Austrian
economist Ludwig von Mises wrote his greatest work, Human Action, in 1949. In this book Mises makes a case for
laissez-faire capitalism based on praxeology, or rational investigation of
human decision-making.[1]
In his book, Mises states that “what determine the course of a nation’s
economic policies is always the economic ideas held by public opinion. No
government whether democratic or dictatorial can free itself from the sway of
the generally accepted ideology.” This is a rather extreme statement for an
economist to make. Anyone with a limited knowledge of Public Choice theory
might find this declaration rather bizarre. Are governments as tightly bound to
public opinion as Mises suggests? There are far too many examples in history
that demonstrate the contrary.
The discipline
of Public Choice theory itself demonstrates how internal government incentive
structures can often lead to policies that are not, in fact, by the ideas of a
majority of citizens in a country; but rather by the interests of a powerful
few.[2]
Take the U.S. Occupy movement, for example. American citizens were protesting
what they perceived to be the overt neglect of the vast majority of Americans needs
within U.S. economic policy. Further, they viewed American economic policy as being
only reflective of 1% of America’s wealthiest people. In other cases, the
economic policies implemented by a given country may not only be different from
the demand of the populace, but opposite.
Ideas… Then what’s the point?
With all the
emphasis on interests and incentives, the concept of Public Choice minimizes
the role of ideas. I would argue, however, that we cannot forget the power of
ideas to overcome bad interests in any government system, and to act as a road
block to the sort of expansion of State power that can destroy liberty. After
all, it is ideas that prompt once silent populations to begin demanding change;
as the #OccupyWallStreet protestors did in 2011. Although Public Choice theory
is a great tool for bringing a dose of realism to international economics, it
is limited by its failure to recognize the power of ideasto bring about change,
and to shape new interests.
So maybe Mises
wasn’t so crazy after all.
To paraphrase Victor Hugo, “More
powerful than an army of special interest lobbyists, is an idea whose time has
come”.
[1] Cassing, J. and A. Hillman (1985), "Political Influence Motives and the Choice Between Tariffs and Quotas", Journal of International Economics, 19, pp. 279-290.
[2] Brock, W. and S. Magee (1978), "The Economics of Special Interest Politics: The Case of Tariffs", American Economic Review, 68 (2) 246-250.
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Fatima, good post. I'm suspicious of the constructivist emphasis on ideas as the most important thing in international policy, especially in light of the "Occupy Wall Street" example you used. While the protests captivated the media for quite a while, the actual movement seemed to gain little meaningful traction with the economic powers or the legislature- and now that its dead, I can't identify any significant reforms. I'm interested how Von Mises would assess that movement, especially considering that #OWS seemed to be a direct response to perceived excesses in Laissez-Faire economics.
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