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The most common
misunderstanding about economics is that it is only about money and commerce.
The next step is easy: I care about more than money, and so should everyone,
so let’s leave economics to stock jobbers and money managers and
otherwise dispense with its teachings. This is a fateful error, because, as
Mises says, economics concerns everyone and everything. It is the very pith
of civilization
This is a confusion
sown by economists themselves, who postulate something called “economic
man” who possesses a psychological propensity to always behave in ways
that maximize wealth. Their mathematical models, predictions, and analysis of
policy are based on this idea.
In the real world,
however, we know this not to be the case. The world as we know involves
profit seeking but also extraordinary acts of charity, sacrifice,
non-pecuniary giving, and voluntarism (though I dislike that term since all
commercial exchanges are voluntary too!).
How to account for
these? The Austrian approach to economics dispenses with the idea of
“economic man,” or rather broadens the meaning of economics to
include all action, which takes place in a framework of scarcity. Scarcity
requires that we economize on something in all that we do, even when wealth
is not the motivation. For this reason, Austrians analyze acting individuals,
not maximizing prototypes.
Why is this
important? A common complaint against the free market is that it needs to be
supplemented by laws that restrict the power of materialism unleashed. The
market does “greed” well, people admit, but we need government to
provide charity, order, law, and restraint of all sorts, as if these areas
lie outside the domain of economics.
The truth is that a
theoretical structure that explains stock markets but not charity auctions,
chain stores but not church attendance, savings rates but not child rearing,
has no claim to be a universal theory at all.
This is why this
Rothbard article is so important. He defines the free market as integral
to an entire theory of a free society that is ordered and developed through
cooperative action of all its membership. That action is not conditioned on
profit seeking only, but on the institutions of ownership, contract, and free
association.
Economics, then, is a
science that is rooted in a larger understanding of what used to be called
the liberal order. The central claim of this understanding is that society
– just like the smaller subset often called “the economy”
– needs no central manager to thrive.
And just as economic
structures are best managed by property owners and traders, the entire
society contains within itself the capacity for self-management. Any attempt
to thwart its workings through the coercion of the state can only create
distortions and reduce the wealth of all.
Anyone familiar with
current economics texts and journals knows that this is not the view that
they promote. They are still stuck in an era where bureaucrats imagined
themselves as smarter than the rest of us, where central bankers believed
that they could end the business cycle and inflate just enough to cause
growth but not ignite inflation, where antitrust experts knew just how big
businesses should be.
But can government
managers know how to manage daily decisions on production and allocation
better than property owners? Can they improve on the agreements, innovations,
and rules created by acting individuals? They have neither the
intellectual equipment nor the incentive to do so. They are blind to the
realities of our lives and incapable of doing more for us than we can do for
ourselves, even if they had the incentive to do more than rob and coerce us.
How is it that the
economics profession has come to overlook these points? Murray Rothbard
believed it was partially due to the decline of the general treatise on
economic theory, systematic books that begin with fundamentals and trace
cause and effect through the whole range of human action.
These books were
common in the 19th century (and we distributed books like J.B.
Say’s Principles, and a similar book by Frank Fetter!). Thank
goodness that Mises wrote his amazing work Human Action, and Rothbard wrote his
elaboration on Misesian economics in the form of Man, Economy, and State. The Mises Institute publishes
both.
You know what? They
are still being read, teaching each new generation of economists through the
work of the Mises Institute. And not just in the United States: we receive
regular progress reports from study groups in China, Latin America, Eastern
Europe, and Africa. A
universal theory is once again having a universal impact
Llewellyn H. Rockwell, Jr
www.LewRockwell.com
Llewellyn H. Rockwell, Jr. is founder and president of
the Ludwig von Mises Institute in Auburn, Alabama,
editor of LewRockwell.com, and author of Speaking of Liberty.
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