Chicago isn't in Austria

One of the challenges I face as an advocate for Austrian / libertarian / classical liberal economic and politic ideals is that many of my students — and even some colleagues in the humanities — mistakenly assume that there are three basic economic models, represented by the icons Marx, Keynes, and Friedman. Sadly, most people don't know the Austrian School of economics, and when they do know a little the assumption is that Austrian adherents represent something of an outer ring around the Chicago School.

Milton Friedman, thanks to his books and a PBS series, is the best known of the "supply-side" economists and the Chicago School. He came to represent the rejection of Keynesian economics to right-leaning politicians in the United States. Of course, the entire left/right and liberal/conservative dichotomy is false, since in many ways left-leaning politicians had become the defenders of the status quo — the welfare state. True innovation seemed to belong to the "right" in the United States and United Kingdom during the 1980s and early 1990s.

I do admire what Friedman and the Chicago Boys did to help bring about change in South America. I know some believe Friedman did something quite horrible by helping shape the economic reforms of Chile under Augusto Pinochet, but I am convinced the reforms prepared Chile for a more democratic future. In effect, Friedman was planting the seeds of Pinochet's collapse by suggesting economic reforms. Then again, I would not have advised any dictator — but it seems to have worked.

This marks one difference between many Chicago adherents and the Austrian School. Overall, the Austrians are non-interventionists. They do not trust government, and many of the Austrians knew totalitarianism firsthand. The best government focuses on maintaining the rule of law within its own borders.

But, Friedman and the Chicago School (so called because Friedman taught at the University of Chicago) are not classical liberals. They are interventionists, simply of a different type than their Keynesian colleagues. We could argue that the "neo-conservatives" represent the Chicago School's most interventionist impulses: using government to spread "free market" economics.

Friedman rejected the Austrian theorists F. A. Hayek and, with some animosity often seems, Ludwig von Mises. Friedman was a "positivist" and considered the logical arguments of the Austrians little better than a religion — and yes, he used the word religion to describe the works of Kant-influenced von Mises.

Of course, von Mises was not engaged in Aristotelean mind games, nor was Hayek or any of the other Austrians. In fact, the Austrian School does value analytical, quantifiable research. Von Mises also considered history important and was an avid student of history. But, because the Austrians admit that not every variable can be known and that every moment in history is different, the Chicago school found Austrian methods suspect.

Keynesians and Chicagoans argue via mathematical models. If Friedman's view that math was more truthful than the reason-based approach of von Mises, why do the various model-dominated economic theories differ so much? Quite simply because the critique Friedman applied to Austrians — that logic was relative — also applies to the variables and equations of the positivists — they are chosen on beliefs and assumptions.

It is a shame we have simplified the teaching of economics, often omitting the Austrians from courses. A mention or two might be made of Hayek, but von Mises and others are ignored.

We might place the blame squarely on the Austrian ideals: let the market decide. Unfortunately, von Mises wrote quite accurately that classically liberal economists might lack the rhetorical skills to persuade a public who wants to have faith in large institutions. The Austrians are individualists, believers in personal choices and responsibility. What we have seen is a left that tells people that companies and the rich are to blame; whatever you don't have is because someone else had an unfair advantage. On the right, government is the villain, the problem that has ruined families and social structures. Again, the individual avoids blame.

To the Austrian School, the individual should take responsibility for how he or she reacts to events. Yes, companies and governments are flawed — and always will be — but you, the individual, have to make the best choices you can within this reality.

I do not reject the Chicago School, Keynesian theories, or even Marx without finding bits and pieces of practical thought. Plenty of great nuggets have been offered by wrong-headed people, but you do have to pick through the muck at times. In philosophy, for example, I cannot defend choices made by Martin Heidegger, Jean-Paul Sartre, or countless others. Yet, I can find good ideas in their writings.

Sadly, too few scholars even try to expose students to Austrian ideas. Today's younger economists lack an appreciation for some great thinkers.

I have heard some right-leaning pundits link Adam Smith, Hayek, and von Mises to Ayn Rand. While I do find small bits I like in Ayn Rand (mainly in The Fountainhead), I would never compare Rand to any economist. Nor would I compare Smith or von Mises to Friedman. These thinkers might overlap at the fringes of a Venn diagram, yet they occupy very different spaces overall. Such misguided punditry does harm to the Austrian School and classical liberalism. The surest way to ensure thinkers won't be taken seriously at universities is to associate them with Ayn Rand.

My hope is that students read Hayek, von Mises, Roger W. Garrison, Friedrich von Wieser, Henry Hazlitt, Eugen von Böhm-Bawerk, and many more. Even within the broad Austrian School umbrella are divergent ideas and methods.


  1. Really interesting. I think you should include Rothbard as reference economist within Austrian school.


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