On Teaching Austrian Economics

The new issue of the Journal of Economics and Financial Education is now available online and it is a special issue devoted to a symposium on teaching Austrian economics.

Mises Wins the Nobel Prize in Economic Science, well sort of …

Peter Boettke:

In his obituary of Bertil Ohlin, Paul Samuelson plays the game of “what if” — in this case, “what if the Nobel Prize was established in 1900, then who would have won the prize between 1901 and 1930?”

This is list of names Samuelson thinks would have won the prize:

“One cannot forbear playing the game of might-have-been. Here is the most likely scenario of awards from 1901 on: Bohm-Bawerk, Marshall, J.B. Clark, Walras, and Wicksell; Carl Menger, Pareto, Wicksteed, Irving Fisher, and Edgeworth; Sombart, Mitchell, Pigou, Adolph Wagner, Allyn Young, and Cannan; Davenport, Taussig, Schumpeter, Veblen, and Bortkiewicz; Cassel, J. M. Keynes, Heckscher, J. R. Commons, and J. M. Clark; Hawtrey, von Mises, Robertson, H. L. Moore, and F. H. Knight.”(p. 358, n1)

What do you think of that list? And, what do you think it says about Mises’s stature as an economic thinker if even Samuelson signaled that he would have been honored with the Nobel Prize for his contributions to economic science?

Seven Things I Learned About Transition From Communism – Andrei Shleifer

Andrei Shleifer is one of the most important economic thinkers of our time. Here are some of his thoughts on the economic transition in the Soviet Union that he viewed first hand.

Twenty years ago, communist countries began their shift towards capitalism. What do we know now that we didn’t know then? Harvard’s Andrei Shleifer, the Russian-born, American-trained economist, provides his answers and their relevance for contemporary policymakers.

Recently, I was asked by the organisers of the IIASA conference1 to mark the 20th anniversary of the beginning of economic reforms in Eastern Europe and former Soviet Union to comment on the lessons of transition. The assignment presumably refers to the things that I learned – as an economist – that are different from what I believed initially. Such a recollection free from hindsight bias is challenging, but I tried. This list might be useful to future reformers, although there are not so many communist countries left. Some of the issues are however relevant not just for communist countries; the problems of heavily statist economies are similar. So here is my top-seven list.

First, in all countries in Eastern Europe and the former Soviet Union, economic activity shrunk at the beginning of transition, in some very sharply. In many countries, economic decline started earlier, but still continued. In Russia, the steepness and the length of the decline (almost a decade) was a big surprise. Countries with the biggest trade shocks (such as Poland and Czechoslovakia) experienced the mildest declines. To be sure, the true declines were considerably milder than what was officially recorded – unofficial economies expanded, communist countries exaggerated their GDPs, defence cuts, and so on – but this does not take away from the basic fact that declines occurred and were surprising. These declines contradicted at least the simple economic theory that a move to free prices should immediately improve resource allocation. The main lesson of this experience is for reformers not to count on an immediate return to growth. Economic transformation takes time.

Second, the decline was not permanent. Following these declines, recovery and rapid growth occurred nearly everywhere. Over 20 years, living standards in most transition countries have increased substantially for most people, although the official GDP numbers show much milder improvements and are inconsistent with just about any direct measure of the quality of life (again raising questions about communist GDP calculations). As predicted, capitalism worked and living standards improved enormously. One must say, however, that for a time things looked glum. So lesson learned: have faith – capitalism really does work.

Third, the declines in output nowhere led to populist revolts – as many economists had feared. Surely reform governments were thrown out in some countries, but not by populists. Instead of populism, politics in many countries came to be dominated by new economic elites, the so-called oligarchs, who combined wealth with substantial political influence. From the perspective of 1992, this came as a huge surprise. Ironically, in some countries in Eastern Europe populism appeared 20 years after transition started, after huge improvements in living standards were absolutely obvious. Indeed, people in all transition countries were unhappy with transition: they were unhappy even in countries with rapidly improving quality of life (and this itself is another surprise and major puzzle – something for future reformers to keep in mind). But the lesson is clear: a reformer should fear not populism but capture of politics by the new elites.

