Home / Education / A Civil War Inside Austrian Economics
Print Friendly and PDF

A Civil War Inside Austrian Economics

Written by Gary North on March 13, 2013

Gary North’s Reality Check

The Austrian School of economics in the twentieth century was dominated by Ludwig von Mises. He died in 1973. His followers have divided into two main camps: the Rothbardians and the Lachmannites. They have adopted rival philosophies and rival strategies.

The main strategy of the Lachmannites is to get tenure at a university. The main strategy of the Rothbardians is to persuade the general public of the truth of economic liberty.

A college teacher who is granted tenure need not publish anything ever again. He will be paid for merely showing up to class. The number of classes that he teaches declines. He is immune from dismissal. This is the bureaucrat’s dream come true.

The quest for tenure emasculates people. It turns them into intellectual geldings. They must please the tenured bureaucrats who hand out The Prize. The goal of every academic department is mediocrity within the department. The screeners do not want to hire anyone who will show them up, making them look second-rate at best. They also do not want to bring in anyone so incompetent that the university’s administration may intervene to investigate. The requirement for tenure is clear: Don’t rock the boat. He who succeeds in not rocking the boat long enough is more likely to be granted tenure, although these days, hardly anyone is. The good old days are fading.

Tenure-seekers look for a risk-free career, in which they will receive far above-market wages, yet be immune from market forces. Tenure is the dream of every bureaucrat. The offer of tenure lures intelligent people into lives of high-salaried irrelevance. They write narrow, useless papers for publication in journals that no one reads, except in a quest for footnotes to steal.

It also creates envy on a massive scale: envy that is directed against those who have achieved relevance outside the cocoon of the halls of ivy.


Within the rival tiny camps of Ph.D.-holding Austrian School economists, the central figure is Rothbard. One camp bases its thinking heavily on Murray Rothbard’s writings; the other camp is self-consciously opposed to virtually everything he ever wrote, and does whatever it can to prove to the tenure-granters that he is not “their” man. This division began 40 years ago, and it has accelerated ever since.

This was not true 50 years ago. In the summer of 1963, I got a summer internship at the original libertarian think tank, the William Volker Fund. It had recently changed its name to the Center for American Studies. I was paid $3800 a month (in today’s money) to sit and read books. This was in a day when there were almost no income taxes at all on people in that income range. It was the best job I ever had.

That summer, I read all three of Rothbard’s books, which had been in print for less than a year. The first was his doctoral dissertation, The Panic of 1819. The second was his magnum opus, Man, Economy, and State. The third was America’s Great Depression, which focused on Herbert Hoover’s administration, not on Franklin Roosevelt’s. I was probably the first person in what can be called the third wave of Misesians to read all three of Rothbard’s books.

The first group of the followers of Mises were those who were converted out of socialism in the 1920s. These included F. A. Hayek, Wilhelm Roepke, and Lionel Robbins. The second wave — more like a ripple — was Rothbard’s generation, which began in the early 1950s. It included Hans Sennholz and Israel Kirzner. The third wave was my generation. We came together at a meeting held in South Royalton, Vermont, in 1974.


At the meeting in Vermont, the division became visible. It was a division between Rothbard, who attended the meeting, and a member of the first generation, Ludwig Lachmann, a somewhat obscure economics professor from South Africa. He had written a few articles in the 1930s and 40s, but he had never written a book of significance. He was a believer in almost total economic chaos as the basis of economic theory. I am not exaggerating. He called this kaleidic perception. His example of economic entrepreneurship was based on a kaleidoscope, which children look through, turn the base, and see ever-changing but meaningless patterns. He really did believe that this is the basis of entrepreneurship. He was also the worst lecturer I ever heard, and I have heard many terrible lecturers.

Rothbard believed that economic theory should be based on a series of axioms and corollaries. This was the original view of Mises. Rothbard was faithful to this position. He believed in economic rationality as the basis of comprehension of real-world actions. He then applied Mises’s comprehensive theory of human action to the economy and politics. He did not believe that you could use economic facts to refute theory, but he surely believed that you could use economic facts to illustrate theory in action. That made him unique in the camp of the followers of Mises, because he was relentless in his application of Mises’s categories of human action with respect to politics, academia, foreign-policy, wars, and the work of conspiracies to gain control of political power in order to further their ends. Therefore, he believed in conspiracies.

