Jun
6
2015

What Makes the Austrian School Different?

Walter Block explains that, what is truly unique about the Austrian School of economics its particular methodologies and its radical policy ideas.

Truths You Can’t Deny

The Austrian School is based on the insights we get from knowing that man acts purposefully. The lovely thing about this argument is you can’t deny it! To deny it would be in itself a purposeful act. Boom!

Block writes, “For Austrians, economic theory is correct if and only if it starts with correct principles, and utilizes a logical chain of reasoning. Statistics can illustrate economic axioms, but can never test them” (17). The clearest way to think about it is to understand the problem is that economists often wish they worked in a hard or empirical science. But Block likens economics more to mathematics: “No one goes out and tests the Pythagorean theorem, or measures triangles to see if they really have 180 degrees.”

Beyond the basic principle, there are many additional undeniable insights derivative of purposeful action. All voluntary trade is done for mutual benefit. We know this from the very fact they are making the trade. People act in such ways as to make their futures more desirable. Some implications are more specific: “The minimum wage causes unemployment for unskilled workers with productivity levels below that stipulated by the law” (16).

These are simple truths. The Austrian School depends on these simple truths.

Radical Policy Ideas

With regard to the private political positions of individual economists, Block gleefully catalogued the Austrians as the most “extreme advocates of economic freedom, free enterprise, property rights, etc” (18).

Just what are these radical ideas?

1) Highway and Road Privatization

Many Austrians want to privatize roads. Tens of thousands of Americans die on roads every year in a system of what Dr. Block calls “road socialism.” “Traffic congestion is to highways as long queues were to Soviet groceries,” he wrote. “At zero price, the tragedy of the commons comes into play” (18). This is not an obscure issue for Dr. Block to bring up; he has written an entire book on the topic. He argues that the profit and loss system would incentivize road managers to do a better job with traffic flow and safety.

2) Anti Trust

Most Austrians are against all anti trust legislation. Not only does Block disagree with the very idea of monopoly market failure, but there is another problem here beyond anti trust itself. Companies can be guilty of “crimes” no matter what they do. They can charge too much and be a price gouger, charge too little and be a predatory pricer, or charge just the right price and be a price fixer.

3) Market Failures

It is not failures in the market that cause poverty, say the Austrians, but rather government itself. And, furthermore, it is the government’s welfare programs that exacerbate the problem of poverty by making poor people dependent on something fickle (politicians) instead of something perhaps slightly less fickle (themselves).

4) Property Rights

Austrians emphasize the moral or ethical aspect of property rights, whereas most other free market economists emphasize the material importance of property in the creation of wealth.

Conclusion

The Austrian School is different from other schools of economic thought by emphasizing the importance on a strong theoretical framework—and not endless empirical models. In consequence, the Austrians diverge from even many free-market economists on important fundamental topics, like property rights.

 

A Comparison of Economic Correctness and Political Correctness, Humanomics, Vol 20, No 3 – 4, 2004, pp. 14 – 25

May
14
2015

Responding to State Worshipers

In a 2006 issue of The Journal of Corporate Citizenship, Walter Block and William Barnett II teamed up to defend liberty in the article “Rejoinder to Critics of Laissez-Faire Capitalism.” They were responding to critics who took issue with their controversial thesis: The key to promoting prosperity for people and for the environment is to “reign in government to the greatest extent possible.”

Is Walter Block himself a state-worshiper?

Upon first reading of this essay I was a bit confused, as if the authors seemed to be distancing themselves from anarchistic ideas, denying accusations that they had said they favored a “stateless social order” in their previous thesis. Walter Block IS an anarchist and I will note at the start that Block made sure to footnote that “greatly regrets” the kind of language he and Barnett II had used.

State Worshiper #1

Nevertheless, Block and Barnett objected to J.A. Batten and P.G. Szilagyi’s claim that large corporations have the ability to “impose” their will on people. Economic and moral power, yes, for a time, but not political power to impose against human wills. Block and Barnett noted that the demise of creepy private companies like Enron and WorldCom testify to the health of the markets because these jerks no longer exist. And yet governments, who make these Enron-types look like “petty thieves,” remain intact.

