When looking at industrialization in Austria-Hungary, I was struck by how little its governments used the superb “Austrian School” cadre of economists its universities were then producing – surely results could have been better than the sluggish bureaucratized industrialization the country actually achieved. Yet other societies, notably 18th and early 19th Century Britain, used their available economic skills much better, while in later years modern societies have damaged themselves by relying on the wrong economists (Maynard Keynes and Thomas Piketty being the obvious examples), or have sent better ones to the Gulag (Nikolai Kondratiev). There must be a structural way of doing better!

Economists’ influence on government began in Britain during the 17th Century. Thomas Mun (1571-1641) while a Director of the East India Company and therefore possibly having direct influence, did not posthumously publish his “England’s Treasure by Forraign Trade” until 1664. However, by that time its thinking had already been absorbed by the government and lay behind the Tenures Abolition Act of 1660. Among other things, that Act imposed duties on foreign trade in tobacco, sugar, coffee and chocolate, thereby providing the government with revenue sources that steadily increased over time, as Mun had suggested. Then, Sir William Petty (1623-87) was a Fellow of the Royal Society; hence his advocacy of laissez-faire strongly influenced governments from Charles II onwards, even though his works were also published posthumously.

The first economist to play a direct role in government was Sir Dudley North (1641-91) a Tory merchant who had made his fortune in Turkey, returned to England in 1680 and entered politics, becoming Chairman of the Ways and Means Committee in the 1685 Parliament. As such, he had a major role in setting economic policy for the Tory government led by the Earl of Rochester, which became Tory economic policy for the long-term future. His “Discourses Upon Trade” was again published posthumously in 1691, but his advocacy of removing trade restrictions was influential among Tory politicians from his great-nephew Lord North, through Pitt the younger and Lord Liverpool.

The great classical economists were also highly influential, although none became ministers. Adam Smith’s (1723-90) “Wealth of Nations” first influenced North’s government and the future Trade Minister Charles Jenkinson, then Pitt the younger held dinner seminars for himself and his younger Cabinet colleagues at which Smith would lecture and answer questions. Liverpool, a capable economist himself, was influenced by Thomas Malthus (1766-1834) in drafting the Corn Laws and generally following policies aiming at a high-wage economy, while David Ricardo (1772-1823) although a Whig was highly influential in the move towards free trade that Liverpool and his Trade Secretary William Huskisson (another very capable economist) instituted after 1820.

In France, free market economists were not so fortunate. Jean-Baptiste Say (1767-1832) was fired by Napoleon from his office as Tribune in 1804, so founded a textile company to prove his economic theories worked; he was much better treated by the Restoration regimes after 1815 and was one of the founders of the ESCP, the world’s first business school. Frédéric Bastiat (1801-50) was unable to speak at the Legislative Assembly to which he was elected in 1848 because of the tuberculosis that eventually killed him.

German economists were luckier. Friedrich List (1789-1846) proposed and designed Germany’s Zollverein customs union that took effect in 1833; remarkably, in that year he also proposed a map of a future German railroad system that was built almost to the last detail between 1833 and 1860. As a believer in internal free trade, internal improvements and external protection, his views, which were strongly influenced by the “American System” policies of John Quincy Adams, have seen a revival in those of President Trump, another German by descent.

The largest discrepancy between rather poor economic policy and brilliant local economists came in Austria-Hungary. Carl Menger (1840-1921), the first of the Austrian School, published his “Principles of Economics” in 1871 and he quickly gathered followers of exceptional quality, notably Eugen von Böhm-Bawerk (1851-1914), Friedrich von Wieser (1851-1926) and a little later Ludwig von Mises (1881-1973) and Joseph Schumpeter (1883-1950), all of them active between 1870 and 1914 and all of them with considerable commonality between their free-market economic theories.

Yet before 1914 only Böhm-Bawerk held political office, and his period as Minister of Finance in 1900-04 was described by the economic historian Alexander Gershenkron as showing “penny-pinching, not one heller more policies.” Yet with the bloated state of the Austro-Hungarian public sector, its poor credit rating and its legendarily obtuse bureaucracy (memorably described by Franz Kafka) penny-pinching was precisely what was needed.

