To `Austrian School' Economists, Robinson Crusoe Describes It Best

THE federal government should take economics lessons from Robinson Crusoe.

At least that's what a group of staunch free-market defenders concluded when they met in Claremont, Calif., recently. Their annual get-together is aimed at promoting the ``Austrian school'' of economics - primarily to graduate students in economics - and networking with fellow ``Austrians.'' About 50 economists and 30 students attended the week-long conference.

These followers of the Austrian school of economics reject the empirical approach of mainstream economists; instead, they use examples such as Robinson Crusoe to explain certain principles.

In an age when most economists turn to calculus and statistics for answers, Austrian economists prefer to rely on logic and deductive reasoning, peppered with colorful metaphors. Followers say they practice economics that is literary, accessible, and relevant to the real world.

Carl Menger, an economist from the University of Vienna, founded the Austrian school in the 1870s. Though it soon sank into obscurity in Europe, its ideas were kept alive through the efforts of F.A. Hayek and Ludwig von Mises, both of whom taught in the United States and became the school's main contributors.

When Mr. Hayek won the Nobel Prize in Economics in 1974, the Austrian school received renewed attention. Since then, Austrian political thought has gained ground by influencing such organizations as the Cato Institute, a Washington-based think tank that actively promotes free-market ideas in conferences, seminars, and publications. Even Federal Reserve Board Chairman Alan Greenspan has given speeches leaning toward some of the Austrian's positions.

A leader of the Austrian movement, Murray Rothbard, an economics professor at the University of Nevada in Las Vegas, says he remembers when economics journals were literary. In the last 40 years, the field has become increasingly mathematical and abstract; today, these journals read more like their physics counterparts, he says. ``It's just a lot of math completely removed from reality,'' Professor Rothbard says.

Followers of Austrian economics contend that the mainstream makes sweeping and unrealistic assumptions about people and prices to facilitate economic calculations. Austrians explicitly avoid these types of generalizations, they say, recognizing that people and markets are inherently dynamic and unpredictable.

``The Austrian school is based on things which jibe with the average person's understanding that we're all unique, we can change our minds, we have goals, and we seek to achieve them,'' says Llewellyn Rockwell, president of the Mises Institute in Alabama, which organized the California conference.

``We feel that all of economics can be deduced logically from certain self-evident axioms,'' Rockwell adds. ``Mainstream economics rejects that.''

Mainstream economists use econometrics modeling as well as a number of other techniques borrowed from the natural sciences. Econometrics, which relies heavily on statistics and math to analyze data, has become popular recently. One reason is that increased computer-processing power has allowed for highly complex models capable of crunching a lot of numbers.

But even the most powerful computers are not able to mimic reality. ``Given that the market is composed of hundreds of millions of people making billions of decisions every day, each one of them unique, there's no computer model that could encompass all that,'' Mr. Rockwell says.

As an alternative, an Austrian economist might perform a thought experiment using the Crusoe illustration as his starting point.

Crusoe, stuck alone on an island, was forced to take certain actions in order to live effectively. To act, he had to choose between alternatives in allocating resources and time. From this example, Austrian economists draw some basic, ``self evident'' axioms: Humans act, their decisions are based on subjective values, uncertainty exists, and so on.

For Austrians, such axioms form the fundamental foundation of economics, as true for Crusoe as they are for a business executive. These economists describe markets as dynamic processes that result in innovation and are driven by entrepreneurs.