Fourth, economists and reformers overstated both their ability to sequence reforms, and the importance of particular tactical choices, eg, in privatisation. In retrospect, many of the theories that animated the discussion of reform – whether institutions should be built first, whether companies should be prepared for privatisation by the government, whether voucher privatisation or mutual fund privatisation is better, whether case by case privatisations might work – look quaint. Reformers nearly everywhere, including in Russia, had a vastly overstated sense of control. Politics and competence frequently intervened and dictated to a large extent most of the tactical choices. Still, most countries, despite different choices, ended up with largely similar outcomes (notable and sad exceptions are Belarus, Uzbekistan, and Turkmenistan). In various forms, all had privatisation and macroeconomic stabilisation as well as legal and institutional reform to support a market economy. Lesson learned: do not over-plan the move to markets, but, more importantly, do not delay in the hope of having a tidier reform later.

Fifth, economists have greatly exaggerated the benefits of incentives by themselves, without changes in people. Economic theory of socialism has put way too much weight on incentives, and way too little on human capital. Winners in the communist system turned out not to be so good in a market economy. Transition to markets is accomplished by new people, not by old people with better incentives. I realised this and wrote about it in the mid-1990s, but the lesson both in firms and in politics in profound: you cannot teach an old dog new tricks, even with incentives.

Sixth, it is important not to overestimate the long-run consequences of macroeconomic crises and even debt defaults. Russia experienced a major crisis in 1997–98, which some extremely knowledgeable observers said would set it back by 20 years, yet it began growing rapidly in 1999–2000. Similar stories apply elsewhere, from East Asia to Argentina. Debt restructurings do not necessarily make permanent scars. This experience bears a profound lesson for reformers, who are always intimidated by the international financial community: do not panic about crises; they blow over fast.

Seventh, it is much easier to forecast economic than political evolution. Although nearly all transition countries have eventually converged to some form of capitalism, there has been a broader range of political experiences, from full democracies, to primitive dictatorships, to just about everything in between. There appears a strong geographic pattern in this, with countries further West, especially those involved with the European Union, becoming clearly democratic, and countries further East remaining generally more authoritarian. For countries in the middle, including Russia and Ukraine, the political paths over the 20 years have wiggled around. Lesson learned: middle-income countries eventually slouch toward democracy, but not nearly in as direct or consistent a way as they move toward capitalism.

What “Austrian Economics” Is Not.

One would think Matthew Yglesias had become quite well versed in Austrian Economics by now or at least slightly familiar, but alas that is not the case. Sadly all one can do is shake ones head as I think it is a lost cause and he really is not interested in learning why it was Ron Paul stated that “We are all Austrians now.”

Here is his latest attempt to confuse and befuddle as he leaves one discombobulated and none the wiser. Yglesias crawls along as he confounds fact and fiction and then reaches his crescendo of confusion when he states:

“Many of the original Austrians found their business cycle ideas discredited by the Great Depression, in which the bust was clearly not self-correcting and country after country stimulated real output by abandoning the gold standard and engaging in deficit spending. Then for a long time after World War II, policy elites more or less agreed on a combination of “automatic” fiscal stabilizers (the deficit naturally goes up during recessions as tax revenues fall and social service outlays rise) and interest rate cuts. And it worked, so nobody much cared about Austrian economics outside of crank circles.”

Of course, no prestigious circle cared much about Austrian economics except the one that matters most that gave F.A. Hayek a Noble prize in 1974 for his pioneering work in the theory of money and economic fluctuations and his penetrating analysis of the interdependence of economic, social and institutional phenomena.

If Matthew or anyone else wants to see the error of their ways it is a quick click away and a short read to the real story behind America’s Great Depression.

