Wednesday, January 26, 2011

Weekly Column - 01/26/2011

This week's column comes early:

"Like any cash-strapped family, we will work within a budget to invest in what we need and sacrifice what we don’t." – President Barack Obama

Attempts to draw parallels can sometimes be more instructive when the comparison is inapt. For while cash-strapped families must reduce expenditures to make a budget, the government merely has to raise the debt ceiling and have the chairmen of the Federal Reserve fire up his printing press. The federal government is not constrained by budgets, and will never be, so long as it has recourse to an endless supply of cash.

It’s true that the government, like the American family, must borrow at interest to meet its budget. It’s also true that these interest rates will climb as the American government goes deeper and deeper into debt. But the comparison ends there. An American who falls into debt may declare bankruptcy—though certain debts, such as students loans, can never be escaped. He thereupon incurs all that bankruptcy entails. To avoid this, he must pay back all that he owes. Congress, meanwhile has no intention of ever paying off its debt; its members know that they will not be held responsible for the decisions of previous Congresses. And the bankruptcy of the nation is certainly of no concern to the congresscritters. So the orgy of spending continues.

The Power of Narrative

The advantage of having a regular column is that I actually bother to do some writing, as opposed to sitting on my couch reading books. The disadvantage is that in the unlikely event that I write about something timely, it's not always relevant by the time my column is published. So it is with this one, which seems to have gotten lost, but which, having already been written, will be posted here.

"With many similar parables Jesus spoke the word to them, as much as they could understand." Mark 4:33

Just as Jesus taught the crowds using parables, so modern American political discourse involves narratives. The parables were constructed to illustrate a truth which was hidden behind tangled reality. The people were better able to see how one ought to love one's neighbor after hearing of the good Samaritan. Political narratives operate differently: they serve to reinforce an ideology, by ensuring that any facts which may occur can be carefully woven into the narrative. In this way, no event can possibly upset the faithful; any conceivable action only serves to demonstrate the infallibility of the unquestioned ideology.

In the real world, politics is comprised of fallen human beings seeking to enact policies which reflect ideals; in this they often fail because other people possess opposing ideals which reflect apposite ends. The desire to allow the middle class family to retain most of its wealth is inconsistent with the desire to redistribute wealth among impoverished members of the same society. Hence politics is—and must necessarily be—something of a messy affair.

The narrative allows the populace to pretend that things are neat and tidy. On the one side are the forces of good, on the other, the forces of evil; think of Bush channeling his supposed Savior in insisting that anyone is either for or against America. Since this country—and, indeed, any country—is divided against itself, the dichotomy is false. It is easy to pick on Bush, but the left possesses a similar narrative, likewise neat and tidy, and similarly incompatible with the vicissitudes of reality.

To take a recent example: no sooner had the story of the Arizona shooter broke than the journalists insinuated that the act must have been the work of right-wing extremists. The theory was not without plausibility: after all, one of the woman shot was Representative Gabrielle Giffords, a Democrat. Ergo it must have been a crazy Republican, probably one of those Tea Partiers, the craziest of the bunch. That the criminal could fail to possess political motivation, or that a single incident could be insufficient to reinforce the superiority of the leftist position, was utterly beyond consideration.

Alas, the real story is that Loughner is a lunatic. In a piece by Nick Baumann in Mother Jones, a friend recounts that Loughner was angry that Giffords had failed to answer satisfactorily a question which he had posed to her during a 2007 campaign event. The question: "What is government if words have no meaning?" It proved impossible to intelligibly extract political implications from such palpable nonsense. This was unfortunate because the fabricated story fit perfectly into the narrative—compiled in advance for consumption by denizens of the left.

