Is Austrian Economics a ‘Cult’?
I have experienced
not one but two cases where eminent mainstream economists characterized
Austrian economics as a cult. I told a friend and colleague of
mine who is also an Austrian economist that I would be writing
about this. He was worried that to mention the fact that two leading
economists held the opinion that Austrian economics is cultish
would place the praxeological school in a bad light. Well, maybe
it will. However, I strongly believe that “sunlight is the
best disinfectant.” If these two dismal scientists strongly
believe this, they can hardly be the only ones. My goal in writing
this present essay is to attack this view as the pernicious and
false doctrine that it is. I want to confront it, not run and
hide from it.
On one occasion,
I hosted Economics Nobel Prize Winner James Buchanan for a series
of lectures at Loyola University. I did so in behalf of our economics
department. To the best of my recollection, this occurred sometime
before Katrina; my best guess is something like 2003. Before this
eminent economist arrived on our campus, I resolved one thing
to myself: I would not ambush him. I would not publicly attack
him. I was his host, and I would be generous to him in that regard.
I knew full well there were large areas of economics and political
philosophy on which we disagreed, and I promised myself I would
keep my thought in this regard to myself.
how little I really know about myself, or, my lack of will power.
The statement of his that set me off, and occasioned a passionate
outburst from me was when he said in passing that “Austrian
economics is a cult.” And the way he said it infuriated me
even the more. It was not as if he gave reasons for this. It was
not as if he spent some time elaborating on why he thought so.
Rather, he said it much as an aside (in much the same way as did
Gary Becker, another eminent Economics Nobel Prize Winner â€“ see
on this below). Buchanan claimed that Austrianism was cultish
in much the same manner as he might have noted that it is raining,
or is a hot day; as if no one could possibly have any other opinion
on the matter.
point, contrary to my best resolutions, I went into a ten minute
or so tirade on the matter. My only regret is that this wasnâ€™t
taped recorded, so that I can share that with you. At the end
of my peroration I turned to Prof. Buchanan, awaiting his response.
I was “loaded for bar” as we southerners say, and ready
to do battle with him. He said not a word, and went on to something
I have a record with regard to the second episode in this little
tale: a series of letters between me and my former teacher Gary
Becker on this very subject. I very slightly edited both of our
contribution to this discussion to eliminate a few typos. Gary
wrote me in capital letters, and I have not changed that style
thought on this before I introduce our correspondence: I have
been searching for this material for years. (If they give out
an award for absent minded professors, Iâ€™m sure Iâ€™d qualify).
It wasnâ€™t until this very day that I found it. Had I had it in
my possession earlier, I would have shared it then.
attributes to you the view that “Austrian economics is a cult.”
Is this true? If so, I would be very interested in hearing of
your reasons for this claim. Could you please send me anything
you may have written on this subject, or a copy of the speech
you gave at Auburn in which, according to him, you made this statement.
I would very much appreciate it.
matter: could you please tell me what is your speaking fee? I
am trying to get my dean to invite you down here to give a talk.
Needless to say, the honorarium would be in addition to flying
you (and your wife if you wanted) down here first class, putting
you up in our best hotel, etc.
I DO NOT
REMEMBER WHAT I SAID ABOUT AUSTRIAN ECONOMICS AT AUBURN SINCE
IT WOULD HAVE BEEN AN ASIDE. BUT I COULD HAVE CALLED IT A CULT
BECAUSE THAT IS WHAT I BELIEVE. BY A CULT I MEAN A SMALL NUMBER
OF DEDICATED FOLLOWERS WHO SPEAK MAINLY TO EACH OTHER, AND INTERACT
LITTLE WITH LET US CALL THEM MAINSTREAM ECONOMISTS.
MAINSTREAM ECONOMICS HAS ABSORBED MUCH OF WHAT HAS BEEN VALUABLE
IN AUSTRIAN ECONOMICS, SUCH AS THE IMPORTANCE OF THE DISTRIBUTION
OF KNOWLEDGE, THE GRAVE PROBLEMS OF SOCIALISM, THE IMPORTANCE
OF ENTREPRENUERS-ALTHOUGH NO ONE IN EITHER GROUP HAS DONE MUCH
WITH THIS-AND PERHAPS A FEW OTHER POINTS.
