Steve Horwitz defends Austrian economics against the charge that they pull it all out their hats and don’t do fieldwork.
Until recent times there was not a lot of fieldwork by Austrians because prior to the 1980s there were virtually no Austrians and the handful of living Austrian scholars (practically all in the US) were focussed on keeping the tradition alive. That has changed dramatically in the last decade or so as the graduates from the handful of Austrian programs start to make a mark in their fields.
The housing boom and subsequent financial crisis, recession, and weak recovery, as well as Ron Paul’s presidential candidacy, have put the Austrian school of economics in the public spotlight, particularly among the intellectual class in the media and on the Internet. This increased attention has also meant increased criticism. One frequent charge is that Austrian economics is radically anti-empirical and cares little about putting its theories up against the reality of the world.
This criticism often focuses on Austrians’ use of “praxeology” as their term for economics. Some Austrians do indeed talk about the “a priori” nature of praxeology and how the theories it produces, such as the Austrian business cycle theory, cannot be “tested” by empirical data, which they contrast with the “apodictic certainty” of certain of their own conclusions. Such claims can be found in the work of the 20th century Austrians, such as Ludwig von Mises and, particularly, Murray Rothbard. (It is worth noting that this way of talking about Austrian theory is mostly absent in the work of F. A. Hayek.)
It has to be said that Ludwig von Mises did as much harm as good when he wrote about epistemology and methodology, but you don’t need to be distracted by that, just read his economic analysis.
Austrian courses (may not be complete, but you get the idea)
Undergraduate Courses
Auburn University.
Hillsdale College in Michigan where there is also the Mises library.
Grove City College, near Pittsburgh, where Hans Sennholz was chairman of the department for many years.
Northwood University with campuses in Michigan, Florida and Texas.
Santa Clara in California and California State University at Heyward.
The Uni of Missouri at St Lois and also at Columbia
Graduate Schools
New York University, the original base of von Mises, more recently the home of Israel Kirzner, Mario Rizzo and David Harper.
George Mason University in N Virginia list the Public Choice, Mercatus etc including the Institute for Humane Studies and other related organizations.
Troy University, Michigan, in the Walsh College of Accountancy and Business Administration.
Other Institutional Bases
The von Mises Institute, Auburn, Alabama; The Cato Institute; FEE (Free Enterprise Institute), The Liberty Fund, the Lower Neutral Bay Faction of the Australian School of Economics.
Nowhere in Australia I could go to get my head around some Austrian economics?
Lee from WA
6 Sep 12 at 3:25 pm
Lee, check out the Mannkal Economic Education Foundation.
Poor Old Rafe
6 Sep 12 at 3:44 pm
Murray Rothbard wrote many books on economic history.
Jim Rose
6 Sep 12 at 5:31 pm
Lee, go to the Mises Institute.
They have so much material including books, audio lectures & podcasts (including series by Murray Rothbardt).
Token
6 Sep 12 at 11:14 pm
I dispute that Austrian economics is untestable.
ABCT predicts that recessions occur due to malinvestment. Accordingly, in every recession, there should exist industries in which there had been underinvestment during the boom. Such industries would not suffer the decline in activity suffered by other industries during the recession. Further, they there is likely some reason why investment in that industry did not expand during the boom which stimulated other industries.
Under Keynesianism, the existence of underinvested industries is not a necessary feature of a recession.
The test of ABCT then becomes: can we identify the underinvested industries for all past recessions?
2dogs
6 Sep 12 at 11:18 pm
@2dogs
There are problems with your critic. I would first of all like to say that it is impossible to no the oppertunity cost of one investment. If there was not a house build, would that person had bought a car or would gone on holyday? It is simply impossible to no on an aggregat level.
Why must the be one industry that is underinvested, also how would you know if a industry is underinvested. You simply can not no the alternativ, thats why empircism is not allwys the answer.
It is just as licky to be investment that was distributed to many diffrent industries.
