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Austrian Economics

8th Vernon Smith Prize | Read Winning Essays

Vernon Smith Prize 2014
Austrian Econonmics Applied: 8th International Vernon Smith Prize 2015.

8th International Vernon Smith Prize 

Vaduz (FL), February 29, 2016. Essays of the winners of the 8th International Vernon Smith Prize 2015 have now been posted, since all three authors have defended their papers at a special festive event on February 15, 2016 in Vaduz, the Principality of Liechtenstein.


1st Prize: Daniel W. Issing (Germany); Essay:

The Snowden Disclosures: An Inquiry Into The Virtue Of Whistleblowing From An Austrian Economics Perspective
Download Essay here (PDF)


2nd Prize: Demelza Hays (USA); Essay:

The Ethics of Government Surveillance: Is Edward J. Snowden a Hero or a Villain?
Download Essay here (DOCX)

3rd Prize: Mats Ekman (Finland); Essay:

Heroic Leaks of Information: Quixotic or Practical?
Download Essay here (PDF)

The annual Vernon Smith Prize for the Advancement of Austrian Economics is sponsored and organized by ECAEF – European Center of Austrian Economics Foundation, Vaduz (Principality of Liechtenstein).  Topic of the 2015 Essay Competition was: Edward J. Snowden: Hero or Villain?

Semantic Traps

Semantic Traps


Semantic Traps:
Politics with Loaded Terms

A Seminar for Scholars, Journalists and Entrepreneurs

“One must always repeat the truth, because even the error around us is preached again and again. And not from individuals but from the crowd.”   J.W. von Goethe


     When political speech writers pen speeches for presidents, prime ministers, and other influential dignitaries, they choose their words carefully, knowing that rhetoric matters. A classic case of an intentional deception of words, according to Schumpeter was the hijacking of the term liberal. In a similar fad, the market economy is increasingly condemned as a system of crony capitalists, the empty notion of social justice turned into a general verdict on our society’s moral status, or carbon pollution became a substitute for the greenhouse gases. In chapter 7 of The Fatal Conceit, “Our Poisoned Language,” F.A. von Hayek lists over 100 words before which we put social ranging from social accounting to social property to social waste, and in each case obfuscate their meaning.
Have you ever wondered how many of our habitual political terms have assumed quite different meanings or, maybe deliberately, have even taken on undertones that suggest something detrimental to what we want to get across? It seems as if the old Confucius warning “when words lose their meaning people will lose their liberty” has more relevance today then ever before.
With Confucius’ admonition in mind, PERC, Liechenstein Academy, and ECAEF have teamed up to organize a seminar on “Semantic Traps: Politics with Loaded Terms”. Details including the agenda are listed below. If you are interested in finding out more about the seminar, contact co-directors, Terry Anderson or Kurt Leube.

Seminar Date:  June 9-11, 2016 (Thu evening to Sat noon)

Location:  Liechtenstein Academy Foundation Campus: Freudenfels Castle at Lake Constance, Eschenz, Switzerland

Admission Fee:  Free Admission

Program Director:  Hans-Rudolf Maag

Academic Directors:  Terry L. Anderson and Kurt R. Leube

Seminar Program

Thursday – 9 June, 2016:
tbd Opening Dinner (optional) and welcoming remarks by H.S.H. Prince Michael of Liechtenstein

Friday – 10 June, 2016:
09:00 – 09:30 Registration
09:30 – 10:00 Welcome and Opening
Member of the Princely Family (LI), Hans-Rudolf Maag (CH) and
Terry L. Anderson (USA)

Session I: Politics
10:00 – 10:30 «On the Confusion of Terms in the Political Debate»
Michael Wohlgemuth (D)
10:30 – 10:45 Discussion
10:45 – 11:15 Coffee break
11:15 – 11:45 «Justice, Fairness, Solidarity! The Prophecy of a ‘Socially Just’ Society»
Hardy Bouillon (D)
11:45 – 12:00 Discussion
12:00 – 12:30 «Is the ‘Public Interest’ really in the Public’s Interest?»
Carlos Gebauer (D)
12:30 – 12:45 Discussion
12:45 – 14:00 Buffet Lunch for all participants at seminar site

