austrian economics newsletter winter 1995

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~s t r 1 nEconomics Ne w sl ett er

Peter G. Klein: Sticking with EconomicsPeter G . Klein, an em.erging star in the econorn-ics profession, is doing pioneering work_ squarely within the Austrian tradition ...A gradu-ate of the University of North Carolina, Chapel Hill(BA), and the University of California, Berkeley (PhD),Klein is assistant professor of economics at the Univer-sity of Georgia. He is also an adjunct scholar and a for-mer Mises and Hazlitt fellow of the Ludwig von MisesInstitute, and a faculty member of the Institute's sum-mer instructional program, the Mises University.

Klein is editor of F .A. Hayek's The Fortunes of Lib-eralism, volume four in Hayek's collected works fromthe University of Chicago, an associate editor of the en-tire series, and author of "Mergers and the Market forCorporate Control" in The E lgar C om panion to A ustrianEconomics. Professor Klein conducted the Austrian Eco-nomics Workshop at Auburn University in Summer1995, and was interviewed by the editors of the AENfollowing a session on the classical economists.

AEN: . How were you introduced to the AustrianSchool?

KLEIN : I first heard of it in high school, A friendgave me Mises's Anticapiudistic Mentality. 1 had nowell-formed economic views, hut I was instinctively

pro-market. This book impressed me. By the time Iwent to college, Iwas fairly widely read in the Aus-trian and free-market literature.

This was long before I had my first economicsclass, which was Samuelson-style Keynesian maeroeco-nornics. What a shock .. I immediately saw the prob-lems, but Iearned the material diligently andrepealed it at test time. Economics appealed to me asthe most analytical of the social sciences, but withoutthe Austrian literature, Idon't think Iwould have ma-jored in it. It was the Austrian School that made me aneconomist and kept me intensely interested in the sub-ject all through school.

AEN : For you, then, the problem of being an Aus-trian in the midst of non-Austrian mainstreamers be-gan very early.

KLEIN: It's a constant problem for any Austrian-oriented graduate student or even professor. You haveto maintain enough interest in mainstream thought tosucceed in your program, even while your real passionis with this radical alternative. It's something everygraduate student who reads this literature faces.

For me, the Austrian School has been a profes-sional plus. It maintained my interest in economics inthe midst of the tedious mathematical modeling thatpasses for economics today. It provided me an organiz-ing framework into which fit the pieces of the rest ofmainstream thought. When Iead the textbook ver-sion of theories, the Austrian School made me inter-ested in where a theory carne from, where it isheaded, and where it goes wrong.

Also, the Austrian literature helped me raise inter-esting questions. As an undergraduate, my courses weremostly straight textbook stuff, with multiple-choice ex-ams and diagrams to draw. But Ihad a few classes whereIhad to write papers and essays. Now, the typical eco-nomics undergraduate has a h ard time writing a paper ineconomics. That's where Ihad an advantage.

The general dumbing-down of undergraduate educa-tion has forced this textbook-style learning. But, ironi-cally, this provides an opening for Austrians. Thetextbooks don't raise enough issues to get studentswho enjoy economics to really think. Good students de-mand more, and they begin to look elsewhere.


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AEN: Given professional hostility, is it possible fa]'interest in the Austrian School to throw a person offthe track of being a successful student?

KLEIN: Not the School as such, but SOIDestu-dents who read this literature tend to forget their corn-man sense. You don't badger the professor or pointout his errors. You have to be careful and judicious.

But unlike other students one who studies theAustrian School can step back and say: "doesn't thatmodel assume such and such, and isn't this in dis-pute?" It turns out, that at the highest levels, many ofthese assumptions are controversial, But unless youhad asked the question, the professor would neverhave mentioned it. When a professor finds an under-graduate student who is actually interested in suchquestions, he usually appreciates it. Such discussionscan stimulate his own research.

AEN: Did you train under any Austrians in school?KLEIN: No. My training came from my own read-

ing and outside conferences and seminars offered bygroups like the Mises Institute. But I had one profes-SOl'who was himself a heterodox economist, inter-ested in a wide variety of areas, and he encouraged meto pursue my own interests outside the mainstream.He was more accepting of ideas that question the domi-nant orthodoxy, even if he wouldn't have questionedthem in the same way.

