Articles of Interest
Economic Truths That Endure
It's been thirty years since my graduate school teacher of economic theory died, and as I again look over his writings that spanned more than a quarter century, I am reminded how relevant they are to the issues of our day. Some truths are enduring.
He was a slight man with big thoughts. Original thoughts. He was a visionary. When he entered the classroom the students stood up out of respect. He believed economics was a science subject to laws, which he revealed with utter clarity and impeccable logic. A champion of free markets and individual liberty, he extended neoclassical theory in important new directions. He taught economics not as a narrow discipline, but as a comprehensive system rooted in philosophy, human nature, and social structure.
He revealed the requirements of prosperity and freedom, the pitfalls of interventionism, the intricacies of the price system, the workings of competition and the market process, and the social benefits of private property and free trade. He explained the causes of inflation and depression and the role of money, entrepreneurship and discovery in a dynamic context. Not least, his work was a devastating reply to the theories of Karl Marx.
His lessons remain a guide to present and future economic policies. Here are a few of his words.
"If taxes grow beyond a moderate limit, they…turn into devices for the destruction of the market economy. The more taxes increase, the more they undermine…the system of taxation itself."
"The long-term and semi-public credit is a foreign and disturbing element in the structure of the market society. The financial history of the past century shows a steady increase in the amount of public indebtedness. …Sooner or later all these debts will be liquidated in some way or another, but certainly not by payment of interest and principal according to the terms of the contract."
"Selfish group interests may impel a man to ask [the government] for protection for his own firm. …The only effect of protection is to divert production from those places in which it could produce more per unit of capital and labor expanded to places in which it produces less. It makes people poorer, not more prosperous."
"Profits…benefit the common man twice. First, in his capacity as a wage earner, by raising the marginal productivity of labor and thereby real wages…. Then later again, in his capacity as a consumer when the products manufactured with the aid of the additional capital flow into the market and become available at the lowest possible prices."
"Politicians…pretend that their own approach to economic problems is purely practical and free of dogmatic prepossessions. They fail to realize that their policies are determined by definite assumptions about causal relations, i.e., that they are based on definite theories."
A few of my old professor's pronouncements went down hard with his students. I was fascinated with the blossoming of quantitative economics, but he would say: "There is no such thing as quantitative economics. All economic quantities we know about are data of economic history." I sighed and went on to be thoroughly seduced by econometric modeling.
My teacher was a great man, a person of uncompromising intellectual integrity, a giant of the Austrian school of economics. He authored many pioneering books on subjects ranging from the theory of money and credit to socialism to economic epistemology and influenced a generation of economists. If his name is not a household word, his ideas have permeated popular thinking and become part of the conventional wisdom. His master work was Human Action (1949), which enlarged the field of economics by presenting a general theory of choice in all human action. It should be on every congressman's bookshelf. Today there is an institute and university located in Auburn, Alabama which bear his name and nurture his legacy.
I am grateful to and miss my old New York University professor, Ludwig von Mises.