The Austrian Economists

How to centrally plan an entire country...

Chris Coyne

...in 30 PowerPoint slides.  If this doesn't illustrate the hubris of "nation-building," I don't know what does.

 

Addendum: Robert Higgs posts on fraud and waste in Afghanistan.

Of Social Snowflakes (re-post)

Steven Horwitz

I'm not a great believer in re-posting old blog entries, but I'm going to make an exception today.  The post of mine below originally appeared on Liberty and Power on Christmas Day 2005.  Of all the blog posts I've ever written, I think this remains one of the best.  Its message also seems appropriate as we near the end of the year, with many snowflakes on the ground, and as Congress seems bound and determined to ignore the core of its message.  I repost it with only one minor edit to add a missing word. So for those of you who haven't read it before, enjoy "Of Social Snowflakes."

***

My RSS reader this morning brought me this post from Marginal Revolution, which contains a spectacular close-up picture of a snowflake, taken from a book of such pictures. As I hope it does for you, just looking at that photo brought me up short and made me stop in awe, reverence, and wonder. The intricacy, detail, complexity, and sheer beauty of that product of nature cannot be captured in words. And when you stop to consider the uncountable number of snowflakes that fall each year (most of them on my driveway it would seem), all of that awe is upped an order of magnitude.

When I see that snowflake, it engages my reverence for the beauty of the undesigned order of the natural world. Look at the symmetry and detail of that snowflake, and then consider that it is the product of undesigned natural processes. I find it an object of awe that natural processes can produce a thing of such detail, complexity and beauty. It is said that only God can make a snowflake. Well for those who understand the science, or who are atheists, we know that you don't need God to do so. But even to an atheist like myself, the spontaneous order of nature can (and should!) generate the same awe, reverence, and wonder that the contemplation of God generates in those who believe. Unfortunately, whenever my wonder at the beauty of nature is engaged, it is with a tinge of frustration.

The frustration I feel is that so many smart and caring people seem unable to see and appreciate the identical processes of undesigned order in the social world. "Social snowflakes" are all around us, yet precious few seem to be able to understand and appreciate them to the degree we do the snowflakes found in nature. And too many people think that these "social snowflakes" require a "Creator."

That snowflake produces in me the same aesthetic-emotional reaction I have when I begin to think about Leonard Read's "I, Pencil," or when I ponder the intricate, detailed, complex, and beautiful processes by which Chilean grapes appear in my grocery store in rural New York in the middle of winter. The pencil and the grapes are "social snowflakes": they look simple, but when we hold them still and examine them with the analogous level of detail as that photo produces in the snowflake, they turn out to be the products of extraordinarily complex and intricate social processes that were designed by no one. My aesthetic reaction of awe and wonder is a response to what Pete Boettke, in a perfect turn of phrase, recently referred to as "the mystery of the mundane." What is more mundane than a snowflake? And yet what, it turns out, is more beautiful and complex than a snowflake? And in the way their mundane surface appearances hide processes of production whose awesome complexity was the product of human action but not human design, and should equally be a source of aesthetic and intellectual contemplation, the pencil and grapes are indeed "social snowflakes."

My fervent wish for the 21st century is that more smart and caring people can begin to see and appreciate "social snowflakes." People who are so willing to accept the existence and beauty (and benevolence!) of undesigned order in the natural world should be more willing to open themselves to the possibility that there are processes of undesigned order at work in the social world too. These people know that no one can make a snowflake, but seem blind to the fact that much of the innocent blood that was spilled in the last century was because too many people thought they could intelligently design the social world. Not repeating those mistakes will require a renewed aesthetic appreciation of, and deep desire to understand, the awesome beauty and complexity of the undesigned order of "social snowflakes."

This Month's Podcast

Steven Horwitz

My SLU podcast this month recaps my recent posts on the consumption goods of poor households and the falling labor time cost of most goods over the last 30 years.

