When a presidential candidate declares, as Ron Paul has, “We’re all Austrians now,”  it’s inevitable that his critics would try to discredit him—whether they understand what he’s talking about or not. That’s what Matthew Yglesias does in his Slate piece “What Is ‘Austrian Economics’?”

I recommend the piece because it’s highly informative—about what Austrian economics is not.

We’re off to a rocky start with this: “The Austrian school originally referred to a set of classical liberal thinkers with diverse interests who came out of the Austro-Hungarian Empire.”

The earliest Austrian economists did not make their mark by advocating free markets and other classical-liberal ideas. They did so by proffering a revolutionary positive (not normative) theoretical approach to understanding how markets work, focusing on value, price, and capital, theory. What Wikipedia says is consistent with my understanding of the matter: “When Carl Menger, Eugen von Böhm-Bawerk, and [Friedrich von] Wieser began their careers in science, they were not focused on economic policy issues, much less in the rejection of intervention promoted by classical liberalism. Their common vocation was to develop an economic theory on a firm basis.”

Economics vs. Politics

Yglesias thus conflates Austrian economic theory with libertarian political theory. In fairness, he is not alone in committing this error. Many libertarians do the same, which is unfortunate. Austrian economic theory describes how purposive action by fallible human beings unintentionally generates a grand, complex, and orderly market process. An additional ethical step is required to pronounce the market process good. Economic theory per se cannot recommend but only explain markets. This is what Ludwig von Mises meant when he insisted that Austrian economics is value-free. Anyone of any persuasion ought to be able to acknowledge that economic logic indicates that imposing a price ceiling on milk will, other things equal, create a shortage of milk. But that in itself is not an argument against the policy. Mises assumed the policymaker would have thought that result bad, but the economist qua economist cannot declare it such. As Israel Kirzner likes to say, the economist’s job in the policy realm is merely to point out that you cannot catch a northbound train from the southbound platform.

Yglesias writes: “Austrians reject the idea that there is anything at all the government can do to stabilize macroeconomic fluctuations.” It’s odd to say this without also pointing out that Austrians believe that government causes the instability of inflationary booms, recessions, and depressions. In light of that point, the suggestion that government is capable of stabilizing the economy may be seen in its proper light.

That said, Yglesias’s statement is not quite right. Some prominent Austrian macroeconomists think that in a second-best world, the central bank (which of course wouldn’t exist in a first-best world) should counteract a sudden and substantial monetary contraction. In other words, deflation is not necessarily a cure for inflation. Mises made the point metaphorically in 1938: “If a man has been hurt by being run over by an automobile, it is no remedy to let the car go back over him in the [opposite] direction.” (See Steven Horwitz’s “Deflation: The Good, the Bad, and the Ugly.” )

Distorts Markets

“In the view of the Austrians,” Yglesias goes on, “practically every economic policy pursued by the federal government and Federal Reserve is a mistake that distorts markets. Rather than curing recessions, claim Austrians, stimulative policies cause them by producing unsustainable bubbles.” Well, yeah, and it’s amply demonstrated by George Selgin, William D. Lastrapes, and Lawrence H. White in“Has the Fed Been a Failure?” (See my summary, “‘F’ as in Fed.” ) As they put it:

Drawing on a wide range of recent empirical research, we find the following: (1) The Fed’s full history (1914 to present) has been characterized by more rather than fewer symptoms of monetary and macroeconomic instability than the decades leading to the Fed’s establishment. (2) While the Fed’s performance has undoubtedly improved since World War II, even its postwar performance has not clearly surpassed that of its undoubtedly flawed predecessor, the National Banking system, before World War I. (3) Some proposed alternative arrangements might plausibly do better than the Fed as presently constituted. We conclude that the need for a systematic exploration of alternatives to the established monetary system is as pressing today as it was a century ago.

Yglesias understands that the Austrian theory of the business cycle has something to do with artificially low interest rates breeding malinvestment, but he thinks it can’t be right because “it’s hard to understand why business people would be so easily duped in this way. If Ron Paul and Ludwig von Mises know that cheap money can’t last forever, why don’t private investors? Why wouldn’t firms avoid making the supposedly dumb investments?”

