I’m watching the documentary “Commanding Heights.” I recommend it. It is quite interesting. It is basically a mainstream survey of economic history of the twentieth century, with particular emphasis on the last 25 or 30 years.
It includes the battle between Hayek and Keynes, a classic struggle of freedom vs. regulation. It fails miserably, however, to accurately characterize the Austrian School of Economics, instead favoring the more mainstream Chicago School’s interpretation of free market economics. It is understandable why this was done: to accurately characterize the Austrian School would turn the book’s (it was originally a book) thesis on its head.
The book (and film) says that Hayekian capitalism has won the battle of ideas over Keynesian planning worldwide, starting in the 1980s and continuing ’till today. This is a gross misconception that leads to many fallacial thoughts and lines of reasoning, but is insightful nonetheless when once considers it a window to the mainstream economic view of things.
Milton Friedman, for instance, credits Reaganomics with steady economic growth since the early 1980s. He fails to consider the long-reaching effects of central banking policies (i.e. the business cycle), or huge government military expansion, including foreign policy interactions, as is common in the Chicago School.
Consider the American economy: what is it? How is it to be described? Most economists and business analysts today consider it in terms of its Keynesian markers: GDP, unemployment, consumer index, manufacturing index, commodity prices, inflation, etc., with the accompanying government policies which affect each (and every) aspect of these data sets. This is the opposite the Austrian view.
In the Austrian view, the economy is composed of individuals acting freely. Quantitative descriptors fail to capture the subjective nature of the thing. Each economic decision is a subjective, if analytical, one: for instance, consider the following questions: what car do I buy? Where should I open a checking account? How do I save for retirement? These are all subjective decisions.
Further, in the Austrian view, any government intervention in the economy is detrimental to the market: it is inherently destructive. Capital is taken from where it could best generate wealth (the private sector) and diverted to some area where it is less efficient: the so-called public sector, which consists of government spending. This is commonly accomplished through taxation and inflation. The film mentions none of this. (The closest it comes is the Friedman depiction of an episode at a meeting of so-called “free market economists” after WWII where Ludwig von Mises called nearly everyone in the group (including a young Friedman) socialists. But any characterization of the true differences between competing ideologies is completely glossed over.)
Understanding the true nature of the Austrian School of Economics, it should be clear that Hayekian free market economics did not overtake Keynesian regulation and planning in the 1980s or any other time, in terms of a total global perspective. True, serious cases of hyperinflation were successfully combatted by heroic individuals like Jeffrey Sachs in countries like Bolivia and Poland, and America and Great Britain did have some pro-market reforms in the 1980s.
But government continues to grow at an alarming pace in many areas, both domestic and foreign, especially in the United States of America. This startling trend is completely ignored, to the great discredit of the producers and authors of this fascinating work. Also, there is apparently no attempt to even describe on an elementary level the complexity and vast quantity of interactions and complications between market and state, even in Reagan’s America or Thatcher’s Britain.
In summary, the history is interesting, and the interviews are fascinating, but the economics is sloppy and mischaracterizes the Austrian perspective, and as such, the entire premise of the book and film is misleading.