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Elul and Austrian Economics

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Yesterday I listened to a lecture by Rabbi Yisroel Meir Kirzner, famed Austrian economist and talmid muvhak of Rav Yitzchok Hutner.  The lecture was not a typical shiur by one who learned from a Torah giant, but an economics lesson given at the Mises Institute, the libertarian think tank dedicated to the Austrian School of economics.  Nonetheless, the idea he presented struck me just a much religiously as it did academically.

Let me begin by explaining one misnomer – Austrian Economics has nothing to do with Austria.  Rather, is it a school of economic thought focusing on the individual and his or her actions, as opposed to other schools of economic thought which focus on class struggle, utilitarianism, and econometric modeling (if you love economics but hate math, the Austrian School is the one for you!)  It should also be noted that most of the Austrian economists nowadays are not even Austrians, but Americans who follow the teachings of the Austrian economists Menger, Bohm Bowark and Mises.

Rabbi Kirzner’s lecture stressed an important point that reminded me of the primary reason I became interested in economics in the first place: the role of competition and the employment of economic thought.

In traditional economic thought, perfect competition is when a particular market reaches the point where everyone knows everything, all products are the same, and anyone can buy or sell any amount of the same item for the same price.  During this mostly hypothetical situation, prices are at their ideal level, producers and consumers are benefiting and all is right with the world.

But this definition fails to explain one key word, competition.  When we think of competition, we think of different firms battling it out, competing against one another in order to offer a superior product or service to the consumer.  According to the classical economic definition, perfect competition implies the product is perfect and therefore unchanging; according to the regular (and Austrian) definition of perfect competition, products are constantly improving.  In this respect, the classical economic definition of competition as a point on a supply and demand graph symbolizing a specific situation is the polar opposite of the Austrian definition of competition as a process and means.

This is where Austrian Economics comes in.  According to the Austrians, economics is more that just the study of who gets what and why; it tells us what works best, what the tradeoffs are and helps an individual understand the most efficient means for improving his or her current situation.

I am not a financially responsible person because I live on a budget; a budget helps me be financially responsible.  I am not a good father because I spend time with my son; spending time with my son helps me be a better father.  I am not a good Jew because I daven and learn; I daven and lean in order to try to be a better Jew. 

As Ellul begins, we are accustomed to begin introspection.  By Rosh Hashanah we determine what kind of person we truly are and by Yom Kippur we resolve to improve ourselves.  But without a truly economic approach, it is all more or less meaningless.  We must learn who we are in order to help ourselves move in the direction of our choosing.

Chodesh Tov

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