Why There Is No Such Thing As An Austrian School Of Economics

Why I Am Not An Austrian Economist ... And Why You Shouldn’t Be Either

2004-09-14T15:15:00.000+01:00

«(...)Now what is Prof. Boettke going to tell you? I suspect that he is going to say that merely focusing on people’s erroneous beliefs “makes me an Austrian." I call this the “Hayek said the sky is blue" tactic. If you say the sky is blue, that makes you an Austrian because Hayek defended the sky-is-blue thesis back in the 30’s. Hayek talked a bit about mistaken beliefs; therefore anyone who ventures within a thousand intellectual miles of this topic is a “Hayekian.”

This is ridiculous. By this standard not only does Hayek get credit for ideas that he did not anticipate; he gets credit for ideas that preceded his birth! Hayek made some contributions here - though frankly he was very repetitious. But he did little to advance modern rational expectations theorizing, and even less to anticipate its empirical weaknesses.

(...)

Stepping back to my title, why shouldn’t you be an Austrian economist? The fundamental reason is that their main original claims are incorrect. In consequence, even when Austrians hit on a good topic, it is hard for them to follow through because they are struggling NOT to be neoclassical.
Brian Caplan
(Link)

Again, We report, You decide

2004-08-27T11:40:00.000+01:00

«Here's the problem:

As a matter of simple arithmetic, total spending in the economy is necessarily equal to total income (every sale is also a purchase, and vice versa). So if people decide to spend less on investment goods, doesn't that mean that they must be deciding to spend more on consumption goods—implying that an investment slump should always be accompanied by a corresponding consumption boom? And if so why should there be a rise in unemployment?

Most modern hangover theorists probably don't even realize this is a problem for their story. Nor did those supposedly deep Austrian theorists answer the riddle»
Paul Krugman

We report, You decide

2004-08-27T11:31:00.000+01:00

«If one asks what substantive contributions [F. A. Hayek] made to our understanding of how the world works, one is left at something of a loss. Were it not for his politics, he would be virtually forgotten.»
Paul Krugman

«And in fact the key to the Keynesian revolution in economic thought—a revolution that made hangover theory in general and Austrian theory in particular as obsolete as epicycles - was John Maynard Keynes' realization that the crucial question was not why investment demand sometimes declines, but why such declines cause the whole economy to slump»
Paul Krugman

On the Business Cycle Theory, hit hard from another perspective

2004-08-27T11:24:00.000+01:00

«"Austrian theory" of the business cycle — A theory that I regard as being about as worthy of serious study as the phlogiston theory of fire»
Paul Krugman

The Hangover Theory

Ok, give it two thoughts on this one.

2004-08-27T10:58:00.000+01:00

"The Hayek-Mises explanation of the business cycle is contradicted by the evidence. It is, I believe, false."
Milton Friedman

Friedman analised economic data from the US refering to cyclical activity starting in 1879 untill 1988*. He concludes that there is no solid correlation between the length and intensity of an expansion and the recession held afterwards.

*war cycles and 1945-49 were excluded.

Milton Friedman, "The Monetary Studies of the National Bureau," 44th Annual Report, National Bureau of Economic Research (1964), reprinted in The Optimal Quantity of Money and Other Essays (Chicago: Aldine, 1969), pp. 261-84.

Milton Friedman, "The 'Plucking Model' of Business Fluctuations Revisited," Economic Inquiry (April, 1993), pp. 171-77.

Just give it a thought. Just one.

2004-08-27T10:47:00.000+01:00

«That methodological approach, I think, has very negative influences. It makes it very hard to build up a cumulative discipline of any kind.

If you're always going back to your internal, self-evident truths, how do people stand on one another's shoulders? ... It also tends to make people intolerant.

If you and I are both praxeologists, and we disagree about whether some proposition or statement is correct, how do we resolve that disagreement? We can yell, we can argue, we can try to find a logical flaw in one another's thing, but in the end we have no way to resolve it except by fighting, by saying you're wrong and I'm right.

On the other hand, if you take more like a Karl Popperian approach .... I say to you, what facts can I find that will convince you I was right and you were wrong. ... Then we go out and observe the facts. That's how science progresses. ...

the fact is that fifty, sixty years after von Mises issued his capital theory ... so-called Austrian economists still stick by it. There hasn't been an iota of progress.»

Milton Friedman
Quoted from an interview published in this Hayek biography, Page 273

Farewell. You will not be missed though.

2004-08-26T20:04:00.000+01:00

"Those [ideas] that are better tend to prosper and survive. Those that are worse tend to recede and vanish [like Austrian capital theory]. "

Sherwin Rosen at Mont Pelerin Society meeting, held in Viena, 1996*

*Sherwin Rosen is the Peter and Helen Bing Senior Fellow at the Hoover Institution and the Edwin A. and Betty L. Bergman Distinguished Service Professor in the Department of Economics at the University of Chicago (1983–). He is also the President of the American Economics Association.

Hayek won 1/2 a Nobel

2004-08-26T16:19:00.000+01:00

«Yet another boast of the Austrian School is that Hayek was awarded the Nobel Prize in economics.

