Three Decades of Progress in Austrian Economics: From South Royalton to Grove City

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Recent discussions
on Internet lists and in other informal settings has made it increasingly
evident that Austrian economists are deeply vexed and divided over
a number of important questions regarding the nature and extent
of progress in their discipline. These questions include: whether
Austrian economics has progressed much, if at all, during its modern
revival; what standards should be applied in appraising such progress;
and what the appropriate means are of ensuring such progress in
the future. In this lecture I propose to address these questions
and attempt to provide answers to them.

Before dealing
with these questions, however, it is necessary to bring to light
and resolve two related though more fundamental issues that have
long been the source of a tacit rift in the ranks of Austrian economists.
The first of these issues centers on the question of whether economics
is a profession or a vocation. The second involves the role played
in the modern Austrian rebirth by the South Royalton conference,
which was held a little more than thirty years ago. I will argue
that, generally, the position one takes on these two vital matters
strongly influences whether he believes that considerable progress
has been made in developing the Austrian paradigm during the last
three decades – as I emphatically do – or instead that
Austrian economics has blundered down blind alleys and is currently
stagnating, as some Austrians have recently maintained.

In what follows,
I will analyze each of these two basic issues in detail and try
to show how differing views on them yield profoundly different standards
by which the progress of Austrian economics is assessed. In light
of what I argue to be the correct standard, I will conclude by outlining
the case that Austrian economics has progressed by leaps and bounds,
especially in the last two decades, and is fulfilling the initial
promise of its founder, Carl Menger (1976, pp. 48–49), to discover
the essential causal laws governing the economic activities of human
beings – laws that are at once both realistic and exact.


New Shorter Oxford English Dictionary
gives one definition
of “vocation” as “The work or function to which a person is called;
a mode of life or employment regarded as requiring dedication” (Brown
1993, vol. 2, p. 3595). The eminent semanticist S. I. Hayakawa also
emphasizes “dedication” as the distinctive feature of a vocation
which differentiates it from a profession. According to Hayakawa
(1994, p. 351):

suggests a position that cannot be attained without a considerable
amount of higher education, and that involves one creatively
in mental rather than manual labor. Profession once referred
to the three learned professions – law, medicine,
and theology – but it is now often used to confer status
upon many other ways of earning a livelihood . . . . Even when
profession is used more strictly, it need not suggest
dedication on the part of a member. By contrast one sense of
vocation specifically stresses this dedication. . . .
Moreover vocation stresses a long-term commitment to
something that is not necessarily equated with the earning of
a livelihood. . . .1

In praxeological
terms, a vocation involves what Ludwig von Mises (1998, pp. 584–85)
called “introversive” labor while a profession involves “extroversive”
labor. The essence of introversive labor is work undertaken solely
for its own sake and not as a means to a more remote end. Extroversive
labor, in contrast, is performed because the individual “prefers
the proceeds he can earn by working to the disutility of labor and
the pleasure of leisure” (Mises 1998, p. 585).

One of the
“two most conspicuous examples” of introversive labor, according
to Mises (1998, p. 584), is “the search for truth and knowledge
pursued for its own sake and not as a means of improving one's own
efficiency and skill in the performance of other kinds of labor
aiming at other ends.” The second is “genuine sport, practiced without
any design for reward and social success.” It is not that the effort
expended by the “truth seeker” or “mountain climber” does not involve
the disutility of labor, rather “it is precisely overcoming the
disutility of labor that satisfies him.” Thus genuine truth-seeking
in any scientific discipline qualifies economically as “consumption”
and its pursuit as a vocation.

It is important
to note moreover, as Mises (1998, p. 585) does, that the pursuit
of almost any vocation requires “not only the personal efforts of
the individuals concerned, but also the expenditure of material
factors of production and the produce of other peoples' extroversive
. . . labor that must be bought by the payment of wages.” In other
words, the search for new truth in economics, as in any pure science,
necessitates, in addition to introversive labor, an institutional
framework composed of a structure of complementary goods that has
been deliberately and rationally constructed by one or more property

The founding
members of the Austrian school pursued economic research neither
for pecuniary gain nor because they sought professional recognition
or an influence on public policy. According to Mises (1984, p.18),
“When Menger, Böhm-Bawerk and Wieser began their scientific
careers . . . [t]hey considered it as their vocation to put
economic theory on a sound basis and they dedicated themselves
entirely to this cause [emphases are mine].” These three eminent
Austrians, therefore, were not economists by profession but by vocation.

The “vocational”
economist takes a position in academia or works in some other profession
such as banking, journalism, industry or government in order to
obtain the concrete means necessary to sustain and complement his
efforts to discover new truths or expound and apply established
truths in his economic research and writing. The “professional”
economist, in contrast, aims at earning a livelihood, eliciting
acclaim from peers, achieving public fame, shaping political policies
or, most likely, a combination of these ends. Thus the difference
between the vocational economist and the professional economist
is not their objective method of earning a living but the subjective
ends aimed at, which are unobservable. Nonetheless, despite the
subjective element involved, the two kinds of economists can be
readily distinguished from each other by scrutinizing the disparate
views they express toward economic research, particularly its truth
content and perceived rewards.

