World-famous economist, scholar and writer, Dr. Richard M. Ebeling, spoke at the Hayek Institut this past March about the different economic policy challenges facing Europe. Reflecting his expertise in history, politics, and economics, his lecture focused on the benefits of a gold standard for sound monetary policy, and the advantages of a free banking system. He recently spoke to the Hayek Institut’s Secretary General about monetary policy, his life-long interest in the Austrian School of Economics and the important legacy of Friedrich A. von Hayek.
This is Part II of that conversation.
What do you think about the viability and long-term sustainability of the Euro? Do you foresee a collapse?
I have often found that one of the most difficult things to predict is the unpredictable! We must remember that the Euro did not develop as a market-selected medium of exchange. The European Union political elite, who wished to reinforce the integration of the EU institutional order, politically imposed it on the member nations. If the citizens of the member states had had an open and free chance to decide through referenda or plebiscites it is highly unlikely whether the national currencies would have been abandoned.
The stability and viability of a common currency requires that the regions within the currency area allow their relative price and wage structures to adapt to and reflect changes in the demands for goods and money over the common currency zone. This is a theme in Hayek’s highly insightful but neglected 1937 lectures on Monetary Nationalism and International Stability.
The member states of the EU are not willing to do this; or I should say that interest groups within these countries, including the government bureaucracies, are unwilling to fully and consistently adjust to the reality of the supply and demand for goods and money across Europe, as well as with the world economy with which the European Union inescapably interacts.
This is the reason why some groups in the countries hardest hit in the current economic crisis are calling for a return to their national currencies. Their panacea is currency devaluation and domestic price inflation through money creation to fund government spending to resist relative price and income adjustments in their economies. Inflation, however, is only an illusionary solution that soon brings about its own distortions, imbalances, and injustices.
The Eurocrats in Brussels are frightened by the fact that their dream of a United States of Europe—which they would command and control through the EU regulatory and legislative mechanisms—might implode with a successful currency “secessionist” movement. Thus, the survival of the Euro is partly dependent upon the willingness of those at the helm of the EU and the European Central Bank to provide the loanable funds and central bank-created money to put off the necessary national internal adjustments.
Prof. Dr. Richard Ebeling
Why do people find it so hard to allow the market to function without calling for government solutions? Is it simply a fear of risk? Or is there something in our psychological make-up that makes us look to the state for help?
This is one of the most difficult but important questions that friends of freedom can ask, and try to answer. Adam Smith was highly pessimistic about the chances for winning the war of ideas and establishing a regime of free trade. In The Wealth of Nations he despaired of the “prejudices of the public” and the “power of the interests.” By the prejudices of the public, he meant the difficulty of getting people to understand the seemingly counter-intuitive argument that when men pursue their own self-interest in a competitive economy the outcome in terms of both freedom and prosperity is far greater than when governments attempt to guide and command the productions of society. By the power of the interests, Smith meant the influence of special interest groups to gain monopolies, trade protections, subsidies and other benefits from the government at the expense of the general consuming public, and their determination to fight “tooth-and-claw” to prevent losing these political privileges.
Others, such as the Italian economist, Vilfredo Pareto, British economist, Philip Wicksteed, and German, free market economist, Wilhelm Röpke, pointed out that there is an inherent “bias” in society toward “producer” interests over the interests of the general consuming public. The reason being is that while each of us is the consumer of many goods, in the division of labor we are the producer of one or a small handful of goods. And unless we have been successful in earning income in our producer role in society, we do not have the financial means to purchase whatever other goods we desire to buy as a consumer. Thus, people tend to place greater priority on limiting competition in their own line of production, than fighting for competition for all the separate goods they purchase as consumers.
Still others, such as Joseph A. Schumpeter, or the French social critic, Bertrand de Jouvenel, or Mises and Hayek, emphasized the role of the intellectuals in society in influencing and shaping public opinion and attitudes about the social order and the economic system. The fact is that since the times of the ancient Greeks philosopher-intellectuals have expressed a deep disrespect and contempt for the arena of work, industry and commerce. For the ancients, with their slave societies, work and trade were reserved for the “underclass,” while the “free citizen” devoted himself to the “higher” callings of life—the pursuit of “beauty,” the “good” and the “virtuous.” The modern intellectual grew up with the development of industrial capitalism. Indeed he could never have devoted his near full-time efforts to “ideas” if not for the productivity of capitalism to support his “life of the mind,” which freed him from the “sordid” affairs of having to earn a living from market-based production of goods and services.
