Huerta de Soto Reigns in Spain

Jesús Huerta de Soto, who is professor of economics at the Rey Juan Carlos University of Madrid, is the leading representative of the Austrian school of economics in Spain. He is a renowned teacher, and two of his many doctoral students, David Howden and Philipp Bagus, both now themselves professors of economics, have edited a festschrift in his honor. The contributors include students, colleagues, friends, teachers, two of his daughters, and his son. The two-volume festschrift contains many valuable essays, but I cannot do more here than comment on a few of them, as there are no less than twenty-seven essays in the first volume and twenty-four in the second, as well as two introductory essays by the editors, “Jesús Huerta de Soto: A Biographical Sketch” in the first volume and “Jesús Huerta de Soto: An Appreciation” in the second.

The contributors include reminiscences of Huerta de Soto, and the reader will gain from these a vivid sense of his impact as a teacher, his devotion to Austrian economics and libertarian political philosophy, and his immense knowledge of the literature of economics, law, and history. Few know the work of Ludwig von Mises as well as he does, and the festschrift aims to show that he has made creative contributions to both Austrian economics and libertarian legal and political theory.

A theme from Mises that Huerta de Soto has stressed in his work is the importance of uncertainty in human action and the efforts by people to cope with that uncertainty by establishing trust through a network of free market institutions. The uncertainty is of the radical Knightian kind and cannot be dealt with through application of the probability calculus. Several of the festschrift’s contributors carry this theme further. David Howden, in “Defining Money,” argues that because of the uncertainty inherent in economic exchange, it is vital to have an asset that can always be traded at par, and money is the only asset that can fulfill this function. Nothing else, not even very reliable bonds, can serve this purpose. Because this is so, Howden says, the common definition of money as “the most general medium of exchange,” though not wrong, is not complete. To define money this way is to put it at one end of a continuum, since there are other media of exchange that are less general; but if this is done, the uniqueness of money has not been brought out. Howden says, “Money is not first and foremost the most general medium of exchange, though that statement is not entirely wrong. Money is a special financial asset that emerges to alleviate the definite economic problems of (1) plan disruption caused by uncertainty and (2) to facilitate the completion of previously conceived plans. The only way to fulfill these roles is to sell at par value and on demand.”

In their efforts to cope with uncertainty, Jörg Guido Hülsmann points out in “Financial Markets and the Production of Law,” actors in the free market will establish financial markets as they think best. Because they have established these markets themselves, they will find it easy to rely on them, and in this way a network of trust can be built up. Not so, however, if the government interferes by legislation with these market arrangements. Market participants’ trust will be shaken if they are compelled to use financial markets they have not chosen for themselves. Hülsmann uses to great effect the work of the Italian legal theorist Bruno Leoni to show that legislation by the government introduces unnecessary uncertainty and instability. Hülsmann remarks, “Leoni’s analysis of the consequences of statutory law can be summarized by saying that statutory law tends to destroy the law. More precisely, under the impact of legislation, the law tends to become disconnected from the opinions and the will of their citizens, undermining their autonomy. . . . Most importantly, legislated law undermines the stability of the law, and thus one of its basic functions.”

The obvious remedy is to restore free market institutions; but Bagus argues in “The Disinterventionist Spiral” that once the government has interfered with the economy, many difficulties arise in reversing their interventions. Bagus ingeniously applies Mises’s critique of interventionism in an unexpected way. Mises argued that measures of government intervention are inherently unstable because they fail to achieve their ostensible purpose and have undesirable side effects. For example, minimum wage laws do not secure higher wages for all workers but on the contrary cause unemployment. Faced with this consequence, the government must either withdraw the intervention or press on with corrective interventions, which will in turn fail and confront the government with these options again, in a spiraling process. Bagus argues that repeal of an interventionist measure while other government interventions remain in place will lead to an unstable situation that requires either retreat or additional action. “As we can observe, there is not only an interventionist spiral but also an anti-interventionist spiral. Reforms collide with still existing interventions leading to problems from the (official) point of view of reformers and non-reformers alike. There is pressure to abolish further interventions and reduce the role of the state. When further interferences are abolished, there arise new tensions with still existing ones. The reform path is unstable. Either the path is followed through to anarcho-capitalism or reforms are eventually undone by accumulating interventions anew. There is no third path.”

