I was just listening to one of the FEE's economics seminars ("The Continuing Relevance of Austrian Business Cycle Theory") and a thought occured to me.
In the United States, it is obvious that Keynes' ideas of economic theory dominate established politics, yet Friedman seems to also have quite a bit of pull. And yet, Keynesian and Monetarist thought are both deficient in various respects -- Keynes does not take into account that lower interest-rates => increased borrowing => recirculation of capital, while Friedman was so fixated on the money aspect of things that a sort of tunnel-vision arises therefrom -- and so it is not reasonable to expect that somehow an amalgamation of Keynesian and Monetarist thought is any better than either alone. In fact, it might be more reasonable to expect such a synthesis to be worse (compiled error).
Thus, my question to all of you (who presumably know more about this stuff that I do) is whether Keynes or Friedman (or anybody else, for that matter) have anything really useful to say? Or is Austrian economic theory so comprehensive as to render their contributions superfluous?
Best Regards,Telemachus
Austrian economic theory so comprehensive as to render their contributions superfluous
the roles of other failed methodologies for conducting economics would be as object lessons in logical fallacies, and as demonstrating the negative effects of enacting policies based on poor economic models.
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Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
you should probably post this qeustion in a Keynsian and monetarist group because the response you will get in this forum will only confirm the austrian view.
Keynes does not neglect interest rates,or the MS and this is because he wrote extensively about monetary reform and he also helped create the breton woods system. Keynes suggest that monetary policy during a crisis such as the great depression was ineffective at saving the economy,and this is because even if interest rates are low it does not mean that member banks are going to to take out loans in order to get the money supply moving. The logic behind this is simple because during such periods member banks are more likley to sit on what they have instead of taking out a "risky loan" that they may not be able to pay back,or do anything with.
Because of this flaw in monetary policy keynes suggested that a fisical policy be created in order to get the economy moving.
Keynes did not really make a contribution to economics. He attempted to create an alternative reality where all the wishful thinking of politicians would become the truth. That is what makes him worse than Marxists, who were simply wrong on certain points. Keynesianism is constructed as to not be wrong.
Friedman, as you stated, was narrow-minded. Yes, it is true that Fed inflation could have stopped the deflation of the 1930's. But the point at the time was to protect the value of people's savings, and so deflation was the correction of the previous inflation. Since Friedman doesn't care about people or savings, he can offer a solution that is in fact an expropriation of savers.
The fallacies of intellectual communism, a compilation - On the nature of power
hoffmanjohn:you should probably post this qeustion in a Keynsian and monetarist group because the response you will get in this forum will only confirm the austrian view... Keynes suggest that monetary policy during a crisis such as the great depression was ineffective at saving the economy,and this is because even if interest rates are low it does not mean that member banks are going to to take out loans in order to get the money supply moving. The logic behind this is simple because during such periods member banks are more likley to sit on what they have instead of taking out a "risky loan" that they may not be able to pay back,or do anything with.
Well, I posted this question here because I wanted the Austrian view, not the Keynesian or Monetarist view. I think it goes without saying that Keynesianism is flawed beyond redemption as a whole -- what Stranger said in his post is exactly what I've read as well, and the fact that Keynes helped create the Bretton Woods system basically discredits him from the stand-point of free-market economics -- so I'm not particularly interested in what Keynesians of any stripe have to say. If I was, I'd simply read Paul Krugman or watch CNN.
What my question was in regards to was whether Austrian economics had anything valuable to recognize in Keynes or Friedman in terms of singular ideas, and if so, what? For instance, my understanding is that Keynes was not wrong about his so-called "savings paradox," but the existence of said paradox resulted from Keynes minimizing the counter-action of lowered interest rates, thereby giving way to increases in capital expediture. Ergo, the paradox supposedly wouldn't exist under a proper understanding of economics from the Austrian POV. Could posters confirm this for me, or at least set me straight?
From my limited understanding, Keynes' (or your) idea that it is logical that "member banks are more likley [sic] to sit on what they have instead of taking out a 'risky loan'" during periods of down-turn does not follow from the standpoint of proper banking. Capital is worthless to member banks unless they do something with it, correct? Thus, any bank worth it's salt wouldn't horde captial during these periods, but rather loan it out so that money can be made from it.
keynes was wrong about the savings paradox. cause there is no savings paradox.
Thank you for the nuanced response.
why would you want an Austrian view because you probably know what the answer would be any way.
