===== PAGE 1 ===== Austrian Economics Newsletter AEN Celebrates 10th Anniversary This issue marks the 10th Anniversary of the Austrian Economics Newsletter. During this time AEN has served as a major source of information for Austrian economists during a period of tremendous growth and activity in the Austrian school. When the AEN began publication AEN BEGINS With this resucgence. the future offers great oppor- A USTRIAN [ECONOMICS N{NEWSLETTER Yolume |, Numbar 1 Autumn, 1977 tunities for Austrian. Several Losighils. long of mterea to in the fall of 1977, the revival of the Austrian school vaiestion. For example. Si Jobe Heke’ rent work hoe of economics was just getting underway. Ten years later, PUBLICATION omni cin te Sean ie oe portance of relative price changes in his analysis of Austrian economics is presenting a strong academic Ti se rks the ot pcan the Au inflaton. GL 3. Shackles welings on time. uncertinty challenge to the orthodoxy of mainstream economics. Economics Newitt, The Newieter te \ntewded votre [activin 406) marke, provew. In addition the work of : : H worl i ran Foran r th phasis on the ! of costs. The following facts are evidence of the growth in the Ener have ch ony 8 ew schti actiely ensing bn tne Finally, with FA. Flayek' recent Nobel Pie. Austrian . . Austrian tradition, However, there has recently been quite ideas are again being noticed. Austrian school of economics, 2 resurgence of scholarly interest in Austrian sconomics. Much of this interest has been stimulated by those who * There are now major programs in Austrian He po von Mises’ advanced seminar at Rew York ' . . Evid of this B is abundant as the follow - economics located at Auburn University, George Mason ig indicate Uni d New York Uni itv. N a er tant het niversity, an | ew Yor niversity. ew programs oie doing rash i oe Str, adn are being established at the University of Nevada, Las Wit gran provided os the Loy Sid Mes 3 - . » . Ph. OD Vegas, and California State University at Hayward. Ea four years there have been te ater ’ conferences on Austrian ics an * The first Austrian journal, The Review of Austrian , Sonferences are being scheduled for che futmee. + 4 [ f thi i NYU. The Economics, edited by Murray Rothbard and co-edited by Poe of i ei: no score hon i . ' ' . ested in the Austrian approach to present working Walter Block will publish its second Volume this fall. papers for comments and critic, This acaderie soenment has proved help - stimulating . 1 1 87 | * This past summer 115 students gathered to attend earch poseaits with that of hel colleaguns . . ’ . . * An Impresalve series of lectures by Austrian econo- the Mises Institute's first Advanced Instructional mists was held at the University of Chicago this Friedrich A. Hayek . . , past year, a program to be expanded by the Cato Unfortunately many individu coneemed ap ther unlver . Austria i Conference in Austrian Economics at Stanford Se SL a eye of pd roi University at a number of major universities including UCLA, working In isolation with little knowledge of the resur- * Harvard, Virginia, Chicago, und of course NY1). gence. Because those involved in this field are so widely - . . . * In recent years several new Auntrian works have scattered and because there exists at present no formal Austrian conferences, sessions at professional Bon pihidhed. The menly quablished Suis by sears be thes nforitd of Avian active. She . v . . . u , wi - [2 conferences, and publications in mainstream journals are a rant weil be directed ire and primarly at those tions by contemporary Auitrian theorists, mics, continued on back page now regular events. . . . 1s . A.E.N. Vol. 1, No. 1 * The academic and international mailing list of the AEN has increased six-fold since moving to the Mises Institute and Auburn University in 1984, The purpose of the AEN is the same now as it was in the beginning: to serve as an “information device” for those interested or working within the Austrian Interview with James Buchanan .......3 school of economic thought. To this end the AEN still Smith Reconsidered by Rothbard 5 provides reports on conferences, interviews of prominent economists, review articles, annotated bibliographies, . Hutt on “The Minimum Wage” .......9 reprints of earlier and lesser known Austrian works, Rationalizing the Public Debt ........11 critiques of trends in mainstream economics, and, of Review of The Myth of the Plan ......13 course, book reviews. Several contributions to the AEN have become Comment on Barnes.................14 “classics” such as the “White-Lachmann exchange” and Reply by Gordon ....................15 the “dual” reviews of W.H. Hutt’s book The Keynesian Episode by Leland Yeager and John Egger. Recognition and citations of more recent contributions such as Roger Cumulative Index..........Supplement ===== PAGE 2 ===== Garrison's “Rational Expectations’ Offers Nothing That’s Both New and True,” Robert Ekelund’s **Wieser’s Social Economics: A Link to Modern Austrian Theory?,” Joseph Salerno’s “The True Money Supply: A Measure Some Events of Note: of Supply of the Medium of Exchange in the U.S. Economy,’ and the recent controversy over hermeneutics all testify to the important function that the AEN plays in the Austrian school. The founding editor, Gary Short, pioneered the Newsletter and oversaw operations over the first three issues. Regrettably, he did not pursue an academic career. His successor, Don Lavoie received his doctorate from New York University and now teaches at George Mason University. Next, Don Boudreaux and Sanford lkeda served as co-editors during the AEN’s move to Auburn University. Don Boudreaux is now teaching at George Mason University and while Sanford lkeda is teaching at California State University at Hayward. Richard Law" “Socialism. “K dK Cc Ebeling, now at the University of Dallas, also deserves aw, octalism ”, eynes an cynestanism, mention for his many fine contributions to the early “Subjectivism”, “Ludwig von Mises,” and “Ratex, issues of the AEN. Chicago, and The Supply Side.” The second annual The present editors would like to congratulate all the instructional conference will be held at Stanford . University, June 25 through July 1, 1988. people who played a role in the success of the AEN. However, it is as true today as it was in the fall of 1977, October 16-17: The Mises Institutes Fifth Anniver- that the success of the Newsletter is dependent on reader ~~ Sary was celebrated in New York City with a dinner in criticism, ideas, and feed back, as well as news and honor of Henry Hazlitt and a conference on the contributions. contributions of Ludwig von Mises. Lecturers included: Our fervent hope is that the AEN and the Institute ~~ Frof. Israel Krizner, Prof. Leland Yeager, Prof. Roger which sponsors it will continue to grow and prosper, Garrison, Prof. Hans-Hermann Hoppe, Dr. Walter Block, and that in another ten years we will see an issue that Professor Joseph Salerno and Prof. Murray Rothbard. reports on ‘Another Austrian Nobel Prize,” “The Fall Quarter George Mason Student Center: Formation of the Austrian Economics Association’, George Selgin, assistant professor of economics at George “RAE Competes in Prestige With AER,” “Austrian Mason University will conduct a 20-week (weekly) Professors in Demand at Major Universities,” and the seminar and discussion of Mises’ Human Action. Any June 21-27: The Mises Institute’s O.P. Alford III Center sponsored the first “Advanced Instructional Conference in Austrian Economics’ at Stanford University. This conference, directed specifically to graduate students, attracted more than 110 participants. Lecture topics included: *“Pre-Misesians,”” “Praxeology,” “Time Preference,” “Utility and Welfare,” “Competi- tion and Entrepreneurship,” “Theory, History, and Forecasting,” “Capital and Its Structure,” “Origin and Nature of Money,” “Equilibrium Theory,” ‘‘Business Cycle Theory,” “Central Banking,” “Unions and Labor “20th Anniversary of the AEN.” students interested in participating should contact: Mises As always, our thanks to the Mises Institute Institute, George Mason Student Center, 3977 Chain contributors who have made this all possible. Bridge Road, Fairfax, VA 22030, (703) 385-1228. Fall Quarter Colloquium, Auburn University: The weekly graduate student colloquium this term will include the following topics: week 1: “On the Devel- opment of the Subjective Theory of Value,” by Mises; week 2: “Mises and His Critics on Ethics, Rights, and NOTICE Law,” presentation by Prof. Leland Yeager; week 3: The administrative office of the Ludwig “Theory of Price Controls by Mises”; week 4: A Theory von Mises Institute has moved to: 851 of Price Controls, by John Kenneth Galbraith; week 5: Burlway Rd., Burlingame, CA 94010 415- “Destructionism”’, by Mises; week 6: “Market and Plan: 579-2500 (November 1st). Two Type of Rationality,” by Ralf Dahrendorf; week All correspondence for the Review of 7: Monetary Trends in the United States and the United Austrian Economics can be sent to: Kingdom, by Milton Friedman and Anna J. Schwartz; Review of Austrian Economics week 8: ‘Monetary Stabilization and Cyclical Policy, Part 14755 Ventura Blvd. I: Stabilization of the Purchasing Power of the Monetary Suite 1906 Unit,” by Mises; week 9: “Monetary Stabilization and Sherman Oaks, CA 91403 Cyclical Policy, Part II: Cyclical Policy to Eliminate 818-990-2940 Economic Fluctuations,” by Mises; week 10: “Concep- tion and Understanding,” by Mises. ===== PAGE 3 ===== BUCHANAN: | have never been especially concerned . about making a sharp dividing line between what is An Interview with positive and what is normative. I don’t consider myself a scientist whose task is discovering a reality that Nobel Laureate J ames Buchanan somehow exists independently of me. The model of the hard sciences is not at all appropriate for economics. James McGill Buchanan is the founder of the New There is an important distinction to be made between Political Economy called Public Choice. He has devoted taking an ideological position and then trying to make his 40-year career to applying the economic tools of arguments to support that position, and on the other methodological individualism and subjectivism to the hand, working out the consequences of ideas and coming study of government and political decision making. He to an ideological position. has made important and pioneering contributions in the People do sometimes interpret my work as always being areas of Constitutional Economics, public deficits and a defense of liberty. But it is less a preconceived notion debt, the subjective nature of cost, public resource and more a result of my methodology. It's analogous allocation and political theory. In recognition of his many to an artist that only knows and uses red paint. You contributions he was awarded the 1986 Alfred Nobel should not be surprised when his paintings come out Prize in Economic Science. in various shades of red. Methodological individualism Professor Buchanan, currently teaching at George characterizes everything that I've done because 1 simply Mason University, received his doctorate from the don’t know how to proceed with anything else, as if University of Chicago in 1948 where he was a student I only had red paint. Another artist might consciously of Frank Knight. In 1957, he and Prof. Warren Nutter decide to create a red painting so he goes out and buys founded the Thomas Jefferson Center for Studies in red paint. But this is an entirely different approach. Political Economy and Social Philosophy at the University of Virginia. Buchanan and Prof. Gordon AEN: You have made several important contributions Tullock established the Center for the Study of Public in the area of government deficit finance. What do you Choice and the journal, Public Choice at Virginia think of Robert Eisner’s (recently elected President of Polytechnic Institute in Blacksburg, Virginia in 1969. the American Economic Association) recent work on In 1982, both Buchanan and the Center relocated at government deficits? George Mason University in Fairfax, Virginia. BUCHANAN: The work itself is rather confusing. Buchanan has authored or co-authored a prodigious 23 books. The Calculus of Consent written with Gordon Tullock, formed the foundation of Public Choice theory. Cost and Choice and L.S.E. Essays on Cost (edited with G.F. Thirlby) are influential *‘classics” on the subjective notion of costs. His work on government deficits and debt was capped off with Democracy in Deficit: The Political Legacy of Lord Keynes written with Richard Wagner. Also to his credit are over 300 articles and contributions to books. * The following interview was conducted by AEN editors Mark Thornton and Sven Thommesen earlier this year during Professor Buchanan’s visit to Auburn University . What is clear, however, is that he is an unreconstructed Keynesian and