I have been a student and proponent of The Austrian School of Economics since I studied economics at UCLA. When reading about Keynes economics theories of government deficit spending and then comparing his theories to the free-market theories of The Austrian School, I couldn’t see, even as a student, how anyone could think that Keynesian economics would work in a free society. I know that John Maynard Keynes developed his theory as a solution to the Great Depression. More government spending, he theorized, would put more money into the economy and pull us out of the depression. It didn’t work. It kept us in the Depression.
Ronald Reagan, who was not an economics student, understood instinctively that Keynesian economics would not work in America. He stated, in 1976, “You cannot spend your way to prosperity. You cannot build prosperity by going into debt.”
“You cannot spend your way to prosperity. You cannot build prosperity by going into debt.” ~ Ronald Reagan 1976
Reagan understood that by lowering taxes, reducing government regulations, getting government out of the role of interfering in the setting of prices and wages, the market would bring about a recovery. And so it did. He pulled us out of the recession of the early 1980s and we enjoyed decades of prosperity until 2008 because of the policies he set into effect.
The Austrian School of Economics theories, which I will shortcut with the term free-market economics, has worked every time it has been used. The Obama Administration is a follower of Keynes. They hold a belief that government spending can cause a recovery in the economy. This has been proven time and again to not work. If Hillary Clinton is elected President, her administration will also follow the Keynes model. Democrats today believe that government is the solution for everything, especially for a sluggish economy. If the government spends enough money, they believe, even though it creates a huge deficit, and increases the national debt, then the economy will experience a rebound. Hillary has already said that her economic plans include a huge “investment.” Translation: A huge stimulus spending. She will increase the national debt further. We saw how the Obama stimulus in 2009 did nothing to help the economy. The only thing it did was to make some of Obama’s cronies more wealthy. A large national debt is destabilizing for the American economy.
In any event, I have gotten off the track of this post. I just read an article by Erwin Dekker, titled, “How Viennese Culture Shaped Austrian Economics.”
I found it very interesting to understand the influence that the Viennese culture had on formulating an important economic model.
Here is an excerpt:
Austrian is nothing more than a shorthand for a school of economics that focuses on market process rather than outcomes, emphasizes the subjective aspects of economic behavior, and is critical of attempts to plan or regulate economic processes. Sure it originated in Austria, but it is largely neglected there today, and currently the school lives on in some notable economics departments, research centers, and think tanks in the United States. The whole ‘Austrian’ label is thus largely a misnomer, a birthplace, but nothing else.
But what if Austrian, or more specifically Viennese, culture is essential to understanding what makes this school of thought different? What if the coffeehouse culture of the Viennese circles, the decline of the Habsburg Empire, the failure of Austrian liberalism, the rise of socialism and fascism, and the ironic distance at which the Viennese observed the world, are all essential to understanding what the school was about?
It would be exciting to discover that the Vienna of Gustav Mahler, Ludwig Wittgenstein, Sigmund Freud, Gustav Klimt, and Adolf Loos, would also be the Vienna of Carl Menger, Ludwig von Mises, and Friedrich Hayek. And if that is so, how would that change how we think about this school and about the importance of cultural contexts for schools of thoughts more generally?