Overview
Austrian economics is presented by Jeff Deist, President of the Mises Institute, as “ordinary economics”—economics understood properly as a social science rather than a physical science Austrian Economics Triumphs (2021). Deist explains that “Austrian” is a term of convenience, applied because some of the leading thinkers of the movement came out of Vienna in the late 1800s and early 1900s. He identifies Ludwig von Mises as one of the founders and icons of the school, and Bob Zadek names Murray Rothbard alongside him as a figure to be discussed. The Ludwig von Mises Institute, formally the Ludwig von Mises Institute for Austrian Economics and known in shorthand as the Mises Institute, is located in Auburn, Alabama, and Deist serves as its President.
Zadek frames the episode around his own experience as an undergraduate, where a required economics course using Paul Samuelson’s textbook—described as big, fat, heavy, and full of graphs—turned him off the subject. Deist notes that the Samuelson text went through about twelve editions and made Samuelson an enormously wealthy man. Deist also states that Samuelson suggested that by the late 1980s the Soviet Union would be a more productive economy than the United States, a call Deist says was wrong. Zadek concurs that the prediction was made in a speech in the late 1980s and that Samuelson believed it.
Method: social science versus physical science
The central methodological distinction Deist draws is between the social sciences and the physical sciences. In the physical sciences, he says, the scientific method involves observing something, developing a hypothesis, and testing that hypothesis repeatedly—so that even the theory of relativity or gravity could in theory be disproven. A social science, by contrast, has a different method and a different approach to helping us understand the world. Deist argues that economics is part of everyday life, part of understanding the human condition, human action, and the human psyche—not merely about finances or how economies grow wealthy, but about everything done in the context of scarcity and tradeoffs.
Zadek illustrates the difference with the film The Big Short, which he says he has rewatched more than once. He describes the protagonist as having made several billion dollars without relying on graphs or charts, instead going out into the field to interview homeowners and look at tracts of empty houses where people owned three and four of them bought with zero-down mortgages. Zadek says that those sitting with graphs and charts were left holding the bag, and suggests the movie could have been titled Austrian Economics Triumphs. Deist agrees it is a great movie and uses it to introduce a second distinction.
Central banking and the housing crisis
Deist says The Big Short raises the question of money and how money comes into society and how central banks work. He notes that the film explored greed, malinvestment, errors in the housing markets, errors by commercial banks in lending, and errors by Wall Street in cutting up tranches and derivatives wrapped around mortgages that were soon to be subprime and non-performing. But what the movie did not delve into, he argues, is what underlay it all—why the mania happened. His answer is that it happened not entirely but in large part because of central banks.
Zadek notes Deist’s earlier activity in Ron Paul’s 2008 presidential campaign before he went to lead the Mises Institute, and observes that the existence of central banks was an important theme of that campaign. He adds that Rand Paul, Ron Paul’s son, now in the Senate, often raises the same issue, treating the very existence of central banks as hardly part of the solution but most assuredly part of the problems of the day. Zadek also notes that many economists have written about the supply of money and the management of interest rates, as opposed to letting interest rates find their equilibrium in the marketplace.
Non-interventionism and trade as foreign policy
Zadek asks what foreign policy has to do with Austrian economics, suggesting that strictly analyzed the connection is slight, but that it is part of a more important principle of freedom and natural rights. Deist answers that the Mises Institute is against interventionism in foreign affairs as much as against interventionism in the domestic economy, and for many of the same reasons—unintended consequences and blowback. He argues that the bright-line distinction between foreign and economic policy is misguided, since every dollar taken in taxes and applied to foreign policy is a dollar not spent in the domestic economy or in some more productive use.
Deist describes as dangerous the hubris that governments can remake other countries—deciding who ought to be their political leaders or what political system they ought to have, and in some cases invading to impose it. He acknowledges the natural right of self-defense as individuals and says it is possible to extrapolate that to groups or nations, so that if a foreign power were actively threatening or attacking, there is a moral right to respond or prevent it—but he calls that a separate question. He contrasts this with what he calls a more utopian foreign policy, citing the idea of turning Afghanistan into something it has never been in its many thousands of years of history, and of taking three separate ethnic groups in Iraq that Saddam Hussein had barely cobbled together, blowing that up, and starting over with a new coalition government—all with American taxpayer dollars and with the lives, limbs, and psychological well-being of young people in the armed forces. He says this strikes him as having a strong parallel with economics itself, because it is not thinking in terms of what causes wealth and what makes for a productive world, but thinking destructively.
Zadek emphasizes Deist’s choice of the word “intervention” rather than “isolationist,” calling the distinction very important. He says Deist proposes the opposite of isolation: active economic engagement between American companies and individuals and foreign trading partners. Isolation, Zadek says, would mean not talking to them, not trading with them, building a theoretical wall to the skies; whereas intervention means not intervening in somebody else’s affairs. He offers the Austrian analysis that countries do not harm their customers or suppliers all that much—if you are trading with somebody, buying their stuff or selling them stuff they want, they are less likely to harm you—and asks whether tying this to foreign policy is a stretch. Deist says it is not a stretch at all, arguing that the notion America will be isolated is absurd, since free trade reaches the whole world and people everywhere know Coca-Cola, Levi jeans, and the Apple iPhone. What isolates the United States, he says, is a belligerent foreign policy. He calls trade the best form of foreign policy, a bridge toward peace and harmony, because people do not go to war with their customers or their suppliers as a general rule.
Across episodes
The topic of Austrian economics is touched on in two episodes in the excerpts. The 2021 episode with Jeff Deist provides the substantive treatment, covering method, central banking, and foreign policy. The 2022 episode with John Giadjopoulos mentions Austrian economics only in passing: Giadjopoulos contrasts a poll question about whether people believe in Austrian or Keynesian economics with a question about whether the government should tell people how to run their private business, saying that if you ask the latter type of question the largest identifiable group in the United States is libertarian. The excerpts show no development or change in the treatment of Austrian economics between the two episodes; the later episode does not revisit the earlier discussion’s themes.
What the sources do not cover
The excerpts do not provide a systematic history of the Austrian school, nor do they name the specific works of Mises or Rothbard beyond identifying them as founders and icons. The 2021 episode breaks off mid-sentence in Deist’s discussion of the scientific method, and the excerpts do not include the conclusion of that thought or the promised discussion of Murray Rothbard. The excerpts also do not state the founding date of the Mises Institute, the titles of any books published by it, or the details of any legislation or court case bearing on Austrian economics.