Owen Holzbach recently wrote in Power and Market ”How Public Schools Teach Economics.” I had a similar experience in my high school macroeconomics class. As taught, Keynesian economics provides a “toolkit” for wannabe central planners.
After high school I attended Grove City College, where I am learning real economics. What my Austrian school professors do differently from their mainstream cousins is demonstrate the truth of their conclusions from the first principles of human action and the empirical reality of the world.
Every economics student, and many other GCC students, take Dr. Shawn Ritenour‘s class Foundations of Economics. This is the class that got me interested in economics. Following Mises, the class covers basic epistemology before starting with the action axiom, that is, purposeful behavior, and proceeding to carefully derive economics.
With a firm understanding of economic method, subjective preferences, cooperative vs. aggressive interaction, division of labor, the emergence of money, time preference, and entrepreneurship students receive a firm foundation in economic law.
Sprinkled in the class is discussion of ethics, consequences of policy, and the view of man. Students, for example, are introduced to (and shown the error in) the ideas of Gustav Schmoller on historicism, Milton Friedman on positivism, Marx on labor exploitation, and Malthus on population.
Some of my favorite advanced classes thus far are intermediate micro and intermediate macroeconomics. In both classes differing views are presented on their own terms. Students appreciate this level of intellectual honesty.
In intermediate macro, for example, Dr. Ritenour explains the capital structure and derives Austrian business cycle theory. But we also learn the Keynesian simple system, the IS-LM (investment-savings, liquidity preference–money supply) model, Friedman’s plucking model, Real business cycle theory, and more.
In intermediate microeconomics, Dr. Caleb Fuller teaches the mainstream calculus-based approach to utility and welfare analysis. We learn and critique the perfect competition model as well as neoclassical consumer theory and cost-based producer theory.
Understanding the roots of ideas provides a grounding that many economists lack. This past spring, I took History of Economic Thought since 1870, where we concentrate on the Marginal Revolution as well as the economic thought of Keynes, Marshall, Friedman, Hayek, Mises, Böhm-Bawerk, Veblen, and much more. Both of the History of Economic Thought courses are now required for economics majors at the college.
For example, it is easy to take the Marginal Revolution for granted. However, there is a lot more to the story than three economists independently discovering the same idea. It turns out that the marginalism of Carl Menger is a bit different from that of William Stanley Jevons and that of Léon Walras.
For Walras, marginal utility is the key to complete his model for general equilibrium. Rather than moving from first principles, he starts with an idea of perfect competition and climbs down to marginal utility. This model is rigorously static and devoid of action. Instead, a timeless Walrasian auctioneer equilibrizes markets.
Jevons bases his marginal utility analysis on Jeremy Bentham’s utilitarian calculus of pain and pleasure. This use of cardinal utility functions and assumption of infinitely divisible goods, as opposed to ordinal demonstrated preference, has led to neglect of qualitative aspects of human choice that are irreducible to a mathematical function.
Menger also takes the subjective value approach, but it is embedded in the structure of means and ends rather than a calculus of pain and pleasure. In his book Principles of Economics, Menger emphasizes the real-world process of action, as opposed to an equilibrium model that abstracts from action.
These differences, minor at the time, have borne out over the last 150 years to where mainstream economists, fixated on their perfect competition models, have advocated for government intervention in markets in to ensure competition. The reality is the opposite, that antitrust action to break up large firms harms consumers. It is not the number of firms itself, but the threat of both actual and potential competition that incentivizes firms to act competitively.
This is a microcosm of what I have learned from my “heterodox” Austrian school professors. The Austrians bring a lot more to the table in terms of intellectual honesty and curiosity, real-world relevance, depth of understanding, and solid first principles. I am graduating this December, and in spite of everything going on in the world right now, I must consider my education in causal-realist Austrian economics a success.
