ABCT seems so obvious to me that I don't understand why it hasn't become mainstream. What arguments would mainstream economists use to refute it?
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mickanomics:FRIEDMAN That is a very general statement that has very little content. I think the Austrian business-cycle theory has done the world a great deal of harm.
Because Friedman didn't properly understand Capital Theory, which is why he made serious errors in how he tried to evaluate its validity.
Both Jesus Huerta de Soto in " Money, Banking, and Credit Cycles", and Roger Garrison, in "Time and Money", address these errors and show that on the contrary, Friedman's data is consistent with Austrian Business Cycle theory.
here is the relevant footnote with respect to Roger Garrison's response to Milton Friedman:
103. In an article in which he examines data from the crises between 1961
and 1987, Milton Friedman states that he sees no correlation between
the amount of expansion and the subsequent contraction and concludes
that these results “would cast grave doubt on those theories that see as
the source of a deep depression the excesses of the prior expansion (the
Mises cycle theory is a clear example).” See Milton Friedman, “The
‘Plucking Model’ of Business Fluctuations Revisited,” Economic Inquiry
31 (April 1993): 171–77 (the above excerpt appears on p. 172). Nevertheless
Friedman’s interpretation of the facts and their relationship to
the Austrian theory is incorrect for the following reasons: (a) As an
indicator of the cycle’s evolution, Friedman uses GDP magnitudes,
which as we know conceal nearly half of the total gross national output,
which includes the value of intermediate products and is the measure
which most varies throughout the cycle; (b) The Austrian theory of the
cycle establishes a correlation between credit expansion, microeconomic
malinvestment and recession, not between economic expansion
and recession, both of which are measured by an aggregate (GDP) that
conceals what is really happening; (c) Friedman considers a very brief
time period (1961–1987), during which any sign of recession was met
with energetic expansionary policies which made subsequent recessions
short, except in the two cases mentioned in the text (the crisis of the late
seventies and early nineties), in which the economy entered the trap of
stagflation. Thanks to Mark Skousen for supplying his interesting private
correspondence with Milton Friedman on this topic. See also the demonstration
of the perfect compatibility between Friedman’s aggregate data
and the Austrian theory of business cycles, in Garrison, Time and Money,
pp. 222–35.
Esuric: Oh, they have. Read "Mythology of capital" (response to Frank Knight), "The Paradox of Saving" (response to Catchings), and "Reflections on the Pure Theory of Money of Mr. J.M. Keynes," where Hayek obliterates his entire framework (what was supposed to be his Mangum Opus). This list could be 100 pages long (see W.H Hutt, who wasn't technically Austrian). Keynes went from a classical liberal, who worked with the Wicksellian framework (though a butchered version of it), to an interventionist who brought back already refuted mercantilist doctrines (made him the most famous economist of all times). Now, I understand that most Keynesians today don't really care about Keynes, but synthesizing the General Theory with Chicago economics hasn't taken us anywhere. If you read Austrian literature, you will see that it's the mainstream that fails to address our points, and not the other way around. This is the nature of paradigms: they sit in their bubble until a crises elevates another school of thought to the mainstream. This stuff doesn't make sense: homogeneous production functions which view capital as a perfectly supplementary self-replenishing blob. finite Markov chains which have fixed probabilities. the fact that inflation does not affect all incomes and prices in the same degree or even in the same direction. cardinal utility, or the stupidity of aggregating all investments into one category (I). Again, this list could be 100 pages long. Can you guys even explain why profit exists?
Oh, they have. Read "Mythology of capital" (response to Frank Knight), "The Paradox of Saving" (response to Catchings), and "Reflections on the Pure Theory of Money of Mr. J.M. Keynes," where Hayek obliterates his entire framework (what was supposed to be his Mangum Opus). This list could be 100 pages long (see W.H Hutt, who wasn't technically Austrian).
Keynes went from a classical liberal, who worked with the Wicksellian framework (though a butchered version of it), to an interventionist who brought back already refuted mercantilist doctrines (made him the most famous economist of all times). Now, I understand that most Keynesians today don't really care about Keynes, but synthesizing the General Theory with Chicago economics hasn't taken us anywhere.
If you read Austrian literature, you will see that it's the mainstream that fails to address our points, and not the other way around. This is the nature of paradigms: they sit in their bubble until a crises elevates another school of thought to the mainstream. This stuff doesn't make sense:
Again, this list could be 100 pages long. Can you guys even explain why profit exists?
Just awesome.
I have a quible. is this a typo or a difference of opinion.?
you include as something that makes no sense (the rest are good to me)
because monetary inflation does not work mechanically to affect all money incomes and money prices, but affects these as a result in changes in actors demand for money therefore money incomes and money prices can be affected in varying degrees and can vary in opposing directions.
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Student:Personally, I have little interest in capital theory.
