This book is supposed to be Austrian Economics’ answer to “new growth theory”, which recognizes that new human knowledge is the most important component to economic growth. As opposed to the “old” ideas on growth which said economic growth was the result of increases in land, labor, or capital. Old school growth theories focus primarily on increases in capital. Perhaps the two biggest figures in new growth theory are Robert Solow and Paul Romer. Robert Solow won the Nobel Prize in economics for his econometric study showing that technological change was the key driver in the US economy. Sadly he then said technological change was not part of the study of economics, it was like background radiation and beyond our control. Paul Romer takes over from Solow by making technological change part of the study and policy recommendation of economics.
This book suffers from many of the same problems other economists who have explored new growth theory have had. They attempt to graft the findings of new growth theory onto their preconceived ideas about economics. For example, Robert Solow is Keynesian so he has attempted to just tweak Keynesian ideas to fit this new information, instead of understanding that this new information required a whole new look at and approach to economics. Paul Romer is what I would call a “mathematical Keynesian” and is also trying to fit a square peg into a round hole.
This book attempts to take the finding s of new growth theory and meld them into Austrian Growth Theory (AGT). AGT is a failed concept that does not fit the facts. There is no evidence that increases in savings or capital in anyway result in economic growth and plenty of evidence to the contrary. Pasting some of the ideas of new growth theory onto AGT neither solves the problems with AGT nor adds anything to new growth theory.
The author’s ideas on scientific and technical knowledge come from Karl Popper, who has argued that knowledge is impossible. This is not surprising as it is consistent with Hayek’s ideas of cultural evolution, which argues that reason is limited and it is conceit to suggest that anyone can use reason to determine a correct societal structure. Both Hayek and the author are fans of David Hume (See Lewin’s youtube “Peter Lewin on Austrian Capital Theory - Part 1”). David Hume you will remember said causality was an illusion and brought us the “is ought” problem in ethics. In other words, Hume attacked the very basis of reason, logic, and ethics. Hume is part of the Scottish Enlightenment, which elevated emotions above reason. The Scottish Enlightenment underpins all of Austrian Economics. The other philosophical tradition behind the Austrians is Austrian philosophy (Franz Brentano) which raised the psychology of the person to a primary.
It is not surprising then that the author concludes “The superior performance of capitalist economies cannot be logically ‘proved.’” Under the author’s ‘implications for policy’ section we get this, “It involves not only, or primarily, the addition of existing capital equipment but rather the introduction of progressively more technically advance equipment, the production of which is made possible by an institutional environment in which the discovery of such technical advances is encouraged.” Interestingly enough the author never explains what encourages technological advances and he never even mentions property rights for inventions, i.e., patents. Even Solow and Romer realize that they cannot ignore patents, however contrived their arguments are for dismissing them.
One of the reasons the author ignores patents is that he emphasizes what he calls “tacit knowledge.” Tacit knowledge is something we know but cannot prove or of which we are not conscious. This is perfectly consistent with the Austrian ideas that reason is limited or ineffectual. As a result, he talks a lot about innovation and never mentions inventors. He talks about organizations, but never individuals. He talks a lot about production and ignores invention. Austrians like to scream they are capitalist or free market, but they are certainly not pro-individualistic. This is not surprising as this would require a commitment to the power of the individual mind to understand the world. The author further reveals his collectivist ideas when emphasizes that the knowledge that is important to the economy is “social knowledge.”
It is time to quit pretending that Austrians are pro-capitalists, because that would require being pro- individualist and pro-reason. Austrians are collectivists just like the Marxists and Keynesians, just with a different spin. They think inalienable rights (natural rights) do not exist, which is consistent with their collectivist ideology. They constantly attack and mischaracterize John Locke’s ideas on property and the facts and logical structure of patents and all forms of intellectual property. Their attacks are reminiscent of constant faking of data by anthropomorphic global warming advocates and prove a deep seated contempt for reason and reality. Because they think natural rights are nonsense they have no respect for the US Constitution or the legal principles underlying it. They also ignore the very foundations of capitalism and what caused the industrial revolution. It is time for Austrian Economics to go on the scrapheap of history, just as it is time for Marxism and Keynesianism.

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