First steps of the Austrian School of Madrid
After the publication of Reig Albiol’s thesis, the Austrian School of Madrid remained practically forgotten within academia. However, the 1973 oil crisis was an opportunity to change the dominant paradigm of the time. The inability of the Keynesian model to explain supply inflation, added to accelerating unemployment, provided an opening for the Spanish Austrian economists. The opportunity for the Austrian School of Madrid was ripe, but as the school of thought was still in its infancy, it was unable to dominate the economic landscape.
However, at the beginning of the eighties, the second generation of the Austrian School of Madrid started to take over and one name emerged amongst all the others: Jesús Huerta de Soto. In September 1983, Huerta de Soto became an assistant professor at Complutense University of Madrid and the private seminars he was involved in became more public and academic. Emulating the model that Ludwig von Mises instituted in Vienna and New York, Huerta de Soto gathered together people interested in economics, politics or philosophy from an Austrian perspective. The aim of these seminars was to establish a debatable framework around the Austrian principles, applied to the current situation in Spain.
This development was followed by the establishment of “Unión Editorial”, the first publishing house of Austrian School essays in Spanish. Unión Editorial was founded in 1973.Footnote 2 Endowed with the amount of 700.000 pts., the central role of the new publishing house was to translate into Spanish the classical works of Austrian economists. In the late 80’s, Professor Huerta de Soto acquired a small stake in the company.
The arrival of Jesús Huerta de Soto
As we quoted before, in September 1983, Professor Huerta de Soto started as an associate professor at Complutense University of Madrid, specifically in the Faculty of Law. His intellectual background from that time forward are of immense significance and have led towards the significance with which the Austrian School of Madrid is currently held in different academic fields.
Jesús Huerta de Soto was born in Madrid in 1956. After he graduated in Law and Economics at the Complutense University of Madrid, with a grant paid by the Bank of Spain in Stanford University (Wang 2017). He taught Economics in Complutense University from 1984 to 2000, when he was promoted to full-time Professor in the new-born King Juan Carlos University. He subsequently became one of the most prominent and relevant celebrities of the Austrian School in the Spanish-speaking world.
His thinking is both prolific and original, developing and refining the work of previous Austrian thinkers and improving many of them in different ways, like his Three Levels Theory. It is rare that a new thinker emerges in economic theory who is able to set up a new branch of thought within their area of study and this has not taken place since the formation of the School of Salamanca.
About his prominence and impact in academia, we can find out that he is one of the most quoted Spanish authors at this moment.Footnote 3 He has obtained three six-year research, the certification delivered by the Spanish government to an equivalent period of research and publications. Besides, seven of his books are available in the Library of Congress (J. Huerta de Soto, Library of Congress s.f.).
Mises (von Mises 1951; von Mises 1962) quoted the impossibility of socialism based on the inability of planners to engage in economic calculation due to, in the first place, the inexistence of private property, which enables the absence of market prices. As a result of this, the debate about the economic calculation made a clean sweep in academia throughout all the twentieth century. Socialism could never work out problems surrounding the allocation of scarce resources. Entrepreneurial projects could not be valued in a rational way, due to the inexistence of market prices which set up the limits for viable and nonviable companies.
Although the socialist debate took place in the 1920s and 1930s of the last century, Professor Huerta de Soto provided a new vision based on the dynamic conception of entrepreneurship. Indeed, he identifies a new vision by basically re-defining the term. Socialism means nationalisation of the means of production. Professor Huerta de Soto changes the definition to mean what Mises called “interventionism” and what was later called the “dynamics of interventionism” (Ikeda 2015). This is important because it is grounded in a definition of socialism that most scholars, including Mises, would not recognize.Footnote 4 Thus, the new definition provided by Professor Huerta de Soto claims:
“We will define ‘socialism’ as any system of institutional aggression on the free exercise of entrepreneurship. By aggression or coercion, we mean all physical violence or threats of physical violence which another person or group of people initiates and employs against the actor. As a result of this coercion, the actor, who otherwise would have freely exercised his entrepreneurship, is forced, in order to avoid greater evils, to act differently than he would have acted in other circumstances, and thus to modify his behaviour and adapt it to the ends of the person or persons who are coercing him” (Huerta de Soto 2010).
Therefore, a new concept of efficiency emerges. If we suppose that efficiency is a dynamic concept (leaving behind the neoclassical conceptions about static efficiency) then we can conclude that efficiency is both economic in nature and ethical. In the paper The Theory of Dynamic Efficiency (Huerta de Soto 2008), Professor Huerta de Soto redefines efficiency by drawing on contributions from different economists (not only Austrians) throughout the history of the economic thought. In summary, he points out that the Austrian concept of efficiency, which builds upon all previous conceptualisations, should take precedence over the neoclassical concept, based only on optimisation. As Professor Huerta de Soto points out:
“The static conception of economics reduces the principle of economic efficiency to a simple technical issue of maximization, which in any case could be resolved with a mere computer into which someone would enter the data always presumed known in the models of static efficiency” (Huerta de Soto 2008, 8).
