Photograph by Justin Sullivan 
 
 As he declared quasi-victory in Iowa following a third-place finish, Ron Paul puzzled cable news watchers across the country by proudly proclaiming, “We are all Austrians now.” The average Republican presidential candidate would sooner officiate a gay marriage than praise Europe, yet here was Paul pledging allegiance to Vienna. What did he mean? Why would we all be Austrians? 
 
 Paul’s statement was crystal clear to those familiar with the internecine controversies of the libertarian movement. He was referring to so-called “Austrian economics,” an idiosyncratic passion of his and a set of beliefs that put him at odds with the vast majority of well-known economists of all ideological inclinations. 
 
 For starters, it’s important to note that the term has something of a double meaning. The Austrian school originally referred to a set of classical liberal thinkers with diverse interests who came out of the Austro-Hungarian Empire. Many of these thinkers are obscure today, but the most distinguished member of the group, Friedrich Hayek, is anything but. By the same token, an appreciation for Hayek’s work by no means makes you an “Austrian.” Hayek, who died in 1992, won the Nobel Prize, and mainstream economists thoroughly embraced his important work explicating the role of the price system in conveying information. His ideas undergird everything from carbon taxes to wireless spectrum auctions and thoroughly permeate policy throughout the Western world. 
 
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 But “Austrians” in Paul’s sense refers to something narrower, specifically the thought of Ludwig Von Mises and his student Murray Rothbard. It is a form of capitalism that is even more libertarian and anarchic than that espoused by many libertarians. Rothbard‘s followers, most prominently longtime Paul associate and founder of the Mises Institute Lew Rockwell, have been waging a decades-long war against the Koch brothers and the more mainstream form of libertarianism the Kochs represent. 
 
 “Austrian economics,” in this sense, goes beyond standard-issue free market thinking in a number of ways. Most notably, it seeks to build a strong ethical case for strict libertarianism without admitting that this would lead to any practical problems whatsoever. Therefore, along with rejecting the legitimacy of any intervention to protect the poor or regulate anything (a position much more extreme than even the Hayek of Road to Serfdom), Austrians reject the idea that there is anything at all the government can do to stabilize macroeconomic fluctuations. This, to be clear, is different from the mainstream Republican view that the stimulus bill enacted by Congress in 2009 and signed into law by President Obama was wasteful or ineffective. Austrians also believe that cutting taxes to boost economic activity doesn’t work either. And they disagree with Milton Friedman that appropriate monetary stimulus by the Federal Reserve could have prevented the Great Depression. Indeed, they disagree with even the least controversial of all stabilization measures, the ordinary tweaking of short-term interest rates that all modern central banks use to try to prevent either inflation or deflation. In the view of the Austrians, practically every economic policy pursued by the federal government and Federal Reserve is a mistake that distorts markets. Rather than curing recessions, claim Austrians, stimulative policies cause them by producing unsustainable bubbles. 
 
 The way this works, according to the Austrians, is that artificially low interest rates spur “malinvestment” in unworkable enterprises that inevitably crash when the stimulus is withdrawn. This is an emotionally appealing idea, positing that the suffering of a bust is a kind of cosmic payback for the boom. But it doesn’t make much logical sense. For one thing, as George Mason University economist Bryan Caplan, who’s ideologically sympathetic to the Austrians, points out, it’s hard to understand why businesspeople would be so easily duped in this way. If Ron Paul and Ludwig von Mises know that cheap money can’t last forever, why don’t private investors? Why wouldn’t firms avoid making the supposedly dumb investments? Ironically, the Austrians have replicated an error from the crudest forms of postwar Keynesianism—the failure to consider the role of expectations feedback in macroeconomic policy. 
 
 More broadly, the Austrian story of investment booms and busts doesn’t actually explain recessions and unemployment. Spending patterns shift all the time without sparking a recession. People stop buying BlackBerrys and they buy iPhones instead. Or people stop buying boot-cut jeans and buy skinny jeans instead. Across sectors, maybe people go see fewer movies and with the money they save they eat out at nicer restaurants. A business that curtails its investment spending should have extra money to pay out as dividends. Or if they want to horde the cash, it sits in a bank for someone else to lend out. 
 
