Wednesday, March 31, 2010

The Business End of Economics

In my post The Mises Academy in Context, I made the case for what I call the Misesian Injunction, Mises' call for every person to, for the sake of civilization, study economics. I also made the case for studying economics at the Mises Academy with Dr. Robert P. Murphy. But, you might ask, why take Understanding the Business Cycle in particular?

I would answer, in brief, that business cycle theory is the business end of economics. Take our current situation for example. Looking at the headlines, you might say that health care is a slightly bigger deal than the business cycle. Health care may have momentarily superseded the general economic crisis in the news cycle; but, as you would learn in Professor Murphy's course, this relative calm following the Fed's aggressive "remedies" is a deceptive one.

But another important consideration is how the American public's belief in free enterprise, imperfect as it has always been, descended to such a depth that it would be so quiescent in the face of such an extensive socialization of such a vital segment of the market as President Obama's health care reform? Obviously the public confidence in the market economy was shaken violently by the sight of the "kings of capitalism" (bankers, investors, executives, etc) being so completely surprised and upended by the economic crisis. Such a sight following the stock market crash of 1929 similarly devastated the prestige of the free market back then, and led to a similar quiescence in the face of the New Deal.

And there is another way of looking at this same phenomenon. Business cycle theory is the big blind spot of economists of all schools, save the Austrian. And so mainstream economists always get their analysis of the general health of the economy embarrassingly wrong (recall Irving Fisher betting on a quick recovery during the early phases of the Great Depression and Paul Krugman advocating a housing bubble in 2001 and 2002). Because of that, the reputation of the dismal science becomes even more dismal during an economic crisis. If these guys can't tell sustainable growth from an unsustainable boom, then why should we listen to them about things like price controls and state cartelization? Thus the mainstream economist's blithering incompetence in macroeconomics discredits the many microeconomic fundamentals they actually get right.

So even microeconomic interventions can often be traced back to business-cycle-inducing central bank policy. But even if you deny such causal linkages, in our day the business cycle, of all economic maladies, is still paramount in importance. As I wrote in my article For Civilization, It Is Mises or Bust:

"The longevity and the intensity of the monetary and credit expansion embarked upon by the Federal Reserve since the beginning of Alan Greenspan's term has been unprecedented. Even compared to the Hoover-Roosevelt era, what Greenspan did after the dot-com bubble burst, and what Ben Bernanke did following the bursting of the housing bubble, was stratospheric. Bernanke doubled the Fed's balance sheet in just months. (And as of now, it has been tripled.) Through engendering massive capital consumption, these measures have destroyed prodigious amounts of wealth, and continue to do so today.

Forget terrorism. And definitely forget global warming. Thanks to the machinations of the Fed, the general economic crisis analyzed by business cycle theory will be the most important challenge to overcome in our times. Therefore, to answer the Misesian Injunction and to, as Mises wrote, thrust ourselves, "vigorously into the intellectual battle", it behooves us to study the business cycle theory which enabled Mises and Hayek to predict the Great Depression, which equipped Peter Schiff and others to predict the bursting of the housing bubble, and which will explain so much of what is to come.

Tuesday, March 30, 2010

The Mises Academy in Context

Over a century ago, a young statist read a book. His life was never the same again. In fact, his reading of that book changed the world. A few days ago, an online school opened its doors. In what follows I will explain how these two events are connected.

The book the young man read was Principles of Economics by Carl Menger, and the young statist himself was Ludwig von Mises. Mises would later write that reading Principles, "made an economist out of me." On that day, an intellectual odyssey began; a single, coherent project of intellectual advancement that continues to this day. This Misesian project has been both scientific and pedagogical; for science and pedagogy are two sides of the same precious coin of intellectual progress. Through science, man discovers truth; and through pedagogy, successive generations discover it anew.

The crystalline mind of Mises--clear, ordered, and intricate--refracted the discoveries of Menger and Bohm-Bawerk (Menger's student and Mises' teacher) into a complete picture of the sciences of man, how they interrelate, and how they are distinct from other sciences.

