austrian economics newsletter spring 1994

8/2/2019 Austrian Economics Newsletter Spring 1994

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AustrianEconomics News le t t er

L U D W I G V O N M IS ESA N D T H E C O MIN G O FSOCIALISM IN A U S T R I A

by Bett ina Bien Greaves(The following was reconstructed from a variety ofpublished and unpublished sources, including personal interviews with Ludwig von Mises, conductedbyMrs. Greaves over several years. The sources of thedirect quotations are Mises's own recollections, asrecorded by the author.)In th e Vienna of Ludwig von Mises's youth, po

l i t ical and economic t r ends were toward moreand more government interference with th e market, if not toward outright socialism. As a boy,young Mises heard about the conflict between thegovernment and the radical Marxian socialists, orcommunists. When he was only eleven or twelve,so young that he had to look up th e word "prostitution" in th e dictionary, he read Women and Socialism, a popular, much-talked-about book by theMarxist August Bebel. Young Mises was an omnivorous reader and in time became "consciouslyanti-Marxian ."

However, when he entered the Universi ty of Vienna, he was an advocate of social reform l ike everyone else; if a government reform fell short of it s

goal, it was because not enough money had beenspent or because the government had no t beenfirm enough in enforcing th e measure's provisions.

One of Mises's assignments at the Universitywas to research housing conditions in Austria. Theyoung student discovered that taxes on construction materials added to the cost of housing, rentcontrols made investment in housing unprofitable,and high taxes on capit al gains kept venture capita l from enter ing the housing market. Not onlywere fewer housing units avai lab le as a result, butfewer job opportunities were to be found in construction. Mises began to realize that the shor tageand high cost of housing and construction materials were not the f au lt o f business but of government interference. Capitalists, entrepreneurs, andbuildei's wanted to open fac tories ; they wanted tohire workers; they wanted to build houses; butthey were hampered at every turn by t axes andgovernment regulations. Mises's study of housingled him to question all government intervention.When Mises was a gradua te s tuden t , t heMarxists were agitating throughout Europe for aproletarian (worker) revolution. In Russia, th ecommunists were trying to unite th e workers totheir cause. With the slogan "All th e Land to thePeasants," they appealed a lso to the peasants.They used terror as a weapon, calling strikes, robbing banks, and assassinat ing government officials. In Austria-Hungary, th e socialists, members

INSIDE THE AEN

Conference Reports 5David Go r d o n , J o h n De n s o n .C h a r l e s S te el e: B o o k Rev i ews 5Peter Boettke, Richard Langlois:Recommended Reading 11New and Noteworthy 13No t e s a n d T r a n si ti o ns 15


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of the Social Democratic party, were permitted todemonstrate because the government had giventhem the "right to th e streets." On November 28,1905, about 250,000 "social ist workers" took to th estreets. Led by Party officials, they marched pastParliament around the Ringstrasse in militaryfashion eight abreast. The city of Vienna was completely paralyzed.

That evening in a coffee house young Misesc ha nc ed t o mee t a fellow s t ud en t named OttoBauer. Mises was a critic of government intervention; Bauer was a devoted Marxist. Bauer waselated a t th e even ts . As a r e su l t of th e worke rs 'street demonstration, Bauer said, th e Party hadachieved "street autonomy. " And they would defend this achievement , he said, "forever."

Austr ianEconomics News l e t t e r

Volume 14, Number 2C O N T R I B U T O R S T O T H I S I S S U EJohn V.Denson is a partner in the law firm of Samford, Den-son, Horsley, Pettey & Martin in Opelika, Alabama, a trustee ofAuburn University, and Vice Chairman of the Mises Institute.Dav i d Gordon is a sen io r fe l low a t th e Mises ins t i tu te .Bettina Bien Greaves is Distinguished Senior Scholar at theMises Ins t i tu te a n d R e si de nt S c ho la r a t t he Founda t i on fo r Ec onomic Educa t ion .Charles N. Steele is a graduate student in economics at NewYork University.STAFFEditor: Peter G. Klein/Universityof California, BerkeleyAssociate Editor: Jeffrey A. Tucker/Ludwig vonMises InstituteContributing Editors:Mark Brandly,Doug Butler, PeteCalcagno,Sandy Johnson, Jim Kee, Doug Walker/Mif/wn/ UniversityManaging Editor: Judith F.ThommesenC O R R E S P O N D E N T SAmy M. BosweW/ University of Notre DameCharles Steele/New York UniversityAlexander Tabarrok/GeorgeMason UniversityP E R M I S S I O N S A N D S U B M I S S I O N SSend change of address and subscription requests to the Austrian Economics Newsletter, Mises Institute, Auburn University,Auburn, AL 36849-5301.Send questions pertaining to submissions of articles and bookreviews to Peter G. Klein, Department of Economics, University of California, Berkeley, CA 94720; Internet: [email protected]. edu.Articles that are submitted should be double-spaced withnotes and references corresponding to the s ty le found in theAEN. Articles that are accepted willbe requestedonan IBMformat diskette, when possible. There is no submission fee.Permission to reprint articles is hereby granted provided fullcredit and address are given.Copyright 1994 Ludwig von Mises Institute, Auburn University,Auburn, AL 36849-5301; (205)844-2500; fax (205) 844-2583.

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"What will happen," Mises asked, " if some dayanother partyusing organized forcegainsstreet autonomy? Wouldn't that mean civil war?"

"Only a bourgeois could a sk such a question,"Bauer responded. "A bourgeois who doesn' t realizethat the future belongs to us Socialists. Whatparty would dare to confront the organized proletariat? Once we come to power, there will be nomore res i s tance ."

Several years l at er , a s graduate students ,Mises, th e critic of government intervention, andBauer, the dedicated socialist, both at tended th eUniversity seminar of former Austrian FinanceMinister Eugen von Bohm-Bawerk. Earlier Bdhm-Bawerk had written a devastating critique ofMarx's value theory, which had "mortally woundedMarx i an economics . "

During th e first semester of hi s economic seminar, Bdhm discussed value theory. As seminarleader, Bdhm played th e role of chairman. Whileparticipating occasionally in the discussion himself, he encouraged seminar participants to speakup . Otto Bauer , the Marxist , d id h is bes t i n th eseminar sessions to refute Bdhm's scholarly th esis . Bdhm was serious and thorough. Bauer wasbrilliant, quick, and well informed. Back and forthth e two men debated, while the other participantssat and listened. In th e end, Bauer probably hadto admit to himself that the Marxian labor theoryof value d id not hold up. Yet h is Marxis t f ai th andhis determination to bring about a proletarianrevolu t ion r em a in e d u n s h ak e n .

After World War I, the old Austro-Hungarianarmies were swept away by the chaos of defeatand revolution. Retreating troops broke disciplinein the i r f rant ic e ff or ts t o re turn to the i r homes .Prisoners of war, their camps unguarded, werejoined by politicians and common criminals. Allscattered around the countryside seeking theirhomes throughout th e shattered empire. Trucksand trains were commandeered by troops. Soldiersc lung to the roofs and trains; many, literally hundreds , were swept of f and killed as th e trainspassed through tunnels.

Th e e th n ic confl ic ts t h a t had t orn th e Aust ro-Hungar ian Empire apart continued. Czechs tryingto s c ramb l e a b o ar d t r a in s we re t o ss e d off a s " tr aitors" by Hungarians. And vice versa. Every cu ltural, religious, linguistic group wanted to forman independent nation.

Before th e War, Vienna had been th e capital ofthe huge Austro-Hungarian empire. After th eWar, she was a large city in a small country with

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no industrial base, a city occupied primarily bygovernment offices and unemployed bureaucrats.The Viennese were impoverished, discouraged, demoralized. Inflation was wrecking their moneyand destroying their savings. Many were unemployed, starving, hungry. There were bread linesand food riots. Once as a mounted policeman wasmaking his rounds in Vienna, his horse stumbledand fell. A crowd immediately pounced on th ehorse, kil led it , and hacked i t to pieces. The luckyscavengers took chunks of horse meat home totheir hungry families.