AUSTRIAN ECONOMICS COULD BENEFIT GREATLY FROM DEVELOPMENTS IN
EMPIRICAL ECONOMICS, HUMAN CAPITAL THEORY, AND MANY OTHER ASPECTS
OF MAINSTREAM ECONOMICS.
I AM EXPENSIVE.IT
WOULD PROBABLY BE BEST IF I COMBINED IT WITH SOMETHING ELSE, IF
I WAS DOING SOMETHING ELSE IN THE NEW ORLEANS AREA.
I HOPE YOU
ARE WELL AND GLAD YOU ARE SETTLED IN WHAT SEEMS LIKE A VERY GOOD
ALL THE BEST,
your reply. I am indeed very happy here at Loyola, no small part
of the reason for that being my graduate school education, of
which you were by far the most significant element. I shall never
forget the joy of being your student, and the inspiration you
forget to tell me what is your honorarium; without this specific
info, I canâ€™t carry things further forward in terms of an invitation,
which I would very much like to do. You may be “expensive,”
but weâ€™ve got a budget that allows us to showcase world-class
intellectuals such as yourself. Iâ€™m not suggesting you jack up
your price or anything, but please feel free to state whatever
honorarium makes you comfortable.
I would like
to spend a bit of time discussing this Austrian “cult”
business, as I consider myself to be a member of this school of
thought and, naturally, see things quite a bit differently than
you. Please bear with me, given the length of this reply, but
this is very important to me.
Let me break
down your criticisms of Austrianism in the following manner:
small number of â€¦
Yes, it cannot
be denied, the number of Austrian economists out of the total
is very small. When I first began to be interested in this school
of thought, way back in the mid 1960s, I would estimate that our
numbers were in the tens, perhaps, at most, in the scores. Certainly,
there were not anywhere near 100 economists working in the tradition
of Mises, Hayek, Menger, Bohm-Bawerk, Rothbard, Kirzner, etc.
at that time. If I had to pick a single number, it would be 25.
Now, my best off the cuff estimate of the number of economists
working in this tradition would be in the several hundreds. If
I had to pick a single number, it would be 500. My thought is
that we Austrians have almost switched places with the Marxists;
while we have gone from a handful to several hundreds, they have
(happily) been moving in the opposite direction.
“guilty” as charged. As a person who moves in both worlds,
the Austrian and the mainstream, I sense that the former are far
more passionate, concerned, involved, and indeed “dedicated”
to their professional lives than the latter. Why is this? My speculation
is that it emanates from two sources. First, the mainstream is,
shall we say, “non receptive” to Austrian concerns.
It is a bit galling to be ignored. This naturally motivates the
“outsiders” more than the insiders. Second, in my view
neoclassical economics (with many exceptions, certainly including
your own work) degenerated into involvement in math for mathâ€™s
sake; it is no exaggeration to say that an awful lot of what passes
for mainstream economics is not economics at all, but rather a
bastardized form of mathematics. It should be no surprise that
people involved in this stuff should be less “dedicated”
to it than are Austrians to economics, as economics is, for most
people, simply more interesting and related to the real world.
Here, I must
sharply part company with you. Cults, in my understanding, are
groups where the members follow the path of the leader not out
of rational considerations, but rather because of awe, or love,
or reverence, or some such. Certainly, there would be no toleration,
within a cult, of a follower criticizing a leader. Were such to
occur, the violator would be summarily dismissed from the cult.
Instances of cults which fit this bill include the Randians, the
Jonestown suicide group, the Hare Krishnas, etc.
To even mention
Austrians in the same breath as these others in this regard is
surely to misunderstand what is going on. Austrian journals are
replete with criticisms of any and all leading lights. Look at
virtually any issue of the Quarterly Journal of Austrian
Economics or of the Review of Austrian Economics and
you will see all of the people mentioned above being raked over
speak mainly to each other”
You are undoubtedly
correct. Austrians do “speak mainly to each other.”
The reason, however, is that with but some few exceptions noted
below, the mainstream refuses not only to speak to Austrians,
but, even to allow the latter to speak to them.
in this regard is the University of Chicagoâ€™s refusal to accept
Hayek in its department of economics. (This occurred long before
you joined that faculty, so this only indirectly concerns yourself.)
