Business Schools Need More Austrian Economics
In a recent tweet, Philip Kotler, author of the most widely used marketing book in graduate business schools worldwide suggested that the government should be doing much more to reduce inequality.
To quote Kotler:
Income inequality keeps worsening. Four ways to keep income inequality from worsening. 1. Raise minimum wages, 2. Raise the top income tax rate, 3. Enact a wealth tax. 4. Raise estate taxes. One political party opposes all of these. The other will introduce all of them in time.— Philip Kotler (@kotl) July 30, 2019
By suggesting that the government should somehow put in place these "solutions," Professor Kotler (a student of Friedman, Samuelson, and Solow with degrees from University of Chicago and MIT), shows an incredible ignorance of some of the most fundamental economic principles that influence his (insightful, and I risk to say, mostly correct) thoughts about marketing and strategy.
Another very respected business school scholar, Henry Mintzberg, has also advocated for "raising the minimum wage, the need for government to act to stop climate change, that the ridesharing apps are making people poor and unhappy."
He even asks, on some occasion, 'how can smart people be so dumb?'
His question forces me to ask my own, "How can people that are so knowledgeable in their areas be so naïve (to say the least) in economics when the discipline is such a fundamental topic for businesses?
This kind of public positioning made by such an influential scholar highlights the importance of promoting Austrian economics in business schools.
The comments from Kotler and Mintzberg remind me of a talk Murray Rothbard’s gave in the early '90s on "The Future of Austrian Economics." Rothbard advocated for Austrian economists to spread their ideas outside academia, identifying business people as a particularly important audience. These are people that actually see the market process unfold and end up understanding that actors and firms all belong to a complex web of interactions.
Particularly now, I think it is important to act upon Rothbard's suggestion, in particular by targeting business schools.
Business students take courses in Strategy and Marketing that are based (although this is hardly mentioned directly) on sound economics principles. For example, people (not collectives) act, preferences are subjective, the market is dynamic, the influence of government policies over businesses exists and is very heavy, markets are interconnected, etc.
Those same students are exposed to various blends of economic thinking that lack much practical use. For example, textbooks by monetarists, Keynesians, and even Marxists are common textbooks all over the globe. Instead, what these future professionals need is a more logical approach to economic thinking.
Fortunately, we are making progress in this area.
The Economics for Entrepreneurs podcast, hosted by Hunter Hastings, melds the sound economic thinking of the Austrian school, with discussions of strategy, marketing, and entrepreneurship, among others. Several scholars associated with the Mises Institute teach at business programs (see for instance Peter Klein, Per Bylund, and Matt McCaffrey.) Social media groups have also arisen, such as "Mises For Business" and “Management Scholars for Free Markets.” There's is also a great number of academic papers being published synthesizing concepts in Austrian economics, management, and business strategy. These are areas that already have a lot in common, and we can build on that.
At the same time, there is still a lot of room to grow.
Apart from Marketing and Strategy, there are many other areas that business schools can learn from studying praxeology and catallactics. Entrepreneurship and innovation are some of the most obvious areas where Austrians can contribute, other topics such as human resources and finance are also very strong candidates for potential research. Accounting is another area where Austrians have also begun to contribute. With a personal background in industrial engineering, I even think fields like operations could gain a lot from the understanding of matters such as the business cycle and especially insights of the structure of capital.
To sum up, there is a lot of misunderstanding and bad economics being taught to business students, forcing many into courses claiming that theory in economics is useless, and that ‘data’ solves it all. In such programs, we are in desperate need for an Austrian revolution.
With the robust understanding of the market process that the Austrians are able to provide, business students, future entrepreneurs, and business professionals will be better prepared to operate their businesses and to better understand their consumers, competitors, and their macro environment. By talking to those people, moreover, we will be able to open the door to the other parts of Austro-libertarian thinking and, as a consequence, to bring more people to believe in individual liberties against central power coercion.