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WHAT AUSTRIAN ECONOMICS CAN TEACH HISTORIANS

Thomas E. Woods Jr.

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Ludwig von Mises Institute, Quarterly Journal of Austrian Economics, Vol. 11, pgs, 219 - 229, 22 November, 2008.

 
 

Reviewer comments:
This is an interesting article in which the author attempts to demonstrate that historians would benefit from understanding 'Austrian School' economic theory and apply it to enable them to 'make better sense of historical phenomena.' His fundamental belief is that one must, First, develop a theory and Then apply it to the study of historical events in order to find their meaning. I contend just the opposite, one must gather and evaluate the mass of conflicting evidence available about an event and on the basis of facts develop a theory that conforms to them. The two opposite methods go back to the different approaches described and employed by Plato and Aristotle. Inductive and deductive reasoning. But this idea is prevalent in the economist fraternity.

But from reading the author's examples it is clear that what he means is belief in and application of "Austrian School" economic theory - by no means any other of the many economics theories that are actually considered more valid by other professional economists than that of the very minor and tangential "Austrian School". The further one reads in this essay the more tendentious it appears. The author is living in the fabled 'glass house'. Please read Samuel Bostaph's review of Payson's book - How Economics professors Can Stop Failing Us for a reality check on what Woods' actual professors are doing. - Published in the very same journal

 

Summary:
"Austrian economics is a valuable resource for historians. Scholars informed by Austrian insights can make better sense of historical phenomena, and can provide far better insight into economic history, than those who lack this background. It is impossible to understand events such as the Great Depression with the assistance of no theory at all, so it is essential that the historian adopt the correct one. Sound theory also prevents the historian from falling into a wide array of fallacies -- about the stimulative effects of public works projects or the economic benefits of war, for instance -- that have insinuated their way into so much scholarly and popular writing."

For me, this is a pure assertion and also an example of the author's libertarian political views. Of course he is advocating the historian depend on 'Austrian School' economic theory, but this theory is a fringe, minor economic set of ideas, by far not accepted by (for instance Keynesian or monetarist) other dominant economic theoretical systems. The reader has to wonder what Mr. Woods thinks about the results of historians basing they research and analysis on such as Keynesian economic theory.

More broadly, the demand in relatively recent times throughout academe that students First develop an hypothesis and only then begin to look for real historical examples - data- that may confirm or (heaven forbid) negate their a priori ideas. Read David Fischer's description of the disastrous results of all this.

 
 

Mr. Woods continues: "When in the early twentieth century history began to emerge in the United States as a professional discipline rather than merely an avocation to be pursued by amateurs and dilettantes, the ideal of objectivity was proposed as a central value of the historian's craft."

What hubris, what ignorance, what condescension!! Some of the greatest American historians were active in America even before the Civil War. If any field of study was held by dilettantes prior to 1900 it was the economics category. Economics became an academic 'profession' only simultaneously with the expansion of government politicians' expansion of politics into the sphere of economic activity. And academic economists were quick to recognize they could fashion a role for themselves by insisting that their theories were necessary for politicians to use to legitimize their programs.

 
 

He continues by criticizing the insistent early efforts of historians to base their methods on collecting facts first and then organizing them into narratives that can be analyzed. Here is more condescension. "Eager to make history into a respectable science, some historians made explicit reference to the empiricism of Francis Bacon."
What nonsense. Historians never think of or claim that the study of history is a science (respectable or otherwise). It is economists who are 'eager' to make that claim for the creation of economic theories.

 
 

Next, we read an extended series of citations to the writings of Ludwig von Mises. All of which proclaim that it is essential to have a 'theory' first in order to understand historical facts. - '"History," wrote Ludwig von Mises, "cannot be imagined without theory."' The historian requires "some acquaintance with social theory, lest he be overwhelmed by data he was helpless to interpret."

Absurd, historians from the Ancient Greeks and Romans on wrote extensive histories describing facts, from which only later can later scholars develop theories. Archeologists and anthropologists first collect facts and from those develop theories about events, societies and all manner of subjects. Then, it is by analyzing the information initially expressed by those early authors - historians or others - that they can refute earlier theories.

 
 

He continues with more quotations from von Mises. '"Economic theory, said Moses, is "the indispensable tool for the grasp of economic history. Economic history can neither prove nor disprove the teachings of economic theory. It is on the contrary economic theory which makes it possible for us to conceive the economic facts of the past."'
One must wonder, then, why von Mises and Rothbard and other creators of theories about historical developments, let alone theories of current economic affairs, find their theories NOT accepted by so many other 'economists'. A read of White's book on The Clash of Economic Ideas {short description of image}in the 20th century reveals that, indeed, academic economists are constantly 'clashing' over the validity of their theories. Just as historians, archeologists and anthropologists dispute various theories proposed about the subject they study.

 
 

Here are a few more similar statements. "Some level of rudimentary theory -- even if at times only a basic understanding of cause-and-effect relationships - is unavoidably present whenever any historian practices his craft".
Wow - 'cause and effect' IS a fundamental historian's concept NOT an economic concept or at any rate many economists limit the 'cause-and-effect' to purely economic means ignoring the wider real ends at both sides of the relationship.