Milton Friedman once explained this to me on the ground that he
and his colleagues did not consider Hayek to be an economist;
rather, a sort of political theorist, who would fit in better
with Chicagoâ€™s Committee on Social
Thought. True, this rejection occurred long before Hayek won his
Nobel Prize (it was in economics if memory serves), but
stillâ€¦. My thought is that the mainstream, at least at the University
of Chicago (which is typical of the genre in my opinion) has a
rather narrow conception of what economics is; whatever that is,
it excludes what Hayek did. Exhibit “A” is the mainstreamâ€™s
shameful refusal to offer Mises a faculty position when he first
came to the U.S. on any campus whatsoever, although he
was later made a Fellow of the American Economic Association in
1969. Exhibit “C” consists of all those other Austrians
who were long un- or underemployed in academia.
and interact little”
in which Austrians could, conceivably, speak to neoclassicals
is by publishing in the journals of the latter. But this is easier
said than done. And not because the Austrians do not try
to publish in mainstream journals; believe me, they do (self interest
alone would explain these attempts, as publication in this venue
is the surest path to professional success). The reason Austrians
do not speak to mainstreamers in this way is that editors and
referees of these periodicals are not exactly receptive to their
offerings. Let me quote in this regard from the editorial (written
by myself and Murray Rothbard) that introduced the first issue
of the Review of Austrian Economics in 1987 (Vol. 1, p.
existence of the Review of Austrian Economics will resolve
some dilemmas now faced by Austrian-oriented researchers who attempt
to publish in the mainline journals. Articles that simply assume
a familiarity on the part of the profession with methodological
norms and theoretical developments within the Austrian tradition
are unlikely to be published; the profession, by and large, has
no such familiarity. Articles that devote substantial space to
stating and defending the methodological norms and retracing the
theoretical development are also
unlikely to be published; they are seen and correctly so, as unoriginal.
Articles who backgrounds are extensive in absolute terms but brief
in relation to the remainder of the article do not constitute
a workable compromise; they are rejected on the basis of length.”
To this I
would add an almost visceral hatred on the part of mainstream
economists for Austrian (praxeological) treatments of issues;
they are dismissed, out of hand, as the natterings of â€¦ “cultists.”
“Austrians speak mainly to each other and interact
little” with their colleagues in the profession. But this
is the fault of the latter, not the former. To complain of this
is to “blame the victim.”
however, one exception to this general rule; interaction takes
place in Austrian journals, not the reverse. To wit, the
following neoclassicals have engaged in dialogue with Austrians,
but only in Austrian journals: Gordon Tullock, Richard Timberlake,
Harold Demsetz, Leland Yeager, Richard Wagner, David Laband and
Robert Tollison. Dozens of other neoclassicals have come under
sharp criticism from Austrians, but have so far not condescended
to reply. (If I may be permitted to say something more than just
a bit naughty, when these mainstreamers venture into such debates
with Austrians, they invariably get creamed.)
Austrians offer the palm leaf of dialogue and discussion; on rare
occasions it is accepted, but always in the venue of the
latter. Mainstreamers never (to my knowledge) make such
overtures in their journals, and when Austrians offer to publish
in neoclassical journals, they are for the most part rebuffed.
There are of course some exceptions; most prominently in
recent times there has been some Austrian material published in
AEA journals: JEL â€“ “From Mises to Shackle,” by Ludwig
Lachmann; JEL â€“ “Entrepreneurial Discovery and the Competitive
Market Process: An Austrian Approach,” by Israel Kirzner.
But this is very little.
Let me close
this section by giving you one further example of this, which
is really just the tip of the iceberg. Recently, a young mainstream
economist published a ringing critique of Austrianism: Caplan,
Bryan, “The Austrian Search for Realistic Foundations,” Southern
Economic Journal, April 1999, Vol. 65, No. 4, pp. 823-838,
a neoclassical journal if ever there was one. Hulsmann and I submitted
replies to Caplan to the Southern Economic Journal, and
both were rejected. Subsequently both appeared, respectively,
as the following: Block, Walter, “Austrian Theorizing: Recalling
the Foundations,” Quarterly Journal of Austrian Economics,
Vol. 2, No. 4, winter 1999, pp. 21-39; and Hulsmann, Jorg Guido,
“Economic Science and Neoclassicism,” Quarterly Journal
of Austrian Economics, Vol. 2, No. 4, Winter 1999, pp. 3-20.
