Over the years, economics has taken on many different roles than the intended scientific discipline of human action. The study of economics has been broken up into separate, and often competing “schools” of thought. Specifically, the understanding of what economics describes, how it is used to understand certain activity and how to apply economics in the real world. Josef Schumpeter attempted to reduce economics to a form of pure theory. Unfortunately, Schumpeter, just like the Austrian School, lost out to the pro-state Keynesians.
What is Economics?
To understand what went wrong with economics is to first understand what economics is and is not. Let us begin by describing the intended principles of economics.
Economics describes how the world is and not how the world ought to be. The economist is not supposed to inject his opinions, ethics or personal valuations when studying whether a certain economic decision will yield its intended outcome. By doing so the economist is directing the results of a policy proposal or economic decision. As an example, renown economist Thomas Sowell has described what happened while he was employed by the U.S. Department of Labor. The department asked him to study the results of raising the minimum wage in Puerto Rico. His findings revealed a less than desirable outcome as unemployment would increase, the opposite intent of the policy proposal. The department heads were less than pleased with Sowell’s report and informed him to keep working with the data until he arrived at their intended outcome. But this is exactly how the institution of economics is practiced today. There in lies the problem. Notice how economics has become an institution, not unlike the hard sciences of physics, geology, and chemistry.
Science, in general, has been corralled or organized into an institution. No longer do we find those mavericks of old who forged new groundbreaking discoveries. Like Copernicus, Galileo and Einstein economics has our Turgot, Ricardo, and Mises. These men independently forged new paths in their respective fields by not adhering to the status quo of their day. Today, the sciences are reduced to following the top-down direction of the entity that will finance their research. If the research yields a less than desirable outcome for the financier, then the data has to be manipulated in such a way that the intended outcome is arrived at. Hence, we have Climategate in the hard sciences and Keynesian government intervention in economics.
In our case, the economist has been reduced to the position of Court Intellectual for the state. The adoption of Keynesian economic theory has put the economist into the position of someone who must in any way possible, explain why the government must intervene, inflate the money supply or rescue the market from itself. Objectivity and factual study had been jettisoned for grant money, tenure and position in the institution. A well received peer-reviewed article in the academic journals is the mark of an economist who desires to rise in the ranks. Those articles had better not buck the trend either.
Case in point, Ludwig von Mises himself would not budge on using Austrian methodology and thus couldn’t land a paid teaching job after his arrival to the United States. Similarly, Murray N. Rothbard found himself teaching at New York Polytechnic and later at the Univesity of Nevada at Las Vegas. Both of these men, in all honesty, should have had tenure at the highest rated Ivy league schools. But they refused to be mouthpieces for the state. They wouldn’t join the “institution” and thus paid the price by being ostracized by the economics profession.
Today, economics has been split up into sub-disciplines like Labor Economics, Family Economics, Urban Economics, Behavioral Economics, International Economics, Neuroeconomics, Environmental Economics, Public Economics and on and on and on. Each sub-discipline allows for more peer-reviewed articles, more advancement in the institution and less real objective understanding of how economic decisions impact the world around us.
The public, at large bears the brunt of the economic profession’s off the rails ride on the crazy train of market manipulation, negative interest rates and unheard of money creation, the likes never realized in world history. The negative outcomes of such policies have no bearing on whether the economist behind the data will get his promotion or next grant. To economists such as these who fill the myriad of regulatory bureaus and offices, the long-term consequences of bad economic decision-making only means job security. Someone is going to be needed to fix that last screw-up. The Court Intellectuals never pay the price for a bad decision. Instead, if it means more funding for their departments, they may see a promotion. After all, who ever got fired at the Federal Reserve after the 2008 Housing Bubble?
So here we are. We are stuck with a profession that has been compromised and has become unreliable. Mainstream economics will continue to be taught at the universities and promulgated throughout the halls of Washington D.C. and other world governments. We will continue to hear the Court Intellectuals on mass media explain to us why the state is always right, always sovereign and is extremely necessary. But there is hope! Recently, Austrian Economics has had a resurgence. Thanks to The Mises Institute, The Foundation for Economic Education, and especially the Ron Paul presidential campaigns, a causal-realist approach to economics is making a comeback. More and more young students are discovering the logical aspects of Austrian economic methodology. Economics is emerging from the dark and dank shadows of academic obscurity and the byzantine confusion of econometrics. Average learned individuals are able to read and understand the literature, for free, about common sense economics. People are discovering that the discipline of economics isn’t all that hard to understand. That is a good thing.
For our future and our children’s future let’s pray that it may continue. This author contributes to Mises.org on an annual basis. All gifts and contributions are necessary to continue the fight against the mainstream and preserve a future for our loved ones. It’s time concerned libertarians put their money where their mouth is and give to these organizations who do the yeoman’s work of staying off the disaster that looms in our future.
Below is a list of important websites and organizations that my readers should consider to support: