Why I am an Austrian

The history of Austrian economics in the United States was that because Austrian economists were “anti-New Deal” they formed an political marriage with the “old Right” in the United States.The reason I find Austrian economics interesting is because a lot of the analysis of Austrian economics fits nicely with Confucian social analysis. This creates a synthesis that is very different than what Murray Rothbard has come up with.

In particular, the three things that I find useful about Austrian economics is that conventional neo-classical economics assumes a pre-existing institutional structure, which may not exist in the case of a developing country like China. Neo-classical models can come up with a good theory that calculate equilibrium values if you do something with interest rates, but what happens if you don’t have a banking system or if you have an industral infrastructure that reacts in a non-conventional way to interest rates. The problems that China presents involve creating institutions, and neo-classical economics says nothing about the types of institutions you should create and how to create them.

By contrast, Austrian economics begins at the very core with “human desire”. You look at the individual and how he or she behaves, and then you zoom out and look at how collections of individuals behave. With this view, you can try to figure out what institutions need to be created and how to create them.  The big success of the Austrians was to figure out what the essential problem with central planning is, which is that central planning simply cannot handle all of the economic calculations necessary to run a national economy, and those calculations have to be done through some sort of market mechanism.

The second thing that then that I find useful about Austrian economics is that Austrian economics thinks about the process of wealth creation, whereas neo-classical economics really doesn’t have anything useful that I can see about the process of wealth creation. Neo-classical economics mainly concerns itself with how to efficiently redistribution wealth that is already existing, but it doesn’t have a theory about how to actually create wealth. Neither do Austrians, but they are thinking about the topic.

The final thing that I find useful about Austrian economics is that it concerns itself with imperfect information. What do you do if you don’t know what is going on? This is particularly important in Chinese economic reform because the process of Chinese economic reform has been a process of learning.

Within the framework, I’ve come up with different conclusions and views than von Mises and Rothbard. In particular, von Mises’s notion that private managers in large private corporations act differently than private managers in large socialist state corporations is in my empirical experience, wrong. This also fits with the experience in China. In the early-1980’s China was able to have huge bursts in agricultural production by making farmers individual entrepreneurs. These policies also worked very well with small companies, but in large companies, these policies failed miserably

One thing that I noticed is that I’m more concerned with institutions than the typical Austrian, and I  think figured out why.  It turns out that my thinking was very similar to the “Texas institutionists” which was odd because even though I live in Texas, I wasn’t aware of them.  So I was thinking about what we were seeing that caused us to see the world in the same way, and it hit me that it was because of the oil industry.  I worked in a major oil company for a number of years, and the bureaucracy and the culture within a private oil company is the same as within a state-owned oil company is the same as frankly within a large bureaucratic institution like the Communist Party of China.  The reason that big business gets along well with the Communist Party of China is that the people and the culture within them are pretty much the same.  The only difference is at the top where there is a need not to go bankrupt in private corporations which is not present in state enterprises.

So I while I agree with von Mises and Hayek’s ideas on the central nature of economic calculation, and I agree about the importance of entreprenurship in small companies, I just don’t think that their description of the difference between large state companies and large private companies is correct.

Thoughts on Peter Perdue’s “China Marches West”

I had the pleasure of reading Peter Perdue’s book “China Marches West – The Qing Conquest of Central Eurasia” this afternoon. One of the things that I found most useful about the book was the last chapter in which Perdue summarizes a lot of the recent scholarship in the Qing dynasty, and then tries to connect them with recent scholarship on nationalism. Perdue points out (correctly) that nationalist readings of history tend to have several characteristics, one of which is that they are telelogical, in that they imply that the present is the inevitable result of the past, and they imply the existence of “natural boundaries.” Unlike a series of what I call “China-debunking” literature, Perdue even-handed (and I think correctly) points out that these characteristics are common across all nationalisms.