The Allies'rigid blockade of th e already starving Austrian population continued throughout thehard w i nt er o f 1918. The b lo ckad e was e ve n r ei nforced by Austria's old comrades in arms. TheCzechs and Poles cut of f its coal and oil supplies.The Hungarian, Czech, and Yugoslav governmentscu t off it s corn supplies. Defeat, revolution, disintegration, blockage, starvation, denial of raw mater ia ls and marketssuch was th e bitter pill Austriawas forced to swallow.

In t he midst of this widespread destitution,th e Austrian communists offered a ray of hope.The Communist Revolution had just taken placein Russia. Communism was hailed as ushering ina new utopia. Under communism, al l propertywould be commonly owned; there would be nomore poverty, hunger, or unemployment; therewould be neither "rich" nor "poor"; all would shareand share alike in th e fruits of production. Communist agitators in Vienna called on th e people torebel, to take to th e streets, to do away with pr ivate property, and join the march toward communism. Communism, or socialism, was "the wave ofthe fu ture ."

Everyone was convinced that Bolshevism wascoming. They bent all their efforts on trying to obtain good positions in the new order. The CatholicChurch and even th e Social Democrats' opposition,th e Christian-Social Party, were ready to welcomeBolshevism. So were businessmen. One prominentAus t r ian indus tr ia l consu ltan t announced t ha t hewould rather serve th e people than stockholders.Bank directors and big industrialists looked forwardto being "managers" in a Bolshevist regime.

The pressure for socialism in Austria was hastened along by developments in Hungary. Therethe Bolshevis ts , wi th Bela Kun at their head, proclaimed on March 21, 1919, a "Dictatorship of th eProletariat." They hailed th e communizat ion ofland, factories, shops, houses, bank accounts, andeven jewelry over a certain value. A leading officialSpring 1994

of th e Hungarian Soviet Republic proclaimed that"by socializing pr ivate property throughout Hungary, the Hungar ian government has become th erichest and thus th e most credit-worthy in theworld ."

Mises ' s Marx i s t f r i end Ot to Bau e r w as de t e rmined to br ing about a proletarian revolution inAustr ia s imilar to th e one in Russia. Mises , bythen a severe critic of big government , was just asdetermined to prevent a Bolshevist t akeover ofAus t r ia .

"You know wha t is a t s take," Mises to ld Bauer."Austria cannot feed herself; sh e depends on impor ts o f food. If private property is confiscated andprivate enterprises are socialized, production willstop. Farmers will no longer bring produce to markets. Trade with foreign countries will come to ahalt. Within a few days Bolshevism in Viennawould create starvation and terror. Plunderingh o rd e s woul d soon roam th e s tr e et s a n d a secondblood bath would destroy t he r emnan ts of Viennese cu l t u r e an d civ i l iza t ion ."

Mises met evening after evening with Bauerand his wife, Helene Gumplowicz, to discuss theseproblems. They agreed that Austria was in chaos,that she was torn apart by con fl ic ts o f nationalityamong persons of differing religions, cultures, andlanguages . They knew i t was imperative for Austria to improve production and trade. And theyagreed that workers sometimes had to migrateto f ind work . However , t hey disagreed overhow to accomplish this without friction. Bauerargued vigorously fo r a proletarian revolution,and Gumplowicz encouraged and suppo rt edBaue r in h is de te rmina t ion . Communi sm,they claimed, would alleviate economic sufferingand at th e s ame t ime help to reduce national conflicts. Mises sympathized wi th th e plight of th epeople but disagreed that a communist revolutionwas the answer. Communism, Mises he ld , wouldnot, and could not, live up to th e Bauers' expectat ions .

"The problem," Bauer argued, "i s that undercapitalism the reset t lement of workers follows theblindly ruling laws of capitalist competition.These laws violate the nationality principle andth e will of the nation. Under socialism, migrationwould be consciously planned. With emigrationand immigration regulated deliberately, societywould gain power over its language and nationalboundaries. Social migrations would then reflectthe will of th e nation and no longer violate th e nationality principle and cause conflicts."

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"But," Mises responded, "if th e deliberate regulation of th e migration of workers is guided rationally, that is if economic efficiency is the goal, thenit will sometimes have to go against the wishes ofthe people. If so, it too wil l lead to nationalityproblems."

Bauer was not convinced. "Under socialism,"he said , " the deliberate regulation of migrationsby th e socialist community would take th e place ofthose migrations that are dominated by th eblindly prevailing laws of capitalist competition.Immigrants would be moved to places where theywill increase th e productivity of labor; workerswill be induced to leave places where productivityis declining."

"But that is precisely what competition accomplishes under capitalism," Mises said. "If th e planners i n a socialist world state decided, fo rinstance, that spinning and iron production wereto be cut back in Germany and expanded in th eUnited States , then German workers would haveto be resettled in Anglo-Saxon territory. Thatcould l ea d t o n at io na l fr ict ion. To a s sume t h a t th emigration of workers across national boundaries,even when decided upon consciously and deliberately according to plan, would not lead to conflictunder socialism, as it does under capitalism, isdownright Utopian."

Mises continued. "Only if th e social ist community is non-democratic, may we assume that nonational frictions would ari se . The people insuch an undemocratic socialist society would beei ther planners or those who must submit to th eplans. Such an undemocratic socialist societywould be an empire of general servitude. It wouldkeep th e peace only by transforming the peoplei n to s l av e s ."

Mises r eminded Baue r : "Be la Kun ' s Bolshev is tregime, launched in Hungary with such highhopes, has suffered economic and financial chaos,widespread starvat ion, and terror. It collapsedaf te r l i t t le more t han four months . Austr ia ' ssi tuat ion may be even more precarious thanHungary's. At no t ime during th e f ir st n inemonths a ft er t h e Armis t ice has Vienna had asupply of food for more than e ight or nine days.Austr ia depends on th e importation of food fromabroad, which is possible only with the assistanceof her former enemies. Without lifting a finger,they could force the surrender of a Bolshevist regime in Vienna."

As a young man Otto Bauer had made up hismind never to betray hi s Marxian conviction,4 / AUSTRIAN ECONOMICS NEWSLETTER

A young Ludwigvon Mi s e s

never to compromise. However, he w as too in te l ligent not to realize that Mises was right. Thus,Mises was f inal ly able to convince Bauer and Gumplowicz that a Bolshevist experiment in Austriawould collapse in short order, perhaps in only afew days, and that Austria would be destroyed inth e process.

The events lay in the hands o f Otto Bauer,loyal Austrian and leader of th e Social-DemocraticParty. When Bauer presented hi s proposal to th eConstituent Assembly in 1919, he called for "gradual" socialization only. Various schemes weredrawn up for putt ing his program into execution,but none was ever adopted. Except for rent controls, which Bauer recognized expropriated theproperty of landlords, l i tt le actual socializationwas put into effect in Austria. Mises had won hisbatt le agains t the Bolshevist threat.

Publicly, Bauer attributed hi s rejection of socialization to Austria's desperate economic plightand her dependence on foreign credit. Socialization, he admitted, had to be postponed because private trade was so much more superior at gettingsupplies into the country. Forced to choose between private capitalism and socialism, the socialis t leader decided that, in an economicallywrecked country, capitalism had to be repairedand maintainedat least for th e time being. Thealternative would have l i terally condemned thousands to starvat ion. In the end, it was Baue r' s r ejection of the ext reme communism he hadadvocated up unt il th e en d o f World War I thats a ve d Au s t ri a .