Gerald P. O’Driscoll and Mario Rizzo addressed this long ago in The Economics of Time and Ignorance:

[T]here are profits to be made from exploiting temporary situations. . . . Though entrepreneurs understand [the macro-aspects of a cycle] they cannot predict the exact features of the next cyclical expansion and contraction. . . . They lack the ability to make micro-predictions, even though they can predict the general sequence of events that will occur. These entrepreneurs have no reason to foreswear the temporary profits to be garnered in an inflationary episode. . . . From an individual perspective, then, an entrepreneur fully informed of the Austrian theory of economic cycles will face essentially the same uncertain world he always faced. Not theoretical or abstract knowledge, but knowledge of the circumstances of time and place is the source of profits.

Spending Shifts

Puzzlingly, Yglesias also thinks he can refute the Austrian theory by noting that “[s]pending patterns shift all the time without sparking a recession.” To which, Peter Klein replies, “Of course, Yglesias’s breezy summary of the theory skips over the time structure of production, the difference between consumption and investment, the role of interest rates in securing intertemporal coordination, the problem of expectations, and the other basic elements of the theory, which ten minutes of Wikipedia browsing could have explained.”

Yglesias reveals his unfamiliarity with the Austrian literature when he writes, “Many of the original Austrians found their business cycle ideas discredited by the Great Depression, in which the bust was clearly not self-correcting.” Considering that Herbert Hoover’s and Franklin Roosevelt’s New Dealimpeded the market’s correction process, one wonders how the 1930s could possibly have discredited the Austrian theory of the origin of recessions.

Finally, Yglesias contends that “the Austrian school . . . preaches despair and demands no action at all.”

Balderdash. Since it explains that busts are central-bank-caused and hence avoidable through market-based money and banking, its implicit message is one of hope and optimism. And as for demanding no action, on the contrary, it puts forth a long list of actions for those who want stable economic growth—all of them designed to dismantle the interventionist state.

Sheldon Richman is editor of The Freeman, where this article originally appeared.

Source: Reason.

*Written by Rob Rimes.

*This article is broken into five parts with each being released a few days apart. This is due to the size of the article. PART I can be found here.

3. Stage Two – Woodrow Wilson and the Rise of Wilsonian Tyranny:

“You are not here merely to prepare to make a living. You are here to enable the world to live more amply, with greater vision, and with a finer spirit of hope and achievement. You are here to enrich the world, and you impoverish yourself if you forget this errand.” – Woodrow Wilson

After Lincoln, Woodrow Wilson is probably the worst president in history. Although FDR is pretty close. What makes Wilson so bad? Well, he was instrumental in creating the Federal Reserve and the Federal Trade Commission. He also kick-started the income tax system that we have today. Additionally, Wilson intervened in the first World War, which had absolutely nothing to do with the United States. His actions in that war created the snowball effect that eventually became World War II. Sure, Hitler was a sick and twisted fucksack but there is a huge chance that he would’ve never gained power in Germany if it weren’t for the heinous actions of Woodrow Wilson. Shit, the fact that Wilson could have inadvertently caused the Holocaust probably makes him worse than Lincoln.

Wilson’s first order of business was the creation of the Federal Reserve. Contrary to popular belief, the Federal Reserve is not a government entity. The Fed is a private central bank that has the power to print money. Instead of having currency with actual value, Woodrow Wilson birthed a non-governmental establishment that has the power to control, regulate and print paper money! This was a way for the government to control and meddle with the flow of currency. Instead of letting the free market and free trade dictate the cost of goods and the value of money, Wilson thought it best to have supreme control over the monetary system. Many historians, the world over, credit the Federal Reserve and it’s meddling with the American economy as being a major catalyst for the Great Depression as well as our nation’s current economic peril, inflation and the devaluation of the dollar. John Maynard Keynes didn’t see it this way and the progressives of Wilson’s era all the way up to today, still trust in Keynesian economic theory.

Looking past the issue of the Federal Reserve, which is a monstrous issue, I want to put some emphasis on Wilson’s lesser-known progressive follies. The next thing on the docket is the Underwood Tariff Act, also known as the Revenue Act of 1913. What this act did was it lowered basic tariff rates from 40% down to 25%. That may seem positive but tariffs in general are just bad economic policy. Read some Mises, Rothbard, Hayek or Friedman if you don’t believe me.

