|Ises 0aIly: Tuesday, February 05, 201J by Harry 7eryser (http://mIses.org/daIly/author/1649/Harry·7eryser)
Edìtor´s Note: Pro]essor Hcrry C. \eryser hcs wrìtten c much·
needed look ct the Austrìcn School o] economìcs cnd why ìts
lessons must be heeded ct lcst. Ron Pcul cclls the book "cn
excellent ìntroductìon to the Austrìcn School o] economìcs cnd
cn excellent cccount o] the economìc hìstory o] the 20th
century," whìle Thomcs E. Woods 1r. wrìtes, "l cm blown cwcy
by how much yround Hcrry \eryser covers ìn thìs ìmportcnt
book, cnd how skìll]ully he covers ìt." Whct ]ollows ìs the ]ìrst
excerpt ]rom \eryser's brcnd·new book, Ìt 0Idn't Have to 8e ThIs Way: Why 8oom and 8ust Ìs
Unnecessary-and How the AustrIan School of EconomIcs 8reaks the Cycle
The global economIc meltdown that began In 2007 has brought sufferIng to countless mIllIons. We
have all wItnessed-and In many cases experIenced-the devastatIon.
8ut It dIdn't have to be thIs way. ThIs kInd of fInancIal devastatIon has been predIcted agaIn and
agaIn-decade after decade-by propo௙nents of the AustrIan School of economIcs. LudwIg von |Ises,
one of the most promInent AustrIan economIsts, summed up the perennIal crI௙sIs In the tItle of one of
hIs many books, Plcnned Chcos (http://mIses.org/document/2714) (1947). |Ises, especIally In The Theory o]
Money cnd Credìt (http://mIses.org/document/194/The·Theory·of·|oney·and·CredIt) (1912) and Humcn Actìon
(http://mIses.org/document/J250/Human·ActIon) (1949), maIntaIned that the boom·and·bust cycle that has afflIcted
mod௙ern economIes Is both unnatural and unnecessary. Ìt worsens lIvIng condItIons for just about
everyone. SInce the publIcatIon of hIs books, abundant scholarly studIes have valIdated the AustrIan
vIew. Yet few people-even among those teachIng economIcs In colleges and unIversI௙tIes worldwIde-
know or understand the AustrIan School.
Ì wrote the new book lt 0ìdn't Hcve to 8e Thìs Wcy (https://mìses.ory/store/Product2.cspx³
Productld=1088J) to help solve that problem.
Ìf there Is a brIght spot In the most recent economIc crIsIs, It Is thIs: people everywhere are gIvIng
much more serIous thought to foundatIonal ques௙tIons about the economy. What caused our woes, and
more Important, how can we prevent future calamItIes:
To answer those questIons, we need to understand the AustrIan School of economIcs. Ì have had the
unIque opportunIty both to see how econom௙Ics operates In the real world (as a busInessman who co·
owned an automotIve supply company for many years) and to study Its theory and practIce from the
Ivory tower (as a professor of economIcs at Walsh College and the UnIversIty of 0etroIt |ercy). Dver
the course of my career, It became clear that much of the economIcs establIshment badly
mIsunderstands the forces that cause economIc crIsIs.
The crIsIs that began In 2007 should be seen, not as an Isolated IncI௙dent, but as part of a contInuIng
drama that has Its orIgIns In US govern௙ment manIpulatIon of markets and currency. Ìt Is merely part of
the cycle that has been the scourge of the West sInce 191J-whIch gets us to the story of our modern
The two major and IntertwInIng plots In the story are (1) the devel௙·
opment of economIc theory and (2) the events that shaped global
hIstory, especIally In the early twentIeth century. EconomIc theory
has always had a tremendous Influence on government actIon and
polIcy. 8efore World War Ì, governments based publIc polIcy on so·
called classIcal eco௙nomIc theorIes about money and trade. Almost
all economIc theory was commItted to free markets and prIvate
property. Covernments dId not exert much energy In regulatIng
commerce. The US ConstItutIon, for Instance, Includes provIsIons
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establIshIng free markets and specIe·based money systems. Needless
to say, thIngs changed followIng World War Ì, as monarchIes and
tradItIons were smashed and new theorIes came Into play. The
troubles of the 1920s and 19J0s encouraged economIsts to rework
the classIcal theory to explaIn why thIngs happened as they dId and
what should be done as a result. These new theorIes-however well·
meanIng-have had profound and often devastatIng consequences
around the world.
EconomIcs Is not-or does not have to be-a mysterIous scIence.