economists like Murray Rothbard are not allergic to using the unfashionable
terms “truth” and “law” when characterizing the science of economics.
For Rothbard, economics is a substantive body of immutable and universal
causal laws that are logically deduced from the incontrovertible
fact that people employ means to attain their most desired ends.
As such, Rothbard (2004, p. 1360) held that “all these elaborated
laws [of economics] are absolutely true” and that “economics does
furnish . . . existential laws.” Furthermore, in the 1950's and
1960's, Rothbard was working on Austrian economics in obscurity
and virtual isolation. He did not obtain a full-time academic position
until 1966 and, before then, was earning a precarious living on
foundation grants while he soldiered on in building up the Austrian
theoretical edifice. Yet Rothbard (1990, p. 2) revealed in an interview
in 1990 that he had been quite content during this period: “Any
chance to write a book or meet new people was terrific.” These are
the views and the attitudes of the ideal vocational economist.

Paul Samuelson
is the exemplar of the modern professional economist. When Samuelson
(1988, p. 63) once grandiosely declared, “I can claim in talking
about modern economics I am talking about me,” he spoke truer than
he knew. In his approach to economic research Samuelson (1993, p.
242) is a self-proclaimed follower of the “views of Ernst Mach and
the crude logical positivists.” These so-called philosophers of
science contended, “good theories are simply economical descriptions
of the complex facts of reality that tolerably well replicate those
already-observed or still-to-be-observed facts.” Of course economic
theory formulated as a shorthand summary of a past sequence of observable
and non-repeatable historical facts cannot possibly elucidate the
immutable causal laws that operate and interact to produce a unique
and complex economic phenomenon at a later moment in history. Nonetheless,
Samuelson (1993, p. 242) embraces this view of economic theory:
“Not for philosophical reasons but purely out of long experience
in doing economics that other people will like and that I myself
will like. . . . When we are able to give a pleasingly satisfactory
“HOW” for the way of the world, that gives the only approach to
“WHY” that we shall ever attain.” Samuelson and Solow's formulation
of the now discredited stable Philip's Curve tradeoff between inflation
and unemployment is an example of such Machian theorizing in action.
Without doubt, the Philips Curve for a time was well liked by Samuelson,
Solow and other professional economists and even used by policymakers,
but its truth content in the face of the stagflation that developed
in the 1970's was exactly nil.

To be fair,
Samuelson does not dismiss all concern for truth in economic theory.
For example he confesses that at 20 years of age he had harbored
high hopes that anticipated progress in econometric methods would
“narrow down the uncertainties of our economic theories.” However,
as a septuagenarian, Samuelson (1993, p. 243) was forced to admit
that “it has turned out not to be possible to arrive at a close
approximation to indisputable truth.” The accumulation of econometric
findings by the1990's, it seemed to Samuelson, was not “convergent
on a testable truth.” Samuelson (1993, p. 294) rationalized this
state of affairs by arguing, “[T]ruth has many facets. Precision
in deterministic facts or in their probability laws can at best
be only partial and approximate.” In the introduction to his article
that was to become the template for modern economic modeling, Samuelson
was even more frank regarding the severe limitation of Machian economic
theory to embody a true conception of the causal relationships that
govern economic reality. Wrote Samuelson in this seminal article
(1968, p. 58): “I think it would be folly to come to any conclusions
on the basis of so simplified a model and such abstract reasoning;
but on the other hand, strong simple cases often point the way to
an element of truth present in a complex situation.”

however, the professional economist need not fret overly much about
whether he can harvest a grain of truth from such unrealistic models,
because his reward for pursuing economic research lies elsewhere.
According to Samuelson (1970, p. 295), “In the long run the economic
scholar works for the only coin worth having – our own applause.”
Elsewhere, Samuelson (1988, p. 72) described scientists, including
professional economists, as being “as avaricious and competitive
as Smithian businessmen. The coin they seek is not apples, nuts,
and yachts; nor is it coin itself, or power as that term is ordinarily
used. Scholars seek fame. The fame they seek . . . is fame with
their peers – the other scientists whom they respect and whose
respect they strive for.”

account of the extroversive reward sought after by modern professional
economists clearly – though perhaps unwittingly – reveals
that their research endeavors are not governed primarily by a search
for truth. Mises (1978, pp. 7–8; 1998, pp. 868–70) gives
a compelling sociological interpretation of why academic researchers
in the aprioristic sciences such as economics and philosophy are
diverted from seeking truth to striving after other ends. As universities
traditionally developed, the professors were not only supposed to
teach but also to make original contributions to their science.
Yet, as Mises noted, very few individuals living during any historical
epoch are endowed with such ability. In empirical sciences, whether
of the natural or historical variety, however, the illusion that
all academic researchers contribute something valuable to their
science can be plausibly sustained because there is no visible distinction
between the scientific methods employed by the creative genius and
those resorted to by the inferior researcher. As Mises (1998, p.
869) explained:

The great
innovator and the simple routinist resort in their investigations
to the same technical methods of research. They arrange laboratory
experiments or collect historical documents. The outward appearance
of their work is the same. Their publications refer to the same
subjects and problems.

