I’m at the Mises University now, and I plan on transcribing my notes. This is the first lecture given. Any errors are mine, feel free to point them out so that I can correct them.
This lecture was given by Prof. Huelsmann.
Why isn’t Austrian economics taught?
- State interventionism.
- The State hiring economists:
- Biased towards the government.
- At least don’t interfere with the government.
- Biased towards the government.
- It is not justeconomics, but every field where the government displaces those it doesn’t favor for those it does.
Essence of Austrian economics
- Realism distinguishes it from all other schools of thought.
- Realist philosophy.
- The mainstream economists accept a dichotomy in economics:
- Theory: Make sense out of reality existing separately, with nothing to do with reality.
- Reality.
- Theory: Make sense out of reality existing separately, with nothing to do with reality.
- But Austrians do not accept the dichotomy
- Mainstream “heresies”:
- Positivism (test, never confirm/disprove)
- Mathmatica/econometrics
- Positivism (test, never confirm/disprove)
- Austrianism: realistic, immediately descriptive.
- Immediately describe something that is relevant.
Root of the Austrian School
- Austrian economics is representative of a tradition that reaches back much earlier than Menger, to the 14th century Orestne, who was against inflation, and wrote a treatise on the topic. There was an economics branch among the Scholastics.
- Austrian economics is an ouflow of Realist philosophy:
- Aristotle
- Scholastics
- Economics branch.
- Austrian school is the only survivor.
- influenced a century of economists.
- Economics branch.
- St. Thomas Aquinas
- First feeble attempts at economics: applying Realist philosophy to the polito-economy.
- Branches of Realism in Italy, France, Germany; e.g., School of Salamanda, Jurists. Influenced Carl Menger. (Jurists were trained in law.)
- Relation between law and economics — logical, rigorous, logical.
- Aristotle
- Jewish element:
- Austria obtained a part of Poland with many Jewish people; actually, there were many Jewish people throughout Poland, as the Jews were not persecuted in Poland.
- Anti-semitic laws were overturned.
- Jewish people integrated.
- Jews brought Liberalism to Austria (also Socialism).
- Influence on Constitution of Austria.
- Austria obtained a part of Poland with many Jewish people; actually, there were many Jewish people throughout Poland, as the Jews were not persecuted in Poland.
- Mises: came out of a Classical Liberal Jewish family.
- Mises family was not religious, so no emphasis was placed on ethics; insead, emphasis was placed on Utilitarian considerations.
- Mises is still in line with the Rationalist tradition, however.
- Addopted from Rousseau, blend with Austrian topics.
- Mises family was not religious, so no emphasis was placed on ethics; insead, emphasis was placed on Utilitarian considerations.
- Menger:
- Very unique “brand” of economics.
- Principalia of Economics.
- Difficulty getting published.
- Published himself, was widely bought; was made a Professor at the University of Vienna.
- Study fundamental economic phenomena, and explain the properties of those phenomena, isolating them and showing how they are inter-related.
- Trace back to most basic elements:
- Knowledge
- Ownership
- Information
- Error
- Knowledge
- “Empirical method”, similar to the natural sciences.
- Price not most fundamental, but result of economic realities.
- Trade of goods is a complex phonomena, not just the show numerical relations.
- Greatest contribution: Methodology.
- No such thing as mathematical research in Austrian economic; explain economic phenomena, not just show numerical realtions.
- Merit: success in isolaing elements that correspond to reality and explain it.
- Error, even if use superior mathematics, if rely on arbitrary facts/aggregates.
- Must explain complex phenomena, not just assume them as given.
- Menger’s theory of concrete prices: stress partial needs in relation to other partial needs. Value individual quantities of goods, not the whole class of goods over other goods.
- Marginal Value — explains prices
- Main contribution — empirical methodology, Realist Philosophy
- How did Menger end up as the founder of the Austrian school?
- Much opposition to Menger in academia
- But Menger was picked as tutor for the future King
- Became close friends with the future King.
- Suddenly, Menger very important.
- Used position of power to found Austrian School and appointed his best students to the chairs; e.g., Boehm Bawerk.
- Thus, Austrians played key role Austrian.
- Very unique “brand” of economics.
- Austrian Subdivisions
- Main Line: Boehm Bawerk — most important student of Mises.
- Wieser — Wieserian line
- Influenced by:
- Jevons
- Walras
- Menger
- Jevons
- Not Menger’s number one student
- Influenced by:
- Mises was Bawerk’s most important student.
- Rothard was Mises’ most important student.