Because i t was Mises who had pe rsuadedBauer to give up proletarian revolution as a goal,because i t was Mises who had persuaded Bauer tocompromise his extreme socialist principles,Bauer could never forgive Mises. The two men didnot speak to each other ever again. A

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Conference ReportsThe Mises Inst i tute hos ted a conference on

the problems of the Welfare State in April1993 i n Lake Bluff, Illinois (near Chicago). RalphRaico (SUNY, College at Buffalo) spoke on "TheGerman Origins of the Welfare State"; Allan C.Carlson (Rockford Institute) on "Internal Contradict ions of th e Modern Welfare State"; Hans-Hermann Hoppe (University of Nevada, Las Vegas) on"Risk, Insurance, and Welfare"; Samuel Francis(Washington Times) on "Welfare as Cultural Therapy"; David Gordon (Mises Institute) on "The Ethics of Welfare"; Paul Gottfried (ElizabethtownCollege) on "The Therapeutic Welfare State";Joseph T Salerno (Pace University) on "Problemsof Economic Calculation in the Welfare State"; andMurray N. Rothbard (University of Las Vegas, Nevada) on "The Origins of the Welfare State inAmerica." The papers will appear in a conferencevo lume in l a t e 1994 .

The 1992 All ied Social Sc iences Assoc iation meeting in New Orleans featured "The RoadBack from Serfdom," a special tribute to F. A.Hayek, with papers by Abram Bergson (HarvardUniversity) on "Communist Economic Efficiency Revisited"; Ronald I. McKinnon (Stanford University)on "Spontaneous Order and the Road Back fromSerfdom: An Asian Perspective"; and Sir Karl Popper (London School of Economics) on "The Communist Road to Self -Enslavement ." Janos Kornai(Harvard University) and George Melloan (The WallStreet Journal) were discussants. All th e papers except Popper's were published in the Spring 1993 issue of the American Economic Review; Popper'sappeared in the May/June 1992 issue of the CatoPolicy Report. This year's ASSA meeting in Bostonincluded a session on "The Voluntary Provision ofPublic Goods," organized by Randall Kroszner (University ofChicago), with papers by David Beito (University of Nevada, Las Vegas) and Daniel Klein andChi Yin (University of California, Irvine) and comments by Donald McCloskey (University of Iowa)and Peter Boet tke (New York University).

The Mises Ins t i tu t e ' s annua l s u m m e r i ns tr u ct ional conference, th e "Mises Universi ty," washeld in 1993 at Claremont McKenna College inClaremont, California. For t he week-long conference, students chose individualized schedules from al is t of thir ty-eight lectures and ten seminars. Thefaculty were Roy E. Cordato (Campbell University),Thomas J. DiLorenzo (Loyola College, Baltimore),

Spring 1994

Roger Garrison (Auburn University), David Gordon, Jeffrey Herbener (Washington and JeffersonCollege), Hans-Hermann Hoppe, Yuri N. Maltsev(Carthage College), Murray N. Rothbard, Joseph TSalerno, and Mark Thornton (Auburn University).For information on the 1994 conference write theMises Institute, Auburn, Alabama 36849. a

Book Reviews

The Marke t , Compe t i t ionand Democracy: A Cri t iqueo f N e o - A u s t r i a n E c o n o m i c sS t av ro s l o a n n i d e sEdward Elgar, 1991

Reviewed by David GordonWhen a Marxist appraises Austrian eco

nomics, r eaders may expect unremittinghostility. Stavros loannides, a Lecturer in PoliticalScience at the Pantion Univers ity in Athens, undertakes this t as k a nd does not al together disappoint. He regards th e Aust ri ans as ideologists ofth e New Right, and he constantly preaches thegospel according to St. Kar l. But he is no t altogether opposed to the Austrian approach. He findsmuch value in Aust r ian cr i t icisms of neoclassicaleconomics, a school which h is Marxist confreresl ikewise reject. Further, he acquired in the courseof his study a "love-hate relationship" (p. xi ) withthe work of F. A. Hayek.

While his interest in Hayek makes him moresympathetic to Austrian economics than is customary among Marxists, it a t th e s ame tim e e nd angers hi s project. Given that Hayek's workencompasses many subjects besides economics,ranging from th e nature of perception to th e philosophy o f law, loannides must decide whether he int ends to wr it e a b o u t Aus t r i an economics o r a bo utHayek's system of thought. If he does both, hemust be careful to di st ingui sh the tw o subjects.Faced with this key decision, loannides blundersbadly. He confus es Hayek's philosophical viewswith the tenets of Austrian economics, movingfrom one to th e o t h er w i th o ut d i sc r im ina t i on .

Thi s f law emerges quickly in chapter two, "Origins and Methodological Princ iples of Neo-Austrian Theory." He offers a detailed account ofHayek's theory of social evolut ion, a matter outside the scope of economics proper. To his c red it ,l o ann id e s knows t h a t no t a l l Aus t r i an economis t s

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share Hayek's beliefs about unconscious rules and tradition, and herightly stresses Mises's rationalismas a contrast (p. 25) . But he missesthe fundamental point: Even if al lAust r i an economists in fac t he ldidentical opinions about t he natur eof law, the importance of tradition,and so on, these subjects would remain independent of economics. Byth e close of chapter two, then, I regarded Ioannides's book with the utmost suspicion. This passage did notallay my misgivings: "It is easily seen, therefore,that t he main methodological cleavage betweenWieser and Bohm-Bawerk, on th e on e hand, andMenger himself, on the other, is the abandonmentby the former of Menger's individualist methodology" (p- 28). Has loann ides read a li ne o f Bohm-Bawerk's explanation of value and price?The nex t chapter, "Competition and Knowledge," begins a pattern that continues throughoutthe remainder of th e book. In every case, loannides cont ras ts the Austr ian position with th e neoclassical, awarding honors" to th e former. Alas, th eAustrians, blinded by ideology, have failed to pu rsu e their insights to th e limit, and must in turnyield to th e Marxists. Thus, for example, the Austrians rightly reject th e model of perfect competition; competit ion is a process, not a state ofequilibrium, and Hayek correctly maintains that"perfect competition is an abst raction whichmisses the most important aspect of competition,i ts dynamic nature" (p. 32). Furthermore, Kir-zner's stress on the entrepreneur exposes a vulnerable point in th e neoclassical view, in thatknowledge cannot be t aken a s fixed but constantlychanges as entrepreneurs respond to and anticipate the uncer tain future. Nevertheless , th e Austrian view of competition ignores the fact that "themarket process, by itself , constant ly tends to objectify a great part of th e knowledge which circulatesin the economy" (p. 42). I take it that loannidesmeans that once discovered, information becomesavailable fo r sale. This, in his view, topples theAustrian theory. Since people do not have th esame access to new information, s ize becomes anadvantage. Large firms acquire "objectified" knowledge and block their smaller competitors from access to it . Unable to compete, t he small er firmsexit th e market ; and businesses in a capitalisteconomy increasingly grow larger.

Ioannides's argument fails at each step. Hedoes no t dist inguish between th e perception of6 / AUSTRIAN ECONOM I CS NEWSLETTER

The MarketCompetitionand DemocracyACritique of Net) Austrian Economics

Mm,STAVROS IOANNIDES

new opportunities and t he r esul ts ofthat perception. Only the latter canbecome "objectified"; th e former isprecisely what is not availablethrough a formula that can be "bottled and sold." loannides can, if helikes, deny the existence or importance of entrepreneurial innovation;but to mount an effective argumenthe would a t least need to understandth e concepts at issue. More important, he offers no argument to explain why larger firms should beable to purchase this "objectified" knowledge at

l owe r co st than their smal le r rivals. loannides assumes exactly what he claims to prove, namelythat larger firms are more efficient.

