The French Liberal School had been dominant through four generations because they were privately funded, but when the government intervened in the French universities the Liberal School lost its hold. Richard Cantillon, Etienne Bonnot de Condillac, A.R.J. Turgot, Jean-Baptiste Say, Frederic Bastiat, and Michel Chevalier were responsible for economic concepts such as opportunity cost, the entrepreneur as risk-bearer, monetary theory, cause and effect methodology, utility, economic liberalism, and Say’s Law. Both in Great Britain and the United States during 1870-1890, the French Liberal School was hated and denigrated. The American Economic Association was started in 1880. There was no room for the liberals. The History of Economic Doctrine, which appeared in 1947, claimed the French Liberal School, which they now called the Optimist School, had abandoned the task of scientific investigation. Lecture 1 of 10 from  Joseph T. Salerno's Revisionist History and Contemporary Theory.

The French Liberal School had been dominant through four generations because they were privately funded, but when the government intervened in the French universities the Liberal School lost its hold. Richard Cantillon, Etienne Bonnot de Condillac, A.R.J. Turgot, Jean-Baptiste Say, Frederic Bastiat, and Michel Chevalier were responsible for economic concepts such as opportunity cost, the entrepreneur as risk-bearer, monetary theory, cause and effect methodology, utility, economic liberalism, and Say’s Law. Both in Great Britain and the United States during 1870-1890, the French Liberal School was hated and denigrated. The American Economic Association was started in 1880. There was no room for the liberals. The History of Economic Doctrine, which appeared in 1947, claimed the French Liberal School, which they now called the Optimist School, had abandoned the task of scientific investigation. Lecture 1 of 10 from  Joseph T. Salerno's Revisionist History and Contemporary Theory.

Forerunners of the Austrian School: The French Liberal School

The mythology of gold really grew up with Keynes and the quantity theory. Here are six of those myths: the gold standard is unable to accommodate the needs of an growing economy; the quantity of money is arbitrarily determined; the gold standard is a government price fixing scheme; the gold standard subjects a country to alternating inflation and deflation; the gold standard requires high costs devoted to resources; and the gold standard results in high interest rates.Basic supply and demand analysis in most cases will show us that these are myths. Having refuted all six myths, Salerno turns to a few gold standard proposals.Supply siders want a gold standard, but they want plenty of money, a fixed price of gold, and a target reserve amount of gold. This monetarist concept does not allow gold to be a real medium of exchange.Hazlitt, Hulsmann, Senholz, and Tmberlake supported a non-monetarist approach called a parallel private gold standard. Don’t get rid of the fiat, just freeze the Fed action and the monetary base. Then convert reserve accounts into Fed notes. Give a proportional amount of Fed-held gold to each citizen. Abolish legal tender laws and make gold contracts in gold enforceable.Salerno and Rothbard object to this plan, unless a link between dollars and gold is established as a way to go back to gold.Mises’ plan went further than the currency school. The currency school forgot that checking account money was also part of the money supply.  Mises wanted the freedom to buy and sell gold, and allow after three months conversions of dollars back into gold through conversion agencies. The Fed could not interfere. The dollar is defined legally as a weight of gold.Rothbard’s plan was to get rid of the Fed and reprice the gold. Take the total amount of currency and divide into that the total ounces of gold owned by the Treasury to get a price per ounce. Then call in all fed notes and turn them in at that rate. There would be a one-off inflation and it would still be a fractional reserve system. Another plan yields no inflation and 100% backing.Lecture 10 of 10 from  Joseph Salerno's Revisionist History and Contemporary Theory.

The mythology of gold really grew up with Keynes and the quantity theory. Here are six of those myths: the gold standard is unable to accommodate the needs of an growing economy; the quantity of money is arbitrarily determined; the gold standard is a government price fixing scheme; the gold standard subjects a country to alternating inflation and deflation; the gold standard requires high costs devoted to resources; and the gold standard results in high interest rates.Basic supply and demand analysis in most cases will show us that these are myths. Having refuted all six myths, Salerno turns to a few gold standard proposals.Supply siders want a gold standard, but they want plenty of money, a fixed price of gold, and a target reserve amount of gold. This monetarist concept does not allow gold to be a real medium of exchange.Hazlitt, Hulsmann, Senholz, and Tmberlake supported a non-monetarist approach called a parallel private gold standard. Don’t get rid of the fiat, just freeze the Fed action and the monetary base. Then convert reserve accounts into Fed notes. Give a proportional amount of Fed-held gold to each citizen. Abolish legal tender laws and make gold contracts in gold enforceable.Salerno and Rothbard object to this plan, unless a link between dollars and gold is established as a way to go back to gold.Mises’ plan went further than the currency school. The currency school forgot that checking account money was also part of the money supply.  Mises wanted the freedom to buy and sell gold, and allow after three months conversions of dollars back into gold through conversion agencies. The Fed could not interfere. The dollar is defined legally as a weight of gold.Rothbard’s plan was to get rid of the Fed and reprice the gold. Take the total amount of currency and divide into that the total ounces of gold owned by the Treasury to get a price per ounce. Then call in all fed notes and turn them in at that rate. There would be a one-off inflation and it would still be a fractional reserve system. Another plan yields no inflation and 100% backing.Lecture 10 of 10 from  Joseph Salerno's Revisionist History and Contemporary Theory.

