The Austrian Economists: Reading

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Posted by Pete Boettke on October 10, 2008 at 09:14 AM | for much nicer original, click here

Reading

We professors read everyday, some of us write everyday, and we tend to lecture anywhere from 1 day to 5 days per week depending on our position. For readers of this blog, I wanted to give two quick reading references that I think are worth the effort.

I often don't agree with John Cassidy, but his articles that have appeared in The New Yorker and in the New York Review of Books are always intelligently written. He writes sophisticated pop economics from the left. I don't find him shrill (Paul Krugman has that covered) and I don't find him uninformed (Naomi Klein has that covered). He currently has an essay on George Soros's new book on finance. Soros has always fancied himself as not only an amazing investor, but a financial theorist and a social philosopher. Soros is not as deep a thinker as he thinks, but his discomfort with mainstream models of economics and finance is not completely unfounded. His social philosphic doctrine is also not as original as he thinks, but the culture of criticism and free discourse he envisions is not horrible. He is in a fundamental sense a one note wonder --- "reflexivity" in finance, and "open society" in social philosophy. But Soros is unable to see the connections between the two and why that would lead to a more open system (both in economics and politics). Instead, Soros sees the need for interventionism and even government control, but somehow it will be run under the principles of a open society. Complete and utter innocence of public choice, and the revealing of a fundamental ignorance of mainline economics from David Hume and Adam Smith to Ludwig von Mises and F. A. Hayek. Soros is a casualty to the victory of general competitive equilibrium in post 1950 economics, combined with a desire to be part of the hip crowd on the social democratic left. Anyway, Cassidy's essay is very good and it reflects the informed opinion of thoughtful critics of the market economy. There are some very good points in there to think about.

Amar Bhide has a new book out, The Venturesome Economy: How Innovation Sustains Prosperity in a More Connected World. This is a brilliant work and should be on everyone's reading list for the holidays. Seriously. Bhide demonstrates through detailed examination of the facts how the mechanisms of innovation actually work to spread knowledge, realize the gains from trade and realize the gains from innovation throughout the globe. His work seriously challenges the policy consensus in Washington about technological innovation. To put it bluntly, economic progress is a function not of state funded basic research, but of the development of technological applications in commercial endeavors.

Bhide is not only spot on when it comes to this point, but I think his chapter "On Methods and Models" might provide one of the best discussions of the shortcomings of econometric analysis for questions dealing with economic development and change. (Bhide doesn't develop this argument, but he does point out in a fn on p. 245 that one of his criticisms applies to the legal origins literature and so should be of interest to many readers of this blog).

Finally, as this crisis unfolds my attentions have been brought back to the Austrian Theory of the Trade Cycle. A lot of comments on this blog have made reference to work by Mises and Hayek, but actually the current events and the discussion of the reasons for our troubles resurrects in my mind the great contribution that Murray Rothbard made with America's Great Depression. Unfortunately, we will need not just a reprint of this great work, but a rewriting of the book applied to our new situation by somebody who has the theoretical command of the issues that Rothbard had, the ability to write in plain language in a clear and forceful manner as Rothbard had, and by somebody who has the skill to write history the way Rothbard did. And finally, the courage to actually take the principled stance on liquidation and market adjustment in the face of a tidlewave of "pragmatic" concessions to practical politics.

My advice to young Austrians --- read Rothbard's classic and take his example of bold and courageous scholarship to heart.