For modern academia, a conspiracy theory has much the same effect that a crucifix had on Bela Lugosi’s Dracula.

Because of Rothbard’s commitment to the application of Mises’s theory to virtually every area of modern politics, he has earned the respect of intelligent people who are outside of academia, and who see through the delusions of both grandeur and independence that tend to afflict those who are inside academia. In contrast, those Lachmannian followers of Mises who are inside academia, and who gain their sense of importance from their peers in academia, regard Rothbard as the turd in the punch bowl. If Rothbard was right, then almost everything they are doing is either irrelevant or worse.

(For the rest of my article, click the link.)

Continue Reading on www.garynorth.com

Print Friendly and PDF

Posting Policy:
We have no tolerance for comments containing violence, racism, vulgarity, profanity, all caps, or discourteous behavior. Thank you for partnering with us to maintain a courteous and useful public environment where we can engage in reasonable discourse. Read more.

19 thoughts on “A Civil War Inside Austrian Economics

  1. True, North.

  2. Skeptical Austrian says:

    Of course, since Rothbard came off as a wacko a-hole cult leader, his “popularization” theory has yet to be proven…

  3. Texas Chris says:

    Murray was blunt, but had a great sense of humor. An a-hole…? I never got that from him.

  4. "Skeptical" is ridiculous. Did he read the article? Mises.org and LewRockwell.com are two of the most popular political Web sites of any kind. By definition, Rothbard's ideas are popular. And whatever you think of him, Murray is fun to read.

    Dr. North: Who are some of the Lachmannites today?

  5. Public_Citizen says:

    The complete irony is the blind spot that academic economists exhibit with respect to their own [tacit or overt] conspiracy, bordering on a Cabal, to keep the advocates and teachers of Von Mises theories out of their sacred institutions.

  6. Jimmy Cosbt says:

    Economic theory is mental masturbation. No lasting effect or purpose. Pointless chatter!!

  7. Rothbart is correct. I have scads of hate mail from a Senior Lecturer-Oxford graduate to prove it. On a general level intellectual clap trap replaced intelligent discourse some time back in the eighties, but academia wields enormous power in determining which of their left wing protegees receives the right introductions.

  8. I guess I must be somewhere between the 3rd and 4th waves, if there was a 4th wave. I met Murray Rothbard many times, attended informal dinners at local NYC coffee shops and restaurants with him and a few others. I was a friend of Prof George Reisman, also a Von Mises student, until he moved to the west coast to teach at Pepperdine. So . . . there's someone whose NEITHER a Rothbardian nor a Lachmannian. I'd say Dr Reisman was a Von Miseian.

    I'd never heard of Lachmann 'til this article, so all I know of him is what I've just read. From that sparse information, it sounds to me that he's not an Austrian.

    I've read von Mises and Rothbard and several of the earlier Austrians, whose ideas von Mises finally coalesced into a seamless, completely self-consistent and brilliantly logical and profound theory of economics, one which even links it seamlessly to other areas of human endeavor than economic pursuits. A lot of people, including myself, think von Mises was unquestionably the greatest mind ever to enter the field of economics. In my opinion, no one has contributed nearly as much to that discipline as he did.

    I know that Dr North has made one sizable error — of omission. Back 40 years ago, the (tiny, but precious and high quality) seat of Austrian Economics in the US was New York City. Rothbard was there, and so was Reisman, and so was von Mises himself for the early '70s before his death. That was also the time when Ayn Rand was beginning to have an influence on the American political, philosophical and economic scene. One of the members of her "inner circle" was Dr Reisman, and as many who followed Ayn Rand's ideas and her career know, she and von Mises respected each other and were on very friendly terms.

    I lived for many years in the midst of this, though my personal aversion to becoming a "joiner" kept me on the fringes of the several circles I could probably have entered if I'd tried to. I can tell you that everyone who called himself a "student of Objectivism (Ayn Rand's philosophy) was aware of Austrian economics and of von Mises. And today, if you surveyed the US population to find out how many had heard of Austrian Economics or von Mises, I'd bet dollars to donuts that well more than half of them have more than a passing familiarity with the name Ayn Rand. Quite a few will have heard of Rothbard, and per Dr North, very few will be familiar with the name Lachmann, but I'll bet at least 90% will have heard of Ayn Rand, and that most of them gained their first acquaintance with Austrian Economics via Any Rand.

