This blog was originally posted on 3\/13\/2012 –<\/p>\n
Lest there be any confusion, I write this as a \u201cleft-winger\u201d who believes in \u201csocial democracy\u201d, \u00a0that is, a strong role of the government in striving for an economy maximizing the growth and freedom potential of ALL citizens regardless of the hierachical \u00a0forces of wealth, status, position, ethnicity, gender, etc. that synergize to promote advancement of some select few people to the detriment of the majority of the people. The fundamental economic talking points of conservatives pertaining to economics were originated in what is commonly called the \u201cAustrian\u201d school of economics. These talking points include the condemnation of the government\u2019s involvement in the economy and center upon the idealization of \u00a0\u201cthe market\u201d, namely that system of allocating resources based on fundamental economic factors, such as supply, demand, and price, \u00a0without government influence or regulations or other external sources of interference. These factors, so it turns out, serve to create a falsified idealized self-regulating society of individuals where the facts of \u00a0the powerful unconscious, irrational, and exploitative forces dictate outcomes such as depressions, genocidal wars, massive oil spills, famines, pandemics, and other disasters dismissed within a social darwinistic framework and ethics of the \u201claw of the jungle\u201d. \u00a0In lay terms, we are accustomed to hearing in the speeches of republican politicians the evils of \u201cbig government\u201d, \u201cgetting the government off our backs\u201d, etc. This populism has been very successful in evading the crucial and essential questions as to the ultimate source of tyranny, the transnational corporate behemoths wielding irresistible influence, if not coercion, behind in the scenes where the de facto deciders write our laws and dictate the actions and policies of our elected officials. This anti-government populism emanates from and legitimizes itself via \u201cAustrian economics\u201d and, therefore, I find it essential to initiate an exploration as to what this type of economics entails.<\/p>\n
The term, \u201cAustrian economist\u201d usually refers to either Ludwig von Mises or Friedrich Hayek, those revered by Ron Paul and many other followers of the libertarian school of thought. But my essay here is on the original \u201cAustrians\u201d, the men whose intellectual contributions were essential to the idealization of the \u201cfree market\u201d and the denigration of the government in terms of maximizing human freedom and potential for wealth and material success.<\/p>\n
Of course Adam Smith is the father of \u201cfree market\u201d or classical economics, even though he had a place for government participation in the market while extolling the basic mechanisms of the market in his 1776 magnum opus,\u00a0The Wealth of Nations<\/strong>. And David Ricardo followed in 1817 with his\u00a0On\u00a0the Principles of Political Economy and Taxation<\/strong>\u00a0in which he explained free trade, diminishing marginal returns, and how printing excess money caused inflation, a crucial justification or rationale for the gold standard still bellowed forth today by Ron Paul and his supporters in condemnation of the fiat-currency-producing Federal Reserve.<\/p>\n THE FIRST THREE \u201cLIBERTARIAN\u201d ECONOMISTS: CARL MENGER, WILLIAM STANLEY JEVONS, AND LEON WALRAS<\/strong><\/p>\n Now only one of the three men I\u2019ll be discussing, Carl Menger (1840-1921), was an Austrian, because he studied and published in Vienna, though he was born in Poland. William Stanley Jevons (1835-1882) was English and (Marie-Esprit-) Leon Walras (1834-1910) was Swiss. \u00a0These three men are accredited with what is called\u00a0The Marginal Revolution<\/strong>\u00a0whereby the labor theory of value was rendered obsolete by the newly proclaimed law of diminishing marginal utility, also referred to as the marginal or neoclassical theory of value. In plain English this means both the utility and value of each additional unit of a commodity, that is, the marginal utility, possesses less value to the consumer. The Concise Encyclopedia of Economics\u00a0http:\/\/www.econlib.org\/library\/Enc\/bios\/Jevons.html<\/a>\u00a0explains: \u201d\u00a0When you are thirsty,\u00a0for example, you get great utility from a glass of water. Once your thirst is quenched, the second and third glasses are less and less appealing. Feeling waterlogged, you will eventually refuse water altogether. \u201cValue,\u201d said Jevons, \u201cdepends entirely upon utility.