Krugman in his blog, referred to the Austrian movement as the new LaRouche movement. Well, although this is probably a good thing (Austrian movement seems to be gaining strength), in a comment I challenged him to provide a critique of the Austrian theory (explicitely suggesting that it should not be of a straw man of the Austrian theory [of the business cycle], by suggesting him to read Austrian monetary and capital theory). Since my comment will probably not be published, I published it on Economic Thought. It is:
Dr. Paul Krugman,
You have still refused to put forth any effort into understanding the “Austrian” theory of capital and money. Even if you do not agree with their overall conclusions, it nevertheless holds true that “Austrian” scholarship in these two areas have “discovered” some very important principles. There is no doubt that Austrian theory on capital and money was held in very high regards up until even the 1940s, and don’t forget that Friedrich Hayek won the Nobel Prize in Economics for “his” business cycle theory.
You have published a few critiques of Austrian theory, but you have refused to even look at the responses. You are proving to be very irrational.
Instead of partaking in such childish activities, such as sniping at Austrians from the safety of your blog, would it not be more productive to attack them head on? I am sure you have many good things to say in such a debate. The problem is that you seem unwilling to do so. Because of this, I think that your reputation is slowly collapsing.
I have to present myself with a degree of civility. I, of course (given that I consistently critique him), believe that his reputation has already collapsed. I also reputation as an aggregate of his reputation amongst his entire readership; there are still many thousands who agree with him.
Well, Krugman’s blog post is brief. The only thing I can get out of it is that he has a general dislike for Austrians. shrug Seems fair to me. It barely took two posts in this thread for people to start making snide remarks about Keynesians. And you can certainly find similarly snide remarks made by recognized Austrian scholars about their intellectual opponents (Murray Rothbard was certainly never one to hide his light under a bushel).
I think some level of ribbing between schools of thought is expected and few people are innocent of the crime. So I say let it go. Save your ire for one of Krugman’s more substantive posts.
PS* For more info…
This looks to be the event Krugman mentions in the blog post.
The problem with people like you is your assumption of intellectual honesty on the part of your opponents, when in fact their interests lie wholly in maintaining the foundation upon which their careers are based, regardless of how erroneous that foundation may be. Concerning any public debate or intellectual exchange with an Austrian, look at it from the idiot Krugman’s perspective: he has nothing to gain and everything to lose. It’s a no-win situation. He wins by maintaining the status quo and ignoring you–even better, by ridiculing you. After all, policy makers favor his economic viewpoint (which coincides nicely with their own interests) and reject yours. It’s a situation analogous to the AGW controversy–AGW scientists hold no interest in entertaining debate with skeptics. The goal isn’t to uncover scientific truths, it’s to maintain their funding. Again, the assumption of intellectual honesty is false; and the policy makers favor pro-AGW theories (coinciding with their own agenda). For them, debating the opposition is a no-win situation. The safe strategy is to declare the debate over, citing the support of the policy makers and other allies as evidence that they have won. Derision is tossed in to ensure opponents never gain any traction.
While Austrians can easily score intellectual points against economic idiots like Krugman; and AGW skeptics can provided reason after reason demonstrating how the AGW case is weak science, all they’re really doing is chipping away at a concrete foundation with a spoon. That foundation was poured long ago, has completely solidified, and is constantly strengthened through time. Chipping spoon-sized pieces of concrete out of it isn’t going to do much.
That’s true. Although sometimes I take part, I do not generally condone some of the remarks made against Keynesians on these forums (i.e. “Keynesians are stupid”, et cetera), this is besides the point. Serious Austrian scholars have erected serious critiques against Keynesian thoery. The Keynesian camp has yet to provide a serious critique of Austrian theory. While Austrians (probably out of necessity) have literally critiques Keynes’ General Theory paragraph by paragraph (i.e. Henry Hazlitt), most Keynesian economists have never read anything by a major Austrian scholar (apart from Keynes himself, who at least read Road to Serfdom, although that has little to do with Austrian economic theory).
I was, of course, referring to Krugman’s refusal to accept Austrian argument and at least critique it thoroughly. Like I said in the comment, he does critique it here and there, but he has always set up a straw man. He has never critiqued the Austrian theory itself.