10. The Gold Standard in Theory and Myth

Friedman’s book, Monetary History of the United States, tried to show the depression was caused by a deflation of the money supply by the Fed. Rothbard’s America’s Great Depression was published the next year in 1963. Rothbard argued that the Fed was actively inflating the money supply.Salerno defends Rothbard’s position (against Timberlake) on the definition of inflation, a marginal 100% reserve rule, physical description of the money supply, Treasury policy, and Fed policy.Lecture 9 of 10 from  Joseph Salerno's Revisionist History and Contemporary Theory.

Friedman’s book, Monetary History of the United States, tried to show the depression was caused by a deflation of the money supply by the Fed. Rothbard’s America’s Great Depression was published the next year in 1963. Rothbard argued that the Fed was actively inflating the money supply.Salerno defends Rothbard’s position (against Timberlake) on the definition of inflation, a marginal 100% reserve rule, physical description of the money supply, Treasury policy, and Fed policy.Lecture 9 of 10 from  Joseph Salerno's Revisionist History and Contemporary Theory.

9. Money and Gold in the 1920s and 1930s: Defending the Rothbardian Position

The debate still continues. It is all about Mises’ initial article and then book on Socialism in 1922. He demonstrated the necessity of the price system and showed how subjective values were transformed into objective prices which could be used as meaningful cardinal numbers in economic calculation.One big cartel that owns everything would be just like socialism, because there would be no price signals. Mises calls this the intellectual division of labor. With no market you never have profits or losses. You have no information. The distinctive mark of socialism is the oneness. Capitalism is an entrepreneurial system, not a static system like those just playing market.Lecture 8 of 10 from  Joseph Salerno's Revisionist History and Contemporary Theory.

The debate still continues. It is all about Mises’ initial article and then book on Socialism in 1922. He demonstrated the necessity of the price system and showed how subjective values were transformed into objective prices which could be used as meaningful cardinal numbers in economic calculation.One big cartel that owns everything would be just like socialism, because there would be no price signals. Mises calls this the intellectual division of labor. With no market you never have profits or losses. You have no information. The distinctive mark of socialism is the oneness. Capitalism is an entrepreneurial system, not a static system like those just playing market.Lecture 8 of 10 from  Joseph Salerno's Revisionist History and Contemporary Theory.

8. The Debate on the Socialist Calculation Debate

The founder of the Chicago School, Frank Knight, was an avowed egalitarian. Rousseau was his influence. Jacobins believed in mass democracy and politics as the only way to implement their ideas. They hated aristocrats and religious leaders. Knight believed in progressive taxation. He wanted neocon social democracy.Milton Friedman was part of the Chicago school. His Capitalism &amp; Freedom contains much of his thought. He was more pro-freedom than Knight. But, he introduces the concept of externalities and approves of the welfare state. Education (public-private schools with vouchers), poverty (charity will not suffice, thus massive welfare systems needed) and the monetary system (monetarism) were his focus.Lecture 7 of 10 from  Joseph Salerno's Revisionist History and Contemporary Theory.

The founder of the Chicago School, Frank Knight, was an avowed egalitarian. Rousseau was his influence. Jacobins believed in mass democracy and politics as the only way to implement their ideas. They hated aristocrats and religious leaders. Knight believed in progressive taxation. He wanted neocon social democracy.Milton Friedman was part of the Chicago school. His Capitalism &amp; Freedom contains much of his thought. He was more pro-freedom than Knight. But, he introduces the concept of externalities and approves of the welfare state. Education (public-private schools with vouchers), poverty (charity will not suffice, thus massive welfare systems needed) and the monetary system (monetarism) were his focus.Lecture 7 of 10 from  Joseph Salerno's Revisionist History and Contemporary Theory.

7. The Political Economy of the Chicago School: Libertarian or Jacobin?

Monetary inflation is the key way to bring about economic fascism. Fascism was a spending, borrowing government, militarism, imperialism, and a planned economy. Keynes’ followers came to power in the 60s with the Kennedy administration. Nixon went on to impose wage and price controls.Lecture 6 of 10 from  Joseph Salerno's Revisionist History and Contemporary Theory.

