Written by Bob Maschi   

The Austrian School of Economics [is] for Dummies
Part 1 & Part 2 (Part 2 is below)


Texas Republican Congressman and oft-time presidential also-ran Ron Paul has said “I’ve been a student of Austrian economics and I believe they’re right.” He went even further during a recent speech and offered, “We are all Austrians now” (which is a pretty odd thing for someone pursuing the American presidency to claim). He’s speaking, of course, about the ‘Austrian School of Economics’ which he’s written books praising and mentioned in his presidential primary debates. Names associated with this school include; Ludwig von Mises, Carl Menger, Murray Rothbard, Llewellyn Rockwell and Friedrich Hayek (a libertarian who shared a Nobel Prize with Swedish socialist Gunnar Myrdal – the committee’s idea of a practical joke, no doubt).

Former Federal Reserve Chairman; Alan Greenspan, is a semi-fan. He once said, “the Austrian School have reached far into the future from when most of them practiced and have had a profound and, in my judgment, probably an irreversible effect on how most mainstream economists think in this country." Which is unusual because if there’s one thing Austrian Economists hate more than any form of socialism it’s the ‘Fed’ and its Chairman (even a former Chairman).

Basically, this ‘Austrian School’ is composed of libertarians who promote laissez-faire, free market capitalism feeling that government, in any form, not only infringes on people’s political rights (to exploit each other) but also tosses a monkey wrench into the economic system. According to them, government should not, or should barely, exist and it should not regulate or tax corporations or otherwise interfere in business matters. Their creed is solely based on the individual and against all forms of collectivism – I will leave it to one of them to explain why a ‘school of economists’ is not a form of that collectivism (it is).

Learning about this branch of economics isn’t difficult at all. The main tenet of the “Austrian School of Economics” is (drum roll, please) that they do not believe in science! They feel that economics is too complex for it to rely on statistics and studies and experiments and pie charts and such. Instead of the scientific method, they believe that ‘rational’ thinking on the way that humans behave is the way to explain economics. Of course, this only becomes a way to embrace circular thinking, as in: I am a member of the Austrian School of Economics and I believe in free market capitalism; therefore, free market capitalism works because the Austrian School of Economics, of which I am a part, says it does. They are kind of like the Intelligent Design fringe of economists.

"Math cannot predict human action," is a generic phrase linked to the Austrian School (just as “Taxes are theft” is a generic phrase linked to Libertarianism). “It's just a lot of math completely removed from reality…” Murray Rothbard told the Christian Science Monitor in 1994. That same publication quotes Llewellyn Rockwell, “We feel that all of economics can be deduced logically from certain self-evident axioms.” (It is not entirely correct that this Austrian School rejects all science. Just as with Creationists, Austrian Economists will believe in science – as long as that science validates their tightly-hugged theories).

Through this illogic the School is able to claim that everything bad that happens is the fault of government and anything good that happens is the product of free markets (The sun is warm – free markets. Pain hurts – government). No amount of facts can convince them otherwise because they don’t believe those facts are, actually, factual. You cannot argue with them. You cannot debate them. You cannot prove them wrong because by even trying to do so one is only proving their inadequacy to deal with such uncomplicatingly complex issues. Many of us have been confused by the rush to privatize our society which continues even though that privatization has obviously had much to do with our current financial collapse. But according to the Austrian School of Economics, privatization is not the problem. Not enough privatization is the problem (because this is what they firmly believe, damn it!).

When looking into this subject it quickly becomes really clear that one has to have a pretty large ego to belong to this economic school (I understand that there’s a vanity test built into the admissions process). Anyone who has challenged an avid Ron Paul supporter knows exactly what I am speaking about. But as further acknowledgment let’s look at a quote by Ludwig von Mises. It helps if you picture an old bird-face guy with a cheesy mustache flapping his elbows as he speaks: “In all nations and in all periods of history, intellectual exploits were the work of a few men and were appreciated only by a small elite. The many looked upon these feats with hatred and disdain; at best with indifference. In Austria and in Vienna the elite was especially small; and the hatred of the masses and their leaders especially vitriolic.”

Ahhh… here we have proof of not only an enlarged ego and a hatred for the average person but of a paranoid persecution complex as well! And that persecution is brought down upon those ‘elites’ by those cowardly masses of people who dare not agree with them. It is this vanguard, these self-anointed, unscientific scientists who plod forward while trying to outrace the unwashed crowds chomping at their behinds. And if you do not believe that these adherents to the ideals of free-market libertarianism are members of the elite, just ask one. They’ll be pleased to confirm it for you.