I think he was giving a speech, and there was a large Austrian audience. There was a period of questions and answers, and this period seems to have been mostly taken up by Austrians, who then took the opportunity to argue with him. It is possible that perhaps the Austrians interrupted him (I’m not sure), but what seems to “rub him the wrong way” is the fact that there was less time for his following to laud him and his infinite wisdom.
Since we’re on the subject I just want to say I love Paul Krugman.
As an undergrad, I actually took all the International Trade and Finance courses offered so I could better understand his early field of research (before I found a greater passion for enviro econ). I even posted his column on my dorm room door every week (until I graduated in 2004 anyways).
Of course, I think the quality of his writing has significantly declined in recent years (it tends to happen when he talks more about politics and less about economics). But I am sure everyone would gain tremendously from reading his work.
Check out pkarchive.org for everything available on line. Or check out any number of his books (Pop Internationalism is a good start, or you can try his undergrad International Economics textbook. I think Austrians would particularly enjoy his book “The Self Organizing Economy”).
I don’t believe this is true. In fact, I would argue that much of the best parts of Austrian economics have already been incorporated into mainstream economics. For example, Joe Stiglitz explicitly based on his work on the informative role of prices on the advances of Hayek.
You mention Keynesian neglect of Austrian Capital theory, but this is not the case. Indeed, take the example Nobel Prize winning economist John Hicks. You can’t get much more Keynesian than him. His paper, Keynes and the Classics, established the way the majority of economists (in the U.S. anyways) viewed Keynes’ constributions (specifically he created what we now know as the IS-LM model). And he certainly engaged Austrian economics . Indeed, he tried to make his own contributions based on Austrian capital theory in his book “Capital and Time”. However, the mainstream did not receive the work well because of percieved flaws with Austrian capital theory that are discussed in depth here:
I think some quick google searching will convince you that Keynesians have historically actively engaged Austrian economics. You may not see the same level of engagement today because Austrians have effectively separated themselves from the mainstream. But it has not always been that way.
If they are, they are severely compromised with existing Keynesian and Neo-Keynesian tenets (this is especially true in regards to Stiglitz; it’s clear that he does not hold the informative role of prices in high regard, especially if you read his work on asymmetrical information). Although, I do agree with you that Austrian economics has, to some degree or another, been incorporated into mainstream theory (this cannot be proven wrong, as even in a basic microeconomics class you can see Hayek’s influence), I do not think it has been incorporated far enough. Furthermore, the more important Austrian macroeconomic conclusions have yet to even be seriously considered by the mainstream (they were seriously considered during the 1920s, but the Great Depression was a massive hit to Austrian scholarship).
I don’t think that paper is serious critique of Austrian theory (well, it’s a critique of whatever Hicks’ interpretation of Austrian capital theory was). I didn’t read it all, but what I did read (around the first twenty pages), it seems as if the entire critique bases itself off mathematical models. These models make some assumptions, and are based on underlying theoretical opinions which may or may not be correct. Even if the math is correct, it’s hard to decipher given the style the critique is presented in whether or not the theory which gave reason to the math is correct. For example, in his criticism of roundaboutness, the math is correct, but he does a poor job in explaining why this is so. If the underlying premise is wrong, then the math is wrong, even if it is mathematically sound.
Specific to capital theory, I think that it remains true that neither monetarists nor keynesians have seriously considered Austrian theory at its fullest extent. There may be some fringe economists, but I am referring to these schools of thoughts as wholes.
This is one of the major weaknesses of any criticism of Austrian theory based on econometric analysis. These “new” tools are inferior to the “old” tools of deduction and induction. I am all for the use of math and empiricism to substantiate an argument, but there must be an underlying theory that is correct in order to give justification to the math.
I have yet to read a critique that follows this framework and does not present Austrian theory as a straw man (Krugman has tried, but failed to critique Austrian theory; he, instead, critiqued his poor interpretation).
You could not have found a more readable critique of Capital Theory then this? I think you just proved Jonathan’s point.
Anybody who tries to use quantitatives relationships to prove or disprove capital theory doesn’t understand the theory, and I will go further and say that they don’t understand economics.
And if you do find a critique, it will probably be an Austrian trying to refine the theory. The straw man argument is just another way of saying that they are unfamiliar with Austrian theory. Most of them haven’t heard of it, and those who have, aren’t familiar with it.
