Man has only one tool to fight error: reason. — Ludwig von Mises

1. Robert Higgs, “Consumption Spending is 70 Percent of GDP – So What?” A great short piece on the importance of investment and consumption.  Higgs shows that the variable of national output which has fluctuated the most has actually been investment, not consumption.  In the comments section, I also suggest that much of what is categorized as “consumption” is actually investment (i.e. productive consumption).
2. Paul Krugman, “Infrastructure“.  Quite possibly the worst blog post I’ve ever read of his (I honestly don’t remember, although I’d bet that there are several posts in the running for that title).  Krugman goes on to suggest that the private sector cannot always provide goods more efficiently than the government, and goes on to call the opposite belief as “stupid”, arguing that the concept of public goods was already established in “econ 101″.  Of course, maybe I have an advantage being from a country where all agricultural roads (including paved highways) are provided privately.
3. Jerry O’Driscoll, “Heterogeneous Labor“.  O’Driscoll argues that our unemployment problems are structural.  I’m not sure what serious economist disagrees with him.  The real argument is whether or not simple private-sector led economic growth can solve this structural problem (I argue yes, Team KTDY argues no).
4. My Mises Daily, “A Primer on Austrian Economics“, has 460 Facebook likes!
5. Bruce Caldwell, “Adam Smith? Who’s He?“  Caldwell argues for returning history of economic thought to university economics curricula.  I agree (for example, neither SDSU or UCSD require history of economic thought), and further agree that in order to really have the ability to advance theory you need to understand and engage past thinkers.

Entrepreneurship, or so-called “risk taking” in older literature, have been an important factor in economic growth since Richard Cantillon and Adam Smith.[1] It was, perhaps, Turgot who almost perfected the concept of the entrepreneur.[2] Despite the recognition of entrepreneurship as the creative force behind the extension of the division of labor and increases in production, entrepreneurship was largely ignored until the 20^th century.[3] The role of the entrepreneur as a saver and a risk-taker, or at least someone who applied accumulated capital towards new means, was “re-discovered” by economists such as Schumpeter,[4] Mises, and Hayek.

Holcombe, Randall G. (2008).  Entrepreneurship and Economic Growth.  In Benjamin Powell (ed.), Making Poor Nations Rich: Entrepreneurship and the Process of Economic Development (pp. 54–78).  Stanford, California: Stanford University Press.  Holcombe writes, “Smith, whose overriding goal was to understand the wealth-creation process, began his treatise with the lesson that the division of labor is limited by the extent of the market.  As markets grew, entrepreneurship would lead to innovation, which would lead to an increasing division of labor and increased productivity.”

[2] Rothbard, Murray N. (2006).  An Austrian Perspective on the History of Economic Thought, Volume 1: Economic Thought Before Adam Smith.  Auburn, Alabama: Ludwig von Mises Institute, p. 395.  Rothbard considers Turgot’s definition of the entrepreneur as the most accurate, because Turgot was the first economist to apply the concept of capital accumulation (or savings) to the entrepreneur, calling the entrepreneur a capitalist-entrepreneur.  Rothbard wrote, “Cantillon’s theory of the entrepreneur as a pervasive risk-bearer facing uncertainty… lacked one key element: an analysis of capital and the realization that the major driving force of the market economy is not just any entrepreneur but the capitalist-entrepreneur, the man who combines both functions.”

[3] Ibid.  “Yet Turgot’s memorable achievement in developing the theory of the capitalist-entrepreneur has, as professor Hoselitz pointed out, ‘been completely ignored’ until the twentieth century.”  The more primitive use of entrepreneur continued for some time, at least in the work of Say and Mill.  Russell Sobel writes, “In the early 1800s, economists Jean-Baptiste Say and John Start Mill further popularized the academic usage of the word “entrepreneur.” Say stressed the role of the entrepreneur in creating value by moving resources out of less productive areas and into more productive ones. Mill used the term “entrepreneur” in his popular 1848 book, Principles of Political Economy, to refer to a person who assumes both the risk and the management of a business.”  Sobel, Russell S. (1998).  “Entrepreneurship”.  The Concise Encyclopedia of Economics.  Retrieved 24 June 2010, from http://www.econlib.org/library/Enc/Entrepreneurship.html.  Sobel writes, “

[4] Hagedoorn, John (1996), “Innovation and Entrepreneurship: Schumpeter Revisited”.  Industrial and Corporate Change, 5(3), p. 884.  Hagedoorn writes, “… Schumpeter not only emphasized the role of the entrepreneur in his earlier work but continued to struggle with the concept of this agent of change and innovation throughout his academic career.”

I’m finishing Part I of A History of Money, and I hope to have the book completed within the week (or maybe sometime in the middle of next week), with the intentions of writing a book review (comparing it to Friedman and Schwartz’ A Monetary History… admittedly, the two books are not very comparable).  For those who haven’t read Rothbard’s book, I wholeheartedly suggest it.  It doesn’t have the statistical rigor of A Monetary History, but on the flip-side this makes Rothbard’s book much less boring.