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 It may seem “obvious” that the decline in housing activity caused the current recession, in line with the Austrian view, but in fact fixed residential investment turned negative in 2006. It stayed negative for more than a year before the recession began, and then continued negative for a couple more quarters before it turned severe. People spent less on home-building and renovation and more on other things. If investment spending in general declines, you would expect spending on consumer goods to rise to offset it. In practice, this doesn’t always happen and you get a recession. It’s this anomalous collapse in overall spending that needs explaining, and describing some of the past spending as “malinvestment” doesn’t help you understand it. 
 
 The interesting question is what to do about it. Many of the original Austrians found their business cycle ideas discredited by the Great Depression, in which the bust was clearly not self-correcting and country after country stimulated real output by abandoning the gold standard and engaging in deficit spending. Then for a long time after World War II, policy elites more or less agreed on a combination of “automatic” fiscal stabilizers (the deficit naturally goes up during recessions as tax revenues fall and social service outlays rise) and interest rate cuts. And it worked, so nobody much cared about Austrian economics outside of crank circles. But when short-term rates hit zero and the Fed couldn’t push them any lower despite high unemployment, political consensus broke down. ||||| So as Ron Paul is on track to win the Iowa caucuses, he is getting a new dose of press scrutiny. 
 
 And the press is focusing on the newsletters that went out under his name in the late 1980s and early 1990s. They were called the Ron Paul's Political Report, Ron Paul's Freedom Report, the Ron Paul Survival Report and the Ron Paul Investment Letter. 
 
 There is no doubt that the newsletters contained utterly racist statements. 
 
 Some choice quotes: 
 
 "Given the inefficiencies of what DC laughingly calls the criminal justice system, I think we can safely assume that 95 percent of the black males in that city are semi-criminal or entirely criminal." 
 
 "We are constantly told that it is evil to be afraid of black men, it is hardly irrational." 
 
 After the Los Angeles riots, one article in a newsletter claimed, "Order was only restored in L.A. when it came time for the blacks to pick up their welfare checks." 
 
 One referred to Martin Luther King Jr. as "the world-class philanderer who beat up his paramours" and who "seduced underage girls and boys." 
 
 Another referred to Barbara Jordan, a civil rights activist and congresswoman as "Barbara Morondon," the "archetypical half-educated victimologist." 
 
 Other newsletters had strange conspiracy theories about homosexuals, the CIA, and AIDS. 
 
 In 1996 when the Texas Monthly investigated the newsletters, Paul took responsibility for them and said that certain things were taken out of context. (It's hard to imagine a context that would make the above quotes defensible.) 
 
 When the newsletter controversy came up again during the 2008 campaign, Paul explained that he didn't actually write the newsletters but because they carried his name he was morally responsible for their content. Further, he didn't know exactly who wrote the offensive things and they didn't represent his views. 
 
 But it is still a serious issue. Journalists at the libertarian-leaning Reason reported that Paul made nearly one million dollars in just one year from publishing the newsletters. Could Paul really not understand the working of such a profitable operation? They were told by a source close to the Paul campaign that the author was likely longtime Paul-friend and combative polemicist Lew Rockwell. 
 
 Even though many of the newsletters are written in a first person, conversational style, many observers don't believe that Ron Paul actually wrote them. 
 
 There aren't any videos on YouTube with Paul speaking in incendiary terms about minorities. The newsletters don't "sound" like Ron Paul - he doesn't do wordplay like "Morondon" or use prefixes like "semi-criminal" or "half-educated" in his speech or his recent writings. Further, most newsletter and direct-mail operations in politics employ ghostwriters. 
 
 So why were Ron Paul or his ghostwriters engaged in racism and conspiracy theories? And why did Ron Paul allow this? 
 
 The first answer is simply that marginal causes attract marginal people. 
 
 The Gold Standard and non-interventionism have long been pushed to the fringe of our politics, and ambitious people tend to dive into the mainstream. That means that some of the 'talent' that marginalized ideas attract will be odd and unstable. 
 
