In a reply to a recent mises.org weblog posting someone posted a challenge- Would anyone be so kind as to tell me in which countries poverty was eliminated by means of your (Austrian) enlightened theories?…” the author of the original post replied with several good examples, without discussing any specific details of how these countries managed to succeed. Here are some of the specifics from one particular free market success story.
After the Second World War Hon Kong had no minimum wage, low and simple taxes, zero tariffs, aero capital controls, and a stable legal environment. The government in Hong Kong invested in its seaport and public education, but public spending ranged from 13-19% of GDP. Hong Kong has also avoided accumulation of public debt. Hong Kong actually ran budget surpluses in 32 years between 1948 and 1985. Hong Kong is an excellent example of a free market-limited government society, but how well did this example of laissez faire work?
At the end of the Second World War per capita income was 180$. BY 1982 the per capital income of Hong Kong was 6,000$. Even the lowest 20% of Hong Kong households reached 1300$ per capita income by 1976- seven times the average income just after the war. From the mid fifties to the 1970′s Real wages in Hong Kong more than doubled, and unemployment fell below 3%.
From 1948 to 1960 Hong Kong’s GDP grew at a rate of 7% per year. From 1961 to 1980 Hong Kong’s GDP grew 9% per year. From 1979 to 1984 Hong Kong’s GDP grew 7.6%, despite a worldwide recession. All of this happened without foreign direct aid of any kind.
Postwar Hong Kong went as far with economic laissez faire as any other country in history. This resulted in economic development that benefited virtually all the people of Hong Kong. Living standards increased substantially even for the poorest people in Hong Kong. There are other examples too, like postwar West Germany. The architect of the postwar Wet German ‘economic miracle’ was Wilhelm Ropke. Ropke was influenced by the writing of Ludwig von Mises, so the success of laissez faire in postwar West Germany can be directly attributed to Austrian Economics. This is only one example, but economic freedom indexes provide further evidence of the success of laissez faire economics.
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Your example is invalid since as you mentioned public spending was 13-19% of GDP you have to show an example where public spending was 0% of the GDP.
Even then you would have to show that the success was because of instead of DESPITE of the lack of a state.
Kristian, this is the problem with using historical data to attempt to prove economic conclusions. This problem arises anytime anyone asks the question: can you cite any examples of when Austrian policies helped an economy?
There is no example where public spending equals 0%. More importantly, there is no laboratory where you can conduct such an experiment, and compare Economy A to Economy B. It is impossible to re-create the set of economic conditions that went into any particular time and place.
So, you have illuminated the very reason that Austrian economics adopts a mode of analysis based on a priori reasoning, not the mathematical analysis of historical data (which Keynesian statists seem to love). That analysis may be interesting to mathematicians, but it cannot prove any economic principles.
Incidentally, the problem that you have identified — the impossibility of using historical data to sustain an economic proof — cuts both ways. The existence of some set of economic conditions cannot, in and of themselves, prove that they were caused by some form of government interference, since you cannot account for what did not happen as a result of that interference.
Only praxeological reasoning can work as a genuine proof. To dispute Austrian conclusions, you have to identify one or more logical premises that are better, or identify a fallacy in the reasoning process.
To clarify what I was trying to say, Austrian economic principles aren’t correct because historical data proves them to be correct. They are correct because the a priori, praxeological analysis shows them to be correct.
The fact that lasissez-faire policies are strongly correlated with historical instances of prosperity and improvement of the quality of life doesn’t prove anything on its own. Such examples may, however, help convince people who insist on relying on such things to reach their conclusions, misguided though they are.
Kristian,
In spite of what George writes, as human beings we can’t help but look to the numbers to add a second witness to the logic, because we’ve all been fooled by subtle logic before. Still, it’s not necessary to have an example with 0% public spending. Using simple graphs, you can compare public spending across countries and determine if there tends to be a relationship between them. If you know a little statistics, you can do a regression and put a number to the relationship. A lot of people have done just that and found a negative relationship between public spending and economic growth. In other words, high levels of public spending in a country usually goes along with low economic growth. The simple explanation for that is the public funds tend to be wasted, like so much of the money the Feds poured into the Gulf Coast after Katrina. Logically, the more money you waste, the slower your economy will grow.