However mistaken Ioannides's argument here,at least he attempts to support his views with reasons. Often his r emarks do not r ise to the levelof mistakes. Thus the Austrian theory of capitalmust be rejected, he claims, because it is not "dynamic." A dynamic theory is on e able to "sustainth e notion of a cyclically repeated process of production" (p. 101). This is merely a stipulative definition of "dynamic"; why would capital everreproduce itself automatical ly? Elsewhere, hechides th e Austr ian theory of money for failingto separate money ful ly f rom other media of exchange; the Austr ians view money as a commodit y and no t unique. But why must an acceptabletheory uphold "the uniqueness of money" (p. 115)?Presumably, because Marx told u s so . Elsewhere, loannides offers th e following objectionto th e Austrian theory of th e business cycle:"[tirade cycles [in t he Aust ri an theory! are notcaused by th e market process i tse lf bu t are, instead, produced by exogenous manipulation of themoney supply" (p. 133). To him, a correct theory ofthe cycle must view crises as inherent in a capitalis t economy.

In th e final th ree chapters loannides confusesHayek's social philosophy with Austrian economics. He f i rs t addr es se s th e soc ia l i s t calcula t ion a rgument, and surpr is ingly fo r a Marx is t, he doesnot hold that th e argument fails on it s own terms.Rathe r, he c la ims that both Mises and Hayek onth e one hand, and Lange and Lerne r on the other,ignore th e real issue. The a rri va l o f socialism doesnot depend on th e success or failure of abstractmodels of the economy. Instead, historical realitymust be consulted. If we examine history wearingproper Marxist spectacles, we shall see that state intervention is necessary to promote th e reproduction

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of capital. Further, "participation in the marketprocess is inconceivable i f the participant is not anowner of resources. Therefore, state intervention-ism and state ownership ar e bound to be complementary concepts" (p. 164). Thus , capi ta l ism leadst o so c ia l ism .

Even if this farrago were right, what about thecalculation argument? The contention that socialism is inevitable does not refute the claim t ha t socialism spells disaster. loannides does not,however, concern himse lf wi th such narrow technicalities a s whethe r socialism ca n work. Instead,he is worried that the capi ta li st system is undemocratic. If people have property rights that a re notsubject to majority control, t hen the will of th e people ha s been thwarted. The rul e of law whichHayek favors "amounts to th e absolute elimination of the sphere of politics" (p. 149), and as suchis totalitarian. Hayek and th e neo-Austrians surrender all power to the capitalists, "with societyas a whole not even having the right to express anopinion" (p. 165).

We see here a graphic result of failure to delimit th e topic at hand. Whatever th e value ofHayek's political philosophy, Ioannides's attack onit ignores th e issue of economic theory raised byt he Aus tr i ans . Whether or not the will of the majority should be restricted, the quest ion remains:Can socialism solve the calculation problem? If itcannot, how will it s conformity to the political imperative loannides supports enable i t to avoideconomic disaster? loannides might have confronted this issue had he grasped the elementary points that Hayek's political philosophy isnot part of Austrian economics, and that adherenc e t o Austr ian economics does not commit on e toany particular political views. Mises, for example,favored just the sor t of majority-rule democracyloannides endorses; but it does not follow fromthis fact tha t Mises's ve rs ion o fAust r ian economics, as against Hayek's, is "democratic." Normativepolitical judgments must be kept apart from economic analysis.

Considered as political theory, Ioannides's remarks are pretty poor stuff. If the majority of a society wishes to exterminate an ethnic minority, isit totalitarian for constitutional restraints to prevent i t from carrying ou t it s democratic will? Ifpeople have property rights, why should theserights be subject to what loannides is pleased tocall "social" control? Further, it does no t followfrom the fact that a political system restr icts thepower of the majority that anyone's freedom ofopinion is restricted. What prevents people in aSpring 1994

Hayekian society from publicly advocating its replacement by socialism?

As if al l of this were no t enough, th e book'sstyle can hardly be termed "user-friendly. " Thereader frequently faces sentences like "It is obvious that every member of society obtains the rightto express an opinion on th e social system onlyonce in his/her lifetime when, at the age of 45,he/she is called upon to elect some of his/her peersto the legislative assembly" (p. 149). loannides hasread extensively in th e Austrian literature, andhis obvious effor t to be fair to his political opponents deserves respect. But he lacks th e resourcesto carry out successfully th e difficult task he hasset for himself. As a result, he displays incompetence in an unusual ly wide variety of fields, a

The Guardi an o f Every Other Right:The Constitutional History o fProper ty R igh tsJames W. Ely, J r .Oxford Univers i ty Press, 1992

Revi ewed by John V. DensonLudwig von Mises called th e private owner

ship of property and it s protection the cornerstone of a free society, and th e historianEdward Gibbon observed that "( t |he ens lavementof man usually begins in the economic sphere."The truth of these ideas concerning propertyand liberty are demonstrated in an excellentnew book, The Guardian of Every Other Right: AConstitutional History ofProperty Rights, byJames W Ely, J r. T he author associates the decline and fall of American property rights withthe New Deal. This compact, well-researched andwell-documented history is published in paperback by Oxford University Press as a part of theOrganization ofAmerican Historians Essays on theBill of Rights series.

James W Ely, Jr . is professor of law and history at Vanderbilt University. His prose is conciseand clear to the general reader, but the legalscholar will find a t reasure trove of research inthe footnotes and an excellent bibliography. Thebook's title is quoted fromone Arthur Lee ofVirginia,who declared during the Revolutionary Era that"[tjhe right of property is the guardian ofeveryother right, and to deprive a people of this right, isin fact to deprive them of their liberty" (p. 26).

The primary theme of the book is that property and economic rights are inseparable parts of

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individual liberty, a concept takenfrom Locke and incorporated into th eorignal meaning of the U. S. Constitution. As Ely notes:

Of particular importance [t o Englishconst itutional thought] was th e th eory of property rights in Locke's political philosophy. According to Locke,private property existed under natura llaw before th e creation of politicalauthority. Indeed, the principal purpose ofgovernment was to protectthese natural proper ty r ights, whichLocke fused with liberty, (p. 17)

The Guardian ofEveryOther Right

The book performs a biopsy on property rights andfinds a cancerous growth in th e form o f the NewDeal. This biopsy (hopefully not autopsy ) r eve al sthat th e New Dea l attacked property by separatingit from other individual or human rights (freedom ofspeech, th e r ight of assembly, an d so on) and a ft ermaking this division, conquered i t by reducing prope rt y r ight s to a lesser status unprotected by th eConst itut ion. The infamous shift by th e U. S. Supreme Court, beginning with the Carotene Productscase in 1937, was labeled by one writer as "theswitch in time which saved nine." Ely cites th e greatconstitutional lawyer, John W. Davis (the 1924Democratic nominee for President) as a courageousopponent of this shift by the New Deal SupremeCourt . Davis took i ssue with the separat ion of property rights from other human rights: "The two arenot antagonistic, but parts ofone and the same thinggoing to make up the bundle of rights which const itute American liberty. History furnishes no instancewhere the r ight of man to acquire and hold propertyhad been taken away without the complete destruction of liberty in all of its forms."1

Ely provides an excellent overview of SupremeCourt decisions from about 1890 through 1936, aperiod when the Court, mainly under the leadership of Justice Stephen Field, constitutionalizedthe laissez-faire approach to property rights. NewDeal critics of th e laissez-faire Supreme Courtcharged that the Court had created these propertyr ight s ou t of thin air. The New Deal advocatescriticized t he Court for failing to se e th e change ineconomic an d e th ica l values as Ame ri ca b e camewealthy and a great industrial power in th e earlypart of the twentieth century. These critics allegedthat they were taking a higher moral and ethicalground by providing for a redistribution of wealthon a more equitable basis. Ely refutes this position by showing the basis upon which t he Supreme Court had protected property rights fromthe time of th e adoption of th e Constitution.8 / AUSTRIAN ECONOMICS NEWSLETTER