starts from a position of Keynesian advocacy of government deficit financing. He argues that deficits are not really so enourmous, if we use his measure. This is a very good example of how data can be manipulated to support and prove anything. And it’s also very good evidence that econometrics doesn’t mean much. Professors Leland Yeager and Roger Garrison have pointed out that it is insidious to use inflation as a means to argue that the deficit is not very high. You can always totally eliminate the deficit by printing enough money. By confiscating the value of assets from people who hold dollar claims you could argue that inflation has lowered the ‘real’ value of the deficit, but it seems to me just perverse and extreme to do so. * kk hk AEN: Professor Buchanan, congratulations on being awarded the Nobel Prize in Economics. AEN: There is a wide spectrum of subjectivism from BUCHANAN: Thank you. It is an honor that I did mainstream orthodoxy to Shackle and Lachmann. Where not expect. | had heard rumors last year that I was being would you place yourself on that spectrum? considered for the Prize. However, when it was awarded BUCHANAN: Well, I'm certainly much closer to to Sir Richard Stone, a man who had been retired for Shackle than I am to the mainstream. I've been tempted many years, I gave up hope of ever winning the Prize. to go completely along with Shackle and become a very AEN: People have often labeled your work ‘normative’. radical subjectivist. But I recognize that if you go all the Could you give us your thoughts on striking the balance way down that road you end up with a nihilistic position. between truth- seeking and advocacy? I'm somewhere between von Mises and Yeager on the ===== PAGE 4 ===== one hand and Shackle on the other. The person who ~~ AEN: What about the problem of incentives for federal comes closest to my methodological position is Jack bureaucrats, and the tremendous information problem Wiseman. involved with the constant purchasing power dollar schemes? AEN: Speaking of radical subjectivism, what do you think of the prospects of hermeneutics in the realm of =~ BUCHANAN: You can design an incentive structure economics? by indexing the salaries and pensions of the members BUCHANAN: People I respect a great deal from the and employees of the Federal Reserve System. Fix the German tradition, whe know and work in the herme salaries and pensions in nominal dollars, which would neutics literature, are very negative on what it can offer ~~ Prevent them from inflation and use double indexing, economics, 1 have met some very capable people in 5° that they would lose from deflation as well. interpretive philosophy and they do have a very The big problem with any of these Systems is convincing critique of modern science and in particular credibility, and of course, that’s the big virtue of having economics. But in a way, it’s very much like Shackle, some kind of market money like a commodity bundle if you go too far you end up with nothing. It’s not a or gold. It builds in predictability. However, you still viable independent research program. have the credibility problem because you can’t be sure if government will leave the system alone. They have always interfered in the past. That’s also a problem with BUCHANAN: I certainly have a great deal of affinity Hayek's competitive money. with Austrian economics and 1 have no objections to being called an Austrian. Hayek and Mises might consider =~ AEN: What do you see as good developments in me an Austrian but surely some of the others would economics? not. BUCHANAN: | think there are many very productive AEN: You have become famous by extending economic ~~ developments such as the new-institutional economics, thinking into the political arena. Other economists are law and economics, property rights, public choice, the also now involved in some very non-traditional areas new economic history, and the revival of Austrian such as experimental economics and sportometrics. ls economics. All of these areas are complementary and this economic imperialism, as members of other all, in a sense, can be seen as an attack on the conventional AEN: Do you consider yourself an Austrian economist! disciplines charge? orthodoxy. BUCHANAN: Economics has moved Into spheres that AEN: In the past you have said that modern economics were previously barren, analytically and intellectually. is without any ultimate purpose or meaning. Has your Political Science was analytically empty before we started opinion on that changed? talking about Public Choice. The criticism leveled at BUCHANAN: | have been quoted as saying that Public Choice is that economic motivations have beer: . economics lacks passion. In the last several decades elevated to a role of primary central importance. Well, Ce I oo economics has taken a scientistic, econometistic, and it need not be that at all. We argue that economic interest CL. . . formalistic turn. As 2 result, the economics profession is an important consideration of everybody who has been attracting students who are not driven by an participates a in public choosing role. The challenge of . . underlying passion to use the science of economics for those who criticize Public Choice is to come up with . . anything except intellectual tools and exercise. In my another model. . generation people whe went inte economics had a real AEN: You must be very excited tc see the debate on passion to save the world. We were all socialists, but monetary constitutions growing, What would you like ~~ some of us became converts or zealots of the market to see the monetary constitution look like? order, individual liberty, and libertarianism. BUCHANAN: | think we need some monetary constitution, but the choice oi which one in particular AEN: Whe were the influential people in your is less important. If you could, in fact, have 2 gold coir intellectual life? system——pure and simple-—that might be best. ] confess BUCHANAN: Frank Knight was very influential as a that ] simply cannot understand the Yeager-Greenfield teacher, while Knut Wicksell’s Finangtheoretische BFH System. | have tremendous respect for Leland Yeager Untersuchungen (A New Principle of Just Taxation), had so there must be more to it than J have understood. a tremendous impact on my career. | was not as directly Some argue that we are gradually evolving towards his influenced by Mises because ] was exposed to him quite system right now. Given the place we are now and the late. When | was a graduate student nobody even difficulty of making dramatic changes, I would prefer mentioned Mises, although Hayek’s Road to Serfdom had a commodity bundle system or a constant purchasing just been published; Hayek was notorious in a sense. power dollar. {continued on page 10) ===== PAGE 5 ===== Adam Smith Reconsidered by Murray N. Rothbard No thinker, in economics or out, has enjoyed as good, even rapturous, a ‘press’ as Adam Smith. The orthodox view of the history of economic thought, unchallenged until the 1950s, and still served up by most textbooks, holds that both economic theory and laissez-faire policy conclusions were virtually created, in a single bound, by Adam Smith. Before Smith, in this account, were a shadowy and rather dimwitted collection of English mercantilists, who fallaciously advocated subsidies on exports and restrictions of imports, and some even believed that money should be accumulated for its own sake, rather than for goods that it can buy. Given the status of Smith as the Creator of economics, he can then be forgiven his numerous confusions, inconsistencies, and errors, all of which may be cheerfully conceded to a man who was, after all, the pioneer and founder of his discipline. Hence, even such searching Murray N. Rothbard and trenchant criticisms of Smith’s economics as those with St. Thomas Aquinas; it begins with Aquinas, and in the early twentieth century by Cannan, Gray, and then continues, in a flourishing and developing tradition, Douglas! could not dent the monolith of admiration for centuries, culminating in the School of Salamanca which has surrounded Smith from his day to ours. in 16th century Spain. Far from being labor, cost of The Smith-as-creator scenario is only plausible if Great production, or station-of-life theorists, as the older Britain constitutes the Alpha and the Omega of one’s orthodoxy maintained, the scholastics were what we intellectual universe; but unfortunately Britons and might call “proto- Austrians.”* The goal of production Americans have always tended to live in a parochial is consumption, and they located the determination of Anglo-American culture. A shocking and vitally the value and prices of goods in the subjective utility important event in the historiography of economic of goods to consumers, interacting with the relative thought, occurred in the 1950s, when several European- scarcity of the goods or resources. trained scholars sharply challenged the familiar Smithian In particular, a remarkable subjective and almost paradigm. marginal utility analysis of value was developed by the The leader of these revisionists was Joseph Schumpeter, early 13th century French Franciscan Pierre de Jean Olivi, whose majestic History of Economic Analysis (1954) can which was then resurrected and injected into the be interpreted as largely a bitter and trenchant assault mainstream of scholastic economics a century and a half on the Smith-Ricardo orientation of the orthodox history later by San Bernardino of Siena.} The application of of thought. Similar and even more pointed revisionist supply and demand analysis to the theory of money was paradigms were presented, about the same time, by Emil developed by the leading early fourteenth-century French Kauder (trained in Germany), Raymond De Roover scholastic, Jean de Buridan. Buridan also rejected the (Belgium), and Marjorie Grice- Hutchinson (England, Aristotelian view that two goods exchanging for each but specializing in Spanish literature, and fluent in other must be equal in value. Instead, Buridan first Spanish and Latin). Part of the difference was linguistic; presented the Austrian view that two goods exchange for in contrast to American or British scholars, who are precisely because they are unequal in value for the two generally confined to the English language, these scholars exchangers, and therefore exchange is an action where were fluent not only in major European languages but both parties benefit. also in Latin, the language of scholastic philosophers.? Particularly pertinent to Adam Smith is the fact that The new, and I believe correct, paradigm locates the a large number of scholastic thinkers presented, and then genesis of economic theory, and also of a free-market resolved, the value paradox, with which Adam Smith approach, back in the medieval scholastics. In contrast bedeviled economics in the Wealth of Nations. Why to older views, scholasticism does not begin and end are bread or water, intrinsically so valuable to the human ===== PAGE 6 ===== race, so cheap on the market?! Why are diamonds, on [ am convinced that the puzzling deterioration in the other hand, a mere frippery, yet so expensive on Smith’s theory of value was closely linked with the the market? In short, why does there seem to be a conflict equivalent deterioration, over the same time period, in between “use-value” (high for bread, low for diamonds) his theory of international money. Smith was a close and “exchange value” or price, of a good? The scholastics friend of David Hume, and in his Lectures he enthu- and their successors in France and Italy in the early siastically accepted his friend’s celebrated specie-flow- modern period solved this problem very well, and price mechanism of process toward international without quite developing the marginal analysis by which monetary equilibrium. Hume’s formulation was influ- the Austrians, Jevons, and Walras had solved it again enced by Cantillon, although he unfortunately added a in the 1870s. The scholastics noted that the key to the mechanistic split between micro and macro that had not mystery is relative scarcity. Bread, while philosophically plagued Cantillon’s micro-process analysis. But the useful, is so abundant that its market value is low, quantity of money-price-balance of payment deficit whereas, diamonds, relatively much scarcer, command analysis, sound as far as it went, was totally forgotten high economic value. Choice on the market is not between by Smith when he came to the Wealth of Nations, a whole classes of goods, but in the context of the relative curiosity that Jacob Viner has called “one of the mysteries abundance or scarcity of the good. of the history of economic thought.””