Mises and Hayek know what they where talking about when the recjected data sometimes. In econometics you look at the variables that change and isolate them, if a variable isnt changing it is not importend. That is bad assumtion because maybe a variable should have changed because of underlying factors.
This is exaclty what friedman got wrong when he critics the austrian explentation of the bust (I only mean the bust not the hole depression, there friedman was at least partly right) in the 1929. He clamed it could not have been easy money because the intrest rates stayed constant. Ausrians pointed out that maybe intrestrates should have risen because of a change in demand. I btw dont want to clame that the where right, I just wanted to point do the difrences in methodolgy.
It is very hard to test for these things.
Watch this presentation by one of the best austrian macro economists to see the diffrence between Hayek, Keynes and Friedman: https://www.youtube.com/watch?v=xj7Zn-UnTVE
Its the old stroy of the seen and the unseen. Read Bastiats “The seen and the unseen”.
nickik
7 Sep 12 at 1:22 am
“Why must the[re] be one industry that is underinvested”?
Say’s Law. And, axiomatically, if there has been malinvestment, it implies both over and under investment, in different areas.
I am using the term ‘industry’ loosely here. I include people investing in their own housing, for example.
“how would you know if a industry is underinvested?”
Production at capacity is generally a good indicator of underinvestment.
One interesting aspect of the GFC was that capital goods manufacturers were shown to be underinvested. The absence of their slowdown defies the standard Keynesian model of the economic cycle.
2dogs
7 Sep 12 at 6:19 am
What proportion of peer reviewed journal articles are “Austrian”? How should one measure it’s significance in the economics profession?
New Gold Dream
7 Sep 12 at 10:00 am
Their recent foray into fieldwork is a welcome development. Economic anthropology and case study analysis is as much a part of economics as model building.
I only wish these Austrians weren’t so self righteous about how irrelevant neoclassical economic work is.
jtfsoon
7 Sep 12 at 10:06 am
Menger. Marginalism. Boom.
Mises. The impossibility of socialist calculation. Boom.
Hayek. Prices as information. Boom tick.
.
7 Sep 12 at 10:09 am
dot
Those are very old articles.
For once NGD has a point.
Until the recent fieldwork stuff I’d argue modern Austrians have engaged in too much navel gazing and memorialising rather than doing real economics
jtfsoon
7 Sep 12 at 10:11 am
Hmmm…somewhere to start:
http://ideas.repec.org/p/wpa/wuwpma/9706003.html
The Misallocation of Resources of Anticipated Inflation
This paper analyzes the effects of anticipated inflation on the resource allocations between production and financial services. We develop a model with heterogeneous workers and two sectors economy. A manufacturing sector producing a final composite good and a financial sector providing monetary management services for manufacturers. Workers in this economy are heterogeneous in their productivity and are free to move between the two sectors. Hence workers with high productivity in the financial sector choose to work in the financial sector, where they can earn high wages, while workers with low productivity prefer to work in the manufacturing sector. In equilibrium, the allocation of workers between the two sectors, i.e., the size of each sector depends, among other factors, on the inflation rate. Higher inflation increases the marginal revenues of financial workers and decrease the marginal revenues of production workers. As a consequence, resources are shifted from the manufacturing sector to the financial sector. That is, the share of the financial services in output increases and production (output) decreases. The resulting decline in manufacturing sector output reduces consumption opportunities and represents costs of inflation. To estimate the change in the production structure and, thus, the costs of inflation we analyze data from 28 countries which had some notable inflation history during the period 1972-1995. We find strong support for the hypothesis that higher inflation increases the share of the financial sector output and employment relative to the manufacturing sector.
I think this paper basically only goes to the top of a boom, however. In the ABCT, inflation occurs later on as resources are used up in projects which are uneconomic but cannot be liquidated, with overall lower productivity. Output growth falls and real wages fall more quickly.
.
7 Sep 12 at 10:14 am
I’d say they were acting as amateur historians and retired economists.
There is plenty of quantification, either by “rebel” Austrians or by others who have done the empirical work of the Austrians without knowing.
.
