Lectures in Austrian Economics, Volume 1 by Jesús Huerta de Soto. (Palgrave Macmillan 2024)
Jesús Huerta de Soto is one of the great masters of Austrian economics and a master teacher as well. Videos of his enormously popular lectures in Austrian economics at the Rey Juan Carlos University in Madrid have been viewed by hundreds of thousands; and English speakers are fortunate that an edited transcript of some of these lectures is now available in the book. It is my pleasant task to review. The lectures vividly convey Huerta de Soto’s great interest in etymology and also his delightful sense of humor, though I anticipate that some of his jokes will offend “DEI” people and that is all to the better, but in this week’s column I’d like to concentrate on his illuminating philosophical views and their relevance for economics.
The dominant theme in the lectures is the creativity of the entrepreneur, understanding entrepreneurship to hold of all actions, as well as the activity engaged in by people with new ideas for making money in business. In all our actions, we speculate about an uncertain future.
The future that is relevant for action, de Soto believes, is made and not found, Time as understood in physics is not real time but rather a series of events that never change their order. He writes,
In economics, the concept of time is a subjective concept. What does this mean? It means that time, as we are referring to it, is time as the subject feels and experiences it in the context of each action. . . .We will call this the subjectivist view of time (Kairos in ancient Greek) in the sense that the subject feels the passage of time precisely because he or she acts and completes stages.
This is to be contrasted with objective time, which is simply movement along a line:
In the world of physics, time is a dimension, the fourth dimension, which is simply an analogy for movement. Imagine we are at the North Pole beginning at the time of the spring equinox. Well, at the North Pole you can see the sun, and the sun moves . . . after one hour . . . another hour. . .as if were marking the hours on an enormous clock face. The sun returns to where it was before. The fourth dimension of time, the one Einstein studied.
Though these are heady waters indeed that I enter with reluctance, I fear that de Soto has assumed a premise that need not be accepted. It does not follow from the fact that the events of chronological time, the “fourth dimension,” occur in a fixed order that these events continually recur in the same order, so that one cannot genuinely speak of “before” and “after.” It is not a consequence of Einstein’s General Theory of Relativity that physical events recur in this way, though there is in fact a model of the theory devised by Kurt Gödel that Einstein rejected, though he was much intrigued by it, in which this is true. But this is by the way.
Let us return to human action. Here, de Soto holds, human beings are radically free in the sense that what will occur in the future does not yet exist and is in part determined by what we decide to do:
In the sphere of economics and action, human beings face the future with permanent ineradicable uncertainty (not risk). Why is this so? Because what happens tomorrow will depend on our behavior as entrepreneurs. It will depend on the ideas, or knowledge, or imagination of each and every one of us, millions of human beings, and on what we are able to discover, create, and complete.
This is a view I find highly plausible, and it is a vital point that when we act, we take ourselves to be free in this radical sense. But it does not strictly follow that if the future does not now exist, i.e., if the position that philosophers call “presentism,” is true, then future events are undetermined. Perhaps in anticipation of this move, de Soto has an argument that the assertion that determinism is true is self-contradictory; but I will not look into this argument here.
What is important for our purposes is that the radical uncertainty of the future enables de Soto to rule out of court a great deal of neoclassical economics that is often used to justify interference with the free market. For example, he speaks of “the contradiction the vast majority of my colleagues, who are mathematical economists, fall into. And this is almost a joke. They develop mathematical equilibrium models (which they even call Dynamic Stochastic General Equilibrium Models) in which the world in fact does not change. . .And then they try to test those models in the real world, which is in a permanent state of disequilibrium. That is a genuine outrage.”
Perfect competition must also be dismissed as static:
So we see there are two alternative and opposing concepts of competition: competition as a dynamic process of rivalry, which is the correct concept of competition, and also the mockery mistaken referred to as “perfect competition,” in which everyone does the same thing, and, therefore, no one competes. . . . The insistence on applying the wrong methodology, that of the natural sciences, where constancy exists (and time and creativity do not), to the sphere of the social sciences, where human beings play the leading role, manifests itself in a string of errors, but perhaps the greatest of them has been the deification of an idea as absurd as the static concept of perfect competition.
De Soto sweeps away the notion of empirical testing in economics. Economic laws are true ceteris paribus (other things being equal,) but it is impossible to test ceteris paribus laws empirically. “In the real world, no scientist has ever been able to observe anything ceteris paribus, other things being equal, nor can any scientist do so now, nor will any ever be able to do so in the future.” To assume otherwise requires specializing time as if the world were static and not dynamic.
De Soto deserves our gratitude for showing in such a striking and dynamic way the relevance of philosophy for economics.