This sentence explains a great deal. Since, as Roger Garrison says, Austrian macro is almost synonymous with "capital-based macro", I don't know how you can be an effective critic of Austrian economics if you have "little interest" in understanding its underpinnings.
Student: In any case, If you think the mainstream assessment is falsely rejecting Austrian Capital Theory time and time again, its up to you (and other Austrians) to keeping coming back and trying to change their minds by publishing more articles in mainstream journals.
That's the "Boettke" approach, and it has its merits. But there's also the LvMI approach, which is to directly reach and inspire brilliant young minds like Esuric. That approach is spreading Austrian economics across the general landscape of ideas like a prairie fire, and it will eventually bear fruits in academia as well, as the "Esuric"s of the world get their PhDs and take the "Keynesians of the chair" by storm.
Student:These are Nobel Prize Winning Mainstream Economists. If these brilliant, brilliant people are just "misunderstanding" Austrian Capital Theory,
There are brilliant brilliant Austrian economists who did and do understand Austrian Capital Theory.
So basically your entire case rests on appeal to authority AND numbers. It's hard to debate who is the more "brilliant authority" but the numbers are indeed on your side. So you win! If I was debating you I would concede and move on.
J. Grayson Lilburne: Student:Personally, I have little interest in capital theory. This sentence explains a great deal. Since, as Roger Garrison says, Austrian macro is almost synonymous with "capital-based macro", I don't know how you can be an effective critic of Austrian economics if you have "little interest" in understanding its underpinnings.
As Avi Cohen notes in his summary of the Knight/Hayek Capital debate, Hayek himself had little interest in capital theory in and of itself and was only interested in it so far as he believed the structure of capital was related to the business. This secondary interest in capital theory is carried on by Roger Garrison and other advocates of ABCT. I have thoroughly read and tried to understand Garrison's presentations of ABCT (as well as others), and after doing so I am just not convinced by his arguments. I could be wrong, and I keep hoping to get involved in a debate on ABCT eventually to try and clarify my thoughts, but its not on my list of priorities now (my research interests like well outside Austrian Macro so this is a pass-time for me).
Does this mean I consider myself a critic of Austrian economics? No. And you're taking a pretty big intellectual leap by trying to divine my opinions on Austrian economics as a whole from that single sentence.
Of course, this thread isn't about my views of Austrian economics in general or ABCT specifically. Its *supposed* to be about why ABCT is not accepted by mainstream economists. That is a question separate from whether ABCT is objectively true or not.
J. Grayson Lilburne: That's the "Boettke" approach, and it has its merits. But there's also the LvMI approach, which is to directly reach and inspire brilliant young minds like Esuric. That approach is spreading Austrian economics across the general landscape of ideas like a prairie fire, and it will eventually bear fruits in academia as well, as the "Esuric"s of the world get their PhDs and take the "Keynesians of the chair" by storm.
Boettke's approach has resulted in creating economists like Peter Leeson that get appointments at top universities (Univ of Chicago) and edit leading journals (Public Choice). LvMI has been operating for almost 30 years (10 years longer than Boettke has been teaching) and has much greater financial resources than a single professor at a second-tier university. So where are its prodigies publishing and finding positions?
Look, I am not trying to ruin my Karma by having any sort of heated discussions. :) I just think LvMI's approach is too populist. If Austrian Economics wants to succeed in the realm of economic science, it needs to convince the man in the department chair not the man on the street. And I feel like that is where too much of LvMI's resources are directed.
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DD5: Student:These are Nobel Prize Winning Mainstream Economists. If these brilliant, brilliant people are just "misunderstanding" Austrian Capital Theory, There are brilliant brilliant Austrian economists who did and do understand Austrian Capital Theory. So basically your entire case rests on appeal to authority AND numbers. It's hard to debate who is the more "brilliant authority" but the numbers are indeed on your side. So you win! If I was debating you I would concede and move on.
Let me break this down into pieces for easier consumption.
1) The OP created a thread asking "why isn't ABCT more generally accepted".
2) Many people responded to the question by saying mainstream economists are either stupid, lazy, or politically biased.
3) I said that I found these arguments unconvincing because they don't explain why smart Austrians wouldn't demolish idiot mainstream economists with brilliant counter arguments.
4) Esuric responded that Austrians have demolished the mainstream, but they mainstream economists are just ignoring Austrian brilliance. He provided several specific articles to support his point.
5) I responded that mainstream economists have indeed been paying attn and they found his examples to be not so devastating. With the Hayek 1936 Mythology of Capital Article, you can find Nobel Prize Winning Economists confronting these arguments again and again and simply not being convinced. No one is ignoring anything. So that can't possibly explain why Austrian Capital Theory (or ABCT) is not more generally accepted. Now, I never said that the Nobel Prize Winning Economists were right to reject Austrian arguments. Maybe they were wrong. But if they are wrong about Austrian Capital Theory, then its a communication problem that Austrians must be responsible for solving (no one is going to beg you show them why they are wrong). Maybe that isn't fair, but that is a normative question irrelevant to the point of this thread.