® Instead of the If we then consider the scholastics, and their Humean process from dislodgement back toward Continental successors, notably eighteenth century equilibrium, Smith asserts that every country will always French thinkers such as Cantillon, Turgot, Galiani, and have as much specie as it supposedly needs to circulate Condillac, a very different picture emerges of the history trade, any surplus immediately overflowing the “‘channels of economic thought. Not only did Adam Smith not of trade’ in order “to seek that profitable employment create economic theory, but his economics was a large which it cannot find at home.” and calamitous step downward from the heights of the Smith’s contention has generally been dismissed as Continental tradition, most notably in Cantillon and in primitive doctrine, but it seems likely that Smith was Smiths’s contempory and acquaintance, Turgot.* By the in fact assuming, not only that all nations are always time of Turgot, this tradition had developed: a subjective in monetary equilibrium, but also that any displacement utility- and scarcity theory of value; a supply and demand from equilibrium will be instantaneously removed, so (or utility and scarcity) theory of the value of money; that there will be no time for any Humean process to an Austrian-type process analysis of international take place. monetary equilibrium (Cantillon); a structure of This interpretation is strengthened by the fact that the production theory of capital and a time preference theory degeneration in Smith’s value theory had a similar focus. of interest (Turgot); and a sophisticated theory of the By abandoning consumer utility, Smith was able to vital importance of the entrepreneur in the capitalist dispense with what he considered the fripperies and economy (Cantillon; Turgot). All of this developed trivialities of consumption, a process which he held to structure of economic theory from the Middle Ages affect only the ephemera of daily life on the market. through the 18th century, was swept overboard by Adam But Smith wished to dispense with the real world of Smith, and, at least in Great Britain, disappeared markets and to concentrate solely on the allegedly more completely from economic thought for an entire century. deeply real, but actually non-existent world of long-run There are also striking puzzles and anomalies in the equilibrium. Smith saga. In his Lectures, delivered at the University In what Smith called the long run “natural price,” of Glasgow in the early 1760s, Smith follows his teacher in contrast to mere market prices, consumption dropped Francis Hutchinson by presenting and then solving the out as a cause, and value and price were now determined value-paradox in the traditional manner. But then, a solely by the real, hard costs of labor toil. In both value decade or so later, in the Wealth of Nations, he totally theory and monetary theory, Adam Smith abandoned reverses his field, and the field of economic thought, the centuries-old Continental focus on consumption and and asserts that the value-paradox cannot be solved, the real world of markets, to indeed bring an innovation- therefore there is no connection whatever between use- -but a deeply pernicious one—to the discipline of value, or consumer utility, and the price or exchange economic theory: exclusive focus on the never- never value of a good. But if consumer utility is sundered from land of long-run equilibrium. economic value, this meant that Smith had to search We now come to a speculative but brilliant insight for the cause of value in the production process, which of Emil Kauder’s: it was no accident that the labor toil implied a form of labor theory, or at best, cost of theory of value was introduced into economics by a man production theory of value embodied in a product. steeped in the outlook and the values of Scottish Ricardo and Marx were already foreshadowed in Adam Calvinism, nor that the centuries-old tradition of Smith.5 Continental economics was, from the scholastics to ===== PAGE 7 ===== Turgot, almost exclusively Catholic. Catholics and that reform of the ancient regime from within was Thomists saw the economy, and society in general, driven impossible, and the stage was set for the French by the goals and wants of consumers, and moderate Revolution. enjoyment in consumption was considered a licit and even worthy goal. Calvinism, on the other hand, tended to insist on society as a community of saints. Consumption, let alone enjoyment was frowned on as a frippery, and consumption was only grudgingly allowed as a necessary fuel for continuing labor. Whereas in Catholicism, labor was considered a necessary burden on the path to consumption, in Calvinism labor takes on a virtually holy quality as an end in itself. It is surely no coincidence that the labor theory of value emerged out of the milieu of Scottish Calvinism. There are clues to Smith’s Calvinist orientation in many places in the Wealth of Nations. A hatred of luxurious consumption permeates the work: in calling for heavy taxes on luxurious consumption, in asserting not merely In recent years, Smith and his friends and colleagues who constituted the Scottish Enlightenment of the eighteenth century, have come into scholarly fashion. One reason for this, and for F.A. Hayek’s laudation of the Scottish Enlightenment, is precisely because the Scottish advocacy of freedom and free markets was cautious, limited, and all too moderate—a trait which was wrapped up in the irrationalism, the appeal to man’s ignorance, to custom, and tradition, which was important for these Scots as well as for Hayek. In contrast, the French theorists, rationalists who descended from scholastic emphasis on reason, natural law, and natural rights, were far more ardent and consistent champions of laissez-faire tradition, from Fenelon to Bastiat and Molinari. that diamonds are luxuries but that they have ‘scarce There is another important difference between the any value in use”, and particularly in Smith's endor- Scottish Enlightenment and the better known French sement of usury laws, E.G. West, who tries hard to cast So : ’ : : Enlightenment of the eighteenth century, The French Smith In the role of a laissez-faire p artisan, 15 puzzled theorist and philosophers, even when not laissez-fairist, by Smith’s support of usury laws; does Smith not realize were virtually all radical--that is, they were strongly that a low ceiling on interest rates will cause a shortage opposed to the existing polity that fused State and Church of credit to marginal buyers? But Smith knows precisely into one despotic regime. They saw the State and Church what the effects of usury laws are, and therefore he favors as both irrationalist and tyrannical, and held separation them. Smith 18 unhappy with free market allocations of of Church and State to be of supreme value to both consumption and saving; he wants a usury law precisely : : : reason and liberty. to divert credit from luxurious consumers and specu- v lators to what he considered worthy prime borrowers.’ The Scottish Enlightenment, on the contrary, had a Smith, furthermore, was scarcely the inventor of diametrically opposite outlook. This Enlightenment laissez- faire. On the contrary, his devotion to the free consisted of a generation of friends and colleagues in market was limited, and ringed by many exceptions, Glasgow and Edinburgh who constituted the Moderate including usury laws and navigation acts. His devotion faction within the Presbyterian Church of Scotland. The to free trade may be gauged by his actions as Customs Moderates were a brilliant group of Calvinist ministers, Commissioner for Scotland. As Anderson and Tollison attorneys, and professors-—~including Adam Smith— have recently shown, this was not a no-show sinecure who, though a minority within the Church, were able for Smith; on the contrary, he pursued “smugglers” and to dominate it by being close to, and manipulating royal tax evaders with a will, and delightedly advanced measures patronage. The crucial point was that the Church of designed to maximize the State’s revenue from customs Scotland was established by the British government, and tariffs. so its ministers and ruling elite were selected by royal, In contrast to Smith's inconsistency and moderation, central government patronage. The political views of the the tradition of laissez-faire in French thought had Moderates, far from being anti- establishment or devoted flourished since the late seventeenth century, From to individual liberty and laissez-faire, were apologetic for Fenelon to de Gournay to d’Argenson to the Physiocrats, the State Church establishment in Scotland.’ Turgot, and Condillac, French theorist pursued a In the great battle that raged for over half a century deepening and consistent policy of laissez- faire, and between the Moderates and the majority of the fought hard and courageously in its behalf. In contrast Evangelicals in the Scottish Church, the Moderates were to Smith’s venality and pusillanimity, when Turgot only more libertarian on religious questions. Whereas became Controller-General of France in 1774, he and the Evangelicals would give short shrift to religious his laissez- faire cadre (which included Condorcet and heretics, the Moderates, though also steeped in Dupont de Nemours) fought bravely for free trade, for Calvinism, believed in toleration, and believed in drastic reductions in taxes, and for abolition of the system friendliness towards Anglicans and to even such atheist of forced labor on the public roads. When they were or deist colleagues as David Hume. {It is doubtful, kicked out by the king two years later, it became clear however, whether such toleration would ever be extended ===== PAGE 8 ===== to the hated Catholics.] Politically, the Moderates were Catholic Aristotelian philosopher Franz Brentano. And far more statist. They defended the State Church and even then, the remarkable contributions of the Austrian its system of royal patronage [referred to as “corruption” School were deliberately vitiated and trivialized by Alfred by radicals], and their major goal was to defend the might Marshall, himself steeped in Evangelical thought and the of the British State and its Scottish appendage against last of the great Smith-Ricardians. It was one more battle all its enemies, foreign and domestic. Thus, the Moderates in the long-standing war between British and Continental believed in crushing Ireland and its Catholics, and though economic philosophy.1® Smith was ambivalent on the American Revolution, his friends such as the Rev. Alexander Carlyle and the Rev. Adam Ferguson (a particular favorite of Hayek's) believed in smiting the American rebels root and branch. In contrast, the Evangelicals strongly defended liberty for the Americans. 1. See Edwin Cannan, A History of the Theories of Production and One amusing note on Hayek's favorite concept of Distribution in English Political Economy { 1899, London: Staples Press, te . 1953); Cannan. “Adam Smith as an Economist,” Economica, 6 (June events that “are the results of human action, but not 1026), pp. 123-134; Alexander Gray, The Development of Economic of human design.” Contrary to Hayek, the Scottish Doctrine (London: Longmans, 1931); Gray, Adam Smith (London: Moderates did not develop this idea, and the study of the Historical Association, 1948); and, in particular the devastating the uni e ; critique of Smith’s Value theory by Paul Douglas, “Smith's Theory nintended consequences of human action, as a of Value and Distribution,” in J.M. Clark et al., Adam Smith, 1776 method of explaining and extolling the free market. On 1926 (Chicago: University of Chicago Press, 1928) pp. 78-115. the contrary, the concept originated in what was for the 2. Emil Kauder, “Genesis of the Marginal Utility Theory,” young Moderates the highly traumatic Jacobite (Catholic) ~~ Economic Joumal (Sept. 1353), pp. 638-650, a concise and strikingly rebellion of 1745. important new paradigm for the history of economic thought; Raymond de Roover, “The Concept of the Just Price: Theory and While Smith was away to help crush the rebellion, Economic Policy,” Journal of Economic History, 18 {December 1958), Carlyle and Ferguson preached sermons trying to explain Ep. ALS TA is A. Sehpmpast and Scholastic ‘ : : : . conomics,” Kyklos, 1 7—2), pp. 115-146; de Roover, Business, why God permitted this evil rebellion, and almost Banking, and E ic Thoughts In Tate Medieval and Early Mod permitted the Jacobite savages to conquer Scotland. They Europe (ed. ]. Kirshner, Chicago: University of Chicago Press, 1974); concluded that while the Jacobites were consciously Marjorie Grice-Hutchinson, The School of Salamanca: Readings in ursuing evil [i.e. Catholic] ends, t were reall Spanish Monetary Theory, 1544-1605 (Oxford: the Clarendon Press, pursuing evil [ atholic] ends, hey & realy 1952); Grice-Hutchinson, Early Economic Thought in Spain, 1177-1740 unconsciously pursuing God’s good ends, which were (London: George Allen & Unwin, 1978). The most up-to-date and to rouse the Presbyterians out of their apathy and whip developed work on the Spanish scholastics, also steeped in Spanish them into the proper religious fervor. Thus, consequences and Latin sources, which now takes its place as the best book on the subject, is Alejandro Chafuen, Christians for Freedom: Late- unintended by human action (in this case, of the go 0 pl io (San Francisco: Ignatius Press, 1986. Jacobites) actually and unconsciously were furthering 3, Raymond de Roover, San Bemardino of Siena and Sant’ Antonino God's providential goals. We are close to the determinist of Florence: the Two Great Economic Thinkers of the Middle Ages (Boston: Christian heresy that there is no real evil in the world, Baker Library, 1967), pp. 19-20, 41-42. that apparent evil is down deep and in reality good, a 4. Indispensible for Turgot is the translated and splendidly edited, \ , ’ collected economic works in P.D. Groenewegen, ed., The Economics view that would soon appear in the pantheism of Hegel of ARJ. Turgor (The Hague: Martinus Nijhoff, 1977). For an and other nineteenth century German and English interpretative essay on Turgot, see Murray N. Rothbard, The Brilliance Romantics. We may wonder if Hayek and his contem- of Turgot (Aubucn: Ludwig von Mises Institute, 1986). porary followers would be quite so enthusiastic about > bo Douglas Smid Theory.” 