The Exemplary F.A. Hayek and the Extraordinary Princeton Delusions and the Madness of the New York Times

All of the popular press that the Austrian school of economics, the Mises Institute, the Austrian business cycle theory, and the Physiocrats like Frederic Bastiat have garnered lately has led Paul Krugman to try to rewrite Hayek out of the history of macroeconomics contra all facts against him.

Krugman begins:

“Friedrich Hayek is not an important figure in the history of macroeconomics.”

Yet, he was only willing to do so under the cover of a David Warsh article where Warsh states: “With the publication of ‘The Use of Knowledge in Society’ in the American Economic Review in 1945, [Hayek] essentially won on the ‘calculation debate,’ conducted with Ludwig von Mises and Oscar Lange, concerning the possibility of central planning.”

Krugman neglects to mention that Warsh goes on to discuss the contributions of Dr. Robert Nozick, Rep. Ron Paul, and George Mason Economics professor Russ Roberts and filmmaker John Papola’s two widely-viewed videos, “Fear the Boom and Bust” and “The Fight of the Century.” Or, his citing approvingly of Bruce Caldwell of Duke University‘s summation that [Hayek's] “‘twin ideas of evolution and spontaneous order’ become prominent, especially the idea of cultural evolution, with its emphasis on rules, norms, and decentralization.”

Krugman may also want to reread Warsh’s final paragraph where he states:

“These are today lively concepts in laboratories and universities around the world.”

And, then we can read the words of the Nobel committee that awarded Professor Friedrich von Hayek the Nobel:

“Hayek’s contributions in the fields of economic theory are both deep-probing and original. His scholarly books and articles during the 1920s and 30s sparked off an extremely lively debate. It was in particular his theory of business cycles and his conception of the effects of monetary and credit policy which aroused attention. He attempted to penetrate more deeply into cyclical interrelations than was usual during that period by bringing considerations of capital and structural theory into the analysis. Perhaps in part because of this deepening of business-cycle analysis, Hayek was one of the few economists who were able to foresee the risk of a major economic crisis in the 1920s, his warnings in fact being uttered well before the great collapse occurred in the autumn of 1929…

“His conclusion is that it is only through a far-reaching decentralization in a market system with competition and free price formation that it is possible to achieve an efficient use of all this knowledge and information. Hayek shows how prices as such are the carriers of essential information on cost and demand conditions, how the price system is a mechanism for communication of knowledge and information, and how this system can mean an efficient use of highly decentralized resources of knowledge.

“Hayek’s ideas and analyses of the viability of economic systems, presented in a number of writings, have provided important and stimulating impulses to the great and growing area of research which is named comparative economic systems.”

Krugman can try to dismiss the “Hayek thing” all he wants as he attempts to whitewash history but it clearly is not going away.

Learn Austrian Economics

For some reason or another I missed this very impressive resource list of essays, books, and videos that Tom Woods put together for those interested in a beginner’s guide to Austrian economics.

Tom begins with elementary texts on economic reasoning and then supplements this with a video series by various excellent professors who discuss one chapter of Henry Hazlit’s Economics in One Lesson each.

He then builds on this basic knowledge with a variety of books, audio, and video that will keep you busy for the rest of the year.

And when you are done you can proceed here to the Mises Media page and here then to the Molinari Institute’s Heritage of Dissent: An Online Library of Radical Libertarian Classics to keep you occupied for the next decade.

Friedrich Hayek on Social Evolution and the Origins of Tradition

Libertarianism.org has released this exclusive video from November 22, 1983 of F. A. Hayek discussing the evolution of morality and social norms, arguing that they result from unplanned, emergent processes. He contrasts this conclusion with other philosophical accounts of law and morality.

A short clip from a rare Murray Rothbard lecture is also available, but I would encourage others to ask that the complete lecture on “Mises, Keynes, Friedman, Laffer: The Austrian Perspective” be made available.