Yet, as is so often the case, the narrative is more important than the facts. The former, which is a creation of man, and therefore mutable, cannot be allowed to change; whereas the latter, having been settled in history, can be misrepresented to conform to the narrative. In short, things are precisely backwards. In this case, both sides—left and right—were compelled to contort themselves, trying to explain how this nut belonged to the other political camp. From the liberal point of view, that this particular incident had no connection whatsoever to the Tea Party did not imply that a specter of right-wing radicalism wasn't haunting America. Paradoxically, it proved it. The lack of Tea Party connection only meant that the next incident would surely evince the piece of missing evidence. Everyone knows that the Tea Party means to kill all the democrats. Why, Sarah Palin, even had targets over the heads of democratic members of Congress. Quod erat demonstratum.

The reality is that members of both the far right and the far left—whatever we mean by these terms—are capable of acts of violence. Of considerably greater importance, despite the vehemence of the rhetoric emanating from all points along the political spectrum, the American people are seldom motivated to commit acts of violence for political reasons. This is unfortunate for the fearmongers in television news, but the facts speak for themselves. We are constantly told that we are more divided than ever, and that the extremists will surely erupt in violence against those who have the temerity to disagree with them. Yet these eruptions remain extraordinary.

When the Lougher story blows over, we will return to our status quo of mutual distrust and paranoia. Eventually, another act of violence will occur, one which may even have political motivation. But while an isolated act will no doubt fuel the fires of antagonism which drives what passes for political discourse, it's hard to see what a single act is capable of proving. If a tea partier shoots up a Democrat's campaign office tomorrow, or someone who listens to NPR does the same, nothing will change, except for the unfortunate few who were personally involved in the hypothetical incident. Liberals recoil at the comparison, but it should be noted that tea partiers have utilized their ideology to attempt the same number of crimes as those who listen to public radio. Any inclination to be concerned over one group more than the other is a result of prejudice in favor of one's narrative. Neither adequately reflects reality.

And yet this is the test of a narrative. When Jesus crafted his parables, he was concerning himself with something true in the human condition. The whole purpose of the story was to make clear this truth. A testament to his success is that these stories are still read today. According to this metric, the political narratives fail. They do not aid us in our attempts to better interpret reality. Instead, they obfuscate facts, which are the only things upon which all parties should be able to agree. Intellectually honest individuals of all political persuasions should be wary of those who wield the narrative as a cover to avoid meaningful thought.

Tuesday, January 25, 2011

Weekly Column - 01/25/11

This week's column:

"Knowledge is capable of being its own end." – John Henry Cardinal Newman, The Idea of a University

This was intended to be an essay examining the pros and cons of pursuing a college education. Our political leaders continue to insist that it is imperative that every American obtain a college degree, just as they insisted that every American become a homeowner. This parallel is chosen deliberately, both because it is distinctly possible that the ever-rising cost of a college education is indicative of another bubble—one never knows until it pops—but also because it demonstrates the superficiality of our policy recommendations. Politicians had heard that those who owned homes were more likely to be good members of their respective communities. What better way to improve the livelihood of all and sundry than ensuring that everyone could own his own home? Alas, as it turns out, the importance of home ownership is in the habits instilled during the process; the same characteristics of those who prove capable of working hard so as to save to buy a home redound to the benefit of the community. There is no shortcut to virtue. Attempting to circumvent the mean by which virtue was instilled was exceedingly foolish, even by the standards of American politicians.

So it is with the attempt to bestow college degrees upon everyone. As President Obama notes: "We expect all our children not only to graduate from high school but to graduate from college and get a good-paying job." The reasons for this are clear. Using old data, Obama insists: "On average during your lifetime you will earn a million dollars more if you get a bachelor’s degree." If Helicopter Ben causes the currency to hyperinflate, this may well be true. Yet the purpose of a college is not to churn our graduates who can make more money.

Monday, January 24, 2011

Keynes - The General Theory - Chapter XII

Since this chapter, The State of Long-Term Expectation, has little to do with economics, Keynes's writing is clearer than usual. Unfortunately, this clarity is devoted to little more than an ad hominem attack on the free market.

