Sunday, November 06, 2005

Schmoller vs. Menger

You will find a very good article on why Germany, and by extension every other Socialist country in the world, is having, and will have, economic stagnation, leading to ruin and probably a new virulent totalitarianism. Yay.

Anyway, one of the very interesting things in this article concerns an argument about the universality of economic principles. This arises between the two schools of thought mentioned in the title of this piece (just add an -ism if you will). The laissez-faire folks take the position that regardless of time or place, the free market works, and works better than anything else. Of course the historicists disagree.

What is intriguing about this argument besides what's on the face of it? Well, deep down at the heart of it all is a question concerning epistemology and ethics. The question is whether we can discern the nature of the universe, of man's mind, of man's necessary conditions for not just survival but also "good" living; for if we can, all else follows and, most importantly, a correct political regime is manifest.

The question is whether there exists a right and wrong from which to judge our existence by. The historicists say "no, get used to it." The laissez-faire folks say "yes, and watch what happens when you employ it."

Ayn Rand's philosophy holds as much as the latter. But hers is a little deeper. Starting from the metaphysical nature of the universe, Rand traces a path to natural right from teleological foundations. What strikes me about this article is that it does as well, at least implicitly. But what is this foundation but natural law and "the laws of nature and of Nature's God," as Jefferson said?


Blogger Jeanne Marie said...

The thought that I took away from this was a realization that in this world, for some reason, we have sort of assumption that everything will pretty much remain at status quo. What I mean by this is, a first reaction to seeing this potential virulent totalitarism among countries would be complete disbelief, as we assume Germany will stay just the way it is. I guess that's why people haven't given enough attention to the riots in France--we assume they will be put down and we will return to status quo. But World War II wasn't that long ago --- the cold war was recent. Our world is constantly evolving, and by the time we reach our death beds, who knows what these countries will be like anymore.

6:27 AM  
Blogger Tony said...


I knew there was a reason I kept checking up on this site. To (very briefly) answer your last question: empirical utilitarianism.

9:29 AM  
Blogger See Jay run said...

Oh Tony,

I just missed hearing from you! I knew that if I even hinted about natural law your sixth sense would kick in and lead you here to quickly offer a more rational take :-)

How are you doing by the way?

11:23 AM  
Anonymous Anonymous said...

That article peddles a series of simplistic half-truths that have become part of a standard line of apologetics for the naked emperor of the social sciences: economics. Anyone with more than a superficial command of the economic history knows that
the German response to the great depression had little or nothing to do with the supposed dearth of economic theorists of a neoclassical variety in that country. With just a little reading you would know that there were many German marginalist economists working in Germany between 1900 and 1940--Dietzel, Conrad, Wagner, Eucken and Schumpeter come to mind (the latter holding a professorship at Bonn in the 1920s). So these are simply fairy tales retold ad nauseam by economists who wished they had some relevance for the world. F.A. Hayek was particularly keen to retell these stories. The fact remains that it was heterodox thinking (and in the case of the Nazis) willful and ruthless disregard of economic "fundamentals" (i.e., guns and butter) that ended the depression in Germany. As Keynes himself later observed, Germany was the first country to recover from the depression. The Brüning government which preceded the Nazis was committed to the very orthodox remedy of deflation between 1930-33, one that Hayek himself prescribed to his own great later embarrassment (he never forgave Keynes for getting this right). One of the last countries to pull out of the depression was France, then also pursuing a policy defending gold convertibility of the franc. I recommend Roger Middleton’s “Charlatans of Saviours” or Steve Keen's “Debunking Economics" for further reading. Neoclassical economics is in a deep intellectual funk. There is an inverse relationship between higher education in economics and economic performance. Britain bwteeen 1890 and 1990 is a case in point. An endless retinue of highly-respected economists advised various British governments in these years (Edgeworth, Pigou, Marshall, Beveridge, Robins, Hicks etc.) and yet the British drove their economy into the ground. By comparison, Germany did rather better, perhaps because neoclassical and Keynesian economists were kept at arms length from the levers of power. Economics as a discipline is completely irrelevant to technological change, wealth creation and overall material prosperity.

2:11 PM  

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