How to silence a Nobel Prize winning economist: Ask him about the economy.

The whole press conference is quite embarrassing for the economics profession.

Roubini Clueless About Austrian Economics

Robert Wenzel reports on Roubini Attacks Austrian Economists at Economic Policy Journal:

Nouriel Roubini is very well connected in the world of the financial power elite, but that doesn’t mean he knows is ass from his elbow when it comes to Austrian economics. He tweets:

“The austerians’ Austrian austerity will not lead to Schumpeterian ‘creative destruction’ but rather ‘deadly destructive depression’”

First of all, modern day Austrians see Schumpeter as a marginal player when it comes to the Austrian school of economics.

The most significant thinkers in Austrian economics are Ludwig von Mises, Murray Rothbard and Friedrich Hayek. After these three, Carl Menger and Eugene von Bohm-Bawerk would be added to the list.

Second, there are no Austrian economists who would be in favor of the current austerity programs being called for in the PIIGS countries, by globalist organizations such as the IMF, World Bank and the OECD.

Austrians view the IMF etc. as bankster enforcers, who exist for one reason and one reason only, to ensure that the banksters are paid. Austrians view the current increased taxes, as part of austerity programs in PIIGS countries, with horror, and as the state taking by force from the people and handing the funds to the banksters.

Rather than banksters getting paid, Austrians would rather see the the PIIGS countries go into bankruptcy, default on their debt and free the people. The same view holds with regard to the Austrian position on US Treasury debt. Treasury default is the Austrian solution, not phony “austerity” programs of tax reform, aka tax increases, and government programs that are “paid for” by shuffling imaginary cuts in to later years. Bottom line: Austrians aren’t in favor the current size of government, anywhere. It’s not about austerity, but about eliminating the government money grab on behalf of banksters.

Austrians are also in favor of ending the social-welfare programs, so that the countries can again grow and prosper, but this has nothing to do with the current austerity programs proposed for the PIIGS. This is a position Austrians hold relative to all state social-welfare programs, regardless of the debt situation of a country.

Roubini is shockingly clueless with regard to Austrian economics and its position on the current eurozone crisis and the crisis in the United States.

Ron Paul, What Is Austrian Economics?

What would Ludwig von Mises and FA Hayek say?

Sam I’m Not

I do not like this Uncle Sam, I do not like his welfare-warfare scam.
I do not like these dirty crooks, or how they lie and cook the books.
I do not like when Congress steals, I do not like their secret deals.
I do not like these dirty bombs, or how they kill without any qualms.
I do not like their fiat money, it is worthless paper and all too funny.
I do not like taxation as theft, I will be happy when none are left.
I do not like this kind of hope. I do not like it. nope, nope, nope!

The Austrians Were Right

Judge Napolitano explains the battle between Austrian free market economists and progressive American socialist economists over the control of the commanding heights of the global economy on Freedom Watch.

The Austrians Were Right

Mr. President, Your Default Rhetoric Is Just Not So.

Barack Obama moments ago proclaimed that no one is advocating for default.

San Jose State University Assoc. Professor Jeffrey Rogers Hummel calls for exactly such a default:

But my major disagreement with Tyler [Cowen] and Arnold [Kling] is that I believe that a U.S. government default, rather than being “the end of the world,” could possibly be a good thing. I even advocated repudiating the national debt in a 1981 issue of CALIBER (the newsletter of the California Libertarian Party), long before predicting a default. My arguments were moral, economic, and political, and I would only soften them slightly today.

The moral argument for repudiation is easiest to follow although by itself says nothing about the practical results. Treasury securities represent a stream of future tax revenues, and investors have no more just claim to those returns than to any investment in a criminal enterprise. I favor total repudiation of all government debt for the same reason I favor abolition of slavery without compensation to slaveholders.