Monetary inflation is the key way to bring about economic fascism. Fascism was a spending, borrowing government, militarism, imperialism, and a planned economy. Keynes’ followers came to power in the 60s with the Kennedy administration. Nixon went on to impose wage and price controls.Lecture 6 of 10 from  Joseph Salerno's Revisionist History and Contemporary Theory.

6. Keynes and the 'New Economics' of Fascism

Prior to Mises there had been nothing written on the theory of monopoly price. Mises felt there could be some limited times of monopoly on the free market, e.g. diamond mines, but Rothbard felt that there could not be monopolies. Both theories developed out of Menger’s original thoughts.Lecture 4 of 10 from  Joseph Salerno's Revisionist History and Contemporary Theory.

Prior to Mises there had been nothing written on the theory of monopoly price. Mises felt there could be some limited times of monopoly on the free market, e.g. diamond mines, but Rothbard felt that there could not be monopolies. Both theories developed out of Menger’s original thoughts.Lecture 4 of 10 from  Joseph Salerno's Revisionist History and Contemporary Theory.

4. The Theory of Monopoly Price: From Menger to Rothbard

Monetary theory is where Austrians diverge the most from mainstream. Mises built a new taxonomy of money. He said money included any checking account deposits. The marginal utility of gold on the last day of barter was determined by the uses of gold. People then demanded gold as money because there was preexisting value. A paper dollar must have such a connection to money. Government cannot create money. Money is not neutral. The natural trend of prices in a market economy is falling.Lecture 5 of 10 from  Joseph Salerno's Revisionist History and Contemporary Theory.

Monetary theory is where Austrians diverge the most from mainstream. Mises built a new taxonomy of money. He said money included any checking account deposits. The marginal utility of gold on the last day of barter was determined by the uses of gold. People then demanded gold as money because there was preexisting value. A paper dollar must have such a connection to money. Government cannot create money. Money is not neutral. The natural trend of prices in a market economy is falling.Lecture 5 of 10 from  Joseph Salerno's Revisionist History and Contemporary Theory.

5. Modern Monetary Theory: The Austrian Contribution

Where the classical economists had gone wrong was to speak of goods as if they were abstract classes. The Austrians noted that their value theory did not talk about concrete units and could not explain how individuals valued goods.That’s why the diamond-water paradox of value was unsolved. The classical school also could not explain distribution. The final problem was their poor price theory.Carl Menger founded Austrian economics, excelling at value, price theory, and marginalism. Menger recognized that there were both objective and subjective states as man progressed from need to satisfaction. His insight was that both sides gain from exchange. Menger did not believe that goods provided utility. Scarcity requires that people rank their wants. The good that is widely accepted in exchanges eventually becomes money. He came up with the concept of orders of goods. The second order good causes production, whereas the final order consumer good causes satisfaction. Value is imputed backwards.Eugen von Bohm-Bawerk came up with a theory of capital and interest that was based upon peoples’ time preferences. Future satisfaction has lower rank than present. The capitalist removes the burden of workers waiting for income that won’t appear until the consumer good is exchanged. The capitalist/entrepreneurs abstained from consumption in order to acquire the investment for the production. Bohm-Bawerk developed a macroeconomics view before Keynes. He, also, developed an analysis of Mises’ “marginal pairs.” It is subjective value alone which determines price.                      Friedrich von Wieser built a theory of the economy upon marginal utility in which he showed how social welfare could be maximized. He coined the term “opportunity cost.” He authored the phrase, “Man himself is the beginning and the end in any economy.”Lecture 2 of 10 from  Joseph Salerno's Revisionist History and Contemporary Theory.

Where the classical economists had gone wrong was to speak of goods as if they were abstract classes. The Austrians noted that their value theory did not talk about concrete units and could not explain how individuals valued goods.That’s why the diamond-water paradox of value was unsolved. The classical school also could not explain distribution. The final problem was their poor price theory.Carl Menger founded Austrian economics, excelling at value, price theory, and marginalism. Menger recognized that there were both objective and subjective states as man progressed from need to satisfaction. His insight was that both sides gain from exchange. Menger did not believe that goods provided utility. Scarcity requires that people rank their wants. The good that is widely accepted in exchanges eventually becomes money. He came up with the concept of orders of goods. The second order good causes production, whereas the final order consumer good causes satisfaction. Value is imputed backwards.Eugen von Bohm-Bawerk came up with a theory of capital and interest that was based upon peoples’ time preferences. Future satisfaction has lower rank than present. The capitalist removes the burden of workers waiting for income that won’t appear until the consumer good is exchanged. The capitalist/entrepreneurs abstained from consumption in order to acquire the investment for the production. Bohm-Bawerk developed a macroeconomics view before Keynes. He, also, developed an analysis of Mises’ “marginal pairs.” It is subjective value alone which determines price.                      Friedrich von Wieser built a theory of the economy upon marginal utility in which he showed how social welfare could be maximized. He coined the term “opportunity cost.” He authored the phrase, “Man himself is the beginning and the end in any economy.”Lecture 2 of 10 from  Joseph Salerno's Revisionist History and Contemporary Theory.

