So, the consensus view in this thread is that mainstream economists don’t accept ABCT because they are either
a) stupid/intellectually lazy
b) politically biased
c) all of the above
These seem like very weak arguments to me. Not the least because it doesn’t explain why some brilliant Austrian economists don’t come along and blow idiotic mainstream economists out the water with flawless counter arguments.
Is it because Austrians are unpopular? Because they lack government funding for their research? Because they are staunch libertarians (unlike statist mainstream economists)?
These are popular fall back arguments but I don’t find them convincing either. Look at Milton Friedman. He was a very unpopular, libertarian economist who did his most important work without government funding. Yet, he fundamentally changed the course of economic science.
Was Friedman an anarchist? No. But why would that be the criteria? Neither was Hayek or many other Austrian economists.
So why is ABCT unpopular? Personally, I think its because there is very little empirical work backing it up. Friedman’s Monetarism would likely have had little impact if it were not for his “Monetary History of the United States”. Similarly, I don’t think ABCT will catch on until there is an extensive attempt to quantitatively assess its historical validity. And by that, I mean more than mostly qualitative case studies of individual historical episodes.
Of course, this won’t happen so long as Austrians pretend to be allergic to empirical study.
PS* I imagine the first response to my post will be about the futility of empirical study. Whether or not that is true, that is irrelevant to the question of why ABCT is not accepted by mainstream economists. For better or worse, they expect some sort of empirical backing.
If you are unwilling to supply it, don’t be surprised that ABCT is largely ignored. I guess the penalty of purity is obscurity. [*-)]
Well, if you re-read my comment, you will notice that I don’t really attack mainstream economists per se (though plenty of economists are politically biased), but rather the incentive structure created by the government and special interest groups. I will probably be employed by such institutions, and I wont talk about Austrian economics. Furthermore, the educational system is extremely rigid, teaching theories which even the mainstream has abandoned.
Well, it depends on how you define libertarianism. The man supported anti-trust, monetary nationalism, and monetary central planning. But either way, his theories were accepted way before he ever became an economist. They were originally put forth by Frank Knight and Irving Fisher. The Chicago school predates “Monetary History of the United States.”
We have a lot of empirical evidence which support our claims. Even Keynesian economists are beginning to look at the role of interest rates in inflating asset bubbles, whereas before it was just “animal spirits,” or psychological chaos. But either way, Austrians have already won this debate in the latter part of the 19th century. How many times do they need to refute historicism before it’s no longer taken seriously? Menger spent his whole career destroying this nonsense.
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?
…but surely you just need a little historical data and an excel spreadsheet and we can soon clear that up… having said that, it seems that M3 data is only available for an incredibly short period in us history (well at least on the St Louis fed website). I am keen to plot M3 growth vs P/E(10) growth (http://www.econ.yale.edu/~shiller/data/ie_data.xls) over an extended period, perhaps with a house price growth plot at the same time.
Low interest rates led to a bubble in housing (long-term durable good).
Recessions always hit investment more than retail.
Either way, it’s not the economists job to explain why there was inflation in China in 19xx. It’s the job of economists to explain why there is inflation in general, and to identify its cause/remedy. You can look at your empty statistics all day, but it will never make you an economist. The problem is that people are ignorant of Austrian economics and its positions; which, once understood, seem blatantly (ridiculously) obvious.
Do you want to see a graph of the interest rate going to 7%? Or a graph of appreciating housing values? Will this make you feel like a real economist? Do you think it will give you the credibility you desire?
And what will these graphs do for you when you don’t understand Austrian economics in anyway whatsoever? Do you think that staring at them long enough will explain why the price mechanism failed to coordinate production?
Having “gone nuts” looking at your links. I was disapointed to note that not a single one included money supply data. So none of them would help verify or refute ABCT. And three of your links had data for two years or less. What kind of statistics could I do with that?! I want to see graphs going back to before the great depression!
“The Crisis of 1882. Credit expansion resumed in 1878 in the United States and France.”
“The Crisis of 1890–1892. Credit expansion spread throughout the world in the form of loans directed mainly to South America.”
“The Crisis of 1907. In 1896 credit expansion was again initiated and lasted until 1907.”
De Soto seems strangely reluctant to put any numbers to these episodes. And why no graphs? And what are his sources? He may be completely correct in everything he says, but its hardly going to be persuasive to a sceptic. Its beginning to become clearer, why the Austrians have not convinced the mainstream.
You’re arguing with someone who thinks he knows everything but knows very little about Austrian econ yet is unwilling to do much in-depth reading other than trying to appear to be contrarian every now and then on the forum. Just thought I’d inform you.
Because they couldn’t. At best they could more or less convince mainstreamers. Nothing more, nothing less. The only question regarding the ABCT is if it applies to a particular phenomenon (barring errors in axiom formation/deduction.) Not whether it is “refuted” or not by some set of data. Seriously, read some of the work on its method and get a clue already.
I personally wouldn’t call just looking at graphs “empirical support”. However, that is basically what most Austrian empirical papers come down to (at least in the past, there are thankfully a growing list of exceptions).
I am talking about rigorous statistical analysis that is of such a high quality it can be published in main stream journals. When Austrians can do that, then they will see acceptance.
Please go back a page and read my response to your initial comment. I’d like to see how someone knowledgeable in mainstream economics answers my questions/addresses my points. I was hoping to talk to you, but Mickanomics needlessly pushed us to another page.
Well, I have never read the Paradox of Savings, but I am familiar with the other two articles you mention. First, the Mythology of Capital was merely one in a series and articles and letters that were written by Hayek and Knight over the course of several years. And, as Avi Cohen notes in his quasi-recent summary of the Hayek/Knight debate, it didn’t really end in a decisive victory, but more or less with the two giving up on trying to convince the other (see link below, if you don’t have access let me know and I will upload a copy). http://muse.jhu.edu/login?uri=/journals/history_of_political_economy/v035/35.3cohen.pdf
Personally, I have little interest in capital theory. But, what time I have spent trying to understand it has left me with the impression that both Hayek and Knight had good points. I agree with Hayek that Knight’s conception of capital as a “permanent fund” has its flaws, but like Knight I don’t think the Austrian perspective provides a better alternative.
But the debate of Austrian capital theory did not end in 1936. Fast forward to the 1960s and you will find the Cambridge Capital Controversy, where mainstream economists like Paul Samuelson examined the implications of Austrian capital theory and found them wanting (he also found neoclassical capital theory wanting too if that makes you feel better). Avi Cohen has a good article (ungated) that I think does a nice job of effectively describing Samuelson criticisms. http://econ.yorku.ca/~avicohen/Linked_Documents/JEP_Cohen_Harcourt.pdf
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. 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.
Now, with regards to “Reflections on the Pure Theory of Money of Mr. J.M. Keynes”, I don’t think I would list that among the great refutations of mainstream theory since even Keynes abandoned many of the ideas that Hayek criticizes. I would much rather see an Austrian attack on modern “New Keynesian Economics” that actually gets the basic tenants of New Keynesianism right. That would be very interesting.