Research in
economics is quite different: it requires sustained, rigorous and
systematic thinking, a faculty which very few possess and even fewer
are willing to exercise. This is true of both the creative genius
who constructs a great edifice of economic theory as well as those
who seek to refine, extend and apply his system to new problems.
His students and followers must also expend many years of their
life and a great deal of rigorous mental effort in mastering the
entire theoretical system before they can make even minor contributions
to economics. Therefore, Mises (1998, p. 869) concluded, in economics:

is nothing that the routinist can achieve according to a more
or less stereotyped pattern. There are no tasks which require
the conscientious and painstaking effort of sedulous monographers.
There is no empirical research; all must be achieved by the
power to reflect, to meditate, and to reason. There is no specialization,
as all problems are linked with one another. In dealing with
any part of the body of knowledge one deals actually with the

Those aspiring
economics professors who lack the intellectual faculties or temperament
needed to conduct systematic theoretical research therefore must
find another field in which to make their required research contributions.
For example, in the German-language universities of the late nineteenth
and early twentieth centuries, these men turned to economic history
and descriptive economics. Mises's perceptive sociological analysis
explains the rise to dominance and entrenchment of the German historical
school in the universities as well as its hysterical antipathy toward
economic theory. According to Mises (1978 p. 8):

The fiction
that in the sciences all professors are equal does not tolerate
the existence of two types of professors in economics: those
who work independently in economics [as original theorists];
and those who come from economic history and description. The
inferiority complex of these “empiricists” gives them a prejudice
against theory.

By the 1920's
the German historical school was on its last legs but still ensconced
in the professorial chairs. The members of the third generation
of the school were a dull and undistinguished lot except for Werner
Sombart, who had been a student of Gustav Schmoller's, the leading
German historicist of the second generation. Mises, who knew Sombart
personally, portrayed him as the quintessential professional economist.
It is worthwhile quoting in full Mises's entertaining and eviscerating
description of Sombart, because the personality that emerges is
the antithesis of the vocational economist:

Werner Sombart
was the great master of his set. He was known as a pioneer in
economic history, economic theory, and sociology. And he enjoyed
a reputation as an independent man, because he had once aroused
Kaiser Wilhelm's anger. Professor Sombart really deserved the
recognition of his colleagues because to the greatest degree he
really combined in his person all their shortcomings. He never
knew any ambition other than to draw attention to himself and
to make money. His imposing work on modern capitalism is a historical
monstrosity. He was always seeking public applause. He wrote paradoxes
because he could then count on success. He was highly gifted,
but at no time did he endeavor to think and work seriously. Of
the occupational disease of German professors – delusions
of grandeur – he had acquired an elephantine share. When
it was fashionable to be a Marxian, he professed Marxism; when
Hitler came to power, he wrote that the Fuehrer receives his orders
from God! (Mises 1978, pp. 102–103)

aspirations and the culture it engenders are not only inconsistent
with truth-seeking in economics, however, they are positively antithetical
to it. For the professionalization of a scientific discipline, particularly
a social science like economics, almost always proceeds hand in
hand with the expansion of government interventionism. As Mises
(1998, p. 865) put it “The development of a profession of economists
is an offshoot of interventionism.” The reason for this inevitable
connection rests on two facts. On the one hand, the State requires
a class of intellectuals and specialists for designing, implementing,
and providing rationalizations for various interventions into the
market economy. On the other hand, those intellectuals who seek
the regular income and prestige that accompany the professionalization
of their discipline are ever ready to oblige, because the ability
of an intellectual to earn his living researching and writing in
his chosen field on the free market is always precarious at best.
As the interventionist State expands, it reinforces the need for
trained experts and the university system obtains increasing subsidies
from government to initiate and expand graduate programs that will
provide such personnel. The lucrative positions in these programs
are naturally bestowed on those economists who spearhead the drive
to professionalize and are, therefore, most active and outspoken
in their support of government interventionism.

In the U. S.
the most extreme and thoroughgoing instances of domestic interventionism
occurred during the two World Wars of the twentieth century. It
was therefore no surprise that the movement to professionalize American
economics, which began in the 1880's, experienced quantum leaps
during these war crises. For when the State goes to war it needs
professional expertise to plan and direct the massive mobilization
of the resources it requires. This translates into a cornucopia
of lucrative and prestigious jobs for economic experts and specialists
in the bureaus and advisory boards of the political planning apparatus
that centrally directs the war economy. In his brilliant book on
the professionalization of American economics, Michael Bernstein
(2001, p. 89) identifies the central role played by World War II
in the ultimate success of this movement, perceptively observing:

Under the
novel and unrelenting demands posed by national mobilization,
modern economic theory had proved its worth. . . . Not individualism
but rather statism provided the special circumstances within
which the high hopes and great expectations of generations of
professionalizers could be realized. . . . It is one of the
great ironies of this history that a discipline renowned for
its systematic portrayals of the benefits of unfettered, competitive
markets would first demonstrate its unique operability in the
completely regulated and controlled economy of total war.

Of course their
wartime experience led economists to recognize the potentially great
material benefits that would accrue to them from a permanent alliance
between their profession and the centralized American State. They
responded by formally reorganizing the discipline and reshaping
its educational methods and requirements so as to accommodate the
prospective needs of the emerging postwar “national security state.”
Bernstein (2001, pp. 89–90) gives an incisive account of how
the American economics profession finally established itself in
service to a centralized and interventionist leviathan State:

World War
II provided the first systematic demonstration of the beneficence
to be won from the largesse of the central government . . .
. As a matter of course, there emerged a determination to evaluate
and reconfigure educational programs in the field, more rigorously
stipulate its varieties of expertise and methodologies, and
pursue consensus about its central principles and policy orientations.
That is to say, that out of the crucible of national mobilization
came the beginnings of a professional identity and self-confidence
that, while resolutely sought after since the late nineteenth
century, had, up to that point, been elusive and fleeting.

