Why Study Economics?
My first exposure to formal economics came during my undergraduate degree at Washington University. I was working on an engineering degree and they required that we take some basic economics. So in 1990–1 I took Econ 103/104, introductory micro and macro economics. I found it boring, irrelevant and uninspiring. If you had told me then that I'd be returning to the university 10 years later to do graduate study in Political Economy I would have told you that you were crazy.
A year or so after graduating, I somehow found my way to a little book published in 1944 that had been touted as a conservative classic. It was The Road to Serfdom by an economist originally from Austria named F.A. Hayek. It rocked my world. I wasn't the first conservative to have been influenced by this scholar. In an interview published in a 1981 book, Rowland Evans asked Ronald Reagan about his influences:
Evans: "What philosophical thinkers or writers most influenced your conduct as a leader, as a person?"
Reagan: "Well . . . I've always been a voracious reader—I have read the economic views of von Mises and Hayek, and . . . Bastiat . . . I know about Cobden and Bright in England—and the elimination of the corn laws and so forth, the great burst of economy or prosperity for England that followed."1
Similarly, John Ranelagh writes of Margaret Thatcher's remark at a key Conservative Party meeting in the late 1970's: "Another colleague had also prepared a paper arguing that the 'middle way' was the pragmatic path for the Conservative party to take, avoiding the extremes of Left and Right. Before he had finished speaking, the new Party Leader reached into her briefcase and took out a book. It was Friedrich von Hayek's The Constitution of Liberty. Interrupting our pragmatist, she held the book up for all of us to see. 'This,' she said sternly, 'is what we believe,' and banged Hayek down on the table."2
I can't say what Reagan and Thatcher found in Hayek, but in my reading of The Road to Serfdom here are some of the startling arguments that caught my attention:
- The rise of the Nazis was not the result of some kind of right wing capitalist extremism, but the result of an increasingly interventionist welfare state that long predated their rise to power, (they were, after all, National Socialists). Hayek wrote: "this process of the decline of the Rule of Law had been going on steadily in Germany for some time before Hitler came into power and . . . a policy well advanced toward totalitarian planning had already done a great deal of the work which Hitler completed."3
The rise to power of tyrannical dictators like Stalin or Hitler was not an accident but an almost inevitable consequence of a government that tried to plan more and more of everyone's life. (See Hayek's fabulous chapter, "Why the Worst Get On Top").
There was a doctrine, though in the 1940s it's followers were pitifully few, that stood unalterably opposed to the various communist, socialist and democratic socialist schemes of the 20th century and stood for "capitalism and individualism, free trade and . . . love of peace"4.
Economic liberty cannot, in practice, be separated from all of our other liberties, "Economic control is not merely control of a sector of human life which can be separated from the rest; it is the control of the means for all our ends."5
I soon came to realize that these brilliant insights into politics and political history were not divorced from Hayek's economics but flowed from the insights he had as an economist. Maybe economics wasn't so irrelevant after all!
So I started reading more Hayek hoping to find the wellspring of his insight. I found many wonderful things in his writing, but not that much more economic theory. An exception to this was a couple of short books written in the early 1930s that explained how the market crash of 1929 had not happened due to some kind of inherent instability in the free market but due to sustained and deeply misguided government intervention. Hayek, in fact, had predicted the crash due to his understanding of what was going on.
But in digging deeper I eventually came to realize that an even greater and more systematic economic thinker had influenced Hayek. His name was Ludwig von Mises. Hayek said that it was reading a paper by Mises in 1920(!) that convinced him that the socialist experiment begun in Russia shortly before and indeed any future socialist experiments were doomed to failure. Mises spelled out his argument about the impossibility of socialism in readily accessible form in his 1922 book Socialism. The argument, in brief, is that if all the means of production are socialized, which socialism required, then there would be no prices to guide producers in deciding what to produce or how to produce. There would be economic chaos, too much of this, not enough of that and no way to sort it all out. But to truly understand just how deadly Mises's critique is, a reading of his original argument is essential.
In some ways, even more exciting though was to find out about his book Human Action. Here Mises laid out a full and systematic explanation of the body of knowledge that had allowed him to see the flaw in socialism, both he and Hayek to understand the true nature of the cycle of booms and busts, the ability to see the fallacies in Keynesian manipulation of the economy and so much else. With these tools, I too could see the fallacies in the latest economic proposals for myself. Hayek and Mises had introduced me to the power and the beauty of economics.
Unfortunately, I also found out that the kind of economics that Mises and Hayek practiced was not the mainstream in academic economics. This was part of why I had found Econ 103/104 so boring. In place of clear reasoning in English, mainstream economics tended to use equations and calculus with dubious assumptions that made what they were doing seem to not have much relevance to the real world. Mainstream economists also seemed to spend much of their time trying to find exceptions to the clear teachings of economics.
Where Mises taught the virtues of a sound, stable money, mainstream economists were in love with the Fed and it's constantly inflating paper money. Where Mises taught that government intervention into the economy yielded chaos and a reduction in everyone's welfare, mainstream economists spent their time justifying government regulation and "trust-busting".
I began to realize that, without planning it, I had become part of a "school" of economic thinking. These "Austrian" economists (some of whom, like the great Murray N. Rothbard, weren't even Austrian) sought to build on hundreds, even thousands of years of good thinking on the nature of human action and human cooperation in society. But the mainstream didn't like going back further than Adam Smith (a rather shoddy economist). In fact, many of them preferred to just play with the latest mathematical model rather than engage in the careful reasoning that had always advanced economics.
The study of Austrian economics has led me to insight after insight, has made me a more principled conservative and a knowledgeable skeptic of the latest government boondoggle. If you're interested, I recommend that you start with Gene Callahan's brief Economics for Real People: An Introduction to the Austrian School. If you want to dig deeper, turn to Mises's Human Action and Rothbard's Man, Economy and State.