Batten and Szilagyi worship the state so fully that they argued on the grounds that the most interventionist governments “all have the highest individual incomes.” Block cited his own research in his 1996 book Economic Freedom of the World, 1975-1995 against this idea, adding that, even if it were somehow true, it would be ­“despite government interventionism, not because of it” (18). One wonders how they could have such blind faith in the positive effects of government interventionism. Pure state worship.

State Worshiper #2

The next state-worshiper, C. Higgins, repeated the tired idea that income-inequality has increased in the places where the free market has flourished.

In fact, the opposite is true, according to Block and Barnett. The markets actually promote income equality. It is a positive-sum game. “In contrast, when a politician or bureaucrat prospers, he does so at the expense of the long-suffering taxpayer, as this is a coercive, zero-sum game” (19).

In reality, it is the dictator and his fellas who steal off the largest proportion of wealth in society. The people in such societies are quite equal and quite poor.

 

May
3
2015

Stan Evans: Conservatives Coming to Save the World

Conservatives typically laugh at those who want to save the world. But that is exactly what Stan Evans and other founders of the modern conservative movement wanted to do: save the world from communism. They wanted to take over the Republican Party, then take over the nation and thereby defeat communism in the world. Anti-communism was the defining issue of the time for conservatives. Evans wrote a book defending Wisconsin Senator Joe McCarthy and his crusade against domestic communist, a 600-pager called “Blacklisted by History: The Untold History of Senator Joe McCarthy and His Fight Against America’s Enemies.”

Stan Evans, who died at 80 on March 3, 2015, played an important role at the beginning of the modern American conservative movement. He authored the Sharon Statement in September 1960, a defining document of the conservative movement which laid out the guiding values for the Young Americans for Freedom (YAF). The Heritage Foundation summarized the principles in the Sharon Statement:stan evans

“Free will and moral authority come from God; political and economic liberty are essential for a free people and free institutions; government must be strictly and constitutionally limited; the market economy is the economic system most compatible with freedom; and Communism must be defeated, not merely contained.”

Evans worked a journalist in Indianapolis in his 20s and later taught journalism at Troy University. He also headed up the conservative-backed National Journalism Center in Washington for 25 years.

Apr
29
2015

What Should We Call “Austrian Economics?”

In their 2008 essay “Economic Singularism,” William Barnett, II and Walter Block wondered if there wasn’t a better label we could have for “Austrian Economics.” As evangelists of the Austrian School know all too well, when we mention Austrian economics to non-economists, they typically crinkle their face and ask if we are talking about economists who happen to live in Austria. The confusion is understandable; it could probably use a different name.

Here are some potential names Block and Barnett came up with (from my favorite to least favorite):

  • Property Rights School of Thought
  • The Praxeological School of Thought
  • The Methodological School of Thought
  • The Spontaneous Order School of Thought
  • The Information School of Thought
  • The Either Success or Error School of Thought
  • The Subjectivist School of Thought

I really like the Property Rights School of Thought because property rights are the basis for any other kind of rights for a libertarian. If you don’t own your property, including your person, what benefit is any other so-called right?

Praxeology is Mises’ term for the study of human action. I do prefer it when people ask me, “What the HELL is praxeology,” to when they ask, “Are Austrian economists all from Austria?” So calling it the Praxeological School would lead more people to understand the theoretical framework of praxeology and more people to ask about it.

Block and Barnett came up with their own top choice for a new name: The Singularism School of Thought.

The Singularism School of Thought

Austrian economics is all about deducing from the idea that people act purposefully. Each choice is some action A over alternative actions B,C and D to achieve goal X,Y or Z. Different people prefer using different means to achieve the same goals, and, quite often, prefer different goals.

Singularism is the idea that a person has only a “single” choice at any given time – he can either do A, or not A (B,C,D or F). His choice, A, was not necessarily the best choice by everybody’s standards, but it was his best choice in the moment, given what he knew and what he valued.