Adam Smith is generally considered the father of political economy, and between Smith and the marginal revolution it is traditionally believed that there was a linear progression in the science of economics.³³ Schumpeter’s History of Economic Analysis suggested otherwise, and since then there has been a wealth of revisionism looking to correct economists’ view on the Smithian movement. From an Austrian perspective, Smith did much to damage economic theory. Not only was much of Smithian theory erroneous — including his monetary and value theories —, but The Wealth of Nations effectively blotted out a rich tradition of economics prior to the Scottish enlightenment, including the School of Salamanca and the French liberals.³⁴ It was left to the marginalists of the late 19^th century to ‘re-discover’ much of the pre-Smithian tradition.

The footnotes read,

33.  The belief that Adam Smith was a negative influence is unconventional and heterodox.  As the present overview of the history of economic thought is purposefully brief, a much more complete analysis of the contributions of Adam Smith can be found here: Rothbard, Murray N., “The Adam Smith Myth”.  MisesDaily: 13 January 2006.

34.  On the progress of economic science as non-linear, see: Rothbard (1995), p. 438.  For an overview of Smith’s theoretical mistakes see: Rothbard (1995), pp. 441–471.  Rothbard writes, “The most unfortunate aspect of the total Smithian takeover in economics was not so much his own considerable tissue of error, but even more the blotting out of knowledge of the rich tradition of economic thought that had developed before Smith.” (Rothbard (1995), p. 502.)

35.  Ibid., p. 502.  “As a result, the Austrians and their nineteenth century predecessors, largely deprived of knowledge of the pre-Smithian tradition, were in many ways forced to reinvent the wheel…”

Not completely relevant, but I also commented on Cantillon versus Smith in a previous footnote,

2.  Adam Smith has traditionally been considered the father of modern economic science.  Murray Rothbard believed otherwise, bestowing this honor onto Richard Cantillon, “Most people, ecoomists and laymen alike, think that economics sprang fullblown, so to speak, from the head of Adam Smith… [the] honour of being called the ‘father of modern economics’ belongs, then, not to its usual recipient, Adam Smith, but to a gallicized Irish merchant, banker, and advernturer who wrote the first treatise on economics more than four decades before the publication of Wealth of Nations.  Richard Cantillon…”  Rothbard, Murray N., An Austrian Perspective on the History of Economic Thought, Volume I: Economic Thought Before Adam Smith.  Ludwig von Mises Institute, Auburn, Alabama: 1995; p. 345.

Unfortunately, must of Richard Cantillon’s insights were lost after the publication of Wealth of Nations.  Cantillon was ‘re-discovered’ in the late 19^th century by William Stanley Jevons, one of the three ‘founders’ of the marginal revolution.  About Cantillon’s treatise Essai, Jevons writes, “Cantillon’s essay is, more emphatically than any other single work, ‘the Cradle of Political Economy’.”  (Jevons, William Stanley, “Richard Cantillon and the Nationality of Political Economy”: January 1881; p. 342.)  Friedrich Hayek, basing his history of Cantillon on Jevon’s work, also held this view (Hayek, Friedrich, The Trend of Economic Thinking.  Liberty Fund, Indianapolis, Indiana: 1991; p. 246).

As such, I’ve decided to begin a ‘research project’ on the topic.  I have three books in mind to start with:

1. Davies, Glyn, A History of Money: From Ancient Times to the Present Day
2. Eagleton, Catherine, Money: A History.
3. Weatherford, Jack, The History of Money.

Has anybody read these?  Does anybody know of a good history of money?  Thanks!

Until recently, I haven’t really seriously considered going through with the idea.  In early January I picked up Hayek’s Prices & Production and Other Works.  After finishing Monetary Theory and the Trade Cycle and The “Paradox of Saving”, I put the book down and decided to switch to Ayn Rand’s Atlas Shrugged (a book that I plan to finish within a week hopefully, as I will have to go back over it anyways over the next year).  Although I intend to stick to my original reading schedule, I have cluttered it up some more, although with nothing too serious (if I dedicated myself, I could probably finish at least two of three readings within a day on a weekend).

I purchased Marjorie Grice-Hutchinson’s The School of Salamanca and Paul Cantor’s (and Stephen Cox’s) Literature and the Economics of Liberty.  The latter of the two is longer, but I am only interested in the chapter on Cervantes (for now).  The book deals with any possible influence on Cervantes by the School of Salamanca, and reinterpretations of his writings.  Cantor and Cox suggest that Cervantes was more pro-market than many previously considered.  I have a similar interpretation of Cervantes’ Don Quijote: I believe that it was a metaphor for a dying Spain, given that the Spanish government refused to adapt to new economic ideas.

To give myself a chance to shore up on my general knowledge on the Spanish Empire, I also bought Henry Kamen’s Empire: How Spain Became a World Power.  This will provide some additional background, although I want to use it mostly to source relevant contextual information.  I will have to buy a second and third general history, as well, but these should be relatively cheap, and I can probably find them at a local Borders bookstore.

In any case, expect a piece on the subject some time in the future (I would give it at least a month or two).  In the mean time, I have some reading to do.