Just finished reading this morning Joseph T. Salerno's "The Rebirth of Austrian Economics - In Light of Austrian Economics." In it, I gleaned at least three insights: the tension between creativity and institutionalization within the Austrian camp, an overview of Murray Rothbard's works, and the revival of Austrian school through his influence. The second insight provides a good reading list for those like me who want to study the Austrian school from Rothbardian perspective. After reading Salerno's essay, I thought of the need for a parallel revival within the camp of those who adhere to reformed theology. Under this, I also want to give an overview of distinctive of one school of thought within the umbrella of reformed theology.
Creative Thinking and Institutional Framework
Joseph T. Salerno started his argument by identifying two strands of thoughts within the Austrian camp. These thoughts are about the creativity of an isolated genius and the need for an "institutional framework." The founding fathers of the Austrian school, Carl Menger and Eugen von Bohm-Bawerk, says Salerno, had committed a mistake for emphasizing only the creative aspect at the expense of the institutional framework. Because of this one-sided emphasis, the contribution of the Austrian school to the growth of economic science has suffered setbacks. Nevertheless, Salerno saw that even in Menger's theory of goods and Bohm-Bawerk's theory of "time preference", ideas can be deduced that could support the need for institutional framework. In this aspect, Salerno argues, the two founding thinkers are inconsistent.
Ludwig von Mises' position concerning these two issues was "ambivalent" says Salerno and if not for the works of Murray Rothbard, Mises' recovery of Austrian tradition would perhaps be buried due to the absence of that necessary institutional framework. So it was through the influence of Rothbard that creative Austrian thinking was institutionalized and revived.
Overview of Rothbard's Works
At this point, I just want to enumerate Rothbard's "institutionalization" of Austrian ideas through his published books and essays and two influential journals:
- Man, Economy, and State (1962)
- America's Great Depression (1963)
- Power and Market (1970)
- For a New Liberty (1973)
- The Journal of Libertarian Studies (1977)
- The Myth of Neutral Taxation (1981)
- Law, Property Rights, and Air Pollution (1982)
- The Ethics of Liberty (1982)
- Quarterly Journal of Austrian Economics (1982)
- The Mystery of Banking (1983)
- The Federal Reserve as a Cartelization Device (1984)
- The Case for a Genuine Dollar (1985)
- What Has Government Done to Our Money? (1990)
- Egalitarianism as a Revolt against Nature (2000)
Salerno gave a brief description of selected works from the above literature. He described "Man, Economy, and State" (1962) as follows:
". . . . a contribution to Austrian economics and to pure economics in general that ranks as one of the most brilliant performances in the history of economic thought. The book was a two-volume treatise of nearly 1,000 pages written in scintillating English that logically deduced the entire corpus of economic theory step by step from the undeniable fact of purposeful human action. It integrated the insights and theorems of dozens of previous Austrian economists from Menger to Mises into a systematic and comprehensive organon of economic theory. Perhaps the greatest of Rothbard’s many contributions in his treatise was the elaboration of a unified theory of production, extending over five of the treatise’s 12 chapters and encompassing the capital structure, interest rate determination, factor pricing, and the entrepreneurial role in production. While many elements of the theory had been developed previously by various Austrian economists, they had never been fully integrated and several elements were still missing. Rothbard’s methodical treatment of production repaired one of the few serious gaps remaining in Austrian economics after Mises. Rothbard’s book also contained critiques of contemporary neoclassical and Keynesian theories and a critical analysis of typical state interventions into the economy" (pp. 116-117).
Salerno gave an overview of other works of Murray Rothbard. "America's Great Depression" (1963) and "What Has Government Done to Our Money" (1990) are follow-ups to Rothbard's 1962 book. Salerno described the first book as an application of Austrian Business Cycle Theory to analyze the Great Depression in the 1930s. The second work is a booklet, which Rothbard aimed to provide "a primer on Austrian monetary theory" (p.117) where he "originated a praxeologico-historical analysis of the transformation of gold money into fiat money. . . ." (ibid.). "Power and Market" (1970) contains "an exhaustive . . . . analysis, based on value-free economic theory, of the myriad of government interventions into the economy" (ibid.). Rothbard also dissected here the existence of "taxation and government spending as types of intervention into the free market economy. . . . (ibid.). In "For a New Liberty" (1973) and "The Ethics of Liberty" (1982), we read here the "anarcho-capitalist" version of libertarian political economy.