Remember, If I took you from childhood and exposed you only to 17th century Mercantile economics without any exposure to sound economics, you would literally have to reinvent all that the great classical and subjectivist economists already developed in the course of 200 years. Sound economics has literally entered a “dark” age in the early 20th century. For most of that century, literature in Austrian economics was not available. You did not find Mises in the University library.
If you are interested, check out page 13-15 of the article I linked for what I believe is convincing critique of the Austrian theory of roundaboutness.
Personally, it seems to me that the Austrian contributions that have not already been incorporated into the mainstream have been considered by prominent scholars and found wanting. Maybe that judgement is wrong, but modern Austrians do not do much to correct the situation. They insist that the mainstream approach their theories on their terms. But, for better or worse, that is not the way to get your work noticed.
Peter Boettke has the right idea–publish in well respected journals, present at major conferences, teach at the most respected institutions that will hire you. And if there is anything to whats going on in Austrian economics today, it will work its way to the top.
PS* Another example of Austrian influence, in their “Time to Build” paper, Prescott and Kyland explicitly use Austrian-influenced notions of the production structure to explain economic fluctuations. This paper would go on to serve as a primary foundation in Real Business Cycle Theory and would help win these authors the Nobel Prize.
I really think if you just google around, you will find plenty of Austrian influence in both mainstream micro and macro.
PPS* Oh one more story I remember reading. I could have sworn I saw somewhere Robert Lucas say that his island models were an attempt to resurrect insights from Hayek’s business cycle theory. Can’t find it on google, but I’m sure I saw it somewhere.
The language of modern mainstream economics is mathematics. Not much more I can say.
There are links to older articles that I believe are less technical in nature. But most economics today assumes a certain level of formal training.
Personally, I agree that economics (particuarly macro) has become too technical. But my primary point is that the mainstream has indeed engaged Austrian economics. If you believe they are some how missing something, I think you would have to explain specifically why what they are saying is incorrect. And that would mean demonstrating why their formulations were missing some key insight. And that would mean first understanding the mathematics and then illustrating how it is wrong.
This is true, the math is beyond me. But the explanations of the theories tend to be full of assumptions and implications and bias. Almost anytime I hear Krugman try to explain something, he presents it with an intense leftist bias. So how am I to know that the math hasn’t been altered to fit his leftist viewpoint?
How is this a “convincing critique”? He just refers to a myriad of papers, provides a myriad of equations, and then proceeds without actually stating a case. He does not explain how the theory of roundaboutness is incorrect, or why lower interest rates do not cause a lengthening of the productive structure.
He writes:
Earlier … Samuelson fell into the similar error of asserting that economies with a lower steady-state interest rate had more capital…
That is not Austrian theory on roundaboutness, at all.
Only based on their own false framework.
I agree that there is an absence of Austrian scholars in the mainstream, but Austrian thought has been marginalized, so this is not completely the fault of Austrian economists. On the other hand, Austrians have done much to publish papers on their thoughts. If the mainstream wishes to ignore these papers, this is not the Austrians’ fault.
Well, I was actually hoping you would read those myriad of papers. But if not that’s fine. We all have constraints on our time.
As far as your last comment goes, I agree that Austrians do publish quite a lot. But how much of it is outside journals like the QJAE? How many articles are in the AER (probably the most respected general econ journal around)? If few, why?
Personally, I think it has been the Austrians refusal to approach mainstream economics on its own terms that has been a stumbling block for Austrian scholarship. Instead of taking the mainstream head on, an “underground” Austrian academic has emerged with its own journals and its own institutions that are totally seperate from the rest of the economics world. So its no wonder the mainstream has “ignored” the Austrians.
Now you may say that Austrians did this out of “necessity”, but that is beside the point. Everyone is entitled to their views, but no one is obliged to listen. If your views are marginal, you have to work to make them less marginal. No one is going to come to you and say “please tell me why everything I know is wrong”. You need to drag them kicking and screaming. And that means demonstrating why mainstream economics is wrong by speaking the same language in the same forums.
And you can certainly find similarly snide remarks made by recognized Austrian scholars about their intellectual opponents (Murray Rothbard was certainly never one to hide his light under a bushel).
Not much more I can say.
But if not that’s fine. We all have constraints on our time.