More: "A sound theoretical grounding is all the more critical in the study of economic history, for this is a case in which two disciplines meet. Economic historians are typically more knowledgeable about economics than are historians with other specialities, but it is usually the later who write text books for classroom use. Lacking any grounding in economic theory, when such historians inevitably reach those parts of their narratives that requite them to delve into economic history they typically adopt whatever appears to be the consensus view of the episode in question, or even whatever view is most in accord with their own political prejudices."

Again, Wow. Actually economic historians are typically more knowledgeable about history that are economists who attempt to create theories based on what they believe 'MUST' have happened in the distant past. For example von Mises and Rothbard continuing to base their theories on the origin of money on the discredited idea that it was a development from barter exchange of goods and services. And it is economists (such as Keynes) who alter their theories to be in accord with the desires of politicians.

 
 

Yet more: "A monetary history of the United States not informed by sound economics, for instance, would be perfectly useless." Actually a monetary history of the United States built from a preconceived theory of economics would be perfectly useless without knowledge of the actual facts. The author proceeds to give as his example that knowledgeable writers, politicians, businessmen in Colonial America complained that there was a shortage of 'money'. He writes that this idea is false. "The 'Austrian School" holds that since the purpose of money is to facilitate exchange, a process that is neighter enhanced nor inhibited by its greater or lesser supply, any supply of money above a certain threshold is optimal." .... "The Austrian historian will be skeptical of historical claims of 'shortages of money' as well as of the effectiveness or wisdom of paper money as an appropriate remedy for that alleged problem"
But 'money' used and necessary for exchanges in the parket consisted of silver coins. And there WAS a temporary shortage of silver coins since they were continually drained from the colonies to Great Britain. The dire shortage occured after the defeat of the Colonial invasion of Canada from which the Massachustes and New England governments expected to pay their troops from the booty they would bring back. No such booty - shortage - troops refused to accept paper. The British governor general actually IMPORTED barrels of silver coin as an emergency measure to stave off rebellions. The Austrian School economists ought to read history.

 
 

He continues with more assertions that only the Austrian School economists have the correct theory about business cycles, interest rates and the causes of expansions and contractions. From this he asks about what 'caused' the Great Depression. Turns out that only the Austrian School economist has or could have the right theory. But, not that they were wrong, the Austrian school theory that government manipulation was at fault may be right, but not because it is an a priori theory, but because it conformed to what can be seen from the historical record.

 
 

He continues with the note: "Still another Austrian insignt - or, at least, a oint particularly emphasized by Austrians - that can inform sound historical judgments involves the importance of evaluating contrary-to-fact scenarios." But, again, this method is well understood by historians who are not committed to Austrian school theories. It is not limited as Mr Wright presumes to economic facts but is very widely used in scenarios positing alternative political or military actions and their results.

 
 

Mr. Wright turns to von Mises to discuss praxeology - the expression denoting the fact that humans ACT. This section of the essay is much more valid. As is his point that "Cost is the value of those things that the actor renounes in order to attain what he wants to attain: it is the value he attaches to the most urgently desired satisfaction among those satisfactions wihch he cannot have because he preferred another to it." He links this concept with Bastiat's phrase of 'the seen and unseen' outcomes of each decision and action. He is also correct to insist that 'value' is a subjective measure.

 
 

He then turns to analysis of the standard GDP - Gross Domestic Product - and correctly points to one of its failings. That is because the formual includes government spending with consumer spending and investment. But government spending is a result of coercive action. He offers Rothbard's recommendation of a PPR per capita as a better measure of standard of living. But he has to thrown in that historians are not capable of recognizing this because they lack training in Austrian School economic theory. It is Keynesian economists whose theories disagree with the Austrians. Mr. Wright turns to Robert Higgs for his analysis of GDP. But his attack on the official GDP statistics for American output during WWII on the grounds that it was not a true measure of consumer choice and resulting well being is falacius. No one would claim it did. But the WWII war effort did create an unprecedented volume of physical goods and significant services. The War effort was not about satisfying consumer choices. The statistics on WWII physical output are not 'nonsense numbers' as he claims. They are easily measured in numbers of airplanes, ships, tanks and many other products.

 
 

He follows these eroneous concepts about economic output with another strike against historians. "These examples give the reader an idea of theadvantages that a historian schooled in Austrian economics enjoys vis-a-vis scholars with no such background." But the standard official measures of economic output during WWII are not compiled by historians but by non- Austrian economists. They are then placed in the text books of non-Austrian economist professors such as Samuelson and Morgan..

 
 

The bibliography is filled with Austrian School authors.

 
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Ludwig von Mises - The Theory of Money and Credit

 
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Murray Rothbard -What has the Government Done with OUR Money

 
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David Graeber - Debt: The First 5000 Years

 
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Samuel Bostaph - Book Review of How Economics Professors Can Stop Failing Us

 
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Marc Bloch - The Historian's Craft - with introduction byJoseph Strayer - Vintage Books, NY. 1953, papeback

 
 

Peer Gay & Gerald Cavanaugh, eds. Historians at Work - 3 vols. Harper and Row, N. Y, 1972

 

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