The False Dichotomy of Rothbardian Anarchism and Hayekian Classical Liberalism

Steven Horwitz

One of the more frustrating elements of the various differences among Austrian economists and libertarians is a recurring meme by which the major cleavage is described as a difference between "Rothbardian anarchists" and "Hayekian classical liberals." In his recent review of the new collection of Rothbard essays, Reason's Brian Doherty suggests exactly this division.

I think this is a false dichotomy that needlessly exacerbates the existing differences. If we are seriously to pursue the "Rizzonian Peace," participants and observers are going to have to, as our friends on the left would say, deconstruct this binary. The fact is that what we really have is a 2x2 matrix (at least!), in which there are Rothbardian minarchists (e.g., Ron Paul and other natural rights defenders of constitutionalism) and Hayekian anarchists (e.g., the contributors to this blog among many others).

We all know that Hayek was no anarchist, but two points are worth making about "Hayekian anarchism."

1. The argument is that the force of Hayek's own analyses point in the direction of a stateless society even if he, himself, didn't take them all the way there. I think this argument is especially relevant when we take into account the ways in which public choice economics has developed in the last few decades and then take seriously the tremendous growth of scholarship on the evolution of rules, norms, and institutions over that same time. Toss in the work of the Ostroms and others on the important role for civil society, which expands the analysis beyond just the state and the market, and you have the ingredients for "Hayekian anarchism," for lack of a better name. (Perhaps "consequentialist anarchism" works better?)

2. There is a story about Hayek from the 1970s that may or may not be apocryphal, and I suspect some of our more senior commenters can verify this, that is relevant here. Supposedly when he was engaged in a conversation about anarchism with a bunch of young libertarian academics (presumably at Menlo Park) in the 1970s, Hayek said something like the following "Look, I'm an old man now and I came to my classical liberalism in a different era, so I can't accept where you all are now. But, if I were a young man today, I suspect I might well be this type of anarchist."

Again, that's at least how the story has been passed down. I bring this up because it suggests that Hayek saw the anarchist implications of his own work even if he couldn't go the next few steps.

I raise this whole topic because I think continuing to promulgate this false dichotomy creates needless tension within the Austrian community, at least among those interested in radical libertarianism. Far too often in recent years we've seen the Rothbardians criticize the more Hayekian elements of both Austrian economics and libertarianism for being "too statist" or being "beltway insiders" etc.. No doubt, there are Hayekians who would give the state some significant role - of course so did Hayek - but that is not a necessary feature of being a Hayekian. Part of preserving the peace is going to have to be finding those places on which the various groups within both movements can find common ground.

My point here is that there is far more common ground on what the ideal size (or non-size) of the state is than the simple dichotomy would suggest. If people, especially students, are interested in radical libertarianism and anarcho-capitalism, there are arguments and scholars exploring those questions from both Rothbardian and Hayekian perspectives. One need not throw away one's radicalism because one finds Hayek more intellectually interesting than Rothbard, and Rothbardians should work harder to see in Hayek not a set of political conclusions but a framework for analysis that points beyond Hayek's own politics to something far more radical.

The fact of the matter is that this was the research program of Don Lavoie and the chance to study and forward radical Hayekian libertarian anarchism was a key piece of what brought Pete, Dave, and I to GMU to work with Don in the mid-80s and has motivated our work since then. The false dichotomy obscures the whole Lavoie-inspired research program of our generation and of the generation of scholars that Pete is producing following in Don's footsteps at GMU (e.g., Pete L. and Chris and many others).

So I'm gonna keep calling people on it when I see it as that little dichotomy obscures far more than it enlightens.  (Bonus observation:  isn't it interesting how Mises disappears in all of this?  In my view, you can't BE a Hayekian anarchist without a really good Misesian understanding of how the process of economic calculation etc. works, as I have argued before.)