Had Böhm-Bawerk been given a free hand, he could have returned Austria to the smaller state, less intrusive regulatory bureaucracy and much better credit quality of the 1850s Neo-Absolutists, probably the high point in Austrian economic policy. Thereby he could have turned Austro-Hungarian industrialization from the sluggish copy-cat process of 1873-1914 into the dynamic innovative surge of the neighboring Germany – to the great benefit of the world, since a resurgent, self-confident Austria-Hungary would have been a strong voice for peace in the 1914 crisis, quieting Kaiser Wilhelm II’s “encirclement” paranoia.

Since 1914, only bad professional economists have achieved significant political power. Maynard Keynes (1883-1946) was influential in the Lloyd George coalition of 1918-22 and the Labour governments of 1924 and 1929-31; he was then barred from the Treasury by the great Neville Chamberlain, ruining his Pelosi-like investment management track record. He returned to power in 1940, as total war raged and both Winston Churchill and Clement Attlee were foolishly reverent of his prowess (the disaster from the British point of view of the 1944 Bretton Woods Conference was a notable Keynes low point). Similarly, Thomas Piketty (1971-) has had an immense effect worldwide in legitimizing harsh income redistribution policies and government controls, thus ensuring that the EU, Britain and Latin America are mired in socialism and decline.

Alas, the fate of good economists is less benign – they have a tendency to end up in the Gulag. That was the fate of Nikolai Kondratiev (1892-1938), author of the “Long Wave” theory, the clockwork-like repetition of which waves may have been diverted but not killed by the advent of fiat currency in the 1930s. Kondratiev was initially a leftist, thus acceptable to Lenin and his followers. However, as member of the People’s Commissariat of Agriculture he designed the liberalizing New Economic Policy, which in the middle 1920s revived Soviet agriculture to an astonishing degree by allowing capitalist incentives, pointing the way to a hybrid economic system.

Poor Kondratiev was foolish enough to visit the Land of the Free in 1927, where he was denounced to the Soviet Communist Party as a crypto-capitalist by a Marxist forestry professor at the University of Minnesota – American academia, then as now, is a dangerous place to be a dissident from leftism. He was arrested on his return to Moscow as rigid Communism was reimposed by Stalin’s Five-Year Plan, sent to the Gulag along with those prosperous-peasant “kulaks” who didn’t starve to death, and purged in 1938 by Stalin along with millions of others.

The examples above show the problem. If a political system is dominated by the Left, as was Stalin’s Russia and as are today’s EU, Britain, Canada and Australia, then good economists will be in opposition to the regime and will have no chance of influencing its policy in a better direction. Even if they are given an office for a time, as with Böhm-Bawerk in Austria, they will be ineffective because they are out of sympathy with the regime’s policies and goals, and many of their colleagues will block their proposals or fail to understand them. A “center-right” government like that of Friedrich Merz in Germany, is if anything worse for the cause of good policy than an openly left-wing one, because experience has shown that it will exert most of its intellectual effort in blocking proposals from true free-marketers.

There is one counterexample: the miraculous election of Javier Milei in Argentina in December 2023, a complete reversal of 80 years of left-populist history. Like President Trump, Milei flouts conventional norms, but unlike Trump he is a highly qualified professional economist. His election came at a time of utter economic collapse in Argentina, but since then he has turned the economy around, returning it to growth, sharply reducing inflation and ending the 80-year public sector deficit. If he is allowed to continue governing, he could reverse the long-term economic decline that Argentina has suffered since 1945 and restore it to the place among the advanced economies that it deserves given its modest population and bountiful resources.

Outside a Milei miracle the only opening for change is the election of a President Trump, who flouts conventional norms and, while himself not being an expert in economic policy – why should he be? – is prepared to appoint officials who are opposed to the leftist consensus. If a few such officials are genuinely good economists with the ability to persuade their colleagues, progress may be made.

Even in a Trump-like administration, economists’ proposals that disagree with the Keynesian or socialist consensus will be met with wild derision by the media and most of the conventional thinkers who infest top jobs. We have seen this with Trump’s tariffs, which have been met with a squealing rage worthy of William Gladstone at his most thunderous, even though the United States for most of its history has been a thoroughly protectionist country – it was Britain that chose the economics of self-harm in 1846. One rule of thumb can be relied upon: the greater the outrage, the better the proposed economic policy.

Now all we need is a political world full of Trumps, with the odd Milei thrown in!

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)