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Ludwig von Mises Institute, Quarterly Journal
of Austrian Economics, Vol. 11, pgs, 219 - 229, 22 November, 2008.
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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
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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.
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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.
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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.
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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.
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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 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.
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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.
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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.
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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.
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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.
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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.
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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.
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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..
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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
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Peer Gay & Gerald Cavanaugh, eds.
Historians at Work - 3 vols. Harper and Row, N. Y, 1972
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