Addendum:  I meant to also mention that one reason that the radical nature of our Hayekian research program perhaps gets lost is that we do find ourselves arguing in the world of the second best from time to time (e.g, the debates over the Fed and monetary policy).  I don't think it's inconsistent to make an argument that one government policy is better or worse than another while still believing that government being not involved in that area at all is the ideal result. 

Jobless Recovery: Or Why Macroeconomics is Bad For the Brain

|Peter Boettke|

Let me state this one more time with feeling -- while there may be macroeconomic problems, there are only microeconomic explanations and solutions.  Aggregate variables do not interact with one another independent of the choices of individuals.  And those choices are guided by the incentives actors face, and the informational signals they receive.  In short, economics is about exchange and the institutions within which exchanges take place.  It is all about property rights, relative prices, the lure of profit and the penalty of loss.

This may be old-fashioned --- Mark Perlman (founding editor of Journal of Economic Literature) who befriended me as a young scholar once told me about my job market prospects "Pete your problem is that you are not this decade's fashion"; he chuckled and then said "Hell, you are not this century's fashion" --- but I am persuaded by my reading of the history of economic thought, and my reading of economic history that this older way of looking at things is the only way to make real progress in the science.  And in our discipline, I would insist because of the lure of intellectual fads and fashions and the imprecision of "tests", that looking at something from an older perspective can actually be quite refreshing and startling new.

To see how far macroeconomics can lead one adrift consider the current debate on the minimum wage.  Practical rule #1 of Dr. Sennholz's economic class --- always make sure your marginal productivity is greater than your wage and you will always be employed.  Business's are uncertain about the investment environment right now because they do not know (a) what government regulations are coming to the basic business environment, and (b) what the extent of cost increases for their business policies such as health care will bring.  We are experiencing a crisis of "regime uncertainty" not a crisis of "confidence" --- unless you mean "confidence in the ability to do business unencumbered by government".  As was mentioned on this blog multiple times in 2008 (and even before) the real problem is how through government policy a market correction was turned into an economy wide crisis.

Raising the costs of doing business in a time of crisis is not very thoughtful public policy.  Macroeconomics provides justification to policy catering to popular fallacies; microeconomics provides a prophylactic against popular fallacies.  Just because some versions of the microfoundations of macroeconomics resulted in an analytical model where there were no macroeconomic issues to be addressed (the world is, and always must be, efficiently arranged) it does not follow that progress will result when we resurrect macroeconomic ideas from the Keynesian era and put a charming bow on them.  Instead, I would argue we need to go back to older roots in microeconomics -- the economics of Smith and Say; of Knight and Simons; of Mises and Hayek; of Alchian and Coase; of Buchanan and Nutter, etc. update those arguments to our current situation, and propose sound public policies that secure property rights, ensure the freedom of relative price adjustments, reward profit seeking, and penalize imprudent decisions.

If you want economic recovery, then lower the costs of doing business, don't raise them.  Let individuals be free to discover the ways to create wealth by pursuing mutually advantageous trade.  If that sounds old-fashioned so be it, so does the basic policy recipe of fiscal balance and monetary responsibility.  Oh yea, free trade too.  Perhaps I wasn't the 20th century's fashion, but I was sure hoping I'd be more in line with the 21st --- nothing like a decade of experience to disabuse me of that false hope!

This Week's "The Calling"

Steven Horwitz

My new FreemanOnline column is all about avoiding the rhetorical low road.

Forget About Dre? --- Nah, But Dr Roberts Is a Maestro Who Controls the Beat As Well

|Peter Boettke|

News Hour discussion of Russ Roberts new rap video on Keynes versus Hayek.

Final Exam Question for an Imagined Graduate Course in Austrian Economics

Steven Horwitz

Multiple choice question, with follow-up:

In Human Action, Ludwig von Mises describes "praxeology" as:

A. a theory of human action
B. a science of human action
C. a branch of knowledge
D. A and B
E. B and C
F. A and C
G. A, B, and C

If you answered A, B, or C defend that interpretation of what Mises meant by "praxeology."

