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?
What Went Wrong with Economics
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.
Student: So why should Austrians even try?
So why should Austrians even try?
that the mainstream economists that drink from the teat of government can adopt positions that they perceive to be superior apologetica for fiat money and central banking does not shock me, nor fill me with joy at the prospect of convincing them of a position opposed to both fiat money and central banking.
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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
DD5,
I think I explained myself pretty adequately 2 pages ago. When I say that Austrians and mainstream economsits are spreaking two different languages, I don't mean German and English. I mean that mainstream economists (for better or worse) demand to see some combination of analytical rigour (yes, that means mathematics) and empirical support (yes, that typically means econometrics).
And Austrians can do this if they want. Look at Peter Leeson, he is no mathematician, but he is willing to couch his theoretical arguments about anarchism in the language of standard game theory:http://www.peterleeson.com/PSH.pdf
I don't think Leeson has ever done any full-blown econometric studies (I could be wrong), but he is also primarily an economic historian studying topics where no good datasets exist. So he can get away it. An Austrian Macroeconomist wanting to convince academics that ABCT is true has over 70 years of easily downloadable data from a large array of sources to play with, won't have it so easy.
And DD5 I am getting a little annoyed with you questioning my intellectual integrity. Saying I am only making this argument because I can't show that ABCT is false? I wonder what working model you have in your head of how your intellectual opponents operate. "They *know* ABCT is right, but their evil dark souls won't let them admit it!!!!!" You really need to drink more green tea. :)
Ambition is a dream with a V8 engine - Elvis Presley
nirgrahamUK: that the mainstream economists that drink from the teat of government can adopt positions that they perceive to be superior apologetica for fiat money and central banking does not shock me, nor fill me with joy at the prospect of convincing them of a position opposed to both fiat money and central banking.
So its those evil central bankers? Not only do they control our currency, but they have a strangle hold over academia (despite not having any clear ties at all to the hiring/firing decisions of universities)!!!!! WHAT MONSTER HAS JEKYLL ISLAND CREATED!?!??!?!?!
By the way Student, the man in the picture actually weakens your argument about a problem of communication. Despite the differences on capital theory, Friedman also advocated for many of the same things that Austrians have advocated for, yet he had utterly failed not much less then Austrians, despite his more positivist mainstream approach. Not only with respect to the free market economy in general, but even his recommendations for monetary policy have been largely ignored by most mainstream economists, and certainly by policy makers.
Your joke is amusing, yet i wonder, do you believe that hiring and firing at universities occurs independently of issues concerning the funding of academia?
Now you're talking about politics and that's something I actually have absolutely zero interest in. I am exclusively talking about Milton Friedman the economist (who unquestionably changed the way economics is studied by critiquing the mainstream Keynesian approach). The only reason I even mentioned that Friedman was a libertarian was to illustrate that your political beliefs need not impact the acceptance of your economic ideas.
But I can tell that politics and economics seem to meld a lot here, as if there were no difference between positive and normative economics:
Leviathan, students of Mises know empiricism is a hopelessly flawed methodology for economics, and it underlies the fundamental erroneousness of Friedman's macro. In the long run, lying to ourselves and embracing fallacy would do libertarianism no good whatsoever.
-Grayson
So the really bad thing about adopting Friedman's *scientific methodology* is what it it will do for the *libertarian political movement*? Interesting.
Student, you have implicitly expressed a particularly outdated view of science, namely as an unbiased 3rd party observer which collects various subjective inputs (biased) and yields totally factual objective results. But that's not how science operates; dogma and emotion, more often than not, overcome reason. The Cambridge capital controversy, for example, was not a real scientific debate. You had the Cambridge Keynesians debating the MIT Keynesians, where the former tried to revive the already refuted Ricardian paradigm of class analysis and distribution. Their critique only applied to the mainstream homogeneous production function, and not the Austrian conception of a multi-tier structure of production (Garrison writes about this extensively). The differences in capital, as you've already acknowledged, are huge, but there are fundamental differences between the notion of value (cardinal vs ordinal), price, and the role uncertainty (rational expectations turns men into super-human probability theorists) as well. Such differences are intrinsically philosophical, and they stem from an entire history of economic thought. From the breaks between Smith and Turgot/Cantillon, Ricardo and Say, Ricardo and Malthus, and so on and so forth.
Static analysis, that is, from one theoretical equilibrium position to another, is simply not how the world works. It must necessarily miss the major agents/forces of change. Blaming psychological factors for cyclical fluctuations doesn't explain why the price mechanism has failed to coordinate production--it is quite simply mysticism.
As long as you're under the impression that economists are on some quest for truth, and not at all biased by their own philosophical/political views, then you will miss the real differences between the mainstream and other schools of thought. I'll read those articles you linked though. I don't want to come off as attacking you or your beliefs, since I'm not fully acquainted with graduate level neoclassical economics. I'm just an undergraduate student who's never learned anything sensible in my undergraduate courses (though all of my professors are extreme leftists).
Student:Now you're talking about politics and that's something I actually have absolutely zero interest in. I am exclusively talking about Milton Friedman the economist (who unquestionably changed the way economics is studied by critiquing the mainstream Keynesian approach). The only reason I even mentioned that Friedman was a libertarian was to illustrate that your political beliefs need not impact the acceptance of your economic ideas.
I understand that Friedman must come off as radically different from Keynes, but their theories simply aren't that different (when compared to other heterodox schools of thought). They hold onto a mechanical view of money, and merely observe the interplay of aggregates.
"If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion."
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.
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.
The LVMI is a heavy investor in the higher order stages of academic production!
Let's hope we don't suffer from mal-investment boom
"When the King is far the people are happy." Chinese proverb
For Alexander Zinoviev and the free market there is a shared delight:
"Where there are problems there is life."
J. Grayson Lilburne:As Garrison argued in "Is Milton Friedman a Keynesian?", recently reprinted as a Mises Daily, they shared, as you mention, the same level of aggregation at which they looked at macroeconomics, but, again, they used different methodologies in inferring things about that level of aggregation (positivism vs. fallacious theory).
Haha, thanks. I often misuse the term "methodology."
abskebabs: The LVMI is a heavy investor in the higher order stages of academic production! Let's hope we don't suffer from mal-investment boom
As long as LvMI never accepts government money, perhaps it can avoid one.
Now, like I said, I am not personally very interested in capital theory, so I don't want the weight of mainstream economics to be resting on my shoulders during this part of the discussion discussion. I only mention these episodes as examples of the mainstream thoroughly engaging Austrian Capital Theory several time over the course of decades and each time finding it wanting. And let me stress these are not minor figures in these debates. These are Nobel Prize Winning Mainstream Economists. If these brilliant, brilliant people are just "misunderstanding" Austrian Capital Theory, then I think the problem is that Austrians are not effectively conveying their points
It must be Samuelson's expertise on capital theory that led him to believe the USSR would continue existing beyond its inevitable collapse? Is it Krugman's Nobel that is responsible for letting him so wonderfully (mis)represent the ABCT making errors an amateur should not make? The fact that someone is 'brilliant' means nothing if they do not take the time to familiarise themselves with the theoretical apparatus at hand. In that sense Austrians are not communicating enough, aside for some people like Garrison. You don't want to get in a heat discussion on the matter and it's fine. I agree on:
I just think LvMI's approach is too populist.
But then the LVMI is serving its own niche market. Many of its authors are involved in higher academic work. The LVMI has a different function. Were it not for it I would not be acquainted with Austrian theory in the least.
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