Section I: Keynes notes that the entrepreneur must concern himself with "future events which can only be forecasted with more or less confidence." Long-term expectation is then defined as "the state of psychological expectation which covers" these future events.

Section II: After noting that future events are uncertain, he explains that the state of confidence is very important in bringing these about. "But economists have not analysed it carefully and have been content, as a rule, to discuss it in general terms." This is attempt at profundity is typical of Keynes; the reason economists deal with it so little is not that is if of no importance, but that it cannot be measured. Indeed, while the American "state of confidence" is probably very weak presently, this hasn't hurt the sale of gold--or iPads. Keynes is once again guilty of aggregating disparate things.

He also points out: "There are not two separate factors affecting the rate of investment, namely, the schedule of the marginal efficiency of capital and the state of confidence. The state of confidence is relevant because it is one of the major factors determining the former, which is the same thing as the investment demand-schedule."

Section III: Keynes rhetoric is very revealing. For instance, he categorizes successful entrepreneurship as a lottery. Certainly luck plays a role, but an entrepreneur anticipates and responds to consumer demand. It is uncharitable to pretend that his only role is to be blessed by fortune.

Section IV: This can be skipped over without loss.

Section V: Keynes, looking back at The Great Depression, lampoons the role of "speculators" on the stock market. He gives five reasons why the stock market is especially precarious.

He devotes most of his space to the fourth reason. The speculators have ruined things for everyone: "It might have been supposed that competition between expert professionals, possessing judgment and knowledge beyond that of the average private investor, would correct the vagaries of the ignorant individual left to himself. It happens, however, that the energies and skill of the professional investor and speculator are mainly occupied otherwise."

This focus on short-term expectation is somehow believed to foil long-term expectations. The former lack, apparently, a basis in reality, to which the latter are preferable. Yet the greater the liquidity, the less likely that the market will over value a particular stock--though, especially in the case of overt fraud, this will still happen from time to time. Keynes insisted that his was a general theory, but his concerns about speculation were devoted purely to the realm of the most recent bubble, namely, the stock market.

Section VI: Keynes writes: "If I may be allowed to appropriate the term speculation for the activity of forecasting the psychology of the market, and the term enterprise for the activity of forecasting the prospective yield of assets over their whole life, it is by no means always the case that speculation predominates over enterprise." Again, notice the rhetoric. Certain trading is bad, while other trading is good; we are not given a reason for this.

Most illuminating is Keynes insistence that the people, who obviously have no idea what they are doing, be prevented from using their money as they see fit: "The only radical cure for the crises of confidence which afflict the economic life of the modern world would be to allow the individual no choice between consuming his income and ordering the production of the specific capital-asset which, even though it be on precarious evidence, impresses him as the most promising investment available to him."

Earlier, Keynes had written: "That the sins of the London Stock Exchange are less than those of Wall Street may be due, not so much to differences in national character, as to the fact that to the average Englishman Throgmorton Street is, compared with Wall Street to the average American, inaccessible and very expensive." So the problem is not merely with speculators so much as it is with, well, poor people. Keynes has much less of a problem with allowing the rich to invest their money.

Section VII: Here we come to Keynes's famous "animal spirits":

"Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as a result of animal spirits — of a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities. Enterprise only pretends to itself to be mainly actuated by the statements in its own prospectus, however candid and sincere. Only a little more than an expedition to the South Pole, is it based on an exact calculation of benefits to come. Thus if the animal spirits are dimmed and the spontaneous optimism falters, leaving us to depend on nothing but a mathematical expectation, enterprise will fade and die; — though fears of loss may have a basis no more reasonable than hopes of profit had before.

This comes in a chapter diametrically opposed to any notion of rationality in the markets. Since it is all a game, it is important that the confidence of man be stimulated so as to keep the charade going. Obscured is an economic reality, which can be recognized by man.

