that his carefully constructed cently encountered.)

system contains gaping holes.

Peter J. Boettke
A word must be said about Yunker’s view of Assistant Professor of Economics

Austrian economics. He devotes a fair amount of New York University
attention throughout the book to Austrians, includ- The breakdown of communism in the late
ing one nineteen-page section (pp. 175-93). This 1980s has left many Sovietologists struggling to
might have been interesting, but unfortunately he explain the failure of the economics profession to
displays little understanding of the Austrian tradi- understand the structural problems in the Soviet
tion, and his discussions consist primarily of fatu- system (both in politics and economics), let alone
ous invective. For example, he speaks of the the failure to predict the collapse. The Spring

Austrian school of institutional economics” (p. 23) 1993 issue of The National Interest contains par-
and in characterizing Austrianism gives a brief and ticularly insightful articles by Martin Malia,
accurate definition of (old) institutional economics. Robert Conquest, and Peter Rutland. Rutland, for

Institutionalism, of course, is an American variant
of Historicism, the traditional antithesis of Aus-
trian economics. It is ironic, amusing, and absurd

example, states that “[c]riticisms of Sovietology
for political bias, a tendency to ignore émigrés,
and lack of scholarly rigor have some validity.

that Yunker should confuse the two. However, even taken together they still do not get
With similar depth of understanding, Yunker to the root of the problem, which I see as the emer-
condemns the work of Mises and Hayek in the so- gence of a ‘disciplinary groupthink’ which stifles
cialist calculation debate as “gaseous, opinionated, creative thinking and controversial ideas. From
confused, and inconclusive speculation” (p. 177). this perspective, Sovietology is not an aberrant

—
Spring 1994 AUSTRIAN ECONOMICS NEWSLETTER / 11


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

case, but is symptomatic | volume in the series The Political Economy of the

of a general crisis beset- Austrian School, under the general editorship of
ting the social sciences.” Mario Rizzo. The volume is The Crisis in Ameri-
This message should reso- can Banking, edited by Lawrence H. White. Vol-
nate with Austrians who ume 2 will be The Collapse of Development

are trying to push an al- Planning, edited by myself. Future volumes will
ternative perspective on be a combination of individually authored mono-
economic problems. graphs and collections. Routledge is publishing

the series Foundations of the Market Economy, ed-
ited by Mario Rizzo and Lawrence H. White. Al-
ready appearing in the series are Israel Kirzner’s
The Meaning of Market Process (1991), Esteban
Thomsen's, Prices and Knowledge (1992), Fiona
MecLachlan’s Keynes's General Theory of Interest
(1993), and Kevin Dowd’s Laissez-Faire Banking

On the issue of the
transformation of the for-
mer socialist economies to
market economies I
highly recommend the
journal Communist Economies and Economic
Transformation, published by the Centre for Re-

search on Communist Economies in London. (1993).

Many insightful articles—reflecting a strong One of the most interesting developments in
Austrian influence—have appeared in this journal the book world is the Cambridge University Press
over the past few years. See, for example, Vitalii \ series The Political Economy of Institutions, ed-
Naishul, “Liberalism, Customary Rights and Eco- ited by Douglass North and James Alt. Notable
nomic Reforms,” in volume 5, no. 1 (1993). . contributions include North's Institutions, Institu-

tional Change and Economic Performarice (1990)
and Jack Knight's Institutions and Social Conflict
(1992). Austrians will find much of interest in this
series, as well as much to disagree with. Along
with the series Studies in Rationality and Social
Change (Cambridge), edited by Jon Elster, the Alt
and North series represents a significant develop-
ment in the literature that seeks to resurrect
grand theory in the social sciences.

The issues of the transformation are also ad-
dressed from a variety of perspectives in Social
Philosophy and Policy (vol. 10, no. 2, 1993). Eco-
nomic and political liberalism are given a good
hearing in this volume. Despite the collapse of
communism, however, many refuse to let go of so-
cialism. The title of Joseph Stiglitz’s Wicksell Lec-
tures, forthcoming from MIT Press, is Whither
Socialism? Stiglitz, perhaps the premier main-
stream economic theorist of the day, concludes
these lectures by asking if modern economics can