1 | Trade (N . . : . . Jacob Viner, Studies in the Theory of Intemational Tr ew the doctrine of unintended consequences if they realized York: Harper & Bros., 1937), p. 87. its origins in Calvinist apologetics and its closeness to 7. For Smiths bias against consumption, see Roger W. Garrison . 1 * ¥ Hegel's notorious concept of the “cunning of reason.” “West's ‘Cantillon and Adam Smith: A Comment,” Journal of We are very far from the notio Adam Smith Libertarian Studies, 7 (Fall 1985), pp. 291-292; Gerard W. Ditz, “The oy old notion of S Calvinism in Adam Smith,” (unpublished MS, 1983); and Nathan as founder of economic theory and prince of laissez-faire. Ri genberg, “Adam Smith on Profits—Paradox Lost and Regained,” On the contrary, his devotion to laissez-faire was dubious ~~ Joumal of Political Economy, 82 (Nov.-Dec. 1977), pp. 1 187-1188. at best, and his “contributions” to economics were 8. Gary M. Anderson, William F. Shughart II, and Robert D. retrograde and disastrous. It took a centur for thinkers Tollison, “Adam Smith in the Customhouse,” Jounal of Political 8 y Economy, 93 (August 1985), pp. 740-759. outside of Pritain, especially in Austria, to revive a nd 9. See the illuminating work by Richard B Sher, Church and evelop the French utility and subjective value tradition. University in the Scottish Enlightenment: the Moderate Literati of Edinburgh And it should not be neglected that, in contrast to (Princeton University Press, 1985). Lutheran and Hegelian Germany, Austrian thought was 10. W. Grass! and B. Smith, eds., Austrian Economics: Historical and Philosophical Background (London: Croom Helm, 1986), especially still, in the late nineteenth century, steeped in Aristotelian B opICe ; : ” \ \ . arry Smith, “Austrian Economics and Austrian Philosophy,” pp. philosophy, and that Carl Menger’s epistemology and 1-36; and Reinhard Fabian and Peter M. Simons, “The Second even value theory were strongly influenced by the Austrian School of Value Theory,” pp. 37-101. Dr. Rothbard, the S.J. Hall Distinguished Professor of Economics at the University of Nevada, Las Vegas, is Vice President for Academic Affairs at the Ludwig von Mises Institute. ===== PAGE 9 ===== Austrian Economics Newsletter CUMULATIVE INDEX 1977 - 1987 HE SUBJECT INDEX AUSTRIAN ECONOMICS NEWSLETTER Volume 3/No. 3 Summer 1962 ARTICLES a Baird, Charles W. “Labor Law and Entrepreneurial A Crmue Discovery,” Vol. 6:1, p. 1. Two Reviews of Cowen, Tyler. “A Note on Leijonhufvud’s ‘The Wicksell ~~ The Keynesian Episode Connection,’” Vol. 3:2, p. 12. by am. Hu ae Te Ebeling, Richard M. "The Stockholm School of Economics: An Annotated Bibliography,” Vol. 3:2, p. 1. ===, ‘On the Theory of Costs,” Vol. 1:1, p. 8. WH Hurt Ekelund, Robert B., Jr. “Wieser’s Social Economics: A or ons . . N aya a L] seaor : u w n n om " Link to Modern Austrian Theory?” Vol. 6:3, p. 1. pn Tay | oun Sorusect ond Prokses FDNGH dom Ary apparent ToD He cautions us In his preface, howaver, . 1063 (which, Hutt anys, he had originally om ra poet traces hg Impocirerts 1 1344 3 : ’ that the changes are anough to make | thoughl of eniitl The C ’ 0 exchangs al g Garrison, Roger W. “‘Rational Expectations’ Offers ie sawn winnie sh | Keynes Not sumrisingy, then, the ach olnar—(o flrs of markers to stantially Accorals. While pages 3 | Doo echoas familar themes. | shat iy Clear bacause of wrong priced. Impecil- ly in i ’ 11 * through 201 of Keynssienism appsar aa | 10 ize them, not ments 10 exchanga discourage produc Nothing That’s Both New and True,” Vol. 6:1, p. ihiough 201 of Keyresieriem Wnoaar ah | Lo Sumaize ther no Fon of Goods 4a 8ervions Gustine for 120 pages of the sari ler work are omdl tad Fundamsatally, bshind tha vell af Bxchanpe. Say's Law, a8 Hutt luniher 5 and 23 pages of naw material sided. money, people specialize in producing Interprets and axlends it, points out why Even In {hose pages which raproduce | parioliar goods and sarvicas 10 ax- Cutbacks in production in some secior fami, In &ub Pratessar | changa tham for the specialized outputs Of the economy, mearking an Ihey do Lachmann, Ludwig M. “On the Recent Controversy utnssrowiusmmumyot is mosison | of oiwr bacpia. ary wipit Sutbacks in the rest deans Fo the fusing pars, adding and omitting words, | (hus conatitulea demand far other (non 3 HH 3 1" . phrases, senlences, and evan park | competinD) outpula Since supply con. DACKS Of production In Those other sac: Concerning Equilibration,” Vol. 2:2, p. 6. Braga ore as hare, Teaming nels | Sioied demand. thers can ba no ore aso, With demande curalied, whl orders, end #mploying § More modem might otherwise have Dean equilibrium style. Parageaphs are no longer num- prices tor tha outputs of thoss other Lewin, Peter. “Viewpoints on the ‘New’ Austrian berad, tanms lke "whilst" have disap Keynes wid his followers, any focused S6CtOE a8 now too hight and unless peed. and most of hia long flats of an the functioning of Ihe market econo- these Prete ue ass, provieried { had . cases have been curtalied and Incompo- my. Tha final live chaglers zero Ln on ey impede exc Ll u , Monetary Economics, Vol, 6:2, P- 1 bd rated Inlo ardinary paragraphs. In shod, POPUls Macro concapta~ Ihe multiplier In Ria way, wrong prices wid produc: Episods is much more pleasant to read and acosienalor, ior enamples—and dla tlon cutbacks In same saclors make : s i 3 : “ N lat i! wren, cau 0 McGee, Robert W. “The ‘Austrian Economics’ Of the Deus semnias camo grew bf both Keynes and ale ssonomiats ucon cuioacks Siar tors 6nc » thelr used-b n for {Hutt N. both modest and realistic the, al ls rection Spine i 1 » K {asm hat, desplts his and more u on, ing Early Italian Economists,” Vol. 6:4, p. 9. Cig SIR. Ll viii idl Wade mgr b po Teg axplicitly with Keynes and “Key sos ly had no impact whatsoever in ang the Paints af production in some M 3 tt H ” Iam." Tha next ssven, while frequently mcosdmrating this process.) $6CI10I8 PrOMOtas CUMUIative recovery Mises, Ludwig von. “Why Read Adam Smith Today? ong rims nd Say Frama Of pags 9) a Vol. 6:3, p. 3. Overbeek, Johannes. “Nicolaas G. Pierson and Social- ism,” Vol. 8:2, p. 1. Rothbard, Murray N. “Hermeneutics”, Vol. 6:3, p. 12. Talyor, Thomas C., Jr. “Accounting and Austrian Salerno, Joseph T. “The Monetary Approach to the Economics,” Vol. 3:1, p. 6. Balance of Payments: New and Old,” Vol. 1:2, p. 7. White, Lawrence H. “The Austrian School and A.E.N. Vol. 3, No. 3 - Summer ‘82 caeen, “The ‘True’ Money Supply: A Measure of the Spontaneous Order: Comment on O'Driscoll,” Vol. Supply of the Medium of Exchange in the U.S. 2:1, p. 6. Economy,” Vol. 6:4, p. 1. ~----, “Comments on Shackle’s Notion of Opportunity Shackle, G.L.S. “Professor Kirzner on Entrepreneur- Costs,” Vol. 1:2, p. 10. ship,” Vol. 4:1,p.7. . “On the Recent Controversy Concerning Equil- Steele, David Ramsey. “Lange's Theory of Socialism ibration,” a reply to Ludwig M. Lachmann, Vol. 2:2, After Forty Years,” Vol. 1:3, p. 4. p. 6. ===== PAGE 10 ===== CONFERENCES AND PROGRAMS Accounting Colloquium [Rutgers University], Vol. 2:2, p. 4. - ‘Spring 1978 A.E.A. Session, by Mark Manasco, Vol. 3:3, p. 2. | Atlantic Economic Association Highlights Carl Menger. Conference report by Susan G. Cole, Vol. 2:1, p. 1. AUSTRIAN ECONOMICS NEWSLETTER ~ Volume 2 Number 1 Atlantic Economic Association Highlights Carl Menger sp Sesar 5 Coe Auburn Conference Held [The impact of important insights of Austrian theory on mainstream economic analysis. ], Vol. 2:2, p. 11. Austrian Economics At New York University, by Don C. Lavoie, Vol. 1:1, p. 5. Austrian Economics Program at New York University, resem eon Vol. 1:3, p. 3. ns tow metre wag 18 SopieE 19/4 ARFORE ELANDTIN Dureai was + . “ . savolad 10 Carl Wenge and Ausinat IF: Jaecrane oedund ds rv B33 ang marines, iy and Ine 3nt2 ol cdosal Austrian Economics at Rutgers University, Vol. 1:3 ET et aot 1 I verre ven £2 ty, - - ’ P: virpe ciedi's The elas @' Lavienze § ANZ IGT rae Sugar al the Sap ser<-al ot nas lay an Ie pesonplve Mss with 400 1g 1c A sESSIOr an hoemige- meted Cn Suh TE hor Ocean fCsarval ns ploall 14 37d 1h Agsniars al “Fa 1477 Sah. hE - aL wp shEnActEen ive Dausa ly was nlarpiated Ecsnomei Ass0z anon mwel igs fms oo arg zivTe pe ue ly dmeredr the pIpL 3° pine 0 MEAT mars Loco ly A gu Zessior ag sue 15 Ine jesy | ol hal Sesq0r Fwd SLMsngA resull 1g roan The detale tty 3880 chrgug tt Ihe he Tan nird $d sui- A . H : . map athcles aie cfleres cotomng a nelmdulogiesl Cf scules ane ele EC IE CRarge based 0 byte noses ustrian Onomics eminar, art . - ) Y on Mergers wark plus 3 2 €* 250550 gl InPsIlvaba or raumieIZ nace = 1gm vith . euch by £ar€n Vaughn ol Jecrge Mason omens By ude v0 Mise, ad coronas Keegy so tee cure H University Tom inoue! én ard canzlud _asesh Seownzelar Boslach giealaps Yeel U0 dsToedly G0 geratal salming C. Lavoie, Vol. 1 2, P: 2. ing remares 3'¢ by Riznaig E wager of Iba hres 1°31 1a carl-al gsagreemenls nha al etiLs, eizencas Towhilh Virgie Perylesanic Ingl ule belwern Menge’ ans the balance Ru HIHY Get zal Gi 4 a apes he ely . . . Ir I's oped AQ IB TIEIAE Wagrer Lane Soloul wee BLAMELEnGeT al base ai ©0550 L3usally «5 dence hier Ihe Austrian Economics Seminar Part 1: 1976-77 b Don TOE SOME Jigey hed ou’ RUanraus Falah ac Iho INE pac iZ pas 101 Sug. AWS Al ideal dy dead ciasaity neal Dy Ine H * ? Y hehely canzenuty Te AuSINE"S, SUCT 35 $82.87 TEINE"S Of Ihaug 1ecogizes wary vdtce of the peity ar ch they oa. . : “931 Ihry Ate neckssanly soposed 10 he “eer as seh As 3 mal moa pl the $5908 015 Ioan Inra 1H me Bestach con- C Lavoie Vol 1:3 5 uze ol mplhemalrs 1 ercpiorics © A drhale ang Mins! =° tke Figo sal 35segs- 1870s hat due “T Inege rzompelible * 3 Rey Haye Pag said DN cov al CCCASIOrs Fal men: ol i miaged tha Man, SPUIEMORGILE! uUNIaTd, IE Tad toe adic aus use ¢f 8 eda erables ane Boe tach presenly an escr enl wey, ews are Samelically appased ang care ‘a dessr ge rRCA pallets ol evenls pl ve garns s of Ihe detale tae polam- NRL 2KIsE side by 5:de as SG Many se Austrian Economics Seminar, Part I11: 197 7-78, by Don withcul 1aving 10 reser 5 quant lying ral Rwchanges which shataclenzes | 191 ans ol econdmul hough rad nasles tie celalunshps Auslhars cleddly 37d Ing unlorlurate consequences lor Alrrough Boslaph 2-adiz Meager with : nAed 701 te cpposed 10 he use 2 Sach 8 economic theary due 1a Mergers can- allenzing io lurthighily stale he as. C. Lavoie, Vol. 2: 1, Pp. 8. mal ng of re3sor-1g In 3° “Icipe cere with mielaod Boslaph resales ‘re SUMphors ie an plfor oo rack ha real of Ir Ihe +s] major arhcle ol the collier Mp'ncasnsice! 