15 GREAT AUSTRIAN ECONOMISTS EDITED WITH AN INTRODUCTION BY RANDALL G. HOLCOMBE LUDWIG VON MISES INSTITUTE AUBURN, ALABAMA COVER PHOTOGRAPHS 1. Murray N. Rothbard 2. Frank A Fetter 3. Frederic Bastiat 4. EA Hayek 5. Murray Rothbard and Henry HazIitt 6. Ludwig von Mises 7. EA Hayek and Ludwig von Mises 8. Philip Wicksteed 9. Henry HazIitt 10. Diego de Covarrubias 11. Eugen von BOhm-Bawerk 12. Jean-Baptiste Say 13. AR.J. Turgot 14. Carl Menger 15. BOhm-Bawerk as Austrian Finance Minister 16. WIlhelm Ropke 17. William Hutt 18. Carl Menger (No known picture of Richard Cantillon exists.) For photographs on the cover and throughout the book, many thanks to the Austrian National library, The Bartley Institute, Cambridge University library, Henry HazIitt, The Carl Menger Papers in the Special Collections Library at Duke University, Margit von Mises, Princeton University, JesUs Huerta de Soto, JoAnn Rothbard, and the University ofVienna. 15 The painting of Covarrubias is by El Greco. Copyright © 1999bytheLudwigvonMises Institute. All rights reserved under International and Pan-AmericanCopyright Conventions. Nopart ofthisbook maybe reproduced ortransmitted in any form orby any means, electronic or mechanical, including photocopy, recording, or any information stor­ age and retrieval system, withoutpriorpermissioninwriting from thepublisher. All inquiries shouldbeaddressed tothe LudwigvonMises Institute,518 West Magnolia Avenue, Auburn, Alabama36832; [email protected]. ISBN: 0-945466-04-8 CONTENTS Introduction: TheAustrianSchoolPastand Present Randall G. Holcombe v 1. Juande Mariana: The Influence ofthe SpanishScholastics Jesus Huerta de Soto 1 2. Richard Cantillon:TheOrigin ofEconomicTheory Mark Thornton. ........................................ .. 13 3. A.R.J. Turgot: Brief, Lucid,and Brilliant Murray N. Rothbard. .................................... .. 29 4. Jean-Baptiste Say: Neglected ChampionofLaissez-Faire Larry ]. Sechrest .. ...................................... .. 45 5. Frederic Bastiat: BetweentheFrenchand Marginalist Revolutions Thomas]. DiLorenzo. .................................... .. 59 6. CarlMenger: TheFoundingofthe AustrianSchool Joseph T. Salerno. ....................................... .. 71 7. Philip Wicksteed: The BritishAustrian Israel M. Kirzner ....................................... .. 101 8. Eugenvon Bohm-Bawerk: Capital,Interest, and Time Roger W. Garrison. ..................................... .. 113 9. FrankA.Fetter:AForgottenGiant Jeffrey M. Herbener " 123 10. Ludwigvon Mises: The Dean ofthe AustrianSchool Murray N. Rothbard 143 11. HenryHazlitt: ThePeople'sAustrian Jeffrey Tucker. ......................................... .. 167 12. EA. Hayek: AustrianEconomistandSocialTheorist Peter G. Klein. ........................................ .. 181 13. WilliamH. Hutt: The "Classical" Austrian John B. Egger. ......................................... .. 195 14. Wilhelm Ropke: A HumaneEconomist Shawn Ritenour ....................................... .. 205 15. MurrayN. Rothbard: Economics,Science, and Liberty Hans-Hermann Hoppe ,, 223 Index , 245 Aboutthe Contributors .. ................................. .. 259 III The Ludwigvon Mises Instituteacknowledgeswithgratitudethe generosityofall the donorswhocontributedto makingFifteen Great Austrian Economists possible, andthanks inparticular: James M. Rodney Romill Foundation Reed W. Mower ArthurCinader R.E.Foxt Robert M. Hansen, M.D. EdwardW. Rehak MarkM. Adamo Dr. LarryJ. Eshelman JamesW. Frevert InMemoryofJohn andErlene Hendrickson Russel A. Hoelscher Mr. and Mrs. W.R. Hogan,Jr. JamesKuden JoeR. Lee ArthurL. Loeb Mr. and Mrs. WilliamLowndes, III Roland Manarin Mr. and Mrs. WilliamW. Massey,Jr. Joseph Edward PaulMelville Victor Pankey DonPrintz, M.D. Betty P. Ramsay JamesA. Reichert Mr. and Mrs.JohnSalvador ConradSchneiker Josephine H. Spidell William V. Stephens LawrenceVanSomeren, Sr. INTRODUCTION: THE AUSTRIAN SCHOOL PAST AND PRESENT RANDALL G. HOLCOMBE AT THE END of the twentieth century, the Austrian School of economics is exerting a significant influence both on the development of academic eco­ nomics and on the application of economic theory to public policy. An in­ creasing number of economics professors are sympathetic with the fundamental ideas ofAustrianeconomics, and academicjournalsare taking more account of the Austrian School.1 A half century ago, few academic economists would evenhavebeen familiar with the AustrianSchool, except superficially, and among those who were, most would have disagreed with its methods and conclusions. Today, the ideas of Austrian economics are closer to the mainstream of economic thought, not because Austrian eco­ nomicshas changed,butbecause mainstreameconomicshas moved toward the Austrian point of view. A