7 Sep 12 at 10:16 am
Taking up the comments by NGD and Jason, it is fair comment that in the aftermath of the 1970s revival of the Austrians, a lot of effort went into debates and promotion of whatever it was that different people wanted to claim as the heart and soul of Austrian economics. At that stage you could practically throw a blanket over all of them, certainly all who were fulltime uni teachers.
Recently I have seen figures like 250 Austrians out of 12000 members of the American Association, that is 1:50 or 2%. It is generally accepted that they are under-represented in the “top tier” (most presigious) journals, but that begs the question about how uniformly brilliant is the work in the “top tier”.
People in the generation of Boettke, Horwitz and the others who blog on Coordination Problem are determined to contribute to the mainline of economics and to be seen as legitimate in the mainstream. Changing the name of the blog from Austrian Economics was a sign of that.
Thirty years ago they did not have the numbers or the resources to make a mark in the expensive and labour intensive business of fieldwork and empirical research, so there was a deal of cheap “navel gazing” work on history and methodology. That has been transformed in the last few years as they bring cohorts of students through their courses to the PhD stage and then post doctoral research. Check out work at the Mercatus Institute and Enterprise Africa, both on campus at the George Mason University, in partnership with the Economics school.
Rafe
7 Sep 12 at 4:32 pm
Great find, dot. This is exactly the kind of paper needed to get Austrian economics back into the mainstream.
Every recession, the Keynesians assert “it’s bad everywhere”, and due to the gloomy animal spirits prevailing at the time, this false observation is accepted (I had a link to where Krugman recently made such an observation this in relation to the GFC, I’ll post it if I find it). These repeated, false observations provide a lot of support for the Keynesian model, and Austrians must argue against them if they are to have any hope of being persuasive.
2dogs
7 Sep 12 at 5:37 pm
Two Dogs
Keynes Theory placed in investment in prime place in generating the business cycle. Keynes understood that investors had a choice between asset classes. Investments are portfolio decisions.
Krugman is a new Keynesian, pretty much a neoclassical with some simple Keynes bolted on. Steve Keen showed him up earlier this year.
sdfc
7 Sep 12 at 7:45 pm
Oh I see your bank is investing based on asset class and not metrics…I can see a financial planner to make a like that for me.
Investments are portfolio decisions.
Right. All Keynes wanted to do was explain a minimum variance portfolio? Riiight.
Jason et. al.,
I know it might be considered navel gazing, but there is some dissent in the Austrians. Here is a good paper:
http://mises.org/journals/qjae/pdf/qjae12_4_2.pdf
Some “Austrians” won’t even consider money quality. it is apostasy to think that anything other than gold ducats or liquified coal can be used as money.
Much has been written about the quantity of money
and its effects on money’s purchasing power. However, changes in the quality of money have been widely neglected. This paper analyzes changes in the quality of money and its influence on the purchasing power of money.
.
7 Sep 12 at 8:27 pm
Oh I see your bank is investing based on asset class and not metrics…I can see a financial planner to make a botch like that for me.
Investments are portfolio decisions.
Right. All Keynes wanted to do was explain a minimum variance portfolio? Riiight.
Jason et. al.,
I know it might be considered navel gazing, but there is some dissent in the Austrians. Here is a good paper:
http://mises.org/journals/qjae/pdf/qjae12_4_2.pdf
Some “Austrians” won’t even consider money quality. it is apostasy to think that anything other than gold ducats or liquified coal can be used as money.
Much has been written about the quantity of money
and its effects on money’s purchasing power. However, changes in the quality of money have been widely neglected. This paper analyzes changes in the quality of money and its influence on the purchasing power of money.
.
7 Sep 12 at 8:29 pm
on theory and history, you might want to look at Micheal Keane’s ‘Structural vs. atheoretic approaches to econometrics’ in the Journal of Econometrics (2010).
Keane argues that it is not possible to learn anything of interest from data without theoretical assumptions. All statistical inference relies on some untestable assumptions
Abstract
“this paper attempts to lay out the sources of conflict between the so-called “structural” and “experimentalist” camps in econometrics.