Moreover, an irrational optimism is more dangerous than pessimism. If people are overly optimistic, they will, for instance, build houses where none are needed; this wastes scarce resources. On the other hand, if the government refrains from distorting the market, a fall in prices will eventually bring forth investment. Since man must consume in order to live, the animal spirits must eventually revive.

Section VIII: Having demonstrated his lack of faith in the ability of people to handle their own economic affairs, Keynes turns to omnipotent government to save us from ourselves:

"I expect to see the State, which is in a position to calculate the marginal efficiency of capital-goods on long views and on the basis of the general social advantage, taking an ever greater responsibility for directly organising investment; since it seems likely that the fluctuations in the market estimation of the marginal efficiency of different types of capital, calculated on the principles I have described above, will be too great to be offset by any practicable changes in the rate of interest." Coming at the end of this chapter, I can only call this implicit approval.

Surely the government, investing other people's money, will only do so with the most perfect of intentions. Even bridges to nowhere are evidence of the brilliance of our masters, who would never focus on the next election at the expense of the long-term. Keynesianism is often seen as a moderate path between capitalism and socialism, but we see here that it was far closer to the latter.

UPDATE: One of the recent Planet Money podcasts dealt with one of the examples from this section of the book. Interested parties ought to check it out.

Monday, January 17, 2011

Keynes - The General Theory - Chapter XI

Chapter XI is the first in a series of chapters on the subject of investment, and this section is the longest in the General Theory. Hopefully Keynes will wrap up some of his loose ends and present his theory in an understandable fashion.

Section I: Keynes begins Chapter XI by attempting to define the marginal efficiency of capital as, "being equal to that rate of discount which would make the present value of the series of annuities given by the returns expected from the capital-asset during its life just equal to its supply price." He then continues with a simple deduction from the principle of supply and demand that when investment increases in a certain type of capital the marginal efficiency will decrease. This will continue until the marginal efficiency of capital is equal to the market rate of interest.

This seems like a fairly trivial concept, but allow me to delve deeper. We can think of the supply price as what a firm would buy the capital goods for, and the expected returns as what it receives for selling either the finished good to the consumers or a higher order capital good to another firm. Thus, the marginal efficiency of capital is the rate of price spreads in the stages of production. From Austrian economic theory, we know that this is precisely equal to the rate of interest. Thus, Keynes misses a crucial aspect of interest theory - that his marginal efficiency is the rate of interest.

Section II: Keynes continues by outlining three ambiguities surrounding the marginal efficiency of capital. None of these ambiguities are of critical importance to his discussion of the marginal efficiency of capital so I will leave them be. If I missed anything of importance in this section please feel free to comment.

Section III: Keynes notes the distinction between the current yield and the prospective yield of a given capital stock is routinely overlooked, which results in confusion surrounding the marginal efficiency of capital. I have not read enough of the literature that was available at the time to know if this is true, but I agree that using current yield in the place of prospective yield will often result in erroneous conclusions. One of the main purposes of an entrepreneur is to foresee future changes, which are accounted for in the prospective yield.

Keynes continues by noting that changes in the value of money will affect the marginal efficiency of capital. He spends a decent amount of time outlining the different situations that will arise when the change in value of money is foreseen or unforeseen. The important point, which Keynes fails to note, is that changes in the value of money are usually foreseen when money is derived from a commodity - say silver or gold. A fiat money system with a controlling central bank is far more likely to affect the value of money, and coincidental the marginal efficiency of capital. One would think that limiting any unforeseen changes in the value of money would be beneficial for the economy as entrepreneurs would be less likely to make errors in forecasting. Keynes neglects to note this point.

Section IV: Here Keynes describes the risks associated with investment. The first being the risk taken by a man when he invests his money in capital. If he incorrectly forecasts the prospective yield of his investment, he will lose money (unless he assumes he will make less money than what actually transpires, in which case he would earn a profit). The second being the risk taken by person A when he lends money to person B or firm C to invest as the individual or firm seems fit. Keynes claims that because both the lender and the borrower are incurring a risk in this case, it is added twice to the pure rate of interest, making investments more costly. I believe Keynes is misguided in that he assumes the borrowing and investment to be one transaction.