But, again, science was only one side of the coin. Then came the teaching. For Mises, teaching what he had discovered was particularly urgent, because the ideology of his age disastrously attempted to contravene every law of human action. As he saw it, the western world, in chasing the chimera of socialism, was flinging itself headlong into a "crisis of interventionism" in which civilization itself would be in mortal danger. Picture a conscientious epidemiologist transported to plague-ridden, 14th-century Europe. Imagine the sense of urgency such a fellow would have. Then you can have an inkling of what it must have been like for Mises to hold in his hands economic truth in a time of politico-economic madness.

Unfortunately for the world, Mises found himself at a severe disadvantage in his efforts to teach. As Jeffrey Tucker says in his splendid speech Dissident Publishing: Then and Now, it often surprises people to learn that Mises was never a full professor at the University of Vienna. As Mr. Tucker explains, Mises had three strikes against him in the eyes of the German-speaking academic establishment: he was Jewish, not a socialist, and principled. But, Mr. Tucker goes on, Mises did not despair or give up; he simply found a work-around. He got a job at the Austrian Chamber of Commerce, and taught a private seminar out of his own office. This private seminar, the original Mises Circle, as Lew Rockwell writes in his moving essay Economics and Moral Courage, "grew into a full-blown economic society" before Mises was pressured out of Austria by the rise of Nazism, and the Circle was scattered to the four winds.

Years later, the Nazis forced Mises out of Europe altogether, and he took refuge in the United States. Yet, even in the "land of the free", there was no academic chair to be found for a principled economic liberal, no matter how brilliant and accomplished. But Mises once again found a work-around. As Mr. Rockwell tells us, some of Mises' American admirers, "put together a fund that would provide Mises a position at New York University, where he could teach and write. He was not paid by the university, where he was always a visiting professor, but through a private endowment."

While countless others in his time abjured principle in order to "get along" with their careers (Mises' colleague in Austria Hans Meyer being the paradigm of this type), Mises always preferred the challenging, creative work-around over the easy, dishonest compromise.

That was also the principled approach Lew Rockwell took when, inspired by the examples of Mises and Murray Rothbard, he founded the Mises Institute. As Jeffrey Tucker explained in the speech mentioned above:

That's what the Mises Institute is about. We go outside official channels, and we try to make a difference. We've inherited this tradition.

The Mises Institute honors this inheritance in promoting unfiltered, unflinching Misesian science and all its pro-liberty implications by going outside official lecture channels with its Mises Universities and Mises Circles, by going outside official publishing channels with its web sites, books, and journals, and now by going outside official classroom channels with the Mises Academy. As of now, the Mises Academy does not offer credits that can be applied to a state-accredited school; what it does offer is real knowledge that can be applied to a state-afflicted world.

You see, we all share one unfortunate thing in common with Mises. We too live in a time of politico-economic madness. But we, like Mises, must never give in to disaster, but strive ever more boldly against it. For, as Mises wrote in the Conclusion of Socialism:

Society lives and acts only in individuals; it is nothing more than a certain attitude on their part. Everyone carries a part of society on his shoulders; no one is relieved of his share of responsibility by others. And no one can find a safe way out for himself if society is sweeping towards destruction. Therefore everyone, in his own interests, must thrust himself vigorously into the intellectual battle. None can stand aside with unconcern; the interests of everyone hang on the result. Whether he chooses or not, every man is drawn into the great historical struggle, the decisive battle into which our epoch has plunged us.

But, you might ask, how can "every man" take part in a "great historical struggle" that is fought with intellectual armament? Isn't such combat a matter solely for the experts? Solely for those with PhDs or working toward their PhDs? Although he was fully aware that creative geniuses like himself were few and far between, Mises would have none of that. As he wrote in Human Action:

Economics must not be... left to esoteric circles. It is the philosophy of human life and action and concerns everybody and everything. It is the pith of civilization and of man's human existence. (...)