Did this end the debate? It did not. Instead, the editor of the
Quarterly Journal of Austrian Economics approached Caplan,
and asked him if he would like to reply to Hulsmann and myself,
and Caplan agreed. Thus, the debate is being carried even further,
not in the SEJ, which is willing to publish mainstream
potshots at Austrians, but rejects Austrian defenses, but rather
in the QJ, which thereby demonstrates that it is open to
both sides of an issue. Now, who is acting like a “cult?”
mainstream economics has absorbed much of what has been valuable
in Austrian economics” I tend to disagree with you here.
Letâ€™s consider a few examples:
the importance of the distribution of knowledge.” Iâ€™ll believe
this when the mainstream gives up on its distinction between perfect
and imperfect competition. The former features full knowledge
and the latter, lack of full knowledge. Neoclassical economics
still favors the former vis-Ã -vis the latter; namely, it
is still operating on the basis of an unrealistic model (I know,
I know, Iâ€™ve read Friedman on methodology) that has vast pernicious
effects. As only one case in point, witness the ongoing prosecution
of Microsoft, based entirely on this mainstream edifice.
grave problems of socialism.” Open up any copy of the American
Economic Review, and I guarantee you will find one third of
the articles proposing newly discovered “market failures,”
or waxing eloquent about old ones. (Ok, ok, Iâ€™m exaggerating,
but not by much.) But what are these
other than calls for increased government, e.g., a move toward
socialism. Surely, you wouldnâ€™t deny that the AER is a
mainstream journal, indeed, a veritable paradigm case.
importance of entrepreneurs.” Is there not, still, within
mainstream economics, a veneration for all things smacking of
equilibrium? But is not equilibrium the one thing incompatible
with entrepreneurship? I know that the University of Chicago Press
published Israel Kirznerâ€™s book on this subject a long time ago
(1973), but this is the exception that proves the rule. I once
saw Ben Kleinâ€™s pre-publication exceedingly critical refereeâ€™s
report on this book, and I am amazed that the UC Press went ahead
with this project anyway.
economics could benefit greatly from developments in empirical
economicsâ€¦” I agree with you partially on this.
When it comes
to purely empirical matters such as, what was the elasticity of
demand for bananas in 1995 in Chicago, or what is the correlation
between this and that, I have no doubt that econometrics in general,
and recent developments in it, can be helpful.
the so-called “testing” of axiomatic economic laws is
concerned, we must part company. Please hear me out; I know that
for you as a logical positivist there is no such thing as an axiomatic
economic law, but I would like to try to convince you, one, that
you are mistaken in this, and two, that, deep down, you are really
an Austrian, e.g., a fellow “cultist” of mine.
Let me run
by you two episodes in this vein.
a. rent control.
I donâ€™t know
whether you remember this or not, but when you were my dissertation
advisor at Columbia University, my topic was rent control. I was,
presumably, trying to test the usual implications of this law:
that it causes rental housing deterioration, reduced investment
in residential rental units, shortages, etc. These were the dependent
variables in my regression equations. The independent variable
was presence of rent control. My observations were cities. I tried
to control for a few other things, such as wealth, income, race,
etc. Most of the time the sign of my rent control variable was
the correct one, indicating consistency between my model and the
usual economic analysis of rent control (in which both Austrians
and mainstreamers fully concur).
once in a while I got the wrong sign for this variable, indicating,
if you believed my results, that rent control actually improved
the housing situation. On these occasions did you brag to your
colleagues that you had this young genius, Block, on your hands,
who was in the process of overturning everything we all knew about
rent control? Did you urge me to send my earth shaking results
to the AER for publication? To ask these questions is to answer
them: you did no such thing. Very much to the contrary you said,
“Block, go out and do this again until you get it right!”