For example, if I borrow a friend $100 for a year and charge 5% interest, I expect to receive $105 a year from now. If my friend in turn takes the $100 to buy a lawnmower to start a lawn mowing service, that is a separate transaction. The risk he incurs by investing in the capital to start his business is separate from the risk I take borrowing money to my friend. Thus, the duplication of the risk is not true as two transactions are taking place.

Keynes claims that this doubling of risk is important for understanding trade cycle (business cycle) theory so we will have to wait until he reaches that point in his analysis to see how this so called doubling of risk affects his views of the business cycle.

Section V: Keynes concludes this chapter by arguing that the marginal efficiency of capital is of significant importance because it accounts for future changes, as we have seen through its reliance on prospective yields. He then makes an egregious error by claiming the rate of interest is, "virtually, a current phenomenon." I am not entirely sure on what reasoning he bases this claim, but considering the rate of interest in determined on the time market it must be based on both present and future considerations. Thus, Keynes ends this chapter in a similar manner to how it began, by making crucial mistakes regarding the connection between the marginal efficiency of capital and the interest rate.

Monday, January 10, 2011

Weekly Column - 01/10/11

This week's column:

"Upon the mount that highest o’er the wave / Rises was I, in life or pure or sinful,
From the first hour to that which is the second, / As the sun changes quadrant, to the sixth." – Dante, Paradiso: Canto XXVI

As Dante makes his way through heaven, he meets Adam, the first man, who thus recounts that he remained in the earthly paradise until his sin caused him to be expelled forever. Thereafter, man was cursed to labor by the sweat of his brow, woman, to bring forth children in pain; humanity cursed Adam and Eve for the frailty they evinced and which we all share.

The frailty was on display on Wednesday, when the new Congress, including triumphant tea party candidates, took the house floor. As Karl Denniger points out, just as, in Dante’s telling, it took Adam from dawn to noon to commit his first sin, so the tea party capitulated in precisely six hours. This is nothing more than a coincidence, of course, but it is an amusing one. As Adam’s fall provides the archetype for human frailty, the great tea party betrayal demonstrates the untrustworthiness of politicians.

Tuesday, January 04, 2011

Ethical Chaos

This was intended to be a column, but was unpublished for some reason, so I'll post it here.

“Deprive the taboo rules of their original context and they at once are apt to appear as a set of arbitrary prohibitions, as indeed they characteristically do appear when the initial context is lost, when those background beliefs in the light of which the taboo rules had originally been understood have not only been abandoned but forgotten.” - Alasdair MacIntyre, After Virtue

The slippery slope is a well known logical fallacy. Utilizing it anyway, opponents of gay “marriage” insist that this is a step toward bestiality. Proponents claim that this is ridiculous; the extension of the institution of marriage to homosexuals can be undertaken in isolation. Logically, this seems correct, but it misfires for two reasons. First, while it is true that homosexual relationships had a positive connotation in many western societies—most obviously in ancient Greece—the western conception of marriage confines the covenant to one man and one woman. Gay marriage thus requires a radical reinterpretation of the institution. The second point follows from the first. The moral edifice which made gay marriage unthinkable has crumbled; in MacIntyre's terminology, the initial context has been lost—though not completely—and homosexual relations remain, if anything, a taboo. The implications of this deserve our careful consideration.

Economic issues continue to dominate our politics, so it might seem unusual to devote any time to the issue of gay marriage. Yet there is value in trying to calmly examine an issue before the talking heads have spun it to suit their political biases. Moreover, a high profile incest case has offered us an insight into what may occur when taboos prove insufficient. Columbia University professor and Huffington Post blogger David Epstein has been caught having sex with his daughter. The charge is one felony incest account; if convicted, he will spend four years in prison. Since his daughter was not a minor while the incidents occurred, there is speculation as to whether the charge will stick. As Tracy Clark-Flory points out in a Salon column: “It isn't a clear-cut case of child abuse, and there are no allegations that the three-year-long relationship carried on without the daughter's consent.”

