Austrian economists and environmental policy

While working on my long-forthcoming book, Economics in Two Lessons, I came across an interesting article by Edwin Dolan published (with commendably openness to criticism) in the Quarterly Journal of Austrian Economics. The conclusion

On a theoretical level, Austrian writers delight in claiming the moral high ground, condemning polluters as aggressors against property rights. On a practical level, however, they leave pollution victims in the lurch. They invite them to sue, but propose a set of legal standards that would guarantee that polluters would always win. They oppose all government measures to reduce pollution, whether through regulation or through measures to make polluters pay. As a result, at least in cases of environmental mass torts, the Austrian paradigm is a polluter’s dream and a victim’s nightmare. It offers far too little of any practical value toward securing property rights, too little toward facilitating environmental coordination, and too little toward promoting libertarian justice. Much work remains to be done.

40 thoughts on “Austrian economists and environmental policy

  1. how come the costs (destruction of ecosystems,waste of non renewable resources, waste of usable by-products and so on) incurred by industrialisation never make it onto the “for profit” balance sheet?

  2. @hc

    No, I did not assume you see much relevance in the Coase theorem. IMHO, Coase’s work should be appreciated in its historical context only (eg history of economic thought).

    References for what I wrote are Lindahl and Blad and Keiding – all post 1950.

  3. @GrueBleen
    Your #24.

    Regarding trade in ‘garbage’:
    West Germany used to pay East Germany to take some of its ‘garbage’. After unification, they got it all back, possibly in a slightly modified form.

  4. Does anyone (other than the Austrian thinkers) actually take the Austrian school of economics seriously?

    About 99% of world and aout 99.5% of economists believe in austrian economic dogmas. Gold standard, “printing causes only inflaion”, “get the government out of free market”, “our kids and grandkids will be paying off public debts” are championed by Austrians. And those dogmas are still persitent within populace and it rules their thinking. Neoliberalizm is based primarily on Austrian economics.

    Only MMT and Austrians did investigate money, debt and banking (state and private), no mainstream econ0mist is allowed that.
    Austrians looked at money and banking and saw something really bad and destructive while MMT see benefits of fiat money and look for opportunity to manipulate it for greater good. Given that still about 95% of countries are under some form of Gold Standard(fixed fx), i would say that Austrian economic theories are the most influential theories on the planet.

    You can pretend that Austrians are not taken seriously while their dogmas rule the world.
    Austrians sound so far from reality since they considered money and banking and explained it somewhat, just as MMT sound so crazy because MMT also considers money and banking. So it sounds strange to those that never studied any official papers about money and banking but believed only in mythology about it.

  5. That “Does anyone (other than the Austrian thinkers) actually take the Austrian school of economics seriously?” should have been marked

  6. @Ernestine Gross

    Ah, so one State’s trash is another State’s treasure.

    It can be a funny business at times. I remember very well maybe 40(ish) years ago when there was the old ‘Fairfield Mill’ – a paper factory – on the Yarra near the Chandler Highway Bridge. Anyway, being a paper manufacturer, it used lots of water which, post processing, it emptied into the Yarra to float down to the CBD and into the bay.

    Then we had one of those ‘El Nino’ periods (only we didn’t know what they were back then) and Melbourne experienced protracted drought (oh, if only we’d had a desalination plant in those days) and the water being dumped into the Yarra was causing serious down-river pollution. So the government ordered that the plant had to empty its waste water into the Yarra upstream of its water intakes. Oh said the mill owners, this is totally counter-capitalist and will cause the bankruptcy of the mill !

    Anyway, some years later (about a decade IIRC), Melbourne was experiencing another drought season. Ah, said some wide awake journalist to himself, I wonder how the Fairfield Mill is surviving this time. So he went and interviewed the management, only to be told that “years ago we installed a water recycling facility so we didn’t have to pay a lot of money to extract Yarra water. It pays for itself.”

    So it goes. What was that about Pigou taxes again ?

  7. In English Common Law countries like Australia and the USA, the government has a duty to protect common pool resources like air and water for the community.

    Does Austrian economics take into consideration the existing legal frameworks? Or does it suppose a legal blank slate? The use of the Public Trust Doctrine in English jurisprudence which is received law in Australia dates back to 1299:

    “Juliana the Washerwoman

    One of the earliest historical sources relating to the use of Winchester’s watercourses dates to 1299 and involved a legal case involving two Wintonians who lived on Upper Brook Street. One was a washerwoman called Juliana, and the other was the merchant John de Tytyng, who also served as the city’s mayor and MP.