serve the ideals that motivated socialism (egali- Richard N. Langlois
tarianism, for example). He answers in the affirm- Professor of Economics
ative. Stiglitz is not an aberration: Pranab University of Connecticut
Bardhan and John Roemer construct a new model Brian J. Loasby, Equilibrium and Evolution:
of market socialism which they believe eliminates An Exploration of Connecting Principles in Eco-
the undesirable aspects of both existing socialism, nomics (Manchester University Press, 1991). This
as practiced in the Eastern bloc, and existing capi- new work by the author of Choice, Complexity and
talism, as practiced in the U.S. Their model intro- Ignorance (Cambridge, 1976) is based on lectures
duces political and economic competition while given at the University of Manchester. It is full of
retaining public ownership. See Bardhan and Roe- Loasby’s characteristic in-
mer, “Market Socialism: A Case for Rejuvenation,” sight about firms, mar-
Journal of Economic Perspectives 6 (Summer 1992). kets, economic theory,
See also Roemer, “The Morality and Efficiency of and the history of eco-
Market Socialism,” Ethics (April 1992). Misesians nomics.
must address these modern arguments for socialism Thomas M. Jorde
(based on contemporary information economics) and David J. Teece, eds.,
head on. An attempt to deflect Misesian objections Antitrust, Innovation,
to market socialism can be found in James Yunker, and Competitiveness (Ox-
Socialism Revised and Modernized (Praeger, ford, 1992). This collec-
1992); {reviewed in this issue]. tion of essays by
important figures in the

Several new book series should be of interest
to Austrians. NYU Press has published the first

I

12 / AUSTRIAN ECONOMICS NEWSLETTER Spring 1954

economics of antitrust is Richard N. Langlois


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

significant because, as crafted by its editors, it is directions for Austrian research. Focuses mainly

largely critical of antitrust theory and policy for on philosophical and methodological aspects of
neglecting innovation and failing to see competi- Austrian economics. Contributors include Stephan
tion in dynamic terms. Boehm on the historiography of the Austrian
Richard R. Nelson, ed., National Innovation school; Uskali Maki on the “realism” of Austrian
Systems: A Comparative Analysis (Oxford, 1993). theory; Martin Ricketts on entrepreneurship;
This is an important volume of commissioned es- Jeremy Shearmur on subjectivism; Brian Loasby on
says surveying “national innovation systems” — market coordination; Richard Langlois on organiza-
the interplay of government, industry, and the tion and institutions; Alan Hamlin on welfare eco-
economy—in fourteen countries of various sizes nomics; and Ulrich Witt on Austrian economics
around the world. The most controversial chapter and evolutionary theory. Israel Kirzner, Mario
is probably that on Japan, by Japanese economists Rizzo, Lawrence White, Mark Blaug, Bruce
Hiroyuki Odagiri and Akira Goto. The authors re- Caldwell, and Robert Sugden are also featured.
ject the dominant Western view that government Brian C. McCormick, Hayek and the Keynesian
support was at the heart of Japanese success, ar- Avalanche (St. Martin's Press, 1992). Comprehen-
guing instead for the importance of free competi- sive account of Hayek’s disputes with Keynes and
tion. They also document the declining role of the the Cambridge school on money, capital, and busi-
Japanese government in recent years. ness cycles, beginning with Hayek's arrival in Lon-
Donald N. McCloskey, ed., Second Thoughts: don in the early 1930s and continuing throughout
Myths and Morals of U. 8. Economic History (Ox- the “neoclassical synthesis” of the post-war years
ford, 1993). This book of short essays by eminent and the crisis of Keynesian economics in the 1970s
economic historians takes aim at almost all the and 1980s. Hayek's early relationship with Keynes
venerable icons of American economic history. For is embedded in a larger debate between the London
You Thought You Knew About American Economic author digs up a lot of detail, like Hayek's syllabi
History was Wrong. The topics are t00 numerous for several courses at L. S. E. in the 1930s.
even to survey, and the essays are uniformly inter Robert C. Eilickson, “Property in Land,” Yale
esting; but I especially recommend McCloskey’s Law Journal 102 (April 1993): 1315-400. Exhaus-

own essay on the rhetoric of industrial decline,

tive survey of the various property rights litera-
which, as usual, is a delightful bit of writing. 4 property ne

tures, amassing considerable historical evidence on

Finally, I mention Morris Silver’s book Enter- the evolution of land institutions. Concludes that
prise and the Scope of the Firm (Martin Robertson, “customary [i. e., evolved] land rules are not a shape-
1984). Although this book is almost ten years old, less jumble, but instead form an unauthored strat-
it is not as well known among Austrians. It should egy that cleverly allocates a prized resource with
be, as it presents the first clear attempt to set out confoundingly complex attributes.”

an Austrian theory of vertical integration, one
heavily influenced by a Kirzner-Schumpeter view
of entrepreneurship. This book helped galvanize
my own thinking on the subject early on, and it
has been an important influence on my work. a

Gary Lawson, “Efficiency and Individualism,”
Duke Law Journal 42, no. 1 (October 1992): 53-
87. Informed, thoughtful critique of “social effi-
ciency” as used in law and economics. Adopts
explicitly Misesian notions of methodological indi-
vidualism and subjectivism and exposes the diffi-
culties in Pareto optimality, “social wealth”

maximization, and surprisingly, the modern Aus-
New and Noteworthy trian idea of “plan coordination.” Concludes that
“a conception of social efficiency that is simultane-
ously coherent, robust, and economic is simply not
to be found.”