Bernstein (2001,
pp. 91–108) goes on to identify some of the arcane sub-disciplines
within professionalized economics that were developed in response
to the needs of the emerging American super-state during the Cold
War era which helped to maintain it on a permanent war footing.
The “decision-making sciences” such as linear programming and operations
research were developed during World War II to solve the logistical
problems associated with supplying overseas troops in different
theaters of operation. Game theory was reoriented and refined to
assist in the solution of strategic military problems associated
with the Cold War conflict – with generous funding from the
Department of Defense and especially the Office of Naval Research.
And the development of both mathematical growth theory and the practical
application of Keynesian macroeconomics embodied in the Kennedy-era
New Economics were in large part stimulated by Cold War concerns.
As Bernstein (2001, p. 108) notes with regard to the Keynesian New
Economics: “American economists found themselves poised to participate
in the realization of some of the most significant statist aims
of the cold war era . . . a vigorous national economy was essential
both to equip the armed forces and to demonstrate the superiority
of American capitalism.”

The remarkable
proliferation of hyper-specialized fields that occurred during and
after World War II led to a disintegration of economic theory, signified
by the disappearance of the general economic treatise (Rothbard
2004, p. xc–xci). No longer was there an integrated system
of general economic principles that was held in common and applied
to the analysis of all policies and problems by those who called
themselves economists. Now each sub-field of research had it own
special theory which was more or less sealed off from general economic
theory. Even general theory itself was now compartmentalized into
microeconomics and macroeconomics.

This specialization
or, more accurately, disintegration of economics compounded by the
postwar trend toward a positivist approach to economic theory, whether
of the Samuelsonian or Friedmanite variants, destroyed the formidable
barrier that had previously confined professional economists with
no faculty or vocation for theoretical research to economic history
and descriptive economics. They now began to abandon these peripheral
areas and to invade what was once the domain of economics proper
in droves. Though failing to master the great praxeological system
of economic theory that had taken shape in the interwar years, these
postwar economists could now undertake research in the splintered,
ultra-specialized areas of growth theory, labor economics, industrial
organization, oligopoly theory and so on ad infinitum. However,
the unrealistic theoretical models constructed by professional economists
then and now can never elucidate the essential laws governing the
actual market phenomena associated with their disjointed fields
of research. For as Mises (1998, pp. 687) pointed out: “The economist
must never be a specialist. In dealing with any problem he must
always fix his gaze upon the whole system. . . . Economics does
not allow of any breaking up into special branches. It invariably
deals with the interconnectedness of all the phenomena of action.”

Our discussion
thus far leads to an important general point. The economics profession
is a fiat phenomenon in the same sense as inconvertible paper money.
Neither would or could exist on a market free of specific pattern
of government interventions. Government cannot directly command
and coerce a newly issued fiat money into circulation in the market
economy. As Rothbard (1990a) has taught us, government must first
impose a series of interventionist measures such as legal tender
laws, repeated suspension of convertibility between paper promissory
notes and the underlying gold money, the refusal to enforce gold
clauses in private contracts, the banning of the private ownership
of gold, etc. These interventions distort market processes and prepare
the way for the gradual emergence of fiat money. The same is true
of the emergence of the economics profession. Government has no
power to directly design and establish a profession with its peculiar
and intricately interwoven customs, conventions, research culture,
and institutional infrastructure. Nonetheless, a natural vocation
like economics can be transformed into a profession as a result
of the distortion of market processes and the disturbing of property
arrangements caused by wars, political usurpation and subsidization
of higher education, and the establishment of centralized bureaus
and agencies to implement and oversee economic interventions. The
medical profession is therefore a natural profession that
would exist on a free market because it has a natural clientele;
the economics profession, along with most other social science professions,
is a fiat profession that has no free market clientele and
would exist as a truth-seeking vocation in the absence of a particular
historical pattern of government interventions.3

To sum up:
the vocational economist strives to master the system of economic
theory as handed down by the great system builders and innovators
of the past. Once this mastery is achieved, then, depending on his
ability, he is poised either to expound and apply this theoretical
system, to contribute a few important innovations, or to present
a thoroughgoing reformulation that embodies a number of major advances.
There are very few individuals who are capable of successfully embarking
on even the first of these paths. Moreover, regardless of which
path is taken, the vocational economist is driven forward by a thirst
for truth which is never slaked. He seeks to know ever more about
what Rothbard (1997, p. 262) termed “the structure of reality as
embodied in economic law.” Furthermore the extroversive labor he
performs for a livelihood, regardless of the field, is merely a
means to this and other consumption ends that rank high on his value
scale. All other things equal, he is indifferent toward a position
in academia except as it provides a more efficient method of pursuing
his vocation. Public acclaim and the recognition of his peers, if
they come, are not sought after by him but are at most valued byproducts
of his activities. Finally, the vocational economist measures progress
in his discipline by the quantity and quality of minds that have
mastered economic theory, because his own search for truth is facilitated
by subjecting his work to the critical evaluation of others pursuing
the same calling.

