Over at The Week, Noah Smith, an economics professor at Stony Brook University and of online “Noahpinion” fame, attempts a dismissal of the Austrian school of economics. His critique is intended to show that “the Austrian School’s demise came not because its ideas were rejected and marginalized, but because most of them were co-opted by mainstream macroeconomics.” But Smith is obviously far from an expert on Austrian theory (or the history of it).
The argument that Austrian ideas have already been incorporated in mainstream economics has already been repeated by mainstreamers so many times that it would be strange if they don’t believe it by now. It is easy to see where Smith got the “idea” to add to the myth-building. But there was perhaps some truth to it, at least in the 1930s, as Pete Boettke noted in 2002:
By the mid-30′s … the idea of a distinct Austrian program, even in the minds of the Austrians themselves, was seriously waning, in part because the mainstream more or less absorbed the important points the Austrians were making. Mises (1933, 214) had argued that while it is commonplace in modern economics to distinguish between the Austrian, Anglo-American, and Lausanne School, “these three schools of thought differ only in their mode of expressing the same fundamental idea and that they are divided more by their terminology and by peculiarities of presentation than by the substance of their teachings.”
But since then several things have happened and the Austrian and mainstream/neoclassical schools have drifted apart. Not only has the Austrian school further developed and strengthened its theory (by such “minor” works as Human Action and Man, Economy, and State) and seen a resurgence, mainstream economics has stumbled down a very non- (anti-?) Austrian path of unreal assumptions hidden in layers of excessive mathematization, and, thanks to their adherence to Whig theory, lost most of its economic heritage and sound grounding. Read More→