Critics of the structural approach often assert that it produces results that rely on too many assumptions to be credible, and that the experimentalist approach provides an alternative that relies on fewer assumptions.
Here, I argue that this is a false dichotomy. All econometric work relies heavily on a priori assumptions. The main difference between structural and experimental (or “atheoretic”) approaches is not in the number of assumptions but the extent to which they are made explicit.”
Also look at Keane, Michael P. 2010. “A Structural Perspective on the Experimentalist School.” Journal of Economic Perspectives where he argues that we cannot begin a systematic assembly of facts and empirical regularities without a pre-existing theoretical framework that gives the facts meaning and tells us which facts we should establish.
Koopman’s famous 1947 essay ‘measurement without theory’ argued that without theory, you do not know what to “look for”, what phenomena to observe and what measures to define and compute.
Jim Rose
7 Sep 12 at 8:30 pm
To those who are interested, here are some very good “navel gazing” exercises which should be published or promoted more widely:
http://mises.org/journals/scholar/Sechrest8.pdf
Evidence Regarding the Structure of Production
The Austrian approach to business cycles has seldom been examined in statistical terms. This paper first reviews the essentials of that approach. It then offers some simple regression results that seem to offer empirical support for several important Austrian propositions. Both business loans and industrial production are far more highly correlated with movements in monetary aggregates than with the rate of saving. Fluctuations in industrial production are largely explained by the changes in a trio of variables: money, departures of market interest rates from the natural rate, and relative prices. Finally, both M2 and the Austrian measure of the money stock are highly correlated with composite price indexes which include the prices of various real and financial assets in addition to the usual CPI and PPI.
.
7 Sep 12 at 8:33 pm
Good finds yourself, Jim. Well done.
Personally I wish everyone was taught statistics and mathematical modelling with more rigour. The reason is, to fully explain phenomena, you need to embrace disequilibrium and dynamic modelling etc.
I’ve don’t think I’ve met anyone with such a strong modelling ability who has a wide understanding of various topics in economics.
On modelling free banking:
http://mises.org/document/3584/Free-Banking
Free Banking: Theory, History, and a Laissez-Faire Model
Larry J. Sechrest
http://oll.libertyfund.org/?option=com_staticxt&staticfile=show.php%3Ftitle=2307
George A. Selgin, The Theory of Free Banking: Money Supply under Competitive Note Issue [1988]
.
7 Sep 12 at 8:38 pm
Austrian economists have done a lot of economic history for sometime.
Robbin’s wrote the great depression in 1934. Rothbard wrote a number of history books. the Panic of 1819 and the Great Depression are two examples. His history of economic thought is worth mention too.
Boetkke wrote books on the Political Economy of Soviet Socialism: The Formative Years, 1918-1928 and Why Perestroika Failed: The Economics and Politics of Socialism Transformation
Jim Rose
7 Sep 12 at 8:39 pm
There is a fair bit of this stuff if we look. Like I have suspected myself, the new classicals are actually much like the Austrians, and there would be synthesis if the new classical agenda (ala RBC of Kydland and Prescott) was pushed more:
http://www.springerlink.com/content/m87m6q65871066p4/
REVIEW OF WORLD ECONOMICS
Volume 122, Number 3 (1986), 575-598, DOI: 10.1007/BF02707381
New classical and austrian business cycle theory: Is there a difference?
Joachim Scheide
To compare new classical and Austrian theory seems legitimate only with respect to a particular aspect of economic reality, namely business cycles. In the past century, Austrians have covered so many fields of economic theory that the achievements of new classicals are comparatively small. The discussions of both approaches showed that it would not be appropriate to claim that Austrians have developed theonly theory of business cycles which refers to individual behavior and choice. New classicals have rediscovered this approach and used many of the tenets for their explanation. This is not to say that new classical theory completely follows Austrian traditions. But many of the differences appear to be small or are only semantic in character.
