Since the days of Aristotle, philosophers and other thinkers have been trying to understand how the world works and how to foster a peaceful, prosperous society. A big stride was made with the publication of Carl Menger’s Principles of Economics (1871), from which developed the Austrian school of economics. The Austrians explained market operations as the outcome of the actions and choices of individuals and, as a result, advocated free markets and limiting government to the protection of life, property, and individual freedom.
During the early decades of this century, as Marxists and Keynesians came to dominate colleges and universities and their ideas influenced political action, the message of the Austrians was widely ignored. Advocates of the free market were in despair. Yet when the late Ludwig von Mises was asked, in Argentina in 1959, if the situation then was not worse than in ancient Rome, which he had described as a period of price controls and inflation, he had replied, “No, it is not worse.” In the age of the Roman emperors, no one disputed the idea that the government had the right to fix prices. But now, Mises said, “we know very well that this is a problem for discussion. All these bad ideas from which we suffer today, which have made our policies so harmful, were developed by academic theorists. . . . What we need is nothing else than to substitute better ideas for bad ideas. . . . Our civilization will and must survive. And it will survive through better ideas than those which now govern most of the world today, and these better ideas will be developed by the rising generation” (Economic Policy, pp. 104-105).
In the U.S., a younger generation of Austrians appeared. Peter Boettke, editor of the book under review, considers The Foundations of Modern Austrian Economics (Edwin Dolan, ed., 1976) “the defining work in the resurgence of the Austrian school in the 1970s” (p. 601). Professors of “conservative” or free market leanings became more welcome in academia. Courses in free enterprise, entrepreneurship, and Austrian economics were introduced in some colleges. A standard reference published in 1987, The New Palgrave (London: Macmillan Press; New York: Stockton Press) included several articles by and about spokesmen of the Austrian school. Commercial and university publishers in this country and abroad reprinted classic “Austrian” works and published quite a few new works by younger “Austrians.” Austrian ideas were more widely discussed and debated.
And now we have The Elgar Companion to Austrian Economics edited by Peter J. Boettke. Boettke selected contributors who were basically supportive of three Austrian themes—methodological individualism, subjectivism, and the spontaneous order. He asked each to contribute an original paper on a topic in the field of Austrian economics with which he or she was familiar. Each article was limited to about 2,500 words. In this way, Boettke produced a one-volume reference work of relatively short entries, each with a bibliography of additional sources. It contains 87 papers by 68 economists from 45 different colleges, universities, or institutions in the United States and seven other countries. Not surprisingly the papers are uneven in quality, although their approach is generally Austrian. A list of a few authors and titles will give some idea of the subjects covered.
Part I, “Methodology and Theoretical Concepts in Austrian Economics,” includes papers on basic principles such as “Methodological individualism” (Gregory B. Christainsen), “Subjectivism” (Steven Horwitz), “Marginal utility” (Jack High), “Entrepreneurship” (Israel M. Kirzner), and “Efficiency” (Roy E. Cordato).
Part II, “Fields of Research,” discusses various topics to be explored further from the Austrian approach—“Capital theory” (Peter Lewin), “Austrian business cycle theory” (Robert J. Batemarco), “Comparative economic systems” (David L. Prychitko), and “International monetary theory” (Joseph T. Salerno).
Part III, “Applied Economics and Public Policy,” includes articles on a wide range of subjects from “Utilitarianism” (Leland B. Yeager) and “Interventionism” (Sanford Ikeda), to “The collapse of communism and post-communist reform” (James A. Dorn).
Part IV, “History of Thought and Alternative Schools and Approaches,” deals with the historical development of the Austrian School. Samuel Bostaph writes about the Methodenstreit, the conflict over methodology between the early Austrians and the German historicists; Peter Rosner about the debate between Bohm-Bawerk and Hilferding, William N. Butos about the Hayek-Keynes macro debate, and Karen I. Vaughn about the socialist calculation debate. Other papers in this section compare various schools of economics and examine fine points that differentiate them from the Austrians.
Boettke, as editor of this anthology was to some extent at the mercy of his contributors and his non-contributors, those invited who didn’t submit papers. His “Conclusion” in Part V, “Alternative Paths Forward for Austrian Economics,” compensates for some of the gaps. Boettke reviews the ideological shift that led to the resurgence of the Austrian school, discusses current economic journals, and suggests topics that would be fruitful for further exploration by Austrians.
My chief criticism of the book is that it is weak on money and banking, both major strengths of the Austrian school. The Austrian view is that money is neither mysterious nor government-made; it is merely a medium of exchange which evolves on the market. As for banks, Mises explained that their role is essentially twofold—to warehouse the deposits of clients and to lend money. Free banking is simply a system under which such banks are obligated to fulfill their contractual obligations just as must any other business. Yet in the view of many young “Austrians,” apparently the chief purpose of banks is to issue currency. (See Schuler, “Free banking is a system of competitive issue of bank-notes and deposits” and Lewin.) However, note issue is not the purpose of banking; it is at best a subsidiary function, a by-product of a bank’s warehousing and moneylending activities. And a potentially dangerous activity at that. No bank that issues notes over and above the face value of its reserves can long survive without some government privilege or protection.
Leaving aside this criticism, The Elgar Companion should be a valuable reference for students of Austrian economics. A few years ago it would have been impossible to assemble such an extensive stable of Austrian writers. Many were probably still youngsters, some perhaps not even born, when Mises spoke 36 years ago. Yet they have become spokesmen for the free market, non-interventionist teachings of Mises and his Austrian school colleagues. Mises’ trust in the rising generation was well justified.