A commenter at the Huffington Post, channeling the Zeitgeist, writes: “I don’t understand how it is a crime.” That it is possible to not understand why communities would wish to prohibit incestuous relations, consensual or otherwise, reveals that, for many in our culture, incest remains merely taboo. The reasons society condemned this behavior cannot be conceived. This is astounding.

Briefly, I think it incumbent on me to explain the libertarian position: consensual relations—sexual or otherwise—between adults should be legal. There are times when the implications of libertarianism can be quite shocking, and this is certainly one of those times. Yet even if incest were not prohibited by law, there would be a very simple way for the community to restrain this type of activity without resorting to government force. To wit, those who have committed incest could be restricted from taking part in the community: shopkeepers could ban them from their stores, neighbors could refuse to associate with them, employers could refuse to hire them, and so on and so forth. That this would be deemed discriminatory reveals the inconsistency of our application of libertarian principles. Deviancy becomes acceptable since the law prohibits intolerance.

If the community were sufficiently sickened by the behavior in question, shunning would produce the intended effects. Like Cain, Epstein would be condemned to be wander restlessly. That this will assuredly not happen does not invalidate the point; it is precisely to build up voluntary associations that the libertarian insists that the State should be rolled back, even in areas, such as this, where it is difficult to see downsides to prohibition.
The Epstein case will be fascinating to follow because it will allow corroboration of my suspicions that the Judeo-Christian ethical edifice has crumbled, leaving us to reap the whirlwind. In the meantime, it's worthwhile to point out, for our lost contemporaries, why the prohibition against incest exists.

In the Summa Theologica (II-II, Q. 154, A. 9), Thomas Aquinas gives four reasons why incest is contrary to reason. First, “because man naturally owes a certain respect to his parents and therefore to his other blood relations”; this respect can no longer exist once the relationship becomes incestuous. Second, since blood relations “live in close touch with one another... opportunities of venereal intercourse would be very frequent and thus men's minds would be enervated by lust.” Third, by marrying someone to whom one is not related, one thereby gains friendships with one's wife's kin; this would be frustrated if one did not marry outside one's family. And fourth, courtesy of Aristotle, a man will have a liking for his kinswoman; it is not good for this affection to become too ardent, which would occur if he had sexual relations with her. It is worth pointing out that, for Thomas, prohibiting incest does not require biblical quotation.

The family is the fundamental social unit upon which all civilization is based. The bonds it inculcates are unlike any others formed in society. Moreover the bond between a husband and wife is substantially different from that formed between mother and son or father and daughter. Incest irrevocably distorts this bond, to the detriment of the family, and, by extension, society. Recall that Oedipus is horrified when he finds out that he has committed incest, even though he had no awareness that he was doing wrong. We've come a long way when one of the most important western texts is becoming incomprehensible to those of us living today. Unless we find and restore the Judeo-Christian context, the taboos will fail. If we have not yet reached it, at this point, we shall find ourselves confronted by complete chaos in sexual relations.

Weekly Column - 11/04/2011

This week's column:

"The criterion of the scientific status of a theory is its falsifiability, or refutability, or testability." – Karl Popper

Concern over global warming seems confined to worrisome progressives. It requires a bit of sophistication, which its proponents insist its detractors lack; a more important qualification is affluence. Inhabitants of the third world are too busy trying to survive to be terribly bothered about the prospects for planet health many years hence. Even those who live in countries of the industrialized world may find more prescient matters with which to worry themselves. This may be undesirable, but it is also difficult to deny. President Obama found it necessary to adjust his presidential priorities for this very reason: those who are without a job find it hard to concern themselves with something that may possibly occur in the future. Should the economy pick up next year, global warming may again prove an important political issue. But if unemployment remains rampant, politicians will continue to do all in their power to address the short-term problem first.