Also: he was wrong about housing and I don’t agree with him on much at all but full credit for Steve Keen for trying to do similar stuff. By the time he retires, the empirical evidence might send him to the light.
.
7 Sep 12 at 8:44 pm
Critical, pro paelo-Austrian. Critical of rational expectations as being too aggregated.
http://www.tandfonline.com/doi/abs/10.1080/08913819908443538
Critical Review: A Journal of Politics and Society
Volume 13, Issue 3-4, 1999
DOI:10.1080/08913819908443538
J. Barkley Rosser Jr.a
pages 373-389
Version of record first published: 06 Mar 2008
Between Vienna and Cambridge: The risky business of new Austrian business‐cycle theory
Tyler Cowen’s “New Austrian” theory of business cycles is based on risk analysis and the assumption of rational expectations. This contrasts with the Old Austrian view, which questions the feasibility of measuring economic risk. Despite Cowen’s admirable eclecticism, the way he applies risk analysis to business cycles suffers from serious inconsistencies, and his use of rational expectations is mistaken in the face of economic complexity—a phenomenon that was accurately understood by the traditional Austrians.
.
7 Sep 12 at 8:51 pm
Critical, but models Hayek’s business cycle based on the work of Cantillion and Ricardo:
The European Journal of the History of Economic Thought
Volume 5, Issue 2, 1998
Cantillon and Ricardo effects: Hayek’s contributions to business cycle theory
DOI:10.1080/10427719800000022
Harald Hagemann* & Hans-Michael Trautwein*
pages 292-316
Version of record first published: 28 Jul 2006
Abstract
The distinctive line of argument in Hayek’ business cycle theory can be characterized as a combination of the Cantillon effect monetary expansion on the price structure and the Ricardo effect of a shortage of consumption goods on the production of investment goods. This paper compares the original ideas of Cantillon and Ricardo with their adaptation and combination by Hayek. The differences help to expose fundamental problems in Hayek’ theory and, more generally, in projects of integrating money and the business-cycle phenomenon with Walrasian general equilibrium theory.
.
7 Sep 12 at 8:55 pm
Fianlly, Larry White’s paper in the Journal of Money, Credit and Banking: Hayek’s model was too simplistic, like an early monetarist model. Seems it should have been more NGDP/Sumner-ish.
http://www.jstor.org/discover/10.2307/2601142?uid=3737536&uid=2&uid=4&sid=21101202283177
Hayek’s Monetary Theory and Policy: A Critical Reconstruction
Lawrence H. White
Journal of Money, Credit and Banking
Vol. 31, No. 1 (Feb., 1999), pp. 109-120
Abstract:
Hayek’s critique of price-level stabilization was based on the claim that only a constant money stock, (M), or constant volume of nominal spending, (MV), allows intertemporal price equilibrium. The claim is not generally correct. Hayek’s case (in principle) for constant MV and his critique of the automatic gold standard for not delivering it are thus uncompelling. The injection effects of his business cycle theory provided an alternative basis for his prescription. In the 1970s Hayek switched to endorsing price-level stabilization. In doing so he was logically compelled to repudiate his business cycle theory.
.
7 Sep 12 at 8:57 pm
Oh I see your bank is investing based on asset class and not metrics…I can see a financial planner to make a like that for me
That’s just gobbledygook Dot. Try and be clearer.
Right. All Keynes wanted to do was explain a minimum variance portfolio? Riiight.
No. Investment decisions aren’t necessarily made with an eye to minimising variance. Investment is a trade-off between the desire for liquidity and yield and is driven by risk appretite.
sdfc
7 Sep 12 at 9:21 pm
sdfc, yes, Keynes did place investment in prime place in creating the business cycle, but he had a particular model in relation to that. If I followed his model, capital equipment manufacturers would have a lot of idle capacity right now, because during recessions, investment is weak, causing their demand to dry up: being the most sensitive to investment, which is more sensitive than consumption, they would be the worst hit in a general glut, which is how Keynes viewed recessions.