The book t akes the reader throughthe Jeffersonian and Jacksonian periods with th e explanation that Jefferson's "equality" meant "equal rights forall, special privileges for none." The Jacksonian period continued th is t radi tion ofequality in individual rights, attackingthose who would use government tobenefit the privileged few. Jackson further observed that "[elquality of talents,of education, of weal th cannot be produced by human institutions," andthus opposed th e egalitarians of hi s

t ime. Reformers who subscribed to the laissez-faire approach to economics in the latter part ofthe n ineteenth cen tu ry opposed t he t ar if f on th ebasis that it was unequal class legislation, benefiting manufacturers at th e expense of consumers.These laissez-faire reformers warned that unequalrights and class legislation would come ful l circle,eventually favoring th e wage earner at the expense of th e capitalist. The Progressive Era , a ndlater the New Deal, of course confirmed th e greatest fea rs o f these (unsuccessful) equal r ight s reformers. Ely cites a law review article by LesBenedict, who comments on this period that

[ojf al l th e special legislation sought and acquired by business interests , the protective tarif f wa s th e most colossal fraud. Repudiating thefiction that th e tariff wa s designed to protectth e wages of American workers , it s laissez-faireopponents characterized it as " the aggrandizement of capital by law," an d abuse of th e taxingpower by special legislation. Laissez-faire reformers warned capitalists that protectionismwas the parent of socialism. "I t is a significantfact that the agitation of th e labor question inthis country comes most urgently from personsemployed in those branches of occupationwhich are most effected by a protective tariff.""

Benedict also mentions th e famous dissenting opinion o f O liv er Wende l l Ho lmes in th e Lochner case(1905). Holmes stated t h a t the U. S. Const i tut ion didnot adopt any particular economic system, nor di d i tadopt Herbert Spencer's Social Statics. Benedictobserves that while th e Const it ut ion may not haveadopted a particular economic system as in AdamSmith's Wealth ofNations, th e Constitution did consider property to be a basic individual right, as didSpencer. Spencer's book, Social Statics, talked aboutth e " law ofequal freedom," and property was merelyone of th e basic human rights. While the Constitut ion d id no t adopt a specific economic system, i t didrequire that any economic system implemented respect property r ights.

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Ely's book could be improved with more emphasi s on the disastrous effects of war on propertyrights, and particularly to the destruction of economic rights which occurred as a result of WorldWar I. He does document tha t in 1861 the U. S.government had it s first income tax, a flat rate of3% on income over $800, and that "|t |he exigenciesofthe Civil War necessitated widespread impairment of existing economic arrangements" (p. 82).He further documents how th e Civil War upset t hebalance of power between th e federal governmentand the states when the South lost al l of its political restraint upon th e flow of power to th e centralgovernment. Furthermore, he notes that "fnjot unti l World War II were midd le -cla ss households subjected to the federal levy on income" (p. 132). Elycould have also shown how throughout Americanhistory, warseven those that have been wonhave always been th e "crisis" doing the most toproduce the "Leviathan" of strong central governmen t and th e consequential loss of freedom. ForAmerica, the twent ie th century could wel l becalled th e "War and Welfare Century." It was oneof the Framers, James Madison, who correctlyidentified the problem of war related to libertyand economic rights:

Of al l the enemies to th e public liberty, war is,perhaps, the mos t to be dreaded, because it comprises and develops the germ of every other. Waris the parent of armies; from these proceed debtsan d taxes; and armies, and debts, an d taxes arethe known instrument for bringing th e manyu n de r t he domina t ion o f t he few."

According to the preface, th e book is designedfor use by undergraduates; hopefully it will bewidely used in ou r colleges. In it s provision of extensive references to both proponents and opponents of property rights, th e book outlinesresearch necessary for proponents of individual li berty to re-establish Constitutionally protectedproperty rights in America. The book merits closestudy, and hopefully will gain th e widespread recognition it deserves. One reviewer, th e Universityof Maryland historian Herman Belz, has alreadystated that Ely 's book "[is] further evidence of theconservative challenge to l iberal orthodoxy thathas emerged in recen t years in American his toriography. That th e book appears under the co-sponsorship of the Organizat ion ofAmericanHistorians, on e of th e more militantly liberal scholarly associations in th e United States, is a smallbut significant sign of th e change in intellectualcl imate ."

Spring 1994

William H. Harbaugh, Lawyer's Lawyer: TheLifeof John W.Davis (Charlottesville: University Press ofVirginia, 1990), p. 347.

"Michael Les Benedict , "Laissez-Faire an d Liberty: A Re-Evaluation of th e Meaning an d Origins of Laissez-Faire Constitutionalism," Law an d History Review 3, no. 2 (Fall 1985): 313.

' James Madison, "Pol it ical Observations" [1795], in Lettersand Other Writings of James Madison (New York: R.Worthington, 1884), vol . 4, pp . 491-92.

"Herman Belz, "Property an d Liberty Reconsidered," Vander-bilt Law Review 45 , no . 4 (May 1992): 1015 . a

S o c i a l i s m R e v i s e d a n d M o d e r n i z e d :The Case for Pr agm a ti c Mar k et SocialismJ am e s A . Y u n k e rPraeger, 1992

Reviewed by Char les N. SteeleWhile schemes fo r central plann ing are

making something of a comeback in economic theory, James A. Yunker's book SocialismRevised and. Modernized attempts something a bitdifferent. Professor Yunker presents us with a detailed proposal for a national experiment with"pragmatic market socialism." This new socialismis not qu it e what we might expect, however. InYunker ' s words :

It must be tirelessly reiterated that pragmaticmarket socialism does no t involve Soviet-stylecentra l planning, or any other type of nationalo r even indicative planning; tha t it does not imply a giant , paternalist ic welfare state; that itdoes not intend radical redistribution an d egali-tarianism; that it h as no communalistic aspirations; that it would not signify th e tr iumph ofbureaucratic homogenization over a healthyl evel of individualistic materialism, (p. 281)What, then, is pragmatic market socialism?

Yunker's start ing poi nt i s tha t capitalism isplagued by a serious ethical liability: All incomederived from ownership of capital is unea rned andhence immoral. It is particularly outrageous, inhis view, that anyone should be able to live off capita l property income. Only labor income is trulyearned and therefore just. Furthermore, Yunker believes that private ownership of cap it al i s unnecessary fo r the economy to function as i t does. Thushe calls for public ownership of all capital goods(with certain exceptions, discussed below).

Yunker does recognize that capitalism hasbeen tremendously successful in raising livingstandards fo r everyone. He argues that "the levelof economic efficiency and social welfare in th e advanced capital ist nat ions is . . . extraordinarily



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high, re la tive to any t ime o r place in human hi story" (p. 13). His problem, then, is to develop a system of public (government) ownership of capitalwhich will not disturb th e functioning of th e existin g economic orderthere must be no cent ral p lann ing of any form, no radical equalizat ion of wealthor labor income, no reorganization of business forgoals other than profit maximization, and so on.Yunker states clearly that he wan ts h is s ys tem essentially to duplicate modern capitalism, with th eexception of private ownership of capital .

Yunker 's solut ion, in brief, is that al l capitalownership be turned over to th e government, withth e exceptions of small businesses (broadly defined), th e press (so as to avoid government control of information and news), and somethingcalled "entrepreneurial businesses," which arethose founded by an individual and which remainprivate so long as th e founder is actively managing them. Excepting these, al l corporations andfirms are to be owned by t he Bureau of PublicOwnership (BPO), a government agency.

The BPO is th e hear t of Yunker's system. I t isto be a two-tiered organization, divided into a cent ra l office a n d n ume ro u s decen t ra l ized local offices. The central office has two primary functions:it compiles national business statist ics, and it receives dividend payments from firms and paysthem back out to wage earners as a "social dividend" proportional to their labor incomes. A smallamount of this moneyYunker estimates five pe rcentis kept by th e BPO to cover i ts administ rative costs. This office also levies a "capital use tax"on all f irms no t owned by th e BPO.