AEN: How does an Austrian avoid developing a dis-dain for the mainstream too early, such that it causesclasses to be drudgery?

KLEIN: The key is that i f you are going to be aneconomist, you have to have an interest in the econ-omy. I never developed that disdain because moststandard economists. whatever their faults, are analyz-ing things that go on in the world. Even if the answersare wrong, the subject matter still provides an opportu-nity for learning:

In recent years, some Austrian graduate studentshave become interested not in economics but in"metaeconomics": deconstructionism, hermeneutics,

~INSTITUTE AustrianEconomics Nn(!sletterVolume 15, Number 2Editor: Mark BrandlylAubl l1 'l ! Univers ityContributing Editors: Doug Buller, Pete Calcagno, Paul Cwik,Gregory Dempster, Keith Reutter, Shawn Ritenour, TirnotnyTerrell, John Thompson, Doug Walker, Gi.lbert Werema, ChristopherWe stl ey / Aub l lrn . Un i ve rs i tyManaging Editor: Judith F. ThomrnesenTheA!!slriati Ecol1omics NL~usJetter is published periodically by theL u dw ig v on M i se s I ns ti tu te , A u bu rn U n iv er si ty , A u bu rn , A l a. 3 68 49 ;(334)844-2500; fa x (334) 844-2583;intemet:[email protected].; http://wwv''.aubum.edu/ -IvmisesCopyright 1995 Ludwig von Mises Institu te

learning, orwhatever. They seem to see Austrian eco-nomics as a way of avoiding what they are supposed tobe doing: economics.

If you are going to be an economist, you have to beinterested in the way the world works. By the way, this isnot only a criticism of the so-called radical subjectivists.It also applies to the extremist mathematical modelers.Many of them are not interested in the economy either,

Austrians must realize that i f they ever stand achance of influencing the profession, they need to pro-vide a persuasive rationale for how the world works.That requires being more interested in General Motorsthan in Wittgenstein.

AEN: This problem might be related to the type ofAustrian economics people are introduced to early on.

KLEIN: Exactly. Reading and being persuaded byRoger Garrison's capital theory is not going to derai.lanyone. And look at Mises. He was primarily an econo-mist, and an applied one at that. In his day job he waschief economic adviser to the Austrian government.He was dealing with practical, applied economic prob-lems every day. If it weren't for that, he would havebeen much less likely to come up with the more gen-eral, theoretical insights.

O f course, Mises was also learned in philosophy,law, and history. But he was able to bring these disci-plines to beat on economics because he actually dideconomics. Every time I see an Aus trian article called"1\ Subjectivist Perspective on X," I'm much less in-clined to read it. The person is not often trying to ex-plain the phenomenon in question. He is explaininghow he would go about explaining it if he ever actuallydid attempt to explain it.AEN: Isn't there also a mistake in hiding one'sAustrian views?

KLEIN: Yes. You have to say where you are com-ing from, explain whose work you are building on, andwhat tradition of thought your topic comes out of.There's room enough in an increasingly eclectic profes-sion for the Austrians.

But that doesn't mean that all Austrian writingshave to be internal to the schooL Mises's and Hayek'sdiscussions of the Austrian School per se appear whenthey are doing history of thought, explaining where aparticular economist fits in, or commenting on theirpredecessors. Remember that it wasn't the Austrianswho came up with the term "Austrian." Itwas the Ger-man historicists who used the term to denigrate thoseguys over in Vienna, referring mainly to the Bohm-Bawerk/Wieser generation.

AEN: Then you see two strategic errors: extremesegregationism and extreme integrationism.

KLEIN: There are disadvantages to both. Rothbardoften talked about this with younger scholars. You can'tplay games in which you pretend to believethings youdon't. An Austrian might begin by promising that he

2 I AUSTRIAN ECONOMICS NEWSLETTER Winrer 1995
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will do mainstream work only until his dissertation isapproved. But then he has to get a job, so he pretendsagain. But then he has to get tenure, so he pretendsagain. By the time all the constraints are gone, he'sstopped pretending. He's forgotten what it was aboutthe Austrian School that interested him in the firstplace.

It's just not feasible to shift gears in the middle ofyour career. Research is hard to do. Writing a reallygood article-whether Austrianor mainstream-requires tremen-dous work and thought. Youcan't casually jump around.We're in this business becausewe're seeking to understandreal-world economic pheno m-ena. Part of our goal as Austri-ans should be to show that wecan do this better than othersbecause we have better tools.