At present, demand on capital equipment manufacturers is high, with large mobile plant in negative inventory (that is, an order book with a waiting period). Unlike Keynesian, ABCT is okay with that, because the catalactics say the underinvestment could have happened anywhere.
So, the problem is not that he did not stress investment, its just that his model for it (IS/LM) is crap.
The problem is that today’s wrong portfolio decision is tomorrow’s structural unemployment. We bought this widget factory, trained all these widget makers, and it turns out everybody wants zoobles instead.
Such bad decisions are okay when isolated, but become dire when the bad decisions are systematic with everybody making similar mistakes. We can easily handle one too many widget makers, but not a thousand too many.
How can something like that happen? Well, generally some form of universal rule maker gets involved. Bodies like Basel II or governments, or maybe a high profile organisation like Moody’s could manage it. The main factor here is pretty much everyone does what they say, but at the end of the day, they aren’t really able to be held to account for it. Regarding the rule, it rarely forces the common mistake directly, its typically the unintended consequence of an unintended consequence.
Keynes’ models simply don’t consider that macroeconomic factors might cause portfolio manages to make systematic errors. In Keynes view, they are held in contempt as irrational creatures driven alternately by greed and fear.
Whenever I consider the Keynesian frame of mind, I am always saddened by what a small and narrow world they must evidently live in.
2dogs
7 Sep 12 at 10:19 pm
Haha, very good smartarse, you read the one with the typo. Do you realise this is the best outcome you can can expect in such a
debatehumiliating arse kicking?What I said before was gobbledygook because you must go back and learn the material.
I don’t invest according to Kyenes. I look to maximise my wealth. You are a sad fanboy.
Yep, they think modern finance theory is incorrect because Keynes came up with an earlier, bogus model.
They also don’t have a clue about finance.
Really, fuck off and stop spamming a thread with irrelevant bullshit.
You really are a sad fanboy. Keynes is like Benjamin Graham? Fuck me. Remind me to short whatever bank you work for.
.
8 Sep 12 at 12:04 pm
Dot, my comment was meant the other way. I am saddened by what a narrow world Keynesians live in. I certainly do not consider portfolio managers insular and narrow minded.
2dogs
8 Sep 12 at 12:33 pm
I don’t either, sorry if you thought you were the target of my invective.
The idea that they thumb through the GT to get a “feel” for what animal spirits they should embrace, to excel in their position, is just totally bogus.
sfdc is the sad fanboy. Could you imagine Carl Icahn thumbing through Keynes to see if Hughes was a value proposition? The idea is just absurd and ridiculous.
Not a top tier journal…but
http://onlinelibrary.wiley.com/doi/10.1111/j.1536-7150.2004.00306.x/abstract;jsessionid=73BC2BACC99EB649F40D274405B153EB.d04t04?deniedAccessCustomisedMessage=&userIsAuthenticated=false
The Value of “Final Products” Counts Only Itself
Today’s Gross Product Is Net Product
GEORGE REISMAN†
Article first published online: 24 JUN 2004
DOI: 10.1111/j.1536-7150.2004.00306.x
American Journal of Economics and Sociology
Volume 63, Issue 3, pages 609–625, July 2004
Abstract.
The value of final products counts only itself and not the value of so-called intermediate products. The prevailing, contrary belief entails a twofold violation of the laws of mathematics—namely, the impermissible discarding of essential terms of equations and then the addition of the remainders of equations that are mutually exclusive and therefore not properly subject to addition. It follows that in order to count the values of the so-called intermediate products, one must go out and count them, because they are not counted in the value of the final product. Despite prevailing belief, counting the value of intermediate products does not represent “double counting.” The implications of these findings for macroeconomic theory are major and include a radically different approach to the respective roles of saving and consumption in spending and income formation, and recognition of the fact that today’s concept of gross product is actually a concept of net product.
.
