Recommended Reading, Part III: Economics

The Post-Physicalist Physiocratic Curriculum, Continued

Welcome to the third installment of our “post-physicalist physiocratic curriculum.” As befits a philosophy inspired by the eponymous 18th century economics movement, economics forms a central part of our curriculum. The reading list is therefore quite long.

Because of the number of books on our economic curriculum, my comments on each book will necessarily be much shorter than those from the prior two installments (moral philosophy and anthrophysiocracy).

Moreover, despite the length of the reading list, the physiocratic economic curriculum is actually quite incomplete. Unlike the prior two categories I do not think I can offer definitive alternatives to the failing and flawed contemporary consensus. Thus our reading list will end, not with answers, but with unanswered questions.

It is my hope that some of my perspicacious readers might be familiar with books or articles which do address these questions. After all, this reading list is exclusively compiled from books I’ve read. Some of them I read long, long ago, others much more recently; some as part of a classroom, others on m own; some in great depth, others with a breezy skim. Despite being a voracious reader, the list of books I haven’t read vastly exceeds the list of books I have. So please add your own suggestions to this reading list in the comments!

Why Economics Matters

We being our economic curriculum with an exploration of the telos of economics. Why does economics occupy a central position within the physiocratic curriculum? Why does it matter if our leadership class adopts incorrect economics? Why should ever citizen care deeply about these issues?

It was Ayn Rand who first opened my eyes to this subject, and her book Capitalism: The Unknown Ideal, is the first book on our list.¹ Rand and her co-authors present a philosophical case for laissez-faire capitalism in a minarchist state, not out of the utility of the state, but as the only proper way for free men and women to flourish.

Next, we turn to monetarist Milton Friedman’s Free to Choose. A robust defense of the virtues of capitalism over central planning, Free to Choose was mandatory reading at the US Military Academy. I am today much less of a fan of Friedman’s then I was as a younger man, but the book remains a highly readable introduction to neoliberal economics.

From Friedman, we drift over to the Austrian economist (well, economic journalist, really) Henry Hazlitt. His book Economics in One Lesson is a breezily short manifesto in opposition to Keynesian thinking.

Finally, we read F.A. Hayek’s classic The Road to Serfdom. For many years, I held Hayek in the highest regard as one of the foremost economic thinkers the Right has ever produced. In recent years, I have become more skeptical of some of his work, which seems to have ended up supporting a neoliberal paradigm which has been very pernicious. Nevertheless, The Road to Serfdom is a great read for every lover of freedom.

If you’re already persuaded of the importance of economics, you can skip these books and head on to the next section.

Classical Economists

Classical economics forms the core of our curriculum. While classical economics is often said to start with Adam Smith, I believe it began with Richard Cantillon, whose work grounded both 18th century classical economics and 18th century physiocratic economics. Cantillon’s Essay on Economic Theory is (in my opinion) a masterpiece which explains the circular flow of an economy better than any other book; if you read only one recommendation on this entire list, read Cantillon.

What makes Essay on Economic Theory so good? Nowadays, our economy is of such complexity that economists are forced by necessity to model and discuss “toy economies,” vastly simplified from real economics by the exclusion of countless factors. In Cantillon’s day, the economic situation was far less complex, and so he was able to discuss the workings of the real economy in a way we simply cannot now. Cantillon’s work provided the basis for the development of the economy in my best-selling RPG Adventurer Conqueror King System.

Having finished Cantillon, we turn to Cantillon’s epigone, Adam Smith. His book The Wealth of Nations is nowadays often mentioned and rarely read, especially since language drift makes it a difficult read. Smith’s work introduces the concept of the “invisible hand,” e.g. that capitalism can transform selfish action into social good. That said, I do not count myself among those who revere Smith; most of what he said was merely a development of the work of Cantillon and the other physiocrats who preceded him.

After reading Smith, we turn to David Ricardo’s classic On the Principles of Political Economy. Principles is notable largely for its contributions on economic rent and free trade. While I have personally come to reject Ricardian free trade, it’s important to understand the argument for it. Ricardo remains something of an idolized figure among contemporary thinker, largely due to his ability to argue for complex economic systems without resorting to mathematics. As anarcho-capitalist David Friedman put it in Price Theory, “The modern economist reading Ricardo’s Principles feels rather as a member of one of the Mount Everest expeditions would feel if, arriving at the top of the mountain, he encountered a hiker clad in T-shirt and tennis shoes.”