- All of today’s main line of Austrians are from the Mises-Rothbard/Menger-Bawerk line.
- Wieser’s students
- Meyer, continued Wieserian line
- Hayek, a studnet of Mises/Wieser. Hayek was Wiesarian in his analytical approach; reasearched things that don’t make sense from the Realist perspective. Tried to develop all theories to show how the free market zooms in on equilibrium.
- Hayek’s most important studnets were Kirzner and Garrison.
- Meyer, continued Wieserian line
- Mises considers equilibrium as only a tool to explain interest vs. profit.
- Schumpteter: side-line of the Austrian schol. Creative destruction. Tried to bridge Mises and Walras. Equilibrium is changeless, only interesting in disequilibrium.
- Main Line: Boehm Bawerk — most important student of Mises.
- Boehm-Bawerk:
- Four-time head of Ministry of Finance.
- His works were translated very quickly.
- Main representative of Austrian economics outside of Austria.
- Teacher of Mises.
- Attracted not only Austrians, but also Socialists.
- Three Contributions: (Capital and Interest: I & II)
- Time-preference to explain interest rates. Root cause.
- Time Preference Theory of Interest.
- Criticized Marxist “theory” of interest. Marxist theory of interest has certain parts the are plainly contrary to fact. They used “expoitation” of the working class to explain interest: predicts interest rates would be different in different industries; but in reality, there is only one interest rate.
- Marx responds that it was really just aggregate.
- Time Preference Theory of Interest.
- Bawerk responds that Marx hasn’t explained anything.
- “Power and Economic Law.” E.g., can labor unions or governments raise wage-rates at will? Political forces, however strong, never act against economic laws, but through economic laws. For example, what happens is that unions cause jobs to be shifted; if universal, they create mass unemployment.
- Time-preference to explain interest rates. Root cause.
- Four-time head of Ministry of Finance.
- Mises
- Influenced/taught by Bawerk.
- Interest in history.
- Initially, in tradition of Historical School.
- Then encountered Menger’s Principles of Economics, which changes his views, and demonstrated to him that there was a Realist Theory.
- Mises was in the Realist tradition.
- No economist with as many contributions as Mises:
- Theory of money.
- Money plays very important impact on real economy.
- Effects not spectacular, like Keynesians, though.
- Changes in money supply causes changes in distribution of wealthy: early-ons benefit at expense of late-commers, who are harmed by increased prices.
- Value of money determined by same laws that affect anything else.
- Business Cycle: Changes in money suply alter entrepreneurial investments. Lower interest rates. Entrepreneurs think real time-preferences are lower, thus invest in higher order goods, with longer time-frames. Eventually, errors are revealed as they realize that the funds to complete the investments don’t exist, the products don’t sell, or a halt in the inflation reveals real time-preferences through the natural rate of interest.
- Money plays very important impact on real economy.
- Calculation Critique of Socialism:
- Rational calculation of capital is determined by profits, which are determined by money-prices. Money prices are necessary for any rational decision-making of how to distribute resources.
- Socialism destroys money-prices. Money-prices require two owners: one of money, the other of the resource.
- Because in a socialist “economy”, “society” owns everything, there are no money prices. No way to decide which lines are the most profitable and efficient relative to other lines.
- Socialism — no common basis of calculation.
- Rational calculation of capital is determined by profits, which are determined by money-prices. Money prices are necessary for any rational decision-making of how to distribute resources.
- Epistemology of economics. Economics is a sub-division of the science of Praxeology, the study of human action. Axioms are apodictic and can be shown to be absolutely true.
- Choice. Absolutely true that we make choices. To argue against htat is contradictory because you’re making a choice.
- Our knowledge of choice is from reflection. Can’t be proven or disproven by observations.
- Few economists think of epistemology. Positivism and empiricism is essentially a “bad religion”.
- No mainstream economists can intelligently discuss a priorisim. E.g., Friedman said that the only way to resolve “differences” between praxeologists is to “shoot it out”. Empirically false — no shootings here.
- All good economics is Realist; there is no useful positivist economics.
- Today, modern theories of money are mostly like magic. e.g., printing out money can do “great things”.
- Commodity money can be money without being legal tender, but fiat paper money must be legal tender.
- Choice. Absolutely true that we make choices. To argue against htat is contradictory because you’re making a choice.
- Theory of money.
- Influenced/taught by Bawerk.
{ 11 comments }
Posting your notes is a great idea.
Why not mention at the top of each set who gave the lecture? Of course readers could go look it up, but who wants to do that each time? Besides, the lecturer deserves credit.