There is no means by which anyone can evade his personal responsibility. Whoever neglects to examine to the best of his abilities all the problems involved voluntarily surrenders his birthright to a self-appointed elite of supermen. In such vital matters blind reliance upon "experts" and uncritical acceptance of popular catchwords and prejudices is tantamount to the abandonment of self-determination and to yielding to other people's domination. As conditions are today, nothing can be more important to every intelligent man than economics. His own fate and that of his progeny is at stake.

Very few are capable of contributing any consequential idea to the body of economic thought. But all reasonable men are called upon to familiarize themselves with the teachings of economics. This is, in our age, the primary civic duty.

Whether we like it or not, it is a fact that economics cannot remain an esoteric branch of knowledge accessible only to small groups of scholars and specialists. Economics deals with society's fundamental problems; it concerns everyone and belongs to all. It is the main and proper study of every citizen.

In the two passages I quote above, I believe Mises packed an entire manifesto into nineteen sentences: a general call to intellectual arms one might call the "Misesian Injunction".

The Mises Institute, more than any other organization, has heeded the Misesian Injunction by taking what has sneeringly been called a "populist" approach, but which would be more accurately characterized as public education in the best sense of that term.

The Mises Academy is the natural next stage in the Mises Institute's pedagogical mission. We have the openly available literature (and other media) to fill out a world-class syllabus, thanks to the tireless efforts of Mr. Tucker and his team. We have the expert teachers thanks to the educational groundwork provided years ago by Murray Rothbard and his students. We have the growing throng of brilliant students, largely thanks to Ron Paul's presidential campaign and Peter Schiff's efforts to bring sound economics to financial news audiences. And we have the communicative catalyst of the internet at hand, finally powered with the technology to make an all-online course effective. Now, we just need to bring these four reactants together to produce what I think can be explosive growth in the ranks of Misesian citizen economists.

And it's all coming together in a matter of days, with the inaugural class of the Mises Academy: Understanding the Business Cycle with Dr. Robert P. Murphy. Given the times we are living in, this is obviously the time to learn about the business cycle. I'd like to share with you why Dr. Murphy is the man to learn it from.

The course explains one of the highest accomplishments of the Austrian tradition, but in the course of doing so, it also teaches the fundamentals of Austrian Economics which undergird the Business Cycle Theory. And Dr. Murphy is just the person to learn fundamentals from. He has such a clear way of explaining the basics, that he was the Mises Institute's go-to guy for writing the study guides to both of the core texts of Austrian Economics: Mises' Human Action and Rothbard's Man, Economy, and State.

However, what is perhaps the most important theoretical underpinning of Austrian Business Cycle Theory is capital theory. Business Cycle Theory is the apogee of Austrian macroeconomics, and as economist Roger Garrison has said, Austrian macroeconomics is synonymous with "capital-based macroeconomics". And it just so happens that Dr. Murphy is also the Mises Institute's go-to guy for the annual capital theory lectures at Mises U!

Okay, you might say, I'm sure his capital lectures will be clear, but that doesn't mean I'm going to enjoy them. And you would be quite incorrect in that, because, honestly, I think Dr. Murphy is one of the most entertaining lecturers I've ever seen. He has a sharp wit, and a marvelously self-deprecating sense of humor.

And finally, Dr. Murphy has heeded the Misesian Injunction more than just about any other economist. He is an extremely dedicated "economist-at-large". Readers of his blog marvel at his productivity. If he's not refuting Paul Krugman for the public good, he's speaking at a Mises Circle, or debating a Fed economist, or penning a "Politically Incorrect Guide", or developing an economics curriculum for high school students. Just take a look at his Mises Daily archive to get a sample of how devoted he is to explaining economics to the interested layman.

This is the time, this is the topic, this is the teacher, and this is the tradition. Please be part of it and help us shape our future courses by signing up for the inaugural Mises Academy course: Understanding the Business Cycle with Dr. Robert P. Murphy. Perhaps some day people will look back to this first Mises Academy course the way we look back at the first Mises Circle: with respect and gratitude.