Personally, I tend to agree that nationalist histories are “constructed products” and my own thinking on this is borrowed from Benedict Anderson’s work “Imagined Communities.” By “constructed” I don’t (and I don’t think either Anderson or Perdue) mean “fake.” But rather than a natural outcome of facts, to create a history and nationalistic narrative or national identity requires conscious effort.

I know, since I’ve had to create my own narrative.

One of the interesting connections was that one of the first classes I took at MIT was a seminar on the Asian-American identity given by Professor Perdue and Professor Sally Deutsch. Creating an identity has been a struggle for me, and it has also been increasingly important now that I have kids, and am trying to figure out what to teach them. National identity has touched every aspect of my life. It touches who I married, what I teach my kids, what jobs I take or don’t take, where I live, and every other decision I make. And the discovery that I made was that none of the “off the shelf” identities really worked for me. So it was a liberating discovery to learn that national boundaries, national histories, and national identities, were constructed. If the “off the shelf” identities don’t work, then I can create my own, and I have proceeded to do so out of Chinese nationalism, American nationalism, combining with the “nationalisms or sub-nationalisms” of Taiwan and Texas. I’ve come up with something that works……

As long as war doesn’t break out in the Taiwan straits….. Fortunately that is looking less likely, and one thing that I figured out a few years ago, was that if a war did break out in the Taiwan straits, my life would be in shambles, and so would the lives of the people around me even if they had blonde hair and blue eyes and ancestors that came from Ireland.

One thing that is very different in 2006 than in 1987 is how far progressed globalization has progressed. In 1987, I was a little embarassed to have as strong feelings for Chinese nationalism as I did. The dominant paradigm was the “melting pot” in which I and my kids would lose their Chinese characteristics and assimilate into the American mainstream much as the immigrants of Eastern Europe did. This made me uncomfortable because I felt as if I’d lose some precious if that happened, even if I was unable to articulate exactly what. At the same time, I had this deep fear that I’d be completely out of place in “China” and find it totally alien and different.

Those fears are still there, but globalization has lessened a lot of it. It is becoming more and more obvious that being able to more or less move between a Chinese and an American identity is not a handicap, but it is something in fact that multi-national corporations find desirable. There is still the fear of being seen as a “traitor” or a “foreigner” but that is increasingly being lessened by the fact that more and more of the world is becoming like me. A person with connections to various parts of the world, and has to figure out how to integrate these different parts of themselves.

And in this all, I find one commonality between Qing China and the United States which is very touching and gets back to MIT. Both societies faced the difficulty of trying to integrate people of very different languages and ethnicities into a functioning whole, and in both cases, part of the solution involved creating an academic system. In the case of Qing China, it was to use the system of Imperial examinations to create a shared sense of communal values. In the case of the United States, it was through the use of public schools and an excellent university system. In the case of Qing China, the value system that was promoted was one based on classical Confucian learning. In the case of the United States, the value system is a civic religion based on the Constitution and the values that underlie it. Ultimately, these two value systems are not in conflict (I would hope).

And looking at history, this correspondence is not accidental. My great-grandparents adopted the value system that was promoted by the Imperial examination system. Those values were transmitted to me, which is why I was attracted to something similar and feel such a strong attraction to academia and why I ended up at MIT.

But in trying to puzzle all of this out, I had to cross a lot of boundaries, which made me question the “naturalness” of the historical boundaries, and made me realize that they were as “constructed” as the national histories.

One final thing. One characteristic of national histories is their telelogical nature (which is known as the Whig view of history), every event is portrayed as being the inevitable set of events which leads up to the present. In giving up the sense of historical inevitablity, one gives up a lot of security, but one gains something far greater. Freedom and the scary realization that people’s decisions matter.

If the present is not the inevitable result of the past, then it follows that the future is not the inevitable result of the present. The world we see today is the result of people’s decisions and random events mixed together. If people had decided to do different things, the world would be different, but that means that the decisions we make today will influence the future. This puts an awesome and scary responsibility on us to make correct decisions.