the professional economist aims, in his research activities, at
a number of extroversive ends. These include the approbation of
his colleagues, public fame, intellectual influence in shaping government
policies, professional advancement and prestige, and, of course,
raw power and money. To a great extent, these ends are attainable
only with government subsidies and largesse and so he naturally
supports an expansive and interventionist state. His natural roosting
place, to which he continually returns after his lucrative stints
in government service, nonprofit think tanks, and international
bureaucracies are the large universities that are subsidized or
directly controlled by government. He views progress in economics
as a matter of the multiplication of its sub-disciplines and specialized
bodies of theory, the increase of the sheer number of bodies in
graduate programs, and especially the expansion of opportunities
to obtain lucre and positions of power in advising the interventionist,
Welfare-Warfare State. As Mises (1998, p. 865) perceptively noted
as early as 1949, professional economists “rival the legal profession
in the supreme conduct of political affairs. The eminent role they
play is one of the most characteristic features of our age of interventionism.”

After World
War II and before the modern Austrian revival had gathered a full
head of steam in the mid-1980's there were very few vocational economists
left who had mastered the praxeological system and were actively
contributing to economics. The most notable among them were Mises,
Rothbard, Israel M. Kirzner, Henry Hazlitt, Hans F. Sennholz and
William H. Hutt. Almost all others calling themselves economists
were professional economists in the mold of Werner Sombart and Paul

3. The South
Royalton Conference: Boon or Bane?

As I have argued
in earlier work (Salerno 2002), the renascence of Austrian economics
began in 1962 with the publication of Murray Rothbard's Man,
Economy and State
. This magisterial treatise contained a
systematically elaborated and realistic structure of economic theory
that incorporated the insights and theorems of dozens of earlier
economists of various nationalities who had worked in the Austrian
tradition from 1871 through the 1950's. With this work of creative
synthesis, Rothbard reshaped and advanced the praxeological paradigm
that originated in the works of Menger and Böhm-Bawerk and
was first clearly delineated by Mises. In fact Rothbard was the
first economist in the history of the discipline, including Mises
himself, to succeed in methodically deducing the entire corpus of
economic theory from the undeniable fact of purposive human action.
By proceeding in this matter, he discovered new truths about economic
reality. Rothbard (quoted in Stromberg 2004, pp. xxxiii–xxxiv,
xli) explained his goal and method in writing Man, Economy and
State in correspondence with the foundation funding his work:

The aim
I set myself was to fulfill the essence of Mises's structure
of praxiology [sic] by spelling it out, step by step, in one
coherent integrated structure. I realized that it is possible
to begin with one simple, self-evident assumption: human
existence, and deduce all propositions of economics from
it. The essence of human existence is human action, and
once action is defined, all further [economic] truths can be
deduced by logical implication. . . . However, as I have been
proceeding, the necessary elaborations on the sometimes sparse
framework of Mises has led inevitably to new and original presentations.
[The bracketed interpolations were supplied by the editor of
the correspondence.]

Perhaps Rothbard's
greatest achievement in this work was his presentation of an integrated
theory of production that embodied the pure time preference theory
of interest of Frank A. Fetter and Mises, the time structure of
capital analysis developed by Böhm-Bawerk, Knut Wicksell and
Friedrich Hayek, and the marginal productivity theory of factor
pricing expounded at the turn of the century by John Bates Clark
and Thomas Nixon Carver. This theory spanned five chapters, comprising
over 300 pages and almost 30 percent of the treatise. Rothbard had
very little guidance from his predecessors and contemporaries, including
Mises, in systematically elaborating production theory and had to
employ the step-by-step procedure of logical deduction from first
principles and realistically chosen subsidiary postulates provided
by the praxeological method. Wrote Rothbard (quoted in Stromberg
2004, xlix–l):

[A]s my work
evolved, I found that there was a lot of gaps in the economic
organon that I had to fill in myself. Going step by step in logical
progression turned out to involve a good deal of original contribution
on my own part. . . . Mises has very little detail on production
theory, and as a consequence it took me many false starts, and
lots of what turned out to be wasted effort, before I arrived
at what satisfied me as a good Production Theory. (It's involved
emancipation from 90 percent of current textbook material.)

It is clear
from his review of Man, Economy, and State that Mises (1990,
pp. 155–57) also saw Rothbard's work as a major advance in
and a new point of departure for praxeological economic theory:

The main
virtue of this book is that it is a comprehensive and methodical
analysis of all activities commonly called economic. . . . In
every chapter of his treatise, Dr. Rothbard adopting the best
of the teachings of his predecessors, and adding to them highly
important observations . . . develops the correct theory. .
. . Henceforth all essential studies in these [praxeological]
branches of knowledge will have to take full account of the
theories and criticisms expounded by Dr. Rothbard.

Rothbard (2000;
1990a) followed up this path-breaking treatise with two other works
one year later, America's
Great Depression
and What
Has Government Done to Our Money
. The former book applied
the Austrian theory of the business cycle to explaining the causes
of the Great Depression in the U.S. supplemented by a critique of
the perverse government policies that deepened and prolonged it.
The latter work was a slim booklet intended as a primer on Austrian
monetary theory, but containing an original praxeological-historical
explanation of the displacement of gold by paper fiat money. In
1970, Rothbard (2004) published Power
and Market
, which presented a comprehensive praxeological
analysis of the entire range of government interventionism.