Session II: Economics
14:00 – 14:30 «Are the Poor really Getting Poorer as the Rich are Getting Richer?»
Erich Weede (D)
14:30 – 14:45 Discussion
14:45 – 15:15 «In Defense of Private Property»
Gary Libecap (USA)
15:15 – 15:30 Discussion
15:30 – 16:00 «Fair Trade and Sustainability: Is Globalization Evil?»
Robert Nef (CH)
16:00 – 16:15 Discussion
16:15 – 16:45 Coffee break
16:45 – 18:00 Q&A, Session I and II
19:00  Dinner at the seminar site (Freudenfels Castle; mandatory); Speaker TBA

Saturday – 11 June, 2016:
08.00 – 09.15 Breakfast
09:30 – 09:45 Directorial Remarks
Hans-Rudolf Maag

Session III: Environmental Issues
09:45 – 10:15 «Dynamic Economics and Dynamic Ecology: The Essence of Free Market
Environmentalism»
Terry L. Anderson (USA)
10:15 – 10:30 Discussion
10:30 – 11:00 «On Secular vs. Non-Secular Environmental Beliefs»
Mark Pennington (UK)
11:00 – 11:15 Discussion
11:15 – 11:45 Coffee break
11:45 – 12:15 «Unleashing the Power of Free Market Environmentalism»
Martin Hostettler (CH)
12:15 – 12:30 Discussion
12:30 – 12:45 Closing remarks
Member of the Princely Family (LI), Hans-Rudolf Maag (CH) and
Terry L. Anderson (USA)
12:45 Individual departures

Vernon Smith Prize Winners

Vernon Smith Prize 2014
Austrian Econonmics Applied: 8th International Vernon Smith Prize 2015.

8th International Vernon Smith Prize 

Vaduz (FL), January 24, 2016. After much reading, long discussions and at times quite difficult deliberations, the international jury of the VSP finally came to a conclusion and is delighted to announce the winners:
The 1. Prize goes to Daniel W. Issing (Germany), the 2. Prize to Demelza Hays (USA), and the 3. Prize to Mats Ekmann (Finnland). Heartfelt congratulations! Their profiles and essays will be posted after the winners have defended their papers at a special festive event on February 15, 2016 in Vaduz, the Principality of Liechtenstein.

The annual Vernon Smith Prize for the Advancement of Austrian Economics is sponsored and organized by ECAEF – European Center of Austrian Economics Foundation, Vaduz (Principality of Liechtenstein).  Topic of the 2015 Essay Competition was:


Edward J. Snowden:  Hero or Villain?


A Prince on Politics

Prince Hans-Adam II. The State in the Third Millennium
Prince Hans-Adam II.: “The State in the Third Millennium”