The modern intellectual’s disapproval of free market capitalism often comes from two frustrations: First, the market frequently fails to appreciate the intellectual’s work to the same degree he values his own worth. That is, the intellectual sees the university dropout make millions from inventing a new sink faucet, while he must get by on a university professor’s salary or a research grant with little or no recognition of his “big ideas” in the society as a whole. Second, the intellectual is confident that he knows how to correct all the “ills of society” through regulation, control, and redistribution. Yet, his Olympian perspective on how to make the world a better, a more “just” and “fairer” place remains stillborn because self-interested and narrow-minded people do not appreciate his grand vision for creating a “good society.”
Finally, freedom, as has often been pointed out, has an accompanying requirement: self-responsibility for one’s actions—both when they succeed or fail. Hence, freedom can be a scary thing. This has made the appeal of the modern welfare, “entitlement” state, well, so appealing to many. Worse, still, once a large number of the members of a democratic society become dependent for either all or a large portion of their income from state spending or redistribution, removing such financial support involves a “shock” to the social system. It is also a shock to the psychology of many people who can no longer imagine a world in which the state does not take care of them.
Prof. Dr. Richard Ebeling
What are the consequences of this attitude or mentality?
We see the consequences of this psychological dependency in places like Greece and, now, Portugal. Thousands of people demonstrate on the streets of Athens or Lisbon insisting—demanding—that their governments maintain or restore welfare spending and government jobs. From whom the tax money will be provided, from where the resources will come to maintain the unsustainable, seemingly none of these people care to ask. They just want their government jobs and social “safety nets” to be once more guaranteed “for life.”
Much of this mentality has been fostered by the illusion of “something for nothing,” seemingly made possible by decades of government deficit spending. For every Euro of government spending, the citizens of these countries have only been taxed a fraction of the true cost, with the difference made up with borrowed money. But, now, no one wants to lend to these countries, or at least not without an interest rate containing a high default-risk premium. And the reality of this is more than some can accept.
Are we witnessing a renaissance of free market thinking?
When I first became interested in free market and “Austrian” ideas as a teenager in the second half of the 1960s, I could take pride in the fact that I was able to read everything that was published by conservative, classical liberal and libertarian thinkers. The reason for this was due to the fact that in the United States there were only three “right-of-center” publications—National Review, The Freeman, and Human Events—and only a small handful of books that appeared each year, usually published by “fringe” publishing houses such as Arlington House, Henry Regnery, and Devin-Adair. (It seemed as if only Hayek and Milton Friedman could be published by reputable publishers like the University of Chicago Press.)
Today the intellectual environment is totally different. If a person devoted all of their waking hours to doing nothing but reading, they could never keep up with all the literature appearing from “the right.” The market has exploded with books by conservative, classical liberal, and libertarian authors from some of the most mainstream publishing houses. There are, now, dozens of free market-oriented think tanks throughout the United States producing an immense amount of policy-based monographs and position papers. And such organizations have blossomed around the world, as well, including in Europe. And, of course, the Internet has offered a vast arena for the spreading of free market ideas. Indeed, the poorest person anywhere in the world, with some access to the Internet, can now read for free thousands of books and articles by all the great writers on liberty and economic freedom. This, too, in a very dramatic way has helped advance an awareness of free market ideas. In the United States there is also a vast “underground” of advocates and writers on Austrian Economics at dozens of Internet websites, far beyond anything that appears in the traditional media.
There is also the fact that collectivist ideas of all types are intellectually bankrupt. Other than in North Korea, Cuba, and a handful of “leftist” South American countries, who defends anymore communism and socialist central planning? In the West the interventionist welfare state persists as a political engine for anti-competitive privilege and protection, and plundering redistributions of wealth based on pressure group influence and power. Does anyone, anymore, say with a straight face that the welfare state will really bring about the “fairer” and socially more “just” society that was promised in the decades immediately after the Second World War?