That is what you explicitly said to me. In contrast, what
I heard was: “Block, you dummy, go out and do this
again until you get it right!” Of course, you were far too
polite and supportive to actually say this to me, but I could
tell that this was what you were thinking; at least, this is the
way I felt, at the time.
was “testing” what? Were my equations really testing
the usual supply and demand analysis of rent control, or was the
usual supply and demand analysis of rent control testing my econometrics?
Obviously, the latter was the case.
was your reaction to the Card Krueger “finding” that
the minimum wage has no deleterious effects, but rather if anything
positive ones, on the employment prospects of unskilled workers
in New Jersey. When you first got wind of this idiocy, did you
say something like this to yourself: “Oh, well, weâ€™ve got
lots of evidence in the past to the contrary, but weâ€™ve always
got to be open to new evidence that maybe minimum wages really
help unskilled workers get jobs;” or: “Oh, well, maybe
economic law works differently, or not at all, in New Jersey.”
Knowing you, and reading what you subsequently wrote about this
in Business Week, I infer that you thought, instead, along
the lines undertaken by me and every other good “cultish”
economist: economic law is economic law, and these guys are flat
out wrong: Iâ€™m not going to rest until I show the errors they
made in coming up with this idiocy. Câ€™mon, Gary, admit it! Wasnâ€™t
that your gut reaction?
But in doing
so, you were actually, whether you appreciate it or not, acting
and thinking like an Austrian (“cult”) economist. You
had, at least for the moment, jettisoned all this business about
the much-vaunted in mainstream circles “empirical economics.”
You had gotten down to basics: that there is such a thing as economic
law, that it is impervious to the wishes of the do-gooders, that
it takes precedence over any empirical finding supposedly incompatible
once posed the challenge to me, “But if two Austrians disagree
on a matter of economic law, and cannot resort to empirical testing,
how can they settle their differences? Only by fighting (this
is my paraphrase of his words).” My reply to him and implicitly
to you is “But if two logicians or geometricians, or mathematicians,
etc., disagree on a matter of logic, or geometry, or math, and
cannot resort to empirical testing, how can they settle their
differences? Of course not by fighting; rather, by looking for
the lapse in logic, of which one (or both) of them are guilty.
That is to say, I see economics not as an empirical science, along
the lines of physics and chemistry, but, rather, similar to logic,
geometry and math. And for this I am to be called a “cultist?”
Now, I may be wrong in my contentions (I wait to be corrected
by you on them), but can you honestly say I am acting like a cultist,
e.g., arguing from authority, threatening to damn you to hell
for not agreeing with me, etc?
LET ME MAKE
ONLY TWO SHORT POINTS.
1) I GIVE
A PRECISE DEFINITON OF CULT:”BY A CULT I MEAN A SMALL NUMBER OF
DEDICATED FOLLOWERS WHO SPEAK MAINLY TO EACH OTHER, AND INTERACT
LITTLE WITH LET US CALL THEM MAINSTREAM ECONOMISTS.” I AM SURPRISED
YOU WERE NOT CAREFUL ABOUT NOTING THIS, AND READ INTO THE WORD
NOTIONS OF IRRATIONALITY, ETC.IT IS NOT IMPLIED BY MY DEFINITION
OR BY OTHERS, AS WHEN THERE ARE CLAIMS ABOUT CULT MOVIES, ETC.
2) I DO NOT
WANT TO GET INTO BLAME ABOUT WHO SPEAKS TO WHOM. SINCE AUSTRIANS
ARE MUCH SMALLER, THEY SHOULD TRY TO INFLUENCE MAINSTREAM. BUT
MY MAIN POINT IS THAT THE MOST IMPORTANT IDEAS OF AUSTRIAN ECONOMICS
HAVE BEEN INCORPORATED. THIS DOES NOT MEAN THAT ALL ECONOMISTS
UNDERSTAND THIS, BUT THAT THE THEORY IN THE HANDS OF THE LEADERS
DO INCORPORATE THIS.APROPOS OF THE MICROSOFT CASE, IT IS RELEVANT
THAT THE LEAD ECONOMIST USED BY MICROSOFT IN THE CURRENT TRIAL
IS KEVIN MURPHY, AN OUTSTANDING CHICAGO ECONOMIST. HE WELL UNDERSTANDS
THE INFORMATION ISSUE AND USSD IT, ALONG WITH A NUMBER OF OTHER
INSIGHTS OF MODERN GOOD CHICAGO-STYLE MICRO.