NEXT: The History of Austrian Economists – Where They Came From and Where They Can Go


The Austrian School of Economics [is] for Dummies
Part 2 – The History of Austrian Economists – Where They Came From and Where They Can Go


Following up on my last report, I was curious as to the historical setting of the Austrian School of Economics. Luckily, I found a book by Ludwig von Mises called; The Historical Setting of the Austrian School of Economics, from which much of this information is taken.

In its kindergarten stage, this school began murmuring in the mid 1800s when most European governments were either run by royalty or emerging from such a government. In a royal government there was little real, or imagined, democracy. To be born of ‘noble’ blood usually meant a life of ease and privilege. To be born poor meant to live a life of poverty with very little hope of changing that condition. Government jobs were patronage for good deeds performed for the elite’s comfort. Taxes were what poor and working people paid to benefit the royalty. The Austrian School of Economics began as a promotion of economic democracy in the form of free market capitalism―to each according to their abilities (with one’s parents having little to do with it, unless you count inheritance). This was a revolutionary concept, even progressive, that challenged the foundations of the royal economies ruling the planet.

By the first half of the 20th century the Austrian School had become established and had even had some effect on the world economy (some would suggest helping to lead that economy into the Great Depression, though you won’t find this on too many Austrian economists’ resumes). This was a time when some governments were experimenting with fascism. Fascism, a corruption of capitalism, was described by its founder; Benito Mussolini: “Fascism should more properly be called corporatism because it is the merger of state and corporate power."

Anti-government libertarians of the Austrian School found fascism to be a horrible idea. Almost as horrible an idea as that big-government monster that Stalin was building in Russia. World events were especially irritating to Friedrich Hayek (the best known member of this Austrian School). The Italian and German fascist governments were gobbling up Europe as Stalin’s mega-state loomed at the edges. The fascist Franco had taken Spain. Japan, under the rule of their emperor and the grip of the military had begun to invade its neighbors. The United States, under Franklin D. Roosevelt, had successfully implemented massive government jobs programs and public works projects. According to Hayek, all of these economies were either borrowing from socialism or an abomination of socialism. In the introduction to his book; The Road to Serfdom, Hayek wrote: “If it is no longer fashionable to emphasize that ‘we are all socialists now’ this is so merely because the fact is too obvious. Scarcely anybody doubts that we must continue to move toward socialism, most people are merely trying to deflect this movement in the interest of a particular class or group. It is because nearly everybody wants it that we are moving in this direction…”Note that Hayek didn’t see much difference between Roosevelt’s America and Hitler’s Germany (Hayek would eventually compromise some of his views which made him much harder to argue against, and much less a libertarian).

The Austrian School of Economics began as a critique against the corrupt rule of royalty. Good! It continued and grew to oppose the fascism of Mussolini and the Nazism of Hitler. Good! It challenged Stalin’s inhumane monster state. Good! And eventually it turned its sights against programs like Social Security, the minimum wage and Food Stamps…

Huh?

Hayek and other Austrian Economists saw little difference between the World War II American and German governments. The latter used government to promote its barbaric and cruel agenda and the former would eventually do the same. True believers in this school didn’t (and still don’t) see a difference between a government that served an elite group of masters and a government that truly serves its citizenry. (Wait! I am not making the case that our current government serves the citizens. I am only making a case that FDR’s administration was more supportive of the people and less supportive of the wealthy. That is obviously no longer true of our government).

The consistent truth is that all governments represent someone. Until modern times most governments only represented royalty or the very rich. More recently, some governments grew to represent large corporations or, even, their own bureaucrats. Still, a change has been occurring over the last hundred years or so where many governments have come to, at least partially, represent the people and lands who make up their nation. I doubt that Japan’s Emperor Hirohito cared much about workplace safety laws like those that fall under the reach of the Occupational Safety and Health Administration (OSHA). Or that Stalin ordered protection for endangered species as the Environmental Protection Agency (EPA) does. Or that Hitler wanted to safeguard workers’ right to organize as the National Labor Relations Board (NLRB) sometimes does (the key word being ‘sometimes’).

Sometime after the Great Depression (which, simply said, was a collapse of capitalism) many governments began to restrain the wealthy and their corporations. They made laws to protect our drinking water, to reduce emissions into the air, to keep our workplaces safe, to send all children to school instead of to work, to inspect the foods and medicines we take in, to offer citizens a minimum level of income, to provide (at least) basic health care to all or most. As a group, the wealthy opposed all these reforms as an attack on the free markets―which they were. And ever since, they (with the support of so-called Austrian economists) have been organizing against these reforms and against any form of government that represents the people as well.

There will always be government no matter what you want to call it (the state, soviets, board of directors, council, whatever). The real issue is whom that government represents. Government is only a problem when it works for someone else and against your own best interests. The Austrian School of Economics, which began as a progressive movement fighting against the privileges of royalty, lost its reason for existence when Europe’s kings and queens lost their ability to declare war.