Leftist Economics Still Reigns in Academia

David Dorkin ddorkin at aye.net
Wed Aug 25 14:16:21 PDT 1999

>From the funny folks at Accuracy In Academia by Eric Langborgh

It doesn’t require a creative imagination to ponder the results of a

Soviet sympathizer teaching American history. The consequences of

learning laissez faire capitalism from a supporter of the welfare state are

no less obvious.

Such is the case in economics departments at universities all across

America. While the ideas of free-market economists such as Milton

Friedman and Friedrich Hayek are cited more often in college texts than

they have in the past, they continue to be “explained in terms of a general

Keynesian model or theory,” explains Professor Richard Ebeling, head of

the department of economics and business at Hillsdale College.

In other words, Keynesian theory’s progenitor--the godfather of the

welfare state--John Maynard Keynes, continues to dominate economics

departments at most universities.

Capitalism’s Defenders Underrepresented

Economic myths, skewed views of economic principles, and an

inaccurate portrayal of human action are thus inevitably perpetrated by

this Keynesian juggernaut. Naturally, pro-government, anti-free market

sentiments are then fostered in today’s economics student.

According to financial economist Mark Skousen in his book Economics

on Trial: Lies, Myths, and Realities, references to economic schools of

thought in the top ten economics textbooks numbers Keynes and

Keynesianism as nearly twice as often cited as the nearest competitor.

While Friedman and the various branches of monetarism are cited 252

times, Keynes influence has an index frequency of 442 times.

Perhaps most interesting is that the

economic policy employed by President

Ronald Reagan--supply-side

economics--is cited only 95 times in the

top ten books, while the economic system

he brought to its knees, Marxism, is

referred to 36 more times (131). The

unabashedly free market school of

Austrian economics found mention only

67 times.

Even more surprising is that the widely

used World Philosophers, an economic

history textbook written by Robert

Heilbroner, fails to mention Friedman or

the great Austrian Ludwig von Mises even

once. This 4 million-copy bestseller does

highlight Adam Smith, but the emphasis throughout the rest of the book is

on Keynesianism and various utopian socialists, with a large section

devoted to Karl Marx.

Representative of this bias against free marketers is the fact that

anti-Keynesians (those who have debunked or otherwise provided

alternative theories) are given little mention in economics classrooms

today. One prominent example of a work that is very rarely cited includes

Henry Hazlitt’s The Failure of the ‘New Economics’, which presents a

step by step refutation of Keynes’ General Theory. Another notable

example is Ludwig von Mises’ Socialism and his various works on

interventionism, all of which target the maladjustments which are ushered

into the economy by bureaucracies and the futility of determining price in

a command economy.

Similarly, the work of Austrian economists--of which Hazlitt and

Mises were part--is often overlooked despite being the only school to

have predicted the Great Depression. As Skousen commented, “Given

the superior record of the Austrian and sound money schools during the

critical 1929-33 period, one would expect them to receive more notice in

the textbooks.”

The record shows that Mises predicted that the Austrian bank Credit

Anstalt would crash; and it did in 1931. Mises’ student, Hayek,

published several articles as director of the Austrian Institute for

Economic Research’s monthly reports in early 1929. He noted that the

artificial inflationary boom in 1920s America would within months result

in collapse due to the Federal Reserve’s decision to stop feeding the

inflation. The stock market did indeed crash on “Black Thursday,”

October 24, 1929, signaling the official beginning of the Great


Meanwhile, U.S. sound money economist E.C. Hardwood developed

a monetary theory closely resembling that of the Austrians. He believed

that bank credit inflation was the cause of the business cycle, and even

predicted that there would be widespread bank failures and that the

depression would not be short lived in an article published in the

November 29, 1929 issue of The Annalist, and later reprinted in The

New York Times. His forecast proved right.

In today’s economics class, then, Hayek and Mises’ correct prophecy

that the Fed’s manipulation of the money supply would cause the Great

Depression is largely ignored. So too is Nobel winner Friedman’s (of the

Chicago Monetarist School) later documentation of the Fed’s blunders

leading to the Great Depression. And the monumental work by Austrian

School economist Murray Rothbard, America’s Great Depression,

which countered the Keynesian argument against inflationary recession,

has also failed to earn him due respect in academic circles.

Samuelson’s Shadow

Perhaps no other economist has had a greater impact on the way

economics is taught than Paul Samuelson. A student of Keynes, this MIT

professor and Nobel laureate has introduced the “New Economics” to

millions with his textbook, Economics. Now printed in its 16th edition,

this textbook is the most popular textbook of any kind, selling over 4

million copies in 46 different languages since 1948.

Skousen has documented the evolution of Samuelson’s thinking over

the last several years. Though the weight of economic evidence has

begrudgingly forced Samuelson to slowly move away from Keynesianism

to the Classical economic model of Adam Smith, Skousen said, “the old

Keynesian cannot break with his old mentor whom he proclaims as

‘this century’s greatest economist.’”

