“If by left you mean Democrat and by right you mean Republican, then Austrian economics is neither left nor right.” – @EconCircus[i]
When someone asks what is Austrian economics, without hesitating you can say something like: Austrian economics is the economics of capitalism, as opposed to all other economic schools that support socialism; it is the only school that supports the free market, while all the rest support statism; it is the only school that thinks the Fed’s $4 Trillion bailout is theft, or in the simplest terms you can say that the Austrian school is real while all others are fake.
It gets worse because when you do a google search you’ll find a Wikipedia result that describes Austrian economics as a “heterodox school of economic thought that is based on methodological individualism.”[ii] The definition may be perfect, but if the goal is to educate others about an idea that is foreign to them, then we must first start in the simplest of terms and then move to the complex.
We must first start at definitions then move on to concepts, starting with capitalism, defined by private individuals owning the means of production, as opposed to socialism which means anything other than private individuals, or their corporations, owning the means of production.
Some prefer to use the term voluntary to describe any activity that is free of violence or coercion (capitalism), versus involuntary (socialism) to describe the Government/ the State/ the People owing the means of production. I prefer the term ‘the State,’ but will interchange this with ‘the Government’ as they mean the same thing; as represented by the ‘force’ or ‘body’ that opposes your individual liberty and can legally steal from you in the name of the ‘greater good.’
Murray Rothbard provides the definition of ‘the State,’ as follows:
…the State is that organization in society which attempts to maintain a monopoly of the use of force and violence in a given territorial area; in particular, it is the only organization in society that obtains its revenue not by voluntary contribution or payment for services rendered but by coercion.[iii]
The State can help us derive the word known as statism, or the idea that the State should own or substantially influence and control a country via the means of production. Most people don’t understand this word or realize that they are a statist, but the notion of a free market opposes the idea of statism.
Interventionism also falls under anti-capitalism or socialism, and it can refer to anti-capitalist acts of government such picking winners and losers, extending special privileges to some groups at the expense of others, and all other market activity such as tariffs, bailouts, central banking, subsidizes, tax breaks or credits to the few at the expense of the many. Once there is intervention in the free market, the market ceases to become free; those who advocate such acts are called interventionists.
It is a factual statement to say that Austrian economics supports capitalism and that all other economic schools do not. But who are these ‘other schools?’
The main ‘economic school of thought’ is known as Keynesian Economics and derives from John Maynard Keynes, who wrote The General Theory in 1936, basically stating that government should spend money to better control the economy. The other famous school is the University of Chicago, made famous by Milton Friedman several decades after Keynes. Friedman is considered to be a free market advocate; however the Chicago School or Monetarism believes that a Central Bank should control the money supply to help better control the economy. There are other schools and branches of economics but these ideas form the basis of mainstream economics or ‘orthodox’ economics. The entire field of mainstream economics has essentially become statism since Keynes and is administered by economists with Ph.D’s who believe that the government and its highly trained technocrats can better plan the economy than the free market.
Diametrically opposed to orthodox economics is Austrian economics or ‘heterodox’ economics, which began in 1871 when Carl Menger wrote Principles of Economics. In the 20th century it was Ludwig von Mises, Murray Rothbard, F.A. Hayek and Henry Hazlitt who became the most prominent Austrian economists. It has been many decades since any serious discussion over free market principles and Austrian economics has occurred, while the very notion of Austrian economics remains foreign to the overwhelming majority of economists who hold Ph.D.’s. It is both sad and ironic that Austrian economics is about 150 years old and predates all other schools yet has been ignored for all these years. Why is this the so?
“The Problem” with the Austrian school is that it does not support intervention into the free market, known as laissez-faire (leave it alone). It is also the Austrians who noted that due to the act of central banking and fractional reserve banking, increases in the money supply (known as inflation) and the contraction of it, have created the boom and bust cycle. This became known as the Austrian Business Cycle. The Austrian school is rich in history and books, while the Mises Institute has a library of thousands of books that all advocate non-interventionism and free market principles that support these ideas. If there is a problem with the Austrian school, then it is that that they have studied economics in order to seek the truth, not in order to control society through central planning.
The problem with having a world financial system that is anti-capitalist and supports statism is that it leads to the destruction of capital, lives and livelihood. You get problems such as a central bank that creates over $4 Trillion out of thin air to give to the richest bankers in the world under the pretense of saving the world from unknown cataclysms, in 2007. You also get things such as world governments debasing their currencies, creating money in order to buy stocks and bonds, high world debt levels and interest costs, tariffs, subsidises, bailouts, price controls, monopolies and the picking of winners or losers. In extreme cases you have anti-capitalist dictatorships and hyperinflation across the globe. The only school that advocates against such interventionist policies is the Austrian school.
To say that Austrian economics is real and all other schools are fake, is a true statement that one can say with no hyperbole or exaggeration; there are no models or stats to manipulate, equations to fix and no Austrian wants to resort to inflationism in order to better plan the lives of the masses. When one understands the difference, the truth will emerge. There have been countless critiques, books and articles that Austrians have wrote that debunk practically all things related to mainstream economics over the last 100 years, but still this does not make front page news nor is it taught in schools across the country. In Canada it is not taught at all, while in America there are only a few University-college programs that study it.
Econ Circus invites all readers to give freedom and liberty a try. Austrian economics does not concern itself with the left or the right, it has no allegiance to any political ideology, and rather, it seeks to understand truth in economics. For its honesty it has been willfully ignored by mainstream academia to the detriment of society. The difference between Austrian versus mainstream economics cannot be taken lightly, it is the difference between capitalism/socialism, voluntary/involuntary, individualism/collectivism; one leads to prosperity while the other leads to catastrophe.
[i] @EconCircus tweet on January 11, 2020.
[iii] Murray Rothbard, Anatomy of the State, (Auburn, The Ludwig von Mises Institute, 2009), 11.