AEN: One of many intrigu-ing aspects of your path is yourchoice of graduate schools.Berkeley isn't exactly known asan Austrian hotbed.

KLEIN: Itwas a difficultdecision. But I concluded that Iwanted maximum exposure tomainstream literature, andhoped I could keep up with theAustrian literature at the same time. Berkeley is alarge and anonymous department. We had 150 PhDstudents in economics and a large faculty. Most of theprofessors don't take an interest in you. The advan-tage is that no one is putting pressure on you to do re-search of a particular type; you're left on your own.On the other hand, I missed the fellowship of peoplewho shared my interests.

It's not for everyone, but it worked for me. Also, itmight not have been possible apart from the Mises In-stitute's summer instructional program, which allowedme to catch up on what I was missing in the Austrianliterature. It also provided camaraderie. Thanks to theInstitute, it's possible for Austrian students at non-Aus-trian programs to keep up.

I applied for a fellowship from the Institute in myfirst days in the PhD program at Berkeley. That con-nection allowed me to meet Austrian professors, get re-search help, and make the contacts in the professionwith people who share my interests. I worked for theAustrian Economics Newsletter, wrote reviews, andhelped with indexing and editing. Otherwise I wouldhave had a lonely student life.

AEN: Tell us about your dissertation.KLEIN: It is an applied study of corporate diversi-

fication. I looked at the conglomerate merger boom ofthe 19608, trying to understand its nature, causes, and

consequences. It's important because many people seethe takeover wave of the 1980s as a direct outgrowthof it.

During the 19608, when the government enforcedtight antitrust restrictions on horizontal mergers,firms could not expand much in their own industries.As a result, they expanded by acquiring firms in to-tally unrelated industries. There were single firmswith interests in aerospace, meat packing, insurance,and rental cars, for example.

In the 1980s, many ofthese acquisitions were liquida-ted by takeover specialists.Economists tend to view the1960s mergers as a mistake,as empire building, as marketfailure on a grand scale. Thisis the argument of David Ra-venscraft and EM. Scherer intheir book Mergers, Sell-Offs,and Economic Efficienc),(1987). They say the conglom-erate boom was market fail-ure, and they conclude thatgovernment authorities shouldhave more scope to regulatemergers and corporate activityin generaL

The problem is that thisstory is based on ex post evidence. Just because 1980sbust-ups were value creating doesn't necessarily meanthat the previous mergers were value destroying. Itturns out that there was considerable rationale forfirms being highly diversified during that time.Changes in external circumstances-like changes in an-titrust enforcement and takeover laws-explain thetrend away from diversification much better.

AEN: Is the conventional view of conglomeratesthat capitalists made errors or that there was a welfareproblem?

A u s t r i a n s r e a l i z e t h a t i ft h e y e v e r s t a n d a c h a n c eo f i n f l u e n c i n g th e p r o f e s -s i o n , t h e y n e e d t o p ro v i d ea p e r s u a s i v e r a t i o n a l e f o rh o w th e w o r l d w o r k s . T h a tr e q u i r e s b e i n g m o r e i n t e r -

e s t e d i n G e n e r a l M o t o r st h a n i n W i tt g e n s te i n .

KLE.IN: Both. But in my view, the reorganizationof industry in the eighties shows that the market is ca-pable of adjusting to changes in circumstances, notthat it failed. The fact that, ex post, an acquisitionturns out not to be profitable does not mean that theacquisition was a mistake at the time.

The people who see market failure have an agencyexplanation for mergers. Then they switch to an effi-ciency explanation for divestitures. If managers runthe firms, and they make bad acquisitions, then whydo firms ever break up?

AEN: How do you explain the breakups?KLEIN: Particularly important was the deregula-

tion of financial markets. In the 1960s, financial mar-kets were tightly controlled. Brokerage houses werehighly regulated and their commissions were fixed.

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T h e r e i s n o th i n g a n t i -m a r k eta b o u t h i e r a r c h i e s o r s t r u c -

t u r e s o f a u t h o r i t y , w h e t h e r i nf a m i l i e s , c l u b s , c h u r c h e s , o r

f i rm s . T h e a b H it y t o p la n a n dm a n a g e i s a s k i l l v a l u e d b y

t h e m a r k e t .