The interventionist welfare state survives because ideologically, as I said, many people in Western society have been persuaded that free market capitalism is unjust and unfair, in spite of it “delivering the goods.” And it persists because so many in these societies have been enveloped within the web of “entitlement” dependency to such an extent that they cannot imagine a way they could get by without it.
But we should not be despondent. It is useful to recall Hayek’s argument in his 1949 essay, “The Intellectuals and Socialism.” Hayek explained that trends in opinion do not change over night. The ideas and policies current today are the product of intellectual fads and fashions that emerged more than a half a century ago. Current policies are a “lagging indicator” of intellectual trends in the past. The ideas of liberty have been slowly—and sometimes beneath the surface—experiencing a revival among people, and often among the young, who reject social paternalism and who frequently can be persuaded about the benefits and ethics of market liberalism, as well.
How receptive are students today to the message of the Austrian School? And how can spread this message around the world?
I would argue that Austrian Economics is especially that school of economics that is most easy to explain to students. This is not because it is simple or “simplistic.” But because of its common-sense realism of analyzing human beings as they really are with imperfect and decentralized knowledge, whose interactions can achieve a relatively high level of mutual coordination through the competitive market price system, through which information is disseminated and integrated to an extent far beyond the capacity of any central planner or government regulator.
The spreading of these ideas can bring about the change in trends that may show its full intellectual and political power only ten or twenty or even thirty years from now. Hayek ended his 1949 essay with a call for all those who value liberty to realize that the great challenge is to articulate the case for free market liberalism as a moral and principled ideal that can truly liberate mankind from wasteful plunder, political privilege, and corrupt policies that leave people less free and far poorer than they have to be.
Nothing is more “revolutionary” or “progressive” than the classical liberal ideal of individual liberty, under which every human being is viewed and treated as an end in himself—who “owns” himself, to shape his own life according to his own values and meaning for living. Nothing is more moral than a social ideal of voluntary association and freedom of exchange, under which violence and coercion are removed from all human relationships to the greatest extent possible. Nothing is more “visionary” than a conception of a world in which free men may use their creative potentials in any way they desire, and which creates a world of wide opportunities and improvements in the human condition that elements poverty and generates rising prosperity for all.
That is the future that freedom can give us all. What greater ideal is worth fighting for and achieving? If, that is, we are willing to try and not waver from focusing our vision on that point on the horizon that represents the free society of the future that can be ours.
Thank you so very much for your time.
Alvino-Mario Fantini and Prof. Dr. Richard Ebeling
Dr. Ebeling was the president of the influential Foundation for Economic Education in New York from 2003-2008, and from 1988-2003 was the Ludwig von Mises Professor of Economics at Hillsdale College in Michigan. He was also vice-president of the Future of Freedom Foundation in Fairfax, Virginia, from 1990-2003. In December, he was appointed to the advisory board of the Foundation for the Advancement of Free Market Thinking in Lichtenstein. He is currently a professor of economics at Northwood University in Michigan and an adjunct scholar of the Ludwig von Mises Institute.
Dr. Ebeling is the author of Austrian Economics and the Political Economy of Freedom (Edward Elgar, 2003) and Political Economy, Public Policy and Monetary Economics: Ludwig von Mises and the Austrian Tradition (Routledge, 2010). He is the co-editor and co-author of the four-volume series, In Defense of Capitalism (Northwood University Press, 2010-2013). He is also the editor of the three-volume work, Selected Writings of Ludwig von Mises (Liberty Fund, 2000; 2003; 2012). The work is based on Mises’ “lost papers” that were looted by the Nazis from Mises’ Vienna apartment in 1938 and captured by the Soviet Army in 1945. Dr. Ebeling and his wife, Anna, later retrieved them from a formerly secret Soviet archive in Moscow, Russia.
The views expressed on austriancenter.com are not necessarily those of the Austrian Economics Center.
The AEC’s fundamental goal is to promote a free, responsible and prosperous society. Through education and improving public understanding of key economic questions, the AEC promotes the idea of a free market economy and the ideal of a free society.