MY FEE TO
TRAVEL TO A UNIVERSITY IS TYPICALLY $XXX + EXPENSES. I SOMETIMES
MAKE AN ADJUSTMENT DOWNWARD OR UPWARD, BUT THIS IS MY
ALL THE BEST,
point 1. Yes, I agree with you, Austrian economics is a cult.
But this follows from what I consider to be your rather unique
definition of “cult” as a “a small number of dedicated
followers who speak mainly to each other, and interact little
with â€¦ (the) â€¦ mainstream….” By this definition those few
who first thought the earth was round, or that our planet revolved
around the sun and not vice versa, were also cultists. Initially,
there were only a small number of people who went against the
“mainstream” of the day, and they were indeed dedicated.
Some of them paid a big penalty for espousing these “cultish”
thoughts. I defined “cult” in terms of rationality,
etc., because I believe this is a more accurate definition of
2. Believe me, Austrian cultists do indeed try to “influence
the mainstream.” As said above, they are not exactly welcoming.
In terms of who wins debates between the two on the rare occasions
they take place, I refer you to this article:
Christopher Westley and Alex Padilla. 2008. “Internal vs. external
explanations: a new perspective on the history of economic thought,”
Procesos De Mercado: Revista Europea De Economia Politica;
issue 2, pp. 35-132; see here,
the Microsoft case, Chicago-style micro (shared by pretty much
the entire profession) sees monopoly in terms of four firm concentration
ratios and Herfindahl indexes. Austrian economists see this as
problematic for the definition of an industry is very subjective,
and this entire enterprise artificially penalizes innovation.
If I suddenly find the cure for cancer, my firm will have 100%
of this “industry,” and Iâ€™ll be penalized as a monopolist.
In contrast, we cultists see monopoly, I think much more sensibly,
in terms of legal entry restrictions.
really address one of the issues I raised. I would be greatly
interested in your response. I ask, how many negative empirical
findings about the minimum wage would lead you to “lose confidence”
in the usual economic assumptions about downward sloping demand
curves and upward sloping supply curves. Suppose the next 5, 50,
500, 5,000, 50,000â€¦ you see where Iâ€™m going with this â€¦ econometric
regression equations published in the “top” (that is,
neoclassical) journals suggested that a higher minimum wage was
associated with not fewer, but additional jobs for unskilled workers.
At what point would you admit Card and Krueger were right.
as an Austrian cultist, I would say that no number of such “findings”
would shake my confidence in the apodictic claim that ceteris
paribus, a minimum wage will unemploy unskilled workers with DMVPs
of less than that amount stipulated by law, compared to what unemployment
level for them would have ensued in the absence of such legislation
(the clearest explanation of this way of putting the matter is
offered here: Hulsmann, 2003). And, further, given these qualifications,
the higher the minimum wage is set at, the more unemployment there
were really next 5, 50, 500, 5,000, 50,000â€¦ cases to the contrary,
I would assume something weird was going on. Some rich pinko like
Bill Gates was sticking his thumb on the scales. Paying off employers
to hire the unskilled with DMVPs below the minimum wage, so that
they would not lose thereby. But my “confidence” in
the usual economic analysis of minimum wages would be precisely
as unshakeable as it is now in the fact that triangles all have
360 degrees, and that the Pythagorean theorem is correct, even
if next 5, 50, 500, 5,000, 50,000 “experiments” on these
latter two issues appeared to overturn them.
I ask, how many “negative” findings would shake you
on the minimum wage? The next 5, 50, 500, 5,000, 50,000 â€¦.? What?
My bet is that you will agree with me on this. That the dog is
the theory, and the empirical work merely the tail; and that the
dog shakes the tail, and not the other way around.
Gary, I still
fondly remember my days at Columbia in the late 1960s as your
student. You were my bright shining light then, and will be again
when and if you stop seeing the economics of Menger, Bohm-Bawerk,
Mises, Hayek and Rothbard as cultish.
Jorg Guido. 2003. “Facts
and Counterfactuals in Economic Law.” The Journal
of Libertarian Studies. Vol. 17, Num. 1, pp. 57-102