QuIte sImply, It Is the study of reconcIlIng the unlImIted wants of
man wIth lImIted resources. 0IstIlled further, It Is the study of
human actIon. Ìn lt 0ìdn't Hcve to 8e Thìs Wcy, Ì aIm to
demonstrate that economIcs Involves certaIn Immu௙table laws of
human behavIor. Further, Ì hope to show that the AustrIan School
has most clearly and effectIvely dIscovered those laws. The world has needlessly suffered unspeakable
mIsery as a result of theorIes and polIcIes that Ignore these prIncIples.
Ìt dIdn't have to be thIs way-not In the recent economIc crIsIs, or In the crushIng stagflatIon of the
1970s and early 1980s, or In the 0epres௙sIon of the 19J0s. |ore Important, It doesn't have to be thIs
way In the future. The world's economIes ccn get back on track and return to prosperIty.
To be more precIse, the AustrIans were rIght all along. Ìn the early 19J0s, two professors In England
looked at the worldwIde economIc catastrophe and came up wIth very dIfferent solutIons. John
|aynard Keynes at the UnIversIty of CambrIdge created the notIon of spendIng one's way out of
recessIon, whIle FrIedrIch A. Hayek of the London School of EconomIcs took the classIcal stance,
callIng for sound money and the tradItIonal vIrtues of savIng, prudent InvestIng, and balanced
budgets. KeynesIanIsm became the byword of the developed world and has pro௙foundly Influenced the
response of governments In the most recent crIsIs. |eanwhIle, governments largely Ignored Hayek,
one of the great Aus௙trIan economIsts. We have all paId the prIce sInce.
Dne of the greatest faIlIngs of maInstream economIc thInkIng, seen clearly In the lead·up to the 2007-
8 fInancIal crIsIs, has been to vIew economIcs as a scIence on the order of physIcs, one that can be
reduced to numbers, quantItIes, and mathematIcal formulas. The AustrIan School, understandIng
economIcs as a scIence of IndIvIdual human actIon, makes a crucIal contrIbutIon wIth Its dIstrust of
mathematIcal modelIng or "fInancIal engIneerIng" of the type that helped cause the subprIme mort௙·
gage collapse. Ìt Is a warnIng that must be heeded today.
Df the many contrIbutIons the AustrIan School has made to eco௙nomIc thought, the other most relevant
to our sItuatIon today Is the explanatIon of the InsIdIous effects of expandIng the money supply. The
modern Federal Feserve, whIch seems Intent on pumpIng new money Into the system, clearly vIolates
thIs AustrIan tenet.
Ìn recent tImes a number of InternatIonally acclaImed experts In eco௙nomIcs who are not part of the
AustrIan School have valIdated AustrIan tenets. Two causes of the economIc crIsIs, many scholars and
practItIoners now recognIze, were the Fed's artIfIcIal lowerIng of Interest rates and the use of
mathematIcal equatIons In a futIle attempt to lessen rIsk. These people are comIng to conclusIons that
the AustrIans reached decades ago.
For years now, we have endured a barrage of bad news: busInesses goIng belly·up, people losIng theIr
jobs and homes, government debt soarIng. lt dìdn't hcve to be thìs wcy. The AustrIan School presents
the most coherent explIcatIon of the economIc relatIons among men and-more so than any other
system today-lays out economIc guIdelInes that offer real prospects for prosperIty worldwIde.
Comment on thIs artIcle.
Harry C. 7eryser, an assocIated scholar of the LudwIg von |Ises ÌnstItute, has served as dIrector of the
graduate program In economIcs at the UnIversIty of 0etroIt |ercy and chaIrman of Walsh College's
0epartment of EconomIcs and FInance. ThIs artIcle Is adapted from hIs new book, lt 0ìdn't Hcve to 8e
Thìs Wcy: Why 8oom cnd 8ust ls 0nnecesscry-cnd How the Austrìcn School o] Economìcs 8recks the
Cycle (https://mìses.ory/store/Product2.cspx³Productld=1088J), wIth permIssIon from the publIsher,
ÌSÌ 8ooks. Send hIm maIl (maIlto:stampIngsInc@hotmaIl.com). See Harry 7eryser's artIcle archIves
(http://mIses.org/daIly/author/1649/Harry·7eryser) .
You can subscrIbe to future artIcles by Harry 7eryser vIa thIs FSS feed (http://mIses.org/Feeds/artIcles.ashx:
AuthorÌd=1649) .
CopyrIght © 201J ÌntercollegIate StudIes ÌnstItute

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