The economic argument depends on whether Ricardian Equivalence holds. Repudiating government debt eliminates future tax liabilities. To the extent that people correctly anticipate those liabilities, the value of private assets (including human capital) should rise over the long run by the same amount that the value of government securities falls. Thus, people will gain or lose depending how closely their wealth is associated with the State. If on the other hand, people underestimate their future tax liabilities, they suffer from a fiscal or “bond illusion” in which Treasury securities make them feel wealthier than they actually are. Debt repudiation will bring their expectations into closer alignment with reality, which should increase saving.

LVMI’s own Bob Murphy has made the same point:

There is a strong libertarian argument to be made that all tax revenues are stolen, and in that respect the government has no business “honoring” its debt at all.

Gary North has stated default will come, and that the vast majority of the people of the United States will benefit from it:

Liberty will receive a shot in the arm when this phrase provokes universal laughter: “The full faith and credit of the United States.” That day is fast approaching. The credit rating of the United States government will be marked down from AAA to AA. It will then be marked down to A. For every notch down that it falls, the national day of deliverance draws closer. American liberty is measured inversely to the credit rating of the United States government.

The President should hear from these voices and this rationale. I highly doubt he has even considered these arguments and would greatly benefit from a week at Mises University.

Lindsay Lohan Channels Her Inner Austrian Economist

Have you guys seen food and gas prices lately? U.S. $ will soon be worthless if the Fed keeps printing money! http://spn.tw/t1exbE #ad

Perhaps the Mises Institute should think about sponsoring an ad.

New Working Papers

The Prehistory of Modern Economic Thought: The Aristotle in Austrian Theory by Justin Ptak (Institute for Business Cycle Research)

Action, Coordination, and Exchange: Voluntary Response to Stimuli in Profit-Seeking Endeavors by Justin Ptak (Institute for Business Cycle Research)

A Visit to Hayek’s Library

Hapy 112th Birthday, F.A. Hayek

Praise or damn a free society, mutually beneficial exchange, and voluntary actions, one must read and contend with Hayek’s The Use of Knowledge in Society.

“What is the problem we wish to solve when we try to construct a rational economic order? On certain familiar assumptions the answer is simple enough. If we possess all the relevant information, if we can start out from a given system of preferences, and if we command complete knowledge of available means, the problem which remains is purely one of logic. That is, the answer to the question of what is the best use of the available means is implicit in our assumptions. [But, how now that we live in this unknowable world of scarce resources and yet happen to find ourselves living in the relative lap of luxury and civilization despite coercive governments best efforts?...]“

Now read Mises’s 1920 paper on economic calculation under socialism.

Hayek vs. Keynes: The Fight of the Century

In The 21st Century You Twitter Your Credendtials

@JPollock94 I believe in Austrian economics.—
Gov Gary Johnson (@GovGaryJohnson) April 25, 2011

The Austrian Scholars Conference – Live from the Ludwig Von Mises Institute, March 10-12, 2011.

The ASC is the international, interdisciplinary meeting of scholars working in the intellectual tradition of the Austrian School, the oldest and yet fastest growing school of economic thought.

* Mises Lecture: Helio Beltrao, Mises Institute Brazil
* Hazlitt Lecture: David Stockman, former budget director of Reagan administration
* Hayek Lecture: William Butos, Trinity College
* Rothbard Lecture: Philipp Bagus, University Rey Juan Carlos in Madrid
* Church lecture: Mustafa Akyol, Turkish Daily News

The complete schedule including the awarding of the Lawrence Fertig Prize.

Happy 85th, Murray!

Today is the 85th anniversary of the birth of Murray Newton Rothbard, one of the greatest economists of the Austrian school, philosophers of liberty, and individual anarchists who defined libertarianism and provided the theoretical framework for a free-market anarchism that is known as anarcho-capitalism today.

He certainly would be overjoyed and giddy about the events of the last two months seeing a rebirth of freedom across many regions of the globe. Moreover, he would be immensely satisfied by the spread of opposition toward military, political, and economic interventionism in the affairs of man.

