The Austrian Interpretation of History

The Clash of Economic Ideas: The Great Policy Debates and Experiments of the Last Hundred Years

Lawrence H. White, George Mason University, Cambridge University Press, 2012

Most attempts to narrate what happened to economics in the 20^th are hollow: they tend to be dominated Keynesian revolution, with its Friedmanite after-shock, and oblivious to anything else.

Larry White – the author of Free Banking in Britain - the now retells the story of economics over the last century by casting Hayek, rather than Keynes, as the pre-eminent protagonist.  Correspondingly, he (almost) always places Austrian economists, rather English ones, on stage – even if not always centre-stage. And the action pivots, not on the moderate English efforts to manage the market economy, but on the more drastic attempts to deform or destroy the price mechanism in other parts of the world: collectivization in the Soviet Union, the US National Recovery Administration of 1933-1935, post-War planning in India. The overall-all narrative line is, accordingly, not one of Keynes overthrowing some (mythical) laissez faire dogma, but of recurrent Austrian exposes of the collectivist tendency that occupied the commanding heights of policy.

This undertaking is worthwhile, and attractively executed. For all of White’s evident Austrian commitment, he steadily displays to his adversaries a Hayekian courtesy. He is widely read, and the book’s references constitute a stimulating reading list. And he writes well: each chapter opens with an engaging incident that beckons the reader to read on. Perhaps the most succulent is the picture of Rex Tugwell– Roosevelt’s Brain Truster –waiting in 1934 in a marble-clad ante-room in Rome for an audience with Benito Mussolini, the ruler of what Tugwell had just described as ‘the cleanest, neatest, most efficiently operating piece of social machinery I have ever seen’.

Above, all else it is valuable corrective of stick man mythologisations of 20thc economics by, say, Paul Krugman.

The Clash of Economic Ideas should not, however, be mistaken a comprehensive account of the development of economic doctrine. The revolutions  in imperfect competition and game theory never appear; and neither does the triumph of J.B. Clark’s ‘fund’ conception of capital over the Austrian alternative, one the ‘clashes of ideas’ that was left undecided in 19^th c but very much determined (against the ‘Austrians’) in the 20^th . (John Bates Clark, note, gets a single reference in Clash; Ludwig von Mises 34).

But these omissions only reflect the book’s intentions. My uncertainties concern his vision  of how ideas affect one another, and events.

The Clash of Economic Ideas manifests a characteristically Hayekian belief in the existence ‘good bloodlines’ in thought, and bad. Tellingly, the book opens with a depiction of the youthful Keynes reading Marshall, and a youthful Hayek reading Menger. Hayek is evidently off to a good start, and Keynes not.  Later we learn that Lenin read Marx.  But, we may ask, who did Marx read? Ricardo. And Ricardo? Adam Smith. I am aware that the arrant Austrian will gladly infer that Smith leads to Lenin; but a sensible Austrian would have pause to consider the ambiguity that often lies in the legacy of influential economists. Bentham is another example: the author of both Defence of Usury  and in Defence of a Maximum [price of bread]. A font of laissez-faire or constructivism? White says constructivism, and I sympathize: but perhaps it is best to say both, or neither.

A more significant example of ambiguity is provided by the case of JS Mill. White adopts a position that was frequently endorsed by Hayek:  that Mill fatefully flicked the switch points of the tracks of social thought so that the utilitarianism of 1830 rolled towards the socialism of 1890. This is plausible. But the position needs to be reconciled with the fact that Mill was also the author On Liberty;  a tract that assimilated into the Enlightenment’s liberalism the Romantic age’s esteem for the individual, and in doing so valuably pressed the self-assertion and individuality that (surely) undergirds any authentic freedom. Mill’s problem, I would say, is that he over did it: he so championed the individual that he had little sympathy for free society, and ended up invoking the state to pay-back those mindless herds that so offended him.  Pressing ideas can often end in paradox, as Greek rationalism long ago discovered.  

My greater reservation lies in White’s subscription to the‘power of ideas’. The book is dedicated to this proposition, and is made-up with purported illustrations. Let me select one: White’s account of Tugwell’s impact in the National Recovery Administration. He quotes Tugwell to analyse him disseminator thereof underconsumptionism. White then traces this position to the lectures Tugwell received from Wesley Mitchell, who in turn absorbed it from Hobson. But  who needs Mitchell or Hobson to be underconsumptionst?  Was not every ‘heretic’ (save Marx!) an underconsumptionist? Were not native underconsumptionists making noise throughout 1920s America? And the NRA was not about stimulating consumption; it was about curbing competition in product (and labour) arkets. As Tugwell cheerfully announced in 1935 ,‘competition is being outlawed’ (Tugwell 1935, 201 ). Yet within three years of this the New Deal was vigorously reviving the ‘trust busting’ that the NRA had gently condescended in print, and rudely subverted in action. Can this hectic sliding across the policy plane have anything to do with ideas? Does it not have everything to do with a polity, bereft of intellectual direction , desperately grabbing for expedients?

Perhaps my point is this: there are ‘ideas’ and there is ‘thought’. An ‘idea’ can be novel, useful, and true;  and yet not be the issue of thought. Tugwell was undeniably full of ideas  (mostly old, harmful, and false): but despite his chair at Columbia, he could hardly be described as an economic thinker. 

Contrary to the learned case of this valuable book, the world of action makes its own way, regardless of the insights and fallacies of economic thinkers.

Tugwell, Rexford G, 1935, The Battle for Democracy.

White, Lawrence H. 1984, Free banking in Britain : theory, experience, and debate, 1800-1845  Cambridge: Cambridge University Press