8 Sep 12 at 1:09 pm
Another one on entrepreneurs
http://www.emeraldinsight.com/books.htm?chapterid=1864596&show=pdf
Document Information:
Title: the Austrian School Historical perspective and the role of entrepreneurship in austrian economicsde Soto’s
Author(s): Subbu Kumarappan
Volume: 28 Editor(s): Jeff E. Biddle, Ross B. Emmett ISBN: 978-0-85724-059-0 eISBN: 978-0-85724-060-6
Citation: Subbu Kumarappan (2010), the Austrian School Historical perspective and the role of entrepreneurship in austrian economicsde Soto’s, in Jeff E. Biddle, Ross B. Emmett (ed.) A Research Annual (Research in the History of Economic Thought and Methodology, Volume 28), Emerald Group Publishing Limited, pp.361-368
DOI: 10.1108/S0743-4154(2010)000028A018 (Permanent URL)
Publisher: Emerald Group Publishing Limited
Article type: Chapter Item
Extract:
For the most part, the book presents a comparative assessment of Austrian economic theories with the predominant neo-classical economic theories. One fundamental theme is that Austrian economic theories are significantly better than that of neo-classical economics and the author provides a variety of reasons to support that conclusion. The author starts with a direct comparison of these two schools in chapter 1. The comparison of the neo-classical economic principles and methodology with Austrian thinking is done in a commendable manner and the summary table in chapter 1 is excellent.
.
8 Sep 12 at 1:11 pm
Block and an up and comer Barnett, write a response to the well credentialed Eichengreen. Perhaps it is also navel-gazing, however.
http://www.emeraldinsight.com/journals.htm?articleid=1927572&show=abstract
Document Information:
Title: Contra Eichengreen and Mitchener on ABCT
Author(s): Walter Block, (College of Business Administration, Loyola University New Orleans, New Orleans, Louisiana, USA), William Barnett II, (Joseph A. Butt, S.J. College of Business Administration, Loyola University New Orleans, New Orleans, Louisiana, USA)
Citation: Walter Block, William Barnett II, (2011) “Contra Eichengreen and Mitchener on ABCT”, Studies in Economics and Finance, Vol. 28 Iss: 2, pp.111 – 117
Keywords: Investments, Macroeconomics, Production cycle
Article type: Case study
DOI: 10.1108/10867371111137111 (Permanent URL)
Publisher: Emerald Group Publishing Limited
Acknowledgements: JEL classification – E32
Abstract:
Purpose – Austrian Business Cycle Theory (ABCT) is a rare and precious flower. As adherents of this perspective, the present authors wish to share it with as many scholars as possible. They thus welcome criticisms of it, particularly emanating from neoclassical economists, who have for far too long ignored ABCT. However, at least in the case of the mainstream critics Eichengreen and Mitchener, a more accurate assessment of that which they were criticizing would have gone a long way in the direction of achieving real disagreement. To wit, they have misunderstood ABCT, and thus their criticisms fail to come to grips with this mode of analysis. The purpose of this paper is to correct the misunderstandings of Eichengreen and Mitchener regarding ABCT.
Design/methodology/approach – The paper’s objectives are achieved by quoting heavily from Eichengreen, and Mitchener, and contrasting their erroneous understanding of ABCT with its actual tenets. In this way the authors hope to improve their criticism. If they could be direct their attention to the actual ABCT, instead of a straw man version of it, real understanding, and progress in economic theory, might well be the result.
Findings – The findings are, unfortunately, that there still remains a lot of work to be done if real disagreement between Austrian and neoclassical economists is to be achieved, let alone where a state of affairs is achieved where real learning can occur. A minimal necessary condition for such an eventuality is accurate understanding of the position of the other must be attained. Eichengreen, and Mitchener show little evidence of this accomplishment.
Originality/value – This paper provides a useful explanation of the ABCT.
.
