Today we’re going to hear from Mises himself… well, sort of. We’re going to hear from Peter Benesh, who recently wrote an excellent article for Investor’s Business Daily. I had prepared an entry to introduce a definition of the Austrian School of Economics, when I came across this article and thought it would serve us better than my efforts. Unless something comes up, I’ll post the introductory definition on Tuesday.
One thing to keep in mind when considering the difference between Austrian and Keynesian economics is in regard to control. It’s really quite simple, in a sense. Keynes taught that the market needed to be manipulated in order to attain greater proficiency. Austrians teach that markets must be left alone in order to gain greater proficiency.
For Keynesians, formulas are developed in order to understand the economy. These formulas are then manipulated in an effort to get them to “equal” a stronger economy. Austrians, on the other hand, study to understand what the economy is doing in order to use it to be more productive.
Another way to put it is that Keynesianism manipulates the markets in pursuit of profitability (some would say, for greater control and power). Austrians recognize the dynamics of the markets and respond in pursuit of profitability.
For the Austrian, it’s really quite simple. Supply and demand will eventually work things out. There may be wrinkles and challenges along the way. But, eventually the market, if left alone, will correct itself. Any control necessarily disturbs the natural equation, resulting in a cascading effect that demands further control in order for the original control to perform as expected. It is inevitable that such control will eventually snowball into an avalanche.
With this brief introduction, we’ll turn the rest of this entry over to Mr. Benesh.
Let Free Markets Work, Said Ludwig Von Mises
By PETER BENESH, FOR INVESTOR’S BUSINESS DAILY Posted 12/13/2011 01:47 PM ET
Ludwig von Mises was born in Ukraine, studied in Vienna, fought in World War I, and in 1940 landed in America, where he lectured and wrote books.
If he were around today to see the economic mess in the U.S. and Europe, Ludwig von Mises would be entitled to a big, fat “I told you so.”
Mises held that whenever government tinkers with the economy, especially the money supply, it screws things up.
Natural market forces do a better job of ironing out inflation, ending a recession and boosting employment, he said and wrote.
Though he lived to age 92, from his birth in 1881 in what is now Ukraine to his death in 1973 in New York City, Mises never drew the plaudits he deserved, says Jeffrey Tucker, executive editor of Laissez Faire Books, a libertarian publisher and bookseller owned by financial forecasting firm Agora Financial.
“Mises deserves every bit as much recognition as his contemporary, Albert Einstein,” Tucker told IBD.
Mises, however, worked mostly in obscurity, unlike his contemporary and nemesis John Maynard Keynes. Mises’ long list of books would earn him renown only among those who saw folly in Keynesian economics.
Keynes’ seminal book, “The General Theory of Employment, Interest and Money,” published in 1936, seduced economists and governments with its premise and promise that government can fix economic downturns with big infusions of public money.
In 1999, Time magazine asserted that Keynes’ “radical idea that governments should spend money they don’t have may have saved capitalism.”
- Developed the theory that economics is a human activity rather than a math formula, concluding government should stay out of economic management.
- “The issue is always the same: the government or the market. There is no third solution.”
The infatuation continues, says Tucker, whose latest book, “It’s a Jetsons World: Private Miracles and Public Crimes,” likens the private sector to the futuristic Jetsons, and government to cave-dwelling Flintstones.
Mises taught that digging out the economy by central banks is foolish because it lets governments spend without limits, leading to economic chaos. “Some things Mises was writing back in the Great Depression read as if he’s talking about right now,” Tucker said.
Despite Keynes’ dominance in political thought, Mises’ views are right in the arena. All his books remain in print, from 1912’s “The Theory of Money and Credit” through 1949’s “Human Action: A Treatise on Economics” and his last book, “The Ultimate Foundation of Economic Science,” published in 1962.
Mises gets most of the credit for growth of the Austrian School of Economists, a libertarian movement with its roots among 19th-century Austrian thinkers.
Adherents to its precepts espouse a more sociological than mathematical approach to economics. They contend statistics are not as important as the logic of human behavior. Basic to this view is a laissez-faire, or libertarian, philosophy.
While Keynes was more alluring to politicians, Mises’ Austrian School gained a boost when, in 1974, his pupil and acolyte Friedrich Hayek landed a Nobel Prize in economics in 1974.
Austrian School economists say that governments exploit monetary inflation, along with taxation and borrowing, to fund their operations, thus have a vested interest in inflation, taxes and debt.
Mises condemned government intervention in the economy, says Bettina Bien Greaves. She attended Mises’ seminars at New York University in the 1950s, befriended the economist and his wife, and compiled “Mises: An Annotated Bibliography.”
“His criticism of government intervention was a recognition of the fact that money is a medium of exchange, and when government interferes with its quantity, it interferes with the whole economy,” she told IBD.
Government sees the solution for every economic problem as the creation of more money, she said: “And if you can print paper money and force people to use it, it’s bound to destroy the economy.”
Mises, working as an economic adviser to the Austrian government after World War I, raised the alarm as Germany began doing just that. “He saw that if the German government kept inflating, they’d have a problem,” Greaves said.
And they did. The economic hardship caused by the infamous hyperinflation of the Weimar Republic contributed to the rise of Nazism.
“Mises did issue a warning,” Greaves said. His insights and behavioral approach to economics stemmed from a childhood that encouraged education and innovative thought, she says.
Mises’ father was a construction engineer with the Austrian railway. Both parents came from high-profile Viennese families.
Ludwig and his brother Richard were encouraged to excel. “They came from a family of intellectuals,” Greaves said.
Younger Richard was a scientist and mathematician who became prominent for his work in solid and fluid mechanics, aerodynamics, aeronautics, statistics and probability theory. He eventually taught at Harvard University.
Ludwig seems not to have shared Richard’s enthusiasm for math. “He was interested in history from the earliest age,” Greaves said.
As a child, he collected newspaper front pages, she says, adding, “He was a good student.” By age 12, he spoke Yiddish, German, Polish and French, and read Latin.
Later, he taught himself English.
With a clear track to the University of Vienna, he earned a doctorate in 1906, with a focus on economic history.
Sometimes his interest took a turn toward the obscure. “His first book was a historical study of the cost of agricultural products in the Ukraine,” Greaves said. – READ THE REST OF THE ARTICLE HERE.