In light of the recent exposure of unsavory sentiments expressed in Ron Paul's newsletters from the early 1990s concerning racial and religious prejudice, and the close association of Paul with the Austrian school of economics, two long time and extremely insightful friends of mine have suggested that I abandon the Austrian label. There is nothing uniquely insightful, they insist, about the Austrian school project compared to classical liberal political economy as found in Adam Smith, F. A. Hayek and Ronald Coase and all I do is to continue to risk identifying myself with a movement that is obviously tainted with intolerant ignorance and anti-intellectualism. Another long-time friend, while not asking for an abandonment, has chided me for not distancing myself further from the Misesian branch of Austrian economics who he identifies with the worst excesses identified in Paul's newsletters. And still another long time friend has asked me to defend Mises since Mises was a vehment anti-racist as his fight with NAZI doctrine, and his close intellectual association with Eric Voegelin demonstrates.
So let me try and respond to my friends and the conflicting demands to abandon Austrianism, stay Austrian but throw Misesians under the bus, and finally defend Mises as an enlighted intellectual free of prejudice. I should make it clear from the start that I agree at the end of the day with Milton Friedman, there is only good economics and bad economics. There is nothing special about the label 'Austrian' and if it stops being useful we should abandon it. But I think the label DOES NOT stand for anything unsavory in the least and I do believe it is an ignorant smear campaign to try to attempt to tar the school of economic thought with claims of being unscientific, prone to conspiracy theory, and some how adhering to racial doctrines. This isn't new. I remember reading a dissertation by a socialist PhD student on Mises when I was a graduate student that tried to claim that Mises was a pro-Nazi economist. I was appalled by the lack of scholarship that passed for a PhD in intellectual history at a pretigious university. When HOPE published Melvin Reeder's attempt to claim that Hayek (along with others) held anti-semetic views, I was thankful that Ron Hamowy was there to straighten out the record. False claims are often made to try to discount the intellectual contributions of others. But these sort of claims are ludicrous in this instance. A look at Mises's Liberalism reveals an indictment of colonialism, a reading of either Nation, State and Economy or Omnipotent Government reveals a sense of horror at the War State, and a reading of Socialism or Human Action reveals a deep concern with the plight of the least advantaged in society. And, if we throw Hayek into the mix, we have to acknowledge that The Constitution of Liberty, if anything, is about establishing the framework for a non-discriminatory politics and law that serves as the institutional infrastructure of a society of free and responsible individuals. The Road to Serfdom is a warning that if the West is seduced by the ideas of socialism the path toward Stalinism on the one hand and Nazism on the other is almost inevitable. Economic deprivation and political tyranny are the consequences of socialist experiments of all varieties, and in the extreme cases this includes the Gulag (Soviet) and the Death Camps (Nazi). How can it be that a set of political economy beliefs so closely identified with these arguments against statism and for individualism can get accused of ignorant discrimination?
So my first response to my friends is one of TRUTH seeking. People are making a false claim based on a guilt by association charge. The claim is false and should be denounced as such. The Austrian school, as I have said, is a set of technical arguments in economics that emerged in the late 19th and early 20th centuries as a branch of the neoclassical revolution in economic thought, and as David Levy and Sandra Peart have emphasized in How the Dismal Science Got Its Name, the classical and neoclassical economists were non-racist, whereas the enemies of economics were the advocates of racism and eugenics. Getting the record straight is an important scholarly value.