We finish our study of classical economics with Henry George’s Progress & Poverty. George famously argued for a land value tax that would transfer the economic rent earned by landlords towards public purposes. Progress & Poverty provides the economic explanation of why that should be done.

I ignored George for many years. However, the economic historian Michael Hudson persuaded me that George matters a lot. According to Hudson, the most important distinction between classical economics and neo-classical economics is in the approach to economic rent. What classical economists called a “free economy,” asserts Hudson, was an economy free of economic rent. Conversely, what neo-classical economists call a “free economy,” says Hudson, is an economy free of government interference. But the neo-classical economists do not care about economic rent — in fact, they have abolished the concept altogether! Because neo-classical economics triumphed, Henry George ended up the last great economist to focus on economic rent for over a century.

Neo-Classical Economics

The neo-classical school emerged in the late 19th century. If Michael Hudson is correct, the neo-classical school emerged as a reaction to Henry George, and is effectively a “deflector shield” that blocks attacks on economic rent. Abolishing the concept of economic rent so that economic rentiers could dominate was the entire point of the neo-classical program.

Mainstream economists, of course, don’t agree with Hudson. The orthodox assessment is that following the great classical economists, the science degenerated into a period of “vulgar political economy” (as Marx called it) in which little progress was made because of the flawed labor theory of value. which assert that the difference between classical and neo-classical economics grew out of the difference in their theory of value, with classical economists holding a labor theory of value and neo-classical theorists holding a marginal utility theory of value.

I think the neo-classical school is terribly wrong about virtually everything (and anything it isn’t wrong about, the Austrians do better), so the reading list here is very short. If you want a primary source, read Alfred Marshall's "Principles of Economics." First published in 1890, it laid the groundwork for many of the concepts and analytical techniques that become orthodox neo-classical economics. Marshall's work emphasized the roles of supply and demand in price determination and marginal utility, key concepts that distinguished neoclassical economics from classical economics.

If you aren’t a stickler for primary sources, or if Marshall’s 19th century prose is too painful to abide, you can skip this one and learn about neo-classical economics from Nordhaus and Samuelson, below.

Keynesian Economics

The neo-classical economists worked primarily in what we today would call “microeconomics”. The field that would become “macroeconomics” was created by J.M. Keynes in his seminal book The General Theory of Employment, Interest, and Money. The General Theory was written to explain the Great Depression. According to the prevailing neo-classical economics of the day, the Great Depression simply shouldn’t have happened. Prices and wages should have dropped until the market cleared, and all goods and labor were sold. But it didn’t. There was something very wrong with neo-classical economics.

Keynes’ book became perhaps the most influential treatise on economics in the post-war period. I say “perhaps” because, in many ways, Keynesian macroeconomics was actually based on an interpretation of Keynes known as the IS-LM Model developed by Sir John Hicks. The Post-Keynesian economist Steve Keene has argued that the IS-LM model and its incorporation into the neo-classical synthesis, has greatly distorted Keynes’ actual thought.

The General Theory is a famously difficult - some might say painful - read, so if need be you can skip this book in favor of Nordhaus & Samuelson, below.

The Neo-Classical Synthesis

The neo-classical synthesis is nothing more and nothing less than the combination of neo-classical microeconomics with Keynesian macroeconomics. When economists speak of “mainstream economics,” “orthodox economics,” “the economic consensus,” and similar terms, they are invariably referring to work within this field.

Like neo-classical economics, the neo-classical synthesis is terribly wrong about virtually everything. Therefore, I will recommend only one book in this category: Economics, Paul Samuelson & William Nordhaus. This textbook, first published in 1948 and now in its 108th edition, has been used to introduce four generations of economists to the neo-classical synthesis.

Debunking Economics

Having now painfully and laboriously guided you through the foundations of today’s orthodox economic theory, now it’s time to delightedly and explosively blow it all up. To do so, we turn to three wonderful books: Steve Keen’s Debunking Economics: The Naked Emperor Dethroned; Michael Hudson’s J is For Junk Economics; and Mariana Mazzucato’s The Value of Everything

Keen and Hudson disagree on some economic specifics, but they largely agree that neo-classical synthesis, and indeed all of neo-classical economics, is utter trash. Junk. Garbage. Worse than useless, it’s so utterly wrong-headed that any civilization that purports to follow its mandates is doomed to endless repeats of the Great Depression, Great Recession, and more. Read these two books to find out why. Not only are they mind-blowing, they’re also witty and fun.