Symptomatic of this fact is that Friedman’s monumental work

(co-authored with Anna J. Schwartz), A Monetary History of the United

States, 1867-1960, for which he won the Nobel prize, is deliberately

omitted from Samuelson’s texts. Samuelson still holds that it was

unbridled laissez faire capitalism that caused the Great Depression.

Including Friedman’s work would invalidate this thesis.

Among other findings cited in A Monetary History, Friedman

demonstrated that the money supply declined by one third from 1929 to

1933, thus indicting it was mismanagement by the government (i.e. the

Federal Reserve), and not free markets, that put the ‘30s economy in a

tailspin. In addition, studies by Friedman, Rothbard, and Robert Higgs

further undermine Samuelson’s claim that New Deal expenditures and

World War II rescued us from the Great Depression. Nevertheless, these

are all conveniently lacking from the Keynesian’s textbooks.

For instance, Lipsey and Steiner contend in their Economics textbook

that, “Once the massive, war-geared expenditure of the 1940s began,

income responded sharply and unemployment evaporated. Government

expenditures on goods and services, which had been running under 15

percent of GNP during the 1930s, jumped to 46 percent by 1944, while

unemployment reached the incredible low of 1.2 percent of the civilian

labor force.”

However, according to the U.S. Department of Commerce, the

standard of living actually dropped during the war, with per capita

income declining in real terms and prices increasing an average of 30

percent from 1940 to 1945. In addition, wrote Skousen, the “average

work week increased by 20 percent as many employees, and especially

engineers, worked weary 14-hour days, seven days a week.”

Not only is Samuelson’s Economics the top selling textbook--of any

kind--of all time, but as Skousen has found, it also has a great influence

on many of the other best-selling economics textbooks, both in tone and

content. His treatment of the most important point in U.S. economic

history, the Great Depression, has had far reaching effects on government

policy and in economic understanding since

In his book, What Do Academic Economists Contribute?, Daniel B.

Klein has sought to explain the inability of economics departments to

purge themselves of failed models of the past. “Academic economists

belong to a careerist club, and the club has official ways of performing,”

wrote Klein, an associate professor of economics at Santa Clara

University. “Feeding on tax and tuition dollars, the club is incestuous:

MIT produces Ph.D. members of the club, who then take over the

university departments and journals and perpetuate the demand for new

MIT Ph.D. club members,” he explained. Klein added that these “official

ways” are locked in at other top universities such as Chicago and


This shows up in the partisan makeup of economics departments, as

well. For instance, a study conducted by Aman Verjee found that

Stanford--home of the conservative Hoover Foundation, which has

featured such notable free market economists as Milton Friedman and

Thomas Sowell--has a Democrat to Republican ratio of 21 to 7 for its

economics professors. Furthermore,

70 percent of professors at Stanford

label themselves as liberal to

moderately liberal, while only 3 or 4

percent are acknowledged

conservatives. Similar trends are seen

in the economics departments of many

other top schools, including North

Carolina (19 Democrats to 4

Republicans) and Cornell (10 to 3).

Interestingly, the economics

departments seem to be the most

balanced departments at these schools,

where often times GOP representation

is virtually nonexistent in other

departments. This too has a notable

effect on students’ understanding of economics.

As Donald Boudreaux, president of the Foundation for Economic

Education, asserted, the myth that the minimum wage “is a wonderful way

of helping poor people” is peddled by professors in other fields. (In

contrast, academic economists of nearly all persuasions are in general

agreement that the minimum wage causes unemployment to some

debatable degree.) For example, a sociology course at Oberlin entitled

“Economy, Class and Politics,” seeks to discover “What


social science contribute(s) to understanding important political, social

and economic questions;” while “Race and Ethnicity in Social Work

Practice” at Ohio State presents “An analytical approach to problems,

needs, and intervention for effective social work practice .” Words like

“Marxian” and “intervention” are obvious in their intent.

Back in campus economics programs, Leftist bias is maintained by

obscure journals “read by almost no one except other economists who

are busy trying to excel in the club,” said Klein. These journals are used

as the proving ground for academic economists.

Klein noted that these journals are generally filled with statistical

pattern hunting and econometric model building, which is non-transferable

to the real world. “Model building goes by the code word ‘theory,’ yet

many models make no reference to real-world happenings,” claimed

Klein. “Pointless work of this kind appears in The Journal of Economic

Theory. Economic theory of what? Such journals have no connection

with real issues, yet their prestige is high.”

“By and large, the top schools, they teach technique, mathematical

manipulation of economic models, a series of equations,” agreed

Boudreaux. “They’re divorced from reality.”

