What I Love about Economics

I’m not an expert in economics, but the subject comes up here at the Spherical Model pretty regularly, since the Economic Sphere is one of the three overlaying spheres. I did take basic econ in college, and I read a fair amount. That seems to have done me more good that Alexandria Ocasio-Cortez’s degree in the field. One thing I know is that economics is inextricably connected to politics and culture.

As economist Ludwig von Mises said,

One of the indispensable prerequisites of a master of economics is a perfect knowledge of history, the history of ideas and of civilization, and of social, economic, and political history. To know one field well, one must also know other fields.—Ludwig von Mises, in Shawn Ritenour, ed. The Mises Reader, p. 22 , quoted from John Chamberlain, “My Years with Ludwig von Mises,” The Freeman 27, no. 2 (February 1977): 126–27.

Looks like we even agree on the three spheres: political, economic, and social.

I’ve been a follower of Mises economics, usually called Austrian economics, for a while. [Mises.org is a good source.] I’m also a follower of the Chicago school, of Milton Friedman—and eventually bringing around Thomas Sowell. To an expert there’s probably a lot of difference, but to me they’re both about free-market economic principles. I think Mises is possibly more theoretical—the philosophy behind the policy—while Friedman is more about implementation: based on these free-market principles, what policy will work best in this situation?

The Mises Reader cover

Anyway, I’ve just started reading The Mises Reader, a collection of Mises’s shorter and more accessible works, as well as excerpts from his major works, edited by Shawn Ritenour. Even the introduction has been rich with quotes. I thought I’d share a few, to offer a taste of how Mises thought—making us wish there were more thinkers like him today. The first several are quotes about him, by Ritenour. Then there are some of Mises’s own words.

This may not seem like much of a Valentine’s Day post, but, being who I am, a truth seeker, I love words like these. Enjoy.

The work of Ludwig von Mises is an important guide for thoughtful citizens because he strongly, yet matter-of-factly sets forth economics as the pursuit of truth. Not the truth of the passing fancy, nor the so-called “small t-truth” that is always in danger of being refuted by the latest bit of empirical data; but economic truth that will stand for all ages.—Shawn Ritenour, ed., The Mises Reader, Introduction, p. 15.

This is what happens when intellectuals, teachers, and college professors see themselves as destroyers instead of cultivators. If we want to preserve our noble cultural inheritance, we cannot think that it will happen automatically. It is always easier to destroy than to maintain and build up. If civilization is not to descend into barbarism, we must teach each generation the importance of truth, liberty, and private property. It is not called culture for nothing. We must cultivate civilization.—Shawn Ritenour, ed. The Mises Reader,  p. 12-13, Introduction

Today people are increasingly urged to support this or that political program advertised as solving a vexing social problem with no understanding of economics and hence no frame of reference from which to evaluate different policies. All that is mustered in justification for interventionism are feelings that make people want to “do something.” The economics of Mises is the crucial antidote for the current interventionist ideology supporting the progressive march to economic fascism. Citizens acquainted with Mises quickly understand that any sort of middle-of-the-road economic policy does indeed lead to socialism.—Shawn Ritenour, ed., The Mises Reader, Introduction, p. 21.

An economy that has taken advantage of an extensive division of labor is very complex and yet, decentralized. Such an economy features a multitude of different markets in which the participants must coordinate their activities if we want to avoid recessions and depressions. The biggest problem for this decentralized economy to work is that all of the various producers have to know what to produce, how much to produce, and how to produce it. This can only be done if some method of calculation exists. No other economist of his day stressed this point more than Mises. Indeed in the 1920s Mises demonstrated that the lack of economic calculation is the Achilles heel of socialism.—Shawn Ritenour, ed., The Mises Reader, p. 18.

Mises recognizes that what makes such comparisons even harder is that we all value goods subjectively, according to our personal preferences. We cannot, therefore, measure value because there are no objective units of value measurement. Again it was Mises who demonstrated that voluntary exchange in a monetary economy opens the door to a solution. In a monetary economy, every good is exchanged against money, so every price is expressed in terms of the monetary unit—in our case dollars and cents. Even though value is subjective, in a free market, people manifest their values by voluntarily deciding what they will pay for particular products and services. These objective prices, therefore, are reflections of subjective values. Entrepreneurs are able to use these objective prices to calculate expected profit and loss and act accordingly. In a free market, Mises shows, entrepreneurs are able to plan for the future and consumers will receive what they most want.

Socialism, on the other hand, is doomed because there is no way for the central planner to efficiently allocate factors of production because there is no way to calculate profit and loss. In a completely socialistic economy all of the means of production are owned by the state. There is, therefore, no actual exchange of goods, and hence no actual prices that reflect the actual subjective values of human beings. Producers, then, have no way to calculate whether their actions are productive or wasteful from the point of view of society. What is called a planned economy is, instead, as Mises so eloquently put it, “groping about in the dark.”—Shawn Ritenour, ed., The Mises Reader, pp. 18-19.

 

Ludwig von Mises
image from Wikipedia

A man who chooses between drinking a glass of milk and a glass of a solution of potassium cyanide does not choose between two beverages; he chooses between life and death. A society that chooses between capitalism and socialism does not choose between two social systems; it chooses between social cooperation and the disintegration of society. Socialism is not an alternative to capitalism; it is an alternative to any system under which men can live as human beings. To stress this point is the task of economics as it is the task of biology and chemistry to teach that potassium cyanide is not a nutriment but a deadly poison.—Ludwig von Mises, in Shawn Ritenour, ed., The Mises Reader, p. 20, quoted from Mises, Human Action, p. 676.

One may try to justify [social security] by declaring that the wage earners lack the insight and the moral strength to provide spontaneously for their own future. But then it is not easy to silence the voices of those who ask whether it is not paradoxical to entrust the nation’s welfare to the decisions of voters whom the law itself considers incapable of managing their own affairs.—Ludwig von Mises, in Shawn Ritenour, ed., The Mises Reader, p. 21, quoted from Mises, Human Action, p. 613.

I was sometimes accused of representing my viewpoint in a manner too abrupt and intransigent. It was also claimed that I could have accomplished more had I displayed a greater willingness to compromise.... When I look back at my work… my only regret is my willingness to compromise, and not my intransigence.—Ludwig von Mises, in Shawn Ritenour, ed., The Mises Reader, pp. 22-23, quoted from Mises, Memoirs, p. 60.