\u201d Further\u00a0details of this are laid forth here:<\/p>\n http:\/\/en.wikipedia.org\/wiki\/Marginal_utility#The_Marginal_Revolution<\/a><\/p>\n Wikipedia gives us synopses of these 3 \u201cMarginal Revolutionaries\u201d:<\/p>\n William Stanley Jevons<\/a>\u00a0first proposed the theory in\u00a0\u201cA General Mathematical Theory of Political Economy\u201d<\/a>\u00a0(PDF<\/a>), a paper presented in 1862 and published in 1863, followed by a series of works culminating in his book\u00a0The Theory of Political Economy<\/em>\u00a0in 1871 that established his reputation as a leading political economist and logician of the time. Jevons\u2019 conception of utility was in the\u00a0utilitarian<\/a>\u00a0tradition of\u00a0Jeremy Bentham<\/a>\u00a0and of\u00a0John Stuart Mill<\/a>, but he differed from his\u00a0classical<\/a>\u00a0predecessors in emphasizing that \u201cvalue depends entirely upon utility\u201d, in particular, on \u201cfinal utility upon which the theory of Economics will be found to turn.\u201dHe later qualified this in deriving the result that in a model of exchange equilibrium, price ratios would be proportional to not only to ratios of \u201cfinal degrees of utility\u201d but costs of production.<\/p>\n Carl Menger<\/a>\u00a0presented the theory in\u00a0Grunds\u00e4tze der Volkswirtschaftslehre<\/em><\/a>\u00a0(translated as\u00a0Principles of Economics<\/em><\/a>) in 1871. Menger\u2019s presentation is peculiarly notable on two points. First, he took special pains to explain\u00a0why\u00a0<\/em>individuals should be expected to rank possible uses and then to use marginal utility to decide amongst trade-offs. (For this reason, Menger and his followers are sometimes called \u201cthe Psychological School\u201d, though they are more frequently known as \u201cthe\u00a0Austrian School<\/a>\u201d or as \u201cthe Vienna School\u201d.) Second, while his illustrative examples present utility as quantified, his essential assumptions do not.[11]<\/a><\/sup>\u00a0(Menger in fact crossed-out the numerical tables in his own copy of the published\u00a0Grunds\u00e4tze<\/em>.[40]<\/a><\/sup>) Menger also developed the\u00a0law of diminishing marginal utility<\/a>.[14]<\/a><\/sup>\u00a0Menger\u2019s work found a significant and appreciative audience.<\/p>\n Marie-Esprit-L\u00e9on Walras<\/a>\u00a0introduced the theory in\u00a0\u00c9l\u00e9ments d\u2019\u00e9conomie politique pure<\/em>, the first part of which was published in 1874 in a relatively mathematical exposition. Walras\u2019s work found relatively few readers at the time but was recognized and incorporated two decades later in the work of\u00a0Pareto<\/a>\u00a0and\u00a0Barone<\/a>.<\/p>\n Of the 3 Marginal Revolutionaries, Menger comes off as the best as per the Concise Encyclopedia of Economics assessment of him:<\/p>\n \u201cUnlike Jevons, Menger did not believe that goods provide \u201cutils,\u201d or units of utility. Rather, he wrote, goods are valuable because they serve various uses whose importance differs. For example, the first pails of water are used to satisfy the most important uses, and successive pails are used for less and less important purposes.<\/p>\n Menger used this insight to resolve the diamond-water paradox that had baffled\u00a0Adam Smith<\/a>\u00a0(see\u00a0marginalism<\/a>). He also used it to refute the labor theory of value. Goods acquire their value, he showed, not because of the amount of labor used in producing them, but because of their ability to satisfy people\u2019s wants. Indeed, Menger turned the labor theory of value on its head. If the value of goods is determined by the importance of the wants they satisfy, then the value of labor and other inputs of production (he called them \u201cgoods of a higher order\u201d) derive from their ability to produce these goods. Mainstream economists still accept this theory, which they call the theory of \u201cderived\u00a0demand<\/a>.