And on what basis should those decisions be made???

One thing that I’ve learned in looking at history is that the decision about what flag you wave or what uniform you wear is largely out of your hands. I find myself a deep blue supporter of the Kuomintang because of who my parents where. There is some scope for choice, but that is limited.

Toward a social constructivist theory of law

Here is a sketch of some ideas that I got reading Benedict Kingsbury’s work on the International Legal order, and his efforts to created an global administrative system.

The two theories of law are legal positivism and natural law, which are in conflict.  To resolve this conflict one can see how a similar conflict was resolved in early childhood education.

There is a deep correspondence between these two theories of law and two theories of early childhood development, the behaviorist and the developmentalist.  The behaviorist model is associated with Skinner and Pavlov.  The developmentalist are associated with Montessori.  Behaviorists wear lab coats.  Maturationists are hippies.

The correspondence between these two theories is not accidental.  If you trace the history of ideas associated with maturationists, you end up with Rosseau, who also came up with the idea of natural law.  If you trace the history of ideas associated with behaviorists you end up with August Comte who came up with the idea of positivism.  These two people also took different sides on the French Revolution.  Rosseau with the republicans, and Comte with the monarchists.  Maturationists are liberals.  Behaviorists are conservatives.   Maturationists are hippies.  Behaviorists wear lab coats.

Now in early childhood education, the conflict between the two was largely resolved in the 1980’s with ideas with from cognitive development.  The main name with this is Lev Vygotsky’s whose main idea is social constructivism.  Learning is the process of making external interactions between human beings internal.

I  would argue that just as there is a “third way” in ECE, the concepts of cognitive development and social construction of ideas can be used to create a theory of law.  One example of this is wikipedia which in a very short time has developed an elaborate legal system with courts and legal norms.   The usefulness of this theory of international law is that I think it allows for the incorporation of non-state or semi-state actors.  States, non-states, and semi-states come from social interactions, and this provides a common ground to see how these relate to each other.  The other thing is that by using social interactions between individuals as the fundamental generating principle of law, one links in law with other endavours such as economics, diplomacy, and politics.  Finally, to get back to my early article, creating a social constructivist theory of law allows for one to bring in passion, emotion, and irrationality into international law.

It is necessary to include passion into international law since the fundamental actors are all based on passion.  International law is particularly “passionless” since it was created in the time of Grotius by kings to mediate what were essentially contractual disputes, and has many elements of contract civil law.  However, since the mid-19th century, the unit of international law has been the nation-state which ultimately is based on the rather irrational but important need for human beings to sacrifice themselves for their family and nation in the name of love.  Any theory of international law must incorporate these irrational but essential aspects of the human condition.  Social constructivism does this by basing law ultimately on the silly and irrational interactions (or lack thereof) between human beings.

To see an example of social constructivism in action, I’d argue that my views on the Chen Guangchen case are very highly influenced by social constructivism.  A legal positivist would look only at the literal application of the law, while a natural lawyer would try to find general principles.  Both would miss what I think is the essential matter of this case, which is how law exists within a particular social system and how it influences and is influenced by that system.

I’d also argue that social constructivism also takes the law out of the realm of the lawyers and puts it into the hands of the common man.  In legal positivism, the law is unconnected with social systems.  In natural law, the law is connected with abstract principles which are not connected with the day-to-day activities of ordinary humans.  The social constructivist views human and social relations as the basis of law, and by connecting law with people’s day to day lives, it provides a gateway by which people can be empowered to use law, rather than becoming dependent on experts.

Question: Relate what I’ve said to the various issues that have concerned Chinese philosophers since Confucius.