This is indeed an honor, but one should keep in mind the purpose of the Nobel. It is intended to reward individuals for specific contributions, not their entire lifetime of work or the school of thought from which they hail.

This policy has led to many ironic awards, such as the Nobel peace prize to PLO terrorist Yasser Arafat.

In Hayek's case, the award was shared by Gunnar Myrdal, "for their pioneering work in the theory of money and economic fluctuations and for their penetrating analysis of the interdependence of economic, social and institutional phenomena." Myrdal was a Swedish economist on the far left, whose Keynesian-like policies brought Sweden out of the Great Depression in 1932, the first nation to do so.

In honoring both economists, the Nobel committee could have hardly been validating their very different schools of thought simultaneously.»
Link
Nobel Link

Critics of austrian economics

2004-08-26T16:10:00.000+01:00

Methodology General

Karl Popper - The Logic of Scientific DiscoveryHutchinson, 1959

Milton Friedman - Essays in Positive Economics (online: chapter 1)University of Chicago Press, 1966

Jonathan Baron - Thinking and DecidingCambridge University Press, 1988

David M. Kreps - Game Theory and Economic ModellingOxford University Press, 1991

Gary King, Robert O. Keohane and Sidney Verba - Designing Social InquiryPrinceton University Press, 1994

Austrian Methodology

Frank H. Knight - Professor Mises and the Theory of CapitalEconomica, 1941

Robert Nozick - On Austrian MethodologySynthese 36, 1977: 353-392

Gerard Radnitzky - Reply to Hoppe: On Apriorism in Austrian Economics (pdf)Radnitzky, Gerard and Bouillon, Hardy (eds.), Values and the Social Order (2 Volumes), Aldershot (England): Avebury 1995: 189-194.

Bryan Caplan - Why I Am Not An Austrian Economist

Harold Demsetz - Block's Erroneous Interpretations (pdf) Review of Austrian Economics, Vol. 10, No. 2, 1997

Paul B. Trescott - Murray Rothbard Confronts Adam Smith (pdf)Quarterly Journal of Austrian Economics, Vol. 1, No. 1, 1998

Spencer J. Pack - Murray Rothbard's Adam Smith (pdf)Quarterly Journal of Austrian Economics, Vol. 1, No. 1, 1998

Thomas Mayer - Boettke's Austrian Critique of Mainstream Economics: An Empiricist's ResponseCritical Review, Vol.12, Nos.1-2, Winter-Spring 1998

Warren J. Samuels - Murray Rothbard's Austrian Perspective on Warren J. Samuels the History of Economic ThoughtCritical Review, Vol.12, Nos.1-2, Winter-Spring 1998

Bryan Caplan - The Austrian Search for Realistic Foundations (doc) Southern Economic Journal 65(4), April 1999: 823-838

Nicolai Foss - Austrian Economics and Game Theory: a Stocktaking and an Evaluation (pdf)Review of Austrian Economics, 13: 41-58, 2000

Peter Hans Matthews and Andreas Ortmann - An Austrian (Mis)Reads Adam Smith: A Critique of Rothbard as Intellectual Historian (pdf)October 1999, revised January 2000.

Bryan Caplan - Probability, Common Sense, and Realism: A Reply to Hülsmann and Block (doc)Quarterly Journal of Austrian Economics 4(2), Summer 2001: 69-86.

Bryan Caplan - Economic Calculation, Quantitative Laws, and the"Impossibility" of Socialism (doc) June, 2002

Joe Dunsmore - Why We Can't Associate Too Closely with the AustriansAnti-State.com, January 31, 2003

Arnold Kling - The Sect of Austrian EconomicsTech Central Station, November 11, 2003The

Austrian Theory of the Trade Cycle

Gordon Tullock - Why the Austrians Are Wrong About Depressions (pdf)Review of Austrian Economics 2, 1987: 73-78

Gordon Tullock - "Reply to Comment by Joseph T. Salerno (pdf)Review of Austrian Economics 3, 1989: 147-49.

Fractional Reserve Banking

Gene Callahan - The Libertarian Case Against Fractional-Reserve BankingAnti-State.com, July 22, 2003

Moral and Political Philosophy

L.A. Rollins - The Myth of Natural Rights. Reviewed by Jorge AmadorThe Pragmatist: A Utilitarian Approach, Vol. 2, No. 1, September 1984

David Friedman - Some Brief Comments on Hoppe's Justification of the Private Property EthicLiberty Magazine, 1987

Hardy Bouillon - Libertärer Anarchismus - eine kritische WürdigungAufklarung und Kritik, 1998

Bob Murphy and Gene Callahan - Hans-Hermann Hoppe’s Argumentation Ethic: A Critique Anti-State.com, September 19, 2002

Frank van Dun - Against Libertarian Legalism: A Comment on Kinsella and Block (DjVu)Journal of Libertarian Studies, Volume 17, Number 3, Summer 2003

Frank van Dun - Organised ChaosLecture notes Libertarian Spring Convention, Leiden, April 3, 2004

Austrian Economists

Tom G. Palmer - Lew Rockwell's Vienna Waltz (comment) Liberty, September 1997

Ralph Raico - Mises and Monarchy (retort)Liberty, November 1997

Tom G. Palmer - For Mises' Sake (riposte)Liberty, January 1998

Justin Raimondo - An Enemy of the State: The Life of Murray N. RothbardReviewed by David Ramsay Steele. Liberty, November, 2000

Jim Peron - Von Mises Washed in the Blood of JesusLaissez Faire City Times, Vol. 6, No. 2, January 14, 2001

The Austrian School is a classic example of crank science

2004-08-26T15:43:00.000+01:00

«Perhaps the first thing to stand out about Austrian economics is its relationship to mainstream economics. The two completely reject each other, and proudly so. (...)

