This is the next part in a series on the Austrian school of economics. The previous part is here.
Thus, when critics direct their efforts against the Austrian School they frequently do so within their own analytical framework, which is completely inadequate to accurately interpret the Austrian contributions to the science. They attack part of the theory without realizing that the various parts that make up the Austrian understanding of the market process are all interconnected within the “whole.”
There is a tendency toward the uniformity of profit and prices, both geographically and intertemporally. This tendency is interrupted by the dynamic nature of the market, due both to changing preferences and to technological progress, as well as any permanent cost inequalities, such as differences in the cost of transportation over varying distances. (Catalan, The Foremost Austrian Contribution to Economic Science, 2011)
The consequences of government spending can only be properly assessed within the framework of market coordination. If socialized investment is truly warranted, then the results of the investment must be better than the result that would have occurred had those same resources been economized by individuals on the market.
In other words, the government’s method of deciding on investments would either have to enjoy the same characteristics as the market’s, and the government a better entrepreneur, or the government’s method would itself have to be in some way superior. We can rule out the latter option on the grounds that we know that the only method of economic calculation is by individuals through the pricing process. Therefore, government investment is inherently inferior to free-market investment.
Individuals economize resources based on their own preferences and their own ends and based on the expected preferences of others, which are partly reflected through the price mechanism and oftentimes predicted through other means of information as well. Even producers of capital goods removed from the final consumer by one or more phases derive their profits from consumer satisfaction, since the demand for their products is decided by the entrepreneurs who are directly supplying the consumer. (Catalan, 2011)
It seems that in the Austrian School, there appears to be a kind of social myopia that refuses to acknowledge that the free market in its purest, non-government interventionist form could be the source of human suffering. They exhibit a kind of myopic belief that the unfettered market will best solve deficiencies which result in human suffering. The myopia comes in when the temporal aspect of the market is considered. Even if the market is the most efficient means for solving deficiencies in real need such as shelter, clothing, health care, etc. what is meant and governed by ‘efficiency’ needs to be made explicit. From my reading, the Austrian School’s notion of efficiency is thought and governed by the lowest possible market pricing. This is very reminiscent of Adam Smith:
“The price of monopoly is upon every occasion the highest that can be got. The natural price, or the price of free competition, on the contrary, is the lowest which can be taken, not upon every occasion indeed, but for any considerable time together. The one is…the highest which can be squeezed out of the buyers…The other is the lowest which the sellers can commonly afford to take…. The monopoly price is most often sustained by “the exclusive privileges of corporations (65)” (Smith, 1776)
The Austrian School believes that the government acts as a monopoly. I have yet to find writings about how that market itself can generate monopolies without government involvement as Adam Smith believed. It would be interesting to find their position on market monopolies that do not involve the government and central banking. In any case, the myopia seems to stem from their fascination with free market pricing as the lowest possible and thus, the most efficient. What is lacking when market pricing governs that equation is the temporal aspect of the pricing mechanism.
Human need is certainly addressed by pricing and availability but it is also essentially related to a critical temporal window wherein pricing and availability themselves become relevant. If pricing and availability are thought in a-temporal terms then, human need gets addressed in whatever time frame the market dictates. This time frame has no direct obligation to interim suffering and death. Of course, the point could be made that given enough suffering and death while waiting for pricing and availability to meet demand, the market would eventually answer the call. However, the gap in time to meet the need and ongoing suffering appears to have no place in market fundamentalism.
If the government is analyzed from the perspective of pure investment only, the Austrians make the point:
Overall, we can safely conclude that government spending causes more harm than good; it redistributes the means of production toward the attainment of ends considered inferior by the individuals who make up the society that government is allegedly acting to improve. (Catalan, 2011)
However, the ‘overall’ pronouncement blindly assumes that government spending is only about investment. This assumption completely leaves aside the possibility that government spending may also occur in order to address needs that the market has not yet found a pricing solution for but must be addressed immediately to stop human suffering which cannot wait. While any government spending could be analyzed as an ‘investment’ and its effects on the economy, there are clearly times when that analysis must be put aside for more immediate concerns. War is one case in which market pricing is irrelevant to action. If a war is considered just, it implies that the justification for war is to stop human suffering that cannot wait for the market to decide. It may be the suffering of non-citizens or the defense of the country which implies the suffering of citizens. In any case, war is a situation where government spending gets a reprieve from a strict market analysis. Likewise, other immediate needs that trump market analysis have traditionally been issues surrounding food, shelter and health care. In 1986 Ronald Reagan, certainly a free market Republican of sorts, enacted the Emergency Medical Treatment & Labor Act which required hospitals “to ensure public access to emergency services regardless of ability to pay”. There is no discussion here of emergency rooms waiting for the market to decide. These examples circumscribe bounds of government spending that cannot simply be constrained to a market investment analysis.