My second response is that while it is true that a lot of very sensible economics can be found in Alchian, Becker, Buchanan, Coase, Demsetz, Friedman, North, Olson, Schelling, Stigler, and Tullock that provide a deep scientific appreciation of the spontaneous ordering of the market economy and the perverse incentives of government bureuacracy, I do believe there remains important gaps in that understanding that must be filled by the work of Mises, Hayek, and Kirzner. To put this another way, lets make sure we contextualize Mises and the ideological importance of his scientific economics. Mises's career coincided with a world turned upside down. Socialism was presumed to be not only morally superior, but economically superior. Remember the claim in the 1930s was that the Soviet Union didn't suffer from a Great Depression, and the claim in the 1950s was that Soviet planning is what enabled Stalin to build up Soviet industry that enabled the army to defeat Hitler and after the war to win the space race. In addition, mathematical economics was supposed to eliminate the ambiguity that literary economics suffered from, and the emerging field of econometrics would provide us with an unambigious procedure for measurement and control in economic life. And, finally, while the West didn't follow the extremes of Stalinist planning, the Keynesian model of demand management was adopted on widely as the way to maintain full employment in advanced economies and to bring development to the less developed world. Several important individuals raised objections to these claims --- Kenneth Boulding warned against the Samuelsonian revolution in his JPE review of Foundations; Milton Friedman challenged the Keynesian hegemony; Ronald Coase demonstrated the intellectual failure of Pigovian remedies; James Buchanan showed why the doctrine of functional finance would not operate as hoped for in a democratic polity; Harold Demsetz argued against the 'nirvana fallacy' of perfect information economics and market failure theory; PT Bauer exposed the failure of foreign aid programs to promote economic development; and Simon Kuznets warned about the abuse of national income statistics, and Ed Leamer taught everyone about the potential misuse of econometrics. However, no one individual stood against the intellectual tide on each and every issue in methodology, method, and public policy the way Mises did mid-20th century, nor did any one of them offer a coherent and comprehensive alternative to the alliance of scientism and statism that captured the imagination of the modernist mind. As we moved from 1950 to 1975 and from 1975 to 2000, Mises's criticisms of formalism, positivism, and statism were proven to be more penetrating than any other economist. The sterility of mathematical economics, the excessive aggregation of macroeconomics, the naivety of positivism, and loss of political freedom and economic inefficiencies that socialism entails all came to be widely recognized.
The Keynesian consensus fractured, real-existing communism collapsed, the formalist hegemony was challenged, and scientism lost much of its appeal as post-modernism captured the imagination of intellectuals. Mises (and Hayek) was the economist who predicted that failure of Keynesianism, Socialism, and Scientism first and held his ground when the world was intellectually upside down. Others might have been more successful with their peers, or with the general public, but it is Mises who owned the second half of the 20th century. Unfortunately, few are willing to admit this rather obvious point --- Robert Heilbroner famous wrote "Mises was right", but that admission failed to stick. So for TRUTH's sake, it is again important to stay the course on the central importance of Mises as a thinker in the development of economic liberalism in the late 20th and early 21st century.
Precisely because of this centrality, attempts to minimize Mises and hold up Hayek instead are not acceptable in my mind. Hayek was a great economist and a great social thinker, but Mises has a claim to priority. Hayek, in fact, in my interpretation, is the great Misesian and should be understood as such. To put it simply, without Mises, there is no Hayek. We have to understand that Hayek's research program was defined by Mises, and Hayek spent his entire career elaborating on Misesian economics, seeking new answers to Misesian questions, and exploring alternative philosophical foundations for Misesian analysis. To me an Austrian economics that emphasizes Mises to the exclusion of Hayek is intellectually underdeveloped, while one that emphasizes Hayek to the exclusion of Mises is intellectually vulnerable. It is the Mises-Hayek paradigm that must be continually worked on, further developed, extended in new directions, and taught and refined by the current generation of economists and social thinkers.
My third response to my friends is to emphasize that I have already made it known that (a) I think Austrians should be careful about too closely identifying the scientific tradition with political philosophy, and (b) that as far as Ron Paul's particular political campaign I am not on-board. I did not join the academics for Paul list and for reasons that anticipated this recent fall out. His brand of libertarianism has never been the cosmopolitan one that I hold -- and that is true for his presentation of libertarianism as far back as I remember. I applaud his anti-war stance, and I even am sympathetic to his indictment of our current monetary system and the fiscal policies the US has followed. I share his concern with the welfare state and the restrictions on the free market economy. But I didn't sign up because I think the rhetoric he often uses presents libertarianism as a parochial doctrine --- one that equates anti-establishment with anti-intellectual, that is prone to conspiracy theories (black helicopters and not the logic of concentrated benefits and dispersed costs), and does not seek the most sophisticated presentation of the economic argument for the policy question in dispute. I realize that I hold Paul to an unrealistic standard for a politician, but that is because he often presents his economic policy positions with the insistence that he is a bold and original thinker in the Austrian tradition of economics. He invites the criticism because he holds strong opinions on advanced topics in economic science and economic policy. If he didn't, the standard that I am holding him to would be unfair. I may disagree strongly with Mrs. Clinton on economic policy, but I don't argue that she fails to understand the latest research on the stability of free banking and/or the productivity norm. Even on health policy, I would argue against her scheme for universal health care, but I would not argue with her about her interpretation of Mark Pauly's latest paper on health economics. But Ron Paul asks us to consider him not just an advocate of certain economic policies, but as an economic thinker.