1 lermg ¢* trae urder- 18 problem me sugoesis hal argumeanis “on Samuel Basteph ab Weslerr Mary. lpirg epislemolagicsl 1S5ues wilh parniy- Jv80 SiS1I@TBICICAl 165ues a'e 3 hope- Austrian Economics Seminar, Part IV: 1978-79, by Don a Bann Can Waa 16 mony on Coons To ra EB oto sr opt 4 C. Lavoie, Vol. 2:2, p. 8. Spring 1979 Austrian Lecture Program at Rutgers, Vol. 2:1, p. 4. NYU Update [economics program], Vol. 2:2, p. 3. Cato Institute Promotes Austrian Economics in Printing Proceedings of NYU Conference Published, Vol. 2;2, and Lectures, Vol. 1:1, p. 10. p. 3. Claremont, California Hosts Two Conferences, [Eco- Programs in Austrian Economics: New York University nomic Coordination and the Economics of Carl and Auburn University, Vol. 4:1, p. 3. Menger Conference report by Jack High, Vol. 1:1, Rutgers Conference on Inflation. Conference report by Tyler Cowen, Vol. 2:2, p. 1. Rutgers to Hold Conference on Inflation, Vol. 2:1, p. 3. Seminar for Austro-German Philosophy, Vol. 2:1, p. 5. Conference Generates Interest in Austrian Economics [Instructional Conference at Mills College, June 1977]. Conference report by Richard Fink, Vol. 1:1, p. 2. Hermeneutics: a Conference Report. Conference report by Sven Thommesen, John McCallie, Dipesh Shah, Southern Economics Association—1986. Conference Vol. 6:3, p. 5. report by Mark Thornton, Vol. 6:4, p. 10. London Conference Held by Carl Menger Society [Three ~~ Subjectivism Conference Held in Birmingham, England, Issues in Political Economy—-An Austrian View]. Vol. 1:3, p. 3. Conference report by John Blundell, Vol. 2:2, p. 12. Symposium on the Methodology of the Social Sciences, Menger Society Holds Conference on Hayek, Vol. 2:1, Vol. 2:2, p. 7. p. 5. Symposium on Theory and Method in the Social Sciences Methodological Individualism Colloquium Held at Held in Milwaukee. Conference report by Robert Sheffield University, Vol. 2:2, p. 5. Bradley, Jr., Vol. 2:1, p. 4. Methodology Conference Held at University of Dela- Two Meetings Stress Entrepreneurship [American ware. Conference report by John Kunze, Vol. 1:2, p. Economic Association and Southern Economic 5. Association annual meetings], Vol. 1:3, p. 14. NYU Conference - Austrian Perspectives on Contem- Two Panels Stress Entrepreneurship: American Meeting porary Economic Theory. Conference report by Gary report by Lawrence H. White, Vol. 2:1, p. 2. G. and Eugenie D. Short, Vol. 1:2, p. 1. Southern Meeting report by Jack High, Vol. 2:1, p. 2. ===== PAGE 11 ===== BOOK REVIEWS Kirzner, Israel M. Perception, Opportunity, and Profit: Studies in the Theory of Entrepreneurship. Reviewed by Blaug, Mark. The Methodology of Economics, Or How Jack High, Vol. 2:3, p. 1. Economists Explain. Reviewed by Israel M. Kirzner, Vol. Lachmann, Ludwig M. Capital and Its Structure. Reviewed 5:1, p. 6. by Lawrence H. White, Vol. 2:3, p. 4. Buchanan, James M. Cost and Choice: An Inquiry in -----, Capital, Expectations, and the Market Process: Essays Economic Theory. Reviewed by Mark Brady, Vol. 2:3, on the Theory of the Market Economy. Reviewed by John p. 16. B. Egger, Vol. 2:3, p. 6. renee ,and G.F. Thirlby (eds.) LSE Essays on Cost. Reviewed Littlechild, Stephen C. The Fallacy of the Mixed Economy: by Mark Brady, Vol. 2:3, p. 16. An Austrian Critique of Conventional Mainstream Gilder, George. “Galbraithian Truth and Fallacy,” Economics and of British Economic Policy. Reviewed by Forbes, November 12, 1979, pp. 117-130; AEN, Vol. Gary G. Short, Vol. 1:3, p. 16. 2:3,p. 9. Loasby, Brian J. Choice, Complexity and Ignorance. Graf, Hans-Georg. ""Muster-Voraussagen” und *'Erklarun- Reviewed by Lawrence H. White, Vol. 1:1, p. 3. gen des Prinzips” bei F.A. von Hayek: Eine Methodo- Mises, Ludwig von. Critique of Interventionism. Reviewed logische Analyse. Reviewed by Stephan B. Bohm, Vol. by Richard M. Ebeling, Vol. 1:3, p. 9. 3:3,p. 3. | ----, Notes and Recollections, by Ludwig von Mises. Faber, Malte. Introduction to Modern Austrian Capital Reviewed by Richard M. Ebeling, Vol. 1:3, p. 9 Theory. Reviewed by Roger W. Garrison, Vol. 2:3, . On the Manipulation of Money and Credit. Reviewed i P. > «A Col I. x by Richard Ebeling, Vol. 1:3, p. 8. etter, Fran . ital, Interest, a ent: Essays in the a . . Theory of Distribution. Reviewed by Israel M. Kirzner, iy Jind soy Reviewed by Murray N. Vol. 2:3, p. 8. Com Ee Gadamer, Hans-Georg. The Idea of the Good in Platonic- Aristotelian Philosophy. Reviewed by Jonathan Barnes in an essay ‘‘Hermeneutical Integrity,” Vol. 8:2, p. 5. ~--=, Philosophical Apprenticeship. Reviewed by Jonathan ‘ ‘ Barnes in an essay “Hermeneutical Integrity,” Vol. Austrian Economics Newsletter 8:2, p. 5. Grathoff, Richard (ed). The Theory of Social Action: The Correspondence of Alfred Schuty and Talcott Parsons. Theory and History Reviewed by Ludwig M. Lachmann, Vol. 3:3, p. 12. Museay N. Rothbard Ludwig von Mises pobluhed many books and artless in Hayek, F.A. A Tiger by the Tail: The Keynesian Legacy his ong sid produce [fe ach uf lem making enporeant contributions tw the theuey and applustoe of eonomic of Inflation. Reviewed by Robert L. Bradley, Jr., Vol. science. But there stand our among them four towering masterpieces. immortal monuments to the work of the ~----, The Ultimate Foundation of Economic Science. Reviewed by Matthew Krogdahl, Vol. 2:1, p. 12. Fall 1984 & The Ludwig von Mises Insticute 3:3, P 5. greatese pronamist and scientist of human action of our cencory. The first, which eseghlished Mises in the front rank . of economists, wes The Theos of Mores and Crediz $1912}, eee, Unemployment and Monetary Policy: Government as which for the first nme integrated che theory of money and fe . 3) . the theory of relative prices, and cuclined bis latee theory of Generator of the Business Cycle A Reviewed J. A. Dorn, the business cycle Mises’ second great work was Socielism 1 (1922, which provided the definitive, comprehensive cri- Vo . 3:3, P- 6. rique of socialism and demonstrated that a socielise order could nor caleulace economically. The third was his srupen- T \ X/ WwW : . das trearise !wman Acnien (1949), which eet foreh an entire Luding von Muses, 184-1973 Hazlitt, Henry. From Bretton oods to orld Inflation: structure of economics end analvsis of acting man, All three or oo far gone in jargon and muddled writing that they 1 of chese works hve made cheir mark in economics, and would fail to respond to Mises” lucid and sparkling prose. A Study of Causes and Consequences. Reviewed by have been featured in the “Auatyion® revival thee has flow- Ir is likely, insread, that the neglect of Theory and History . ered in the United States over che past decade. hes more tc do with the content of les phllusaphical mes. Leland B. Yeager, Vol. 6: 1, p. 7 ¢ Bur Mises fourth and est reac work, Theory und Histor cape, For while many people are aware uf the lang and lone . , R (29571, hae made remarkably liccle iropact. and has rately crypale that Ludwig von Muses waged sgaina¢ atarism and Hicks, John R. Causality mn Economics. Reviewed by Roger keen cited even by che voung economists of che event on behalf of laissez-faire, few realize that there is far eater . Auserian revival. Ir remains hy far rhe moss neglecced mes. renstgnce in the economics profession ro Mises’ MU Ww. Garrison, Vol. 3: 1 s P- 4, terwork uf Mises. Acid ver iv provides the vhilasphicl ogy then there is ro his pelitics, Adhecence to the Free backstop and of che 7 phy underlying market, after all, is now noc uncommon AMANG COnaMmiats . . R Human Achim. It is Mues® 3 hedologicel work, exc (Jlheit nat with Mises’ ui 1 i )), but few are Hutchinson, T.W. The Politics and Philosop hy of plaiting the basis of os apprearh economies. and provid: oe on ith Mises unerting coniencyl but fe ready to pdope the chevacreristically Auserian mechod . . . . . ing seintilbating critiques of such fallacious sleernatives a8 hack Muses systemacized and named “praxeclogy” Econom ics: Marx tans, K eynesians, and Austrians. histerieism, seientism, and Marxian dinlectical materialism. At the hare of Mises and praxcology is the concept sith : . It might be thnught thar, despite ats greac importance, which he appenpristely begins Theor and History: techod- Reviewed by Lawrence H. White, Vol. 5 2, Pp. 4, Theory and History hes nat made its mark because. in chs age vlogivel dualism, the crucial insight ther human besnge must af blind academic pecializacion, economists will have noth: be cansudered and analyzed in a way and wich a mechodal- Hut, William H. The Keynesian Episode. Reviewed by ing tn da with anything chat smacks of the philosophic. ogy thee differs radically from che analysis of stones, planets, Certainly, hyper-specislization plays a part, but in the last groms, or molecules. Why Because, quate amply, it is the few years, interesc in methodology and che basic underpin oh beings thar the hit they ha . ewence of human beings thar they act, that they have goals John B. Egger, Vol. 3:3, P. 1. mings of economics has blossomed, and ane would chink ng purposes, and thee they try to achizve the cous, R . . that at Teast the specialists in this ares would find much 0 Stanes, atoms. planers, have no geals or preferences; hence, -----. The Keynesian Episode. Reviewed by Leland B. dic art abwoc in this bork. And sconomists are surely (Come m pte 3 Yeager, Vol. 3:3, p. 1. Fall 1984 Fa I | ===== PAGE 12 ===== O'Driscoll, Gerald P., Jr. Economics as a Coordination Special Book Review Issue Problem: The Contributions of Friedrich A. Hayek. ; Reviewed by Jeffrey Rogers Hummel, Vol. 1:2, p. 3. AUSTRIAN ECONOMICS NEWSLETTER ----=. Economics as a Coordination Problem: The Contribu- Volume Z/Number 3 Spring 1980 tions of Friedrich A. Hayek. Reviewed by Richard M. Ebeling, Vol. 1:2, p. 3. Reekie, W. Duncan. Industry, Prices, and Markets. Perception, Opportunity, and Profit: Reviewed by Stephen C. Littlechild, Vol. 2:3, p. 7. Studlius in the Theory of Entraprenaurship by Iaraal M. Kirzner, Uneeraily of Chicago Prass, Chicago, Rizzo, Mario I. (ed). Time, Uncertainty, and Disequili- 1970. xIv + 274pp., $15.00 brium: Exploration of Austrian Themes. Reviewed by Frank Arnold, Vol. 2:3, p. 2. Rockwell, L.H., Jr. (ed.) The Gold Standard: An Austrian Renewed dack High Perspective. Reviewed by Steven Horwitz, Vol. 8:2, Kerr 003, TEL Make up, Joram Opportumty, and Protit, bath erlticlze and construct They Srincizw acon Shackle, G.L.S. Imagination and the Nature of Choice. rim ey comsirget a nas a hu place Mess homo ga. Sr1oeu8 10 portunities for ai ve 13 andowad nal anty with the prapan. NOt Only huBhand bur resources we inrael Ml. Kirznar Menta ol a theory of market proces. vt 13 elficisaln: PACE 182 parculym new uses for them, sc that R iewed b mL B han V | 3: 1 2 KIFZAGr 8 cfificitm ol BOUHIDIIUM ads and manne ars clearly denned. MY G0 evan further fan befor, “This ev y ames uc an, Ol. LF P- . iheory goss oeap. He doubts that maz aut ssc with she drive and alarinans ararinasa Is the aniraprenaurlal olgmen Imizing behavior, the cora of neaclas: Jeeded tc Idenl ly which anda 1a siriva «n twenan action,” |p. 7] wad 1 means sical modeling. will sustain & roalisiic lor and which means are availabe (RAL "wi 2g the aNtragransur a8 a Grea: - theory of the Markel. Maximizing takes |Refarance: p 28 Krznae Iv Quoting 19r . +n ENE BaNBA of his Bavng the dis- oo much lor gaantad, ard leaves too nim sat rom Competition wad Entre coverer of an available speortunity.” |p. GENERAL NEWSLETTER ITEMS tl 3 4ncompees much of whal wa sae in the A cantral iheme of Kirznar's, [rs we will nave somal bing 10 vay about meal Wa aaed 4 broader bese an In fs Point af In 91 of A M O R d V 1 4: 1 1 which 1a Build economic theory. Vigw [1962] and recurring In al hia laler wer but for now 191 ua take Kirtaar's €ssage to ur €a ers, je) . ve Ly P- . Hurmar gorge, J 198 s=nss ve. work, is thal mekImIzIng prasudioses entrapvensurship 4s Qiven, and sew how vaoped by Mises Irvoves courses Inat weeryone knows Which ands 10 pur ha sats sn mation &merkel ovacess. AEN B . P bli . AY} 1 1 1 1 schon laken ay hi numen bag " BLE 8nd which rang to emplay In tha In maximizing, he consemer or - TEMOVe UNdEL A843 and 13 rake Market, this Knowsadga requires wwery- producer yses equilibrium prices. These €gin u 1cation, Oo . - FY BP . mmsall ‘balter ot Baing craggar one 8 plane to be conrdinated. 31 nce the prices ara glven to mem, nd ther ran lg noon of &0naming =. means cie parson amploys BIMOAT employment implies 1nal the reat . Mexnmiz AGL 198 suncept ol human inval ne B f V 1 3. 