Why should we listen to a bunch of Austrians?

You might have asked yourself that question after reading this forum’s regular references to “Austrian school” economists such as F.A. Hayek and Ludwig von Mises. To learn what this Austrian school is all about, a nice place to start is Harry Veryser’s new book, It Didn’t Have To Be This Way.

While keeping jargon to a minimum, Veryser offers a history lesson on the Austrian school and its basic tenets. He also contrasts Austrian thinkers with other economists on the left and right side of the standard political divide. Veryser applies Austrian principles to the most recent economic crisis, documenting its causes and outlining the steps needed for a real economic recovery.

Among Veryser’s key topics is government’s love of inflation.

No matter the cause of the inflation, the results are almost invariably the same. The pattern goes something like this: The government has trouble balancing its expenditures with revenues (often because of war). It raises taxes, and when that isn’t enough, it borrows from private markets. But the demands for government expenditures exceed its ability to borrow, as the government’s needs overwhelm the capital markets. Then someone has the bright idea to expand the currency to meet the increased expenditures.

Ludwig von Mises pointed out why this approach appeals to a government regime. “Inflation,” he wrote, “becomes the most important psychological resource of any economic policy whose consequences have to be concealed.” A government resorts to inflationary measures “when it cannot negotiate loans and dare not levy taxes, because it has reason to fear that it will forfeit approval of the policy it is following if it reveals too soon the financial and general economic consequences of that policy.” This is why Mises called inflation “an instrument of unpopular, i.e. of anti-democratic, policy,” for “by misleading public opinion it makes possible the continued existence of a system of government that would have no hope of the consent of the people if the circumstances were clearly laid before them.” Inflation, he noted, “has always been an important resource of policies of war and revolution,” and “we find it in the service of socialism” as well.