And so it was with Ludwig von Mises’s own contributions. They spoke to the times. His Theory of Money and Credit (1912) dealt directly with central banking at the dawn of the central-banking age. His book Nation, State, and Economy (1919) explained World War I and its aftermath. Socialism (1922) took on the global collectivist ideology directly and refuted it absolutely with this book that shook up a generation of economists. F.A. Hayek, as well, wrote to explain business cycles during the largest economic crisis of the 20th century.
Then came Murray Rothbard, whose penetrating analysis of the state’s control of money and private property spoke directly to the political crisis of the 1960s and forward, a time when the wartime faith in the state was draining away, the mythology of the presidency was dealt a serious blow, and Keynesianism stopped working as a tool of macroeconomic planning. Rothbard was there to carry Austrian theory into this new age and push it to become a thorough case for the fully voluntary society.
Many Austrian writers today are at work using robust Austrian analytics to examine contemporary trends in political and economic life, and digital technology has made it possible to distribute those ideas on a scale that would have been unimaginable to previous generations.
But what about examining the main forces of the digital age itself? Can Austrians speak to that with the same persuasive power that they spoke to other turning points in the 20th century? Certainly the answer is yes, and a new generation of thinkers is doing this. But rather than review the latest writings in that area, it might be even more instructive briefly to visit the writings of old masters to see in what respect their theories shed light on the main trends within the digital economy.
Menger, Mises, Hayek, and Rothbard all wrote in the age of the typewriter, when duplication technologies like carbon paper and mimeograph were considered amazing. Rothbard lived until the age of the fax machine but died before the web browser. None could have anticipated the current world where most all information is universally, instantly, infinitely available through fiber optic networks, satellites, and wireless handheld devices owned by the rich, the poor, and everyone in between, and where the commercial marketplace is increasingly connected by digital capital that potentially transcends the limits of scarcity.
What are the main themes we find in the Austrian tradition that apply?
1. The Market as a Process
The history of the development of the Internet has been one of seemingly dominant players and institutions being displaced by young upstarts, which then become dominant only to be displaced by others. In each round, the prevailing attitude has been that some one player is exercising too much market power. This has been a main concern of the Department of Justice and the Federal Trade Commission, e.g., the attack on the web browser Internet Explorer just as its dominance slipped to be replaced by dozens of competitors (Safari, Firefox, Chrome, Opera). It was this way with Microsoft itself, which was subjected to government heckling and harassment for many years even when its seeming monopoly began to recede as Linux and Mac OS operating systems rose.
It has been this way with search engines, as the once-powerful Yahoo, Ask, AltaVista, Infoseek, and AOL all eventually sunk relative to the strangely named upstart called Google. In the summer of 2011, as Facebook achieved the height of its power, and Google had badly stumbled with its own attempt to replicate social-network functionality a year earlier, Google itself stepped up with Google Plus to give FB its first serious challenge.
All of this history underscores a theme that one finds in the Austrian literature, but almost never appears in mainstream literature or consciousness; namely that the market is an ongoing process of continual change and development, a complex matrix of unstoppable and essentially unpredictable evolution. No one can or should take a snapshot of its current state and evaluate it against a set of institutional norms generated by an idealized model of perfect competition or any perception of what constitutes unjust or inefficient market power. This factor becomes especially relevant in times when technology is literally changing hour by hour. It’s not only that web developers must never stop developing; even more profoundly, they must develop code and applications with the built-in presumption that the development can never stop. Stability in this world means stasis and death. Change and process are not just a feature of the market but its very life.
2. The Market Is a Cooperative Venture
The classical school developed a theory and rhetoric that came to the defense of competition as a market institution, a necessary point to emphasize in a world of mercantilism and government-granted monopoly privilege. The theory of trade and cooperation, as Rothbard pointed out, was always weak in the theory of the classical economists. But the Austrian tradition always had a broader view, seeing competition as only one feature of a larger cooperative venture that the market represents in society. The theory of subjective value points to the human mind as the source of value and that this value is expressed in non-numerical rankings that cannot be compared across individual traders. For this reason, every trade in a market setting is mutually beneficial and “utility maximizing” from the point of view of the individual actor. It is not merely a “propensity to truck and barter” that drives forward commercial exchange but rather the socially beneficial process of individual pursuit of self-interest subjectively understood.
This was a constant theme of the work of Ludwig von Mises: the free market is both a competitive and cooperative process. This cooperation takes place not only between buyers and sellers but also between workers in the social network of the division of labor. In what Mises called the law of association, the more the division of labor expands to include ever more of the human population, the more the market can develop in a manner that serves the human population.
