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. Hulsmann.
Why isn’t Austrian economics taught?
- State interventionism.
- The State hiring economists:
- Biased towards the government.
- At least don’t interfere with 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.
- But Austrians do not accept the dichotomy
- Mainstream “heresies”:
- Positivism (test, never confirm/disprove)
- Mathmatica/econometrics
- 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.
- 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.
- 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.
- 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.
- 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
- “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.
- Austrian Subdivisions
- Main Line: Boehm Bawerk — most important student of Mises.
- Wieser — Wieserian line
- Influenced by:
- Jevons
- Walras
- Menger
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- Theory of money.