His ideas today are even more alive than ever before as the truths of self-ownership, natural property rights, and universal ethics expand and create greater peace, liberty, and prosperity.

Obama’s Latest $100m Budget Cut

YouTube on the Political Economy of Liberty

Moving away from pulp and into the digital age:

1. The Philosophy of Liberty – Ken Schoolland (2006)

2. The Sunset of the State – Stefan Molyneux (2010)

3. Pirates & Emperors – Schoolhouse Rock (2006)

4. Money, Banking, and the Federal Reserve – Mises Institute (1996)

5. Who Really Controls America – George Carlin (2008)

6. The Story of Your Enslavement – Stefan Molyneux (2010)

7. “Fear the Boom and Bust – A Hayek vs. Keynes Rap Anthem” – John Papola and Russ Roberts (2010)

8. The Future of Austrian Economics – Murray Rothbard (1990)

9. The Errors of Classical Liberalism and the Idea of a Private Law Society – Hans Hoppe (2008)

10. How To Advance Liberty – Leonard Reed (1978)

Classical Readings on Anarchy

In response to Art’s more contemporary list of works on the political economy of liberty:

1. Gustave de Molinari – The Production of Security (1849)

2. Lysander Spooner – Natural Law or the Science of Justice (1882)

3. Auberon Herbert – The Right and Wrong of Compulsion by the State (1885)

4. Benjamin Tucker – Why I Am An Anarchist (1892)

5. Voltairine de Cleyre – Why I Am An Anarchist (1897)

6. Franz Oppenheimer – The State (1922)

7. Albert Jay Nock – Our Enemy, The State (1935)

8. Morris and Linda Tannehill – The Market for Liberty (1970)

9. David Friedman – The Machinery of Freedom (1973)

10. Murray Rothbard – Society Without a State (1974)

BBC Radio 4 – Radical Economics: Yo Hayek!

Why free market Austrian economics have inspired a rap video and attracted new fans.

Was the economic crisis caused by fundamental problems with the system rather than a mere failure of policy?

This week, Jamie Whyte and Analysis looks at the free market Austrian School of FA Hayek. The global recession has revived interest in this area of economics, even inspiring an educational rap video.

“Austrian” economists believe that the banking crisis was caused by too much regulation rather than too little. The fact that interest rates are set by central banks rather than the market is at the heart of the problem, they argue. Artificially low interest rates sent out the wrong signals to investors, causing them to borrow to spend on “malinvestments”, such as overpriced housing.

Shanghai, 1990 vs. 2010

2010 Economist of the Year

Murray Rothbard

Murray Rothbard has been named, post-humously, the 2010 EPJ Economist of the Year, specifically for his work surrounding power elite and their influence on government.

In this day and age of the internet, it is relatively easy to track and report on the comings and goings of bankers, such as Lloyd Blankfein at Goldman Sachs and Jamie Dimon at JPMorgan, as they trek to the White House and Treasury for power influence sessions. And, it is relatively easy to see and understand how they operate and dole out cash to themselves, but anyone, who read Rothbard years ago, would have been aware and understood back then.

For example, Murray Rothbard wrote in 1984 (more than 25 years ago!), my emphasis:

Businessmen or manufacturers can either be genuine free enterprisers or statists; they can either make their way on the free market or seek special government favors and privileges. They choose according to their individual preferences and values. But bankers are inherently inclined toward statism.

Commercial bankers, engaged as they are in unsound fractional reserve credit, are, in the free market, always teetering on the edge of bankruptcy. Hence they are always reaching for government aid and bailout.

Investment bankers do much of their business underwriting government bonds, in the United States and abroad. Therefore, they have a vested interest in promoting deficits and in forcing taxpayers to redeem government debt. Both sets of bankers, then, tend to be tied in with government policy, and try to influence and control government actions in domestic and foreign affairs.