In the field of money and banking, Professor Huerta de Soto published Money, Credit Bank and Economic Cycles (1998), perhaps his most quoted and debated essay (J. Huerta de Soto, Money, Credit Bank and Economic Cycles de Soto Jesús 2012). In this book, Professor Huerta de Soto explained how the practise of the fractional reserve over the last five centuries has entailed recurrent episodes of irrational exuberance, followed by the consequent recession. The proposed solution is to head toward a financial system based upon a non-central banking regulator.
From this perspective, the creation and entry into circulation of the Euro has generated many unintended consequences. The possibility that the member States of the monetary union cannot manipulate the currency has turned the euro into an approximation to the gold standard (Huerta de Soto 2013). Of course, we cannot assume that the euro is exactly a gold standard system, but some of its features are implicit in the euro system.
In the field of the history of economic thought, Professor Huerta de Soto has pointed out how the Austrian School sank its roots in the School of Salamanca, during the sixteenth century (Huerta de Soto, Jesús 2020a, b). Thus, this group of priests and religious Catholics reached some conclusions clearly ahead of their time. A subjective theory of value, the rate of interest or entrepreneurship are some of the ideas that were correctly pointed out by these members two centuries before Adam Smith supposedly invented economics.
In the political field, professor Huerta de Soto has focused his investigations under his “Three-Level Theory”, which is in essence a combination of rules through which a thinker could judge certain actions as appropriate (Huerta de Soto 1988–1989). Such actions could be large scale political initiatives, right down to individual actions. These rules should be judged under three different perspectives: ethical, historical, and theoretical. Should all the three tests be passed, then we can accept this course of action as correct. As professor Huerta de Soto sums up:
“Thus, following this model, it is easy to understand how any erroneous policy always arises as the result of a chain of factors which correspond to each of these three levels. In fact, behind any policy which is harmful to society, there are usually, at a strictly theoretical level, serious scientific errors, and fallacies. Effectively, false theories are continually being used to justify the most harmful interventionist policies. Sometimes, these theories emerge independently, by chance, and policies are subsequently adopted as a consequence of the theoretical and methodological errors committed. On many other occasions, however, erroneous theories are constructed ad hoc in order to justify certain policies which have been decided previously” (Huerta de Soto 2010, 186).
This analysis has motivated Professor Huerta de Soto’s vision about interventionism, not only as a theoretical impossible, but also as immoral and a permanent historical failure. In addition, Professor Huerta de Soto has become one of the most prominent and resolute defenders of the Anarchocapitalism, that is, the full and complete privatisation of all goods and services. In this sense, he points out that public goods in the middle of a market economy resemble islands in the middle of the ocean, that is, goods and services produced without the guidance of prices (Huerta de Soto 2009).
Master’s degree in Austrian economics
Without any doubt, one of the most decisive step in the dissemination of this concrete branch of one school of economic thought, that moment in which this group of thinkers could be considered a real trend in Academia, is the moment in which the Master’s Degree in Austrian Economics started its development in 2007. Located in King Juan Carlos University of Madrid (Vicálvaro), this Master’s degree provides an entire knowledge of Austrian Economics tradition in one school year. The course, as well, is divided into eleven subjects and a final project thesis. In the first of them, the studies consist of methodology, national defence, microeconomics, economic thought and a seminar about dynamic efficiency. In the second one, we continue with technology, monetary theory, macroeconomics, public policies, theory of spontaneous order and a seminar about socialism. In addition, to get the Master level, it is compulsory for all students to write a final thesis, around forty pages long, a subject of the student’s choosing in which to develop the knowledge acquired about Austrian Economics. The essays are graded by a committee formed by three members, one of them a Professor of another university to guarantee the independence of the process.
We do not contend that the Austrian School of Madrid did not exist before the creation of the Master’s Degree, rather that it is final recognition that the city of Madrid hosts the most prominent and leading group of Austrian researchers in Europe. In fact, there had not been such a large group of researchers and thinkers about the Austrian School tradition since pre-World War I Vienna. In fact, some of Professor Huerta de Soto’s students, like Óscar Vara, Javier Aranzadi, Ángel Rodríguez and César Martínez were already awarded with a Ph.D.
A preliminary analysis might conclude that the Master consists of many postgraduate studies that currently fill up the Spanish universities. However, the rigour of the Austrian School method ensures new researchers obtain a solid basis for further investigations. It is considered a Master’s Degree not only with a focus on economists who desire to begin an economic career, but to every person interested in the Austrian School and its principles. In fact, it encompasses subjects from economics to matters more analytic, like defence or technology.
In conclusion, it is not possible to understand what the Austrian School of Madrid has achieved without understanding the importance of this Master’s Degree. For the first time in history, students can find complete and in-depth analysis of the Austrian School in a variety of academic fields: monetary theory, methodology, history of economic thought, etc.