(Other recent books and articles of interest, recom-
mended by the staff of the AEN. Readers are encour-

aged to forward their suggestions to the editor. ) George J. Stigler, “Law or Economics?” Jour-
nal of Law and Economics 35, no. 2 (October
Ba J. Caldwell and Stephan Boehm, eds., 1992): 455-68. Stigler’s last published article,
Austrian Economics: Tensions and New Di- based on a lecture given at the University of Vir-
rections (Kluwer, 1992). This new collection of- ginia Law School in 1990, seeks to replace the
fers reflection, self-criticism, and proposed new Chicago notion of efficiency with a curious one

Spring 1894 AUSTRIAN ECONOMICS NEWSLETTER / 13


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

. based on maximization of broader social objec- stitute, 1993). History of U. S. monetary policy

tives, regardless of their effects on individual from the establishment of the Federal Reserve Sys-
welfare. “[Elvery durable social institution or tem in 1914 to the present. Successor to Timber-
practice is efficient, or it would not persist over lake's earlier work The Origins of Central Banking in
time.” The U. S. sugar subsidy program, for ex- the United States. Also includes discussions of the de-
ample, which costs taxpayers around $3 billion a bate on legal tender laws that arose during and after
year, is “the tested way in which the domestic the Civil War; how the present central banking sys-
sugar-beet, cane, and high-fructose-corn producers tem has its origins in the First and Second Banks
can increase their incomes by perhaps a quarter of of the United States; and how the Banking Act
the $3 billion—~the other three quarters being of 1935 and the Monetary Control Act of 1980
deadweight loss. . . . The [Chicago] theory would each increased the scope and power of the Fed.

say that the sugar program is grotesquely ineffi-
cient because it fails to maximize national income.
Maximum national income, however, is not the
only goal of our nation, as judged by the policies
adopted by our government—and government's
goals, as revealed by actual practice are more
authoritative than those pronounced by profes-
sors of law or economics.” The sugar program,
then, is efficient: “It has stood the test of time.”

Larry J. Sechrest, Free Banking: Theory, His-
tory, and a Laissez-Faire Model (Quorum Books,
1993). Defense of free banking, framed as a discus-
sion of Say’s Law. Claims that monetary equilib-
rium can only be achieved under a free-banking
regime. Broadly follows the White—Selgin model
but differs from those authors in the interpreta-
tion of both the Scottish and early American ex-
periences with free banking. Argues that the

Manfred E. Streit, “Economic Order, Private most likely form of free banking that would
Law and Public Policy: The Freiburg School of emerge today would be a fractional-reserve sys-
Law and Economics in Perspective,” Journal of In- tem, with banks issuing notes convertible in spe-
stitutional and Theoretical Economics 148 (Decem- cie.

ber 1992): 6756-704. Survey of the so-called
“Freiburg School,” founded by the economist Wal-
ter Eucken and the legal theorist Franz Bohm and
frequently identified with F. A. Hayek, who Joined
the faculty at Freiburg after his retirement from
the University of Chicago in 1962.

Sheila C. Dow and John Smithin, “Free Bank-
ing in Scotland, 1695-1845,” Scottish Journal of
Political Economy 39, no. 4 (November 1992): 374—
90. Surveys the debate between White, Dowd,
Rothbard, and Sechrest on the viability of the Scot-
tish banking system before Peel’s Act and its use

