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Is Austrian Economics Merely Religion?

04/19/2005William L. Anderson

In his latest column, Paul Krugman demonstrates more than anything that the emperor has no clothes. After correctly identifying the veracity of a recent study that said Democrats vastly outnumber Republicans on college and university faculties, Krugman then attempts to explain why that situation is the case. He starts off well, then veers into Neverland, and even lays his most dreaded attack on Austrian Economics, indirectly likening it to a religion.

His first reason, an appeal to self-selection, has merit. Krugman writes:

One answer is self-selection — the same sort of self-selection that leads Republicans to outnumber Democrats four to one in the military. The sort of person who prefers an academic career to the private sector is likely to be somewhat more liberal than average, even in engineering.

I suspect he is right, or at least partly right. Many Republicans I know do not have the characteristics that would serve them well in academe — which is no insult, believe me. It simply is a fact that people who might have the personal proclivities to be liberal Democrats also are people who might thrive in the ivory tower atmosphere that is as much about politics as it is academic inquiry. (I'll leave aside his strange assumption that the academia and the "private sector" are opposites by definition.)

Had Krugman stopped there, I would have applauded his answer and read another column. Unfortunately, he was just getting warmed up.

Part of what he has written is in reaction to a truly silly idea: Republican "affirmative action" policies in higher education. A bill being pushed in the Colorado state legislature is calling for universities to hire more political conservatives, which is ironic on all sides. (Other state legislatures have seen similar bills.) [Addendum: A previous version of this article said David Horowitz supports such policies but he writes to say that "The first principle of my Academic Bill of Rights specifically forbids the hiring of faculty on the basis of their political opinions. The Academic Bill of Rights was written entirely in the spirit of Von Mises."]

Since "diversity" supposedly is the "in" thing with college faculty and administrators, one would think that "intellectual and political diversity" would be prized, but it is not hard to see that groupthink is the way of the academic world. Since conservatives supposedly are against affirmative action and all for which it supposedly stands, it is doubly ironic to see them demanding that the government install policies that will force institutions of higher education to hire them onto faculties. Enough said on that nonsense.

Unfortunately, Krugman does not make the case. Instead, he presents a false picture of the intellectual divide, declaring that Democrats somehow believe in "science," while Republicans believe in "revelation."  (Again, I am NOT making a case of Democrats versus Republicans, but since Krugman seems to believe in stereotypes of the political parties as the norm, I am left having to use his analogies.)

He writes:

Think of the message this sends: today's Republican Party — increasingly dominated by people who believe truth should be determined by revelation, not research — doesn't respect science, or scholarship in general. It shouldn't be surprising that scholars have returned the favor by losing respect for the Republican Party.

It is here that his biases show most profoundly:

Conservatives should be worried by the alienation of the universities; they should at least wonder if some of the fault lies not in the professors, but in themselves. Instead, they're seeking a Lysenkoist solution that would have politics determine courses' content.

And it wouldn't just be a matter of demanding that historians play down the role of slavery in early America, or that economists give the macroeconomic theories of Friedrich Hayek as much respect as those of John Maynard Keynes. Soon, biology professors who don't give creationism equal time with evolution and geology professors who dismiss the view that the Earth is only 6,000 years old might face lawsuits.

It is difficult to know where to begin with an outburst like this. Having looked at recent scholarship by people like Thomas DiLorenzo and Robert Ekelund and Mark Thornton on the issue of the Civil War and slavery, it seems that a very strong case can be made for economic factors like tariffs having caused a significant amount of the rift between North and South in the 19th Century. However, Krugman will have none of that. DiLorenzo, Ekelund and Thornton simply are practicing "religion" and are attempting to impose an academic theocracy, the accuracy of their work be damned.

Krugman goes on. He, in effect, declares that Keynesian economics is "science" (which in Krugman Speak means a set of theories that cannot be challenged in any fashion). Hayek and Austrian Economics, on the other hand, is mere "religion."  (In Krugman's mind, this means that they are beneath any kind of academic consideration whatsoever.)

Ludwig von Mises well understood this narrow mindset. In Theory and History, he wrote:

The scope of the controversy changed when the new science of economics entered the scene. Political parties which passionately rejected all the practical conclusions to which the results of economic thought inevitably lead, but were unable to raise any tenable objections against their truth and correctness, shifted the argument to the fields of epistemology and methodology. They proclaimed the experimental methods of the natural sciences to be the only adequate mode of research, and induction from sensory experience the only legitimate mode of scientific reasoning. They behaved as if they had never heard about the logical problems involved in induction. Everything that was neither experimentation nor induction was in their eyes metaphysics, a term that they employed as synonymous with nonsense.

Never mind that much of Keynesian economics has been thoroughly discredited, both through logical analysis and the real workings of history. Intellectually, there is no more devastating attack on Keynes' General Theory than Henry Hazlitt's The Failure of the New Economics. Alas, despite the logical rigor that Hazlitt applies to Keynes's work, Krugman would dismiss Hazlitt's work as "religious." (See also Rothbard's wonderful send up: "Keynes the Man." Or listen to it here.)

Furthermore, Hayek's work has found much favor even in the economic mainstream. (I have used non-Austrian texts that often refer to his classic "The Use of Knowledge in Society.")  Furthermore, once the insults are out of the way, good scholarship demands that we evaluate the works of Hayek and Keynes in the arena of logical analysis.

Unfortunately, Krugman (who is on the faculty of Princeton University and received his doctorate from MIT) will have none of that. To a certain extent, his thinking reflects the largely insular, academically-inbred world of the elite universities in the United States. These universities tend to hire each other's graduates, who come from programs that generally do not differ much from one another.

As can be determined from the silly and over-the-top response on behalf of Harvard's faculty from Larry Summers' statements on women and science, it is clear that being on an elite faculty does not make one a champion of intellectual inquiry.

Paul Krugman has done well in his academic career. He has won the John Bates Clark Award, and his name is thrown around as someone who may win the Nobel Prize in Economics in the near future. While I may disagree with his views on economics, I believe that one should try to keep disagreements on a civil level.

Unfortunately, Krugman has chosen to take a much different path. By attacking historians who actually wish to look at the economic policies and conditions of the United States in 1860 or cavalierly dismissing someone like Hayek (who, unlike Krugman, actually won a Nobel Prize), he demonstrates that he has no interest in the academic process. Instead, he practices his own brand of narrow fundamentalism and calls it "science."

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