The second level of the BPO is th e real key toYunker's plan. He envisions several hundred localBPO offices, each s ta ff ed with te n or so BPOagents, each agent responsible for te n or so corpora tions . The task o f an agent is to moni tor th e economic performance of th e corporations under hi sjurisdiction. If a corporation fails to perform well,(that is, to make profits), th e agent can fire th eCEO or more oftop management. Corporate management would continue to funct ion as under capitalism, including th e decision whether or not topay dividends (to th e BPO). The BPO agentswould receive a percentage of corpora te capi ta l income, ensuring their interest in high profits. Also,BPO personnel at all levels would be forbidden bylaw from attempting to dictate how a corporationis to be run, so as to prevent the system from becoming centrally planned.

There is a great deal more to th e proposal10 / AUSTRIAN ECONOMICS NEWSLETTER

THOMAS PA INE REVIEWSEEKS WRITERS

Thomas Paine Review, a newsletter dedicated to books promoting "reason,freedom, and human achievement,"seeks b o ok r e vi ew s of bo th fiction andnon-fiction works. Survey articlesshould be 800 to 3,000 words long,

and reviews of i n d iv i dua l book ss houl d b e from 3 00 to 1,200 words.Contact Gary McGath, Editor, Thomas

Paine Review, 84Washington St. #138,Penacook, NH 03303;72145. 1014@compuserve. com.

"pragmatic market socialism" is Yunker's life'swork, and has been thirty years in th e makingbut this captures th e essence of th e system. Whatcan be said of it ? I will restrict my comments toth e sphere of economics, while noting that Yunker's position on th e ethics of pr ivate capi ta l ownership, as well as the role of government, couldcertainly be challenged.

The two ma in cr i t ic isms which h av e b ee n leveled at socialism from the standpoint of economicsar e th e Austrian calculation argument and thepublic choice view that socialism is plagued by endemic rent seeking. Yunker is quite conscious ofthe charge that central planning does no t work because planners cannot calculate, and he has goneto great lengths to avoid central planning of production. In his view, capital markets would cont inue to exist under pragmatic market socialism,with publicly owned corporat ions trading amongthemselves. Competition for profits and thethreat of bankruptcy would keep corporationsfrom becoming inefficient, and the provision forprivate "entrepreneurial business" i s designed toensure t ha t t he system not become stagnant.One could debate whether Yunker's system, as designed, would constitute a functioning market sy stem, but such a debate would likely revolvearound marginal details. In my view, th e essentialpoint is that Yunke r s eeks t o avoid establishingany centralized control of th e economy, a nd p resumably he would wil lingly change h is sys temwere i t shown to con ta in i n h e r en t e l emen t s o fplanning.

What of the charge that socialist systems areby nature subject to endemic rent seeking? Yunker

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proposes placing all capital and all production under a single government bureau. Control of thatbureaucracy would potentially be extraordinarilyvaluable, much more so t han the c ap tu re of anybureaucracy in, say, present-day America. Wereth is system to be implemented, one would expectvast amounts of resources to be spent by thosecompeting for control of th e BPO. Even worse, anyone controll ing th e BPO would have great incentive to modify Yunker's finely tuned sys tem fo rpersonal advantage. This would be s imple , evenwithout bureaucratic captureCongress need onlyslightly amend Yunker's "Act for Economic Justice" and th e system could quickly become a defacto central p lann ing sys tem, or even one de jure.And certainly it is not going too far to say thatthere are many groups today, including Congress,that might be willing to usurp a system such asYunker's for short-run personal gain.

Yunker's response to this sort of cri ticism is todismiss i t as "dogmatic" and "begging the question" (p. 79), and "exceptionally closed-minded"(p. 85) . But the questions are neither dogmatic nort riv ia l. Yunker proposes to establish a governmentbureau, capture of which would potentially giveone control of the entire economy, and a system ofrules which, were it not followed to the letter, orwhere changed s ligh tly, would yie ld some sort ofcentrally planned system. He "solves" this problem by declaring that this would al l be forbiddenby statute. He thus ignores an important body ofwell-defined economic theorypublic choicewhich should have figured prominen tly in h is endeavor. The result is that his care fu l ly constructedsys tem conta ins gaping holes.

A word mus t be s aid a bo u t Yunker ' s view ofAus t r ian economics . H e devo tes a fa i r amoun t o fattention throughout th e book to Austrians, includin g on e nineteen-page section (pp. 175-93). Thismight have been interesting, but unfortunately hedisplays little understanding of the Austr ian tradition, and his discussions consist primarily of fatuous invective. For example, he speaks of th e"Austrian school ofinsti tutional economics" (p. 23)and in characterizing Austrianism gives a brief andaccurate def ini t ion of (old) ins t i tu t ional economics .Institutionalism, of course, is an American variantof Historicism, the tradit ional anti thesis of Austrian economics. It is ironic, amusing, and absurdt h a t Yunke r s h o u ld confuse th e two .

With similar depth of understanding, Yunkercondemns the work of Mises and Hayek in the socialist calculation debate as "gaseous, opinionated,confused, and inconclusive speculation" (p. 177).Spring 1994

Oddly, he also seems to think they were correct ,and that socialism must absolutely avoid centralp lanning. He misunderstands Kirzner 's theory ofentrepreneurship, incorrectly assuming it to be atheory about a career role for people with money(p . 102), r a ther than a theory about a kind of human action engaged in by al l part ic ipant s in aneconomy, irrespective of resource ownership. Ther e s t of h is d i sc u ss io n o f t he A u s tr ia n school is inth e sam e vein: I t is so misinformed as to be entirely irrelevant. He was too busy redesigning th eworld to acquaint h imsel f with th e subject.

What, then, can be sa id abou t Yunker's book?In many respects it is an impressive work. He obviously has g iven great thought and effort to constructing his scheme, and he has pur su ed his goalsinglemindedly, even fanatically, and avoided bein g sidetracked into plans to reconstruct al l of society. He desires only to abol ish h i s pe rsona lbugaboo, t he p riva te ownership of capi ta l, andthat is al l that his system i s des igned to do. a

Recommended Reading(In this feature of the AEN, a variety of scholars listthe most interesting books, articles, or wording papers re levant to Austrian economics they have recently encountered.)

I P e t e r J . B o e t t k eAss i s t a n t P ro f e s s o r o f Ec onom i c sNew York Universi tyThe b r eakdown of communi sm in th e la te

1980s has left many Sovietologists struggling toexplain th e failure of th e economics profession tounderstand th e structural problems in the Sovietsystem (both in politics and economics), le t aloneth e failure to predict th e collapse. The Spr ing1993 issue of The National Interest contains particularly insightful articles by Martin Malia,Rober t Conquest , and Peter Rutland. Rutland, fo rexample, states that "[cjriticisms of Sovietologyfor political bias, a tendency to ignore emigres,and l ack o f scholarly rigor have some validity.However, even taken together they still do not getto th e root of th e problem, which I se e as th e emergence of a 'disciplinary groupthink'which stiflescreative thinking and controversia l ideas . Fromthis perspective, Sovietology is no t an aber ran t



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Peter J. Boettke

case, but is symptomaticof a general crisis besetting th e social sciences."This message should resonate wi th Aus t r i ans whoare trying to push an alternative perspective oneconomic problems.

On th e i s sue o f t h et r ansformat ion of the former soc ia l i s t e co n om i es t omarke t economies Ihighly recommend th e

journal Communist Economies and EconomicTransformation, published by the Centre for Research on Commun i s t Economie s i n London.Many insightful articlesreflecting a strongAustrian influencehave appeared in this journalover t he pas t few years. See, for example, VitaliiNaishul, "Liberalism, Customary Rights and Economic Reforms," in volume 5, no. 1 (1993).