There wasn't much competition among financial-serv-ice providers on Wall Street.

Financial deregulation made capital markets more ef-ficient. Much of the resource allocation that was done in-side the large,. diversified firm could now be doneexternally, with greater efficiency. The obvious Austriantie-in is with the calculation debate, and, in particular,Rothbard's application of it to the theory of the firm.

AEN: You are attempting to contribute to a gen-eral theory of the firm as well?

KLEIN: It's a natural area for Austrians. A func-tion of any corporate office is to act as a private cen-tral planning board, directing cash flow in and aroundthe enterprise, taking resources out of low-growth divi-sions and shifting them intohigh-growth divisions.

Now, why should any ofthis take place in a firm andnot in markets? Whyshouldn't each division be aseparate firm? For that mat-ter, why does the market notconsist entirely of a networkof independent contractors?Why do we see firms at all,and why do we see largefirms that do a lot of re-source allocation internally?

The evidence suggeststhat there can be advantagesto resource allocation withinorganizations, even withinconglom erate co rpo rati ons.There are reasons why entrepreneurs can sometimesorganize transactions inside a firm better than two in-dependent entities could by contracting between them.

There's a group of economists who believe theyhave taken market-process theory and applied it to thetheory of organizations, claiming that any sort of plan-ning within an organization is somehow mysterious.This is not the case at all. So long as organizations ex-ist within a competitive market, there are many rea-sons why activity can be directed by private planners,so to speak, within the organization itself.

There is nothing anti-market about hierarchiesor structures of authority, whether in families,clubs, churches, or firms. The ability to plan andmanage is a skill valued by the market. When inter-nal allocation becomes inefficient, such organiza-tions or firms will suffer and the market will workto correct the error.

AEN: In your theory, are you drawing more on theMisesian calculation argument or Hayekian knowledgedispersion?

KLEIN: The calculation angle is more fruitful.There's a myth that real-world socialist planners

attempted to create prices based on costs of produc-tion. In fact, the Soviets simply opened up the WallStreet Journal and checked world market prices. Whilepure socialism would be impossible, Soviet socialismwas possible because it existed within a world marketsystem.

It's the same way with the firm. Look at transferpricing., a subfield within the theory of the firm. Imag-ine a large firm with different divisions that arc semi-autonomous. If one division buys an input fromanother division within the firm, how is this commod-ity to be "priced"? It's not really a market transaction,of course; it's an accounting function. But how doesthe firm know whether it should be producing thatthing in-house or outside? Which division, if either, is

earning a profit?The transfer pricing

problem, is the key to under-standing the limits of thefirm. Rothbard makes thispoint in Man, Economy, andState. The firm cannot be-come so large that there areno longer market prices out-side the firm for intermedi-ate goods transferred withinthe firm. A firm can neverbe the sole buyer and thesale seller of a single inter-mediate component. Itwould have no way to calcu-late the correct price of thatcomponent and no way tomake decisions about its use.

AEN: Under that scenario, why can't the firm sim-ply calculate the marginal cost of the inputs instead ofrelying on outside prices?

KLEIN: The first theoretical article on transferpricing, by Jack Hirshleifer in 1956, suggested pre-cisely that. He said the problem is simple: set the priceequal to marginal cost. Well, this doesn't help anymore than does Lange's "solution" to the problem ofsocialist calculation. Lange said: instruct the plant-level managers to price at marginal cost and we'll haveefficiency. But how do these managers know their truemarginal cost? Without knowing the real opportunitycosts, this is merely an accounting trick that leaves theessential economic problem unaddressed.

AEN: So this Rothbardian approach explains theupward limits of the firm, but what explains the down-ward limits?

KLEIN: Rothbard himself cites the 1937 article byRonald Coase on the nature of the finn. In Coase'searly work-which I find much more interesting thanhis later articles-he showed that using the market isnot costless. There are costs to discovering products,

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haggling, writing contracts, and specifying enforce-ment mechanisms, among other costs of using the mar-ket mechanism.

Coase says that firms provide a way for entrepre-neurs to overcome these costs. That insight has beengeneralized into a transactio n cost framework bywhich we look at the make-or-buy decision. You haveto weigh the costs of using the market (buying)against internal bureaucratic costs (for making), andthe tradeoff determines the finn's boundaries.

