Archive for November 2012

Austrian Student Scholars Conference, February 15-16, 2013

Grove City College will host the ninth annual Austrian Student Scholars Conference, February 15-16, 2013. Open to undergraduates and graduate students in any academic discipline, the ASSC will bring together students from colleges and universities across the country and around the world to present their own research papers written in the tradition of the great Austrian School intellectuals such as Ludwig von Mises, F.A. Hayek, Murray Rothbard, and Hans Sennholz. Accepted papers will be presented in a regular conference format to an audience of students and faculty.

Keynote lectures will be delivered by Drs. Peter Klein and David Howden.

Cash prizes of $1,000, $750, and $500 will be awarded for the top three papers, respectively, as judged by a select panel of Grove City College faculty. Hotel accommodation will be provided to students who travel to the conference and limited stipends are available to cover travel expenses. Students should submit their proposals to present a paper to the director of the conference (jmherbener@gcc.edu) by January 1. To be eligible for the cash prizes, finished papers should be submitted to the director by January 15.

Optimism and Social Power

A supporter writes to Mark Thornton:
“Your Nov 29  “Why I’m a Raging Optimist” post raised by a notch or two my pessimism and depression about the future of the country. My thanks to you for that!
My intro to Von Mises was his “Theory of Money and Credit”.  A daughter attended Grove City College in Pennsylvania.  Hans Sennholz, one of von Mises’ students, was professor economics.  I had my daughter buy me a copy of von Mises’ “Human Action”, one of the textbooks Sennholz was using.  (I also attended the ceremony at which von Mises’ beautiful wife presented his private papers to the College.)
I was delighted to learn of the Von Mises Institute.
Unfortunately, I cannot shake the pessimism voiced by Alfred J. Nock in his 1935 “Our Enemy, the State”.  He concluded that there would be no reversal of the surrender of “social power” to “state power” which he observed taking place at such an accelerating pace under F. D. Roosevelt. He predicted with amazing accuracy what has taken place since Roosevelt, which makes his dismal projection for the long term the more believable.  (I am pleased to see it among the books  the Mises Institute  offers.)
I trust my pessimism will not dampen your optimism. I am encouraged that a younger generation may be beginning to see the merits of Austrian Economics. A return to “social power” can not be accomplished without it.
I commend you and the work of the Institute!
P.S.  I will turn  93 in January. 1941 graduate of Georgia Tech. I was 13 when Roosevelt took office in 1933.”

Hazlitt on Loopholes

From one of his Newsweek Business Tides columns:

“The favorite demand of most tax “reformers” is that we must “close the loopholes.” But what is a loophole? Those who invoke the catchword never refer to the exemptions and deductions that apply to the low-bracket incomes. They use it only to stigmatize the deductions that those who earn high incomes are permitted to take, implicitly or explicitly, by the law. They do not stop to ask whether a deduction is fair or unfair. Do a few abuse it? Then it should be denied to everybody. Even President Kennedy, in his tax message to Congress on April 20, 1961, said: “The slogan—‘it’s deductible’—should pass from the scene.” He was talking of expense-account abuses; but if his statement were taken without qualification, no expense deduction, no matter how legitimate, would ever be allowed. Even a company that lost money would pay taxes on its gross. It is only because of expense deductions and “loopholes” that most businessmen are able to stay in business at all.

The kind of tax reform we most sorely need is not that proposed by the “loophole” closers. The most important tax reform is to stop confiscation.”

Rothbard on Unlimited Secession

What Ludwig von Mises Taught Gottfried Haberler and Paul Samuelson about Tax Loopholes

Tax loopholes are universally denounced across the political spectrum. Democrats revile them as egregious giveaways to the “rich” that should all be tightly sealed up in the interests of “revenue enhancement” for deficit reduction, infrastructure investment, propping up collapsing entitlement programs, etc. Republicans condemn them as major barriers to the implementation of a more business- and investor-friendly flat tax. Even free market economists oppose tax loopholes as inefficient and “non-neutral” to the market economy’s allocation of resources–as if there existed an optimal pattern of coercive redistribution of income from productive, private taxpayers to parasitic, political tax-consumers that was neutral to the market.

Needless to say Ludwig von Mises, who never took his eye off of the larger politico-economic issue of capitalism versus socialism, freedom versus statism, did not share the modern aversion to tax loopholes founded on baseless economistic concerns about “effiiciency” and “tax neutrality.” He pithily summarized the case in favor of tax loopholes, according to the following anecdote related by Paul Samuelson (“Tribute to Gottfried Haberler for American Enterprise Institute Memorial, 18 September 1995″) :

Some of us at sherry before a Fiscal Policy dinner in the Harvard Faculty Club were beefing about certain tax loopholes in the IRS code. Gotttfried [Haberler] whispered quietly, “Capitalism breathes through those loopholes.” The next day I told him how much I had liked his aphorism. Always the straight-arrow scholar, he said, “Yes, but the words are those of Ludwig von Mises not Gottfried Haberler.

UPDATE (November 28): Mises spoke about loopholes in similar terms but at greater length at a conference in White Sulphur Springs, West Virginia, April 5-8, 1951. There he said:

What is a loophole? If the law does not punish a definite action or does not tax a definite thing, this is not a loophole. It is simply the law. . . . The income-tax exemptions in our income tax are not loopholes. The gentleman who complained about loopholes in our income tax . . .  implicitly starts from the assumption that all income over fifteen or twenty thousand dollars ought to be confiscated and calls therefore a loophole the fact that his ideal is not yet attained. Let us be grateful for the fact that there are still such things as those the honorable gentleman calls loopholes. Thanks to these loopholes this country is still a free country . . . .