And so do you. Good notes!
Thanks for the suggestion, Prof. Hulsmann does deserve credit for the excellent lecture (I was rushing after it was done to format it rightly). It was a great lecture, and I plan on also posting a review of the Mises University when I’m done; all of the professors are great, as are all of the lectures, and the Mises Institute is beautiful.
Great notes, look forward to enjoying the next 33 installments.
Obvious followup questions: Who were Rothbard’s most important students? Who is the current leading light of the main line?
Nice notes, not sure if I will be reading all of the 33 installments though, hehe.
Mike: I’m not sure who Rothbard’s most important students were, but I believe Walter Block exchanged ideas with him. In my opinion Walter Block is the “current leading light of the main line”.
All of Rothbard’s students are great, which is basically all of the lecturers at Mises University. In addition to Walter Block, there’s also Hans-Hermann Hoppe, who’s done some fascinating work on argumentation ethics.
David, I would like to comment on this quote here:
”
The State hiring economists:
* Biased towards the government.
* At least don’t interfere with the government.”
It is true that the government probably won’t be hiring economists who believe that by and large government simply shouldn’t exist. However, it is not terribly relevant which economists are hired by the government.
Every economist hired by the government to be consulted could be Austrian anarcho-capitalists and not much would change. The reason why is that the politicians who are really in power have strong Keynesian/socialist leanings. They might listen to the economists on issues that will not encroach upon their governmental power, but other than that it is a big shell game. So, you are correct on the point that by and large they are not able to interfere with the government.
A case in point is the income tax code. No self respecting economist could uphold this monsterous atrocity as “good government”. Do the politicians care about this? Nope, they want the power and the wealth and they aren’t going to let any economist spoil their fun.
So, in response to the first point, it is not that the government has necessarily hired a bunch of “yes men”, it is that the government simply consists of politicians who will disregard all logic in order to maintain their empire.
As economic theories Keynesianism & socialism are dead. In terms of politics though, they are alive and well.
“All of Rothbard’s students are great, which is basically all of the lecturers at Mises University. In addition to Walter Block, there’s also Hans-Hermann Hoppe, who’s done some fascinating work on argumentation ethics.”
I agree. I was actually going to mention Hoppe, but I wasn’t sure if he was a student of Rothbard’s.
Hoppe was a colleague of Rothbard’s at UNLV and is cited along with Mises most approvingly and frequently in his writings, so, the connection is pretty strong, and so is the resemblance. This is probably common knowledge to a lot of Austrians but I thought I’d drop that on you because you asked.
Hoppe’s “argumentation ethics”, the apodictic attempt at an ethic of liberty that David mentions were developed as a not-so-subtle extrapolation-variation of Rothbard’s natural law thesis in the first few chapters of “The Ethics of Liberty” as well as his obvious affinity for Jurgen Habermas and K.O. Apel. I don’t find it as “fascinating” as I used to, but even if you don’t agree with it (yes, I know, ‘you can’t argue that you can’t argue’, but I’m not saying I don’t agree with much of it) it is a beautiful exercise in system-building and if I ever make it to the MU Hoppe will be the one guy I really really want to listen to and chat with.
Have fun David.
See yas!
David and Steve,
As to Rothbard’s students, I would not forget Professor Joseph Salerno, especially in regards to economics. I believe Professor Salerno, as well as if not better than anyone, understands and has furthered the Misean-Rothbardian strain of Austrian money and banking theory. In addition, in a 1990 Postscript to Mises’s “Economic Calculation in the Socialist Commonwealth” he crystallized Mises’s arguement that the most fundamental economic problem of socialism is of a calculation/appraisement nature. In fact, prior to Professor Salerno’s pathbreaking elucidation of this insight by Mises, I don’t believe even Professor Rothbard understood Mises’s thesis and its ramifications as clearly as Professor Salerno. Finally, Professor Salerno initiated the Mises-Hayek “dehomogination” debate, which I beieve has on balance served an important purpose in clarifying the differences between these two thinkers and in ultimately further advancing the Austrian paradigm.
Allow me to point out an error. How about spelling “fondation” right? I’ll let you know if I find more in the actual notes.
For those not attending Mises University but would like to read a better version of the above, check out
The Making of Modern Economics: The Lives and Ideas of the Great Thinkers (ISBN: 0765604809)
by Mark Skousen
in which Skousen tells the story of the development development of economic thought using
The Theory of Natural Liberty as the foundation, explaining how other economic theories
deviate from Natural Liberty. This brilliant tome includes the important concepts of the Austrian School.
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