AEN: Is the upper limit determined by the transac-tion costs, the calculation problem, or are they essen-tially the same problem?

KLEIN: In Cease's frame-work, as developed by OliverWilliamson, transaction costscan be any costs other than theactual production costs. Youcould include as internal trans-action costs bureaucracy, politi-cized decision making, etc. Butthe ultimate internal transac-tion cost is the need for inter-nal calculation.

kEN: Some Austrians have emphasized the role ofuncertainty in the theory of the firm.

KLEIN : A school of thought in management andeconomics, the "core-competence" school, emphasizesuncertainty, especially as in the work of Edith Pen-rose, G . B. Richardson, and David Teece, as well as inNelson and Winter's book An Evoluti.onary Theory ofEconomic Change. They think uncertainty is the keyto understanding the boundaries of the organization. Iam more interested in the practical applications of Aus-trian price theory.

AEN: How did you come to be one of EA. Hayek'seditors?

KLEIN: Providence, Iup-pose. In graduate school, I waslooking for a summer job, andthrough my contacts with theMises Institute Ihooked up withW.W, Bartley II I at the HooverInstitution, who was at that timethe general editor of The Col-lected Works of 1 " . A. Hayek.

The first volume in the se-ries, The Fatal Conceit, hadbeen published in 1 98 9. Iworked as Bartley's research as-sistant on what became volumethree in the series, The Trend ofEconomic Thinking. It wasthrough that work that Igot in-volved in volume four, The For-tomes of Liberalism. Bartley wasa trained philosopher, a studentof Karl Popper. He wanted an economist to help him

with the volume. We were going to co-edit the volume,but he died unexpectedly before we really began seri-ous work. on it. His successors at the Collected Worksasked me to edit the volume by myself. Now I am anassociate editor of the project itself and will. be editingmore volumes in the future.

O n l y s o m eb o d y l i k eB o th b a rd c o u ld h a v e

written M a n , E c o n o m y ,and S tate. J u s t r e a d

th e f o o t n o t e s a n d Y O l l ' I Ik n o w m o r e a b o u t e c o -n o m ic s th a n is t a u g h ti n a n y u n d e r g r a d u a t e

d e g r e e p r o g r a m .

Incidentally, some Austri-ans have been critical of theCoasian framework They say itis too much of an equilibriummodel. Idon't fully share thatview. What i s lacking in theCoasian model is a full explana-tion of the limits to organiza-tion. Coase speculated thatthere must be limiting factors, but he didn't specifythem. The Austrian calculation argument can be ex-tended to show the serious implications of the transferpricing problem, which can help us understand the lim-its to the size of the firm.

AEN: Do you foresee any troubles in weavingCoase, Mises, and Rothbard together in a single the-ory?

KLEIN:. No, but I'm staying away from the lawand economics literature. Williamson points out, withsome pleasure, that in Cease's acceptance speech forthe Nobel prize he talks about his work on the firm, butsays almost noth.ing about the so-called "Coase theo-rem." People like Posner are a.lways citing Cease as theirintellectual forerunner, but Cease himself has dis-tanced himself somewhat from the Chicago approach.

In the theory I'm working through, the Mises-Hoth-bard framework is indispensable in its emphasis on fi-nancial markets, The stock and bond markets, not thelabor or product market, are the hallmark of a capital-ist economy. The capital markets are the key, which iswhy a socialist economy cannot work. There are no mar-kets for productive factors, l.e., no financial markets.

AEN: ..How does the volume you edited contributeto our knowledge of the Austrian School?

KLEIN: It collects all of Hayek's writings on Aus-trian economists and the Austrian School. It includesan expanded version of Hayek's 1968 entry in the In -ternational Encyclopedia of the Social Sciences, whichis a very good introduction to what we are all about. Italso contains Hayek's long essay on Carl Menger,which has a wealth of information. There's also a mem-oir about the economics of the 1920s as seen from Vi-enna. In this, Hayek recalls his student days, when hetook a trip to the U.S. and met the big economists ofthe time. I recommend this essay, especially his veryfunny comments on Veblen.

The second part of the volume contains Hayek'swritings on the rediscovery of freedom in postwar

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understand the economy better. If Austrians focus allmetaeconomics, and try to force mainstreamers to re-think abstract issues of epistemology, we'll go nowhere.