\u201d\u201d<\/p>\n On the other hand, Carl Menger, has some fascinating quirks, like pioneering an \u201cempirical\u201d theory that was not really empirical, though well-intended, I am sure. The source for this is a libertarian one,\u00a0http:\/\/mises.org\/daily\/2799<\/a><\/p>\n \u201d He (Menger) \u00a0tried to trace the causes of the properties and laws under scrutiny back to the simplest facts. His purpose was to demonstrate that the properties and laws of economic phenomena result from these empirically ascertainable \u201celements of the human economy\u201d such as individual human needs, individual human knowledge, ownership and acquisition of individual quantities of goods, time, and individual error.<\/a>[11]\u00a0Menger\u2019s great achievement in\u00a0Principles of Economics<\/em>\u00a0consisted in identifying these elements for analysis and explaining how they cause more-complex market phenomena such as prices. He called this the \u201cempirical method,\u201d emphasizing that it was the same method that worked so well in the natural sciences.<\/a>[12]\u201d<\/p>\n \u201cTo the present reader, this label might be confusing, since it is not at all the experimental method of the modern empirical sciences. Menger did not use abstract models to posit falsifiable hypotheses that are then tested by experience.<\/strong>\u00a0Instead, Menger\u2019s was an analytical method that began with the smallest empirical phenomena and proceeded logically from there.\u201d<\/p>\n A nice little bio on Menger:\u00a0http:\/\/www.econlib.org\/library\/Enc\/bios\/Menger.html<\/a><\/p>\n Now the key selling point for Leon Walras seems to be his devising the\u00a0General Equilibrium Theory\u00a0<\/strong>essential for purporting the harmony of markets in being able to balance or regulate themselves. In contrast to other neoclassical (Austrian) economists, Walras was heavily into math to support his ideas. The Concise Encyclopedia of Economics notes:<\/p>\n http:\/\/www.econlib.org\/library\/Enc\/bios\/Walras.html<\/p>\n But Walras was aware that the mere fact that such a system of equations could be solved mathematically for an equilibrium did not mean that in the real world it would ever reach that equilibrium. So Walras\u2019s second major step was to simulate an artificial market process that would get the system to equilibrium, a process he called \u201ct\u00e2tonnement<\/em>\u201d (French for \u201cgroping\u201d).\u00a0T\u00e2tonnement<\/em>\u00a0was a trial-and-error process in which a price was called out and people in the market said how much they were willing to\u00a0demand<\/a>\u00a0or\u00a0supply<\/a>\u00a0at that price. If there was an excess of supply over demand, then the price would be lowered so that less would be supplied and more would be demanded. Thus would the prices \u201cgrope\u201d toward equilibrium. To keep constant the equilibrium toward which prices were groping, Walras assumed\u2014highly unrealistically\u2014that no actual exchanges were made until equilibrium was reached. If, for example, people who wanted to buy ketchup wanted more than sellers were willing to sell, then they would buy none at all. This assumption limits the usefulness of Walras\u2019s simulated process as an aid to understanding how real markets work.\u201d<\/p>\n The oddity for the second great marginalist thinker, Leon Walras, was that\u00a0AT ONE TIME HE SEEMS TO BE A COMMUNIST!!!\u00a0<\/strong>I kid you not! \u201cWalras also inherited his father\u2019s interest in\u00a0social reform<\/a>. Much like the\u00a0Fabians<\/a>, Walras called for the\u00a0nationalization<\/a>\u00a0of land, believing that land\u2019s value would always increase and that rents from that land would be sufficient to support the nation without taxes.\u201d source:\u00a0http:\/\/en.wikipedia.org\/wiki\/L%C3%A9on_Walras<\/a>\u00a0If by \u201cnationalize\u201d we mean that the state assumes ownership of the land then Walras did in fact espouse, at least one time in his life, communist propensities.