Nicolas Mercuro, ed., Taking Property and as a historical defense of free banking. Argues
Just Compensation: Law and Economics Perspec- that the Scottish system was indeed “free” but not
tives on the Takings Issue (Kluwer, 1992). Collec- perfectly competitive and thus subject to wide-
tion of articles on takings by representatives of spread market failure, inevitably leading to exces-
various schools of thought in law and economics, sive concentration.
including Susan Rose-Ackerman, Steven G. Daniel S. Hamermesh, “The Young Economist's
Medema, Charles K. Rowley, Gary Minda, Thomas Guide to Professional Etiquette,” Journal of Eco-
S. Ulen, and Robin Paul Malloy. nomic Perspectives 6, no. 1 (Winter 1992): 169-79,
Peter J. Boettke, Why Perestroika Failed: The and idem, “Professional Etiquet te for the Mature
Politics and Economics of Socialist Transforma- noms American seonomic Review 83, ly ¢
tion (Routledge, 1993). Boettke’s analysis of per- They-Didn't- Teach You tn. Oradstr opin aris
eséroika combines Austrian insights on the ety. The author, a mature economist, offers advice
problem of economic calculation under central ¢ y 1 ’ ust enter h Foss
planning with a public choice analysis of the politi- 0 younger colleagues just entering ¢ © Drofession,
cal maneuvering involved in the transformation of and to those who are already established, on the
the Soviet system in the late 1980s. Gorbachev's app ropriate procedures for presenting and publish.
reforms, he argues, were doomed to failure be. ing research (i. e., how to solicit feedback, whom
TT ’ to acknowledge, how to select a journal, what to
cause they ignored problems of calculation, cred- a:
ible commitment and renegotiation, and the do shout acceptances and rejections for Gublics-
political marketplace. tion); commenting on other people's work {how to
make informal suggestions, how to write a referee
Richard H. Timberlake, Monetary Policy in the report); writing letters of recommendation; con-

United States: An Intellectual and Institutional structing a résumé and searching for a new job;
History (University of Chicago Press and Cato In- and other essential professional matters.

EE ———

14 / AUSTRIAN ECONOMICS NEWSLETTER Spring 1994


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

Bruce J. Caldwell, professor of economics at
the University of North Carolina, Greensboro, is

UPCOMING EVENTS editing two volumes of the Hayek Collected Works
Association of Private Enterprise Education {University of Chicago Press and Routledge): vol. 9,
“Liberty, Markets, and Economic Progress” Contra Keynes and Cambridge, and vol. 10, Social-
April 10-12 ism and War, each with the subtitle “Essays, Corre-
San Antonio, Texas © spondence and Documents.” Caldwell is spending
Ludwig von Mises Institute the Spring 1994 semester at Cambridge (U.K. Jas a
“The Costs of War” Clare Hall Visiting Fellow, where he will continue
May 20-22 his work on Hayek while participating in the semi-
Atlanta, Georgia nar run by Tony Lawson, a Post Keynesian inter-

: “qd : : ”
Western Economic Association ested in Hayek and “scientific realism.

“Markets and the Environment” Parth Shah, assistant professor of economics
june 29-July 3 at the University of Michigan, Dearborn, has been
Vancouver, British Columbia named chair of the economics group within the De-
Ludwig von Mises Institute partment of Social Sciences. Parth presented his
“Mises University” i paper “The Role of Bankers in Economic Develop-
July 16-23 ment” at New York University’s Austrian Econom-
Claremont, California ics Colloquium in October.
Southern Economic Association Mark Thornton, O. P. Alford III Assistant
November 20-22 Professor of Economics at Auburn University, has
Orlando, Florida been named Auburn University Coordinator for

J Academic Affairs at the Mises Institute. Thornton

also heads the Institute's Political Economy Club,
which holds a Brown Bag Seminar on Wednesdays

Notes and Transitions in the Institute library. When you're in the
Auburn area (1 1/2 hrs. from Atlanta), you're wel-

come to attend (or propose to present a paper). Re-
\ A e regret to report the death of David Os (ent seminars have included Henry Thompson
terfeld in October. Osterfeld was profes- | on NAFTA, Robert Hébert on economics and pur-
sor of political science at St. Joseph's College in | gatory, Liam Ford on media and government,
Rensselaer, Indiana, and a contributor to the Aus- Lew Rockwell on the school voucher debate,
trian Economics Newsletter, the Review of Aus- Madison Jones on the politics of the Southern lit-
trian Economics, and numerous other scholarly erary tradition, Jeffrey Tucker on Lord Acton’s
publications. His most recent beok was Prosperity opinions of Amerca, and James Kee on problems
versus Planning (Oxford University Press, 1992), of modern business education.

a critique of development planning. ]
Roger W. Garrison. associate professor of eco- Two issues of the Review of Austrian Econom-
og : ’ P ics have recently been published. Volume 6, no 2

nomics at Auburn University was interviewed as | (106g) includes articles by Larry J. Eshelman on
the Austrian school representative tor odern “Ludwig von Mises on Principle”; Bruce L. Benson

Guide pi man: An niradus fron od Com. on “The Impetus for Recognizing Private Property
ph € en 0 p oug i o ne Sv € (Bird and Adopting Ethical Behavior in a Market Econ-
czyX, brian bnowdon, and Howard vane \Lawar omy”; Donald J. Boudreaux and Thomas J.

