Thursday, February 17, 2011

Austrian Economics is NOT Libertarian Economics

The field of Austrian economics has gained some popularity in non-economist circles. This is partially because many people feel that government has intruded too much in their lives, and partially because Austrian economics seems more accessible to the lay person - no complicated mathematical formulas and whatnot. Such people find they agree with many of the policy conclusions of practitioners of Austrian economics. The policy conclusions are usually: intervention by the state in the market created XYZ problem, so the fix is to get the state out of the market.

News flash: Neoclassical economists often have the same conclusions. Price controls, for example, are always bad because they create gluts (price floors) or shortages (price ceilings). Neoclassical economics shows that markets were very well, most of the time, and most problems come from interference with the market.

So the policy conclusions of the Austrian economists are not unique. Economists of the Austrian persuasion don't start by saying "the state is the cause of the problems!" That's actually a conclusion of a rigorous analysis of economic principles and history. Economists of different schools of thought may come to different conclusions because the paradigms are different. This is especially the case in macro and monetary economics.

Yes, many Austrian economists are aligned with libertarianism. Still more might say they are "classical liberals" of the Smithian/Lockeian sort. And there is probably a self-selection bias there. I know what Hayek's and Mises' positions were vis-a-vis state intervention, and this certainly attracted me to the study of Austrian economics. (Although I think Hayek is too much of a statist). But the problems of state intervention are a conclusion of Austrian analysis, not an axiom.

So, Austrian economists is not unique because of its policy conclusions. What separates it from the crowd is the method of analysis, and the focus on individual decision making with its attendant knowledge problems. The method is praxeology, which is essentially logical reasoning from a few basic axioms - the primary one is "humans act." Knowledge problems are probably what made Hayek famous (Use of Knowledge in Society, AER, 1945). Finally, Austrians view competition as a process, not a state of being. That makes the Austrian view of Industrial Organization a little different than the standard Neoclassical take on it.

Do libertarians follow Austrian economics? Yes, it appears they do. And the less educated they are about it, the worse it is for Austrian economists. The last thing we want is nut-job gold bugs aligning themselves with a school of thought because some within that school suggest a return to the gold standard would be stabilizing. In fact, within the Austrian school, this is a most controversial position to take.

I don't want Austrian economics to be inaccessible. I think everyone should read Economics in One Lesson (Hazlitt) or Economics for Real People (Callahan) both available for free (as a .pdf) from Ludwig von Mises himself thought economics should be studied and be accessible to everyone, not just professional economists. What I want, though, is for people to spend the time and really learn the material before agreeing or disagreeing with policy conclusions.


  1. Is libertarian economics = neoclassical economics? If not, what is libertarian economics? (is it self defined?)

    And when you say "What I want though, is for people to spend the time and really learn the material before agreeing or disagreeing with policy conclusions" exactly who do you have in mind here? The press? Journalists? The common folk?

    Perhaps we don't have the time to "really learn" all there is know, so shall we refrain from drawing a conclusion simply because we don't pass your test?

    If I see government proposing intervention to correct a perceived market failure, can't I disagree without having complete knowledge of Austrian school of thought? Can't I rely on intuition and the premise that government intervention usually leads to more problems (the unseen)?

    What's got you up in arms about this anyway? Oh, I do agree that Hayek puts a little too much faith and trust in the state.

  2. Anon,

    1)There is no "libertarian economics." Libertarianism is a political stance. Economics is a positive social science.

    2) I view it as everyone's business to understand why a policy conclusion is such-and-so. If Austrian economists say that the business cycle is caused by state intervention, it's important to know why that is, rather than just agree because one "feels" it's true.

    It is the responsibility of all citizens to be as educated as they can, but if one is going to weigh in one an issue, on one side or the other, than one has especial requirements to be as acquainted as possible (no one can know everything, obviously) with the issues. It's irresponsible otherwise.

    3) One should refrain from drawing conclusions as much as possible. Conclusions close the mind. This is especially dangerous if one is going to draw conclusions that affect others.

    For example, I have firm conclusions about very few things, because I haven't the time to think carefully about more than a few things at all. Most of my behavior is based on tradition and rules of thumb. I think you'll find most people are the same.

    4) The key is why do you disagree? Emoting isn't thinking, but most people just emote.

    If you deduce a conclusion and it is consistent with Austrian economics, great! I don't have complete knowledge of it, so I don't speak about the things I don't know. Many do. Many people see the policy conclusions of Austrian economists and claim that Austrian economics is ideologically opposed to state intervention. This is wrong. It is not an ideological position. It is, in fact, a well reasoned logical position that leads one to the opposition of state intervention.

    5) Some one claimed Austrian economics is libertarian economics. I had to illustrate that this is false.

  3. "Can't I rely on intuition and the premise that government intervention usually leads to more problems (the unseen)?"

    How is govt different from any other agent or institution that acts to try and mitigate any perceived problem. My boss thinks having us clock in will save him overtime charges (currently we just are trusted to write down when we left on a given day). His actions would cause additional problems he doesnt anticipate. We will all feel like we are just laborers instead of trusted professionals, some people may leave over it (silly...I know). We have suggested to simply look at our anesthesia records (have his secretary do it anyway) and he can see if our case finish time and sign out time are out of whack.

    My point is govt is not unique in its ability to 1) wish for a certain outcome 2) try and achieve it by the means it has available

    Yes it has means not available to the rest of us (although many corporations have close to the same means)

    I guess I cant figure why you libertarians only see doom in govt actions and NOT large corporate actions? I would be much more supportive of your platforms if you recognized the dangers of any institution becoming too large and engulfing the little guy wanting to just make a living. I view the fight as big entity versus the little guy NOT govt versus the little guy. Govt can act( and has at times ) as a force to remove power form overly large private entities who distort market dynamics as well. At least we can vote a govt out, we cant do that with a corporate board.

  4. Greg,

    The main difference is that government has a monopoly on coercive force. Your employment relationship is voluntary.

  5. Greg,

    My answer was too glib.

    In fact, libertarians do oppose big business. We are pro-market, not pro-business. The mainstream often conflates the two, but they are not really compatible.

    In future post, I will expand on your points, because you make some good parallels, but you make some other points that aren't really borne out in the data. Especially that last sentence. Sounds like you were reading Matt Yglesias or something.