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From: <A
title=article@xxxxxxxxx href="">Mises Daily Article
To: <A title=article@xxxxxxxxxxxxxxxxx
href="">Mises Daily Article
Sent: Tuesday, August 12, 2003 8:16 AM
Subject: Why Study Economics?
<A
href="">http://www.mises.org/fullstory.asp?control=1294
Why
Study Economics?
by Stephen W.
Carson
[Posted August 12,
2003]
<IMG alt=""
src="" align=right border=0>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."<A id=_ftnref1 title=""
href=""
name=_ftnref1><SPAN
class=MsoFootnoteReference><FONT face="Verdana, Helvetica"
size=2>[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."<A
id=_ftnref2 title=""
href="" name=_ftnref2><SPAN
class=MsoFootnoteReference><FONT
face="Verdana, Helvetica" size=2>[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."<A id=_ftnref3 title=""
href=""
name=_ftnref3><SPAN
class=MsoFootnoteReference><FONT face="Verdana, Helvetica"
size=2>[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"<A id=_ftnref4
title="" href=""
name=_ftnref4><SPAN
class=MsoFootnoteReference><FONT face="Verdana, Helvetica"
size=2>[4]<FONT face="Verdana, Helvetica"
size=2>.
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."<A
id=_ftnref5 title=""
href=""
name=_ftnref5><SPAN
class=MsoFootnoteReference><FONT face="Verdana, Helvetica"
size=2>[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 <A
href="">Economics
for Real People: An Introduction to the Austrian School. If you want to
dig deeper, turn to Mises's <A
href="">Human
Action and Rothbard's <A
href="">Man,
Economy and State.
Stephen Carson
studies political economy at Washington University in St. Louis. He is the
official <FONT
face="Verdana, Helvetica" size=2>Mises.org film reviewer<FONT
face="Verdana, Helvetica" size=2>. <A
href=""><FONT face="Verdana, Helvetica"
size=2>Stephen@xxxxxxxxxxxxxxxxxxxxx<FONT face="Verdana, Helvetica"
size=2>. This essay was prepared for <A
href="">WU Witness 2003 Summer
Freshmen issue, June 15th.
[1]Rowland Evans & Robert Novak,
The Reagan Revolution, New York: E.P. Dutton, 1981, p. 229.
<A id=_ftn2 title=""
href=""
name=_ftn2><SPAN
class=MsoFootnoteReference><SPAN
class=MsoFootnoteReference>[2]Ranelagh, Thatcher's
People.
<A id=_ftn3 title=""
href=""
name=_ftn3><SPAN
class=MsoFootnoteReference><SPAN
class=MsoFootnoteReference>[3]Hayek, The Road to Serfdom,
p. 87.
<A id=_ftn4 title=""
href=""
name=_ftn4><SPAN
class=MsoFootnoteReference><SPAN
class=MsoFootnoteReference>[4]Hayek, op. cit., p.
26.
<A id=_ftn5 title=""
href=""
name=_ftn5><SPAN
class=MsoFootnoteReference><SPAN
class=MsoFootnoteReference>[5]Hayek, op. cit., p. 101.
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