A book review by Kurt R. Leube

   “The State in the Third Millennium” is a remarkable work. Elegantly written by a historian who is simultaneously a head of state, politician, successful international businessman, world famous art collector, and leading philanthropist, it will doubtless provoke some frank debates. After much research and historical study of the concepts, purposes, and limitations of the state, Prince Hans-Adam II, the reigning prince of Liechtenstein, has published a work of critical importance. In view of the growing loss of confidence in democracy and the current state of unchecked governments, Hans-Adam confronts the prevailing intellectual and political despondency in an audacious way.
Right from the start, Hans-Adam II passionately discloses his firm commitment to the classic liberal (in the European sense) principles of self-determination, direct democracy, and free international trade. Although the idea of self-determination has been incorporated in the un Charter, it regretfully “remains a central but still unfulfilled principle of the un.” Almost no country besides Liechtenstein has firmly enacted the right of self-determination. In states with self-determination, the population cannot be forced to cooperate with the government; rather it is the obligation of the state to make the effort to work together with its citizenry. After all, in the case of a lack of cooperation it is usually the supreme power of the state, and not the individual citizen, that falls apart.
The author takes us from the still somewhat murky origins of the state and the fundamental roles religions and ideologies have played in it to an intriguing discussion of the developments in military and transportation technologies and how much they have contributed to the size and strength of nations. History shows that in the long run the very idea of democracy proves to be incompatible with great and powerful states, most likely due to the fact that huge landmasses can be preserved only by means of totalitarian, or at least authoritarian, control. Following ancient Greek philosophy, the prince differentiates the cyclical evolution of monarchy, oligarchy, democracy, and anarchy. His goal seems to be the prevention of anarchy, and so he argues that the three elements of monarchy, oligarchy, and democracy “should be brought together so that they operate in harmony for the benefit of the state and its population.” Over time, he writes, the symbiosis between a monarchy based on religious legitimation and an oligarchy started to fade when the religious legitimation of monarchy was brought into question and the possibility emerged that democratic legitimation could be possible even in large states. The successful example of the American Revolution started a worldwide process that even today, after two hundred years, is not yet concluded.
The chapter on the “American Revolution and Indirect Democracy” discusses why the U.S. Constitution became such a dominant liberal (again, in the European sense) prototype for 19th- and 20th-century Europe, Latin America, and beyond. “Despite its weaknesses,” Prince Hans-Adam II notes, “the model of democratic legitimation of oligarchy and monarchy realized by the American Revolution represented a tremendous step forward in the history of the development of the state.” And yet, for him neither the American Constitution, nor almost any other modern constitution, can be viewed as the founding works of true democracies because “at the most, one could speak of certain democratic rights” granted to the population.
The author’s analysis of the major steps Switzerland’s Constitution took towards the developments of direct democracy helps one understand the current Swiss political system. The Swiss Constitution does not limit the right of the population to election of a representative who will then act in their behalf. In their direct democratic system “the people themselves have the right to make material decisions.” The “Referendum, which gives the people the right to vote directly on a decision of parliament,” and the “Right of Initiative” that grants the citizenry the irrefutable right to make material decisions are themselves the two fundamental pillars of direct democratic systems. For Prince Hans-Adam II, the difference between the U.S. and Switzerland thus lies in the structure of the state. Whereas in the U.S. the counterbalance to the Congress and the courts is the president, in Switzerland the executive branch, the legislature, and the courts are controlled by direct democratic forms. Over time and in comparison, the direct democratic model thus has “brought the people more democracy than the indirect democracy of the United States.” Unlike all other constitutions of Western countries, only those of Switzerland and particularly of Liechtenstein feature the direct democratic legitimation of their political functions. And even though it is very small in size and population, Liechtenstein’s legal framework has made a number of important new contributions to the further development of direct democracy and the right of self-determination.
Thus, Chapter 8 is devoted to the principality’s advanced constitutional reform of 2003. It concludes by describing Liechtenstein’s monarchy as “a partnership between the people and the Princely House, a partnership that should be voluntary and based on mutual respect.” The hereditary monarchy in Liechtenstein “always needs the confidence of a majority of voters and thus democratic legitimation” worked mutually well during the past 300 years.
After discussing the many weaknesses built into the traditional forms of most Western democracies, Prince Hans-Adam II presents his vision of a future state as a peaceful service provider. According to the Prince, the challenge of our times is the advancement of ideas that will lead to the development of a state model that accomplishes:

1. the prevention of all wars, including civil wars;
2. the serving of the entire population of a country and not just a privileged section;
3. the provision of “maximal democracy” and the certainty of individual freedom through the rule of law;
4. and, last but not least, the enabling of the state to compete globally.