Hope that helps.
Student: I have thoroughly read and tried to understand Garrison's presentations of ABCT (as well as others), and after doing so I am just not convinced by his arguments.
I have thoroughly read and tried to understand Garrison's presentations of ABCT (as well as others), and after doing so I am just not convinced by his arguments.
http://www.youtube.com/watch?v=zhoFOyy7rbo
Any specific issues with that lecture? I would be very interested in your criticism of it.
Student:With the Hayek 1936 Mythology of Capital Article, you can find Nobel Prize Winning Economists confronting these arguments again and again and simply not being convinced. No one is ignoring anything. So that can't possibly explain why Austrian Capital Theory (or ABCT) is not more generally accepted.
Student: J. Grayson Lilburne: That's the "Boettke" approach, and it has its merits. But there's also the LvMI approach, which is to directly reach and inspire brilliant young minds like Esuric. That approach is spreading Austrian economics across the general landscape of ideas like a prairie fire, and it will eventually bear fruits in academia as well, as the "Esuric"s of the world get their PhDs and take the "Keynesians of the chair" by storm. Boettke's approach has resulted in creating economists like Peter Leeson that get appointments at top universities (Univ of Chicago) and edit leading journals (Public Choice). LvMI has been operating for almost 30 years (10 years longer than Boettke has been teaching) and has much greater financial resources than a single professor at a second-tier university. So where are its prodigies publishing and finding positions?
May I add that while Boettke is doing all of that, he is also the lead blogger of Coordination Problem, which does exactly what Lilburne is stating is the "LVMI approach".
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- Edmund Burke
Student:But if they are wrong about Austrian Capital Theory, then its a communication problem that Austrians must be responsible for solving (no one is going to beg you show them why they are wrong).
Is this because you think economists are just so objective by their very nature? Rivalry, envy, prejudice are all human features that are absent from these people?
Their rejection of certain theories can have nothing to do with their previous academic works that they've dedicated their entire lives to? Or it can have nothing to do with the social political and intellectual institutions that they are so accusomed to and in many ways so heavily dependent on for their status and careers?
This is quite a naive view to as how intellectual ideas are shaped. There is much much more to just quality of academic work and allegedly objective scrutiny by peers.
Student:With the Hayek 1936 Mythology of Capital Article, you can find Nobel Prize Winning Economists confronting these arguments again and again and simply not being convinced.
It is difficult to get a man to understand something when his job depends on him not understanding it.
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DD5,
Well, you can call me naive if you like. But I find the idea that Austrians and Mainstream Economists are speaking different languages as a more plausible explanation than anything offered thus far.
But hey, maybe you're right. Maybe there is no way a libertarian economist could possibly rise to prominence by attacking the Keynesian mainstream with clear, concise, empirically driven arguments.
So why should Austrians even try?
DD5: Student:But if they are wrong about Austrian Capital Theory, then its a communication problem that Austrians must be responsible for solving (no one is going to beg you show them why they are wrong). Is this because you think economists are just so objective by their very nature? Rivalry, envy, prejudice are all human features that are absent from these people? Their rejection of certain theories can have nothing to do with their previous academic works that they've dedicated their entire lives to? Or it can have nothing to do with the social political and intellectual institutions that they are so accustomed to and in many ways so heavily dependent on for their status and careers? This is quite a naive view to as how intellectual ideas are shaped. There is much much more to just quality of academic work and allegedly objective scrutiny by peers.
Their rejection of certain theories can have nothing to do with their previous academic works that they've dedicated their entire lives to? Or it can have nothing to do with the social political and intellectual institutions that they are so accustomed to and in many ways so heavily dependent on for their status and careers?
Giving some examples of this would be far more convincing when providing such an accusation after he had stated that the counter attacks had convinced him.
Student: So why should Austrians even try?
Your entire argument here is: If this guy or that guy do not accept your argument, then either
1. you're wrong
or
2. you're not communicating
But I don't buy you argument. Especially regarding #2. I think it's BS. You would like to prove #1, but you can't.
Why do I think this? Because you can't even make the case for #2. There is a vast amount of literature on Capital theory, which you yourself have just said that you are not interestd in. I guess it's a communication problem.
There have been publications, books, articles, etc.... There are even books at all levels to all types of people from back in the days of Henry Hazlitt that attempt to do exactly that - Communicate! Like his "The Failure of the New Economics".
What is the communication problem? The days of Mises in German are gone! There is not enough differential equations in the Austrian papers?Perhaps, it's not just equations because one can easily, just for the sake of protocol, add some equations of an electrical circuit or a mechanical spring system, but how the equations are arranged and what they try to covey. In other words, perhaps it the content? yes, that is definitely a serious communication problem.