Many great post war economists have defied and criticized the

profession, among them Ronald Coase, Israel Kirzner, and Nobel

laureates F.A. Hayek and James Buchanan. Unfortunately, very few can

run against this careerist club without seriously damaging their

professional status. Observed Klein, “if anyone had the temerity to

explain all the important ways in which the model failed to represent

reality, club officials would close ranks and expel that insolent person.”

Often times is the case where free market economists have been

forced to include lessons they disagree with in their textbooks. James

Gwartney and Richard Stroup were forced by the publisher’s review

board to include the Keynesian model of aggregate supply and aggregate

demand, or AS-AD, in their textbook, Economics: Public and Private

Choice. This board, like most, consists of mainstream (i.e. liberal)

economists. Said Roger LeRoy Miller, author of another best-selling

textbook, Economics Today, “AS-AD is a bunch of nonsense, but I’m

required to teach it.”

Lies, Myths, and Realities

Burton Folsom Jr., a senior fellow in economic education at the

Michigan-based Mackinac Center for Public Policy, recently finished a

study of economic textbooks. Many of the 16 top textbooks he reviewed

were less than adequate in his view, with six receiving D’s and two

winding up with F’s.

Folsom pointed to the antitrust bias of many textbooks, including what

he sees as blatant misrepresentations of historic “monopolies” such as

American Sugar, U.S. Steel, and John D. Rockefeller’s Standard Oil.

For example, the historical record shows that it was competition, not

government antitrust laws, which caused U.S. Steel’s market share to fall

from 61% in 1901 to 39% by the mid-‘20s. Observed Folsom, “This is

never mentioned in the textbooks.”

When it comes to supply-side economics, college textbooks miss the

mark, as well. “Supply side still hasn’t sunk in. Tax cuts in the ‘20s

produced more federal revenue, and the cuts in the ‘80s doubled federal

revenue.” Folsom noted that only two texts gave a fair presentation on

this topic.

Perhaps the biggest myth spread in American economics programs is

that the economy is consumer driven. This manifests itself in the view that

economics is science, and the government can therefore manipulate the

economy. Said Boudreaux: “The ideology is that if we get good people,

we can master the economy.”

Wrote Samuelson and Nordhaus in the 1989 edition of Economics,

“The Soviet economy is proof that, contrary to what many skeptics

earlier believed, a socialist command economy can function and even


This favorable view of central planning does not seem to have

subsided, as evidenced by many textbooks like Baumol and Blinder’s

Economics: Principles and Policy, which promote socialist Sweden as a

model economy.

One of the most oft used facets of Keynesian economics in economics

textbooks is known as “the paradox of thrift.” This is the notion that while

it is wise for individuals to save money, especially during a recession, it

can lead to a much worse overall economy during downturns. Therefore,

an inflationary monetary policy and deficit spending are pursued to

encourage consumption.

“While savings may pave the road to riches for an individual, if the

nation as a whole decides to save more, the result may be recession and

poverty for all,” wrote Baumol and Blinder.

McConnell and Brue added in their Economics: “It is difficult to

conceive of governmental bankruptcy when government has the power to

create new money by running the printing presses.”

But mainstream promotion of this principle has not been without its

costs. Wrote financial economist Mark Skousen in his Economics on

Trial: “As a result, the anti-savings mentality has led to a deleterious

economic policy of the West--taxing savings and investment at high rates

while encouraging consumer debt.” Skousen pointed to the extended

Great Depression and the stagflation of the 1970s as the inevitable results

the paradox of thrift being implemented, as well as the huge deficits of the

‘40s and ‘80s.

Hope for Capitalism?

The fact, though, that free market economists are being published at

all does lend hope for the future. In fact, several textbooks have been

published in recent years that, despite the forced inclusion of Keynesian

economics against the wishes of the authors, nevertheless provide sound

economic thinking. For instance, although Gregory Mankiw maintains his

neo-Keynesian roots (he even named his dog “Keynes"), he has flipped

the traditional approach of including Classical economics as an

afterthought, and instead has placed the Classical model as the “general”

theory in his popular textbook, Economics. The Keynesian model has

been relegated to the “special” case.

Paul Samuelson himself, while he still places the Keynesian model

first, has moved away from questionable doctrines such as the “paradox

of thrift” and the “virtue” of deficit spending and has now embraced an

increased savings rate.

Finally, in some cases free marketers have circumvented the “careerist

club” altogether and have produced textbooks on their own. Perhaps the

best is the soon to be released Economic Logic, by Skousen. Skousen

told Accuracy in Academia that, “This is the first no compromise free

market textbook in economics for college students and is presented in a

revolutionary step by step fashion. Hence the title Economic Logic.” He

mentioned that this textbook, to be released in two separate volumes

addressing microeconomics and macroeconomics, respectively, will retail

for $29.95. “I may not sell as many copies (as I might if I included

Keynesian economics), but at least it will be pure.”

Nevertheless, Keynes’ welfare state economics--at least for the

foreseeable future--still reigns supreme in academia. ©1999, Accuracy In Academia

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