Apart from the reduction of tariffs, the Underwood Tariff Act created something much worse. In order to off set the loss of revenue from the decreased tariffs, the federal income tax was reinstated. What was once created to pay for the Civil War, was brought back fifty years later to help create a pot of money for the growing progressive agenda. The income tax was previously deemed unconstitutional by the Supreme Court in 1894 but that obstacle was overcome by the creation of the 16th Amendment, which made a federal income tax constitutional. Wilson used the Underwood Tariff Act as a tool to justify the creation of the federal income tax, which was now within the government’s power to legally implement.

The next piece of shitty progressive legislation to look at is the Clayton Antitrust Act. In a nutshell, an antitrust law is a law that attempts to prohibit monopolies from forming while trying to eliminate unfair business practices. Just like everything pimped by progressives, it sounds like a good idea based off of good intentions but it is counterproductive to what it is trying to accomplish and it essentially creates that in which it is trying to regulate or destroy. It helps the federal government pick winners and losers and thus, kills true capitalism only to replace it with a crony clone wearing the same title.

The Clayton Antitrust Act was created to double up on the control of rogue capitalists that started with the Sherman Antitrust Act of 1890. These acts created a style of legislation that is still be used today. For whatever reason, lefties on the Hill can’t seem to wrap their heads around the fact that these practices hurt the economy. Maybe I am being unfair here, as the righties have adopted these practices as well. Because of that, we’re all fucked.

Anyway, the Clayton Antitrust Act was setup to restrict mergers between companies as well as controlling price competition. To restrict mergers is incredibly foolish and borderline chaotic. This punishes the end consumer because the product or service he would receive, may not be as good because of these restrictions. See, two companies merge when they feel that by combining their efforts they will improve their ability to create superior results with whatever good or service they offer. When companies see a greater value in merging, it is the end consumer that really reaps the benefits of that extra value. Often times, mergers happen because the company that is committing the “hostile takeover” of its competitor believes that the smaller company could be more efficient if better run. They believe that they can run it better and if they can, this benefits everyone involved. Well, except for maybe the shitty employees. Should we reward them with jobs in the new company for running the old company into the ground? Often times these “hostile takeovers” are an alternative to bankruptcy.

Like a typical progressive “Trustbuster”, Wilson didn’t just stop with the Clayton Antitrust Act. He also created the Federal Trade Commission or FTC. Today, the FTC is the “National Nanny”. For decades it has overseen and meddled with our economy. Now it is defining the rules and regulations of the Internet. The only truly free thing left in the world is being tyrannized by this archaic progressive institution that has done nothing apart from stifling the free market.

The next piece of legislation to come across Woodrow Wilson’s desk was the Smith-Lever Act of 1914. This act created subsidies for agricultural education and research. Is that a waste of tax dollars? I’ll let you decide.

Following that was another pro-agricultural law, the Federal Farm Loan Act. This established a system that would provide an increase in credit to rural, family farmers. This was achieved by the creation of a federal farm loan board, as well as twelve regional farm loan banks. Essentially, cooperative farm loan associations were able to get long-term loans at very low interest rates (under subsidized terms of course). This was to help smaller farmers “survive” against the harsh competition of larger farmers (or better farmers, depending upon your reality). Farmers were able to borrow up to 50% of the value of their land and 20% of the value of any improvements. This evolved into today’s monstrous Farm Credit System, which received a $4 billion bailout in 1987 that  created a new arm for the beast, the Farm Credit System Financial Assistance Corp.

Wilson then attacked child labor with the Keating-Owen Act of 1916. I know that the vast majority of the lefties and righties are all for child labor laws but in reality, they have very negative consequences. Luckily, at the time, the Supreme Court recognized this and deemed the Keating-Owen Act unconstitutional. Because of the child labor laws that did eventually pass, it is technically illegal for you to give a minor $20 for fixing your computer. However, the government decided that we had to save the children from a Charles Dickens nightmare. Never mind that many of the children of the 19th and early 20th centuries worked to help provide for their poor families. As time progressed, parents made more money and they were able to send their kids to school. The free market was working towards destroying child labor before the progressives created laws to completely eliminate it in all its forms.