These four
books were directly responsible for rekindling interest in Austrian
economics among the generation of young academics and graduate students
who reached maturity from the mid-1960's to the early 1970's. These
young “Rothbardians” made up the majority of the thirty or so individuals
who gathered at a week-long conference in June 1974, in the small
rural town of South Royalton, Vermont, to listen to lectures by
Rothbard, Kirzner and Ludwig Lachmann. The “South Royalton conference,”
as it came to be called, was the first conference on Austrian economics
to be held in North America and was an exhilarating experience for
those attendees like myself who had been studying the great Austrian
texts in small groups or in isolation. We now had the chance for
the very first time to intermingle with a large group of our peers
and to meet and converse with the living masters of Austrian economics.
The personal relationships established at the conference with other
attendees and with the lecturers inspired many of us to pursue our
vocation with a renewed sense of purpose and enthusiasm. The vigorous
scholarly interchange both during and outside the formal lecture
sessions that repeatedly referred to the classic works of Austrian
economics also imbued us with an intangible but real sense that
we were part of a vital tradition, using the same intellectual means
to strive together toward the common goal of discovering truth.
The result was the coalescence of a self-conscious and living Austrian
movement, the first since the early 1930's.

However, while
these benefits should not be underestimated, the conference introduced
a serious distortion into the future development of Austrian economics
that went unrecognized for years. As I mentioned, by 1974 the Austrian
revival was already well under way, inspired by the works of Rothbard
who had reformulated and advanced the praxeological paradigm on
many fronts. The four lectures he presented at the conference aimed
at restating and refining the paradigm in the areas of methodology,
monetary theory, the prehistory of Austrian economics and the relationship
between economic theory and value judgments in the advocacy of economic

Israel Kirzner
also had painstakingly mastered the praxeological system as Mises's
graduate assistant in the 1950's. He contributed substantially to
its advancement in two books. In The
Economic Point of View
, published in 1960 and based on the
dissertation he had written under Mises, Kirzner (1976) carefully
compared and contrasted Mises's praxeological approach to economics
with all other approaches, past and present. In his 1973 volume
on Competition
and Entrepreneurship
, Kirzner (1973) employed a reformulated
version of Mises's concept of entrepreneurship to demonstrate the
inadequacy of neoclassical price theory, which was based on static
equilibrium and offered no scope for the real world phenomena of
error, uncertainty and profit. Kirzner's mastery of both Austrian
economics and neoclassical price theory and his tactful yet unsparing
criticism of the latter served as a bridge to neoclassical economists
who wished to learn about and incorporate Austrian insights into
their own work. Following up on the strategy of this book, Kirzner's
lectures at South Royalton were oriented toward rendering Austrian
insights and critiques comprehensible and palatable to open-minded
neoclassical economists. To what extent this strategy has succeeded
cannot be considered here.

The third lecturer,
Ludwig Lachmann, although a highly intelligent and erudite man,
was not in any sense a master of systematic economic theory. Lachmann's
intellectual influences in economics were eclectic, even incongruous,
and included the historicist Werner Sombart his dissertation supervisor
and the brilliant sociologist Max Weber, a much more reasonable
adherent of the German historical school. He was also influenced
in capital and business cycle theory by Friedrich Hayek, whom he
served as a graduate assistant in the 1930's and by a fellow Hayek
graduate assistant, George Shackle (1983, p. 7), later a self-proclaimed
“nihilist” in economic theory. Lachmann also adopted Keynes's view
of expectations which conceived them as autonomous, volatile and
not rationally grounded in the entrepreneur's actual experiences
in the market process. In the 1950's, Lachmann (1978) did publish
a very valuable monograph on Capital
and Its Structure
, which emphasized the essential heterogeneity
of capital goods and the role of the price system in guiding entrepreneurs
to continually recombine capital goods into new structures in response
to changes in the economic data.

Lachmann's lectures at South Royalton were devoted to propounding
a view of the market process as driven by uncaused, unpredictable
and “kaleidic” changes in the pattern of individuals' knowledge
as well as a wholesale rejection of the use of the general-equilibrium
concept in economic theory, even its limited and carefully circumscribed
role in praxeological analysis.

Thus the main
problem with the conference was that it served to elevate an eclectic
and idiosyncratic thinker with historicist leanings to the position
of a “master” of Austrian economics on a par with Rothbard and Kirzner.
This produced unforeseen and negative long-run consequences for
the Austrian revival. First, Lachmann's newly exalted status and
his personal charisma as an erudite, European-trained professor
gave his writings an undeserved prominence that diverted attention
away from the valuable works of established Austrian economists
who had demonstrated a clear and masterful grasp of the praxeological
system. These included especially Henry Hazlitt, Hans Sennholz,
and William Hutt.5 Hazlitt and Sennholz
were now dismissed as an “economic journalist” and a “popularizer,”
respectively. Hutt was relegated to the category of “semi-Austrian,”
despite the fact that that by 1963 he was writing economic theory
as a “praxeologist,” which he defined as “the economist who has
grasped the principal lesson of Mises' Human
” (Hutt 1963, p. 136).