similar shift has occurred in the public-policy arena. The policy implications of Austrian economics, once rejected as ex­ treme, are now embraced as true. In the process, the Austrian School has becomeincreasinglyvisible as anintellectualforce. Despite the significant advances that Austrian economics has made, it still plays a minor role in academic economics, and only a small minority of academic economists consider themselves members of the Austrian School. The Austrian School of economics is growing, but is not yet a part of the mainstream of academic economics. Its impact on public policy is more difficult to judge, because in many policy areas" other schools of thought arrive at similar conclusions. For example, the Chicago School, led by the ideas of Milton Friedman, often supports public policies consistent with Austrian economics, so the ideas of these schools can reinforce each other. ITwo recent examples are the review article byIsrael M. Kirzner, "Entrepreneurial Discov­ ery and the Competitive MarketProcess: An Austrian Approach," Journal ofEconomic Litera­ ture 35, no. 1 (March 1997): 60-85; and Sherwin Rosen, "Austrian and Neoclassical Economics: Any Gains From Trade?" Journal of Economic Perspectives 11, no 4. (Fall 1997): 139-52. Both of these journals are publications of the American Economic Association, indi­ cating the degree to which Austrian ideas are at least recognized, if not embraced, by the profession'smainstream. v vi Introduction Policy initiatives may find their intellectual foundations in many different schools of thought, but it should be apparent that the laissez-faire approach to public policy so often promoted by the Austrian School is much more accepted at the end of the twentieth century than it was in the middle. Ideas do have consequences, and an appreciation for the workings of the market system, always a hallmarkofthe AustrianSchool, has found its way into the public-policy debate. If the ideas of Austrian economics have made such inroads, one might wonder why, in the academic arena, Austrian economics does not playa bigger role. Part of the answer has to do with academic institutions them­ selves. Most university faculty teach at state institutions, which by itself maybias them toward supporting the state and being suspicious of laissez­ faire ideas. Mostuniversityfaculty have tenure, whichslows the turnover of personnel, and perhaps of ideas. Furthermore, academic ideas find their outlets largely in academic journals, and the editorial boards of those jour­ nals tend to be controlled by the academic mainstream, further promoting mainstream ideas over alternative schools of thought.2 Because publication in academic journals is often a prerequisite for promotion and tenure in a university environment, academic survival often pushes young scholars in the directionofthemainstreammethodsand ideasintheirdiscipline. Austrian economics has fought an uphill battle for acceptance for sev­ eral reasons, but at the same time, the Austrian School has been gaining in strength, and is becomingmore accepted inacademia. A growingnumberof economics professors align themselves with the Austrian School, and even amongthosewhodonot, Austrianideas arebecomingmorerecognized and respected. Interestingly enough, the late-twentieth-century resurgence of interest in the Austrian School has been concentrated in the United States. This is largely due to Ludwig von Mises's migration, and his Austrian eco­ nomics seminaratNewYork University. Onemight go so far as to argue that the modem Austrian Schoolwould not exist were it not for the influence of LudwigvonMisesonhisAmericanstudents.3 Ofcourse, economistsbefore Mises developed the foundation onwhich hebuilthis ideas,andhehadlike-mindedcontemporarieswhoalso influenced the direction ofAustrian economics. By the late 1940s, the AustrianSchool was scarcely wider than Mises and those who studied directly under him at New 2See Leland B. Yeager, "Austrian Economics, Neoclassicism, and the Market Test," Journal ofEconomic Perspectives 11, no. 4 (Fall 1997): 153-65, for aninsightful discussion on the challenges thatanalternative to mainstream ideasfaces inthe academicmarketplace. 3See Karen 1. Vaughn, Austrian Economics in America: The Migration ofaTradition (New York: CambridgeUniversity Press, 1994), for a good discussion ofthe developmentofthe modem Austrian School. Also see Murray N. Rothbard, "The Present State of Austrian Economics," Money, Method, and the Austrian School, vol. I, The Logic of Action (Chelten­ ham, U.K.: EdwardElgar, 1997). Fifteen Great Austrian Economists vii York University. From there, the students of Mises found their own stu­ dents, and by the 1970s the AustrianSchoolhadbeguntoblossom. AUSTRIAN ECONOMICS BEFORE 1950