If you answered D, E, F, or G, write an essay that explores whether those descriptions are consistent or in tension with each other and then use that analysis to shed light on one point of contention between Austrians and the mainstream and one point of contention among the various debates within Austrian economics.

APEE Policy Communicators Contest

Steven Horwitz

The Association of Private Enterprise Education and the Charles G. Koch Charitable Foundation have teamed up on a paper contest on the relationship between public policies and economic growth.  The details are here.  It's notable that this is open to grad students and faculty of any rank or age and first prize is $15,000.  APEE and CGKF are both great groups and this is an exciting new venture.

Bernanke is Time's Person of the Year

Steven Horwitz

What else is there to say but the obvious snark:  the award goes to the person who has made a mark for better or for worse.  You can find the full list of award winners here (including SLU alum Owen D. Young in 1929).  Among the names there are many of the really nasty folks of the 20th century.  Bernanke didn't kill anyone, but in terms of the damage he may have inflicted on the US economy over time, he might well have made many of us notably poorer than we would have been.

That monetary policy so depends on the powers of one person that he or she could be Time's Person of the Year is the best summary of exactly what's wrong with central banking.  Creating the powers to do what we imagine will be great good inevitably become powers of destruction, given the epistemic limits of human control.  Ben Bernanke and the Fed illustrate that as well as anything.

History of Ideas as an Input into Contemporary Theorizing

|Peter Boettke|

Dave Prychitko and I had the privilege to study with Kenneth Boulding and to interact with him almost on a daily basis outside of the classroom in 1985-1986 academic year.  He was an amazing professor.  Prior to that, Boulding was already someone who I was reading.  His "After Samuelson Who Needs Smith?" from a 1971 edition of HOPE is a classic.  In this article, Boulding argues for a contra-whig interpretation of the history of economic thought, and in fact argues that Adam Smith still speaks to us today because questions which he raised have not been fully answered by subsequent developments in economics --- Smith is part of our 'extended present'.

Influenced by Boulding, I have repeatedly argued for this theory construction role for the study of the history of ideas in economics.  This is a different approach than is curerntly popular among historians of economics.  But that can be a topic for a different discussion.  Today what I want to link to is Tyler's discussion of the reading of primary and/or secondary sources as the best way to wrestle with a brilliant mind for benefit.  Lets take as an example Phil Mirowski's brilliant but often creative interpretation -- e.g., Machine Dreams.  I make my students in my Econ 880 course read as background to the course Caldwell's Hayek's Challenge, and Mirowski's Machine Dreams.  We then spend the semester reading only primary texts and not the secondary literature (though the lectures are peppered with discussions of the secondary literature). 

But why do I frame the discussion by first requiring two broad narratives about 20th century economics?

Paul Samuelson

|Peter Boettke|

As you all know by now, Paul Samuelson died yesterday (Sunday) at his home at the age of 94.  Samuelson will get plenty of praise from the economic establishment. Rightfully so, he shaped the establishment in a way that few ever do. And there is no doubt he was a brilliant man --- folklore has it that at his dissertation defense the committee looked at one another and said "Did WE pass?"

Samuelson famously remarked once that he didn't care who wrote the nation's laws, as long as he wrote the nation's economic textbooks.  Which he indeed did.  His Economics became the leading textbook for college freshman, and his Foundations became the leading text for first-year graduate students in economics.

When you scratch the surface of Economics you find Keynesianism at each turn of the page, when you scratch the surface of Foundations you find economics as social physics at each turn of the page.  That Keynesian policies are best served by social physics was Samuelson's true legacy for the economic imagination of multiple generations of economics, policy commentators, and policy makers.  The discipline of economics was transformed from a tool for understanding and social criticism and an instrument for intellectual enlightenment, to a tool for social engineering and an instrument for progressive politics.