Similarly, I am not a close associate of the Ludwig von Mises Institute despite my deep respect for Mises as a thinker and my long friendship with some individuals who are closely tied to the institute. Why? Because I disagree with the way they often go about presenting the ideas. I disagree with the argument about the dehomongenization of Mises and Hayek; about knowledge and learning being juxtaposed with property and calculation, rather than as complimentary arguments; about free banking and 100% reserves; about apriorism and methodology, etc.
I also disagree with some at the Mises Institute about who matters in our scientific conversations, what we need to do to advance in the scientific community, and what should be stressed to young scholars. I am a complete elitist in this regard --- PhDs and academics only, there hasn't been a lay contribution to economic science that mattered in over a century, peer reviewed research must be the norm, disciplinary boundaries should be more or less respected, there are no great hords of unpublished genius running around to enlighten us on economic issues, etc. Of course, exceptions to these rules of thumb can be found, but I generally believe the exceptions prove the rule. A lot of lay discussion that passes for Austrian economics on the internet and even in some libertarian periodicals and books is intellectually embarrassing and often as poorly written as it is ill-informed on the issues. Bad readings of economic argument combined with angry rhetoric against intellectual opponents does not produce a treatise in the scientific discipline in economics no matter how much someone attempts to hype it. Contributions to scholarship do not come so easily.
HS basketball is enjoyable to watch for a fan of the game, but there is a huge difference in the athleticism and skill exhibited in a HS game and a high level college or NBA game. It is a huge mistake to confuse the two as interested parents of the boys often do! Same with the discussion of real economics in the JPE, the AER or in books with Princeton, Cambridge and Chicago, and the lay economic conversation that goes on at blogs, internet discussion lists, ideological magazines and public policy think-tanks.
Similar to my measured agreement with aspects of the Ron Paul campaign, I applaud the anti-war stance that the Mises Institute upheld after 9/11, and I appreciate all the free materials they are making available online to multitudes of students world-wide. But I do keep my distance for issues of substance and issues of style. I personally am inspired by Rothbard's comprehensive world-view and the boldness of his project in the science of liberty that combined political philosohy, economics, and revisionist history, but I don't find his argument for natural rights persuasive, and I don't always find his economic analysis to be an advance over Mises and Hayek. My tastes in economic argumentation run more in line with Kirzner's development of Mises and Hayek. Though I do have to admit that I never would have been interested in working through Kirzner had I not as an undergraduate student been inspired by Rothbard to study deeply in the Austrian tradition of economics. And I think that my experience is not that uncommon. But please note, what is inspiring about Rothbard is a vision of a completely free society. It is a progressive vision, it is one of social experimentation, and empowerment through freedom of choice. It is about freedom and dignity for all individuals.
So to all three sets of friends and their demands, all I can say is I agree with all of you and I think my behavior throughout my career reflects that I agree with you that: there is more to good economics than the contributions of the Austrian economists; that narrow Misesianism should be resisted (and perhaps even rediculed); and that Ludwig von Mises was an outstanding champion of economic reasoning and the classical liberal world-view. I realize that is not a satisfactory answer, and in fact it is an embracing of certain set of apparent contradictions. But it is how I have worked this all out in my own head. When Mises says things that are absurd, I reject them, just as when Paul Krugman says absurd things I reject them. It is probably easy to figure out who I think says more absurd things since I would never defend Krugmanism (if such a thing even exists) to the same extent I would be prepared to engage in a set of metnal gymnastics to defend a reasonable interpretation of Misesianism. When people promote Mises at the expense of Hayek, I reject that, just as when people push Hayek to exclusion of Mises I reject that. Misesianism is prone to crankism, Hayekianism is prone to mealymouthedism. I neither want to be a crank nor mealymouthed. And I certainly don't want to encourage students to be either a crank or mealymouthed. The Austrian label still communicates something of value to professional economists and gradaute students --- subjectivism, methodological individualism, market process, entrepreneurship, institutions, spontaneous order, capital structure, and monetary non-neutrality are all ideas that are identified with the Austrian school of economics. There is absolutely NOTHING in that list that relates to what was found in Ron Paul's newsletters.
All the problems that are currently identified with the Austrian school of economics are a function of one of its great strengths --- it is accessible to lay readers and it has implications for public policy that are as digestable to the public as they are radical. This is both a curse and a blessing. It assured a loyal readership of works in the tradition even when the academic world turned its back. But as hard won academic respectability was achieved in part through support (both emotional and financial) provided by laymen, the importance of this loyal readership outside of the academy declines. Coping with this tension will determine how useful the label remains for the development of the Austrian school and the contribution the school will make to both the scientific body of thought in economics and political economy, and for the broader cultivation of a community of classical liberal intellectuals.