In Human Action, Ludwig von Mises talked about a principle called Methodological Singularism:

Praxeology asks: What happens in acting? What does it mean to say that an individual then and there, today and here, at any time and at any place, acts? What results if he chooses one thing and rejects another?

A man never chooses between “gold” and “iron” in general, but always only between a definite quantity of gold and a definite quantity of iron. Every single action is strictly limited in its immediate consequences. If we want to reach correct conclusions, we must first of all look at these limitations.

Block and Barnett define Singularism as the idea that “all of human action consists of choosing one option and setting aside all others” (22).

The Escalator Dilemma

To show how the singularity principle plays out, Block and Barnett applied it the example of walking on an escalator. They mocked their colleagues at the University of Rochester who couldn’t figure out the answer to this question: “If people stand still on escalators, then why don’t they stand still on stairs?”

The Singularism Analysis:

Let’s assume that the goal, X, is to get to the top of the stairs. The binary either/or choice is clear: either do X (get to the top) or do non-X (don’t get to the top). These are different situations with distinctive opportunity costs. Only in the stair situation does he really have this binary decision to make. If he doesn’t walk on the stairs, his opportunity cost is that he won’t get to the top. If he doesn’t walk on the escalator, he will still get to the top, just not as quickly.

Thus there are two separate choices: first, he must decide whether he will use the stairs, escalator or even the elevator, and then he must decide to walk or not to walk.

Conclusion

Block and Barnett might not actually want to rename the Austrian School of Thought with the Singularity School of Thought. Their purpose, rather, was to highlight this important aspect of choice so we don’t make bizarre errors that lead to unnecessary interventions into the economy.

 

 

Apr
10
2015

Who Owns the Future: China or India?

China and India are the two most populous countries in the world. Both have the potential to become the most important economy in the next generation or two. Both are highly bureaucratic, but, as economist Gary North pointed out, India is a Keynesian bureaucracy and China is a Communist bureaucracy. North argues that India has a brighter economic future than China because its Keynesian bureaucracy is more in line with Western bureaucracies. But what exactly does this mean?

Keynesian Bureaucracy vs. Communist Bureaucracy

Both kinds of bureaucracy gets funding by extracting money from the taxpayers. But only in a Communist bureaucracy do the bureaucrats actually have the power to imprison and torture citizens. In such a system, the state can do whatever it wants because it owns the courts. The state owns every individual person and all property. This is called totalitarianism. Both are systems of centrally planned economies, but only the Communists carry people off and execute them in the night.

Dr. Gary North said that the chief difference between these two systems is that Western Keynesian bureaucracies respect the right of self-ownership. An individual person is a separate legal entity and not just a small, insignificant part of the state, as under Communism. “Keynesianism rules indirectly, by positive incentives mostly, and by the threat of interference from time to time.” At least Keynesians are somewhat predictable in their actions and incentives.North continued, “In a Keynesian bureaucracy, the state is not the primary owner of the means of production. The government directs the economy primarily through indirect means, such as low-interest loans, certain kinds of subsidies, the regulatory system, control over the central bank, and various kinds of sanctions, both positive and negative. In the United States, the central bank is legally independent from the federal government. It usually cooperates with the federal government, but it does not have to. In a Communist society, the central bank has to cooperate.”

Legacy of Common Law

There are other reasons why North believes India has a brighter future than China. The reasons are related to the fact that India was ruled by the British for 250 years. Now, hundreds of millions of educated Indians speak fluent English and are well-acquainted with a common law system. The common law system is closer to a free and rational legal system than the tyrannical Communist system practiced by the Russians and Chinese. Common law, or customary law, is the part of law that comes from custom and judicial precedent rather than statutes written up by a legislature.

“If we’re talking about betting on the future,” North writes, “I would bet on India over China. That is because I believe in liberty. The Chinese have a degree of economic liberty, but they do not have the basics of what we in the West regard as a free society… India is bureaucratic, but it is a Western bureaucracy, not a Communist bureaucracy. That makes all the difference.”