In 1916, Woodrow Wilson was faced with a serious dilemma from the railroad unions. The railroad brotherhoods threatened to shut down the railroads. Wilson attempted to get the angry unions and the “evil exploitive” management to work together to find a solution to the labor issues. No compromise was made, so our progressive hero created the Adamson Act which forced railroad management to limit the work day to 8 hours and to pay overtime if the maximum hours were exceeded. Because of this, a strike was avoided but the railroad companies now had a gun to their head. There was no negotiation. The federal government, led by Woodrow Wilson, forced management to comply with these demands.

Wilson initially tried to keep us out of the first World War. However, his know-it-all meddling progressive attitude couldn’t be tamed. Because of that, he tried to mediate the conflict, just like he tried to do but failed with railroad unions and railroad management. The result here was no different and Mr. Fix-it had egg on his face again. That snotty yolk must have left a bad taste in his mouth because Wilson showed that he wasn’t really an objective party when it came to the War. In fact, he demanded the Germans quit their bullshit. As far as the British went, he slapped them on the hand and they called his bluff, continuing to do what they were doing because they knew Wilson didn’t really mean it.

With his first term coming to a close, Woodrow Wilson ran for reelection with the slogan “He kept us out of war.” Funny, because it wasn’t long before his anti-war message was replaced with a pro-war attitude. Kind of reminds me of what Barack Obama is doing now. Damn progressives.

After narrowly winning reelection against Republican Charles Evans Hughes, it wasn’t long before Woodrow Wilson brought us into a war that we had no business whatsoever being in. He built a massive military through conscription. What that means is that young men were forced to fight because Woodrow Wilson said so. The war was bloody and hard-fought. At one point, the life expectancy of a soldier on the front lines was 21 days! These men, just like the soldiers during Vietnam, were practically being shipped overseas with a death sentence. All it took was a gun to the head to force a gun in the palm.

Lives weren’t the only cost of war; the war was incredibly expensive monetarily and this strained the economic stability of America. So, not only were Americans now paying income tax, now those taxes were being raised to fund our idiotic involvement in the war. The progressive-led government also insisted that people eat less, this way more food could be sent to soldiers. The government also tried pimping out war bonds and manufactured a mass amount of pro-war propaganda that pretty much told people that they were traitors and assholes if they didn’t support the war effort. Apparently, you weren’t a patriot unless you were a drone to your progressive masters and their ever-growing collectivist society.

Apart from the war, Wilson had us involved in other foreign affairs. He proposed that U.S. vessels traveling through the Panama Canal would be exempt from paying tolls. This angered the British as well as many others.

Wilson also wanted to avoid trampling on Latin America, as he believed Teddy Roosevelt had done, so he apologized to Columbia for the United States’ role in the Panama Revolution during Teddy’s reign. That must’ve been an inspirational moment for Obama, the Great Apologizer.

Woody then meddled with Latin America, trying to “teach” the Latin American countries on how to “elect good men.” Wilson had troops stationed in Mexico, Nicaragua, Haiti, Cuba and Panama.

Wilson’s soldiers in Nicaragua forced the country to pass the Bryan-Chamorro Treaty after they selected the nation’s president. Haiti was forced to choose the presidential candidate that Wilson hand-picked. They were also forced to adopt a constitution that Wilson wrote! Wilson had our troops go into the Dominican Republic after their president resigned. The American military aligned themselves with wealthy landowners and fought brutally against any resistance they encountered. Wilson’s foreign policy with our closest neighbors was abhorrent!

After World War I, Woodrow Wilson made his famous “Fourteen Points” speech that introduced the world to the idea of a “League of Nations”, his anti-American globalist dream and the precursor to the United Nations. The League of Nations was officially created with the Treaty of Versailles. That treaty also gave birth to the “Stab-in-the-back Legend” that the Nazis latched onto and spread like wildfire, as they rose to power in a Germany crumbled by war. There are many other factors associated with Wilson and his involvement in WWI that inadvertently helped the Nazi cause but that is an article for another day.

After all of this awesome foreign intervention, the Norwegian Nobel Committee showed that they were pranksters of the world when they gave the Nobel Peace Prize to Woodrow Wilson. Funny, that is another parallel to Obama. Maybe I should write an article about all their similarities.

Following the Treaty of Versailles and the formation of the League of Nations, Woodrow Wilson’s presidency was winding down. As soldiers were coming home, they were faced with harsh times due to the effects of Wilsonian policy. There was poor planning, very little money and next to no benefits for the four million soldiers who returned to the States. The economy was in serious trouble and the Wilsonian Era nearly caused a depression in 1920 (I wrote about it and how the problem was resolved in “The Forgotten Depression of 1920“).

