by Walter Block
Recently by Walter Block: Iran
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.
This shows 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 – 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.
At this point, contrary to my best resolutions, I went into a ten minute or so tirade on the matter. My only regret is that this wasn't tape-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 else. Grrr!
Happily, 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 of writing.
One more 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, I'm sure I'd qualify). It wasn't until this very day that I found it. Had I had it in my possession earlier, I would have shared it then.
4/2/02
Dear Gary:
David Laband 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.
On another 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.
Best regards, Walter
4/15/02
DEAR WALTER,
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.
I BELIEVE 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 ENTREPRENEURS – ALTHOUGH NO ONE IN EITHER GROUP HAS DONE MUCH WITH THIS – AND PERHAPS A FEW OTHER POINTS.
I BELIEVE 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 POSITION.
ALL THE BEST, GARY
4/29/02
Dear Gary:
Thanks for 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 provided me.
Please don't forget to tell me what is your honorarium; without this specific info, I can't carry things further forward in terms of an invitation, which I would very much like to do. You may be "expensive," but we've got a budget that allows us to showcase world-class intellectuals such as yourself. I'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:
1. "a small number of …
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.
2. …dedicated followers"
Again, yes, "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 math'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.
3. "Cult"
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 the coals.
4. "…who 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.
Exhibit "B" in this regard is the University of Chicago'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 Chicago's Committee on Social Thought. True, this rejection occurred long before Hayek won his Nobel Prize (it was in economics if memory serves), but still…. 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 mainstream'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.
5. "… and interact little"
Another way 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. xi):
"The 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 whose 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 … "cultists."
Of course "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."
There is, 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.)
That is, 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 – "From Mises to Shackle," by Ludwig Lachmann; JEL – "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?"
6. "… mainstream economics has absorbed much of what has been valuable in Austrian economics" I tend to disagree with you here. Let's consider a few examples:
a. "… the importance of the distribution of knowledge." I'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-à-vis the latter; namely, it is still operating on the basis of an unrealistic model (I know, I know, I'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.
b. "…the 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, I'm exaggerating, but not by much.) But what are these other than calls for increased government, e.g., a move toward socialism. Surely, you wouldn't deny that the AER is a mainstream journal, indeed, a veritable paradigm case.
c. "…the 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 Kirzner's book on this subject a long time ago (1973), but this is the exception that proves the rule. I once saw Ben Klein's pre-publication exceedingly critical referee's report on this book, and I am amazed that the UC Press went ahead with this project anyway.
7. "Austrian economics could benefit greatly from developments in empirical economics…" 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.
But when 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 don'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).
But every 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.
So, what 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.
Another episode 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, we've got lots of evidence in the past to the contrary, but we'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: I'm not going to rest until I show the errors they made in coming up with this idiocy. C'mon, Gary, admit it! Wasn'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 with it.
Milton Friedman 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?
Best regards, Walter
Undated
DEAR WALTER,
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 USED 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
INDIFFERENCE STARTING POINT.
ALL THE BEST, GARY
4/10/13
Dear Gary:
On your 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 … (the) … 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 that word.
Re point 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:
Block, Walter, 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, here, here, or here.
Regarding 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 I'll be penalized as a monopolist. In contrast, we cultists see monopoly, I think much more sensibly, in terms of legal entry restrictions.
You didn't 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, 50,000… you see where I'm going with this … 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.
Speaking 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 will be.
If there were really next 5, 50, 500, 5,000, 50,000… 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 180 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.
So, again, I ask, how many "negative" findings would shake you on the minimum wage? The next 5, 50, 500, 5,000, 50,000 ….? 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.
Best regards, Walter
Hulsmann, Jorg Guido. 2003. "Facts and Counterfactuals in Economic Law." The Journal of Libertarian Studies. Vol. 17, Num. 1, pp. 57-102