George, I agree with you 100%, actually I can agree with about 80-90%(if not 100%) of the statements/claims of austrian economics.
I am not disputing MacKenzie’s conclusions but only his reason for them.
I personaly am of the opinion that the Austrians have struck gold when it comes to their methodology and business cycle theory. I don’t dispute them, so long as the methodology isn’t taken/intepreted as exluding ALL of Mathematics/Statics ALWAYS from Economics.
Math and statistics can be usefull tools, but they need to be treated as just that, tools.
They also need to be intepreted correctly, postive knowledge of economics comes from a-priori reasoning not Math.
I guess you could call me a non-libertarian Austrian.
“The fact that lasissez-faire policies are strongly correlated with historical instances of prosperity and improvement of the quality of life doesn’t prove anything on its own. Such examples may, however, help convince people who insist on relying on such things to reach their conclusions, misguided though they are.”
Exactly, they CAN(and SHOULD if necessary) be used as rethorical devices of sorts, used to enligthen people about economics and convince them of sound economic arguments.
Several of you seem intent upon making more of my post than I intended. This post was a reply to a specific question. Someone asked if there were any empirical examples of poverty abatement under laissez faire. Hong Kong is a good example of such poverty abatement. I was not trying to offer definintive proof regarding the source of prosperity. Nor was I trying to make a case for positivism over apriorism. I was answering one specific question. This question was about history, not theory, hence my answer was historical rather than theoretical. If you want theoretical proof read Socialism, an Economic and Sociological analysis, or maybe even some of my working papers on the Mises website.
That’s exactly the point I was making. Kristian’s use of the term “invalid” made me believe, mistakenly, that he was looking for proof, not an example of the correctness of Austrian principles. It seems that we are all on the same page on this one.
What makes the example of Hong Kong even more striking is that it is an entity with practically no natural resources other than its harbor.
Read also the post I wrote a few months ago about Hong Kong as an example of successful laissez faire capitalist economy (Note however that a re-organization of the web site of statistics Hong Kong have made some of the links in the post useless).
Of course the British, who ran Hong Kong until 1997, decided not to run their own country that way. They must have found something about this long-distance experiment on a foreign people not to their liking.
“Of course the British, who ran Hong Kong until 1997, decided not to run their own country that way. They must have found something about this long-distance experiment on a foreign people not to their liking.”
Who are the British? The Labor Party British, the Conservative Party British, or just the British people?
I guess you could call me a non-libertarian Austrian.
So you’re saying you know that (old style) liberalism leads to a better standard standard of living for everyone, but you’re opposed to it (“non-libertarian”) anyway? I.e., you actively want people to live in worse conditions…and you admit this in public?
Forgive my bad English, my first language is Portuguese.
Oh, there is a problem here: if economics is a priori science, how I should know that my premisses are true? I think this: when we ignore the experimental aspects of economics(the observation of estatistics, the ideals models constructed by scientists), we don´t go much far.
It´s a interesting fact that economics only emerge in a advanced point of history, when the aspects of the economic system are more evident, because they are mode developed. So, it´s not true that experience is useless in economic theory.
Because there is no laboratory in economics, the imagination is very important. So modeling is crucial, but only when models helps us to explain reality.
The problem with a priori conclusions is this: when we encounter a counter-example of our theory, we simply negate that is a prove that my theory is wrong. But real science don´t work like that: I would try to explain the counter example, and, on doing so, maybe I will modify my previous theory, maybe I encounter a second cause that provokes this phenomenon.
The empirical evidences serves too for quantificate the effects of especific situations. So, when someone comment “In other words, high levels of public spending in a country usually goes along with low economic growth”, what happens if we don´t encounter this kind of result from reality? We would investigate why it works in this form. And the great economist Mancur Olson do it on the book “How Bright are the Northern Lights?”.
I agree with Karl Popper that a theory is scientific when it´s falseable. What is science to Austrian Economics?
“Oh, there is a problem here: if economics is a priori science, how I should know that my premisses are true?”
Humans act. Disproving the latter proves the latter.
Humans prefer more goods to less goods (leisure is a good). Do you need statistics to prove this? If you do, then you are seeking statistics, and therefore more goods for your proof.