    Any Rand and the Objectivists rejected Rothbard, but NOT for his economics. Dr North distorts history by omitting mention of Ayn Rand and her influence both on Rothbard and on the spread of knowledge about Austrian economics. The reason Rand rejected Rothbard was for his politics, another relevant fact which Dr North mentions only with a hint and never comes close to describing with anything close to accuracy. Rothbard was, for most of his adult life, politically an ANARCHIST.

    I agree with the Objectivist view that anarhists are fools. I won't go into it now, but to be an anarchist is to beg the very question of "what form of government is best?" It is a way of evading the question, actually. It is not an intellectual position but an abdication of the responsibility to think about the topic. I can demonstrate this conclusively, and have done so in an article long ago. i could never understand how Rothbard, a jovial, happy-go-lucky seeming personality, but precisely logical and creative and thorough thinker in economics, could have fallen for Anarchism hook, line, and sinker the way he did.

    I'll have to continue this in a separate post below

  9. this is "part 2" following hte above comment

    Ayn Rand was interested in more than "merely" economics. In that area, she advocated capitalism, and a very strictly limited gov't as merely the population's creature, created to assure the peaceful environment of civilization in which men could flourish, rather than the law of the jungle which was always the default option, and which was identical to anarchy — which is another way of describing anarchy, i guess: it's the default option. (Let me, just by a simple analogy, say at least something more about the insanity of anarchy: The reason I say advocacy of anarchy as the best arrangement for men to live together under is EVASION of the question is this: It's analogous to a doctor answering "what should people do about an infection?" with "They should do whatever they, or experts they trust, think will cure it." and then insisting that that advice was an adequate and proper bit of MEDICAL advice. it's a COP OUT.. Look at it this way: No one came from outer space and imposed the national boundary lines and governments we currently have on this earth. They evolved FROM A STATE OF ANARCHY. Cave men lived in a jungle, or on a desert, by themselves. It was anarchy. Individual men joined into tribes, into villages, into nations. There were relatively free ones, and relatively authoritarian ones. Under the anarchy of the existence of homo sapiens on this planet, HISTORY ENSUED. And we got what we have now. The question of "what form of government do YOU think best" means: given anarchy, then as various people had myriad ideas for how THEY thought things should be organized, which ideas would YOU back? But the anarchist cops out. He says "let 'em have what they want." That is a cop out which EVADES the question. As history proves, there will be some who advocate monarchy, some capitalism, some communism. We're asking the anarchist if he has any opinions on those, and in effect he says they're all the same to him. Let it happen, baby. What will be, will be. He's against EVERYTHING they might suggest, which means he's FOR everything they suggest, because he advocates letting them do whatever they want. The position is self-contradictory as well!! And if for a few minutes anarchy did indeed prevail, HOW DOES THIS ANARCHIST PROPOSE TO MAINTAIN HIS PROFESSED PERFECT SYSTEM? Anything he does to try and enforce, or even "achieve" or "maintain" anarchy when someone else has begun to implement another system, would itself be NON-anarchy. It's a self-contradiction from MULTIPLE perspectives. That's the nutshell refutation of the position.)

    Again, I'll have to continue in another post below

  10. Part 3
    It was hard to imagine anyone as obviously brilliant as Rothbard being unable to see this flaw in advocating anarchy. It was a HUGE impediment to taking him seriously in the eyes of many. The way Dr North describes it is extremely euphemistic.

    I loved Rothbard's books for too many reasons to give here. Especially Man,Economy, and State. His derivations of Austrianism's essentials was brilliantly logical and far, FAR easier to follow than von Mises'. It didn't merely present the reasoning necessary to prove its points, but offered illustrative example after example in a herculean effort to help the student grasp the material more readily. And he did that teaching job superbly.

    Still, he was an anarchist. And Ayn Rand apparently felt that his advocacy of such an absurd idea made him an enemy of those who advocated VERY STRICTLY limited, Constitutional government under laissez-faire capitalism. Rothbard shoul have noticed that in a sense, his "anarchy" was right there in the phrase 'laissez faire", or all the anarchy he'd really want or need. But for some reason I can't understand — and the reason Dr North offers doesn;t quite satisfy me as complete — he took his logic so far that it went past the question, curved around full circle, and came back to beg it. Had he NOT advocated anarchy, he would probably have gone a lot farther — not merely for the same reasons Dr North offers, but also for the ones he omits, mainly that Rothbard's anarchism deprived him of the support of Ayn Rand and her followers, who were probably the #1 factor in the spread of awareness of Austrian economics during the past 40 years.

