Why You Need Austrian Economics

Two articles I have just read - one on Economics education and the other on world trade and protectionism - made me realise that it is only the Economics of the Austrian School that can shed light on what has gone wrong not only in academia, but also in the practical world of business and politics.

The first article, in Mint, refers to classroom Economics "after the financial crisis." That is, it applies to the classrooms of the "mainstream" approach - especially to Keynesian "macroeconomics." Further, it refers to elite universities in the USSA, and to textbooks written there.

In truth, all this Keynesian macroeconomics, which legitimises central banking and the role of the State in creating "full employment" and smoothing out the "business cycle," is knowledge that has been proved today to be not only completely wrong-headed, but positively dangerous. If you tune into the writings of the Austrian School, you will find radically different ideas - that fiat paper money and fractional-reserve banking are not only a fraud but also the cause of booms-and-busts, and that "sound money" is essential for the survival of civilisation: that is, hard money based on commodities like gold. You will soon realise that macroeconomics is nonsense-upon-stilts. The Ludwig von Mises Institute (website here) has much of the literature online, and also offers online courses. If you wish to study the real Economics of the real world, this is the best place to hit.

Having said that about university classrooms, let us turn our attention to the real world of practical business and politics - and to the second article, in the ToI today, titled "Save capitalism from protectionists," by Jean-Pierre Lehmann, a professor of international political economy at IMD, Lausanne, Switzerland. Lehmann writes about the recently concluded G-20 meet in Seoul, South Korea, and how it has not addressed protectionism.

Again, to an adherent of the Austrian School, what the G-20 meet shows is that capitalism - and civilisation itself - needs to be saved from central bankers and their fiat paper money.

With their "competitive devaluation," what all these nation-states are attempting is "export promotion." Their economic strategies, in effect, are opposed to imports - because, as currencies depreciate, imports become more and more expensive. Thus, when all nations pursue this harmful "strategy," all nations lose, because all nations lower their imports. Global trade falls - with or without protectionism. We have seen this strategy backfiring in our own country. When the first Maruti rolled out in 1984, it was priced at around 45,000 rupees; today, it is worth 2,00,000 rupees. How can the domestic market for automobiles - or anything else - be catered to with a fiat paper money system? On the other hand, if the world was on a gold standard, all prices would steadily fall, and all Third World markets - comprising two-thirds of humanity - would be able to "effectively demand" the high-tech products of the world's leading nations. The whole world economy would grow and grow. In these Third World markets, protectionism would be vocally opposed by the citizenry - in their capacity as consumers. Just as in the India of today, none want to "protect" Bajaj as in the days of old.

The lesson: international trade is a two-way street - powered by imports as well as exports. Further, imports matter greatly, because they bring in what is not available domestically. The East India Company sent its "tall ships" out into unknown waters carrying gold - in order to import rare spices like nutmeg and pepper.

Today, no one is sending out gold, and no one wants to import anything.

Austrian Economics is not for "students" alone. It is vital knowledge meant for every citizen. Economics is the "pith of human existence" - in the words of Mises. The "mainstream" approach is wreaking havoc in the practical world - and in the minds of students too. This dangerous nonsense is threatening to wipe out human civilisation. If you wish to stem the tide, study Austrian Economics on your own - and spread the message.