Humans generally prefer things sooner than later. Do you need statistics to prove this? If you do, when are you going to get them? We should never answer this, for in doing so we prove it. In fact we shouldn’t even ask it since we violated it by asking sooner in the first place.
Every humans choice necessarily entails an opportunity cost. I need not explain this one.
Austrian Economics starts with these, applies it to one person, two people, etc..
“So, it´s not true that experience is useless in economic theory.”
Experience of the many is proof of economic theory.
“The problem with a priori conclusions is this: when we encounter a counter-example of our theory, we simply negate that is a prove that my theory is wrong.”
No, we reject the statistic counter-example, not the theory.
“In other words, high levels of public spending in a country usually goes along with low economic growth”, what happens if we don´t encounter this kind of result from reality?”
What’s low? What’s high? compared to what?
Is the high level of public spending going towards fudging the statistics? Do you know how grossly inaccurate the GDP and CPI measures are? Couple that with the fact that every nation has a different way of grossly miscalculating these.
Look, if a government taxed you at 50% and in return send you a catalog of goods & services for you to buy, with no ability to get unspent cash back STATISTICS will show you that it’s much better (higher economic growth) than a government that taxes you at 10% and then goes out and bombs random people & property.
We don’t reject the theory, we reject the bogus statistics. We also question who benefits in disseminating these false statistics.
“I agree with Karl Popper that a theory is scientific when it´s falseable.”
Well there is contradiction in his theory. Namely, the fact that it can’t be applied to itself.
“What is science to Austrian Economics?”
apriori reasoning on sound axioms. We can also use statistics to illustrate a point – but never prove it.
correction:
change
” In fact we shouldn’t even ask it since we violated it by asking sooner in the first place.”
to
” In fact we affirm it by stating it in the first place.”
“What is science to Austrian Economics?”
apriori reasoning on sound axioms. We can also use statistics to illustrate a point – but never prove it.
No, Austrians in general accept empirical science. Just not in the realm of economics.
Roy, I thought that was obvious, but thanks anyway for clarifying.
The popperian´s view of science arguees that every theory is deductive, so there is no such thing like induction. No one formulates theories derived by observation. On the contrary, observations are results of our theories. So,every theory is a priori, in this sense. Here is the importance of facts, they serves like the ambiental condictions that select theories.
It´s curious that Austrian Economics reject the mathematical approach, and mantain an a priori approach. Pehaps Austrian Economics fails to understand that maths are true a priori, so when we use maths on economics, we are trying to prove the value of our statements. Forget about statistics: think about maximization, otimization and others tools.
I agree with you that statistics don´t prove that a theory is wrong, but the good theory would be capable to explain why this occurs. If the theory can´t explain this, we should develop a more abrangent theory, that englobes the old theory and was capable to explain new problems.
I wouldn´t develop the point of public spending here, ok? We are discuting a lot of questions here, so it´s good for the debate that we focus on central questions.
About the theory of Popper, he didn´t arguee that his theory is scientific. He try to delimitate what theories are scientifc e what´s not. For Popper, scientific theories aren´t corroborated by facts, but tested by theirs. So, a theory that explains everything, like marxism, isn´t scientific.
Note that every science encounters some inconsistencies on their developments. The various approachs could leave to results that are contradictories. I think we agree that science shouldn´t accept contradiction. But here is the most significative difference between Austrian Economics and what I think economics should do: austrian wants to win the battle against contradiction in the beginning of the development, although I want to win in the end.
I would like to continue the debate, here or pehaps by email.
It’s curious that Austrian Economics reject the mathematical approach, and maintain an a priori approach. Pehaps Austrian Economics fails to understand that maths are true a priori…
What do you mean by “true”? The truths of mathematics have no exact analog in reality. The “real” numbers are a convenient abstraction. In reality, only rational quantities exist. So from the beginning there is a problem with interpreting mathematical truths as precisely applicable to reality.
In any discipline that uses mathematical models, it is acknowledged that the models are just that — models of reality, not precise duplicates. In some fields (physics, chemistry, engineering), the models can be and are breathtakingly accurate, because the underlying dynamics are deterministic or very nearly so, and stable or at least not terribly chaotic. In other fields (ecology, atmospheric science), the models help to explain some aspects of the system under study, but they cannot produce accurate predictions of future behavior, because of stochasticity or strongly chaotic dynamics.
