The Lack of Strategic Vision of Academic Economists

Gary North - July 27, 2013

Reality Check

I have attempted to increase interest in what I call the Keynes project. We need a comprehensive refutation of all aspects of Keynes' later economic theory. No academic economist is interested in doing this. The Keynes project would involve a career commitment.

Why won't any academic economists do this? Because of the truth of basic economic theory: people respond to incentives. Nobody is willing to pay an academic economist $50,000 a year for 20 years to refute every aspect of Keynes. Nobody is going to do that.

There is no academic payoff in refuting Keynes. Nobody is going to get promoted for refuting Keynes. A person might even not have his contract renewed for refuting Keynes, if he does not have tenure. In any case, in the search for tenure, writing monographs on Keynes is not acceptable, unless the monograph is extremely obscure, published by a major university press, and within the framework of what is considered legitimate parameters of acceptable academic discussion. This does not include Austrian School economics.

So, the only person to do this would be somebody who is either not employed by a university, or somebody who has tenure and is not threatened by a loss of tenure. I have not been able to discover such a person.

KEYNES AND FISHER

This illustrates the problem. There is no question that Keynes was the most important economist of the 20th century. The second most important economist was Irving Fisher. Friedman regarded him as the greatest of all American economists. I regard him as the only man who has a legitimate claim of being as big an economic fool as Keynes was. His monetary theory was completely wrong. He lost his fortune in the Great Depression. He lost his sister-in-law's fortune. He was also a major promoter of the fake science known as eugenics. In short, he was a certifiable crackpot.

Had I been an academic economist, I would have taken on the Keynes project. If I had any time left over, I would have taken on Fisher. Why? Because, when you are going after the central errors of a generation, you have to take out the creators and original promoters of these errors. Mises correctly identified Fisher as the enemy in his Theory of Money and Credit. He wrote the manuscript in 1911, and he responded to Fisher. Mises set the pattern. Take on the best representative of the opposing view, and take him out.

Hayek refused to do this with Keynes, when it really mattered, namely, after the publication of The General Theory in 1936. He had spent too much time refuting Keynes's 1927 book, A Treatise on Money. He ignored the crucial target. He picked the right person, but it was the wrong book. Then he decided to drop the whole thing. He surrendered to the most important economist of the 20th century.

Another man who knew what to do was Böhm-Bawerk. He recognized Karl Marx as a major opponent. He took Marx's economic theory apart, line by line, in his 1896 book, Karl Marx and the Close of His System. He had done this even earlier with respect to Marx's view of capital and interest. He did this shortly after Marx's death in 1883. His critique appeared in 1884. There was nothing left of the Marx's economic theory after he got through with it. There was no way to defend Marxist economics intellectually. Marxists attempted to do this, but their defenses were incoherent. They never were able to respond effectively to those original critiques, both written before the end of the 19th century. All criticisms after that were simply variations on Böhm-Bawerk's.

Not only should there be a Keynes project, there should be a Friedman project. But a Friedman project would have to be preceded by a Fisher project. Line by line, argument by argument, an Austrian School economist should go through all of the books written by Fisher. He should concentrate on Fisher's monetary theory. He should show that it is aggregate economics, and that it is inherently Keynesian methodologically because of this aggregation. It leads to disastrous forecasts, making him the consummate economic fool of his generation. He did not see the Great Depression coming. He was dropped like a hot potato by the economic profession after 1935, but after 1956 or thereabouts, because of Friedman's praise of him, his work has experienced a renaissance. He is widely regarded today as a great economist. He was a crackpot.

CALL A CRACKPOT A CRACKPOT

Nobody gains any benefits in the economics profession on campus by calling somebody a crackpot, especially when this particular crackpot is the primary opponent to the other crackpot, John Maynard Keynes. The 20th century's economic war was between a pair of crackpots. They were both dead wrong. So, the young person starting out in his studies in economics has the illusion that he is dealing with a pair of very important people. He is dealing with a pair of crackpots. But he gets no help from academic economists, who are unwilling to go into print and identify them as crackpots.