Mazzucato’s book is more narrowly focused than the prior books, but no less thought provoking. The Value of Everything sets out to discredit the utility of the neo-classical gross domestic product, and it does so thoroughly. In particular, Mazzucato shows that much of what we call GDP (production) is actually just an extraction of economic rent by the FIRE industry. Although nominally left-leaning, Mazzucato’s work annihilates the claim that the Blue States are the centers of American productivity by showing that the sky-high GDPs of New York, California, and their ilk are largely just due to their exorbitant home prices!²

At the end of Debunking Economics, you’ll find that Keen offers a number of alternatives to neo-classical economics. It is to alternative economic theory that we now turn.

The Austrian Alternative

One of the alternatives that Keen highlights is Austrian economics. Although little respected within mainstream economics, Austrian economic thought has been central to the Objectivist and Libertarian movement for half a century. I imagine that many of my readers have a more than passing familiarity with it!

Among the key principles of Austrian economics are:

1. Economics is a deductive science built on methodological individualism, so “top down” economics is invariably wrong;

2. The economy is a dynamic system that is in continuous flux, so the neo-classical attempt to model the economy in “general equilibrium” is wrongheaded;

3. The price of goods and services in the economy is determined not by the labor required to offer them, but by the marginal preferences of consumers for them;

4. The interest rate in the economy is a result of time preference in the context of supply and demand;

5. Manipulation of the interest rate by banks creates the business cycle of booms and busts;

6. Inflation is created by an increase in the supply of money over the supply of goods and services, e.g. an artificial increase in the money supply; and

7. Fractional-reserve banking is highly destructive of economic prosperity.

Of the many books on Austrian economics I’ve read, the two I’ve returned to the most are Ludwig Von Mises’ Human Action and Murray Rothbard’s The Mystery of Banking. The former provides an excellent overview of points 1-5, while the latter largely covers points 4-7.

For most of my adult life, I considered myself an adherent to the Austrian school. I still consider Austrian economics to be mostly right about most things. However, the Austrian school more-or-less considers the nation-state an unnecessary evil, and some of its stances - free traffic in goods, free movement of labor, and so on — have greatly aided the managerial globalists in their pernicious agenda. As such, I cannot conclude that Austrian economics is the proper basis for the new physiocracy.

The Austro-Classical Alternative

What about a synthesis of the Austrian school and the Classical school? Economist George Riesman accomplished just that in his magisterial book Capitalism: A Treatise on Economics. Reisman is the Professor Emeritus of Economics at Pepperdine University and has the distinction of having been a student of Ludwig von Mises, a personal friend of Ayn Rand, and a luminary in the Objectivist movement. He also is a some-time correspondent of mine, and his insights provided the basis for my essay Solving the Profit Puzzle.

By combining forgotten insights of the classical economists with the brilliant work of the Austrian economists, Reisman was able to develop the ultimate textbook for laissez-fair economics. It is a truly titanic and authoritative work, over 1,000 pages long, and every page is dense with thought-provoking ideas. I’ve read it twice cover-to-cover, the first time in law school and the second time during the COVID lockdowns, and I hope you’ll read it too.

That said, Capitalism does not have all the answers. As with conventional Austrian economics, Reisman’s Austro-Classical economics still urges us to open our borders to the free movement of goods, services, labor, and capital — a recommendation that America’s post-war history proves wrong, even though virtually every economist insists on it!

The American School Alternative

If classical, neo-classical, Austrian, and Austro-classical economics are largely united in defense of free trade, where else might me look? The answer turns out to be a native-born system of political economy known as the American School.

The American School’s foremost proponent was economist Henry C. Carey. Writing in 1873, Carey contrasts the American School’s approach with that of the classical economists:

Two systems are before the world;... One looks to increasing the necessity for commerce; the other to increasing the power to maintain it. One looks to underworking the Hindoo, and sinking the rest of the world to his level; the other to raising the standard of man throughout the world to our level. One looks to pauperism, ignorance, depopulation, and barbarism; the other to increasing wealth, comfort, intelligence, combination of action, and civilization. One looks towards universal war; the other towards universal peace. One is the English system; the other we may be proud to call the American system, for it is the only one ever devised the tendency of which was that of elevating while equalizing the condition of man throughout the world.