<\/p>\n As for William Stanley Jevons, he is noteworthy for his\u00a0Jevons Paradox.\u00a0<\/strong>It started with his book\u00a0The Coal Question<\/strong>\u00a0which \u201ccovered a breadth of concepts on energy depletion that have recently been revisited by writers covering the subject of\u00a0peak oil<\/a>. For example, Jevons explained that improving energy efficiency typically reduced energy costs and thereby increased rather than decreased energy use, an effect now known as the\u00a0Jevons paradox<\/a>.\u00a0The Coal Question<\/em>\u00a0remains a paradigmatic study of resource depletion theory. Jevons\u2019s son, H. Stanley Jevons, published an 800-page follow-up study in 1915 in which the difficulties of estimating recoverable reserves of a theoretically finite resource are discussed in detail.<\/p>\n http:\/\/en.wikipedia.org\/wiki\/William_Stanley_Jevons<\/p>\n The Concise Encyclopedia of Economics notes \u201d\u00a0he wrote that Britain\u2019s industrial vitality depended on coal and, therefore, would decline as that resource was exhausted. As coal reserves ran out, he wrote, the price of coal would rise. This would make it feasible for producers to extract coal from poorer or deeper seams. He also argued that America would rise to become an industrial superpower. Although his forecast was right for both Britain and America, and he was right about the incentive to mine more costly seams, he was almost surely wrong that the main factor was the cost of coal. Jevons failed to appreciate the fact that as the price of an\u00a0energy<\/a>\u00a0source rises,\u00a0entrepreneurs<\/a>\u00a0have a strong incentive to invent, develop, and produce alternate sources. In particular, he did not anticipate oil or natural gas. Also, he did not take account of the incentive, as the price of coal rose, to use it more efficiently or to develop technology that brought down the cost of discovering and mining (see\u00a0natural resources<\/a>).\u201d<\/p>\n As I wind this essay up, it is important to note that other important \u201cAustrians\u201d or neoclassical economists have not been mentioned yet. Not just Ludwig von Mises or Friedrich Hayek, but others like Friedrich von Wieser (1851-1926), who notably was born in Vienna, or the British Alfred Marshall (1842-1924), and Eugen \u00a0B\u00f6hm-Bawerk (1851-1914).<\/p>\n This essay is to be taken merely as a point of entry into deeper study or at least a means of clarifying some basic points about what \u201cAustrian Economics\u201d means both conceptually and historically.<\/p>\n","protected":false},"excerpt":{"rendered":" This blog was originally posted on 3\/13\/2012 – Lest there be any confusion, I write […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"jetpack_post_was_ever_published":false},"categories":[5,4],"tags":[],"class_list":["post-1934","post","type-post","status-publish","format-standard","hentry","category-economics","category-history"],"jetpack_publicize_connections":[],"jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p6bHu9-vc","jetpack-related-posts":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/bohemiantangents.com\/index.php?rest_route=\/wp\/v2\/posts\/1934","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bohemiantangents.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bohemiantangents.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bohemiantangents.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/bohemiantangents.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1934"}],"version-history":[{"count":2,"href":"https:\/\/bohemiantangents.com\/index.php?rest_route=\/wp\/v2\/posts\/1934\/revisions"}],"predecessor-version":[{"id":1936,"href":"https:\/\/bohemiantangents.com\/index.php?rest_route=\/wp\/v2\/posts\/1934\/revisions\/1936"}],"wp:attachment":[{"href":"https:\/\/bohemiantangents.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1934"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bohemiantangents.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1934"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bohemiantangents.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1934"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}