1 3 2c! an dose nod resirict ananyss ol the always involve the actions of other ans 1a buy or set can be carried oul ric S, O - sdy P . Jaciulon so Ing AlCCAION DrOber people. How do people core to know (although The maximizatson process ponad by the juztapasitar af scarce ALout he ends they pursue, AND 10a sayy ain bOuT Ie actual tarrying - means and mutiple ends The gezl. besi maans by which to pursue them? out| Now. Kirzaer skys, “The glfficulty Briefs V ol 3.2 3 alo, Ir Ihe framework ol Ihe uman How 3G they come to Know Bboul tha with a [Neary of the markal couched 4+ * rihoy FP: . Clon approach 1m not wrived et planned acticns ai pthara? What “actuarvedy on Aobblnelan |+.8 , maximiz 1Néiey by machanical computal an of happens I paople ase mistaken in thelr ing] terma 13 that in dlasquiribnum . the 8311100 1 The prob- p of ends and means? Ta many of the plans of Robbing ime score Briefs Ol. J: . TDL or an carfigurafion OT answer these quealions In order 1oyleld mh2are ate bound Ig be unrealized.” (p J Lindt - IRA given arde ard means. It pit a theory of make! charge, Kirzner hes 8) ol marely [ha Mpulllon G1 gua) ! . . . moans ee Ee a Gtr procased hal we broaden economic If wa heap in mind thal buyms and Briefs Vol 4:1 pa Ibe Nisrarchy of pret made, bud bahavlor 16 include antraprensurahip. asllere are alart lo opporfuniles tor I * hl P- + aK Me vary cecealion of the For K:zner, econornic actwity mn. ends mans Famemovh wirut which wolves rol anly maximizing, but also Continued an pags 12 CLS Summer Fellows, Vol. 1:3, p. 13. Dissertations, Vol. 4:1, p. 4. Hayek on Wicksell, Vol. 3:2, p. 12. IHS Sponsorship of Austrian Economics, by Richard M. Studies in Economic Theory, Vol. 1:3, p. 3. Ebeling, Vol. 1:2, p. 12. Theory and History, new edition available, Vol. 6:2. Inventory of the Private Papers of Ludwig von Mises, Upcoming Events, Vol. 1:1, p. 10. Vol. 2:2, p. 11. | IN MEMORIAM 1986 Nobel Prize in Economic Science Awarded to James Morgenstern, Oskar (1902 - 1977), Vol. 1:1, p. 5. M. Buchanan, by Mark Thornton, Vol. 6:4, p. 7. Shenoy, BR. (1905 - 1978), Vol. 1:3, p. 10. Notes, Vol. 1:2, p. 11. Nozick on Methodology, Vol. 1:3, p. 11. INTERVIEWS Recent Articles About F. A. Hayek, Vol. 2:2, p. 7. Hazlitt, Henry. “An Interview with Henry Hazlitt.” Interview conducted by George Selgin, Don Boud- reaux, and Sanford Ikeda, Vol. 5:1, p. 1. Vol. 2, No. 3 - Spring 1980 Recent and Upcoming Publications, Vol. 1:1, p. 7. Review of Austrian Economics, Vol. 6:4, p. 12. Lachmann, Ludwig M. “An Interview with Ludwig Scholars Engaged in Writing & Research, Vol. 1:1, p. Lachmann.” Interview conducted by Richard M. 4. Ebeling and Gary G. Short Vol. 1:3, p. 1. Schumpeter on Wicksell, Vol. 3:2, p. 12. Machlup, Fritz. “An Interview with Professor Fritz Summer Fellowship Program in Law and Economics, Vol. Machlup.” Interview conducted by Joseph T. Salerno 2:1, p. 7. and Richard M. Ebeling, Vol. 3:1, p. 1. Studies in Economic Theory, by Richard M. Ebeling, Shackle, G.L.S. “An Interview with G.L.S. Shackle.” Vol. 1:1, p. 7. Interview conducted by Richard M. Ebeling, Vol. 4:1. — ===== PAGE 13 ===== “The Minimum Wage”: A Major Cause of Poverty by W. H. Hutt In a free society, people’s incomes are determined in the market for the services and products they (and their assets) provide. Hence it will be profitable for people in what we call their entrepreneurial capacity to employ and remunerate any person who does not ask more for his services than the value of his marginal product. It can be shown that when this process is fostered and unconstrained, the flow of real income (wages and salaries, plus interest plus profit) is maximized and any inequality in the distribution of this aggregate magnitude is minimized. But politicians are motivated to promise and enact minimum wage-rates which make it an offense to employ any person the value of whose product, however “high”, is less than the stipulated minimum. And special interest organizations--labor unions—have used the threat of disruption to force the price of the workers’ services W.H. Hutt in different fields above the free market value, with like In several previous publications! 1 have proved that CONSRIUCRLCS. the aggregate flow of real wages and salaries in a Such constraints, whether misguided or cynically community is maximized and any degree of inequality exploited, have survived, after two centuries of clever in the distribution of that flow is minimized, when every propaganda which leaves the impression that the low person is offered and accepts the minimum needed to marginal productivity of the poor, and hence their low attract him from other occupations (or from idleness) incomes under capitalism, are to be blamed on those into a particular occupation, and a parallel rule who employ them. Everyone is expected to believe that determines remuneration for the services of cooperant the poor generally, or certain groups of the poor, are 1SSetS. the victims of “exploitation”. Now the denigrators of It follows that every person ought to enjoy the effective capitalism who write of “exploitation” never define it right of accepting any terms of employment offered which except in the vaguest terms. I myself have defined it he believes will increase his income or enhance his rigorously as follows: prospects of future income, irrespective of any harm any action taken, whether or not through discernible caused by his so doing to the person earning more than private coercion (collusion), or governmental he is. For when he moves from, say, unskilled work coercion, or whether through monopolistic power, to semi-skilled work, or from any lower-paid work to which, under a given availability of resources higher-paid work, he tends to raise remuneration in the (including the stock of knowledge and skills), reduces field he leaves, to reduce it in the field he enters and the value of the property or income or of another to raise society’s aggregate real income. This effect tends person or group of persons, or prevents that value always to reduce inequalities of income. Indeed, every from rising as rapidly as it otherwise would, unless upward mobility so caused has a similar tendency. this effect is brought about through (a) the We should bear in mind also that, in the United States, dissolution of some monopolistic privilege, or (b) well over 50 percent of the low income earners who the substitution of some cheaper method (labor- seem to benefit belong to families in which the average saving or capital-saving) of achieving any objective income greatly exceeds the minimum (indeed, well over (including the production and marketing of any half of the workers whose earnings are boosted through output); or (c) the expression of a change in the non-market determination of these rates belong to consumers’ preference; or (d) through taxation families that should be classed as relatively well-to- do). authorized by explicit legislation accepted as The greater percentage of low income families are legitimate in any context. disadvantaged by the system.2 Only a small proportion ===== PAGE 14 ===== of the income earned by poorer families is due to A Rehibilitation of Say’s Law employments to which the minimum applies. Athens, Ohio: Ohio University Press, 1975 It has been estimated that at least four-fifths of the The Keynesian Episode: A Reassessment families in the low income groups have been harmed Indianapolis: Libert Press. 1979 by the system. Moreover, as we have just asserted, many pots: y ’ higher income families are net beneficiaries. The facts BUCHANAN (continued from page 4) seem to prove that few among the families in which some I didn’t become acquainted with Mises until I wrote incomes are subject to the minimum actually do benefit 1 4rticle on individual choice and voting in the market from the system. Moreover, the minimum wage system in 1954. After | had finished the first draft I went back affects most supposed beneficiaries negatively through to see what Mises had said in Human Action. 1 found forcing them to pay inflated prices for the kinds of out, amazingly, that he had come closer to saying what Outputs they demand. I was trying to say than anybody else. In stressing this issue, we must emphasize also that nearly all intended income transfers, via the overriding * Among his many works include two contributions to volumes of the free market determination of remuneration, in honor of Ludwig von Mises and a book review in the Austrian Ce . , Economics Newsletter. For a complete bibliography of his works whether this objective is sought through raising the prices published to date see, Vol. 54, No. 1 of the Southern Economic Journal of individual categories of labor, or through progressive (July, 1987). taxation, or through the inflationary debasement of the 4 money unit (with open or disguised handouts), or HOROWITZ and BOETTKE (continued from page 14) through other State enactments, reduce or destroy the of the natural sciences and the nihilism of historicism. possibility of achieving not only a povertyless society, He argues that the humane sciences must deal with but a good society in the fullest sense. “knowledge from within” (i.e. the knowledge we have of human action because we ourselves are human), a 1. The Theory of Collective Bargaining (1930, 1954 and 1975); point where Mises agreed completely.” Gadamer is Tomists and the Public, chapter XX, 1936; The Strike-Threat Sysiem, seeking truth, and he and the other hermeneuticans are 2. About 10 percent of families with higher total incomes include no more nihilists than Mises himself, who made similar such beneficiaries while the majority of lower-income families have arguments.® no member who benefits from any minimum wage enactment. Whether or not one agrees with hermeneutics, the Professor Hutt, is currently Professor of Economics at influence and parallels of these ideas on Mises and other the University of Dallas, and is a Distinguished Scholar Austrians seem undeniable. To blithely assume that any of the Ludwig von Mises Institute. The following is a and all attacks on hermeneutics and Continental list of some of his major contributions. Philosophy are necessarily pro Misesian is highly questionable, If the proper place, if any, of Continenta The Theory of Collective Bargaining . ; Fd I thought in Austrian economics is to be critically assessed, London: P.S. King & Sons, 1930. New York: The gh y the discussion has to move to a level of scholarship Free Press, 1954. 2nd Edition, London: Institute commensurate with the ideas of one of the greatest minds of Economic Affairs, 1975 of the 20th century, Mises himself. Economists and the Public London: Jonathan Cape, 1936 Steven Horwitz and Peter Boettke are currently The Theory of Idle Resources working on their Ph.Ds in economics, specializing in NA Jonathan Cape, 1939 Austrian economics at George Mason University. * ’ H] Indi lis: Li 1. Rothbard, Murray N., preface to Theory and History by Ludwig ndianapolis: Liberty Press, 1977 von Mises, Auburn, AL: The Ludwig von Mises Institute, 1985, Plan For Reconstruction = Mises, Ludwig von, Theory and History, op cit., p. 308, emphasis . added. Londo Regen Pail, 1943 3. Mises, Ludwig von, “The Historical Setting of the Austrian Keynesianism-Retrospect and Prospect School of Economics,” Auburn, AL: The Ludwig von Mises Institute, Chicago: Regnery, 1963 re E25 Indianapolis: Liberty Press, 1977 5. Collingwood, R.G., “Economics as a Philosophical Science,” The Economics of the Colowr Bar International Journal of Ethics, V.36, no. 2, January 1926, p. 163- 4, emphasis added. London: Institute of Economic Affairs, 1964 6. Gadamer, Hans-Georg, Truth and Method, New York: Crossroads . Publishing Co., 1985, p. 446-7, emphasis added. Politically Imp ossible. . i 7. Mises, Ludwig von. Epistomological Problems in Economics (New London: Institute of Economic Affairs, 1971 York: New York University Press) 1976, p. 130ff. The Strike-Threat System 8. For an argument that Gadamer’s thought leads to classical liberal policy conclusions see Tom Palmer, “Gadamer’s Hermenutics and New Rochelle, N.Y.: Arlington House, 1973 Social Theory”, Critical Review Vol. 1 No. 3 (Summer 1987). ===== PAGE 15 ===== of public-debt financing by government leads to excessive expenditures by government and excessive taxation of future citizens. Rationality in the Public-Debt Controversy So far, the economist is on target. But the Rational Expectations economist ‘reasons’ ahead one step too far. by He thinks: “Gosh, don’t those people in my model realize Don Boudreaux that the mere printing of government bonds does not create wealth? Bond issuing by the government doesn’t justify the increased total expenditure in the current The title of this essay has two distinct, yet related, period. These people must be irrational. Because such interpretations. The first and most important concerns irrationality is inconsistent with the basic assumptions use of the rationality assumption in analyses of the causes of my theory I will have to modify my theory to avoid and effects of public-debt issue. The second, and more this irrational outcome of debt financing.” literal, interpretation refers to the methodological The economist who reasons as such confuses insightfulness of some of the economists participating rationality at the level of the acting person with rationality in the controversy over public debt. I argue here that at the level of the collective. He forgets that individual insightful analysis of the full causes and effects of public- rationality (i.e., purposive behavior) in no way implies debt financing is impossible if theorists assume thatevery collective rationality (i.e., ‘correct’ social outcomes). person in society has full relevant knowledge of the Nevertheless, because he believes that the rationality structure of the economic system. Further, it seems assumption is inconsistent with less-than-optimal somewhat irrational to take the position—as is done by collective outcomes, the Rational Expectations economist economists of the Rational Expectations school—thatthe feels the need to amend his model so that collective utility functions of children are taken fully into account outcomes are ‘correct’. To