In light of pressing human needs that cannot wait for the appropriate market response, it would be really interesting to hear from the Austrians on what their solution would be. Would Austrians push their market analysis to the point that would prohibit ANY government intervention in these kinds of ‘extraneous’ issues and instead, advocate waiting for market solutions? Would their analysis allow government intervention in case of war but none other? It seems to me that the silence has always been deafening with fundamentalist free market advocates. It is like pulling teeth to get them to concede any of these exceptions. They seem to approach it like a slippery slope argument where one concession means the whole abnegation of free market capitalism. This kind of silent treatment gives the impression of unreasonableness. It looks as if they would protect market dynamics over pressing human needs. It is understandable how this myopia can be taken as a protection mechanism for those that do not have immediate needs at the cost of those that do have immediate needs. This is a very ugly portrayal that gets its life from the silence of fundamentalists, free market advocates. It seems to me that there are two possible reasons for their deafening silence. If they are pressed into silence because their answer would not even be palatable to them, they demonstrate a self-defeating ideology that can only succeed under the cover of denial, secrecy and elitism. If they lack the courage to address the issues of immediate human need at the risk of their fundamentalist, market certainty, they appear to ignore human suffering in favor of unmediated fanaticism. It seems to me that this kind of market conservatism is a definite and discrete step away from the older conservatives that would not force their ideological purity this far.
As I mentioned in the note to the last part of this series, the system of Austrian economics seems to derive its essence from a continual and circular deferral. It functions as a whole or nothing at all. Any criticism must be deflected by deferring to the whole. Its telos, its completion is never piecemeal but integral to the entire system. As mentioned at the top, “various parts that make up the Austrian understanding of the market process are all interconnected within the “whole.”” This reminds me of Hegel’s Logic where Hegel states:
Each of the parts of philosophy is a philosophical whole, a circle rounded and complete in itself. In each of these parts, however, the philosophical Idea is found in a particular specificality or medium. The single circle, because it is a real totality, bursts through the limits imposed by its special medium, and gives rise to a wider circle. The whole of philosophy in this way resembles a circle of circles. The Idea appears in each single circle, but, at the same time, the whole Idea is constituted by the system of these peculiar phases, and each is a necessary member of the organisation. (Hegel, 2010), Part 1, Section 15
Philosophy misses an advantage enjoyed by the other sciences. It cannot like them rest the existence of its objects on the natural admissions of consciousness, nor can it assume that its method of cognition, either for starting or for continuing, is one already accepted. The objects of philosophy, it is true, are upon the whole the same as those of religion. In both the object is Truth, in that supreme sense in which God and God only is the Truth. (Hegel, 2010), Part 1, Section 1
Further, the refutation must not come from outside, that is, it must not proceed from assumptions lying outside the system in question and inconsistent with it. The system need only refuse to recognise those assumptions; the defect is a defect only for him who starts from the requirements and demands based on those assumptions. (Hegel, 2010), Part 5, Section 1288
Likewise, the circular and self-correcting fundamentalist, mechanism of the Austrian, free market seems to depend on the whole that cannot be criticized individually and only on its own terms. There isn’t much daylight between this and what is commonly called ‘dogma’.
Catalan, J. M. (2011, March 31). Government Spending Is Bad Economics. Mises Daily .
Catalan, J. M. (2011, January 06). The Foremost Austrian Contribution to Economic Science. Mises Daily .
Hegel, G. (2010). Science of Logic. Cambridge, UK: Cambridge University Press.
Smith, A. (1776). An Inquiry into the Nature and Causes of the Wealth of Nations. London: Methuen and Co., Ltd.