2. The Origin and Decline of the Austrian School: Menger, Böhm-Bawerk, and Wieser

There were reasons for the decline of the Austrian School before its revival and rebirth by Mises and Rothbard. There was an Israel Kirzner view in the 1970s that the Keynesian avalanche had buried Austrian economics in 1936. Then there is a big bang theory of its rebirth in 1974 due to the South Royalton meeting and Hayek receiving the Nobel Prize.The revisionist account argues that the Austrian School was pretty much dead by 1930. Bohm-Bawerk’s ill health took him out of the picture in 1905 and he died in 1914. Menger refused to allow his book to be reprinted. So his book was not around. Schumpeter wrote two books and was the star in that generation, seen to outshine Mises. After WWI several studied under Weiser in Vienna. He was Hayek’s main influence. Equilibrium training overshadowed Mises’ work.The few Austrians in England were marginalized. By 1920 everybody in England was a Marshallian. In the US there was a big gap in economic theory that was filled by Marshall. In the 1930s in America general equilibrium analysis was introduced into the English-speaking world. Robbins in England became a Keynesian. Robbins and Hayek did not follow what Mises thought was important.In the 1930s there were several defects in the Austrian position. From Menger forward money was a barter theory. Money and prices were not yet integrated until Mises wrote Human Action. Mises also did not stress the role of the entrepreneur. Austrian economics was pushed aside as inelegant.When Human Action was finally published in the 1940’s, Hayek did not even like Mises’ price theory. No wonder the school was dead.Then, in 1962, Rothbard comes out with Man, Economy and State. He constructs a tremendous theory of production. Then, he writes America’s Great Depression and What Has Government Done to Our Money. He also wrote what became Power &amp; Market – which was too radical to be published. For a New Liberty and Egalitarianism As a Revolt Against Nature then came out.The rebirth was not South Royalton. The rebirth was Rothbard’s Man, Economy and State and his other work beginning in 1962.  In 1982 Lew Rockwell founded the Ludwig von Mises Institute – now Mises Institute. Rothbard was the most important living Austrian economist.Lecture 3 of 10 from  Joseph Salerno's Revisionist History and Contemporary Theory.

There were reasons for the decline of the Austrian School before its revival and rebirth by Mises and Rothbard. There was an Israel Kirzner view in the 1970s that the Keynesian avalanche had buried Austrian economics in 1936. Then there is a big bang theory of its rebirth in 1974 due to the South Royalton meeting and Hayek receiving the Nobel Prize.The revisionist account argues that the Austrian School was pretty much dead by 1930. Bohm-Bawerk’s ill health took him out of the picture in 1905 and he died in 1914. Menger refused to allow his book to be reprinted. So his book was not around. Schumpeter wrote two books and was the star in that generation, seen to outshine Mises. After WWI several studied under Weiser in Vienna. He was Hayek’s main influence. Equilibrium training overshadowed Mises’ work.The few Austrians in England were marginalized. By 1920 everybody in England was a Marshallian. In the US there was a big gap in economic theory that was filled by Marshall. In the 1930s in America general equilibrium analysis was introduced into the English-speaking world. Robbins in England became a Keynesian. Robbins and Hayek did not follow what Mises thought was important.In the 1930s there were several defects in the Austrian position. From Menger forward money was a barter theory. Money and prices were not yet integrated until Mises wrote Human Action. Mises also did not stress the role of the entrepreneur. Austrian economics was pushed aside as inelegant.When Human Action was finally published in the 1940’s, Hayek did not even like Mises’ price theory. No wonder the school was dead.Then, in 1962, Rothbard comes out with Man, Economy and State. He constructs a tremendous theory of production. Then, he writes America’s Great Depression and What Has Government Done to Our Money. He also wrote what became Power &amp; Market – which was too radical to be published. For a New Liberty and Egalitarianism As a Revolt Against Nature then came out.The rebirth was not South Royalton. The rebirth was Rothbard’s Man, Economy and State and his other work beginning in 1962.  In 1982 Lew Rockwell founded the Ludwig von Mises Institute – now Mises Institute. Rothbard was the most important living Austrian economist.Lecture 3 of 10 from  Joseph Salerno's Revisionist History and Contemporary Theory.

3. The Revival of the Austrian School: Mises and Rothbard

Joseph T. Salerno presents a series of ten formal lectures on topics related to the history and theory of the Austrian School of Economics.Download the complete audio of this event (ZIP) here.

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Joseph T. Salerno presents a series of ten formal lectures on topics related to the history and theory of the Austrian School of Economics. Download the complete audio of this event (ZIP) here.

Austrian School of Economics: Revisionist History and Contemporary Theory

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