 There are two strategies for dealing with this problem. You purge your movement of cranks to preserve credibility and risk alienating a chunk of supporters. Or you let everyone in your movement fly their freak flag and live with the consequences. Ron Paul, being a libertarian, has always done the latter. 
 
 The second answer to this question: These newsletters were published before a decade of war that has exhausted many Americans, before the financial crisis, and before the Tea Party. 
 
 All three made Ron Paul's ideas seem more relevant to our politics. They made anti-government libertarianism seem (to some) like a sensible corrective. 
 
 But in the 1990s and 1980s, anti-government sentiment was much less mainstream. It seemed contained to the racist right-wing, people who supported militia movements, who obsessed over political correctness, who were suspicious of free-trade deals like NAFTA. 
 
 At that time a libertarian theorist, Murray Rothbard argued that libertarians ought to engage in "Outreach to the Rednecks" in order to insert their libertarian theories into the middle of the nation's political passions. 
 
 Rothbard had tremendous influence on Lew Rockwell, and the whole slice of the libertarian movement that adored Ron Paul. 
 
 But Rothbard and Rockwell never stuck with their alliances with angry white men on the far right. They have been willing to shift alliances from left to right and back again. Before this "outreach" to racists, Rothbard aligned himself with anti-Vietnam war protestors in the 1960s. In the 2000s, after the "outreach" had failed, Rockwell complained bitterly about "Red-State fascists" who supported George Bush and his war. So much for the "Rednecks." The anti-government theories stay the same, the political strategy shifts in odd and extreme directions. 
 
 As crazy as it sounds, Ron Paul's newsletter writers may not have been sincerely racist at all. They actually thought appearing to be racist was a good political strategy in the 1990s. After that strategy yielded almost nothing - it was abandoned by Paul's admirers. 
 
 You can attribute their "redneck strategy" to the most malignant kind of cynicism or to a political desperation that made them insane. Neither is particularly flattering. 
 
 Phil Klein of the Washington Examiner is correct when he writes: 
 
 Rick Perry and Mitt Romney have both attacked each other for what was written in their respective books. If either of those books had included a number of overtly racist statements, their candidacies would be over before they started. 
 
 This is undoubtedly true. The media seems to simply accept that Ron Paul has some oddities in his past and in his inner circle. They take his grandfatherly demeanor at face-value. In part this is because they believe he is not a serious candidate. 
 
 Winning the Iowa caucuses would change all that instantly. Undoubtedly the movement that Paul inspired has moved far beyond the race-baiting it engaged in two decades ago. Young people from college campuses aren't lining up to hear him speak because of what appeared in those newsletter about the 1992 L.A. riots. Rand Paul tried his hardest to place Paul-style libertarianism into the context of the Tea Party. And he will likely carry on the movement without this 1990s baggage. 
 
 But the questions remain. If Ron Paul is so libertarian that he won't even police people who use his name, if his movement is filled with incompetents and opportunists, then what kind of a president would he make? Would he even check in to see if his ideas are being implemented? Who would he appoint to Cabinet positions? 
 
 These are all legitimate questions. And the media is going to start asking them now. 
 
 If there isn't already a "ceiling" on Ron Paul's support, widespread knowledge of the newsletters could build one quickly.
– Just what did Ron Paul mean when he finished third in Iowa and said, "We are all Austrians now"? Republican candidates don't often celebrate European economic policies, but this is different, Matthew Yglesias writes in Slate. Those familiar with the inside baseball of libertarianism know that Paul is referring to two thinkers, Ludwig Von Mises and Murray Rothbard, whose idea of capitalism "is even more libertarian and anarchic than that espoused by many libertarians," writes Yglesias. "Austrian economics" rejects all government regulation and intervention to help the poor, and considers the tweaking of short-term interest rates a mistake that lures investors into doomed enterprises. Yglesias mounts a counter-argument, noting that the "Austrian" view doesn't explain the effectiveness of post-Great Depression fixes or the spending habits that fuel recessions. Yglesias sees an economic recovery around the corner, but if there isn't one, "these faddish views may gain more steam and perhaps we really all will be Austrians someday soon. But let’s hope not."