A second and
more pernicious effect of Lachmann's unwarranted influence was that
some young Austrians abandoned their immersion in the rigorous study
of praxeological economic theory to write facile critiques of neoclassical
economics. It also led them to a nihilistic criticism of the use
of equilibrium constructs in the writings of Rothbard and Kirzner.
This resulted in an internecine controversy over the meaningless
question of whether equilibrating forces or disequilibrating shocks
dominated the market process.6 Worse
yet, the young Lachmannians navely believed that the neoclassical
establishment would see the light of reason and happily concede
the truth of their arguments. When they finally learned that the
neoclassical establishment would never abandon its attachment to
general equilibrium, they altered their strategy and began writing
articles attempting to integrate piecemeal Austrian theoretical
insights into specialized areas of neoclassical economics. Unfortunately,
the hyper-mathematization of neoclassical theory that began in the
early 1980's rendered this strategy lame.

After long
and bitter experience, these Austrians finally learned that there
was no place at the professional table for truth-seeking economists.
In the meantime they had failed to cultivate the mastery of praxeological
economics necessary to do serious work in the paradigm, which they
now declared to be a “closed system.” As a result, their goal imperceptibly
shifted from pursuing economics as a vocation to maneuvering for
a position in the economics profession. This was the unfortunate
legacy of the South Royalton conference: it transformed the goal
of many Austrians from seeking truth to seeking advancement in a
fiat profession; correspondingly, it revolutionized the standard
of progress for Austrian economics. Before the South Royalton conference,
the standard was clearly the number of independent thinkers who
had been stimulated to recognize and follow their inner vocation
to perform research into the structure of economic reality. As the
culture of Austrian economics evolved in the decade after South
Royalton, the standard of progress was gradually transformed into
the number of positions the South Royalton generation and their
students obtained in research universities. Of course, professional
advancement and positions at Ph.D.-granting institutions are desirable
to the vocational economist as means for awakening other
potential truth seekers to their vocation for economic research.

The generation
of Austrian economists that came immediately after the South Royalton
generation was even more prone to erroneously view economics as
a profession and to assess progress in Austrian economics as the
improbable acceptance of their ideas and writings by the statist
economics profession. The main reason for this was that they were
too young to have had direct exposure to the pre-South Royalton
milieu of the Austrian revival, whose formative influence was clearly
and overwhelmingly Rothbardian. To many of this generation, the
South Royalton conference and the awarding of the Nobel Prize in
economics to Hayek a few months later marked the inception of the
Austrian revival.

members of the post-South Royalton generation are now counseling
younger Austrians to retreat from economics proper to the backwater
provinces of atheoretical economic history and descriptive economics
in order to “climb the professional ranks.” “Theory,” they say,
“is no longer something that attracts the best and the brightest.
Instead, the best and the brightest are attracted to empirical puzzles
and data analysis.” To be an “impact player” in the profession the
aspiring Austrian is advised to “look out the window and not at
the blackboard.” In other words, one must “jettison doing conceptual
economics and focus on applied and historical topics.” Thus from
now on Austrian economics is to be strictly “empirical economics,
which . . . means really good historical scholarship and contemporary
public policy.” Thus over one hundred years after the Austrian school
vanquished the German historical school in the Methodenstreit,
the heirs of Menger are advised to forsake their vocation and surrender
to Gustav Schmoller's ghost in order to become members of a fiat
profession like Werner Sombart and Paul Samuelson.

Instead of
an extended critique of this absurd and self-defeating strategy,
I will simply counter with the advice of the vocational economist
who reshaped the modern Austrian paradigm. When asked in an interview
“What should young Austrians be concentrating on?” Rothbard (1990b,
p. 15) replied, “Adding to the theoretical edifice…. Most importantly,
we should never stop refuting mainstream economics.”

4. The Grove
City Conference and the Death of the Professionalist Diversion

In fact there
has been a great deal of progress in Austrian economics in the last
twenty years thanks to the founding of the Mises Institute in 1983,
which has supplied the material resources and institutional infrastructure
required by those who pursue economics as a vocation and who wandered
in the wilderness in the decade after the South Royalton conference.
Even more importantly, the Institute's prodigious publications and
its plethora of conferences, workshops, fellowships and online resources
have assisted an ever growing number of young truth seekers from
all over the world in hearing and heeding their inner calling to
economic research. Judging by the last Austrian Scholars Conference
in March 2004, scholars from around the world who are performing
the introversive labor of advancing, applying or devising new methods
of expounding the praxeological paradigm number in the hundreds.
None is or need be another Ludwig von Mises or Murray Rothbard;
system builders in an aprioristic science are born once or twice
a century. But this is no cause for pessimism.

vocational economists who have painstakingly worked their way up
and onto the shoulders of Mises and Rothbard and who deserve to
be called masters of their subject are every day perceiving new
truths about complex and evolving politico-economic reality that
go significantly beyond these two great system builders. In fact,
far from constructing a “closed system,” as some Austrians have
claimed, Rothbard (1989) enthusiastically welcomed and endorsed
innovations in the praxeological paradigm that corrected or went
beyond his own work and that he began to happily witness in the
late 1980's. Thus he wrote in correspondence in 1989: “I welcome
change and advances in Austrian theory provided they are true, i.e.,
that they work from within the basic Misesian paradigm. So just
as I think I have advanced beyond Mises in developing the Misesian
paradigm, [other] people . . . have advanced the paradigm still
further and great!”

