Pigou is the new Keynes

by Sandy Ikeda

A full-page article in today’s Wall Street Jounal begins:

At the Heavenly Models home for deceased economists, an award is being presented to the resident whose work best explains financial crises, global warming, and other pressing issues of today.

The winner, according to author John Cassidy, is A.C. Pigou, the new flavor of the day.

The article implies that Pigou was the first to articulate the concepts of externalities and market failure.  I’m not sure that’s right, though I haven’t gotten around to reading The Economics of Welfare, but I believe we do have to credit him with the Pigou tax.  So in some ways he’s been almost as dangerous as his “smarter colleague,” although I’ve always felt sympathy for someone who was so much in Keynes’s shadow.

The article also has a sidebar quoting Mises (as well as Friedman, Kindleberger, and of course Keynes) apparently calling last year’s economic crisis.

Economics To End Economics

by Mario Rizzo  

I used to think that Ludwig von Mises was exaggerating quite a bit when he suggested that Keynes was not really an economist. One way he did this was to associate Keynes with infamous monetary cranks like Silvio Gesell. The following quotation will give you a flavor of Mises’s opinion:  

“John Maynard Keynes, late economic adviser to the British Government, is the new prophet of inflationism. The “Keynesian Revolution” consisted in the fact that he openly espoused the doctrines of Silvio Gesell. As the foremost of the British Gesellians, Lord Keynes adopted also the peculiar messianic jargon of inflationist literature and introduced it into official documents. Credit expansion, says the Paper of the British Experts of April 8, 1943, performs the “miracle . . . of turning a stone into bread.” The author of this document was, of course, Keynes. Great Britain has indeed traveled a long way to this statement from Hume’s and Mill’s views on miracles.”   

Mises Featured in the Journal

by Jerry O’Driscoll  

In today’s Wall Street Journal, hedge-fund founder Mark Spitznagel celebrates Ludwig von Mises as “The Man Who Predicted the Depression.”  Spitznagel opens by observing that “Ludwig von Mises was snubbed by economists world-wide as he warned of a credit crisis in the 1920s.  We ignore the great Austrian at our peril today.”  

Spitznagel deals with The Theory of Money and Credit and does a good job presenting its principal arguments.  What I found most interesting, however, is the author’s argument that the book is a warning today. 

Mises Was A Scientist

by Roger Koppl

Over at Division of Labor, Noel Campbell picks a fight with Austrian fans of Mises.  “I always conceived of Mises’ efforts as attempting to build a logically correct and (therefore) irrefutable description of human behavior. As such, I always viewed Human Action as a work of philosophy, not science.”   Noel hints that he doesn’t want to be answered with a lot of philosophy of science.  I might whine about how unfair it is to contrast Mises’ “philosophy” with “science” and then expect a response that doesn’t get into the philosophy of science.  But Noel seems to be a nice guy with a sincere question, so I’ll take a stab at it anyway.

Ludwig von Mises (1881 – 1973)

by Mario Rizzo

Tuesday, September 29th is the birthday of one of the great economists of our time, Ludwig von Mises. He was responsible for one of the two greatest accomplishments of twentieth-century economics. This is the demonstration that rational economic calculation is impossible under socialism, that is, in a world without market prices. For a long time economists believed that his argument had been defeated by Oskar Lange and Abba Lerner. But when the socialist economies of Eastern Europe and the Soviet Union collapsed, a re-evaluation occurred. Many former socialists conceded that Mises had been right all along.

I had the good fortune to meet Ludwig von Mises in 1969 when I was an undergraduate student. He gave a lecture at Fordham University. The lecture was chaired by my friend Jerry O’Driscoll who was also a Fordham student at the time. I remember Jerry struggling to keep the microphone close to Mises as he lectured. Mises had a way of moving back and forth in his chair as he spoke. Mises autographed my copy of Human Action that day.

We had asked him to speak on the epistemological problems of economics. He said he would rather speak on inflation. We compromised. He said he would speak on the epistemological problems of money. The day arrived, and he spoke on inflation. We were happy anyway.

I did not really know Mises but he seemed like a kindly and gentle man. Murray Rothbard used to refer to him as “sweet old Mises.”

He carried the torch of classical liberalism during many dark decades. He also resisted the Keynesian fever of his time. We are in his debt.

(For those who care, the other great accomplishment of twentieth-century economics is due to F.A. Hayek. This is the argument that knowledge in society is decentralized and that market prices enable us to make use of knowledge that we do not and cannot possess as individuals.)

Richard Posner on the Precipice

by Mario Rizzo   

Richard Posner’s latest conversion is both charming and alarming. It is charming because it exhibits a youthful enthusiasm for a newly-discovered idea: Keynesianism. He just recently read John Maynard Keynes’s book The General Theory of Employment, Interest and Money. Posner’s tone echoes that of Paul Samuelson:

“To have been born as an economist before 1936 was a boon—yes. But not to have been born too long before!”

Then Samuelson quotes William Wordsworth:

“Bliss was it in that dawn to be alive,
But to be young was very heaven!”

Horwitz Says: Let There Be Light. And There Is Light.

by Mario Rizzo  

In a series of persuasive posts, Steve Horwitz at The Austrian Economists blog (here, here, and here) shows that Ludwig von Mises’s views on monetary economics were more or less the same as the Selgin-White-Horwitz (and I would argue the Garrison) free-banking, monetary-equilibrium view, rather than the Rothbardian one. This is not surprising given Murray Rothbard’s deviation from Mises on questions of monopoly, the minimal state, utilitarianism and other matters. While these posts will no doubt be resisted by some, they should move the discussion out of what Mises meant and into the analytical merits of arguments – and, I hope, into empirical work. (After all, Mises didn’t spend a lot of time on what his forebears really meant!)

 

Bubble or Growth?

by Jerry O’Driscoll

In an interview with The Wall Street Journal, German Chancellor Merkel called for an end to risky growth policies built on asset bubbles.  “In recent years we’ve had the Asian crisis, the new economy crisis, and now this great international financial and economic crisis — we can’t slide into a crisis every five to seven years.”  As she notes, however, the central banks of the major economies have implemented “unorthdox” policies to increase borrowing and lending in the current crisis.  Those policies risk yet another asset bubble.

Exhaustion of the Welfare State’s “Reserve Fund”

by Mario Rizzo  

“An essential point in the social philosophy of interventionism is the existence of an inexhaustible fund which can be squeezed forever. The whole system of interventionism collapses when this fountain is drained off: The Santa Claus principle liquidates itself.”  Ludwig von Mises, Human Action: A Treatise on Economics, 3^rd edition, p. 858 (1966).  

During the bad old days of the Bush Administration I wrote a post, “The Disorderly Bankruptcy of the Welfare State.”  I stand by it all. 

Jack Kemp, RIP

by Sandy Ikeda

I was a student at Hillsdale College when the Congressman from New York gave a speech there, probably in 1976 or 77.  I remember little about the speech itself — probably touting tax cuts and supply-side economics — except that at one point he held up a copy of Human Action and praised its author, Ludwig von Mises. I was thrilled!  His NYT obit is here.