In economics, not only are the systems under examination immensely complicated (and therefore likely chaotic), and not only are they stochastic, but a large part of their behavior is due to human volition. How do you model that? Well, a reading of Human Action by Mises will show you how. The underlying mechanisms of economics cannot be quantified (there is, after all, no universal metric of value), but they can be understood through deductive reasoning from axioms such as “humans act.”
Some argued in another thread that “humans act” is not a synthetic a priori truth, as most or all Austrian economists hold. But even if it is not, it is certainly a good approximation to economic reality, just as the axioms for the real numbers are a good approximation to physical reality. In a sense, economic science parallels mathematical science.
Hong Kong is a strong example of relative laissez faire propertarianism not only by tending to cultivate an extremely high trajectory toward growth, but because it provides an easy comparison with otherwise culturally and racially very similar societies.
One of the difficulties in assessing the empirical impact of differing politico-economic systems is that there may well be significant other factors involved, such as traditional cultural traits and values, mean and average IQ, etc. (For some further thoughts around this, cf.
http://www.vdare.com/misc/rushton_iq.htm .)
However, without putting too fine a point on it, Hong Kong is much the same as Mainland China and as Taiwan in such matters.
Hong Kong, with greatest level of economic freedom, far outstripped both other nations in per capita economic attainment and growth level during the period (c. 1948-1985) MacKenzie discusses. Taiwan, far more economically free than the largely totalitarian mainland, in turn grew faster and was far more prosperous than the mainland.
That’s about as close to a laboratory test as you’re going to get in economics. If the results of such an examination had been much different, I’d have to conclude there was a grave flaw somewhere in the basic formulations of Austrian economics.
When I say that maths statements are true a priori, I mean that the form of maths statements leaves to true conclusions.
About the praxeological method, I agree with you that is a good aproximation, but I disagree that is the only possible. I will develop better my point of view and return to this discussion later, but I don´t know when will happen : )
Another point to consider is that Hong Kong and its economic powerhouse sister city-state Singapore are (not coincidentally, IMO) the most Georgist areas on the planet.
Henry George was known for the Single Tax on land values, but he also stated that to collect the economic rent “we should satisfy the law of justice, we should meet all economic requirements, by at one stroke abolishing all private titles, declaring all land public property, and letting it out to the highest bidders in lots to suit, under such conditions as would sacredly guard the private right to improvements.”
It seems that Hong Kong and Singapore have taken this to heart. According to this artice (http://www.findarticles.com/p/articles/mi_m0254/is_5_59/ai_70738932), Hong Kong owns all land in the territory, while Singapore owns 80%. I had not known this fact until recently, and it seems that libertarians who tout Hong Kong as the best example of laissez-faire either don’t know or don’t want you to know that they have “socialist” land markets.
Why are these areas prosperous? Because they have low, simple taxes on productive behavior. Why do they have low, simple taxes on productive behavior? Because they capture the economic rent for a large part of their budget. This was the remedy proposed by George, and it has worked beautifully in these two cases. One should not discount this one key policy fact when evaluating these economic success stories.
“So you’re saying you know that (old style) liberalism leads to a better standard standard of living for everyone, but you’re opposed to it (“non-libertarian”) anyway? I.e., you actively want people to live in worse conditions…and you admit this in public?”
It is not that simply, I have serious concerns with the feasability of a Libertarian society, for example I don’t think private courts and the like are feasible without them turning into HIGHLY corrupt organisations, would a private police department EVER arrest its owner if he had murdered someone ?
That is just an example, one of many. In addition to that I have strong concerns for the poor that are stopping me from aopting even a minarchist positions.
As for the moral aspects of things, I am a strong believer in a HIERARCHY of morals, an example theft can be justified in order to prevent murder.
So simply saying that taxes are theft doesn’t do it.
I more than welcome any arguments or pointers you guys on this blog might have in order to convince me of your positions on this issue.
However calling anyone who is not an anarcho-capitalist a socialist isn’t gonna persuade people certainly not me. It is that way with name calling in general.
You won’t convince people that way. Besides it completely ignores all of the huge differences in opinion between people that are’t Libertarians.