The i ss u es of t h e t ra n sf o rma t ion a re also addressed from a variety of perspectives in SocialPhilosophy and Policy (vol. 10, no. 2, 1993). Economic and political liberalism are given a goodhearing in this volume. Despite th e collapse ofcommunism, however, many refuse to le t go of socialism. The t it le o f Joseph Stiglitz's Wicksell Lectures, forthcoming from MIT Press, is WhitherSocialism? Stiglitz, perhaps the p remier mainstream economic theorist of the day, concludesthese lectures by asking if modern economics canserve th e ideals that motivated socialism (egali-tarianism, for example). He answers in th e affirmative. Stiglitz is no t an aberration: PranabB a rd h an a n d John Roeme r const ruc t a new mode lof market socialism which they believe eliminatesth e undesirable aspects of both exis ting socialism,as practiced in the Eastern bloc, and existing capitalism, as practiced in th e U.S. Their model introduces political and economic competition whileretaining public ownership. See Bardhan and Roemer, "Market Socialism: A Case for Rejuvenation,"Journal ofEconomic Perspectives 6 (Summer 1992).See also Roemer, "The Morality an d Efficiency ofMarket Socialism,"Ethics (April 1992). Misesiansmust address these modern arguments for socialism(based on contemporaiy information economics)head on. An attempt to deflect Misesian objectionsto market socialism can be found in James Yunker,Socialism Revised and Modernized (Praeger,1992); [reviewed in th is issuej.

Severa l new book ser i es shou ld be of in te res tto Austrians. NYU Press has published th e first

12 / AUSTR IAN ECONOMICS NEWSLETTER

volume in the series The Political Economy of theAustrian School, under the general editorship ofMario Rizzo. The volume is Th e Crisis in American Banking, edited by Lawrence H. White. Volume 2 will be The Collapse of DevelopmentPlanning, edited by myself. Future volumes willbe a combination of individually authored monographs and collections. Routledge is publishingthe series Foundations of the Market Economy, edited by Mario Rizzo and Lawrence H. White. Already appearing in the ser ies a re I srae l Kirzner'sThe Meaning ofMarket Process (1991), EstebanThomsen's, Prices and Knowledge (1992), FionaMcLachlan's Keynes's General Theory of Interest(1993), and Kevin Dowd's Laissez-Faire Banking(1993) .

One of th e most interesting developments inthe book world is the Cambridge University Pressseries The Political Economy of Institutions, edited by Douglass North and James Alt. Notablecontributions include North's Institutions, Institutional Change and Economic Performance (1990)and Jack Knight's Institutions and Social Conflict(1992). Aus t r i ans will f in d m uc h of in te res t in thisseries, as well as much to disagree with. Alongwith the series Studies in Rationality and SocialChange (Cambridge), edited by Jon Elster, th e Altand Nor th ser ie s represents a significant development in the l i terature t h a t seeks to resur rec tgrand theory in the social sciences.

Richard N. LangloisPro f e s s o r of E c o n o m i c sUnivers i ty of Connect icut

Brian J. Loasby, Equilibrium and Evolution:An Exploration of Connecting Principles in Economics (Manchester University Press, 1991). Thisnew work by the author ofChoice, Complexity andIgnorance (Cambridge, 1976) is based on lecturesgiven at th e University of Manchester. It is full ofLoasby's characteristic ins ight about firms, markets, economic theory,a nd t he h isto ry o f economics .

Thomas M. Jo rdeand David J . Teece, eds.,Antitrust, Innovation,and Competitiveness (Oxford, 1992). This collection ofessays byimportant figures in th eeconomics ofantitrust is Richard N. Langlois

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based on maximization of broader social objectives, regardless of their effects on individualwelfare. "[Efvery durable social institution orpractice is efficient, or i t would not persist overtime." The U. S. sugar subsidy program, for example, which costs taxpayers around $3 billion ayear, is " the tested way in which the domesticsugar-beet, cane, and high-fructose-corn producerscan increase their incomes by perhaps a quarter ofth e $3 billionthe other three quarters beingdeadweight loss. . . . The [Chicago] theory wouldsay that t he sugar program is grotesquely inefficient because i t fails t o m a x im i ze nat ional income.Maximum national income, however, is not theonly goal of our nation, as judged by the policiesadopted by our governmentand government'sgoals, as revealed by actual prac ti ce a re moreauthoritative than those pronounced by professors of law or economics." The sugar program,then, is efficient: " It h as stood th e test of time."

Manfred E. Streit, "Economic Order, PrivateLaw and Pub lic Policy: The Freiburg School ofLaw and Economics in Perspective," Journal of Institutional and Theoretical Economics 148 (Decembe r 1992): 675-704. Survey of th e so-called"Freiburg School," founded by th e economist Walter Eucken and the legal theorist Franz Bohm andfrequently identified with F. A. Hayek, who joinedth e faculty at Freiburg after hi s retirement fromthe Universi ty of Chicago in 1962.

Nicolas Mercuro, ed., Taking Pi'operty andJust Compensation: Law and Economics Perspectives on the Takings Issue (Kluwer, 1992) . Col lection of articles on takings by representatives ofvarious schools of thought in law an d economics,including Susan Rose-Ackerman, Steven G.Medema, Charles K. Rowley, Gary Minda, ThomasS. Ulen, and Robin Paul Malloy.

Peter J . Boettke, Why Perestroika Failed: ThePolitics and Economics ofSocialist Transformation (Routledge, 1993). Boettke's analysis of perestroika combines Austrian insights on th eproblem of economic calculation under centralplanning wi th a public choice analysis o f t he politica l maneuvering involved in the transformation ofth e Soviet sys tem in t he l at e 1980s. Gorbachev'sreforms, he argues, were doomed to failure because they ignored problems of calculation, credible commitment and renegotiation, and th epolitical marketplace.

Richard H. Timberlake, Monetary Policy in theUnited Sta te s : An In te ll e ctual and Insti tutionalHistory (University of Chicago Press and Cato In14 / AUSTRIAN ECONOMICS NEWSLETTER

stitute, 1993). History ofU. S. monetary policyfrom th e establishment of the Federal Reserve System in 1914 to th e present. Successor to Timber-lake's earlier work The Origins ofCentral Banking inthe United States. Also includes d iscuss ions of th e debate on legal tender laws that arose during and afterthe Civil War; how the present central banking system has its origins in th e First and Second Banksof t he Uni ted States; and how the Banking Actof 1935 and the Monetary Control Act of 1980each increased th e scope and power of th e Fed.

Larry J. Sechrest, Free Banking: Theory, History, and a Laissez-Faire Model (Quorum Books,1993). Defense of free banking , f ramed as a discussion of Say's Law. Claims that monetary equilibr ium can only be achieved under a free-bankingregime. Broadly follows the White-Selgin modelbut differs from those authors in th e interpretat ion o f both the Sco tt ish and ear ly American experiences wi th free banking. Argues that themost likely form of free banking that wouldemerge today would be a fractional-reserve system, with banks issuing notes convertible in specie .

Sheila C. Dow and J ohn Smithin , "Free Banking in Scot land, 1695-1845," Scottish Journal ofPolitical Economy 39, no. 4 (November 1992): 374-90. Surveys th e debate between White, Dowd,Rothbard, and Sechrest on the viability of th e Scottish banking system before Peel's Act and i ts useas a historical defense of free banking. Arguesthat th e Scottish system was indeed "free" but no tperfectly competitive a nd t hu s subject to widespread market failure, inevitably leading to excess i ve concen tr a t io n .

