A Paper given at the Southern Economics Association 2015 Annual Meeting
New Orleans, November 21-23, 2015

An online version of this paper is available here: HTML and PDF.

Abstract: Austrian capital theory is applied to the study of how ideas (in this case classical liberal or libertarian ideas) have been produced, distributed, and consumed. It is based upon an examination of three key historical examples – the Anti-Corn Law League in the early 1840s, the Political Economists in Paris during the 1840s, and the activities of the Institute of Economic Affairs in London in post-war Britain. It is argued that there is a long structure of production in the realm of ideas as there is for capital goods, with highest order goods (the production of high theory) most removed from ultimate consumption (politicians, ordinary people, voters), and with several middle order stages which serve as intermediary steps along the way (production of ideas for college professors, intellectuals, members of think tanks, journalists, and lobbyists). In each of these historical examples there are investors with capital who invest in creating organisations to promote certain ideas, “entrepreneurs of ideas” who see opportunities for bringing together the right combination and mix of individuals with different talents to bring this about, marketers and other promoters who are able to sell these ideas to a broader public, and finally the ultimate consumers of these ideas who accept them and act on them in some way.

Here are the opening paragraphs:

I would like to begin by shamelessly stealing some ideas from Ed Lopez. He reminds us of the striking, parallel thinking of two widely divergent economic theorists, namely John Maynard Keynes and Friedrich Hayek. To begin with the latter:

In the light of recent history it is somewhat curious that this decisive power of the professional secondhand dealers in ideas should not yet be more generally recognized. The political development of the Western World during the last hundred years furnishes the clearest demonstration. Socialism has never and nowhere been at first a working-class movement. It is by no means an obvious remedy for the obvious evil which the interests of that class will necessarily demand. It is a construction of theorists, deriving from certain tendencies of abstract thought with which for a long time only the intellectuals were familiar; and it required long efforts by the intellectuals before the working classes could be persuaded to adopt it as their program. (The opening of Hayek’s “The Intellectuals and Socialism” (1949). Emphasis added.)

The flow of ideas in Hayek’s view goes from the “theorists” who spend their time “constructing” “abstract thought”; to the “intellectuals whom he describes as “secondhand dealers in ideas”; to their final destination in the minds of “the working classes” who adopt them as part of their program. Hayek describes the time frame for the transmission of ideas quite vaguely, as “a long time” and only after “long efforts”.

Thirteen years earlier Keynes expressed something very similar, but using different though still somewhat contemptuous terminology,

… the ideas of economists and philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. Not, indeed, immediately, but after a certain interval … [S]oon or late, it is ideas, not vested interests, which are dangerous for good or evil. (From John Maynard Keynes, The General Theory of Employment, Interest, and Money (1936) quoted in Leighton and Lopez, p. 109.)

The flow of ideas in Keynes’s view goes from “defunct economists”, to “academic scribblers”, to “madmen in authority” (presumably politicians), and finally to “practical men” and “vested interests.” Keynes likewise is quite vague about the time required for ideas to go from “scribbler” to “vested interests”, saying merely “after a certain interval”, or “sooner or later”.

What I would like to do is to offer some specific historical examples of such transmission of ideas and to use the Hayekian theory of capital structure to help explain the process by which this transmission occurs, and the types of people involved in it. This involves the identification of at least 4 stages or “orders” in the production of ideas from “high theory” to the “consumption” of (or, rather, the acting upon) those ideas by ordinary individuals; as well as the role played by key individuals such as “investors”, “entrepreneurs,” and “sales people,” and the different kinds of “idea factories” in which they work.