    In 1299, Juliana obtained a writ from King Edward I, ordering the mayor and bailiffs to compel John de Tytyng and others from preventing her from scouring her clothes, thread and yarn in the Upper Brook. The case was settled in court by Edward I who relied on the advice of a jury made up from inhabitants of Upper, Middle and Lower Brook Streets.

    Edward I was a firm believer in Common Law so it is not surprising that his ruling made in the Great Hall on September 1299 stated:

    “water has always been common.”

    If the ruling was left at this we probably would never have heard of this court case, but the King attached a number of regulations at the end changing it from Common Law into Statute Law. These regulations were addressed to general households and industries in the area. The regulations stated that people should not put in the water:

    woad-waste/dyestuffs (Dyers);
    hides in the course of being tanned (Tanners);
    sheepskins (Tanners);
    entrails (Butchers);
    animal blood (Butchers);
    human blood (Barbers);
    panni puerorum cum horidibus (soiled nappies) (Washerwomen);
    nor should they have garderobes or gutters discharging into the water (Households).

    The importance of the ruling was recognised by Juliana’s contemporaries and she received the by-name of Juliana de la Floude or Juliana of the Water.

    In time, the ruling became known as the Concordance de Julian. It is likely to be the earliest piece of environmental legislation relating to the use of water in Europe. As a principle, it has developed into an internationally recognised Human Right. It provides the legal basis for the access to fresh flowing water for billions of people round the world today, all this as a result of a neighbourly tiff between an MP and a washerwoman on a back street of medieval Winchester.”

    Bradley Freedman & Emily Shirley 2014 “England and the public trust doctrine” Journal of Planning & Environment Law

  8. @ZM

    “Does Austrian economics take into consideration the existing legal frameworks? Or does it suppose a legal blank slate?”

    I can offer the following comments:

    1. To the best of my knowledge, ‘the Austrians’ became known as ‘the Austrians’ (as a school of economic thought) after several people from the Austrian-Hungarian empire, who now are considered important founding members of this ‘school of thought’, had emigrated or relocated to Anglo-Saxon countries (the UK and the USA).

    2. Several so-called founding members, most notably , Carl Menger, E. Boehm von Barwerk, F. A. von Hayek, F. von Wieser, L. von Mises, became interested in economics after they had obtained degrees in Law or Law and Politics or Law and sociology.

    3. I believe it is safe to say that these so-called founding members did not assume a legal blank page. On the contrary, at the time of their writings, they distinguished themselves from some Anglo-Saxon economists by explicitly taking the institutional environment (legal system) into account. Furthermore, as the ‘von’ in the names indicate, most belonged to the lower aristocracy – either by birth or be award of some kind (well connected to the institutional power structure at the time).

    4. As is evidenced by Edwin Dolan’s paper, referenced in JQ’s post, there are contemporary members of the Austrian economic school of thought, who want the judiciary (rather than elected governments) to develop common law to deal with contemporary environmental issues.

    5. I can’t claim to be well-read in Austrian economic literature. However, judging from the original articles I did read, their methodology is still more akin to legal thought than to analytical economics of which the axiomatic approach is perhaps the most clearly identifiable example. IMO, in contrast to the legal thought based economics, the analytical approach is not closed to scientific (natural science) methodology and the implications of scientific knowledge for economics. Edwin Dolan, who I presume is very knowledgeable about Austrian economics, made a related and more specific point.

    6. I don’t know for sure why Austrian economics has such a strong following in the US. (Some universities in Austria – the empire has long gone – are now very strong in analytical economics.) My best guess is that some of the earlier members of this school of thought wrote in erudite and subtle language, as can be expected from legally trained authors, on pressing issues at the time – eg ‘liberalism’ vs ‘communism’ just before the cold war. It seems to me, much of the discussion is stuck at issues of general concern around the mid-1940s. Unfortunately, the progress in analytical economics is not acknowledged in these discussions which, in a sense, results in back to the future of the 19th century as far as economic theory is concerned.

  9. @GrueBleen

    It seems to me your historical case contains an aspect of the topic of ‘negative externalities’, which is sometimes ignored, namely when does something become an ‘externalised cost’ (ie paid for, in one way or another, by others)?

