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Austrian Economics As Political Philosophy J. Mikael Olsson S TOCKHOLM STUDIES IN POLITICS 161 Austrian Economics as Political Philosophy J. Mikael Olsson Austrian Economics as Political Philosophy J. Mikael Olsson ©J. Mikael Olsson, Stockholm University 2015 ISSN 0346-6620 ISBN 978-91-7649-062-4 Printed in Sweden by US-AB, Stockholm 2015 Distributor: Department of Political Science, Stockholm University. Cover image: Micaela Adolfsson (based on “Under the Thumb” by Thomas Nast, 1871). Contents I. Introduction ............................................................................................... 7 Aims of the Study ...................................................................................... 12 Some Words on Method ............................................................................ 17 The Metaethical Dimension ...................................................................... 22 Earlier Research ........................................................................................ 31 Sources ...................................................................................................... 33 Disposition ................................................................................................ 34 Part 1: Economics ........................................................................................ 35 II. A Brief History of Economic Thought ................................................. 37 Mercantilism and Its Critics ...................................................................... 38 Quesnay and Smith .................................................................................... 40 Malthus, Ricardo, Mill .............................................................................. 43 Marx and the German Historical School ................................................... 46 The Marginal Revolution and Neoclassical Economics ........................... 48 The Keynesian Revolution and Monetarism ............................................. 50 An Austrian view of the History of Economics ........................................ 52 The Austrian School of Economics – Early Days ..................................... 54 Mises, Hayek, and the Socialist Calculation Debate ................................. 57 The Austrian School after World War II ................................................... 60 III. Economics and Normative Implications ............................................. 64 IV. Austrian Economics and Normative Thinking .................................. 75 Praxeology and the Nature of Economics ................................................. 75 Analyzing the Economy ............................................................................ 82 Praxeology and Normative Political Theory ................................ ............. 88 The Economics of Hayek .......................................................................... 95 Some Conclusions and Remarks ............................................................. 101 Part 2: Ethics ............................................................................................. 107 V. The “Utilitarianism” of Ludwig von Mises ........................................ 109 The Foundations of Mises’s Normative Theory ..................................... 109 Determining Which Policies Maximize Preference Satisfaction ............ 116 Mises’s Assumptions About Actual Preferences .................................... 120 Mises’s Critique of Interventionism and the Relevance of His Liberalism ................................................................................................................. 124 Final Remarks ......................................................................................... 138 VI. The Anarchists: Murray Rothbard and Hans-Hermann Hoppe ... 141 Rothbard .................................................................................................. 142 Hoppe ...................................................................................................... 154 (Meta)Ethical Conclusions ...................................................................... 162 The Rejection of Democracy ................................................................... 164 VII. What’s so Great About the Great Society? – The Political Philosophy of F. A. Hayek ........................................................................ 168 An Overview ........................................................................................... 169 Normative Principles ............................................................................... 173 Turning to the Secondary Literature ....................................................... 177 The Maximum Population Theory Examined ......................................... 182 The Maximum Freedom Theory Examined ............................................ 184 Hayek on Democracy .............................................................................. 186 Final Remarks ......................................................................................... 190 VIII. Conclusions ....................................................................................... 192 References .................................................................................................. 199 Svensk sammanfattning (summary in Swedish) ..................................... 208 I. Introduction During the last few years, especially since the onset of the latest big world- wide recession (in 2008), there has been more discussion than usual about different ways to organize our economies. Indeed, proposals about bigger, or a more regulatory, government seem to be uttered more often than during the 80s and 90s, and questions about the ethical responsibilities of corporations have perhaps been more in vogue than ever.1 Moreover, it is probably safe to say that economists have, as ever, taken part in the debates with vigor. Now some people are fond of resenting the participation of at least some econo- mists, claiming that they are biased in certain directions. Some economists have themselves criticized their colleagues in connection to the crisis. Col- ander (2011: 2) claims the following: The main body of academic economists pretended, and some of them ac- tually believed, that they understood a complex system that they did not (and still do not) understand. Therefore they failed to express their ideas and arguments with the appropriate humility. The real story involves a systemic problem with almost all groups of economists, which led to their unwillingness to accept the commonsense reality that the economy is complex – far too complex to fully understand with the analytical tools that have been, and currently are, available.2 Then there is, of course, the lighter side of the debate: for example, some witty person has defined an economist as someone who holds a PhD in liber- alism.3 There may be something to this aphorism if one considers some of the theoretical assumptions that are made in mainstream economics, but on 1 Although now as I am finishing this work (in 2014), the debates appear to have cooled off considerably. 2 Colander’s (2011: 21f) suggestion for a remedy is that “we need to change the structure of the profession. We need more economists trained in the subtlety of policy issues and institu- tional realities. We need far fewer economists trained as producers of macroeconomic theory […] and far more trained to consume it. Applied macroeconomists need to know how macro- economic and financial institutions really work, and they need to know the history of econom- ic ideas and the economy itself.” 3 Economics is, of course, not the only discipline in social science that people connect with certain political positions. Sociology, for instance, is often perceived as more or less left- leaning (cf. Klein & Stern 2006; Udehn 1998). 7 the other hand one can sometimes get the feeling that criticizing economics is a bit like throwing out the baby with the bathwater. And after all, not all economists are neoliberals, or even “centrist” liberals, even though most of them basically adhere to the neoclassical paradigm of economics. But when it comes to approaches outside the neoclassical orthodoxy per- haps it gets even easier to draw a straight line between economic theory and political beliefs. One can, for instance, easily observe that many Marxist economists also seem to be socialists (or “lefties”) of some kind. And — to move into the context of the present study — if you know anything about the so-called Austrian school of economics, it is probably that most of its adher- ents are what one might call classical liberals4 (even though some of them are located even further out on the liberal spectrum, being “anarcho- capitalists”). It would, however, be interesting to ask oneself whether it is really necessary to be a liberal once you have accepted the tenets of Austrian economics, just as it would be interesting to know if you have to be a social- ist once you have subscribed to Marxist economics.5 Might it not be the case that the question of economic policy is much more complicated than eco- nomic theory? It seems to be the case that the straight line that in many cases is drawn from the latter to the former might not be as straight as it appears, and that there exists an intervening variable in the form of values, which makes the whole thing somewhat more complicated. Now in the case of neoclassical economics one could probably make the case that there are some assumptions with a somewhat normative6
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