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Wednesday, April 1, 1992

Austrian Economics: Perspectives on the Past and Prospects for the Future

As the 20th century winds down, two landmark books in the history of economic thought in the past near-100 years seem to have moved Western opinion and policy in a significant way, both positively and negatively. The two books are in a sense juxtaposed and get a big play, directly and indirectly, in this insightful volume 17—the 1990 lectures—of the “Champions of Freedom” Ludwig von Mises Lecture Series. Hillsdale College established this lecture series in 1973, and it has undeniably helped sustain the astounding growth of the Austrian school of economics.

One book is Mises’ Human Action (1949), a work offering the extraordinary idea of praxeology, the science of human action involving the sovereignty of the individual, the daily, rational, purposeful behavior of men and women who freely advance social cooperation through open markets and private property rights. These principles make Human Action a profoundly ethical book, says contributor Hans-Hermann Hoppe of the University of Nevada at Las Vegas: “For is it not natural that every person should own his own body as well as all scarce goods which he puts to use with the help of this body before anyone else does? Is it not obvious that every owner should have the right to employ these goods as he sees fit so long as in so doing he does not uninvitedly change the physical integrity of another’s property?”

The other book is John Maynard Keynes’ General Theory of Employment, Interest and Money (1936). In this “New Economics,” Keynes sought to have central governments macro-manage “aggregate demand” to maintain their economies at “full employment.”

In his contributions here editor Richard Ebeling, holder of the Mises chair in economics at Hillsdale College, sees such reasoning as moribund social engineering that disregards the primacy of human action. This disregard allows government macro-managers to push individuals around as if they were but pieces on a chessboard. Here Ebeling invokes Adam Smith’s famous chessboard analogy and Hayek’s stinging phrase, “the pretense of knowledge.” Thus at the highest levels of government, inexorable ignorance of the dynamics of society and the economy leads pretentious macro-managers to the grossest mismanagement of the economy, i.e., of the people.

In his paper, Mark Skousen of Rollins College goes after Keynes for his anti-saving focus. Keynes saw thrift reducing consumer spending, hence decreasing consumer goods output and possibly inducing a downward business spiral.

This anti-saving focus still pops up in leading Keynesian textbooks. For example, William J. Baumol and Alan S. Blinder write in Economics: “While savings may pave the road to riches for an individual, if the nation as a whole decides to save more, the results may be a recession and poverty for all.”

Such reasoning is shortsighted, indeed “perverse,” says Skousen, because it overlooks the role of time preference in the lengthening or “round-aboutness” of the production process, leading in the long run to productivity gains, rising consumer spending, and higher living standards. He also contends that in the short run greater savings push down interest rates, which makes investment more attractive, with resulting higher capital goods demand tending to offset lower consumer goods demand.

If Keynes represents the quintessence of regulation and interventionism in a nominally capitalistic economy, contributor Jack High’s paper on the theory, history, and doctrine of government regulation offers insights galore from the viewpoint of Austrian economics. High, director of graduate studies in economics at George Mason University, notes, for example, that niche-seeking entrepreneurship, so central in praxeology and free markets, becomes bizarre and counterproductive in a climate of interventionism.

Professor High points to pioneering work by Gabriel Kolko. Historian Kolko demonstrated in his The Triumph of Conservatism (1963) that quite a few businessmen in the Progressive Era actively sought government regulation in banking, railroads, and many other industries as a way of subverting competition. In other words, businessmen have been often the leaders, not the unwilling victims, of “regulatory reform.”

Mises. Keynes. Who will prevail in the 21st century? Contributors and commentators in this full, rich, and provocative volume are betting on a Misesean revolution. I hope they are right. They deserve to be.

Dr. Peterson, Heritage Foundation and Mises Institute adjunct scholar, is the Lundy Professor of Business Philosophy at Campbell University, Buies Creek, North Carolina.

  • William H. Peterson (1921-2012) was an economist, businessman and author who wrote extensively on Austrian Economics. He completed his PhD at New York University in 1952 under the supervision of Ludwig von Mises.