With but minor edits, Donald Trump could read Carey’s manifesto at a MAGA rally and it would be met with cheers from the American working class which has seen its standard of living sink.

The key principles of the American School are:

• Protection of industry from import competition through a high tariff;

• Public investment in physical infrastructure to meet the nation’s needs; and

• Development of a national bank and national currency system.

The foundational works of the American School are these:

• H. C. Carey’s Principles of Social Science

• Friedrich List’s Outlines of American Political Economy

• Friedrich List, National System of Political Economy

Ironically, the American School was almost entirely abandoned in America within a few decades of Carey’s death. However, through the work of the German-American List, the American School became highly influential worldwide, with American School policies adopted by Imperial Russia, Meiji Japan, Nazi Germany, and Deng China.

As physiocrats, however, we cannot adopt the American School wholesale. Because of its emphasis on government investment into the economy, the American School has primarily been adopted by authoritarian and totalitarian governments, and we should be rightly skeptical of any system which over-promotes central banking and government spending. What we want to take out of the American School is its political realism - e.g. its recognition that nations compete, that wars happen, and that a nation which deindustrializes its manufacturing, imports its goods, and outsources its labor is on the way to ruin.

Fortunately, economist Ian Fletcher has done our work for us. His incredible book Free Trade Doesn’t Work updates and summarizes the American School case against free trade. If you read only two books from today’s reading list, making Free Trade Doesn’t Work one of the two. I credit this book with single-handedly converting me from a free trader to a protectionist.³

Another economist working in the American tradition is South Korean professor Ha-Joon Chang. Chang’s book 23 Things They Don’t Tell You About Capitalism is a takedown of neo-classical economics from an American School perspective that could have just as well been included in the Debunking section above. Another book by Chang, Bad Samaritans, is a debunking of free trade theory informed by the economic history of the developing world.

Other Alternatives

Given the high praise that I have given to Steve Keen’s Debunking Economics I would be remiss not to mention his follow-up book, The New Economics. Steve Keene is a self-described Post-Keynesian who is heavily influenced by Marvin Minsky. Unlike the neo-classical economists, Keene puts debt at the center of his analysis, which makes him an excellent source for understanding the ruinous state of debt-ridden America.

Where to Go From Here?

As I said at the outset of this essay, the physiocratic curriculum is incomplete. It seems to me that the economics we need is an Austro-American synthesis that combines the insights of Mises, Rothbard, and Reisman, the critiques of Keene and Hudson, and the trade policies of Carey, List, Fletcher, and Chang. Sadly, such a synthesis does not yet exist - but it needs to.

neo-classical economics is never going to bring us the Art Deco future we deserve

Let us Contemplate this on the Tree of Woe at the point where the supply and demand curve intersect to maximize consumer surplus.

1. Capitalism: The Unknown Ideal was partly written by a then-unknown economist named Alan Greenspan, who of course later became famed Chairman of the Federal Reserve. As “the Maestro,” Greenspan oversaw an enormous expansion in the fiat money supply, in seemingly direct contradiction to the principles he and Rand espoused here. Despite this, Greenspan and Rand were lifelong friends who remained close even to her death. That’s a strange thing, because Rand was hyper-vigilant about excluding anyone from her circle who disagreed with or betrayed her views. Perhaps the reason she didn’t disavow Greenspan is that Maestro was a real-life Francisco D’Anconia. In Atlas Shrugged, D’Anconia uses his position as a copper tycoon to sabotage the world economy. I think a case could be made that Greenspan used his position at the Fed to sabotage the soundness of the US economy, and for the same reasons. But perhaps that is just me hoping that a figure of my teenage admiration didn’t betray their values.

2. When calculating GDP, economists assume that owner-occupied homes are actually businesses that charge rent to their occupants. Thus, when a homeowner’s home rises in value from, e.g., $250K to $500K, the US GDP increases by an amount equal to the increase in rent due from that price change. But since US homes are international assets purchasable with a debt currency printed in near-unlimited volumes, the rise in home prices is utterly disconnected with productivity. The entirety of the FIRE portion of our GDP is fake. The literally fake nature of GDP explains why, for instance, Russia (with its “tiny GDP”) can be such an economic powerhouse while America (with its huge GDP) can’t even make war machines anymore.

3. So great was my commitment to free trade that for over a decade I adopted the sobriquet FreeTrader as my username on instant messaging. I apologize and am very sorry.