American Compass is the new “think” tank created by the National Conservative movement to persuade voters to adopt socialist economic policies. A recent article, Planning for when the market cannot, attacks the great Austrian economist F.A. Hayek and his explanation of knowledge in the market:
“Ultimately, Hayekian critiques of government planning are compelling only insofar as one is willing to ignore practical reality. His theories may have been adequate as anti-Soviet propaganda, but they are completely useless as a guide for policy.”
Hayek won his Nobel Prize in 1974 primarily for his work on the use of knowledge in the market. He applied the insights of his mentor and the greatest economist of the 20th century, Ludwig von Mises, whose 1920 book Socialism destroyed the foundations of serious socialist thought. Socialists wasted the next half century failing to answer Mises’ criticism. At first, they placed their faith in the emerging field of econometrics, that is, math models, but the computations became too great to handle with slide rules. Computers made calculations easier, but their models continued to fail. Then they simply declared victory, knowing that most people couldn’t understand the debate or weren’t following it. Finally, the collapse of the USSR forced the honest ones to admit defeat.
Boiled down, the Mises/Hayek description of knowledge says that prices guide buying and selling in the market. Accurate prices tell producers to produce more when prices are high and produce less when prices are low. Consumers buy less when prices are high and more when they’re low. Leonard Read’s I, Pencil is the classic depiction of how prices coordinate market activity. Dozens of parts come from all over the world to be assembled as pencils guided only by price signals in the market. No National Conservative bureaucrat is needed.
Government intervention in the market (as the Fed does) distorts prices and causes producers and consumers to make mistakes leading to waste and loss of wealth in recessions. No committee of bureaucrats can accumulate the vast amount of rapidly changing data necessary to guide the economy better than a free market can.
This is the reality of the market. But according to National Conservatives, Hayek was impractical, ignored reality and promoted propaganda? Seriously?
National Conservatives think their version of history makes economic science obsolete. Their section Rebooting the American System claims,
“For nearly two centuries, the United States pursued a robust national economic agenda that supported the nation’s extraordinary progress, prosperity, and security. It built canals and railroads and highways. It fostered industries that would make revolvers, airplanes, and semiconductors. It buttressed the American Dream. The agenda went by many names, but one of its earliest champions and one of America’s greatest statesmen called it, simply, the American System.
“This essay series explores the American System through the lenses of tradition, theory, and practice—how the United States once pursued its economic policy, why fundamentalist free-market logic fails as a guide, and where policymakers might act to shape the nation’s economy once more. Senators Marco Rubio and Tom Cotton situate these ideas in our present context: a once-in-a-century pandemic and a generation-defining contest with China.”
With their emphasis on history and rejection economics, National Conservatives have done nothing but resurrect the zombie economics of the German Historical School, which was socialist and the nemesis of the founder of Austrian economics, Carl Menger. Their allies in the West were the institutionalists such as Veblen. Mises battled with them, too. He wrote in chapter 10 of Theory and History,
“All brands of historicism — the German and the British historical schools of the social sciences, American institutionalism, the adepts of Sismondi, Le Play, and Veblen, and many kindred "unorthodox" sects — emphatically reject economics. […] Every historical report, no matter whether its theme is the conditions and events of a remote past or those of yesterday, is inevitably based on a definite kind of economic theory. The historicists do not eliminate economic reasoning from their treatises. While rejecting an economic doctrine they do not like, they resort in dealing with events to fallacious doctrines long since refuted by the economists.
“The theorems of economics, say the historicists, are void because they are the product of a priori reasoning. Only historical experience can lead to realistic economics. They fail to see that historical experience is always the experience of complex phenomena, of the joint effects brought about by the operation of a multiplicity of elements. […] Historical facts need to be interpreted on the ground of previously available theorems. They do not comment upon themselves.
“The antagonism between economics and historicism does not concern the historical facts. It concerns the interpretation of the facts.”
History is so complex and contradictory that any crackpot can find some evidence to support his beliefs with little effort. Marx did it. The historicists and institutionalists did it. Keynes did it. Now the National Conservatives are doing it. Every historian sifts the sands of history using their own economic theory as the sieve. National Conservatives deploy medieval/socialist economic theory to filter their history.
Good economic theory is empirical because it came from observing how millions of people have behaved over centuries. It describes economic reality as astronomy describes the motions of planets and quantum physics describes electrons and protons. Adam Smith explained how laissez-faire economic policies made the Dutch Republic the wealthiest and most powerful nation in the history of Europe. Dutch economic policy had come from the theologians of the University of Salamanca, Spain, of the 16th century. What became known as “mercantilism” was the attempt by intellectuals to explain the rise of the Dutch and the simultaneous decline of the mighty Spanish Empire. Smith corrected mercantile economics and the modern science of economics was born.
The first socialists in early 19th century France hated the economic science of their day, too. Hayek wrote their history in his Counter-revolution in Science. One of the chief signatures of socialism through its sad saga has been its denial of economic science. The German historical school attempted to roll back science too, championing their versions of history over empirical economic science.
The German historical school and the institutionalists were socialists, as Mises noted. Since National Conservatives follow the same principles, whether they acknowledge it or not, their policies can only lead to greater socialism.