8 Sep 12 at 1:14 pm
The modern Austrian school on microeconomics topics:
http://www.springerlink.com/content/b5834136p2565865/
INTERNATIONAL REVIEW OF ECONOMICS
Volume 57, Number 2 (2010), 143-162, DOI: 10.1007/s12232-010-0100-y
International Review of Economics
Volume 53 / 2006 – Volume 59 / 2012
The Austrian theory of relational goods
Antonio Magliulo
Abstract
In modern rich societies, the traditional positive correlation between income and happiness seems to have disappeared: even though their income keeps rising, people do not declare themselves to be happier. This problem, which is known in literature as the “paradox of happiness”, has been thoroughly studied. One of the possible explanations is based on the observation that an income increase can sometimes entail the destruction of those relational goods on which happiness largely relies: relationships of family, friendship, love and fellowship. This research aims to show how, in the age of Marginalism, the most important attempt at establishing if and in which sense relational goods are economic goods is carried out by the very Austrian economists who led Robbins to write the epistemological statute of modern economic science.
.
8 Sep 12 at 1:16 pm
The Scientific Illusion in Empirical Macroeconomics, Lawrence H. Summers, Scandinavian Journal of Economics, Vol. 93, No. 2, Proceedings of a Conference on New Approaches to Empirical Macroeconomics. (Jun., 1991), pp. 129-148
Jim Rose
8 Sep 12 at 4:10 pm
2Dogs
Core capital goods orders remain under their early 2008 peak and real non-residential investment remains below the Q4 2007 peak. Unfilled orders are aroind their 2008 peak however that leaves unfilled orders well below trend.
So no capital investment is not going gangbusters as you appear to believe.
IS/LM is not Keynes it’s Hicks and simply defines equilibrium between the goods and services and the money markets. It was an attempt to reconcile Keynes with the so-called classics. Hence the name of the paper in which it was first presented.
Yes I know the simple Austrian theory postulates that the problem is merely a misallocation of capital, however, this ignores just how capital assets are financed.
The problem with ignoring capital asset prices and the debt that is accumulated through capital asset financing is that they also ignore the ramifications of allowing nominal income to fall and the effect it has on private sector balance sheets.
The Austrian prescription of deflationary policies in the face of falling nominal income in a high debt economy is a recipe for disaster.
Dot
How am I to determine what is a typo and what is your usual incoherent rubbish? It is not for me to try and decipher your ramblings but for you to show me you have something of value to say. It appears however that as per usual you have really nothing to offer.
I don’t invest according to Kyenes. I look to maximise my wealth..
That statement is a doozy even for you considering Keynes went into great detail about the role expected returns play in investment decisions.
Thanks for provding us with yet another dummy spit Dot. It is always a good look. You are without doubt a buffoon.
sdfc
9 Sep 12 at 10:27 pm
This helps investment managers how, you deadshit?
Oh fuck off you sad, left wing, creepy old man left wing troll. I’ve added value to the entire thread, you’ve pretended one typo out of four paragraphs makes a whole response “incoherent”, if you were literate you would be able to fill the gaps.
You are such a fucking halfwit. Keynes offers nothing to portfolio managers, you lying twit.
Please, name one private banking enterprise that use the General Theory as advice on how to invest.
You are with doubt a halfwit. “Markets are large” “I don’t understand how demand curves are constructed” …etc another howler of yours is that you don’t understand that the IS/LM model blows up when it is expressed in different terms. Scarth makes this very clear in his textbook.
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9 Sep 12 at 11:07 pm
This is just hollow, meaningless shit.
Keynes offers no explanation of what happens. The Austrians do.
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9 Sep 12 at 11:10 pm
Still coming apart at the seams I see Dot.
You continue to struggle to make a coherent argument I see. What was the typo? Your rubbish about the minimum variance portfolio? I thought that was just another one of your inappropriate arguments.
Who said private banks use the GT for investment purposes? It isn’t a finance textbook. I was merely pointing how silly your comment was.
If you are going to put forward the contention that Keynes’ description of the investment motive is incorrect you are going to have to explain why. I suspect you don’t know however.
Has Scarth extended the IS/LM to an economy with endogenous money? I’d be interested in its construction. A reference would be good.
As for being a troll, it seems this is a label used by some of the more fragile commenters on this site to describe someone you don’t agree with.
sdfc
10 Sep 12 at 7:50 pm