On the Rise and Fall of the Anglo-Saxons

There is an interesting Reuters story today, in an Indian newspaper, that quotes the German finance minister saying, in the context of the US Crash, that “the Anglo-Saxon model of capitalism has failed.” He adds that the USA is now bound to lose its superpower status.

Actually, if we study the history of ideas, we do find a dearth of good economists among the English and American people. Lord Keynes is the most obvious example. His ideas were put into practice by the Anglo-Saxons – with devastating effect.

Today, we who know better swear by the Austrian School. This is a school of thought that was born under the Hapsburgs. The founder of the school was Carl Menger, who started off as a bureaucrat. Menger served as the chairman of a government committee on money that stood firmly by gold. His student Bohm-Bawerk served as Austrian finance minister and strictly implemented a currency based on gold.

Indeed, the word “dollar” has its root in a pure gold Hapsburg coin called the “thaler” (or Reichsthaler) which became the most popular coin in the early days of America.

What made the Austrians so special? Was it something to do with the nature of Hapsburg rule? How was it that so many people from so many fields flourished under the Hapsburgs – not just Carl Menger, Bohm-Bawerk, and the Austrian economists, but also Sigmund Freud and the psychoanalysts, Robert Musil the writer, and many more. A complete list is available in a footnote in Hans-Hermann Hoppe’s Democracy: The God That Failed. Here, Hoppe also notes that it was the Anglo-Saxons of America who went overboard installing democracy in Europe. They dethroned the Hapsburgs.

If we go back further in time, to an age when the Anglo-Saxons began their dizzying ascent, we see that their meteoric rise had much to do with the rules they followed. These basic laws of property, contracts and torts which lie at the foundation of Anglo-Saxon jurisprudence were central to the very English concept of “rule of law.” It meant the “sovereignty of law” – and central to this was the notion that “the King is under God and the Law.” The Law was above the King.

All this changed with Democracy – and the sovereignty of law was replaced by the sovereignty of parliament. This new sovereign could now make law, something that no earlier sovereign could. This is how and why the old rule of law broke down. And it is this that lies at the core of today’s breakdown of the Anglo-Saxon model of capitalism.

What can we Indians learn?

Indians must, of course, study the Austrian economists. We must also realize that everything depends on the “rules of the game.” Societies that follow the best rules succeed – like the Anglo-Saxons of old. Societies that follow bad rules fail – like the USA today.

At the core of the current breakdown of Anglo-Saxon capitalism (and democracy) lies the fact that the rules are all wrong. Under bad rules, nothing good can happen.

What is happening in America today has been beautifully summed up by James Ostrowski (thanks to Lew Rockwell again). What the Americans of today are doing is:

“Taking money from people who made good investments and giving it people who made bad investments in the hope that the people who made bad investments will make good investments in the future and the people who made good investments will keep making them even though they will have less money to do so.”

This is certainly not Capitalism.

And as Bastiat, a Continental scholar who was a great admirer of the Anglo-Saxons, said: “Any social arrangement that is not based on Truth and Justice will fail.”

So go ahead. Reject the Anglo-Saxon economists from Bentham to Ricardo to the Mills, both father and son, to Alfred Marshall and to Keynes. Study the Austrians – from Menger to Mises to Hayek to Hoppe. And study the great Continental scholars, from Bastiat to the great Bruno Leoni. There is a great deal of knowledge outside the Anglo-Saxon universities. We need to study these if we are to get the rules of the game right.