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A Civil War Inside Austrian Economics

March 14, 2013

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A Civil War Inside Austrian Economics

Written by Gary North on March 13, 2013

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Gary North’s Reality Check

The Austrian School of economics in the twentieth century was dominated by Ludwig von Mises. He died in 1973. His followers have divided into two main camps: the Rothbardians and the Lachmannites. They have adopted rival philosophies and rival strategies.

The main strategy of the Lachmannites is to get tenure at a university. The main strategy of the Rothbardians is to persuade the general public of the truth of economic liberty.

A college teacher who is granted tenure need not publish anything ever again. He will be paid for merely showing up to class. The number of classes that he teaches declines. He is immune from dismissal. This is the bureaucrat’s dream come true.

The quest for tenure emasculates people. It turns them into intellectual geldings. They must please the tenured bureaucrats who hand out The Prize. The goal of every academic department is mediocrity within the department. The screeners do not want to hire anyone who will show them up, making them look second-rate at best. They also do not want to bring in anyone so incompetent that the university’s administration may intervene to investigate. The requirement for tenure is clear: Don’t rock the boat. He who succeeds in not rocking the boat long enough is more likely to be granted tenure, although these days, hardly anyone is. The good old days are fading.

Tenure-seekers look for a risk-free career, in which they will receive far above-market wages, yet be immune from market forces. Tenure is the dream of every bureaucrat. The offer of tenure lures intelligent people into lives of high-salaried irrelevance. They write narrow, useless papers for publication in journals that no one reads, except in a quest for footnotes to steal.

It also creates envy on a massive scale: envy that is directed against those who have achieved relevance outside the cocoon of the halls of ivy.


Within the rival tiny camps of Ph.D.-holding Austrian School economists, the central figure is Rothbard. One camp bases its thinking heavily on Murray Rothbard’s writings; the other camp is self-consciously opposed to virtually everything he ever wrote, and does whatever it can to prove to the tenure-granters that he is not “their” man. This division began 40 years ago, and it has accelerated ever since.

This was not true 50 years ago. In the summer of 1963, I got a summer internship at the original libertarian think tank, the William Volker Fund. It had recently changed its name to the Center for American Studies. I was paid $3800 a month (in today’s money) to sit and read books. This was in a day when there were almost no income taxes at all on people in that income range. It was the best job I ever had.

That summer, I read all three of Rothbard’s books, which had been in print for less than a year. The first was his doctoral dissertation, The Panic of 1819. The second was his magnum opus, Man, Economy, and State. The third was America’s Great Depression, which focused on Herbert Hoover’s administration, not on Franklin Roosevelt’s. I was probably the first person in what can be called the third wave of Misesians to read all three of Rothbard’s books.

The first group of the followers of Mises were those who were converted out of socialism in the 1920s. These included F. A. Hayek, Wilhelm Roepke, and Lionel Robbins. The second wave — more like a ripple — was Rothbard’s generation, which began in the early 1950s. It included Hans Sennholz and Israel Kirzner. The third wave was my generation. We came together at a meeting held in South Royalton, Vermont, in 1974.


At the meeting in Vermont, the division became visible. It was a division between Rothbard, who attended the meeting, and a member of the first generation, Ludwig Lachmann, a somewhat obscure economics professor from South Africa. He had written a few articles in the 1930s and 40s, but he had never written a book of significance. He was a believer in almost total economic chaos as the basis of economic theory. I am not exaggerating. He called this kaleidic perception. His example of economic entrepreneurship was based on a kaleidoscope, which children look through, turn the base, and see ever-changing but meaningless patterns. He really did believe that this is the basis of entrepreneurship. He was also the worst lecturer I ever heard, and I have heard many terrible lecturers.

Rothbard believed that economic theory should be based on a series of axioms and corollaries. This was the original view of Mises. Rothbard was faithful to this position. He believed in economic rationality as the basis of comprehension of real-world actions. He then applied Mises’s comprehensive theory of human action to the economy and politics. He did not believe that you could use economic facts to refute theory, but he surely believed that you could use economic facts to illustrate theory in action. That made him unique in the camp of the followers of Mises, because he was relentless in his application of Mises’s categories of human action with respect to politics, academia, foreign-policy, wars, and the work of conspiracies to gain control of political power in order to further their ends. Therefore, he believed in conspiracies.

For modern academia, a conspiracy theory has much the same effect that a crucifix had on Bela Lugosi’s Dracula.

Because of Rothbard’s commitment to the application of Mises’s theory to virtually every area of modern politics, he has earned the respect of intelligent people who are outside of academia, and who see through the delusions of both grandeur and independence that tend to afflict those who are inside academia. In contrast, those Lachmannian followers of Mises who are inside academia, and who gain their sense of importance from their peers in academia, regard Rothbard as the turd in the punch bowl. If Rothbard was right, then almost everything they are doing is either irrelevant or worse.

(For the rest of my article, click the link.)

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