The huge number of students that have emerged from these studies has created a real branch of one school of thought and, even more importantly, guarantees the future of the research in the field. In fact, some of the most relevant figures of the Austrian tradition, not only in Spain but in all of South America, went through the King Juan Carlos University classrooms, like Juan Ramón Rallo, Adrián Ravier, Miguel Ángel Echarte and David Sanz, to name a few.
The international doctoral school
One of the fundamental issues to build a true branch of a concrete school of thought is the creation of a group of students that can continue and build upon the work carried out by the previous generation. The first step, as we have just seen in the previous section, was the creation of a regular school year to study the Austrian School. The second one, is the creation of a group of students who, according to an exegesis process, will continue the Austrian tradition in Spanish academia. They will provide new and genuine contributions to economics, philosophy, history and other fields in the social sciences.Footnote 5
At the beginning of the third decade of the twenty-first century, forty candidates had achieved the Ph.D. degree under Professor Huerta de Soto’s guiadance. Names like Juan Ramón Rallo, Adrián Ravier, Óscar Vara, Javier Aranzadi, Gabriel Calzada, Ángel Rodríguez, Miguel A. Alonso and Philipp Bagus, all wrote their Ph.D. thesis under Professor Huerta de Soto’s leadership.
For instance, Phillip Bagus wrote about “Deflation: Is It Really Harmful?” (2007). Years after, the thesis was published (Bagus 2015). Professor Bagus theorises about a type of good deflation, that is, the gradual reduction of the amount of money in circulation due to an increasing number of goods and services available to the citizens. Another thesis (written in English) was carried out by Professor David Howden under the title Financial Asset Pricing Under Knightian Uncertainty (Howden 2010). Professor Howden makes a deep critique to the neoclassical concept of Paretian efficiency to judge the rationality of investments. In this sense, the author asks for a new model of dynamic efficiency based upon creativity, that is, the Austrian concept of entrepreneurship. Therefore, the most important issue in finance at this historical moment is to turn down the neoclassical way of thought - the optimisation of phantasmagorical mathematical functions. Additionally we have Massimiliano Neri’s, “The Economics of the Knowledge Structure” (Neri 2011), Marc Schelling’s “Mergers and Acquisitions within the Austrian Business Cycle” (Schelling 2013) and Brian C. Canny’s “The Theory of Optimum Currencies and a Critique of the Theory of Optimum Currency Areas” (Canny 2016) also completed their Ph.D. in English. These examples are evidence of the impact of scholar’s working in the Austrian School in Madrid.
Procesos de Mercado
All branch of one school of economic thought should have its own way to develop a space for debates. In the academic field, the creation and distribution of a scientific review seems to be the most suitable method to achieve a position into academia. With this in mind, Procesos de Mercado. Revista Europea de Economía Política appeared for the first time in Calzada 2004. Despite its title, it is not only addressed towards economists. Its multidisciplinary approach encompasses all social sciences, with papers in history, politics, law, sociology, etc. In addition, the review accepts papers in Spanish, English or French.
Professor Huerta de Soto is the director and founder of the review. Professors María Blanco, Gabriel Calzada, Javier Aranzadi, Antonio Martínez, Ángel Rodríguez and Óscar Vara execute as deputy directors. The Editorial department is formed by Professors Miguel A. Alonso and Philipp Bagus, Editor and Deputy Director, respectively. Finally, David Howden, Juan Ramón Rallo and Sonsoles Huerta de Soto perform as deputy assistants. The review is formed by a scientific counsel set up with professors and professionals from many different fields. Their main function is called blind peer review. Procesos de Mercado is published one per semester, that is, an issue in autumn and another in spring.
Regarding its content, the review is structured in different parts. The first one is focused on more academic Papers, at least, thirty pages long. They are truly scientific papers, some of them presented as lectures in economic meetings or congress. Their numbers vary from four to six in each issue. In the second place, we find the Notes. These are papers, but shorter. For instance, talks at economic meetings or articles about polemic issues in the nation’s politics are published here. They search for the clarification on a concrete issue, without the extension of a scientific paper. Then there is a Documents section where there are published extracts from the classical essays of the Austrian School, especially from the works of Hayek and Mises. The next section is about Bibliographic Review. It addresses the summary of recent or classical books about all fields in the social sciences and informs the read of new and interesting content.
After this, we find out what could be the most original section in the review, the News. There one can find the latest events, meetings, lectures and so on that are taking place, not only in Madrid but in many different cities, from all the members of the Austrian School of Madrid. In the last place, the review ends with a Suggestion for New Readings. There, in a laudable effort by Professors Alonso and Bagus, the Editors make a tour of all the media, mentions to the Austrian School or its members, not only Spanish but from all over the world, in the last six months. That is, this section works as a press release.