In terms of monetary theory, Rothhbard also published a book, "The Mystery of Banking" (1983) and two essays, "The Federal Reserve as a Cartelization Device" (1984) and "The Case for a Genuine Godl Dollar" (1985). To appreciate the importance of the book, Salerno mentioned historical details related to the distortion of monetary system caused by an influential book co-authored by Milton Friedman and Anna Schwartz, "Monetary History of the United States." Salerno narrated:
"The Mystery of Banking was a theory and history of money and banking written from an Austrian perspective and, as its title suggests, accessible to the non-specialist in economics. Nonetheless it contained an important extension of Austrian monetary theory. Specifically, Rothbard integrated a detailed exposition of the multiple bank credit expansion process into Austrian monetary theory. This task had never been undertaken before by Mises or by Rothbard in his treatment of money in earlier works and constituted a lacuna in the Austrian explication of the money supply process. The arcane process by which a fractional reserve banking system operates to multiply demand deposits was first systematically expounded by the Austrian-oriented American economist, C.A. Phillips in 1920. In addition to this expository contribution, Rothbard corrected an erroneous deviation from Phillips’s path-breaking analysis that began to crop up after World War II and especially after the publication of Milton Friedman’s and Anna Schwartz’s influential Monetary History of the United States in 1963. Whereas Phillips had derived a simple but versatile 'reserve' multiplier capable of distinguishing between the influences of central bank policy, commercial bank operations, and the actions of the non-bank public on the money stock, modern money and banking textbooks following Friedman and Schwartz (1963, pp. 50–51) operated with a seemingly more sophisticated formula, the 'high powered money' or 'monetary base' multiplier, which conflates these separate influences. In rectifying this technical error and rescuing Phillips’s original analysis from oblivion, Rothbard restored the proper analytical framework for interpreting historical boom-bust episodes such as the Great Depression" (p.123).
The Significance of Rothbard's Institutionalization
I mentioned earlier that without Rothbard's institutionalization (According to Salerno, it was actually Llewellyn H. Rockwell who ought to be credited for this institutionalization) of Austrian thoughts, Mises' recovery of Austrian tradition would have been lost due to the influence of other thinkers within the Austrian camp. It is a new realization for me that there are diverse versions of "Austrianism" such as "Lachmannians," "Hayekians," "Kirznerians," and "Misesians." For Rothbard, Misesians are the true Austrians. Salerno cited two relevant quotations to describe this internal tension within the Austrian school. In the first quotation, Rothbard exposed Ludwig M. Lachmann as "nihilist," "Keynesian," and "anti-economist", and therefore not an Austrian in the Misesian sense (p. 121). In the second quotation, Rothbard identified that the real contention over the naming of the scholarly journal aimed for the institutionalization of the Austrian thought is "the abandonment of Austrianism itself" (pp. 124-125). In that battle over the journal's name, finally Rothbard gained the upper-hand, and so the "The Review of Austrian Economics" as the official name for the journal serves as a landmark in the victory of Misesian version of Austrianism.
Personal Assessment of Trend in Reformed Theology
As a theological educator, after reading Salerno's essay on economics, I could not avoid reflecting on the present state of Reformed theology. I see a parallel experience. My mind led me to think about the works of the pioneers of Reformed theology - John Calvin, Abraham Kuyper, Herman Bavinck, and Benjamin Warfield. After a year or two of exchanging ideas with my fellow educators both offline and online, I suspect that the existing trend in theological education particularly in the Philippines and as far as the "evangelicals" are concerned is either leaning towards new modernism through the influence of Karl Barth or the Kantian idea of historical consciousness, existentialism, and process theology either through the British or German branch. Unfortunately, some proponents of this trend still want to retain an appearance of orthodoxy and adherence to reformed theology. I think, it is in situation like this that the recovery of reformed theology through the works of Cornelius Van Til plays a significant role.
One school of thought within the Van Tilian camp is known as the "Christian Reconstruction." Gary North, an Austrian economist belongs to this school. Among the many expressions of reformed theology, the Christian Reconstruction came up with five distinctives: sovereignty of the Triune God over creation, providence, and redemption; covenant theology; the three uses of the law; eschatology of victory, and; presuppositional apologetics. Difficult theological questions such as free will and theodicy are covered under the first point. Understanding covenant theology and the three uses of the law provides a distinctive social theory. The fourth point, which is victorious eschatology appears a baseless utopian at first glance. But a deeper look will help you see that such view of future things is actually rooted in Christology, most especially the finished work of Christ. And finally, presuppositional apologetics is about explaining the worldview of Christian Theism to non-theists.
For now, in my mind, there is a disconnection between these two schools of thought: Austrian and Christian Reconstruction. My goal is to study the Austrian school from the lens of Christian Reconstruction. Rothbard's list provides a good start in the study of Austrian ideas. Concerning Christian Reconstruction, I also consider reading the Bible economic commentaries of Gary North a worthwhile goal.