AEN: Are you suggesting that Austrians drop alldiscussion of method?

KLEIN: Not at alL I'm suggesting that it be put inperspective. I wrote an under-graduate thesis on methodol-0gy, with a detailed analysis ofsome historical debates. I suppose I have my regrets aboutthat now. When you're young,you think you can go out andshow the entire profession theright way to do things. In fact,it's very rare for anyone at thatstage of life to produce anything of value, much less redothe entire discipline. It's farbetter to simply start doingeconomics as the Austrianshave understood it.

You hear two contradictory complaints aboutRothbard. A recent book on modern Austrian eco-nomics implies that he's too mainstream, too neoclas-sical. Others say his economics was so anti-mainstreamthat it didn't engage the profession enough. Both can'tbe true.

The truth is that Rothbardattempted to build bridgeswhere he could. He wrote formainstream journals whenthey were open, but whenthey began to shut out Aus-trian articles, he founded TheReview of Austrian Economics.He intended the journal to Ios-ter internal growth and helpmake Austrian ideas main-stream on their own terms. Hisgoal was to keep the school inplay.

AEN: Does his H istory ofThought fit into your strategicvision of persuading others byexample?

KL.EIN: Yes it does. It hasthe potential to have the im-pact that Scbumpeter's historyhad. The reviewers, who have

been mainly non-Austrians so far, have been im-pressed. I would hope this will provide some researchtopics, given that it is a large survey work. His inter-pretation of each major figure, especially his revision-ist insights about the classical economists, couldbecome a fixture in the literature.

H o w c a n a n e c o n o m i s t t e l li f b e i s d o i n g s o m e t h i n gw o r t h w h i l e ? I t h i n k h e

s h o u ld a s k h im s e l f : C o u ldI p r o v id e a r o u g h e x p la n a -t i o n o f th i s t o m y m o t h e ri n a f e w s e n te n c e s ? If b ec a n ' t d o t h a t , i t 's p r o b -a b l y n o t a g o o d p i e c e o fhe point of a research ar-

tide in economics should be tounderstand some real prob-lem, and not simply to illus-trate the use of a particularmethod. Again, the same criti-cism can be applied to some neoclassical economists.Mathematical models on their own rarely tell us sorne-thing that can't be described in plain terms. A lot ofgame theory, for example, has consisted of endless vari-ations of similar models with very few novel conclusions ..

r e s e a r c h i n e c o no m ic s .

How can an economist tell if he is doing sorne-thing worthwhile? I think he should ask himself, withregard to a piece of research: Could I provide a roughexplanation of this to my mother in a few sentences?If he can't do thatvit's probably not a good piece of re-search in economics.

AEN: But doesn't an Austrian tend to draw othersinto debates that are about methodology, and isn't thatunavoidable?

KLEIN: To an extent, that's true. Sometimeseconomists will say to you: where are your regressioncoefficients? In that case, nothing much is going tocome out of a dialogue. I don't suggest Austrians en-gage in long philosophical debates with people whothink that Austrians have nothing to offer.

But the truth is that many economists v..on't asksuch a question. Those who will are a much smallerpercentage of the profession than we think. There areplenty of mainstream economists and fellow travelersof Austrians who do good research and generate goodwork. In the past, many Austrians have developed a de -fensive posture that is not necessary. Rothbard didn'thave that problem.

But there's also a danger that Rothbard's work willget younger Austrians too excited about the possibili-ties of the history of thought. If you want to specializein the history of thought, you have to be very careful.Itcomes with a tremendous cost: namely, your chancesof getting a job are very small. Itwas Rothbard's lastmajor professional project.

AEN: What type of research do you see yourselfdoing in five years?

KL.EIN: It's hard to say, but whatever it is, I feelsure it will be about the economy. I enjoy Austrianwork in comparative systems and how it relates to indus-trial organization. There are many applied topics thatcome out of that, including the economics of transition,from socialism and firm decision-making under inter-est-rate distortions and periods of the business cycle.

AEN: You and your wife Sandy met at a Mises In-stitute seminar. What's it like for two Austrian econo-mists to be married?

KLEIN: We have great discussions and share notes.But if a husband and wife had nothing in common buteconomics, they would surely have a difficult time of it . .Ii.

