Economic Science: Back To The Basics

My book (on lessons from socialism) is about using the grand experiment -- to run an economy efficiently through replacing the market with a plan -- to understand economics. After all, economics is precisely about what an economy is: the question of whether this experiment should work, and why, seems very central. Is an economy by nature a market economy? Or is it just as workable to replace the market with a plan? Or, if not completely replace the market, can you replace bits of it, or guide the market? And, if the latter, then why can't you replace the whole thing (why is that different?) and does the answer to that question have bearing on how well a partial replacement or guidance will work?

So, my interest in economics is very basic: getting back to the basics of what economics is. Getting to the core. And, I think generally this is what Austrian economics is about. Austrian economists do not want to take what other economists have done and add fancy and tangential extensions to it, or mathematically prove something into or out of existence. Austrian economists want to ask fundamental questions about economic systems that often appear easy or obvious, and then carefully and methodically work out the answers.

This is also what makes Austrian economists great teachers: at least a couple of Austrian economists that I know are, in my opinion, at their worst when they attempt to do conventional-type work that they can publish in top journals, and at their best when lecture to students or present to (or publish for) non-academics. Does this mean that Austrian economics is not scientific - that it is only palatable to the uneducated? No, I do not think so at all. Conventional economics is based on absurd, often times bizarre, assumptions. Economists realize this, but excuse it because they hope the simplifications will help to generate useful predictions. Economists then build elaborate models and equations based on these assumptions, and learning all about what they've done takes years of academic training.

However, most of Austrian economic insight is not built on such assumptions, and it is therefore not simplified enough to build elaborate models and equations upon. It therefore does not take years of academic training to understand these basic insights--instead it takes a few hours to begin to understand the basic insights (if they are taught well). After that, of course, they can be more and more deeply understood, and applied to different policy questions, economic questions, and other pursuits.

This also leads me back to where I started: Austrian economics is about the basics. Understanding and applying basic economic principles to questions in daily life. I think this is good. I do not think that we need elaborate models built on absurd assumptions: models are fine, but they are not the really critical thing. The really critical thing is to understand what economic system works best for what ends, and why. This can then answer "how can we increase economic growth?" and "can we help developing countries to grow? why are they poor in the first place?" and "should we nationalize the banks?"

It is highly unlikely that an elaborate economic model built on incredibly simplifying assumptions will answer this first and most fundamental question better than a study of the fundamentals.

The Soul of an Academic

Here is a profound quote from The Sisters by Vikenty V. Veresaev, that I think gets to the core of an idealistic academic:

We were going to work together, but somehow neither of us were inclined to. We decided to have a drink. Nurka brought a bottle of port wine. We drank it, and lay down on the bed. I began to "preach" to her. I said there is no such thing as love. There are only sexual needs. She looked at me sadly with her innocent blue eyes; it hurt her to listen to me. She dreams of a "pure" love. I laughed at her and said: "Rubbish! Can a Komsomolka be such an idealist?"

I suddenly remembered and struck my forehead:

"The synopsis! I'd forgotten all about it!"

I sat down at the table and wrote out the synopsis for the lecture.

The next evening came. ... My speech poured out, vivid and unhesitating. I laid down the economic basis, passed to materialism, and so on and so on. ... The young folk were impressed; they're thirsting to be shown the path to the new life. And this is what I longed to say in the concluding words: "Listen all of you! I haven't been speaking seriously, I was making fun of you, I wrote out the synopsis of my speech when I was drunk. It was very easy because there was nothing of mine in it. I have only repeated what others have written before. I have no ideas of my own any more than you have. Tear up your notes and lets begin from the beginning; lets find the way to the new life with our own brains."

I wanted to go home alone, but I had to go with some of the others, and we argued on the way. I got heated trying to prove something, and when I reached home my heart was very heavy and I even cried into my pillow when everyone else in the room was asleep. It appears that, in order to be a charlatan, you must have a great sadness in your soul.

That about sums everything about academia up that I know.