Book Reviews

01 março, 2006

14) Luta de classes entre liberais?

Mark Skousen:
Vienna and Chicago, Friends or Foes? A Tale of Two Schools of Free-Market Economics
Washington: Capital Press, 2005. x + 305 pp. $25 (paperback), ISBN: 0-895-26029-8.

Reviewed for EH.NET by Pedro Garcia Duarte, Department of Economics,
Duke University.

Mark Skousen is a professional economist and adjunct professor at Barnard College, Columbia University. In 1994 he gave an address to the Mont Pelerin Society entitled "I Like Hayek." Much to his surprise, his generous comments about Hayek's macroeconomics were not music to the attendees' ears, most of whom were followers of Milton Friedman. Skousen then wrote _Vienna and Chicago, Friends or Foes?_ to make sense of his baffling experience.

Hayek was one of the founders and the first president (1947-1960) of that Society, created to foster market-oriented economic systems and free societies. Among Mont Pelerin's later presidents were three Chicago professors: Friedman (1970-1972), George Stigler (1976-1978), and Gary Becker (1990-1992).

Skousen's main question is why do followers of the Austrian and Chicago schools disagree so much, given that both are "devout believers in free markets and free minds" (p. 1)? The author explores the points of agreement and disagreement between these schools. In doing so, Skousen argues that these economists have more in common
than not. Moreover, he closes the book defending libertarian ideas and expressing his belief that the bridge linking Austrian and Chicago schools, to use his metaphor, is coming down "and integrating a dynamic prosperous community of scholars in both camps" (p. 291).

Chapters two and three discuss the origins and influences of the two schools. According to Skousen, "the Austrian and Chicago schools were born in the midst of crises in economic theory, at times when the classical laissez-faire model of Adam Smith faced unprecedented challenges from the critics of capitalism. The Austrians rescued classical economics from the socialist/Marxist threat in the late 19th century, while the Chicago school countered the Keynesian challenge of the 20th century" (p. 15).

After this account, the next four chapters address the points of disagreement: whether theories should or should not be empirically tested; the concept of the ideal monetary system; the business cycle, capital theory, and macroeconomic model; and the role of government in a market economy and other microeconomic issues.
In the last three chapters, Skousen broadens the scope of the book by contrasting not only each school's view of the great economists, but also the view each school has of the other (chapter eight), and by exploring the "faith and reason in capitalism" they share (chapter nine). The concluding chapter asks "how far is Vienna from Chicago?" and ponders the future of free-market economics.

It is perhaps less of a commentary on Skousen than on present-day publishing houses to say that the book has a number of typos, incomplete reference lists, and missing sources of statements by other economists and of data used in the text. It also lacks clear definitions of terms that are open to all manner of interpretation,
as, for instance, "Keynesianism" and "Marxism." Furthermore, chapters eight and especially nine repeat ideas already presented and do not seem crucial to the main argument of the book.

To the good, Skousen is very familiar with Austrian and Chicago school theories. He has "developed close friendships with leaders of both camps" (p. 8) and his personal correspondence with them enhances he narrative with their personal accounts of issues dealt with in the book. This correspondence, together with his familiarity with the literature and humorous writing style, are the greatest merits of the

Skousen's book can be read in at least two ways. One is as a libertarian manifesto designed to promote Austrian theory and to identify ways in which this theory could be more successful than it currently is. This seems to be Skousen's real agenda, especially in light of his concluding chapters. On this matter I shall take no

The other reading is as a historical account of the resemblance and disparity between Austrian and Chicago schools. Comparing schools of thought, rather than individuals, as well as exploring their development appeals to historians.

However, the problem is that Skousen's narrative is not historical. It is rather a search for the "best" argument about the issues discussed and the great economists behind them -- on whose shoulders prominent economists will now stand to look for the truth -- as he clearly states: "This book will analyze all these issues, deciding which camp has the most convincing arguments for each" (p. 8). He is outspoken about his personal biases and opinions (see the section "the author's biases," p. 12), and he is explicit in attaching his personal judgment about, among other things, who is the winner in each of the points of disagreement: he closes chapters four to seven with an "advantage" to Vienna or to Chicago, a battle won twice by each of them.

Historians of economics have something to say about the origins of the Austrian and the Chicago schools, about the mathematization of neoclassical economics and other issues touched on by Skousen (see Morgan and Rutherford (1998), Mirowski (2002), Weintraub (2002)). An historical understanding of these and other topics would prevent the repetition of inaccurate commonplaces such as Keynes being "the theoretical spokesman for big government and the Welfare State" (p. 58). Moreover, it would also prevent flimsy assertions such as the rational expectations theory being a Chicago product (p. 75, 85-86) (see Sent (2002)).

Furthermore, historical critical reasoning calls for clear documentation supporting one's claims, and, therefore, prevents a highly implausible statement (as testified by a retired librarian who worked at Duke at the time) like: "During [the 1960s], for example, Duke University library refused to carry [Friedman's] books" (p. 73),
presumably because they were at odds with the orthodoxy of the time. As Skousen personally informed me, he based that claim on Friedman's (1998, pp. 340-341) memoirs, which his book fails to reference. Friedman, for his part, heard of the alleged banning from a letter written to him by a Duke student. More important than judging its veracity (which is hard to do) is to appraise its relevance. Duke's
Economics Department at the time was far from being a Keynesian trench defending orthodoxy against Friedman's ideas.

However, it is important to keep in mind that Skousen wisely titled the book "a tale [not a history!] of two schools of free-market economics." In writing a tale one is free of historical accuracy. Moreover, the opposition tale _versus_ history is appropriate for delineating the differences between Skousen's and an historian's
perspective. For Skousen, "[s]tudying each school brings new insights and discoveries into the marketplace of ideas" (p. 247). Surprisingly for an Austrian follower, this characterization of the "marketplace of ideas" fails to incorporate time and the structure of production of ideas in a meaningful way, a task historians of science in general, and of economics in particular, try to tackle.

Milton and Rose Friedman (1998). _Two Lucky People: Memoirs_, Chicago: University of Chicago Press.

Philip Mirowski (2002). _Machine Dreams_. New York: Cambridge University Press.

Mary Morgan and Malcolm Rutherford (1998). "From Interwar Pluralism to Postwar Neoclassicism." _History of Political Economy_ 30 (supplement).

Esther-Mirjam Sent (2002). "How (not) to Influence People: The Contrary Tale of John F. Muth." _History of Political Economy_ 34 (2).

E. Roy Weintraub (2002). _How Economics Became a Mathematical Science_. Durham: Duke University Press.

Pedro Garcia Duarte is a Ph.D. candidate in economics at Duke University with majors in macroeconomics and the history of economic thought. He is currently working on the history of modern monetary economics, with a working paper entitled "A Feasible and Objective Concept of Optimality: The Quadratic Loss Function and U.S. Monetary
Policy in the 1960s."

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