Just to be abundantly clear, I am 100% for private currency.
Kristian,
“I am 100% for private currency…”
Most outside of the Austrian fold would flip out at the suggestion that the free market could provide honest money. They feel that greed would obviously corrupt private enterprises and that their money could not be counted on as it can when the inherently honest and upstanding government monopolizes it.
In light of your view of the difficulties you perceive in the private production of police and courts, how would you go about defending your position on private money to such people?
“would a private police department EVER arrest its owner if he had murdered someone ?”
Let’s take two examples: 1) small private police company, and 2) large police company with shares.
1) It is likely that the owner of this company will have to be also be a client of his own company or a client of a different company. In any case he will sign a contract that forbids him from killing anyone, anywhere. If he violates the contract, then his employees will capture him, or they will outsource that task to another agency (since you can transfer a claim), so that there’s no conflict of interest. The criminal is jailed (or whatever punishment is deemed appropriate) and his property is given to whomever the contract stipulated (next of kin, spouse, etc.).
2) same as #1, except there is less conflict of interest on the part of employees going after one of the stockholders or managers, because other major stockholders will feel the pinch in their share value.
” I don’t think private courts and the like are feasible without them turning into HIGHLY corrupt organizations”
Just think of it as ACTUAL check on power. The founders of this country made the mistake in thinking that having three branches, that are ALL funded by taxation, is a good means to ensure a check on power. That is not the case, as history has shown. You need actual independent agencies to ensure a check on power.
“However calling anyone who is not an anarcho-capitalist a socialist isn’t gonna persuade people certainly not me. It is that way with name calling in general.”
Being called a “socialist” is only name-calling if you’re not an anarcho-capitalist. Otherwise, you approve of some degree of socialism and should feel comfortable with a name (i.e. socialist) that represents your views.
“Being called a “socialist” is only name-calling if you’re not an anarcho-capitalist.”
That is wrong. “Socialist” doesn’t represent the views of every non-anarcho-capitalists. You are lumping people with WIDLY different views togother.
Would you like to be called neocon ?
Kristian has a point. There are some very rare cases where one may disagree with both anarcho-capitalism and socialism. IP is one example that comes to mind.
I guess there are less well-represented groups like monarchists that would also not fall under the definition of socialists.
I just find it funny that some people will at once espouse socialism (government plunder and expenditure), and yet find the word “socialist” distasteful. Call a spade a spade.
Joensen’s views as espoused in this thread appear to be in favour of significant government plunder and spending. He has every right to those views, views that I think are rightly described as socialist. Perhaps there’s some other definition of socialism I’m not aware of.
Calling me a neocon would be absurd, since I do not share that group’s defining characteristics.
But you could say the same about me and socialism. The problem is that anarcho-capitalists are using a definition of socialism that nobody else uses, in that they are quilty of equivocation.
Socialism is re-defined as any view that includes a state. That is not the definition anbody else uses. Byt that definition neocon’s are socialst too, yet you obviously recognize that as a group of its own.
All the opponents of anarcho-capitalism AREN’T on the same page FAR FAR FAR from it.
You are generalising an awfull lot of people with EXTREMELY different views on things.
Kafirs mean non-believers or non- Muslims. A tribe that homes itself in beautiful valley of Kalash is an exceptionally, traditionally and claimed to be descendents of Alexander the Great Army. The Kalash women wear black knee long shirts with and number of colorful beads necklaces; on their head they wear a small neat dress like a ring around the back.
And our Tour Kafirs of Pakistan is a wonderful experience at this unique culture and tradition, to reach is beautiful place, we go through Swat Valley once the home of Gandaran Civilization. And to Chitral valley (the home of Hindu- Kush Mountains) passing the Lowari Pass situated at a height of 3500. The tour gives and a historical outlook of Gandara and Mughal civilizations.
DAY 01 ARRIVAL IN ISLAMABAD
After arriving to the capital city you will be transferred to hotel. By afternoon, after lunch, we will start our sightseeing tour of Islamabad Rawalpindi with a visit to the old Bazaar of Rawalpindi, the Raja Bazaar (King Bazaar), after that we will proceed towards the capital city of Pakistan a modern and well planed city which mostly resembles with the ancient city of Taxila of Gandaran Civilization. Overnight stay in hotel.
