Why were the ideas of the Austrian School of Economics never implemented?

. . . as answered on Quora. . . . 

The “Austrian School” is a movement of social scientists sharing similar method while working out a rigorous analysis that first flowered in late 19th century Vienna. The tradition started with Carl Menger’s Grundsätse in 1871, and carried on in several major works by Eugen von Böhm-Bawerk and Friedrich Freiherr von Wieser in the 1880s, till their deaths. Böhm-Bawerk’s work quickly became world-famous, especially his writings on capital and interest, his extremely clear explanations of Menger’s price formation theory, and his understanding of subjective value in the concept of what Wieser called Grenznutzen (“marginal use” or, more commonly, marginal utility). Wieser formulated the crucial concept of opportunity cost, building on work of the French Liberal School economists Frédéric Bastiat and Courcelle-Seneuil. Menger, Böhm-Bawerk, and Wieser were all Austrians, as were a great number of the next generation of the movement — Eugen Philippovich von Philippsberg, Viktor Mataja, Richard Strigl, Hans Mayar — and, of course, the two that remain the most famous, Ludwig von Mises and F.A. Hayek.

Menger gave up academia for tutoring the crown prince of the Austrian-Hungarian Empire. He hoped to influence policy — and it is policy that is meant by “ideas” to be “implemented” in the OQ, right? — through his instruction of that one man. Who committed suicide for murky reasons, making Menger’s career bet a bad one. But both B-B and Wieser held major positions in the government. B-B was even on currency.

They did implement Austrian ideas on policy, B-B especially. Later on, Mises, working for the Chamber of Commerce, advised the government. Some say he helped save as much of the old liberal order that could have been, by fighting inflationism. Mises developed a coherent and powerful theory of the business cycle (trade cycle) which was taken up by the younger scholar, F.A. Hayek, who predicted America’s Great Depression while the great Irving Fisher asserted it was all roses just on the eve of disaster in 1929. Hayek went to the London School of Economics, where he elaborated the Misesian theory in interesting and perhaps ungainly ways, caused quite a furor (convincing many), but was then outdone by Keynes.

Why did Keynes “win” this debate? He offered a few very enticing things, the most important being an excuse for politicians and ideologues-on-the-make to engage in governmental fiscal recklessness, spending more than revenue and increasing the levels of debt, and push monetary inflation, as well. Austrian policy is designed to restrain government and serve the greatest number of people through stability. That is, politically, no match for the Keynesian Temptation. Besides, Keynes’s General Theory, his second big book to push his favorite policy (Hayek “destroyed” the first one, which almost no one reads any more), was such a conceptual mess it gave academics whole careers trying to make sense of it and defend it. Hayek was late in the game with his behemoth failure, The Pure Theory of Capital, which could have had a similar effect, except that the Austrians never encouraged elaborate mathematical formalism, and economists hoping to become court wizards to the emerging welfare state order needed that bit of hocus pocus to advance their social position.

Mises, meanwhile, belatedly fleeing Austria from the Nazis (who hated Mises for being a liberal and a Jew), moved to Switzerland and then the States, in which he could not get a good teaching position through normal means: the crowding-out effect of the order of wizards meant that the universities had no interest in this pioneer theorist of ordinal utility, money, boom-bust and banking, and the impossibility of economic calculation in a socialist commonwealth — he was shut out. He was left to pick up just a few students who carried on this now quite fugitive and subversive work: Israel Kirzner and Murray N. Rothbard are the two great Austrians who came out of the 1960s.

Mises was considered an “intransigent,” occasionally embarrassing fellow liberal/libertarians like Milton Friedman (who was not Austrian in approach). Like in the case of business cycle theory, the Mises-Hayek critique of socialist calculation (another of Hayek’s LSE projects) was said to have been “won” by their enemies. Then, after the Berlin Wall fell and the Soviet Union collapsed, the Austrian position triumphed. Even the egregious Robert Heilbroner admitted that “Mises was right.”

Every time a socialist state dies, replaced by something more market oriented, I tip my hat to Mises’ shade and smile when I say “now that is a kind of implementation of Austrian policy; step in the right direction, anyway.”

twv

For right-wing libertarians: Why should a factory owner receive more profit than the workers who constructed and maintain said factory?

. . . as answered on Quora. . . .

In classical political economy, profit is the return on capital, wages are the return on labor, and rent the return on land. That is, those who hire themselves out as laborers get wages in payment, and those who invest their savings in productive processes receive profits as their reward — if their ventures prove successful.

The wage contract is fairly simple, and laborers get their rewards whether or not the business earns a profit. When the entrepreneur can no longer pay them, they go elsewhere. Profit is something identified and recoverable after all the hired factors have been paid off. The wiser question is not whether factory owners* should receive moreprofit than workers, but that they should any receive profits while workers continue to receive wages, because anything else would be, well, stupid. Against the terms of relevant contracts.

The differences between contract labor and owning and managing a business are key to making sense of things. Economist Yves Guyot put it this way:

Wages are a speculation. The laborer who offers his labor to a trader or a contractor, argues thus with him: “I deliver to you so much labor. It is true that you run the risks of the enterprise. You are obliged to make advances of capital. You may gain or lose. That does not concern me. I do my work, I make it over to you at a certain price; you pay this to me whatever happens. Whether it redounds to your benefit or causes you loss is not my affair.”

Yves Guyot, The Tyranny of Socialism (1894).

All who favor market cooperation over forms of coercion and expropriation — not just principled libertarians — look at claims of workers’ key contributions being the sole and overriding contributions to production as being rather witless. We shake our heads when we encounter these hoary socialist clichés.

And we imagine what a targeted entrepreneur might say:

‘You think that because you sweep a floor you should own it? Is it some Lockean “mixing of labor” that gives you this purported right to property? You were hired on specific terms for specific tasks! If the terms are invalid and the hiring amounts to a ceding of my property to you, then I will simply not hire you. Your new terms are unacceptable. You are basically saying that all my and my investors’ [the capitalists’] past savings that went into this enterprise should be yours because I have offered you a contract for a limited purpose. Don’t be absurd.’

But absurdity is precisely what all these retro socialist arguments amount to.

Libertarians often respond politely and even carefully to such arguments, in part because unraveling farragos is fun. But, in truth, we tend to regard the people who ask such things as cretins. Dumb-asses. Or else as con artists plying tricky arguments to engage in some grift. Socialism we regard as the Super Grift. We libertarians often roll our eyes at the insanity and folly.

And then some greasy grifter calls us “greedy”! For defending the rights of capitalists and entrepreneurs to their property, of all things. I am neither a capitalist nor an entrepreneur. But I know greed when I see it, and I see it when laborers hired for specific tasks rise up to demand more than specified in their contracts on the basis that, well, they “do some work.” Of course, most wage-earners of profitable American enterprises despise socialism. They aren’t greedy. They know they haven’t earned what socialists demand.

The bulk of socialists are college kids and professors and government functionaries and . . . journalists caught up in dreams of utopia. Thankfully, most nowadays don’t even ask these question in the old naive Marxoid fashion. They have moved on to the cult of “social justice” and “intersectionality.” They have their own follies. But at least they have abandoned this witless gambit.

* Or some other entrepreneur and some other business enterprise — the socialist obsession with “the factory” is so old-fashioned! I have never worked in a “factory,” the magazine I worked for being closest. Oh, and as a teen-ager I worked on a dairy farm one summer. Remember that Marx hated country life!