    There is or has been hardly an activity, which doesn’t generate a ‘by-product’. IMHO, it is only when a ‘by-product’ is experienced or recognised as unwanted (personal preferences, health effects, implications of scientific knowledge) that ‘negative externalities’ become the subject matter of interest in contemporary economics.

    Assuming MHO is not way off track, it stands to reason that the subject of ‘negative externalities’ has grown in importance with the growth in the global human population as well as so-called technological progress. It is difficult to imagine a single individual would be capable of causing environmental devastation to a river system or the atmosphere. On a smaller scale, there is no obvious reason to expect noise control measures being called for if the distance between individual houses is about 1 km. Things change when 10, 20, 40, 60 parties live on top of each other, separated by a series of concrete slabs. And so forth.

    Why did the mill construct the recycling plant only after the government placed an environmental mitigation requirement on it?

  10. @Ernestine Gross
    Your #35

    Quite. In fact it takes on something of the properties of an arms race: technology evolves and changes and careless manufacturing processes produce waste which is increasingly exotic and/or toxic and ‘reprocessing/recycling’ technology struggles to keep up. If we had, for instance, the plastic recycling technology and regular disposal collections “back then” that we have now, maybe we wouldn’t have the ‘Great Trash Vortices’ (aka Gyres) that we have all over the world’s oceans now.

    But to whom – other than seabirds and other sea life – are the Gyres a “cost” ? They don’t interfere with trade and they’re too far offshore to interfere with surfboarding. So, who will pay to remove them … if anybody ?

    You ask: “Why did the mill construct the recycling plant only after the government placed an environmental mitigation requirement on it?”

    Ah well that wasn’t specifically addressed at the time – at least I can’t remember it being so. But my explanation is twofold:

    1. Mill management were totally indifferent to any ‘negative externalities’ because nobody ever complained – least of all the authorities which I presume would have been the Melbourne and Metropolitan Board of Works – MMBW – which owned and managed all of Victoria’s water back in those days – until the drought raised the pollution to un-ignorable levels.

    2. When the Mill operators were required to position the outlet up river from the intake, the management finally got the message that they would have to install filters to purify the intake water enough to use in the paper manufacturing process. And I think that then the penny dropped: if they were going to have to put filters in anyway, why not just recycle the water, filter out the crap and reuse it, thus avoiding having to pay the MMBW a significant fee for the daily intake of large volumes of Yarra River water. So the water recycling plant was installed and more than paid for itself. A triumph of capitalist ingenuity and management acumen … or something.

    I never did find out what they did with all the crap they filtered out in the recycling process – maybe they just bagged it and put it into landfill … maybe.

  11. @Ernestine Gross
    Your #34

    Which just goes to show that the human race has always lived in a post-truth world.

    How we ever managed to invent ‘scientific epistemology’ even to the fairy primitive state of today utterly escapes me.

  12. @Ernestine Gross

    Thanks for that explanation 🙂 I haven’t studied enough economics to know that the Austrian school took into conservation the legal and institutional context economics occurs in.

    “4. As is evidenced by Edwin Dolan’s paper, referenced in JQ’s post, there are contemporary members of the Austrian economic school of thought, who want the judiciary (rather than elected governments) to develop common law to deal with contemporary environmental issues.”

    There is a federal court case in the USA at the moment about climate change, that is asking the Judiciary to rule the government has to act to preserve a safe climate for young people and future generations, using the Public Trust Doctrine I mentioned above. The group Our Children’s Trust has so far won the right to be heard in court, despite the arguments of the oil industry groups in the early hearings.

    The Public Trust Doctrine has a particularly interesting history in America, since it was used in its broadest form by both sides of the American Revolution, and also is part of the Takings Clause in the USA Constitution, being called the Public Use (the Use was the early word for Trust in English law in the Middle Ages).

    I think the idea is that the Judiciary should enforce the rule of law, rather than that they are meant to create environmental laws by Case Law.

    My understanding is that the youth plaintiffs simply want the court to uphold that the Federal and State governments have a legal duty to preserve a safe climate, and then it is up to the governments and other stakeholders to actually work out the policies that will do this. If the government fails to do this, it would be possible to go back to court and get another order.

  13. @ZM

    Thanks for a) translating age old words into contemporary language and b) for the information on the Public Trust Doctrine in the USA.

    “I think the idea is that the Judiciary should enforce the rule of law, rather than that they are meant to create environmental laws by Case Law.” I would agree with this idea.

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