Wilson’s wartime progressive politics caused the farmland prices bubble to burst, which left many farmers bankrupt or drowning in serious debt. His meddling with the unions and their bosses caused strikes in the coal, steel and meatpacking industries. Class warfare was at an all-time high as race riots broke out in dozens of cities throughout the U.S., most notably Chicago and Omaha. This was the legacy Woodrow Wilson left behind. Well, in reality. The left has deified him with the other ex-POTUSes in this article and for whatever reason, he is heralded as one of the greatest American leaders of all-time. That’s fucking hogwash!

Woodrow Wilson was shit. I don’t think that it can be any fucking clearer. He took the progressive ball and ran with it, completely disregarding what worked in this country, trading it in for a nation wrapped in chains. Wilson did have some second thoughts on his policies however, but it was too little too late.

He had this to say about the creation of the Federal Reserve, after he realized his mistake:

“I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men.”

If only he had listened to Andrew Jackson.

4. Stage Three – Franklin D. Roosevelt and the New Deal:

“The country needs and, unless I mistake its temper, the country demands bold, persistent experimentation. It is common sense to take a method and try it: If it fails, admit it frankly and try another. But above all, try something.” – Franklin Delano Roosevelt

This article is continued in PART III

*Taken from Reason. Written by David Harsanyi.

Many of my more enlightened friends like to ask me: How could someone as intellectually gifted, delightfully urbane, profoundly moral, and breathlessly handsome not want to spit at these stupid Tea Party candidates, with their stupid positions and their stupid stupidity? (That’s slightly embellished; obviously, I’m not that handsome.)

Do I wish there were more articulate and intellectual free market candidates? Sure I do. But alas, Americans are in no mood for know-it-alls who think sailing is a sport.

Do I wish that science-challenged believers would resist the urge to raise their hands when asked whether they believe the world is 5,000 years old? God, yes. But an election offers limited choices. Take Delaware, where voters can pick a candidate who had a youthful flirtation with witchcraft or one who dabbled in collectivist economic theory.

Only one of those faiths has gained traction in Washington the past few years. And as far as I can tell, there is no pagan lobby.

Do I wish that Colorado senatorial candidate Ken Buck hadn’t declared that being gay is a choice (as if there were something wrong with choosing to be gay)? Yes. Do I wish he hadn’t followed up by comparing a gay genetic predisposition to alcoholism? I do. If you were brainy enough to watch Meet the Press instead of wasting time in church last Sunday, no doubt you cringed at that primitive lunacy.

After all, what’s more consequential than a faux pas about nature and/or nurture? Who cares that Democrat Michael Bennet was busy moralizing about the cosmic benefits of dubious economic theory and science fiction environmentalism—ideas that have already cost us trillions with nothing to show for it?

Just as long as we stay focused on what’s important, right? We’re so easily distracted.

Those who believe being gay is a choice are Neanderthals. The enlightened trust science. That’s why the president appointed a science czar, people. A science czar who co-authored a textbook arguing for a mass sterilization of Americans to prevent an imagined population bomb. You know, “science.”

God has no place in this faith. That’s not to say that Yahweh has anything on our president, who once claimed future generations will see his election—Goliath government—as the point in history when we finally started “healing the sick” and “the rise of the oceans began to slow and our planet began to heal.”

Now, that’s the kind of faith-inflected lingo we slack-jawed yokels can comprehend. Otherwise, the left’s plans are just too darn complex for us to appreciate.

“Part of the reason that our politics seems so tough right now,” Obama recently explained, “and facts and science and argument (do) not seem to be winning the day all the time is because we’re hard-wired not to always think clearly when we’re scared. And the country is scared.” (Wait. If we’re hard-wired to be confused and we’re confused, isn’t science winning the day? It’s all so perplexing.)

Science can explain all, including how bitter, frightened, clingy voters aren’t grateful enough.

Or—and I realize this is probably crazy talk—voters aren’t scared; they have just been paying attention and are turning to candidates who, though far less than perfect and not always sophisticated, better reflect their sensibilities.

David Harsanyi is a columnist at The Denver Post and the author of Nanny State. Visit his website at www.DavidHarsanyi.com.