In 1992, Rothbard wrote (My emphasis):

What is less well-known is that this Big Business – Big Finance – Big Labor – Big Intellectuals and Media alliance has been going on for a long time: certainly since the New Deal. It is little known, for example, that such crucial New Deal statist “reforms” as the Social Security Act and the Wagner Act of the mid-1930s were put into place by a powerful and malevolent alliance of left-technocratic New Deal ideologues, and powerful Big Business leaders: notably John D. Rockefeller, Jr.’s Industrial Relations Counselors and its successors, and W. Averill Harriman’s Business Advisory Council of the Department of Commerce…

We can rest assured that the power elite, the crucial special interest groups we have been analyzing, have no sentimental attachment to party labels. Republican? Democrat? Who cares, so long as they are under control by the “right” people. “What’s good for the ______ ” is the overriding consideration, and you can fill in the blank with any one of these power elite groups.

This analysis is, of course, important to help us understand what is going on now. In 2009, Lew Rockwell wrote (My emphasis):

Good for Ron [Paul] for stirring these two establishment mullahs to oppose him. But forget their official arguments, which are always a smokescreen in the state-bankster world. Remember that Greenspan was a J.P. Morgan (i.e., Rockefeller) economist before he ascended to the Fed. Now he works for hedge funds and big banks in NYC. Volcker was vice chairman of Rockefeller’s Chase Manhattan Bank before his apotheosis. Now he runs the J. Rothschild investment bank on Wall Street. Power-elite analysis is what we need. As Murray Rothbard always said, look to where high state officials come from, and where they go after their terms in office. This is criticized as conspiracy-theorizing, since men like Greenspan and Volcker are guided only by their view of the common good. Hah! Who lines their pockets, and what are their goals? That is what we always want to know for actual political science, let alone Fed analysis…

And so, as the power-elite take over more of the economy and become bolder in stuffing their own pockets with billions, it is important to understand that this is nothing new and that Murray Rothbard understood the power-elite influence on government, decades ago.

As we head into the year 2011, with Ron Paul now in charge of overseeing the beating heart of the power elite’s core, as chairman of the House Subcommittee on Monetary Policy, it is important to understand what Rothbard taught, that the power elite have been influencing government for a long, long time, and they are not used to outsiders demanding an audit, poking around and understanding what they are up to. The battle that Ron Paul is taking on, when he takes on the power elite’s piggy bank, the Federal Reserve, will be of epic proportions.

It is the writings of Rothbard, more than anyone else, that help us understand the power elite machinations that allowed them to take billions. And in the year ahead, it is the teachings of Rothbard that will help us understand the battle that Congressman Ron Paul has taken on.

There is no economist who comes close to deserving the 2010 EPJ Economist of the Year Award, in these particular times, as much as Murray Rothbard. Rothbard’s writing are significant in many, many areas, but right now, what he has taught us about the power elite, should be front and center.

The Triumphant Return of Hayek

Bernanke says he is doing everything Milton Friedman would have had the Fed do…The public doesn’t buy it. There’s a growing backlash against the Fed’s monetary activism…

In a sign of the times, some of the most popular videos on YouTube this year are satires on economic policy; the latest lampoons the Fed amid a growing feeling that policymakers are committing what economist Friedrich Hayek called the “fatal conceit” in micromanaging the economic cycle. Hayek hated policy intervention of any kind. Keynes, Friedman, and Hayek were leading lights of the three most influential schools of economic thought of the last century. Hayek was associated with the Austrian school, ascendant in the 19th and early 20th centuries, which argued that the private sector should be left free to carry out the task of any readjustment in a downturn. Faith in the market’s purging power served the U.S. well in the 19th century, when the economy emerged stronger after each recession…

Quantitative Easing Explained

An Interview with the President of the Ludwig von Mises Institute Poland

From Austrian economists’ point of view, responsibility for the current breakdown lies entirely with the state and central banking. In an interview with Bankier.pl, Witold Falkowski, the president of the Ludwig von Mises Institute Poland, explains where the economic crisis comes from and how to avoid the return of recessions.