Sunday, March 14, 2010

Got Geisteswissenschaft?

Daniel Muffinburg couldn't find something, so he asked his friend Zach the Lizard for help. (No this article isn't a children's story; Daniel and Zach are the handles of two Mises Community members.)

What Daniel couldn't find was the phrase, "Tu ne cede malis sed contra audentior ito", the motto of Ludwig von Mises and the Mises Institute, in an English translation of Virgil's Aeneid. Zach informed Daniel that the problem was that the phrase is not always translated as it is in Austrian circles: "do not give in to evil but proceed ever more boldly against it." According to Zach, in one translation, it reads: "The more thy fortune frowns, the more oppose."

To me, this made perfect sense, given Mises' philosophical outlook. I wrote:

"Misfortune" would be less confusing than "evil".  The "evil" in the quote is not "evil" in the moral sense.  It's more like the definition of "evil" that runs: "something that is harmful or undesirable".

This is Mises telling of it:

"It is a matter of temperament how we shape our lives in the knowledge of an inescapable catastrophe. In high school I had chosen a verse by Virgil as my motto: Tu ne cede malis sed contra audentior ito. "Do not give in to evil but proceed ever more boldly against it." In the darkest hours of the war, I recalled this dictum. Again and again I faced situations from which rational deliberations could find no escape. But then something unexpected occurred that brought deliverance." Notes and Recollections, p. 70

The "evil" he was proceeding boldly against was "catastrophe": not crime or sin.  Thus his motto, interpreted rightly, in no way at variance with his utilitarianism.

This didn't sit well with my friend "nirgrahamuk" (aka "nir"), who responded

if 'crime' and 'sin' were catastrophes then that would not oppose his utilitarianism either, in fact, that's what commonly marks out utilitarians

just sayin'

These opening maneuvers initiated an all-out debate between nir and myself over the nature of Mises' utilitarianism.

Then Community member "wilderness" came in on nir's side and the debate evolved into a more general controversy over whether Mises accepted the notions of normative science and scientific "oughts" (nir and wilderness claim he did; I insist he did not), which spilled over into a new thread, in which I became even more outnumbered as Conza88 weighed in on the "Mises-as-moralist" side.

It was Misesian (myself) vs. Rothbardians (nir, wilderness, and Conza), and it got rocky a few times. But tempers cooled, concessions were made, compliments were passed, common ground was discovered, and new ways of looking at the issue were found by both sides. Altogether, I think the debate was indicative how Misesians, Rothbardians, and Hayekians (as delimited in Jeffrey Tucker's fantastic piece Avoiding Austro-Flamewars) can, in the spirit of the "Rizzo peace," forge new intellectual tools in the crucible of contrary opinion.

I'd like to think vigorous, but civil and productive discussions like this can happen even with people outside of the Austrian school, and beyond. John Papola has demonstrated how it is possible to do that without compromising your position, in the way his brilliant rap video demolishes Keynes, but does so in such an even-handed way, that even the Keynes biographer Lord Robert Skidelsky commented that the video was “absolutely fair" and "seems to be completely right.”

See the video of Papola's speech at the Austrian Scholars Conference on the making of the video. He also has some really inspiring words about his pedagogical philosophy regarding spreading sound economics and his plans to spend the rest of his life doing so via creative projects. (This speech confirmed a suspicion I voiced on the Mises forum, back in January: "This guy is really cool." And the Austrian school is so lucky to have him.)

So what's your take on our debate? Who do you think won the day? What exactly did Mises understand his motto to mean? Was Mises a utilitarian in the way that word is commonly understood today? Did Mises believe in a science of "oughts"? Sign up for a free account in the Mises Community and weigh in!

After all, in how many other communities will you find passionate discussion over the meaning of Geisteswissenschaft?

Wednesday, March 3, 2010

Christopher Manion writes...

"To paraphrase Howard Baker, England is our friend, and Argentina is our friend. And we should always side with our friends."

via Is The Sun Setting On England’s Banana Empire? « Blog.

Test post

Just trying something out...