    I knew many Objectivists. Many would REFUSE to buy Rothbard's books because it had been judged by Ayn Rand that supporting him amounted to supporting someone whom they should be fighting against for political reasons, and for all the moral reasons subsumed under the politics. I wanted to educate myself, and I read his books, and I have no regrets. I totally disagreed with his political conclusions, and didn't have to ask anyone else in order to see how absurd they were. But his economic teaching was the best. I'm very glad I read his books.

    Here's another example of Rothbard's inexplicable logical inconsistencies which actually involve an economic issue:

    As Dr North mentions, he opposed fractional reserve banking, and many other free market advocates supported it. I never had a chance to discuss this with him, because he died before I got the chance. It was after he died that realized what the real difference was between the two camps, which Dr North does not adequately present. The really astounding dispute was the one between those who AGREED that a central bank should NOT be tolerated. Dr North implicitly lumps together those who favored fractional reserve banking with those who favored a central bank, and this is not correct. Many who oppose a central bank — ie, who were actually on Rothbard's side on the major issue — still disagreed with him and supported fractional reserve banking. I don't remember exactly when it was, but I was still in my 20s, I wrote an article for FEE (Foundation for Economic Education) which resolved the difference between the two camps on the fractional reserve issue. Dr Hans Senholz loved me for it. It went to the logical root of the debate, and provided the solution that was consistent with laissez-faire, AND resolved all the objections each side had with the other — but NOT of course, any objections an anarchist might have. The absurdity of Rothbard's position is this: if he's an anarchist, then yes that is consistent with antagonism toward the idea of a central bank, because he's against any government, and a central bank is a creature of government. But if he's for the total "freedom" of anarchy, how the heck can he oppose someone who opens a bank and employs fractional reserves? Isn't that his right? Let people find out the flaws in that system and decide whether or not to take the risks it poses.

    The mere fact of his opposition to fractional reserve bankng points up the absurdity of his anarchism in more ways than just the above. If he opposed it, then he would be free to tell everyone to shun those banks "under" a "system" of anarchy (quote marks because anarchy is a NON system, the ABSENCE of a system of governance). If he thinks it's fraudulent, then who does he advocate should stop people from opening banks who use it? Some vigilante group to lynch the bank's owners? Or jail them? Or close their bank by force? Or pass a law that . . . OOPS! No laws permitted!!

    Again, I'll have to continue in another post below

  11. Part 4

    This is why i just can't fathom how Rothbard, so thoroughly and conscientiously logical in his economic thinking and writing, could have embraced such an absurd, self-contradictory idea as anarchism.