//What my question was in regards to was whether Austrian economics had anything valuable to recognize in Keynes or Friedman in terms of singular ideas, and if so, what?//
well first of all freedman worked very closely with hayek,and because of this many of Freedman's view were introduced into the austrian tradition. For example Heyak argue's for a general income,while Freidman argues for an EITC. Furthermore i am pretty sure that both suggested the velocity of money is stable.
"savings paradox"
paradox of thrift.
The paradox of thrift (or Paradox of Saving) is a paradox of economics propounded by John Maynard Keynes. The paradox states that if everyone saves more money during times of recession, then aggregate demand will fall and will in turn lower total savings in the population because of the decrease in consumption and economic growth.
http://en.wikipedia.org/wiki/Paradox_of_thrift
//From my limited understanding, Keynes' (or your) idea that it is logical that "member banks are more likley [sic] to sit on what they have instead of taking out a 'risky loan'" during periods of down-turn does not follow from the standpoint of proper banking. Capital is worthless to member banks unless they do something with it, correct?//
it is in the bankers best interest to not loose a profit,and because of this taking out a high risk loan should be avoided,because paying back someones debt could be a problem if your are loosing money. Hoarding is a little different from saving,and right now we should just use the phrase "sitting on what one has".
See this, then.
Freedom of markets is positively correlated with the degree of evolution in any society...
Telemachus:What my question was in regards to was whether Austrian economics had anything valuable to recognize in Keynes or Friedman in terms of singular ideas, and if so, what? For instance, my understanding is that Keynes was not wrong about his so-called "savings paradox," but the existence of said paradox resulted from Keynes minimizing the counter-action of lowered interest rates, thereby giving way to increases in capital expediture. Ergo, the paradox supposedly wouldn't exist under a proper understanding of economics from the Austrian POV. Could posters confirm this for me, or at least set me straight?
I don't think that is the only Austrian objection to Keynes' argument, no. From an Austrian perspective, Keynes has misunderstood the relationship between the level of money in the economy, interest rates, consumption and investment. In fact, the Austrians point out so many holes in Keynes' theory that it's hard to say which one of them is the most important. Hayek was perhaps the most prominent Austrian debating Keynes at the time he proposed his theory but there are a whole plethora of arguments that have been formulated since then (a good summary of these can be found in Dissent on Keynes).
As such, I'd find it hard to imagine how many Austrian authors could have pulled much from Keynes. About the only notable exception would be Roger Garrison and the work he did on Time and Money. If you read through the preface you can see that Garrison essentially started with the Keynesian model and then set out to correct it to correctly take account of time preferences and Austrian capital theory. I haven't actually read Time and Money yet (beyond the preface) so can't yet comment on it - Bob Murphy has good things to say about it though (which is how I became aware of it).
It's not doubt entirely possible that folks in the public choice and monetarist schools have had good ideas - and I even admit to liking the concise manner in which some of the monetarist formula express basic economic relationships but only if you can actually understand each of the components of these monetarist formula, not only as definitions but from a philosophical point of view, for what they really represent and how they relate to the other variables, not in a mathematical sense but in an economic sense (i.e. in how these are reflected by or reflect human behavior with respect to scarcity and economic decision making).
I suspect I'd be interested in studying either accounting or microeconomics further - but with some skepticism and in the full knowledge that money is not a measure like meters and kilos are - but merely a comparative tool used to signify user preferences between two or more possible choices (and even then it is limited to the ability to describe value comparisons only between exchangable goods and leaves completely outside its calculations any notion of the relative values of those goods that are never obtained through market exchange).
The fact that the mainstream economics is required to establish separate (and logically inconsistent) theories for microeconomics and macroeconomics belies the fact that there are fundamental problems in the theories they present for one, the other or perhaps both. Keynes' inability to reconcile his short recommendations with sustainable long term policy also raises some obvious warning flags over his own ideas. Only the Austrians have been able to present a unified theory that is both logically consistent for microeconomics, macroeconomics, short and long term and which does not ignore the presence (and indeed describes in some detail) of human economic choices that lay beyond the realm of economic calculation because they concern goods which cannot be exchanged on the market.
As such, only the Austrian school will allow you to spot the problems with the other schools of thought when you encounter them and only a solid understanding of the Austrian school will allow you to fully appreciate and understand the strength and validity of the positive contributions that schools such as the Chicago school might make.
Jon Irenicus:See this, then.
The only problem with Hayek's argument is that you have to be smart to understand it... whereas even a moron can understand Keynes' theory. As such, stupid people will automatically opt for door number two, quite irrespective of validity ;-)