The digital world, for the first time in history, has opened up the possibility for cooperation at every level and across all of the world, and this cooperation can transcend not only political and geographic boundaries but even some linguistic ones (as translation software becomes ever more sophisticated). The very essence of the term “social networking” comes down to precisely this associative behavior, whether based on commerce (eBay, Craigslist, Overstock.com) or pure friendship and sharing (Facebook, Google+, LinkedIn). This is a development that the Austrian School is in an ideal position to explain and celebrate. Its theoretical apparatus focuses not only “economic man” but acting man who seeks a better life through an endlessly changing variety of human associations that are competitive, yes, but primarily cooperative.
3. Entrepreneurship
Alone among schools of thought the Austrian tradition has elevated the role of the entrepreneur as the driving force of economic change — an entrepreneur that faces an unknowable future, makes a judgment, and takes a risk that can lead to profits and losses. Throughout history, and especially in our time, the entrepreneur has made seeming miracles possible. From the construction of the first raft for taking goods down the river to the neighboring tribe, to the technology that now allows any two people on the planet to communicate in real-time video for free, technology and commerce have created and distributed the best that the world has to offer, and shown the way to universal peace and prosperity.
It is conventional for mainstream theory to speak about entrepreneurship as being incentivized by the profit system. But the Austrian view is much broader. It regards the entrepreneurship as being driven by the desire to discover, to serve, to make good judgments about the future, with the monetary calculation aspect of its success and failure being the key to assessing the economic rationality of the results. This is especially pertinent given the vast amount of digital entrepreneurship that is pursued without the promise of profits and payouts. Whole global networks are being created daily with complex motivations that transcend old categories like the “profit motive.”
Entrepreneurship has an incredible record of accomplishment, especially when compared to the long history of governments with their wars, regulations, taxation, and monetary manipulations. The contrast between the wealth created by entrepreneurs and the destruction wrought by the state cannot be more stark. So it has always been and so it remains in our time. Entrepreneurship and the organizing power of free markets have brought prosperity, peace, and beauty, and they will continue to do so in the future. And yet these truths are hardly ever told outside the Austrian tradition.
4. Individualism
It was a key contribution of Carl Menger that society could only be analyzed and understood in terms of its individual members. It is not large, anonymous historical forces that determine the course of events, much less the collective ambitions of classes (however they might be mixed and matched), but rather the motivations and actions of individuals. This was, for Menger, an essential point in how social science was to be done: methodological individualism should prevail over collectivist theorizing. Later this became a political concern as the word individualism became synonymous with laissez-faire or old liberalism generally.
The essential individualism of the digital world is more and more obvious in our time. It was not long ago that the Mises Institute needed a code writing technician to fix a particular plug-in on our Mises Academy software structure. We were able to put out a call on our social networking sites and find a young man who made a living as a contractor in rural Australia. We video Skyped briefly and he went to work. Such a thing would have been unimaginable in a predigital age. Indeed, today millions of individuals are making a living for themselves as developers of applications for digital devices — and stand the chance of becoming millionaires without factories, large workforces, or even large expenditure.
Individual creativity is at a premium as never before. The more complex the technology, the more global the division of labor, the more individual initiative and action are valued by the economic system. If the revolution continues as before, it can be possible for anyone to live and work anywhere and weave gigantic global dreams from small terminals, based entirely on the ability to connect with anyone and everyone.
5. Internationalism
For most of modern history (since the 15th century), nation states have been the decisive organizational units of the global community. The great struggles between states have led to trade wars, hot wars, and cold wars, and this will continue so long as states exists. As regards commerce in a digital age, matters are different: Google, Amazon, Microsoft, Apple, Facebook, and every major player in the software world seeks an international consumer base, and contracting out can occur on the same basis in a way that would have been unthinkable in a predigital age. Through global networking on digital media, there has emerged a realization that individuals from all places have more in common with each other than they do with their own states, and this has led to a realization that all of us are essentially alienated from the powers that be.
Digital media has also made it possible for any two individuals on the planet to strike up a friendship and business relationship that bypasses the old limits of geography and politically drawn borders. In my own dealings in the editorial and technological development of Mises Institute assets, I’ve noticed that nation-state membership matters less and less all the time. One cannot discern such membership from an email address alone, and geography is increasingly an afterthought or curiosity relative to the things that are actually being sought, which are skill and initiative.