    (As a BTW, because I think it might clarify a few of the questions about the fractional reserve issue that are bound to arise in some people's minds: It's fraudulence is NOT an essential characteristic of the system itself, but only of the specific one we have always experienced. Before we had a central bank, states regulated and controlled banks, and now the federal gov't does, and it is the operation of gov't regulations which brings the fraud in. Magazines sell issues a year away that they don't have. Farmers promise to deliver wheat they haven't planted yet and may never harvest. As long as the other party to the transaction is NOT MISINFORMED, or rather FULLY INFORMED about the risks involved, it's not fraud. The fraud arises because of the Federal Reserve Systems special quasi-governmental authority to influence and preside over the nation's ENTIRE banking system. Simply put, banks have 2 functions, and can decide to perform either or both. One is to be a safe, guarded repository for your funds. The other is to be a loan broker on your behalf, and to lend out the money you bring in, or to invest it, and then to pay you a fee for allowing them to earn profits from those risky endeavors. The laws and rules of our system do not require disclosure of the fact that you have been deprived of this choice, and offered the latter type of deposit while "gov't guarantees" and other devices are use in a conscious attempt to assure you that there is NO risk to your deposit. IE, you are intentionally MISLED into believing that you are using the bank as a "safe repository" for your excess cash or savings, when in fact it is going into a loan operation which takes risks with your money. For the service of a safe repository, you should have to PAY something — empirical example and common sense tell us that it would be a very tiny fee. (eg, you can store $millions in gemstones or gold in a bank safe deposit box for a tiny fraction of 1% of their worth annually). IF banks were allowed to SEPARATE these two functions instead of offering ONLY ONE AND PRESENTING IT AS IF IT WERE THE OTHER, then there would be no fraud involved. Some would choose to store their money, which the bank could NOT mix with the funds it loans out for auto purchases, mortgages, business loans, etc, under penalty of a fraud conviction for lying to its customers about the nature of the service they were performing. Some people would ENJOY the opportunity to take the risk of losing some or all of their money in return for the fees / interest the bank would agree to pay them as long as things went well for them. Under a gold standard, or hard money standard, there would be SOME limit on how far the fractional reserve lending could go, but that's another fraudulent factor added onto the FRAUDULENT version of a fractional reserve system when you also have fiat currency that's not backed by anything real. In and of itself, there is no reason why a "moral" or just and non-fraudulent fractional reserve system should be feared, or banned. Banks who were imprudent would have a worse record in their ability to pay the interest necessary to attract people into taking the KNOWN risks of carrying balances with that bank, and those who did take the risk, would well know their risks. When YOU buy a car or anyting else on a credit card, YOU are promising to pay real money in the future that you DO NOT HAVE, based on your expectation that your ongoing paychecks will enable you to do so. If you lose your job, then you'll have to welch on your promise and the other party will suffer. They know that risk. That's why they check your credit rating and income before seilling to you on a time payment or credit arrangement.

    Continued below

  12. part 5

    At root, it's no different from fractional reserve banking. The instances of fraudulent fractional reserve banking also have an analogy in personal finances. Suppose you have been given a layoff notice effective next month, and you go out and buy enormous amounts of goods and services KNOWING that you will soon be forced to ask the courts to arrange a bankruptcy settlement of your debts. THAT would be fraud quite similar to the fraud of a fractional reserve bank which was operating fraudulently, and that's why very often a court will NOT forgive any part of the debts incurred shortly before a declaration of bankruptcy. A soundly run bank expects to make money on its investments overall, and in a sound economy with a sound currency, they are more likely to. They fully expect that their diversified portfolio of loans in sound firms, and in prudent amounts which will still enable a profit to be made even if a significant number of the loans go bad, that bank is doing exactly what you do when you have a solid secure job or a successful business, and you have good reason to believe your income will be rising, and you buy something "on time" or with borrowed money, showing the lender all the reasons why you expect to be able to pay the loan off with future income. The two cases are virtualy identical at root. Bottom line — and remember this does NOT involve the fraud of a perpetually inflating currency but ONLY the nature of fractional reserve banking itself — there is NOTHING inherently wrong or fraudulent about fractional reserve banking AS LONG AS EVERYONE INVOLVED IS MADE AWARE OF ALL THE RELEVANT FACTS, and not duped into thinking his money is going into a "safe, secure, guaranteed repository" when in fact it is going into a lending pool ot be disbursed as loans by the bank's management at its discretion, with no guarantee that there will in fact be returns sufficient to pay the bank's expenses AND to pay you back your money. The latter is the system we actually have, and the system most often in existence at other times in history when fractional reserve banking has been popularly used.

    continued below

  13. part 6

    I lived during a good part of the era Dr North is discussing, and I was very near to some of the major participants, mostly my unagressive self choosing to be an observer from the sidelines rather than an "activist" (or a social climber). And while I did not see all the things Dr North did (I never even heard of Lachmann, who must have been a VERY uninfluential fellow, and who sounds like a quack from Dr North's comments), the fact is that if Dr North thinks he is giving a full account of the history he describes, then he must have missed a lot of what was going on. Dr Rothbard was a genius, but not a consistent one. Outside his profession of economics you could justifiably call him an intellectual eccentric. In person, the limited times I met him and participated in but mostly listened to (I was pretty young at that time) the intellectual discussions and debates that went on in friendly conversations, I found him to be a kind of almost lovable little jovial fellow, someone who was eager to share his thoughts and respond with enthusiasm to even elementary questions from neophytes, with understanding and NEVER A TRACE of condescention; he was kind, and just naturally assumed the best about individual people he came in contact with (unless, I assume, they were bankers or politicians!! But that's an assumption.). Ideas were what he loved and lived for. He was a bona fide "intellectual" who wanted to know the answer, who sought understanding, and who was superb at communicating the understanding he did acquire or generate himself. He was well meaning and gracious toward all, at least in my limited observations of him. But. . . I can only say that his genius was sporadic. I can say nothing about other areas than economics and politics, but he was a logical genius in the former and fell very far short of the mark in the latter. I admit I do NOT understand how that can be, but the word "compartmentalized" would not exist if it werent a real phenomenon, and I believe it applied to him. Dr North emphasizes his virtues and euphemizes his shortcomings, which would be OK in an article strictly about him, or in an obituary. But the article above professes to be even handed, criticizing both Rothbard and Lachmann, and while I can't comment on Lackmann's case, I do know that in Rothbard's the explanations of his shortcomings are shortcomings in Dr North's story.