Should We Be Impressed with China?

Perhaps Westerners are overly impressed by the economic growth numbers seen in China over the last several years. North wondered if people were impressed by the wrong things: “They are impressed with central banking, massive bureaucracy, hostility to common law, hostility to freedom of the press, rigged statistics, government-owned commercial banks, and in the case of China, the biggest real estate bubble in history. That bubble is going to pop, and there will be social turmoil in China when it happens.”

Conclusion

If we project out to the year 2050, when India has the world’s largest population and China’s population has stagnated, it seems likely that India will be the bigger economic powerhouse. China does have a big real estate bubble and rapidly aging population. And Dr. North’s argument about the significance of common law and the superiority of Western Bureaucracies certainly add fuel to the argument for preeminence of India.

Mar
20
2015

Should You Go To Jail for Lying?

In The Journal of Libertarian Studies, Dr. Walter Block argued with his libertarian colleague Frank van Dun over the issue of lying and criminal law. In an earlier article, Van Dun had offered the case of a man under the bridge who lies to some hikers about the safety of the bridge. The poor folks die, and it’s a very sad story. For Van Dun, the lying scum should be held guilty for his cold and seemingly murderous act. Block argued, however, that it is not a crime to give bad information or even to maintain silence, which also would have resulted in the hikers’ deaths. “His analysis implies either compulsory good Samaritanism or truth telling,” Block said.

Walter Block argued that the only scenario in which the man should be guilty is if the hikers had paid him for the information and he had been “contractually obligated” to tell them the truth. “Then he would be guilty of a contract violation that resulted in death, a very serious matter indeed.”

A lie is not a threat of violence. You might use my bad information to get yourself into trouble, but, if I had no legal obligation to give you “good” or accurate information, then it is simply up to you to weigh my advice against other kinds of information. People are sometimes helpful, sometimes competitive or mischievous. This is how life works; you are responsible for your own life and property.

 

Block, Walter.  “Reply to Frank van Dun’s ‘Natural Law and the Jurisprudence of Freedom’” Journal of Libertarian Studies. Vol. 18, No. 2, Spring 2004. pp. 65-72.

Feb
12
2015

Question for Christians: Does God Want You to Obey the State?

Christian pastors typically tell their churches that it is important for them to obey the government because of the teachings in Romans 13. Some churches are led by absolute warmongers, but many others have leaders who are simply trying to stand up for law and order, perhaps naively in some cases.

It is important for Christians and all decent people to be respectful to others. This good cheer should even extend to people in authority- but only because they are people, not because of their power. The issue has nothing to do with one’s position; just be a decent person to everybody.

Christians typically agree that it is wrong to break criminal and contract law. But then there are “laws” that go way beyond criminal and contract laws. In these cases, where the legitimacy of the laws are open to debate, Christians should obey the state’s laws only as a practical matter. For example, the income tax protesters might have some rather convincing intellectual points, but who wants to spend their life in jail? Of course, there can sometimes be cause for resistance against unjust laws. This is up to the conscience of each individual. It is up to each person to navigate his way through this world of ideas, careers, relationships, money and horses. Just don’t hurt other people; serve other people. That will make you rich and happy. The liberal soul is made fat. By watering others we water ourselves (Proverbs 11:25).

Now it is true that the State has been the greatest enemy of Christians throughout history. The persecuted Christians in the Roman Empire were never asked to worship Jupiter. The axe-men worked ’round the clock chopping off Christian heads because they would not worship the State. The whole of the religious life in the pagan world was administered by the State. The Bible rejects this program in its entirety. The great Christian battle has been against those who would make man into God, and this has been done most successfully by giving people a new God in the State. This doctrine of “Statism” leads to totalitarianism because it is based on the belief that the State is the ultimate authority on earth. Statism is the great rival religion competing against Christianity in the West.

