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.
MURRAY ROTHBARD’S INFLUENCE
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.
LACHMANN VS. ROTHBARD
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.
Rothbard was also on the faculties of tax-funded schools, but he never derived any ideological support from those schools. He never gained any credence within the academic community. Well, that may be too much to say. His original book, The Panic of 1819, which was rhetorically restrained, unlike everything else he ever wrote, because it was a doctoral dissertation. It did receive favorable reviews. That was the last time anything he wrote received favorable reviews in academic publications. The reviewers in 1963 did not know who he was, and they did not know what he stood for. As soon as America’s Great Depression was released, that was the end of his academic journal career.
Rothbard was openly a supporter of conspiracy views of history. He believed that rich people and powerful people get together quietly, and deliberately plot ways of capturing political power in order to further their ends. They use political power, precisely because they cannot compete effectively in the free market. They need the state to interfere with free market competition, so as to protect their positions.
Rothbard was also completely hostile to every form of fractional reserve banking. He believed that it is a form of theft. By inserting this moral element into the discussion of central banking, and even fractional reserve banking, Rothbard horrified academics in general. It was inconceivable to them that anybody would raise a moral issue with respect to the operation of a supposedly neutral, technocratic institution like a central bank. In their view, his argument that the Federal Reserve System was the product of an elitist political conspiracy whose goal was to steal from the public falls just short of blaming the international Jewish bankers’ conspiracy. They were not going to put up with anything like this.
To the extent that Rothbard was considered a spokesman for the Austrian School of economics, the Austrian School economists who were on the payroll of the American academic Establishment desperately wanted to separate him from themselves. If it was suspected by the academic community that somebody like Rothbard represented the Austrian School, they might not be able to get their articles published in third-tier academic journals any longer.
Not one of them ever got onto the faculty of a top-tier university, meaning an Ivy League school or similar institution. To get into one of these schools, you must privately renounce your commitment to Mises. That was set as unofficial policy of economics departments in the late 1940s and 1950s. The two main figures who got into high-level positions, Fritz Machlup and Gottfried Haberler, had both abandoned their early commitment to Austrian School economics. That was the quid pro quo. They paid it. In the United Kingdom, Lionel Robbins got into the London School Economics in the 1930s, as did Hayek, but after Keynes’ revolution, he publicly renounced his book, The Great Depression, which was explicitly written in terms of Austrian economic principles. Hayek was blackballed by the economics department at Chicago. He did not meet their ever so rigorous, ever so neutral academic standards. He taught for free in the obscure Committee on Social Thought. His salary was paid for by the Volker Fund.
This is how the academic game is played at the top, and the Lachmannians know it. They must seek tenure in lower-tier schools. But the money is good, so they play along. They may occasionally mention Mises in their footnotes, but they rarely invoke Mises’s original writings in defending their positions. They do not cite him as authoritative. They come with new approaches — approaches that are more methodologically acceptable, or at least aesthetically acceptable, to the Keynesian editors of third-tier academic journals. They either ignore Rothbard or else dismiss him. They do not cite his writings.
They have this in common: almost no one has heard of any of them. Inside Keynesian academia, they are barely known. Inside free market academic economics, which is dominated by Chicago School economists, they may be patted on the head and invited to serve on a panel at an academic conference. They are allowed to say a few words in response to the main speaker at one of the less significant sessions. But they remain invisible to their peers most of the time.
This annoys them. What annoys them even more is the fact that the Mises Institute and LewRockwell.com are Rothbardian. These two sites are highly ranked on the various website-ranking sites. These sites get enormous traffic. The Austrian School is known to the general public only through Rothbard-influenced sites.
Tenured Austrian School professors at third-tier schools have no influence inside the academic economics guild, and they are unknown outside academia. They believe that Lachmann was the true Misesian, yet almost no one has heard of Lachmann. If it were not for the fact that a few of Lachmann’s non-kaleidic books are available for free in the Mises Institute’s Literature section, no one outside of academia would have heard of him. These professors have labored in the shadows — to the extent that college professors labor — all of their academic lives, and they have little to show for it. Rothbard gets the main credit for extending Mises to the third generation, and through the third generation to those that followed.