This leaves younger economists in a quandary. They do not have the self-confidence necessary to go into print on their own and identify their doubts about the economic theories of the two crackpots. They think these two people should be respected. They therefore have respect for the academic guild of economics, because the guild respects these two people. So, the new Austrian School economists do not have either the background or the courage necessary to make a complete break with 20th-century mainstream economics. They are hesitant. They guard their language.

The man on the street, getting no guidance from major economists, can have this or that opinion, but his opinions are probably not grounded in a careful study of the writings of the two crackpots whose ideas shaped 20th century economic theory and practice.

If I had been a young Chicago School economist, I would have devoted this kind of effort to refuting every aspect of Keynes. I would also have devoted a great deal of my time to a detailed refutation of Mises. If you are a Chicago School economist, the two giants on each side of you are Keynes and Mises. If you are going to defend your position, you need to defend it against your toughest contenders. You have to stake your claim, based on your commitment to Irving Fisher by way of Milton Friedman. If you do not have a clear understanding of Keynes, Mises, and Fisher, and you are a Chicago School economist, you are not able to take a clear-cut stand in favor of Chicago School economics. Friedman never took on Keynes, line by line. He never took on Mises, either. Friedman became an acolyte of Fisher's. He spent his life extending Fisher's insights and monetary theory. But he never systematically replied to the two great opponents he had in the 20th-century.

This is the way it goes. The giants do not beat up other giants anymore. That was not true in the late 19th century, and it was not true of Mises in 1912, but it is true of virtually all economists thereafter. They do not identify the main contenders on both sides of their position, and they do not systematically refute both rival positions. So, they offer no real guidance to whichever young disciples happen to appear, seemingly out of nowhere, to adopt the particular system. It is easy to become a Keynesian or a Chicago School economist today, because there are people on university campuses who hold these positions. You can even become a public choice theorist or a behavioral economics theorist. Where there are schools of opinion on campuses that award the Ph.D., students can officially espouse one of these positions. But if he espouses Austrian School economics, he is out of the mainstream.

Rothbard at some point should have sat down to take apart Fisher and Friedman on the Great Depression. He was the major Austrian School writer on the Great Depression, and he owed it to his disciples to take down Keynes, Fisher, and Friedman, line by line, book by book. But he was involved in other issues, such as libertarianism, and the broader issues of economic theory. So, he did not take on the giants who were his greatest enemies, and who are our greatest enemies. He would have responded in the third volume of his history of economic thought, but he died.

I realize there are books critical of Keynes, but they are not written by Austrian School economists. There is no systematic academic refutation of The General Theory. The one seeming exception was Hazlitt's, but he was not an academic economist, so his book, The Failure of the "New Economics," gained no traction academically. It went out of print. You can download it now on the Mises Institute site, but this book is now over 50 years old, and it is neglected.

There is little leadership from the campus. This is the problem. Austrian School economists have not understood what Böhm-Bawerk understood in his day. You have to take out the major contenders of rival positions. You have to make it clear that their positions were wrong, and by this critique, you have to defend your own position.

I did this with Marx in 1968: Marx's Religion of Revolution. But I am not an academic economist. This task has to be done by somebody on campus. Anybody off-campus does not have the time to devote to it. He is not going to know the latest lingo in the journals.

CONCLUSION

These are intellectual wars. They have to be fought strategically as well as tactically. The strategic challenge is always the same: take on your major opponent, and take him out totally. You have to have a frontal assault against your major opponent. Sniping will not do the trick. You have to make it clear to your followers that your major opponent has no case at all. He is not sort of wrong; he is completely, utterly wrong. Therefore, his disciples are completely, utterly wrong. This is how you win a war. Somebody has to do battle with the major contenders. It is a David and Goliath situation. But somebody has to do it. Unfortunately, nobody does it. So, those laymen who oppose Keynes do not know where to start. They have never heard of Fisher. Yet Keynes and Fisher are the two contenders who must be taken out. By whom? That is the question. So far, there has been no answer.