Daniel S. Hamermesh, "The Young Economist'sGuide to Professional Etiquette," Journal ofEconomic Perspectives 6, no. 1 (Winter 1992): 169-79,and idem, "Professional Etiquette for t he MatureEconomist," American Economic Review 83 , no. 2(May 1993): 34-38. Essential reading, of th e What-They-Didn't-Teach-You-in-Graduate-School variety. The author , a mature economist , offers adviceto younger colleagues just enter ing the profession,and to those who are already established, on th eappropriate procedures fo r presen t ing and publishin g research (i. e. , how to sol ic it f eedback, whomto acknowledge, how to selec t a journal, what todo about acceptances and rejections fo r publication); comment ing on other people's work (how tomake informal suggestions, how to write a refereereport); writing letters of recommendation; constructing a resume an d searching for a new job;and o ther essential professional matters, a

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UPCOMING EVENTS

Association of Private Enterprise Education"Liberty, Markets, and Economic Progress"April 10-12San An ton io, TexasLudwig von Mises Institute" T he C o st s o f War"May 20-22Atlanta, GeorgiaWes te r n Economi c As so c ia t io n"Marke t s and th e Env i ronmen t"June 29-July 3Vancouver, Br it ish ColumbiaLudwig von Mises Institute"Mises University"July 16-23Claremont, CaliforniaSou thern Economi c As so c ia t io nNovembe r 20-22Orlando, Flor ida

Notes and Transit ionsWe regret to report th e death of David Os-

ter feld in October. Osterfeld was professor of political science at St. Joseph's College inRensselaer, Indiana, and a contributor to the Austrian Ecojiomics Newsletter, the Review ofAustrian Economics, and numerous other scholarlypublications. His most recent book was Prosperityversus Planning (Oxford University Press, 1992),a critique of development planning.

Roger W. Garrison, associate professor of economics a t Auburn University, was interviewed asth e Austrian school representative for A ModernGuide to Macroeconomics: An Introduction to Competing Schools of Thought, edited by Peter Wynar-czyk, Brian Snowdon, and Howard Vane (EdwardElgar, 1994). Other figures interviewed for thecollection include Robe r t Barro , Jame s Tobin ,N. Gregor y Mank iw , Stanley Fischer, Dav idLaidler, Mi lt on Fr iedman , Robe r t S k id e ls k y,Edmund Phelps, Robert Lucas, and CharlesPlosser. Garrison's paper "Hayekian Trianglesand Beyond" is forthcoming in th e volume Hayek,Co-ordination and Evolution, edited by JackBirner and Rudy van Zijp (Routledge, 1993), whilehi s article on "Keynesian Splenetics" was published in th e Fa l l 1992 i ss ue o f Critical Review.

Spring 1994

Bruce J . Ca ldwel l, professor of economics atthe University of North Carolina, Greensboro, isediting two volumes of the Hayek Collected Works(Universi ty of Chicago Press and Routledge): vol. 9,Contra Keynes and Cambridge, and vol. 10, Socialism, and War, each with the subti tle "Essays, Correspondence and Documents." Caldwell is spendingthe Spring 1994 semester at Cambridge (U. K. ) as aClare Hall Visiting Fellow, where he will continuehis work on Hayek while participat ing in th e seminar run by Tony Lawson, a Post Keynesian interested in Hayek and "scientific realism."

Parth Shah, assistant professor of economicsat th e University of Michigan, Dearborn, has beennamed cha ir of the economics group within the Department of Social Sciences. Parth presented hi spaper "The Role of Bankers in Economic Development" at New York University's Austrian Economic s Colloquium in October.

Mark Thorn ton , O. P. Alford II I AssistantProfessor of Economics at Auburn University, hasbeen named Auburn University Coordinator forAcademic Af f a ir s a t th e Mises Ins t i tu te . Thorntonalso heads the Institute's Political Economy Club,which holds a Brown Bag Seminar on Wednesdaysin th e Institute library. When you' re in theAuburn area (1 1/2 hrs. from Atlanta), you're welcome to at tend (o r propose to present a paper). Recent seminars have included Henry Thompsonon NAFTA, Rober t Hebert on economics a nd purgatory, Liam Ford on media and government,Lew Rockwel l on the school voucher debate,Madison Jones on th e politics of the Southern li terary tradi t ion, Jeffrey Tucker on Lord Acton'sopinions of Amerca, and James Kee on problemsof mode rn bus i nes s educa t ion .

Two i ssues of the Review ofAustrian Economics have recently been published. Volume 6, no 2(1993) includes articles by Larry J. Eshelman on"Ludwig von Mises on Principle"; Bruce L. Bensonon "The Impetus for Recognizing Private Propertyand Adopting Ethical Behavior in a Market Economy"; Donald J . Boudreaux and Thomas J.DiLorenzo on "The Protectionist Roots of Ant itrust"; Joseph T. Salerno on "Mises and Hayek De-homogenized"; and Dav id Gordon on "ADeconstruct ion of Utility and Welfare Economics."

The newest volume of the RAE (vol. 7, no. 1,1994) features Paul A. Cantor on "Hyperinflationand Hyperreality: Thomas Mann in Light ofAustrianEconomics"; Nicolai Juul Foss on "The Theory ofthe Firm: The Austr ians a s P r ecu rs o rs and Cr it ic s o fContemporary Theory"; Hans-Hermann Hoppe on

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"F. A. Hayek on Government and Social Evolution"; David Gordon on "The Philosophical Contributions of Ludwig von Mises"; John B. Egger on "TheContributions of W H. Hutt"; and Kenneth K. Sander s on "Jean-Baptiste Say and Carl Menger Regarding Value." Copies may be ordered from the MisesIns t i tu te or from Kluwer Academic Publishers .

Edward Elgar will publish a two-volume collection of articles , essays, and reviews by Murray N.R o t h b a r d in late 1994. The vo lumes will be titled Economics as the Logic ofAction: Essays inthe Aus trian School . The s e t wil l in clu de m o st o fRothbard's major publ ished papers on theoretical and applied economics. It will appear in El-gar's "Economists of the Twentieth Century"series edited by Mark Blaug.

The Nature ofRationality, the latest offeringby Harvard philosopher Robert Nozick (PrincetonUniversity Press, 1993), challenges some aspects ofeconomist s ' convent iona l wisdom abou t r a ti onalchoice, such as the view that sunk costs should notaffect marginal decisions. Nozick also summarizesarguments on th e possibility of interpersonal utility comparisons, among other aspects of th e logicof choice, discussing his views along with those ofhis Harvard colleague Amaryta Sen.

Nobel Laureate Maur ice Al la i s offers a sympathetic treatment of Austrian business-cycle theory in "The Credit Mechanism and its

AustrianEconomics NewsletterAuburn University, AL 36849-5301

Implications," in George Feiwel, ed., Arrow andthe Foundations of the Theory ofEconomic Policy(New York University Press, 1987). Allais defendsth e importance of th e monetary transmissionmechanism and a rgue s against fractional-reservebanking, with considerable quotes from Mises an dRo t hb a rd . Wo r th a look.

New York University's Austrian Economics Colloquium includes th e following on i ts Spr ing 1994schedule: Leonard Liggio on "Law & Legislation:Hayek and Leoni"; William Butos on the "The Varieties of Subjectivism: Keynes versus Hayek on Expectations"; Charles Steele on "Discovery,Transaction Costs and Non-Convergence;" LawrenceWhite on "The Monetaiy Economics of F. A. Hayek";D o n a l d B o u d r e a u x on " T he Coa se T h eo rem andStrategic Bargaining"; an d Randy Barnet t on"The Func ti on o f Red is tr ib u ti v e Ju s ti c e. "

Israel M. Kirzner, professor of economics atNew York University, i s ed it ing a new collection ofclassic Austrian texts, forthcoming from Pickeringa nd Ch a tt o P u b li sh e rs (U . K.). The three-volumeset , t it led Classics in Austrian Economics: A Sampling in the History of a Tradition, features selections from most of the major figures of theAustrian school from Menger to Hayek. Includedare new English translations of works by Wieser,Franz Cuhel, Richard Strigl, Hans Mayer,Gottfried Haberler, Leo Schonfeld, and Hayek.

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