Nonetheless, it may be a good time to examine the case for man-made global warming. The weather of late has not been conducive to alter the position of those who think Al Gore’s cause célèbre is bunk. Yet while inclement weather is not sufficient to disprove Gore’s case, the cause he champions is nonetheless fatally flawed. It is not so much that I don’t think that the scientists have proven their argument case as that they cannot do so. It is entirely possible that man-made global warming is occurring, but we cannot know that this is so.

Monday, January 03, 2011

Those Danged Austrian Economists

When one reflects on the history of Austrian economics, one can't help but think of the story of the early Church. The unorthodox school was started in the late nineteenth century Austria—though its adherents claim that some of its insights were appreciated long before by the Spanish scholastics. Carl Menger and Eugen von Böhm-Bawerk provided the material for the later synthesis by Ludwig von Mises; Nobel laureate Friedrich Hayek was also a member of the school. During this first wave, the Austrians were taken quite seriously, but their popularity waned as defense of the free market fell out of favor. Mises, who was Jewish, was compelled to leave, first Austria, then Switzerland, making his way to the United States. There he reworked his opus, publishing Human Action to little fanfare in 1949.

It would be a misnomer to insist that things looked grim for the Austrian school, because there was no school at this time: it was just Mises. But the last knight of liberalism managed to secure a job teaching at NYU through the Volker fund. The disciples he gathered there were able to ensure that his system would not be regulated to the dustbin of history. Today, the Ludwig von Mises Institute provides articles, books and courses furthering the cause of the Austrian school of economics. Thanks to the advocacy of congressman Ron Paul, the teachings of this school are reaching a large audience.

Enter Christopher Ferrara with his book, The Church and the Libertarian, in which he seeks to combat the errors of the Austrians, be they economic or ethical. He also provides a defense of Church teaching, utilizing various encyclicals from Rerum Novarum through Caritas in Veritate. This Ferrara does exceedingly well. His attempts to correct the errors of the Austrians, however, are less successful—though here, too, he makes some valid points.

To understand Ferrara's criticism, we have to know a bit more about the Austrians and their system of economics. They insist that economics is an a priori science, deducible from some basic axioms about man, most importantly that humans act to satisfy wants with scarce means. An entire corpus of thought has emerged from the careful deduction of Mises and his disciples. However, because the science is a priori, it cannot be disproved by empirical evidence; the Austrians insist that any criticisms must be leveled at the theoretical edifice they have erected.

One of the staples of Misesian thought is that, in economics, value is subjective. When I exchange my money for a beer, I do so, not because the beer's value is equal to the money I hand over, but because I value the beer more than the money; contrariwise, the bar values my money more than the beer. It follows that any non-coercive exchange is mutually beneficial; despite their supposed value neutrality, there is a clear preference for allowing such exchanges to take place by Austrian adherents. One of Ferrara's better criticisms is that, since man must work in order to live, he may be compelled to work for a pittance, even if the wage is far from just. In other words, compulsion might not always come from the State.

Mises most famous—or infamous—disciple, was Murray Rothbard, who took the Misesian approach further than the master himself, waxing eloquently in defense of anarcho-capitalism. Rothbard makes use of the natural law tradition, and thus has a certain appeal for Catholics—or, at least, Thomists. However, he reinterprets the right to property, conditional for St. Thomas (Summa Theologica II-II, Q66, A7) as an absolute right. Rothbard was no doubt concerned that a conditional right to property would allow statism to sneak in the back door. Yet he forgets that the right to property stems from the right to life, without which it is bereft of meaning. Moreover, as Ferrara points out, Rothbard's conception of rights fails to consider the duties incumbent upon us in the exercise of these rights: "Gone are the first precept of the natural law—to do good and to avoid evil—along with the Ten Commandments." Rothbard's curious interpretation leads him to some equally curious conclusions, as that a pregnant woman has no obligation to her child, born or unborn. Such teachings should be intolerable to Christians everywhere.