Moreover in
spite of – or perhaps because of – unswerving dedication
to their vocation many Austrian economists have obtained positions
in academia where they are in a position to awaken and guide more
young minds along their vocational path. The Austrian Student Scholars
Conference this weekend is living proof of the success of their
efforts. You are all here because you are eager to embark on a vocation
in Austrian economics. What from now on shall be called the Grove
City conference marks the demise of the professionalist diversion
in Austrian economics that grew out of the South Royalton conference
and that nearly destroyed the Austrian revival. It is only fitting
that Grove City host this historic event because it was the home
for so many years of Hans Sennholz, one of the greatest vocational
economists of our era.


Michael A. 2001. A
Perilous Progress: Economists and Public Purpose in Twentieth Century
. Princeton, NJ: Princeton University Press.

Brown, Lesley,
ed. 1993. The
New Shorter Oxford English Dictionary on Historical Principles
2 vols. New York: Clarendon Press.

Dolan, Edwin
G, ed. 1976. The
Foundations of Modern Austrian Economics
. Kansas City: Sheed
and Ward, Inc.

Hayakawa, S.
I. 1994. Choose
the Right Word: A Contemporary Guide for Selecting the Precise Word
for Every Situation
. 2nd ed. Ed. Eugene Ehrlich.
New York: Harper Collins Publishers.

Hutt, W. H.
1963. Keynesianism – Retrospect and Prospect: A Critical
Restatement of Basic Economic Principles. Chicago: Henry Regnery

Kirzner, Israel
M. 1973. Competition
and Entrepreneurship
. Chicago: University of Chicago Press.

_____. 1976.
Economic Point of View: An Essay in the History of Economic Thought
2nd ed. Ed. Laurence S. Moss. Kansas City: Sheed and
Ward, Inc.

Lachmann, Ludwig
M. 1978. Capital
and Its Structure
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Andrews and McMeel, Inc.

Menger, Carl.
1981. Principles
of Economics
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2nd ed. New York: New York University Press.

Mises, Ludwig
von. 1978. Notes
and Recollections
. Trans. Hans F. Sennholz. South Holland,
IL: Libertarian Press.

_____. [1969]
1984. The
Historical Setting of the Austrian School of Economics
Auburn AL: Ludwig von Mises Institute.

_____. [1962]
1990. “Man,
Economy and State
: A New Treatise on Economics.” In idem,
Freedom and Interventionism: An Anthology of Articles and Essays
ed. Bettina Bien Greaves. Irvington-on-Hudson, NY: The Foundation
for Economic Education. Pp. 154–58.

_____. 1998.
Action: A Treatise on Economics
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AL: Ludwig von Mises Institute.

Rothbard, Murray
N. 1989. Letter to author. March 28.

_____. [1963]
1990a. What
Has Government Done to Our Money?
4th ed. Auburn
AL: Ludwig von Mises Institute.

_____. 1990b.
A Conversation
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11 (Summer).

_____. [1972]
1997. Review of Economic
Means and Social Ends: Essays in Political Economics
, Robert
L. Heilbroner, ed. (Englewood Cliffs, NJ: Prentice-Hall, 1969).
In idem, The
Logic of Action Two: Applications and Criticism from the Austrian
. Lyme, NH: Edward Elgar. Pp. 260–68.

_____. 2000.
Great Depression
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Mises Institute.

_____. 2004.
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Salerno, Joseph
T. 2002. “The
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The Quarterly Journal of Austrian Economics 5 (Winter): 111–28.

Paul A. [1949] 1968. “International Factor-Price Equalisation Once
Again.” In Richard E. Caves and Harry G. Johnson, eds., Readings
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  1. The italics
    and bolding in this passage appear in the original.
  2. This point
    is argued in detail in Salerno
  3. I am very
    grateful to Guido Hülsmann for calling this general implication
    of my argument to my attention.
  4. All the
    lectures given at the South Royalton conference and referred to
    in this paper were later published in Dolan 1976.
  5. Some of
    the important contributions of these men to the Austrian canon
    are cited in Salerno
  6. I say "meaningless"
    because the real-world market economy is never in or moving toward
    the state of general equilibrium or what Austrians call the "evenly
    rotating economy," which is a fictional state imagined by
    the economist as an analytical convenience in solving the problem
    of distinguishing profit from interest. All that exists in reality
    is a market process unfolding in history, driven by entrepreneurs
    some of whom are more successful than others in anticipating and
    adjusting production to ceaseless changes in future market conditions.
    The incessant change and pervasive uncertainty that characterizes
    the market economy is not "disequilibrating," it is
    simply a brute existential fact; neither can the forecasts and
    price appraisements of entrepreneurs be termed "equilibrating"
    — they are simply right or wrong.

23, 2004

T. Salerno [send him mail]
is professor of economics at the Lubin School of Business, Pace
University in New York, senior fellow at the Ludwig
von Mises Institute
, and editor of The
Quarterly Journal of Austrian Economics
. This
is a revised version of the Ludwig von Mises Lecture presented at
Austrian Student Scholars Conference, Grove City College, Grove
City, PA, November 5–6, 2004. Please do not quote without the
author's permission.

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