Many of us have noted that the prevailing political outlook of Austrians around the world is essentially anarchist at its core. The theory of the fully voluntary society was first made an extension of Austrian theory by Murray Rothbard. It was regarded as outlandish and radical in the predigital age. But today, with the unrelenting internationalism of communication methods, this point of view has been nearly conventional.
The Austrian tradition is unique in the world of the social sciences in seeking universal theory, an apparatus of thought that can be embedded in any culture context. It is for this reason that the Mises Institute has spawned spinoff websites in twenty-five countries, and more go online each week. As many people have noted through the years, the Austrian worldview is the only viable rival to Marxism as a universally appealing movement, and this movement is gaining new energy both in the world of ideas and in politics.
6. Learning and Emulation
The digital age has given us new terms like “remixing” that speak to the dependent relationship that every producer has with constant streams of information from other producers and consumers. Every innovation depends on previous innovation. Every line of code is built on the knowledge of old code and depends on the coding of others. Every development in the digital world amounts to an attempt to replicate and improve on the experience of others.
Perhaps it was possible in the 18th and 19th centuries to imagine that economic innovation was essentially sui generis. A single inventor came up with an idea that was all new and put it to market — and the state would grant this person or institution an exclusive right in the idea in the same way that a right to property would exist in a free market. But digital advances have taught us that this is not at all how innovation proceeds. Rather, innovation takes place as a continual process of watching, emulating, and learning from the successes and failures of others.
Knowledge made public — and every commercial venture must broadcast the evidence of its success or failure — is not a good deserving of the designation “property right” in the Mengerian sense. The data concerning success, failure, and technique from which we learn are what Mises called “free goods” because they are not used up when they are employed in production. Mises used the example of a recipe, which can be used again and again without any depletion of its essential integrity. It provides “unlimited service.” Rothbard elaborated: “There is another unique type of factor of production that is indispensable in every stage of every production process. This is the ‘technological idea.’” For this reason, the Austrian tradition has stood against intellectual property. Further, F.A. Hayek wrote decisively against all forms of patent and copyright because they amount to an attempt to regulate the normal course of market change.
This sharing of information is another feature of the market that Austrians, unlike other schools, have not neglected. The successful capitalist can make a huge profit, but he or she also gives a free gift to society. That gift is the example of success that others are invited to follow. We often think of competition as a race with runners at a starting line, but this image doesn’t capture the whole picture. Runners need also to know about the existence of the race, the method for running, the fact that there are other runners who are striving for the same goal in the same way. All of these preliminaries are essential to the competitive process. All competitors must emulate and improve on the behavior of others, and this opportunity is provided for by the market process.
7. The Impossibility of Economic Planning
The claim that government cannot plan is among the most famous and distinctive of all Austrian contributions to political economy. Rational allocation of resources absolutely requires profit and loss calculations to which the government does not have access because it does not have these tools. It extracts resources from the private sector and spends them, but it does not face a market test for its activities. Bureaucrats in a mixed economy and socialist planners in planning board face the same problem. Rational economic calculation depends on accounting which in turn presumes real prices that emerge from the possibility of trading private property in the means of production.
The digital economy has underscored this point ever more, as the price system has become globalized, instantaneous, and constantly subject to change. In this environment, statist means of social organization seem like an unworkable anachronism, a gigantic machinery that deals only in the physical world with old production models organized along national lines. What possible relevance could a leviathan whose structure was built some one hundred years ago have in a digital age?
A corollary point here comes from Hayek’s emphasis on how the social order is a “spontaneous order” that no one plans in every detail but rather arises from the billions of individual judgments of market players. In particular, Hayek would be intrigued to see the way in which web enterprises themselves are unable to perfectly anticipate the uses of their own innovations. For example, the hugely successful company Groupon actually began as a software platform for funding donations for particular projects; it only added the idea of group discounts as an afterthought. But the afterthought was the successful one and it became the profitable sector. Millions of start ups can tell the same story of relentless trial and error.
So, yes, the Austrians have so much to teach in this digital age. Reading Mises’s Human Action in light of the revolution proves the point. Not a word seems to be out of place. Rothbard’s antistatism is the theme of the day in politics, and even his anarchism seems like a plausible plan going forward. Hayek’s updating of the old liberal paradigm provides a beautiful sketch of the way the world works now within an information age. The old masters can teach us now. It is the Austrians who explain how the digital revolution has saved us from being utterly crushed by the explosion of state power during the same period in which new opportunities to emulate, cooperate, and compete have liberated the human spirit as never before.