guarantee ‘correct’ collective by parents.! outcomes the Rational Expectations economist assumes The individual-rationality paradigm within which all that all persons in his model have full knowledge of the good theories of economic and social interaction are economy. He also assumes that these persons are constructed does not imply the type of “rationality” that concerned, in this completely informed sense, with the forms the core of Rational Expectations theory. Despite tax liabilities of their children. These assumed traits are the claims of Rational Expectations theorists, the misnamed “rationality”. methodological precept of individual rationality is quite By endowing the people of their models with such consistent with the conclusion that there is a noneq- complete and indelible knowledge and preferences, the uivalence between debt financing and tax financing of Rational Expectations theorist is guaranteed a particular public expenditures. Therefore, arguments in favor of answer to the question of the effects of public-debt models in which individuals take into complete financing: A one-dollar increase in public debt will ipso consideration, the appropriate rate of discount, theirown ~~ facto cause a one-dollar increase in current savings. and their children’s future tax liabilities do not find their ~~ “Ricardian equivalence” —the equivalence between tax justification in any methodological norms which dictate financing and debt financing—is assured, for it is assumed that the actors in the model be rational. in the way the model is constructed. Let's examine Of course, models of economic phenomena are this modeling procedure more closely. For Rational typically constructed so that the economist is very much Expectations theorists such as Barro, the time horizon of an omniscient observer of the goings-on within the of people extends fully into the complete lifetimes of model. Upon seeing the model-economy’s government their children. This type of theory is called an issue an additional dollar of public debt, the economist “overlapping- generations model”. Thus, any debt says to himself (and to all who will listen) that if the currently incurred by a person—or by the government people in this model economy do not increase their for that person—will not be regarded by that person savings by one dollar, future taxpayers will have to pay as representing an increase in wealth; there are no wealth for whatever amount of current expenditures are not effects attributable to debt issue. This conclusion holds offset by increased savings. With a few plausible even if the debt extends so far into the future as to come assumptions about political behavior—e.g., that due only after the person incurring the debt has died. politicians act to please their current constituents and After all, children must pay whatever is not paid by their ignore future citizens/taxpayers—the economist can debt- incurring parents and parents are assumed to take confidently predict that current consumption will be all tax obligations of their children into full account. higher than is justified by the economy’s real wealth and By “full account” I am referring to the assumption that the time preferences of people in the economy. The a child’s utility function is fully contained within the economist thus learns from his model that the possibility ~~ parents utility function. Empathizing so much with their ===== PAGE 16 ===== offspring that it becomes impossible to distinguish in the middle of which is a single mind to whom all parents from children (and from all grandchildren, great- knowledge of the economy is given. In such models it grandchildren, etc.) debt is incurred by current is this single all-knowing mind who works out all generations as if those alive today will remain alive and economic problems in order to obtain the optimal pattern productive forever. Hence, all debt liabilities are fully of resource allocation. This model is really that of Crusoe provided for through increased saving by those who incur world, and Crusoe need only construct a single plan the debt. Every dollar of debt has a corresponding dollar whose component parts conform to the “external facts” .3 of additional saving put aside so that it can be taxed This type of behavior is true economizing behavior. to pay for the debt when it comes due. It follows that the person incurring the debt is indifferent between debt financing and outright purchase. In both cases he gains a source of utility (i.e., the purchased commodity), but he also has a sum of money (corresponding to the debt obligation) withdrawn from his ‘spendable’ assets. If the commodity is purchased outright, this sum of money is given up at purchase time. If the commodity is purchased via debt creation, this sum of money is sunk into an interest-bearing bond coming due at the same time the debt comes due. The equivalence is genuine in such a model. The social scientist should not be much concerned with economizing behavior as such.4 The task of the social scientist is to explain the formation of social orders in light of the fact that these are not the ‘rational’ product of a designing mind. Spontaneous orders are not usefully explained as if they are produced by a single economizing mastermind. The economist’s task, as Hayek sees it, is to explain how complex social orders can emerge and survive. For such complex orders to exist they must make use of an amount of knowledge that is incapable of being possessed by one person. Relatedly, the actions of people But notice what has been done. A very complex within these orders must be mutually adjusted. The economic and political intertemporal process has been emergence of such an order can be understood only by modeled as a timeless static condition. Although the inquiring into the nature of the processes that are persons in such a model each live only a finite number functioning to convey each person’s limited knowledge of years, the peculiar assumption of intergenerational to all other relevant persons so that plans might mesh. utility functions serves to create one immortal being who The resulting order may appear to be the product of simply changes bodies intermittently, Because immortals an omniscient and omnipotent being, but it is not, We live a long time, the time preference of immortals is likely should not attempt to explain it as if it were. to be very low (if not zero). Consequently, the real rate of interest is also likely to be very low -- or at least lower than it is in a world of mortals, Budget balancing for immortals is not of the same necessity nor urgency as it is for we beings of finite life span. Further, because time is not scarce it is of little significance to immortals. Combining this fact with the assumption of complete structural knowledge of the economy, it is difficult to why is it irrational for that someone to be unconcerned see how exchange between a number of immortals is about a future someone bearing the burden of these anything more than that which is modeled in atemporal actions? To define rationality as knowledge (and concern) static models. Thus, a crucial distinguishing feature of of all people with the structure and state of the current debt—its time element—is assumed away in these models and future economic system and all of its inhabitants of hyper- rationality, is pure ad hocery. It may be true that immortal and omniscient beings would undertake a sequence of actions that are different from those actions variously taken by people as they really are. But this fact does not imply that real-world people are any less rational than are In the case of public-debt issue, the conclusions of an analysis based upon limited knowledge, Knightian uncertainty, non-homogeneous utility functions, and other ‘imperfections’ will be different from those derived from Rational Expectations theory. If a person in the model can take actions whose detrimental effects will not materialize until some time far in the future, then In addition to the conceptual problems that mark a theory whose primary decision maker is immortal and practically omniscient, Rational Expectations models of debt financing suffer the same methodological illness that Hayek diagnosed in 1937 in his article “Economics and immortal beings. It is trite but true that scientific analysis Knowledge’2. Hayek found illegitimate assumptions is only hindered by assuming that the human beings in about the role of knowledge in economies and economic ~~ the model are fundamentally different creatures from science as being responsible for numerous weaknesses ~~ What they are in reality. If it is human action and human in models of perfectly competitive markets, especially institutions that we want to understand we ought to as these models were developed and used by the Lange- ~~ 2ccept and model man as he actually is. Lerner type of’market socialists”. Hayek showed the The problem is to explain the constraints that define relative fruitlessness of conceiving of the economy as real- world choices between public-debt financing and a grand and logical system of preferences and constrains tax financing. Models of the kind used by Rational ===== PAGE 17 ===== Expectations theorists are designed more for the purpose questions of his comrades. Is central planning an of achieving implausible theoretical possibilities rather necessary element of Marxian thought? Is central planning than to help us understand the real-world problems of ‘economic’ at all? Is real reform possible is a country public finance. of continual “reform’? His questions are startling to socialists and his answers maybe startling to market oriented economists. Rutland focuses his attack on the politicalization of the Soviet Union and its economy. He concludes that central planning is only a method of continuing the I. Such an assumption is used, for example, by Robert Barro. political structure of the Russian bureaucracy; planning’ See his “Are Government Bonds Net Wealth?” Journal of Political is primarily an exercise in the preservation of political Economy Val. 82 (November) 1974, pp. 1095-1117. power”. Central planning works in maintaining political 2. In F.A. Hayek, Individualism and Economic Order (Chicago: stability but not for the goals of socialism. Rutland also University of Chicago Press, 1948), pp. 33-56. stings the Marxist theory of history, which is built around Don Boudreaux, a former Mises Institute Fellow and editor of the Austrian Economics Newsletter, is an Assistant Professor of Economics at George Mason. 3. Ibid, p. 37. 4. See James M. Buchanan, What Should Economists Do? “economic change’, with his politicization of the (Indianapolis: Liberty Press, 1979), especially Chapters One and Two. economy theme. But, alas, he drops the ball in the last few pages of The Myth of the Plan his otherwise rewarding book. On the last five pages of the book he begins the topic of “the myth of the by market”. Appearently, he has taken to heart Austrian Peter Rutland criticisms of socialism but has not investigated Austrian contributions that show the market “works”. He refers Open Court Publishing, 1986 282pp. to the “unreformable’” economy of the Soviet Union Reviewed by Mark Thornton and high cost and trauma of change as reasons for his disappointing conclusions. This however is not as When the Polish Marxist economist, Oskar Lange disheartening as his call in the last pages for “‘organ- suggested that socialists erect a monument in honor of izational studies’. This final retreat however is the result Ludwig von Mises, he strategically and very conveniently of viewing the Soviet Union as inherently unchangeable closed the door on the Socialist Calculation Debate. and unreformable. The end result is that his examination Lange praised Mises because it was Mises who asked of the Soviet economy is not for the purpose of reforming the key questions of socialists, questions that needed the Soviet Union, which lacks the key ingredient of to be answered, and questions that Lange had claimed democracy. His purpose is to warn his socialist friends to have answered. Thus with this gesture (and the neo- in democratic countries of the problems of planning and classical mindset of the economics profession) Lange was the “possibility” of Hayek’s thesis coming true. Good able to give the perception that the socialists had won luck, Peter. the debate. Seventy years of experience in the Soviet Union and recent contributions and restatements by Buchanan, Havek, and Lavoie have reopened the Debate and taken the advantage. The Myth of the Plan is important step in the Debate because it marks the first time a socialist economist has both read and understood the Austrian arguments against socialism. Knowledge and understand- ing of the Soviet economy makes the book both insightful and informative. Rutland show the historical develop- ment of the Soviet command economy, how the modern command economy operates, and provides details on how this system works with respect to health care and social welfare, a supposed success of the Soviet system. He is however unconvinced by the “extreme” versions of Mises calculation argument and Hayek’s road to serfdom theme. Despite his sympathy towards socialism, Austrians will find his highly critical approach in examining the “plan” very refreshing. Rutland asks some very basic and crucial Don Boudreaux and Mark Thornton ===== PAGE 18 ===== treatment of history- first Dilthey, and later Windelband, Rickert, and Max Weber.”