  According to Hans-Adam II, these objectives can only be accomplished by transforming the state as we know it into “an organization that serves the people and not the other way around.” In tune with the academic tradition of the great classical liberal thinkers, Hans-Adam too attempts to limit the powers of government and the legislature and to assure the working of the Rechtsstaat as a safeguard of individual liberty. The clear separation of powers, a government under the law, the distinction between private and administrative laws, and the provision of due process for the enforcement of law — these are the guiding principles of the liberal Rechtsstaat. Only under the rule of law is everybody, including the government and the so-called sovereign parliaments, bound by rules. Political decisions thus are warranted to be made in accordance with known and general rules and not according to the apparent popularity of particular outcomes or, worse, whatever the majority finds expedient to do in order to retain majority support. The author’s ideas about the various tasks of the future service state, especially pertaining to most social security systems, pension funds, educational systems, and questions of public finance will undoubtedly provoke intensive discussions.
Although scarcity is a condition of our existence, most beneficiaries of the current welfare state were made to think of their provider as an infinite resource through which benevolent politicians appropriate assumed well-deserved benefits and favors. However, due to our finite supplies, any redistributional subsidy for one segment of the population must necessarily result in a denial of comparable funding for another section. When people are exposed to this sort of social redistribution, the anticipation of benefits and the growing loss of self-responsibility generates more welfare dependents, at staggering costs. And yet, rent-seeking politicians keep abusing the welfare systems by irresponsibly overloading future generations with financial obligations they will never be able to meet. In other words, “apart from its high cost, the system threatens the freedom of the individual and in a democracy gives political parties the possibility of ‘buying’ votes with taxpayers’ money. The welfare state faces a crisis in the age of globalization with the rapidly increasing mobility of people, services, and goods.”
‘The State in the Third Millennium’ devotes a chapter to the problems related to education. In it, the author asks “whether it should be one of the responsibilities of the future state to run the education system.”
Most state-run and unfunded pay-as-you-go pension systems are on the brink of collapse, and soon-to-be-deprived beneficiaries are already angrily defending their presumed claims, while others are facing confiscatory tax obligations. Thus does progressive taxation lead to decreasing motivation and public outbursts of discontent. “In order to prevent greater crises, the retirement age will have to be increased, and the pension system will have to be changed gradually from the current unfunded pay-as-you-go system to a funded system,” Prince Hans-Adam II writes. He recommends a full privatization. By changing the present patronizing social security benefit structure into a market-based capital accumulation system, pensions and other transfer funds will become transparent and will be determined by the individual’s contributions, and not by some politically decided standards of justice or even merit. With such radical changes made, a population will finally be able to keep the overpowering domain of the state in check and revive its own innate feelings of self-responsibility, dignity, and social bonds.
The State in the Third Millennium devotes a chapter to the problems related to education. In it, the author asks “whether it should be one of the responsibilities of the future state to run the education system.” After all, knowledge or ignorance are quite relative concepts; they can hardly be defined as public goods. There is not much reason to believe that even if some supposed best knowledge were made available to all it would result in a better society. The ideal of state education may well be traced back to J.G. Fichte’s and Wilhelm von Humbodt’s Prussia, which in the early 19th century created a system that combined obligatory education with government-run educational institutions. However, due to social and demographic changes, most of these publicly financed systems today can not be fully funded, nor is their present quality something to be trumpeted. “Instead of using taxpayers’ money to finance the education system, it is much better to subsidize parents or students so that they can themselves choose the school that in their opinion is best for them,” Prince Hans-Adam II astutely notes. He puts forward the idea of school vouchers, which Milton Friedman introduced in his influential essay, “The Role of Government in Education,” in the 1950s. Hans-Adam’s suggestion, like Friedman’s model, retains a decisive role for the state within the education system, but schools and other learning institution, he believes, should be exposed to competition.
There are other engaging chapters, on topics ranging from transportation, to public finance, to the problems of a national currency and the array of other duties that states have taken over during the past 200 years. Prince Hans-Adam II asks provocative questions: How should a future state finance itself if the governmental obligations “are limited to maintaining law and order, conducting foreign policy, and financing education”? Should we continue to permit the state to coerce as much as it can from the taxpayer? Should the state of the future be reduced to the role of a provider of the necessary infrastructure?
Especially poignant are Prince Hans-Adam’s thoughts on the conditions that must be met in order to have and maintain a national currency. And yet, one misses in this book Friedrich A. von Hayek’s radical and thought-provoking idea regarding concurrent currencies, published in his short but important essay, “Denationalization of Money.” So long as the state holds the legal tender monopoly on money creation and distribution, Hayek wrote, the temptation to inflate a currency and thereby gain a temporary economic boost is usually much too strong for politicians to resist. A market solution would therefore allow private enterprises to issue their own competing currencies, and the general public would naturally choose the most reliable, stable money, which is least prone to inflation. Consistently applied, the private issuance of money would not only prevent governments from damaging the economy, restricting the freedom of individuals, and robbing them from the fruits of their work, but it would also bring to a halt the constant expansion of governments.
In order to achieve the promising future he desires, Prince Hans-Adam II develops several motivating strategies. As its title suggests, for instance, his book ends with a carefully drafted charter for the state in the third millennium. Written in candid language, and based often on the advanced Constitution of the Principality of Liechtenstein, his book could become a key to limiting the growth of government and its involvement in an ever-widening sphere of life. The author’s ideal of the future state — one which guarantees the people’s right to self-determination and which would transform the state into a peaceful service corporation — may not be realized in full. Indeed, some parts of his vision might even remain in a distant utopia. A swift succession of new ideas is hardly a criterion for an achievement of powerful significance, of course, but the ideas and solutions presented in this book could certainly help to revive long-dead debates.
The Prince’s political philosophy is a remarkable attempt to contribute to bettering representative democracies — governments which are even now being challenged by an angrily disengaged populace and find themselves on the brink of social and financial collapse. His integration of the relevant literature, combined with bold ideas, family history, and his own experiences heading a state, makes The State in the Third Millennium an elegantly written tome, a rewarding read, and a very valuable contribution.