No one true way – Back to Hayek

The thing that I like about Wikipedia, and some of the discussions that are involved in dealing with the Chinese government is that there doesn’t seem to be any effort to find a “one true way.”  Everyone involved in the discussion probably has some slightly different view on what to do and how to do it, and we are all sharing information and trusting each other to do what is right based on the information that we have.  Some of these ways just contradict each other.  Jimbo Wales doesn’t think that a censored wiki encyclopedia is a good thing.  Other people in the discussion disagree with him, but everyone has the resources that they need in order to do what they need, and there does seem to be a desire to “let a hundred flowers bloom” to see what works.

This is important because once you believe that there is “one true way” then you develop mechanisms to enforce that one true way, and then you are as Hayek puts it  on the road to serfdom.  What you need to develop are some very basic rules so that people can minimally cooperate with each other.

More about Hayek, Austria-Hungary, and China

I’ve been reading more about Fredrich Hayek, and I’m starting to understand a bit about what I find attractive about the Austrian School and the writings of Hayek and von Mises. In particular, there is this chapter on the Untimely Liberalism of Fredrich Hayek

Click to access 200652223849290.pdf

The thing about this chapter is that it addresses squarely the paradox that think of myself both as a classical liberal, while also being a supporter of the Chinese Communist Party. This sort of paradox is also at the core of Austrian liberalism of the early 20th century and its attitudes toward the Habsburgs and Austria-Hungary. There is this paragraph about the early 20th century which is very relevant to the early 21st.

The deep irony of the late Habsburg empire was that an authoritarian Empire based on a medieval dynasty and tied to the heavily dogmatic ideology of the Counter-Reformation, in the end, under the stimulus of ethnic, chauvanistic centrifugal agitation, found its most eager defenders amongst individualist liberals, recruited in considerable part from an erstwhile parah group and standing outside the faith with which the state was once so deeply identified…

There are some other things that make sense to me. The similarity between the Jews of Eastern Europe circa 1900’s and ethnic Chinese circa 2000 are striking. The legal disabilities and discrimination that Eastern European Jews had suffered under had been removed several decades earlier just as the legal disabilities and discrimination that Chinese in the United States had suffered under had ended in the 1960’s. The multi-cultural polyglot civilization of Vienna-1900 is probably the same as that of the United States today, and out of that volatile mix, you end up with people like von Mises, Hayek, Freud, Einstein, ….. and Hitler.

And it seems that Hayek thought deeply about issues like what does it mean to be a loyal citizen of the Austrian-Hungarian empire, just like I’ve had to think very deeply about what it means to be an American or to be Chinese.

All of this ended with World War I, and fortunately in the early 21st century we seem to have avoided a war between Great Powers (i.e. the US and China) which would have been even more destructive to civilization than World War I was. The empires that fought World War I, all lost from it, and I’m happy that the prospect of a US-China confrontation over Taiwan is now receding.

But we are still in a war, and to figure out how to fight and win this war, we have to draw upon everything that we know about history. And one lesson of history is that wars almost always take a lot longer to finish that they people who start them think, and they almost always have extremely unpredictable consequences. (For example, the big winner in the war in Iraq is obviously Iran.)

One thing that scares me is that people in the United States just don’t seem to be thinking about what the world is going to be like in ten years. I’m not seeing much discussion about what the United States is going to be like after the next election. For a war that is supposedly about the virtues of democracy, that is more than a bit frightening. If after over two hundred years of constitutional government, the Republicans and the Democrats work together for the common good, what hope is there for the Sunnis, Shiites, and Kurds in Iraq? If we can’t calm down the rhetoric and emotional and have useful rational discussions of the great issues of the day, then what chance do the Iraqis have?  If we can’t fight terrorism without winking at torture, then who are we to draw the line against torture and death squads when bombs are going off daily in Baghdad?

Winning the Long War begins at home.  The t errorists cannot destroy us.  They can (and are very much trying to) set up a situation in which we destroy ourselves, and they seem to be doing a good job.

If we want to start winning the Long War, forget about focusing on Iraq.  Start by taking each of the 400 or so detainees at Guantanamo, put each of them through civil or military trials.  Convict the ones with crimes, release and apologize to the ones that don’t.