Christians are supposed to look to God as the ultimate authority in the world, not the State, which is simply a man-made replacement for God and His laws. The Bible portrays God as autonomous; the State portrays man as autonomous. Acts 5:29 commands Christians to obey God rather than man. Too many Christians today have found it easier to subvert the authority of God than to subvert the authority of powerful men. All Christians should oppose the logic of total State power as lethal to Christian values and the freedom required to live them out.

As a Christian, it is a matter of following God’s commandment to love other people. Whilst some people worship the State as a kind of earthly salvation for the problem-of-the-month, the Bible teaches people to look to God for values, peace and hope.

Jan
11
2015

Russians Dying of Hopelessness

Mother Russia’s Ugly Population Stats

The Russian population declined by 7 million (5%) from 1992 to 2009. This is an incredible depopulation bomb – unheard of in peacetime— that is being caused by rising mortality.

Russia has one of the lowest birthrates in the world: 1.61 (compared to 2.01 in the U.S.). UN data from 2010 showed that Russia had the highest abortion rate in the world. And how about a third factor: rising mortality rates. According to the mortality research of Nicholas Eberstadt, the life expectancy of 15-year-old males in Russia is worse than their peers in Somalia and Ethiopia (2006 figures). Truly unimpressive. No wonder Russia is losing population.

What is Killing Them? No Hope!?

Eberstadt found that Russian depopulation occurred three other times in the 20th century: after the Russian Civil War (1917-23), during the murder and starvation of two million in Russia and Ukraine (1933-34), and during WWII when 27 million Russians died.

After ruling out smoking, drinking, health care spending and other factors, Eberstadt wondered what could be the cause of rising mortality in Russia. Without a definitive explanation, he assumes there is a “relationship” between mortality and psychological well-being. A loss of hope and belief in the future.

Gary North agrees with Eberstadt’s assessment: the Russians are dying from a loss of hope. North tied rising mortality rates to a loss of faith in Communist post-millennial eschatology. Post-millennialism is basically a belief in the future, a belief in progress; that the best is yet to come. This eschatology was not a feature of the thousand-year-old Russian Orthodox Church. It was a feature of Communist utopianism. Russian life expectancy has dropped dramatically since the collapse of Communism. By seven years.

“The Soviet Union imposed a new eschatology onto the people of Russia. This new eschatology was intensely postmillennial. It substituted long-term evolutionary progress for the final judgment. It preached a doctrine of judicial theology, but it made the state God. If men believed in the state, meaning the state as run by the Communist Party of the Soviet Union, their lives would improve. If they obeyed the bureaucracy, their lives would improve. All of history was to be understood only by the principles of scientific socialism. The people were told that the principles of scientific socialism guaranteed the expansion of Communist society across the face of the earth. This, in turn, would create a new mankind. Adherence to Marxism, as applied to national politics, would lead to the regeneration of society. This was an article of faith.

This had to do with the religion of revolution. The belief was simple to state: proletarian revolution is inevitable throughout the world, and this revolution, which was inherently sacrificial and bloody, would transform mankind over time. This was taught systematically throughout the entire educational system of the Soviet Union for 70 years.”

The religion of revolution turned out to be a hallow religion for the Russian people. And they have been the special victims of totalitarianism.

Masha Gessen of the New York Review of Books, writes:

In (the book) ‘The Origins of Totalitarianism’ Hannah Arendt argues that totalitarian rule is truly possible only in countries that are large enough to be able to afford depopulation. The Soviet Union proved itself to be just such a country on at least three occasions in the twentieth century—teaching its citizens in the process that their lives are worthless. Is it possible that this knowledge has been passed from generation to generation enough times that most Russians are now born with it and this is why they are born with a Bangladesh-level life expectancy?

Dec
24
2014

Orwell’s “Complete Reversal” on Capitalism

George Orwell (1903-1950) was a socialist writer who had tried very hard to make a neat separation between economic freedom and political freedom. He thought you could control the production of the body without controlling production of the mind. But, ultimately, he changed his mind. He was an idealist, a communist. He came to see that Marxists were not believers in utopia, but merely power-seekers who did and said whatever needed to gain power – then use it!