HT to Danny Sanchez for this reference.

Mises.org in the Classroom

A teacher writes:

I am teaching an AP US History class and we are discussing the tariff controversies of the 1820s. I wanted to discuss the Harrisburg Convention of 1827 and looked for some quick references. Nothing in the Britannica hard copy, nothing on Wikipedia. I then searched the Mises.org website and found a 22-page article on PDF by W. Kesler Jackson from The Libertarian Papers (2010). Many thanks to the Ludwig von Mises Institute for making this type of free market publication available.

Nuking the Moon

An article linked to on Drudge is reporting that the US actually considered nuking the moon to intimidate the Russians at the height of the Cold War.

It instantly reminded me of a hilarious skit from the 90s comedy series “Mr Show” in which the American people are whipped up into a patriotic frenzy (complete with a country music anthem) over NASA nuking the moon.

News or parody? With the state, who can tell?
And Paul Krugman must be wondering if such destruction would somehow boost aggregate demand.  It may be too little too late for Bastiat’s candlemakers, but think of the boost to the flashlight industry!

The Theory of Money and Credit at 100

Kurt Schuler at Free Banking provides a tribute to von Mises and an assessment of The Theory of Money and Credit on the centenary of its publication (1912 to 2012).

Schuler admits that his assessment is not based on a re-reading of the book, but on a re-skimming and reference to notes from a more through reading at an earlier date. His overall assessment of Mises’s contributions is stronger than his assessment of TMC.

Some samples of the positive parts in the post:

The book was originally published in German, and not translated into English until 1934. That the translation continues to be in print from not one but two publishers is in my view more a testimony to the continuing significance of Mises generally rather than to the book specifically.

And

Mises’s lesser works bask in the reflected glory of his two dazzling achievements, Socialism and Human Action. [links added]

And

At the time the book appeared, it made some steps forward in monetary economics. One was its stress on the subjective character of money, monetary exchange, and monetary prices. This is the lesson that has still not been fully enough absorbed into monetary theory; it is acknowledged intellectually but is not “in the bones” of most monetary economists. Another step forward was the book’s emphasis on injection effects, known to some previous economists but not to enough of Mises’s contemporaries. Yet another was Mises’s understanding that what people often think of as differences in the purchasing power of a currency are really differences in the goods offered in different locations; in truth, the purchasing power of money tends to equalize across locations. Mises’s treatment of interest, though brief, linked Austrian and Wicksellian themes.

His conclusion:

If it seems that I judge The Theory of Money and Credit harshly, it is only because Mises did some work that was truly great [emphasis mine], and The Theory of Money and Credit was merely good [emphasis mine]. “Good” is a status still sufficiently rare that the number of books on monetary theory that are its equal in terms of their contribution to the subject would not fill a bookcase.

The book is better than good. Rothbard assessment is included in this description from the mises.org website:

This classic treatise on monetary theory remains the definitive book on the foundations of monetary theory, and the first really great integration of microeconomics and macroeconomics. As Rothbard points out in his introduction to “the best book on money ever written,” economists have yet to absorb all its lessons.

I must admit, while I find TMC foundational, often in my own work, when I draw on Mises, which is frequently,  I probably more often turn to Human Action and On the Manipulation of Money and Credit, now available as Causes of the Economic Crisis.

Schuler reminds us, quite rightly how many “important books on money at around the same time by other economists have now been forgotten.” Perhaps this has more to do with the book itself than Schuler will admit. It was not only important at time, but exceptional, if difficult, and important then and now.

 

Coase on the Economists

Ronald Coase has a short piece in the December 2012 Harvard Business Review, “Saving Economics from the Economists” (thanks to Geoff Manne for the tip). Not bad for a fellow about to turn 102! I always learn from Coase, even when I don’t fully agree. Here Coase decries the irrelevance of contemporary economic theory, condemning economics for “giving up the real-world economy as its subject matter.” He also provides a killer quote: “Economics thus becomes a convenient instrument the state uses to manage the economy, rather than a tool the public turns to for enlightenment about how the economy operates.”

Sounds like parts of neoclassical economics, and describes Keynesian macroeconomics perfectly! But Coase seems to reject economic theorizing altogether, even the “causal-realist” approach popular in these parts. To be useful, he argues, economics should provide practical guidance for the businessperson. However, “[s]ince economics offers little in the way of practical insight, managers and entrepreneurs depend on their own business acumen, personal judgment, and rules of thumb in making decisions.”

Well, that sounds about right to me. Economics provides general principles, or laws, about human action, mostly stated as “if-then” propositions. Applying the principles to concrete, historical cases requires Verstehen, and is the task of economic historians (as analysts) and entrepreneurs (as actors), not economic theorists. Deductive theory does not replace thymology or judgment. Without deductive theory, however, we’d have no principles to apply, and nothing to contribute to our understanding of the economy except — to quote Coase’s own critique of the Old Institutionalists — “a mass of descriptive material waiting for a theory, or a fire.” To be sure, Coase’s own inductive method has led to several brilliant insights. Coase himself has a knack for intuiting general principles from concrete cases (e.g., theorizing about transaction costs from observing automobile plants, or about property rights from studying the history of spectrum allocation), though not perfectly. But, as I noted before, Coase himself is probably the exception that proves the rule — namely that induction is a mess.

An Entrepreneur’s View of the (Not So) Affordable Health Care Act

Mises Institute supporter and entrepreneur Bob Luddy tells Fox Business News about the adverse effects of the Affordable Health Care Act on small business owners as well as their employees and customers. This must-see video provides a great illustration of the unintended and destructive consequences of government regulation and is perfect for use in high school and college introductory economics courses.