Mainstream economists dismiss the Austrians as cranks. Nobel economist Paul Samuelson wrote that "I tremble for the reputation of my subject" after reading the "exaggerated claims that used to be made in economics for the power of deduction and a priori reasoning [the Austrian methods]." (1) Noted economist Mark Blaug has called Austrian methodologies "so cranky and idiosyncratic that we can only wonder that they have been taken seriously by anyone." (2)

For most of the Austrian School's history, mainstream academia has simply ignored it. Even today, none of its works are on the required reading list at Harvard.

Most introductory economics texts don't even mention the school, and its economists are absent from many encyclopedias or indexes of the century's great economists. Several of its founding figures struggled to make ends meet, rejected by universities which did not view their work as sound.

Even today, the movement's faculty boasts no more than 75 scholars worldwide. (4) By comparison, there are over 20,000 economists in the American Economics Association alone.

Their failure to rise in academia has not been for want of publicity -- on the contrary, their leaders have been publishing books for over 120 years, all the while bumping elbows with famous economists like John Maynard Keynes. And after Hayek shared a Nobel Prize in 1974 for a contribution to monetary theory, the school received a huge burst of academic attention. But it was just as quickly rejected. Their dismal showing in academia stems from the fact that they have simply failed to make their case. (...)»

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Introduction
The Scientific Method
Statistics
Methodological Subjectivism
Methodological Individualism Starting Assumptions
The Market Process Monopolies
The Gold Standard and Business Cycle
The History of the Austrian School
The Politics of the Austrian School

Previsão sem data = profecia => 'teoria austríaca" = fé => 'austríacos'=seita => acendam as fogueiras...

2004-08-26T14:02:00.000+01:00

1. É preciso ter algum cuidado com o 'endeusamento' da escola austríaca.

2. Uma boa introdução sobre as falhas das teorias austríacas encontra-se no artigo "Why I Am not an Austrian Economist', no qual um ex-austríaco explica a sua conversão à escola neo-clássica www.gmu.edu/departments/economics/bcaplan/whyaust.htm).

3. Existem outras críticas mais desenvolvidas que infelizmente não estão disponíveis online, mas que colocam em causa o extremo subjectivismo em que os 'austríacos' por vezes caem.

4. Quanto à questão da previsão económica, é preciso chamar a atenção que os 'austríacos' também fazem previsões: p.ex. Hayek e Mises previram a derrocada dos sistemas socialistas (o debate entre Hayek e Lange sobre o cálculo económico no socialismo é bastante famoso). Alguns sites de algumas seitas dentro da "escola austríaca" também estão cheios de previsões sobre a conjuntura e o preço do oiro etc...

5. Por último, convirá relembrar a crítica do novo-clássico Robert Lucas à questão da previsão ("a crítica econométrica de Lucas"), e as críticas de Milton Friedman e Phelps ao conceito de curva de phillips, para dizer que a crítica à previsão não é exclusiva dos 'austríacos'. Aliás, as duas críticas referidas foram até muito mais influentes que os textos austríacos.

É correcta a distinção entre os dois tipos de previsão que fazes. Mas é preciso distinguir entre as duas. E também entre previsões individuais dos agentes no mercado e de uma 'agência de planeamento'.

Outra questão: mesmo com todos os erros de "cálculo económico", o comunismo russo aguentou-se uns anitos...os neo-clássicos preferem basear a explicação do fracasso económico do socialismo na questão do incentivos (e do momento da falência da CCCP na concorrência militar com os US of A)...o que é mais compatível com os setentanos de comunismo e com a evidência 'anedótica' que conhecemos sobre a mãe rússia.

P.S. Previsão sem data = profecia => 'teoria austríaca" = fé => 'austríacos'=seita => acendam as fogueiras...

Posso provar isto econometricamente...

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Why I am not an Austrian Economist

2004-08-26T13:56:00.000+01:00

«(...) Given this, I conclude that while self-labeled Austrian economist have some valid contributions to make to economics, these are simply not distinctive enough to substain a school of thought.

Austrian paradigm has largely failed, producing an abundance of meta-economics (philosophy, methodology, and history of thought), but few substantive results.

Whatever Austrian economists have that is worth saying should simply be adressed to broader economics profession, which (in spite of itself) remains eager for original, true and substantive ideas.(...)»
Brian Caplan
Department of Economics
George Mason University

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