Prince Hans-Adam II.: The State in the Third Millennium. I. B. Tauris & Company, 208 Pages, $45.00. -> Buy at Amazon


Kurt R. Leube is professor of economics emeritus and research fellow at the Hoover Institution, Stanford University. He also serves as academic director of ECAEF – European Center of Austrian Economics, a Think Tank based in the Principality of Liechtenstein.

In memoriam Juan Carlos Cachanosky

In memoriam Juan Carlos Cachanosky

Juan Carlos Cachanosky     With the untimely death of Juan Carlos Cachanosky (13. 10. 1953 – 31. 12. 2015) we have not only lost a very dear and reliable friend. We have also lost a brilliantly insightful and resolute free-market scholar who managed to get so many things right and who could explain real world economic behavior with incision and clarity. Among the small number of true Austrians in Central- and South-America, identified with the European liberal tradition that produced such great thinkers as Ludwig von Mises or F. A. von Hayek, ‘Cacha’ as he was called by his friends, was one of the most enterprising minds, tirelessly working hard to turn his ideas into viable international projects. Despite his remarkable academic achievements in Austrian Economics, he always remained a generous and modest chap, who came as close to the vanishing ideal of an honest mind as perhaps human frailty will ever permit. With his dry sense of humor, his striking energy and passion for spreading sound economics, and his cheerfulness it was at all times intellectually very rewarding to be with or just around him. I feel privileged indeed to have been among his friends and collaborators.

    Juan Carlos Cachanosky studied Economics at the Catholic University of Argentina and was awarded a PhD by the International College of California. Following various academic appointments he was elected Director of Research at ESEADE, a major university and free market hub in Buenos Aires, Argentina. At the same time he successfully directed the Economics Department at the Catholic University in Rosario, Argentina. Among countless other important students, Juan Carlos served as the thesis advisor for Máxima Zorreguieta Cerruti, now Queen Máxima of the Netherlands. For well over a decade Juan Carlos was Dean of Universidad Francisco Marroquín’s Business School in Guatemala City, Guatemala. It was him who helped to push this unique place into an internationally recognized university. After hard work and until his premature death, he worked not only as professor and academic President of CMT Group in Edinburgh (UK), but also as a close collaborator with ECAEF (LI) and the Liechtenstein Academy (LI). As a much sought after lecturer Juan Carlos Cachanosky was active on almost all continents, but his enterprising spirit was mostly appreciated in Central- and South America, in Scotland, and the Principality of Liechtenstein, possibly the last stand for sound economics and free market ideas. Cacha’s work developed from a comprehensive approach to various disciplines that condition and influence one another. His countless publications, especially in the field of monetary theory and the history of economic thought are fine cut jewels.

We at ECAEF and Liechtenstein Academy are very saddened and we will miss him dearly. Our heartfelt condolences go to his family.

Kurt R. Leube
Academic Director, European Center of Austrian Economics