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 1
 The Present State of Austrian Economics
By Murray N. Rothbard
 
 2[This paper was delivered at the Tenth Anniversary Scholars’ Conference of theLudwig von Mises Institute, October 9, 1992. Working Paper from the Ludwigvon Mises Institute, November 1992. Reprinted in
The Logic of Action One: Method, Money, and the Austrian School
. Glos, UK: Edward Elgar PublishingLtd., 1997, pp. 111-172. Reprinted in
 Journal des Economistes et des Etudes Humaines
, Vol. 6 No. 1 (March 1995), pp. 43-89. ]In the past two decades, there has been a seeming growth of methodologicalsophistication in the world of economics. Until the early 1970s, a blind Walrasianformalism held total sway in microeconomics, while a triumphant Keynesianismdominated macro, all held together by an unthinking and arrogant empiricistepistemology of logical positivism. The micro and macro synthesis of the neoclassicalparadigm were both embodied and symbolized in the work of Paul Samuelson, while thepositivist methodology was enshrined in the famed 1953 article of Milton Friedman andthe later work of Mark Blaug.
1
 Since that point, however, the dominant positivist paradigm has been effectivelyoverthrown, to be replaced by a bracing and near-chaotic Kuhnian “crisis situation” in themethodology of economics. For the last two decades, a dozen, if not a hundred, schoolsof economic thought have been allowed to bloom. Unfortunately, however, the orthodoxparadigms in macro and especially microeconomics are still dominant, although lessaggressively held than before; the crisis situation in methodology has not yet beenallowed to trickle down fully to the substantive bread-and-butter areas where economists,after all, earn their livelihood. If methodology is in ferment, however, the rest of thesubstantive fortress may soon follow.The deterioration of the dominant neoclassical paradigm starting in the early 1970s hasnumerous causes. I would contend that the main cause was the abject collapse of theKeynesian System upon the emergence of the first major inflationary recession in 1973—74, an anomalous situation that has marked every recession since. The inflationaryrecession of the early 1970s
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was a shock for two reasons: (1) in the Keynesian model,
1
For my purposes, I am ignoring the allegedly wide gulf between the earlier positivists with their“verifiability” criterion and the Popperites and their emphasis on “falsifiability.” For those far outside thelogical empiricist camp, this dispute has more of the appearance of a family feud than of a fundamentalsplit in epistemology. The only point of interest here is that the Popperites are more nihilistic and thereforeeven less satisfactory than the original positivists, who at least are allowed to “verify” rather than merely“not falsify.”For a brilliant and incisive discussion and demolition of the logical empiricist contention on many levels,see David Gordon,
The Philosophical Origins of Austrian Economics
(Auburn, Ala.: Ludwig von MisesInstitute, 1993).
2
Actually, inflationary recession had first emerged during the 1933-37 inflationary boom, which took placewithin a deep depression. But since the origins of that depression, in 1929-33, were seemingly notinflationary, this episode was considered anomalous, and irrelevant to future cycles. In addition, prices firstbegan to creep upward, but only slightly, during the 1957
-
58
 
recession, an overlooked but importantharbinger of things to come. During 1966, there was a recession again without the usual price fall, but this
 
 3recessions are supposed to be due to underspending, and inflation to overspending; howthen could both occur at the same time? And what can fiscal (or even monetary) policydo about it? and (2) intervention and statist planning of fiscal policy and “growtheconomics” in the 1960s was supposed to have eliminated business cycles forevermore,to bring us, in the naive jargon of the economic Establishment of that day: fullemployment without inflation. Business cycle courses were purged from graduatecurricula; for if business cycles had been rendered obsolete, such courses would only beantiquarian studies of economic history. The severe inflationary recession of 1973—74,followed by a similar and even more severe recession of 1979—82, ended the myth of thedisappearance of business cycles.
3
And if planning for growth was seen to be flawed andeven counter-productive, then perhaps government planning in general had severeproblems; it was no coincidence, then, that the 1970s saw the resurgence of free-marketeconomies and of free-market thinking among economists.I contend, too, that the renaissance of Austrian economics beginning at about the sametime was part and parcel of this general disillusion with both Keynesian economics andwith government intervention, and part of a resurgence of free-market thinking. TheNobel Prize in economics granted to F.A. Hayek in 1974 has generally been credited withsetting the spark for the Austrian revival, and there is much to be said for this thesis,especially considering the superstitious awe and veneration with which the Nobel Prize isregarded by the economics profession. But unless we really believe that the Swedisheconomists who award the Nobel annually are guided solely by divine inspiration, wemust recognize that these gentlemen, too, reflect ideas current in the economicsprofession in Sweden and in Europe as a whole. After World War II, the Swedishprofession, even more than their colleagues of other countries, was notoriously the homeof Keynesianism and of econometrics; and the first Nobels, from 1969 through 1973,reflect that bias. It is no accident, then, that Hayek’s Nobel prize in 1974, sharedironically with the leftist maverick Gunnar Myrdal, was the first one to be granted to afree-market economist.
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It is also significant that the first free-market Nobel went toHayek, not for his later vaporings in “spontaneous order,” “knowledge,” “evolution,” andso on, for which he is unfortunately revered by most current Austrians, but instead for hiselaboration of the Misesian business cycle theory which had been prominent in Britain inthe 1930s, only to be swept away, in the late 1930s, by its great enemy, the KeynesianRevolution. To grant the first free-market Nobel to the antipode of Keynesian macro- 
was disregarded because the 1966 episode was not quite deep enough to meet the overly venerated NationalBureau criteria for a recession. So the 1973-74 shock came like a bolt from the blue to the profession.
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We might even say of the business cycle as the great Etienne Gilson said about natural law: “the naturallaw always buries its undertakers.”
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Previous Nobels had been granted to: Keynesian econometricians Ragnar Frisch and Jan Tinbergen, PaulSamuelson,, national income statistician Simon Kuznets, Kenneth Arrow and John R. Hicks, and input—output planner Wassily W.
 
Leontief.
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