[Bankier.pl] Who was Ludwig von Mises?

[WF] Mises was a distinguished economist and praxeologist. As he mentioned himself, a real economist he became after reading ‘Principles of Economics’ by Carl Menger, the founder of the Austrian school of economics. Mises was highly esteemed and respected as a researcher in the twenties and thirties. The Austrian school and Mises were forgotten though, ever since Keynes’ ideas became popular. Jörg Guido Hülsmann, author of a recent monumental biography of Mises, titled it: “Mises: The Last Knight of Liberalism”. Indeed, Mises was a consistent and staunch defender of the truth which he regarded as economic liberalism, not very popular in academic circles in the U.S., where he spent over 30 years, and still unpopular in state capitalist Europe. Thanks to his consistency and intellectual activity the Austrian school has survived, and recently even been booming.

Mises was also a knight in a more literal sense. In winter 1918-1919, when the Marxists gained influence in the government of Austria, he personally persuaded Otto Bauer, the leader of the Marxists, and his wife Helena Gumplowicz to give up plans for an alliance with Moscow and the introduction of the Bolshevik regime in Vienna. Therefore we can say that Mises won an important battle in defense of civilization.

What determines the uniqueness of Austrian economics?

Its normality – we are living in abnormal times when evil is often referred to the good, theft to justice, savings to suppression of demand, good of certain interest groups to the public good. The Austrian School stubbornly asserts that there is no reason to take away people’s money in the name of some public benefit, as there is no investment without savings and capital accumulation, and the market is able to provide almost all goods and services the consumers need.

In the scientific sense, what determines the peculiarity of the school is: its methodological individualism (we study various phenomena, and not their aggregates, the average statistics, etc.); subjectivism (no objective economic values, price depending on supply, demand, preferences of the seller and buyer); realism (these are units who work, rather than collectives, aiming to improve the situation of acting). Austrian economics is firmly rooted in praxeology, a philosophical study on the effectiveness of action. It indicates certain rules, which control human action, and warns against the consequences of violations of these rules. Such violations include, for example: dictating to people what is good for them; forcing entire populations to follow certain regulations and economic compulsions (maximum prices, minimum wages, tariffs, state insurance, subsidizing certain spheres of the economy, fiat money, and many others).

Austrian economics, unlike the British tradition and all of today’s mainstream, is actually not divided into macroeconomics and microeconomics. Economic laws are universal and the activity of all market participants ultimately boils down to the actions of individuals. Reflections on the aggregates, models and the shape of the national and the world economy are the areas of speculation which the Austrians do not enter.

There is one more distinctive feature of Austrian economics. Austrians believe that economics is the science which everyone can and should learn, because it concerns everyone. Practicing economics, as something between social engineering and creative accounting, is in our opinion a blind alley or rather a way that leads to increasingly serious crises and large scale manipulations. Economics should be taught from kindergarten.

Are achievements of Austrians still valid?

As valid as the law of gravity. Austrians do not announce anything sensational, they rather call not to be against human nature, which is analogous to the force of gravity, which affects all animate and inanimate objects. They remind us that man is not an electron brain but a being with the specific evolutionary constraints. Accumulated in the human mind is both discursive knowledge, that can be used to create clear plans, and practical knowledge (Hayek called it ”Metis” from Greek, after James Scott), which is rather encoded in the mind and body, passed in culture and customs, distributed within society. If all human knowledge is brought to the discursive layer, we will not only deprive it of substantial resources but also allow dangerous abuse, which Hayek called the ‘fatal conceit of reason’.

The Austrian theory of money and business cycles is especially current during the smoldering crisis. Austrians consistently preach that fiat money, created “ex nihilo” paper money as the credit, has to destabilize the economy because it gives a man the power that no one should have, a temptation which no power can oppose…