If Ferrara is sound in his criticisms of Austrian ethics—he similarly disposes of Mises's utilitarianism—he seems to have failed to grok some essential components of Austrian economics. It does not follow that, because the school has made errors, none of its teachings can be of use to the Church. Yet that is the impression one gets in reading some of the strange, and incorrect, categorizations of Austrian tenants.

For instance, the Austrians teach that preferences can be ranked on ordinal scales. As such, any statements we make about preferences will be qualitative, not quantitative. Presently, I prefer writing this review to, say, reading Chesterton. This does not mean that my preference for writing as against reading Chesterton has some sort of mathematical ratio, only that the former exceeds the latter. Attempting to comment on this, Ferrara writes: "The attempt to create a ordinal rankings in such cases produces complex set operations expressed in mathematical symbols, charts ranking all possible combinations of goods and the needs they satisfy in order of preference, and Venn diagrams expressing the "set difference" between subsets of wants." One wonders whether Ferrara managed to read any Austrian economics at all. Perhaps the definitive characteristics of Human Action is the total absence of either equations or graphs in a nine-hundred page economic treatise. Criticizing the Austrians for bringing mathematics into the matter would be like chiding Keynes for too much clarity in his General Theory. In fact, it is precisely because of the inability to extract equalities from subjective scales of utility that Mises argued that economic calculation in a socialist commonwealth would be fundamentally impossible.

Ferrara similarly stumbles in his critique of Austrian business cycle theory. For those inclined, the best explanation comes from Rothbard's America's Great Depression, available at the Mises website. Briefly, the combination of an inflationary central bank and the system of fractional reserve banking allows money to flow into the economy. Entrepreneurs mistake this for an increase in real wealth, and a cluster of business errors manifests itself in a particular sector of the economy—thus we had a housing boom, especially in cities such as Las Vegas. When the central bank tightens the money spigot, the entrepreneurs realize that they have made mistakes; resources have been misallocated, and the economy must rebalance itself—housing prices must fall and those employed building houses must find other jobs. Ferrara insists that greed alone was sufficient to cause the housing bubble, forgetting that the money needed to originate somewhere in order to drive prices up to bubble levels.

Undoubtedly there was much greed in certain sector of the economy; but there was greed in other non-bubble sectors, too, so greed alone cannot be sufficient cause. Moreover, not everyone who bought a house at bubble prices was greedy; the pernicious effects of Federal Reserve policy wrought destruction even on honest entrepreneurs and consumers. It's difficult to insist that Austrian teaching was not thoroughly vindicated by the latest crisis. Moreover, since the entire system of fractional reserve banking is inherently fraudulent, and therefore immoral, one would think an orthodox Catholic would see the Austrians as allies, at least on this point.

One last caveat: at times, Ferrara's categorization of the Austrians borders on caricature. He writes: "Nowhere, however, does one find an Austrian recognition of the intrinsic affinities of Big Business, Big Government and Big Finance." Yet, as the man he denigrates as Pope Murray I writes in For a New Liberty: "Big business support for the Corporate Welfare-Warfare State is so blatant and so far-ranging, on all levels from the local to the federal, that even many conservatives have had to acknowledge it, at least to some extent." The Austrian emphasizes reducing the scope of Big Government not necessarily because he is insensible to the abuses of Big Business, but because he believes that removing Big Government support would render those abuses negligible.

Ferrara's righteous indignation prevents him from seeing that which is good in the teaching that so upsets him. The Austrians are quite sound on money, and there is nothing in business cycle theory that necessitates condemnation by the Magisterium. This mars the quality of his book. Yet there is undeniably much good that remains. His demolition of Rothbard's system of ethics is total, and he offers a thorough defense of Catholic social teaching, as well as some non-political steps toward reform. His book is a must for anyone, Catholic or otherwise, who has fallen under the influence of Mises and his followers.