DAY 02 DRIVE TO SWAT VALLEY
Today we will start our journey by morning towards Swat Valley. On our way we will have short break at Taxila, the heart of Gandaran Civilization. Our drive from Islamabad to Swat is about 250 kilometers and its takes about four and half hours to reach this heavenly place. Arrival in Swat Valley and overnight in hotel.
DAY 03 DRIVE TO CHITRAL
From Mingora it takes eight to ten hours drive via Chakdara and Loweri Passes to reach Chitral Valley. This drive to Chitral via these passes is spectacular and you will enjoy each moments of our drive long drive. The Lowari Pass at a height of 3,734 meters with zig zag descend with breathtaking views of Chitral Valley are as fascinating g as any other alpine valleys. Arrival in Chitral and overnight stay in hotel.
DAY 04 FREE DAY IN CHITRAL
In Chitral we visit Chitral Fort, standing on the bank of Kunar River beside a 1000 years old Shahi mosque rounded by many chinaar trees. From here we proceed towards polo ground and after that it comes Chitral Bazaar, Chitral happens to be some of worlds beautiful trek. Dinner and overnight at hotel.
DAY 05 DRIVE TO KALASH VALLEY
The most exciting part of our tour is visit to Kalash Valley, the home of the Kafir-Kalash or “Wearers of the Black Robes”, a primitive pagan tribe. Their ancestry is enveloped in mystery and is the subject of controversy. A legend says that five soldiers of the legions of Alexander of Macedonia settled in Chitral and are the progenitors of the Kafir-Kalash.
The Kalash women wear black gowns of coarse cloth in summer and hand-spun wool dyed in black in winter. Their picturesque headgear is made of woolen black material decked out with cowry shells, buttons and crowned with a large coloured feather.
DAY 06 HIKING IN KALASH VALLEY
Today is reserved for a day hike over to the other village of Kalash Valley, for our lunch we will be having packed light lunch with us with some juices and biscuits. It’s a magnificent short trek into the beautiful Birrir. For overnight stay we will be transferred to Chitaral Valley because we have to catch an early morning flight over to Peshawar.
DAY 07 FLY DRIVE OR TO PESHAWAR
From Chitral Valley a spectacular flights takes us to Peshawar city. After transfer to hotel and a short break we set off to explore this ancient historical city, which homes to the most hospitable hosts of the world, the Pathans! It’s where Alexander the Great came with his Army, where Buddhists flourished their Buddhism and The great Babur marched through historic Khyber Pass to conquer South Asia in 1526 and set up the Moghal Empire in the Indo-Pakistan subcontinent. We will be visiting the Old City, Qissa Khawani Bazaar, Mosque of Mahabat Khan and Peshawar Museum. Overnight stay in hotel. IF FLIGHT CANCELS, WE DRIVE TO PESHAWAR VIA LOWARI AND MALAKAND PASS.
DAY 08 SIGHTSEEING EVENING DRIVE TO ISLAMABAD
After our short visit to authorities in Peshawar, we will continue towards The Great Khyber Pass, the prime attraction in this region is the Khyber Pass situated in the Sulaiman Hills which form the western barrier of Pakistan. The hills dip down here, leaving a passage sometimes as broad as 1 ½ kms (1 mile) and sometimes as narrow as 16 metres (42 feet). The Pass begins near Jamrud Fort 18 kms 11 miles) from Peshawar and extends beyond the border of Pakistan at Torkham 58 kms (36 miles) away. After driving back to Peshawar, we will drive towards Islamabad the Capital City of Pakistan. Overnight stay in hotel.
Isn’t all land in Hong Kong owned or at least sold by the government?
If inflation is 5%, and the economy doesn’t grow at all, won’t GDP grow 5%?
another question
At the end of the Second World War per capita income was 180$. BY 1982 the per capital income of Hong Kong was 6,000$. Even the lowest 20% of Hong Kong households reached 1300$ per capita income by 1976- seven times the average income just after the war.
so from 180$ in 1942 and 1982 was 6000$
doesn’t this really say nothing? cause you could inflate currency, like everyone in zimbabwe are billionaires on welfare.
These are inflation adjusted figures. As I recall the base year is 1977
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