In order to understand the role of uncertainty in the economy, it is necessary to use the Austrian tool of praxeology rather than seek mechanically to discover statistical correlations between macro aggregates. Doing the latter obliterates the individual decision-maker as he endeavors to assess uncertain market conditions. Joseph T. Salerno, in “Milton Friedman’s Views on Method and Money Reconsidered in Light of the Housing Bubble,” subjects to devastating criticism the methodology of Milton Friedman, ever the faithful follower of his mentor Wesley Clair Mitchell, for precisely this failing. Friedman relied on inductive inference, contradicting the strictures of Karl Popper against induction, though he professed to be a follower of Popper’s philosophy of science. Friedman’s faulty methodology led him to make numerous inaccurate predictions about the housing bubble and other issues. Salerno says, “Thus, Friedman’s monetary theory as delineated and ‘tested’ in the Monetary History is a highly aggregative and mechanical version of the quantity theory of money with very few variables and relationships.”

Careful attention to the individual actor is thus a key theme of Huerta de Soto’s economic theory, and the same emphasis is also crucial to the libertarian political philosophy of which he is so distinguished an advocate. In “William of Ockham: An Unknown Libertarian Philosopher,” Lorenzo Bernaldo de Quirós sees the great fourteenth-century Franciscan as an important political thinker. Ockham denied the Thomist view that natural law can be derived by reason from human nature, arguing that the doctrine of fixed essences contradicted the absolute power of God to decide according to his will. Ockham found the Thomist view that what is moral cannot be changed by God an unacceptable constraint on God’s power. But he also held that individuals, who are created in God’s image, should also be free to make arrangements as they prefer, so long as they respect the rights of others to do so, and that attempts to impose legislation on them based on the false doctrine that human reason can discern essences or natures are impermissible. Because it is difficult to know God’s will, those who profess religious doctrines should be tolerant of conflicting views. Bernaldo de Quirós finds in this Ockhamist teaching a precursor of the freedom of thought and expression taught by John Milton in the seventeenth century. But Bernaldo de Quirós also says that “Ockham’s nominalism leads him to undertake an energetic defense of human rights and, specifically, of one fundamental right: that of private ownership. This is not a conventional arrangement created by a social decision but a natural one born of free human action. It is, therefore, a natural right, willed by God, and, thus, inviolable.” One wonders whether this view of private ownership, however welcome we may find it, is consistent with Ockham’s own teaching of God’s absolute power.

In “A Republican Defense of Anarchism,” Juan Ramón Rallo criticizes the influential Careful attention to the individual actor is a key theme of Huerta de Soto’s economic theory, and the same emphasis is also crucial to the libertarian political philosophy of which he is so distinguished an advocate. republican school, of which Philip Pettit and Quentin Skinner are leading advocates, for a false conception of individual autonomy. The republicans are right to say that individuals should be free from domination by others, but they wrongly seek the remedy for domination in democratic decision-making that restricts the free choices of market participants. Democratic decision-making, even under ideal conditions, imposes the will of the majority on dissenters. Respect for individual autonomy mandates the right of secession from the political community and culminates in anarchism. “The key question that republicanism must confront is what to do with those minorities who, even after having scrupulously respected impartial procedures to which they themselves have not voluntarily adhered, feel that the collective decisions agreed upon contravene their conception of the common good and constitute, consequently, an arbitrary interference by majorities in their lives.”

The Emergence of a Tradition is an indispensable contribution to Austrian economics and to libertarian thought, and readers will also gain a clear sense of Huerta de Soto’s major contributions in these areas.