John Hicks once wrote that the story of economics in the 1930s was the battle between Hayek and Keynes.  I think Hicks is right, and that this battle continues to this day as witnessed in our current policy debates.  But I think there is a deeper debate that goes at the very project of economics as a scientific discipline. And that battle is the one between Samuelson and Mises, and the fateful choice was the late 1940s.  Rather than following Mises's Human Action, the economics profession went the path of Samuelson's Foundations.  Formalism was intereprted as synonymous with logical rigor, and in the subsequent decade positivistic testing was interpreting as synonymous with empirical analysis.  By the 1960s, formalism and positivism transformed the science of economics so that the Misesian understanding of "theory" and "history" was actually completely dismissed as a relic of a pre-scientific age.

Since then a large part of the great efforts by economists have been directed at recapturing insights that Mises-Hayek possessed already by mid-century --- whether we are talking about cognitive limits of man, the role of property rights (and legal and political institutions in general and behavior related to them), and the microfoundations of all macroeconomic phenomena.  New institutional Economics, New Classical Economics, New Economic History, Experimental and Behavioral Economics, etc. all deviate in significant ways from the scientific and policy project that Samuelson initiated in the late 1940s and which dominated economic thinking from that time until the 1980s.  The Samuelsonian project had to be pecked away at for progress in economic understanding to take place. Yet the 'scientific' allure of the project still remains --- unfortunately even among many of those who pecked away at the Samuelsonian project.  The pretense of knowledge (see Hayek's Nobel) and the claim to the mantle of science (see Rothbard's paper of that title) have a much stronger grip on the minds of economists and intellectuals than what might be reasonably expected in the wake of repeated failures.

Samuelson argued that like all great scientist he was only concerned with the applause of his peers.  And he received great praise in his lifetime and will be celebrated in the short-run in his death.  But I have stated on more than one ocassion that I believe Samuelson will be remembered in the same way as Sir William Petty is remembered, not as Adam Smith is remembered.  His substantive contributions (as oppopsed to form in which he stated arguments) are not immediately obvious to pinpoint.  We must always remember that Samuelson was the great anti-Misesian of 20th century economics, and in my book that translates into a force for anti-economics despite all the scientific accolades, awards, honorary degrees, and reverence by his peers he was granted in his lifetime.

Unintended Consequences of Environmentalism: LED Traffic Light Edition

Steven Horwitz

Apparently a number of communities in the Green Bay, WI area recently installed some energy-conserving LED traffic lights as an environmentalist gesture.  The unintended consequence?  The lights don't give off enough heat to melt ice and snow, which means during snowstorms the lights are obscured by the snow, which has led to a number of automobile accidents.  The further result is that city crews have had to manually scrape the lights.

So in attempting to save a fractional amount of energy, we have not only risked human life and limb (and perhaps damaged some), we have caused a number of unnecessary accidents, each of which will require various forms of energy-usage to fix (everything from tow-trucks to body shops use energy you know), and we have diverted human labor from more highly valued uses (such as clearing other roads to prevent further accidents) to scraping traffic lights that should not have needed scraping in the first place.

Yup, those LED traffic lights sure did save lots of energy and conserve lots of other resources.

Absolutely brilliant -- Lin Ostrom on Markets, States, and Polycentric Governance

|Peter Boettke|

If you haven't watched it, you should -- Elinor Ostrom's Nobel Lecture -- Beyond Markets and States: The Polycentric Governance of Complex Systems.

I wonder whether Lin will choose to publish her lecture in the AER or the APSR.

A Final Exam Question for a History of Economic Thought Course

Steven Horwitz

"The great virtue of the free market is that it requires so little virtue to work effectively."

1. What would Adam Smith say in response to this?

2. What would Ludwig von Mises or F. A. Hayek say?

3. What would Frank Knight, George Stigler, or Gary Becker say?

4. What does Deirdre McCloskey say?

5. What would you say?