Books on Austrian economics are much more common today than they were four or five decades ago. Call it a sign of the times. Yet Austrian economics has so much to say about so many issues that those books have little danger of repeating one another; each has its own distinctive focus and flavor.
Ludwig von Mises once noted that those who are only economists will never be very good economists and he lived by those words. Harry Veryser’s skillful weaving together of Austrian economic theory, philosophy and recent economic history in It Didn’t Have to Be This Way would certainly have made Mises proud. At the same time, it will upset those who have perpetrated and tried to defend the monetary and fiscal chicanery that has laid the U.S. economy low in recent years.
One of the characteristics that sets this book apart is a focus on the compatibility of Austrian economics with certain strands of Catholic theology. While at times the author seems to strain to draw some of these connections and to steer clear of those parts of Catholic social teaching that take a more ambivalent view of the market, there is much to the case Veryser makes. For one thing, the Aristotelian roots of Austrian economics, especially as developed by Menger and Rothbard, can be found in the economic writings of Aquinas and the Spanish Jesuits known as the School of Salamanca. Furthermore, the principle of subsidiarity, a mainstay of Catholic social teaching, is implicit in Mises’s and Hayek’s critiques of socialism.
As distinctive as this religious slant is, Veryser does not let it sidetrack him from the main event—what Austrian economics is, how its application could have spared our economy a great deal of damage, and how it offers us a way out of our current predicament. I hope that more secular-minded readers do not let that slant keep them from appreciating his adept use of Austrian economics as a tool of analysis.
In his discussion of Austrian theory, Veryser reminds us of the debt mainstream economics owes to the Austrian school—concepts such as subjective value, opportunity cost and the time-preference theory of interest. Because these have been so thoroughly absorbed into the corpus of mainstream economics, most economists are totally unaware of their Austrian origins.
What is unique to Austrian economics makes it both more controversial and more important to understand. The Austrian rejection of the false precision of mathematical models should become less controversial in light of the catastrophic consequences of, as Veryser says, “the widespread conviction that the economy could be carefully planned and that mathematics could be used as a reliable guide to government and private sector policy.” Veryser also takes a standard critique of Austrian economics (that it’s not like physical sciences) and shows it to be a benefit, defining the proper question as not whether or not Austrian economics is scientific, but what kind of science is it?
The author then embarks on an economic history of the last 200 years, identifying World War I as a crucial turning point, which replaced a century of relatively sound money, free trade, unrestricted markets, and peace with a century of inflation, protectionism, interventionism, and total war. The connection between inflationary finance and aggressive foreign policy is an often-neglected area that this work does not overlook. Veryser’s Austrian perspective renders him both fully aware of the flaws of the Bretton Woods “pseudo-gold standard” and able to see how the floating-rate regime that followed it was even worse.
One of the greatest advantages of Austrian economics over other schools of thought, even those that are relatively “free market,” is its sophisticated understanding of capital theory and monetary policy and how they yield a fuller understanding of the consequences of inflation. Veryser covers the distributional effects of inflation and its role in triggering business cycles thoroughly yet clearly enough that those without Ph.Ds. in economics will get it. (His unstinting use of historical illustrations has much to do with this.)
The historical illustrations Veryser uses range far beyond questions of macroeconomic mismanagement. I found especially interesting his discussions of the currency debasement in Tudor England and how the suppression of the monasteries by Henry VIII expedited the emergence of crony capitalism and the welfare state in England.
As valuable as this work is, it is not without its flaws. His generalization that wages often drop faster than prices in deflationary times is certainly wrong in the context of the Great Depression, when government intervention to prop up wages made unemployment so much worse than it otherwise would have been. In his discussion of the Austrian business cycle theory, he makes a distinction between misinvestment and malinvestment but doesn’t elaborate the difference between the two. He also misuses the notion of capital heterogeneity as referring to new money entering the economy unevenly, when that concept should be used to refer to real capital goods being close to worthless if not used in conjunction with appropriate complementary goods.
Flaws notwithstanding, It Didn’t Have to Be This Way deserves a wide enough readership so as to make necessary a second edition in which these issues can be rectified.