Yesterday, I was treated to one of the best lectures I’ve ever seen. It was delivered by Israel Kirzner, an Austrian economist who is emeritus professor of economics at New York University, where he taught for many years.
Kirzner’s lecture was entitled “Hayek, the Nobel Prize, and the Modern Austrian School of Economics.” The talk was sponsored by the Mercatus Center at George Mason University in Arlington, Virginia, as part of a program celebrating the 40th anniversary of the awarding of the Nobel Prize in economics to libertarian Austrian economist Friedrich Hayek.
I met Kirzner in my late 20s during the late 1970s soon after discovering libertarianism, when I attended a summer seminar at The Foundation for Economic Education (FEE) in Irvington-on-Hudson, New York, where he was one of the lecturers. Even though I was just learning about Austrian economics, Kirzner presented the subject in a clear, easy to understand manner.
In 1987, I became program director at FEE, which enabled me to get to know Kirzner even better, given his longtime close association with FEE and given that I was now running the summer seminars, where he was a regular speaker.
One of the highlights of my life was actually attending two courses taught by Kirzner at NYU while I was working at FEE. One course was History of Economic Thought and the other was Fundamentals of Austrian Economics. I had telephoned Kirzner and asked him if it would be okay if I audited his courses. He responded that not only would he permit me to audit his classes, he said that I would also be permitted to participate in class discussions.
I can’t begin to tell you what an awesome experience that was. Kirzner brought economics alive in those classes and presented the subject in a way that students could easily understand. The fact that Kirzner had gotten his doctorate under Ludwig von Mises made the classes even more meaningful to me. And now that Kirzner’s name is being bandied about as a potential Nobel Prize-winner, I’m now thinking to myself—Wow! I took two courses under someone who just might win the Nobel Prize in Economics!
In his talk at the Mercatus Center, Kirzner traced the origins of the Austrian school of economic thought to its ever-growing popularity today. Although he is now 84 years old, as I watched him deliver his presentation, I realized that his manner of delivery and the clarity with which he presented the subject was no different from how he lectured 35 years ago.
The Austrian school originated in 1871 with the publication of Principles of Economics by Austrian economist Carl Menger. The following is my personal commentary on that point—that is, it wasn’t in Kirzner’s lecture:
In his book, Menger presented the subjective theory of value, which revolutionized the field of economics. Interestingly, the concept was independently developed by two other economists — William Stanley Jevons and Eugene Walrus — at about the same time.
Prior to that time, economists had subscribed to the labor theory of value or the cost of production theory of value, both of which had been mentioned in Adam Smith’s 1776 work An Inquiry into the Nature and Causes of the Wealth of Nations.
That theory of value held that the value of any item depends on the labor or costs that go into producing it. In fact, the labor theory led to Karl Marx’s exploitation theory. Since the value of any item is based on the amount of labor that goes into producing it, Marx maintained, any income that went to owners constituted theft from the workers.
The subjective theory of value totally upended that understanding of value and, in fact, destroyed the foundation of Marx’s exploitation theory. The value of any item, Menger maintained, has nothing to do with how much labor goes into producing it. Instead, its value is entirely subjective — like beauty, it lies totally in the eyes of the beholder.
Thus, the value of a diamond that is found on the ground will be no different from the value of a comparable diamond that took months of digging to get it out of the ground. The value depends on the subjective valuations of the individuals doing the valuing.
From Menger developed the entire Austrian school, going from Eugen Bohm von Bawerk, to Ludwig von Mises, to Hayek, to Kirzner and Murray Rothbard (who also got his doctorate under Mises), and to the current generations of Austrian economists.
One of the Austrian economists of my generation mentioned by Kirzner is Gerry O’Driscoll, who published a book entitled Economics as a Coordination Problem in 1978, a book that Kirzner said was a major contribution to Austrian economics.
O’Driscoll actually taught economics at New York University when Kirzner was teaching there. In the 1980s O’Driscoll moved to Dallas, where he assumed a position at the Dallas Federal Reserve.
I was practicing law in Dallas at the time. Interestingly enough, there was a fairly high concentration of Austrians in Dallas. So, I founded the Mont Dallas Society, named after the Mont Pelerin Society, an international organization of libertarian, free-market, Austrian proponents founded by Hayek, Leonard Read (FEE’s founder), and others.
The members of the Mont Dallas Society included O’Driscoll, Richard Ebeling, who was teaching at the University of Dallas, Sam Bostaph, head of the economics department at the University of Dallas, Gary Short, a Dallas lawyer who had been a Koch Fellow while studying for his doctorate in economics at George Mason University, Genie Short, Gary’s wife, who was an economist working at the Fed alongside O’Driscoll, Peter Lewin, a professor of economics at the University of Texas at Austin, and William Hutt, visiting professor of economics at the University of Dallas.
Each month, we would meet at a local restaurant and one member would make a presentation, which would then be followed by a spirited discussion. It was awesome!
What is an Austrian? It goes without saying that it doesn’t turn on whether a person is from Austria. It’s actually a mindset — one that views the study of economics differently from the mainstream. As Kirzner pointed out in his talk, it’s someone who views economics in terms of Human Action (the title of Mises’s magnum opus) rather than as a series of supply and demand curves or other technical or mathematical devices. Kirzner pointed out that while such technical analysis can be useful in understanding economic principles, the real thrust of economics is studying human action. From there comes the study of exchange, prices, money, and other features of a free-market system and the effects that governmental intervention has on the market process.
As soon as the Mercatus Center posts the video of Kirzner’s talk online, we will let you know by including it within our FFF Daily (subscribe here for free). I cannot recommend it too highly.