Elgar, 1994). Other figures interviewed for the DiLorenzo on “The Protectionist Roots of Anti-

collection include Robert Barro, James Tobin , .
. re cq trust”; Joseph T. Salerno on “Mises and Hayek De-
N. Gregory Mankiw, Stanley Fischer, David homogenized”; and David Gordon on “A

Laidler, Milton Friedman, Robert Skidelsky, . . a
Edmund Phelps, Robert Lucas, and Charles Deconstruction of Utility and Welfare Economics.

Plosser. Garrison’s paper “Hayekian Triangles The newest volume of the RAE (vol. 7, no. 1,

and Beyond” is forthcoming in the volume Hayek, 1994) features Paul A. Cantor on “Hyperinflation
Co-ordination and Evolution, edited by Jack and Hyperreality: Thomas Mann in Light of Austrian
Birner and Rudy van Zijp (Routledge, 1993}, while Economics”; Nicolai Juul Foss on “The Theory of
his article on “Keynesian Splenetics” was publish- the Firm: The Austrians as Precursors and Critics of
ed in the Fall 1992 issue of Critical Review. Contemporary Theory”; Hans-Hermann Hoppe on

 ______________________________________________________________
Spring 1994 AUSTRIAN ECONOMICS NEWSLETTER / 15


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

Implications,” in George Feiwel, ed., Arrow and
the Foundations of the Theory of Economic Policy
(New York University Press, 1987). Allais defends
the importance of the monetary transmission
mechanism and argues against fractional-reserve
banking, with considerable quotes from Mises and
Rothbard. Worth a look.

New York University’s Austrian Economics Col-
loquium includes the following on its Spring 1994
schedule: Leonard Liggio on “Law & Legislation:
Hayek and Leoni”; William Butos on the “The Va-
rieties of Subjectivism: Keynes versus Hayek on Ex-
pectations”; Charles Steele on “Discovery,
Transaction Costs and Non-Convergence;” Lawrence

| White on “The Monetary Economics of F. A. Hayek”;

“F. A. Hayek on Government and Social Evolu-
tion”; David Gordon on “The Philosophical Contribu-
tions of Ludwig von Mises”; John B. Egger on “The
Contributions of W. H. Hutt”; and Kenneth K. Sand-
ers on “Jean-Baptiste Say and Carl Menger Regard-
ing Value.” Copies may be ordered from the Mises
Institute or from Kluwer Academic Publishers.

Edward Elgar will publish a two-volume collec-
tion of articles, essays, and reviews by Murray N.
Rothbard in late 1994. The volumes will be ti-
tled Economics as the Logic of Action: Essays in
the Austrian School. The set will include most of
Rothbard’s major published papers on theoreti-
cal and applied economics. It will appear in El- |
's “Economists of the Twentieth Century”

gar
series edited by Mark Blaug. | Donald Boudreaux on “The Coase Theorem and
The Nature of Rationality, the latest offering | Strategic Bargaining”; and Randy Barnett on
by Harvard philosopher Robert Nozick (Princeton | “The Function of Redistributive Justice.”
University Press, 1993), challenges some aspects of | Israel M. Kirzner, professor of economics at
economists’ conventional wisdom about rational | New York University, is editing a new collection of
choice, such as the view that sunk costs should not classic Austrian texts, forthcoming from Pickering
affect marginal decisions. N ozick also summarizes | and Chatto Publishers (U. K.). The three-volume
arguments on the possibility of interpersonal util- | set, titled Classics in Austrian Economics: A Sam-
ity comparisons, among other aspects of the logic | pling in the History of a Tradition, features selec-
of choice, discussing his views along with those of | ‘ions from most of the major figures of the

| Austrian school from Menger to Hayek. Included
are new English translations of works by Wieser,
Franz Cuhel, Richard Strigl, Hans Mayer,

Gottfried Haberler, Leo Schonfeld, and Hayek. a

his Harvard colleague Amaryta Sen.

Nobel Laureate Maurice Allais offers a sym- |
pathetic treatment of Austrian business-cycle the- |
ory in “The Credit Mechanism and its

| Non-Profit Org.

Ll @ Au S tr 1 an Us. POSTAGE

Auburn University, AL 36849-53C1
PERMIT NO. 9

Economics Newsletter
INSTITUTE Auburn University, AL 36849-5301