? Lest we think these pre- Mis esian Int e grity: hermeneuticians to be historicists, Mises reassures us, ut [Schmoller] did not grasp the fact that the tenor A Comment on Barnes of Dilthey’s doctrine was the annihilation of the fundamental thesis of his own epistemology [i.e. by historicism].””¢ Clearly then, these other pre- Steven Horwitz and Peter Boettke hermeneuticians were both anti-historicist and anti- positivist, like Mises himself. But what about Colling- We read with great interest the reprint of Jonathan gr p J wood? Allow us to quote at length from an essay of Barnes’ review of Gadamer in the Summer 1987 issue of the Austrian Economics Newsletter. While a short his: comment is not the place to tackle all of the complex [There is a special type of action, which we ordinarily issues involved in the relationship between hermeneutics distinguish by such epithets as expedient, useful, and Austrian economics, we would like to bring one profitable, and the like; that this utilitarian or point to the attention of Misesian scholars. In discussing economic type of action is the fundamental fact with hermeneutics as the interpretation of philosophical texts which all economic science is concerned; that a pure of the past, Barnes writes, quite critically, that: or philosophical economics would consist of the analysis of this special type of action and its implications; and finally that the ultimate or fundamental problems of economics are solvable only by abandoning any attempt to solve them empirically or inductively, and dealing with them according to The hermeneutic programme thus appears to demand a scholarly approach to the philosophical questions: hermeneutics is interpretation, and in particular, the interpretation of the philosophical texts of the past. All this will remind English philosophers of the ideas of R.G. Collingwood, who believed that philosophy their true nature, as philosophical problems to be was a branch of history - the history of the prejudices approached by philosophical method. and presuppositions of the human mind. (AEN Collingwood is clearly giving economics a place as an Summer 1987, p.6) apriori theory of action, denying both historicism and What is interesting is that an article that is being used Pia Again, it is no surprise that he was admired y . to attack supposedly anti-Misesian developments in Austrian economics would attack one of Mises’ favorite : oo historians R.G. Collingwood. This is especially relevant Collingwood. He also accuses Gadamer of historicism, os ) NEY : much as many “Austrians” have also charged Gadamer as it is an attack on Collingwood’s epistemology which . 1 thes : : : and hermeneutics with a nihilistic denial of truth. To Mises liked in particular. In Theory and History, a book the contrary. Gadamer’s whol ect is to defend the that Murray Rothbard calls “the philosophical backstop y, er 5 Who's project 1s *0 . : truth claim of the human sciences, including economics and elaboration of the philosophy underlying Human Co SCIEnces, orang € ’ Lr 571 MG against the historico-empiricists. He, like Mises, closes Action,” Mises says: his magnum opus with a concise statement of his purpose: [This] disparagement of the methods of history moved first Dilthey, then Windelband, Rickert, Max [T]he use of scientific methods does not suffice to Weber, Croce and Collingwood to opposition. Their guarantee : ruch. This 1s 50 especially hl the human interpretations were in many regards unsatisfactory. sciences, but this does not mean a diminution © They were deluded by y of the fundamental their scientific quality, but , on the contrary, the errors of historicism. All but Collingwood failed Just] fication of the claim to special humane \ . x . significance that they have always made. The fact entirely to recognize the unique epistemological ) . that in the knowing involved in them the knower’s character of economics... But the fact remains that g © they succeed brilliantly in elucidating the epistemo- on betas involved, marks, setately the limitation logical features of the study of history. They the tool of "method does not achieve must - and destroyed forever the prestige of those epistemolog- ical doctrines that blamed history for being history effectively oo - be achieve d oy 2 discipline of and for not being ‘social physics’ 2 questioning and research, a discipline that guarantees truth.6 In another essay, Mises repeats his claim that these Thi hi far § cs bly dark thinkers, the acknowledged predecessors of Gadamer and 1S paragraph 1s os fat trom impenetradly dark or hermeneutics, opposed positivism as Mises did, pompously inflaied” 25 one can get. Cademer clearly “rSchmoller] did , states that the human sciences can only achieve truth Se moller] di s Ra ne JOE 5% spseats] J when they throw off both the chains of the methods demolished positivism’s ideas about the use and (continued on page 10) Barnes, though does not stop with his attack on ===== PAGE 19 ===== . Gadamer Ho nd to . Reply to rwitz a Boettke Thus, if Mises praises Collingwood, we need to ask, by to which opinions of Collingwood did he mean to refer? The answer is readily available: it is to be found in the David Gordon passage from Collingwood that our authors cite in their Steven Horwitz and Peter Boettke have chosen a daring article. Mises praised Collingwood for arguing that strategy in their criticism of Jonathan Barnes’ review of economics is a deductive science. This is exactly the point Gadamer. They propose to concentrate their assault on the opponents of hermeneutics wish to emphasize: a seemingly minor detail in Barnes’ account, his remarks Collingwood, in the cited essay, supported just the about R.G. Collingwood. In their view, appearances are “Euclidean’ approach our latter-day irrationalists deceiving; a “minor” matter really assumes crucial oppose. Mises makes no staternent whatever endorsing significance: “What is interesting is that an article that Collingwood’s general views about epistemology, much is being used to attack supposedly anti-Misesian less the relativism of his late works to which Barnes makes developments in Austrian economics would attack one reference. of Mises’ favorite historians-R.G. Collingwood. This is If Collingwood was, as Horwitz and Boettke think, especially relevant as it is an attack on Collingwood’s “one of Mises’ favorite historians,” one can only say epistemology which Mises liked in particular.” (p.1) that Mises kept his enthusiasm under quite remarkable While Messers. Horwitz and Boettke deserve praise control. Where in the vast corpus of his work does Mises for their close study of Mises, they seem to me to have discuss Collingwood at length? When it is suggested, devoted their admirable interest and energy to a position further, that Mises liked Collingwood’s epistemology “in beyond hope of salvation. First, Barnes’ review of particular,” I rub my eyes in astonishment. What else Gadamer was just that—it was not a defense of Austrian is Mises supposed to have liked? Collingwood’s work economics. Thus, the supposed fact that Mises liked on the history of Roman Britain? His speculative Collingwood’s epistemology hardly counts as a point philosophy of history in The New Leviathan? against Barnes. Perhaps, though, Horwitz and Boettke But what about Mises’ praise for Dilthey, Windelband, mean that the Austrian Economics Newsletter should not Weber, and Rickert? Did he not distinguish them from have used Barnes’ article to attack anti-Misesian Schmoller and the other members of the German developments in economics. This is, I am constrained Historical School? Indeed he did: but what he praised to say, a strange position. Apparently, their view is that emerges once more from the passage Horwitz and Boettke one cannot use Barnes’ arguments to attack people who cite. Mises approved of their contention that the method try to combine Mises with Gadamer, because Gadamer of historical study differs from that of the natural resembles Collingwood and Mises liked Collingwood. sciences. He says here nothing at all about these writers’ If this is what Horwitz and Boettke mean, several views of economic theory. This is hardly surprising since, comments immediately spring to mind. First, Barnes except for Max Weber, they did not write about economic merely said that Gadamer’s position will remind English theory at all. readers of the ideas of Collingwood. He attempted no As to the closing citation from Gadamer, which calls detailed analysis of Collingwood; and it is quite for a discipline of the human sciences that will guarantee conceivable that he erred in comparing Collingwood with truth, surely, before acclaiming the similarity with Mises, Gadamer while still being correct about the latter. It is one ought to inquire what Gadamer means by truth. also conceivable that Mises erred in his understanding This task I cannot undertake here; but once again a brief of Collingwood. reference to the passage our authors themselves quote In fact, though, neither Barnes nor Mises made a suffices to refute their contention. Gadamer opposes the mistake. Barnes’ reference to Collingwood is obviously “t00l of method”: the discipline of which he speaks relies to his late work An Essay on Metaphysics, of which Barnes’ on tradition and interpretation rather than fixed rules remarks are a terse and accurate summary. As T. M. of procedure. That this is hardly Mises’ praxeological Knox so well brought out in his Preface to The Idea method should go without saying, but unfortunately does of History which he, as Collingwood’s literary executor, not. So far as the debate on the value of Gadamer to prepared for publication, Collingwood’s early works, Austrians is concerned, then, let us leave the last words culminating in the Essay in Philosophical Method of 1933 to the Lord High Executioner of The Mikado. Mises’ adopted a position in many respects far removed from views about Collingwood, like “the flowers that bloom his late work, written after a series of strokes. in the spring, tra la! / Have nothing to do with the case.” Collingwood’s early work, heavily indebted to the Italian philosopher Benedetto Croce, certainly was more than David Gordon is a Senior Fellow of the Mises Institute tinged with relativism. Yet, from the Speculum Mentis and Adjunct Scholar of the Social Philosophy and Policy to the Essay of 1933, his work bears little resemblance Center at Bowling Green State University. ===== PAGE 20 ===== New RAE Is Published Volume II of the Mises Institute’s hardbound scholarly journal, The Review of Austrian Economics, will be available in early November. If you would like a copy, enclose your check for $30 and check the appropriate box on the enclosed card. Review of Austrian Economics Volume II Contents Timberlake on the Austrian Theory of Money: AC 1 The Economic Calculation Debate: Lessons for Bt ? Austrians 1 Israel M. Kirzner Reply to Comment by Murray N. Rothbard 189 Praxeology and Understanding: An Analysis of the Richard H. Timberlake, Jr Controversy in Austrian Economics 19 On Yeager’s “Why Subjectivism?”’ 199 G.A. Selgin Walter Block Competition and Political Entrepreneurship: Austrian ~~ Reply to Comment by Walter Block ~~ 209 Insights into Public-Choice Theory ~~ 59 Leland B. Yeager Thomas J. DiLorenzo Saving the Depression: A New Look at World Why the Austrians Are Wrong About Depressions 73 War II 211 Gordon Tullock Mark Skousen “Social Utility: and Government Transfers of Wealth: An Austrian Perspective 79 Book Reviews David Osterfeld The Myth of Free Banking in Scotland ~~ 229 Austrian Methodology: The Preferred Tax Type 97 Murray N. Rothbard Jeffrey Herbener White's Free-Banking Thesis: A Case of Mistaken The Neglect of the French Liberal School in Anglo- Identity ~~ 247 American Economics: A Critique of Received Larry J. Sechrest Explanations 113 I~ , A Critique of What Do Unions Do? 259 Joseph T. Sa Morgan Reynolds The Austrian Economists and the Late Hapsburg ) : . Viennese Milieu 157 The oe and. Bs Afsamath A Review Article 273 Arthur M. Diamond, Jr. Berger on Capitalism 279 David Gordon About the Contributors 285 Notes and Replies Hayek’s “The Trend of Economic Thinking’ 175 Bruce J. Caldwell About the Editors ~~ 287