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REVIEWINGA BOOK WITHOUT

READING IT

"Dr. von Mises's treatise isthe work of an acute and culti-VI I ted mimi," wrote Keynes of theGerman manuscript, "but it is criti-cal rather than constructive, dialec-tical and not original. The authoravoids all the usual pitfalls, but heavoids them hy pointing them outand turn ing back , rather than bysurmounting them. Dr. Miseestrikes an outside reader as beingthe very highly educated pupil ofIt school, once of a great cmi-nonce, by now losing its vitality.There is no lift in his book, buton the other hand an easy o:r tiredlICqll iescence in the veils which ob-scure the light, rather than rend-ing away of them. One closes thebook, therefore, with the feelingof disappointment that an authorso intelligent, so candid, and sowidely read, should, after all, helpone so little to a clear and con-structive understanding of the fun-damentals of his book."

Sixteen years la ter, K eyneswrote in a footnote to his TreatiseOlL .Money (p . L99) that "I shouldhave made more references to theworks of [German and Austrian] writ-ers if their books, which have onlycome into Illy hands as these pagesare being passed through the press,had appeared when my ownthought W,\S at an earlier stage of

development, and my knowledgeof the German lang llage w as notso poor (in German I can onlyclearly understand wha t I know 8 1 -readyl-eo that new ideas are apt tobe veiled from me by the difficul-ties of language)."

Keynes evidently forgot hehad reviewed Mises's book, but wemay pardon him for his lapse ofmemory in view of the enormousvolume of his writings,

C ottfried H aherle r (1900-1995) is, J 1 C author of The /l 'Jearling oj Index Num-bers (19.27) . The Theory of lruernaiionaiTrade ( 1 . 9 3 3 ) , . Pro~fJarity and Depression.(1 937), an d ;'M on ey a nd th e B usin ess Cy-o le" (1932), an importan t article on A us-trian theory rep rin ted in The AustrianThea ry oj lite Tratl Cycle aiul Other Es-sa~ (Ilichnrd Ebeling, ed ., The M ises In .s titu tc , 1 98 3) .

A :; II friend of Mises ' s , he WD S inMises'.s w ed rlin g pa rty in G en eva" S witzer-land. In hi s e a rl y y e ar s, he was c lo se lyiden tified with the A ustrian Schoo l, butless 50 at the ho igh t of h is caree r. In1957, he w us appo in ted C nlcn L. Stonep ro fesso r o f in tcrnutio nul trad e em eritusat Harvard Unive rsity , and in 1963 hewas made president o f the American Eco-n omi c A s so c ia ti on .

H e also served as p re siden t o f thelutcrnutionul E co nomi c A s so ci atio n. Af-ler le a'rin g l-l~ nm td h e was a ResidentScholar at th e A m eric an E nte rp rise Insti-tute . H e d ied M ay 6, 1995 . Th is no te wasDr. H aberler's las t artic le , and he wro teit for the Austrian Economics News/eller.

~ D \ Y 1 G I~I N S T I T U T E

by Gottfried. HaberlertThe nineteenth-century Cer-

mall philosopher Arthur Schopen-hauer once wrote in a preface toone of ' his books that nobodycould understand or enjoy thebook who was not also familiarwith Kant, Hegel, Plato, and sev-eral others. Sohopenhauer admittedthe reader m ig ht feel cheated, hav-ing bought a book and then beingtold to huy six others to enjoy it.There was a consolation, however:The reader could enjoy the bookwithout reading it. I-Ie could haveit nicely bound and displayed, hecould present It as a gift, an d so on.Finally, if necessary, the readercould review it.

This miracle of reviewing abook without rea cling it, weshould recall, was performed by noless than the great British econo-mist and statesman John MaynardK eyn es. In th e Economic journal ofS ep te mb er 1 91 4, Keynes wrote athree-page review (reprinted inKeynes's C ollea ed W riti.ng s, u ol. 1 1 )of Ludwig von Mises 's Tlieorie desC eh le s u ru l d el' Umla:uji;rl'tiUel (trans-lated in 1936 as The Theory ofMOlley and Credit).

Non-Profit a rg.u.s. POSTAGEPAID

Ludwig von Mises InstituteAustrianEconomics NewsletterAu bu rn , A l ab am a 3 68 49 -5 30 1

austrian economics newsletter winter 1995

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