Orwell’s far left publisher, Victor Gollancz, accused Orwell of being too pessimistic about the future of the totalitarian state in “Inside the Whale,” an essay in which he uses the story of Jonah inside the whale as an image of accepting the world without trying to change it. Orwell responded to Gollancz’s concern on January 4, 1940: “You are perhaps right in thinking I am over pessimistic. It is quite possible that freedom of thought etc. may survive in an economically totalitarian society. We can’t tell until a collectivized economy has been tried out in a western country (13).” orwell

Orwell saw capitalism as a system in which wealthier people exploit workers. So he didn’t have a high view of economic freedom and, thus, didn’t see why economic freedom would be necessary in a free society.

But Orwell changed his mind a year later. In his BBC radio talked “Literature and Totalitarianism,” Orwell argued that literature would be impossible in the future totalitarian world. In his talk he admitted the inescapable tie between economic and political freedom. “It was never It was never fully realised that the disappearance of economic liberty would have any effect on intellectual liberty. Socialism was usually thought of as a sort of moralised liberalism. The state would take charge of your economic life, and set you free from the fear of poverty . . . but it would have no need to interfere with your private intellectual life. . . . Now, on the existing evidence, one must admit that these ideas have been falsified (15).”

Writing in the conservative academic quarterly journal Modern Age, Arthur Eckstein called this an “astonishing passage” and a “complete reversal” from Orwell’s earlier denial of the necessity for economic liberty. Eckstein chastised Orwell for never being honest enough to return to this inescapable idea in his later writings. “The implications of this view of the social impact of capitalist economics made Orwell the socialist very uncomfortable, challenging his most cherished ideals about how a ‘just’ society should look.” (16)

Eckstein is right: Orwell should have developed the implications of this insight– regardless of the soft feelings of his socialist buddies or his own attachments to vague socialist utopianism. Nevertheless, Orwell recognized the dead-end of the totalitarian state and painted an unforgettable picture in his book Nineteen Eighty-Four, published shortly before his death. He was very much a liberal in his writing, rather than a socialist. He believed strongly in freedom of thoughts. Here is the way Orwell set up the fundamental conflict of civilization: “(1) Society cannot be arranged for the benefit of artists; (2) without artists civilization perishes” (p 18). Orwell offered no solution to this dilemma. He didn’t offer socialism as a solution.

Eckstein, Arthur. “1984 and George Orwell’s Other View of Capitalism.” Modern Age, March 1985. Pp. 11-19.

 

Dec
19
2014

Is Predatory Pricing Impossible? – How Mr. Dow Outsmarted the Monopolists

The story of Herbert Dow, the founder of the Dow Chemical Company, provides a wonderful case study against the efficacy of “predatory pricing” in the free market. In the early 20th century, Mr. Dow used the free market – not some state regulatory agency – to outsmart the Bromkonvention, a price-cutting cartel of 30 German chemical companies.

The case centers on the chemical bromine, which was used to produce film and used as a sedative. The German cartel set the global price at 49 cents a pound. American companies, including Dow Chemical, sold bromine for only 36 cents. The cartel told them to stay in the American market; Dow took his bromine abroad in 1904.

The Bromkonvention attempted predatory pricing to drive Dow out of the market. It started selling bromine in the American market at 15 cents a pound, taking a loss at the extraordinarily low price. Dow simply purchased hundreds of thousands of pounds at 15 cents and sold them back to Germany and England for 27 cents – a nearly 100% profit. The Germans couldn’t figure out why American demand was so high; they further cut the price down to 10.5 cents a pound, simply increasing Dow’s already incredible margins.

Dow later challenged the Germans in many other markets during the WWI era. He produced indigo, aspirin, Novocain and phenol, which was used to make explosives during the war.

Dow’s bromine war shows the free-market solution to the problem of predatory pricing posed by cartels at home and abroad. Those who huddle together and agree on artificially high prices are by definition the lazier and stupider of the companies; they are running away from work and intelligence. The way to break them up is to outsmart them and laugh at them.