    Well, looks like one more post will follow

  14. part7

    The omission of the role that Ayn Rand, Dr Reisman, and Ayn Rand's following played in the growing awareness of and study of Austrian economics is another, which leaves more than half of the picture unpainted. My own professional history began in physics, but I switched fields to economics mid-career, and maintained my connections with Dr Reisman for some years, and with many friends and acquaintances who had been followers of Ayn Rand, most of whom still are. In my profession, I actually met MANY people who were Austrians, or very familiar with Austrian economics. More and more of them as time wore on and awareness of Austrian theory spread. When I began, no one had yet heard of Lew Rockwell, and the Von Mises Institute was still a decade or two off in the future. I've written two books, many articles, i was twice the feature interviewee of BARRON's magazine, I wrote many articles for them and they wrote many about me, and there's a LOT more but it's already starting to sound like bragging, but my intent is to establish my bona fides for having a opinion worth considering. I knew Nobel Prize winners in economics (whom I had zero respect for — the one I knew best was a Keynesian), met economic advixors to Presidents, knew people who worked for the FED, and met a huge number of economic analysts and speculators and investors. I worked with 3 of the people who were amongst the 12 chosen to be included in hte book The Market Wizards, which was about the 12 men with the best (on the record) records on earth as far as trading/investment returns go. One is still a close friend, one was a semi-friend and long time acquaintance whom I lost touch with several years ago, and one was the fellow who returned more money to those who invested with him than anyone in the history of Wall St. as of some years back — he's the one I interviewed, along with several other interviewers, when he applied for his first job in the field of economic analysis for the purpose of speculating. I was NOT a "networker" by nature, and did little, but somehow things always came to me, and of course there were the obligatory events, meetings, conferences, dinners. I can't say I met hundreds, but I'd say a few score at least of PROFESSIONALS in economics, who were knowledgable of Austrian Economics and applied it in their own work, as I did. We were a "radical" group and so we tended to have a few sympathetic chords just for that reason alone. And the reason I'm telling you all this is that in all that time I can't recall once hearinig the name Lachmann. I heard the name Rothbard, or that it was familiar to someone I encountered, possibly a dozen or 15 times. I heard of Dr Reisman about the same number of times, and Ayn Rand about 50 to 75 times from people who subscribed to the theories of Austrian Economics. So all that prelude was intended as evidence for my claim that the article above, while informative, is quite far from a complete picture. What it omits is so substantial that, in my opinion, someone who did not himself know any of the history it relates, would be given a picture that was accurate in a couple of corners of the picture, but left an impression of the overall picture that had huge and important holes cut out of it.


  15. "Mises.org and LewRockwell.com are two of the most popular political Web sites of any kind"


  16. Jed, this listing is a year old. It's probably even better for LRC and Mises now. But for "most unique vistors," the top libertarian site was LRC; No. 7 was Mises.org:

  17. Your link says "The Most Visited Libertarian Websites". The claim was "Most Visited Political Websites." I expect backing for the claim of most visited political website, or I expect a retraction.

  18. Dear Morry,
    I tremendously appreciate your educating us on your living experience with some of these brilliant libertarian minds who have now passed away. You do us a great service and I thank you from the bottom of my heart and thank God for your enormous contribution and pray for your continued health and inspiration. We love you Morry!

  19. There are good things and bad things came to the surface with the division of that two camps. One good thing could be the fact that arguments pro and against would offer a good deal of information about the topic.