Monday, June 4, 2012

Debunking Austrian Economics 101

I have assembled below a set of links to various posts on my blog for debunking the theories of Austrian economics.

Please note that not all the posts actually debunk Austrian theories, as some are merely descriptive, and allow the reader to understand what the Austrians believe. Some examine the history of the school. A few posts are even constructive in that Post Keynesians and some Austrians can agree on certain points (such as the posts on Ludwig Lachmann).

One important point I have always stressed is that the Austrian school itself is heterogeneous.

In my view, a useful division of modern Austrians would be as follows:
(1) The Anarcho-capitalists
E.g., Murray Rothbard, Hans-Hermann Hoppe and Jörg Guido Hülsmann;

(2) The minimal state/classical liberal Austrians in the tradition of Mises
This variety often supports praxeology and utilitarianism;

(3) Hayek’s economics, with a minimal state, and with an empirical (or Popperian) approach to economic method, in place of praxeology;

(4) Moderate subjectivist Austrians
E.g., Israel Kirzner and Roger Garrison;

(5) Radical subjectivists like Ludwig M. Lachmann (1906-1990), and Austrians influenced by him.
Some of the first generation Austrians were actually progressive liberals and sympathetic to Fabian socialism. Hayek came to support public works and fiscal policy in a depression. Ludwig Lachmann accepted government intervention for economic stability in depressions, and rejected even the idea that free markets tend to general equilibrium.
(1) The History, Classification, and Subgroups of Austrian Economics
“Friedrich von Wieser and Eugen von Philippovich von Philippsberg: Austrian Economists and Fabian Socialists,” October 21, 2010.

“The Different Types of Austrian Economics,” December 5, 2010.

“The Types of Pro-Free Market Libertarians,” January 30, 2011.

“A Classification of Libertarianism,” December 20, 2011.

“An Overview of the Major Schools of Economics,” January 31, 2011.

“Bibliography on Austrian Economics,” May 26, 2011.

“Some Quick Thoughts on Austrian Economics,” May 30, 2011.

“Questions for Austrians Before You Debate Them,” June 2, 2011.

“Why are there no Austrian Socialists?,” June 3, 2011.

“The Neoclassical Wing of the Austrian School,” June 5, 2011.

“The “Dreaded” Post Keynesians?,” August 29, 2011.

“Roger Koppl on Modern Austrian Economics,” December 10, 2011.

“Butos and Koppl on Varieties of Subjectivism: Keynes and Hayek,” December 30, 2011.

(2) Debunking Misesian Praxeology
“Mises’ Praxeology: A Critique,” October 1, 2010.

“Limits of the Human Action Axiom,” February 28, 2011.

“Hayek on Mises’ Apriorism,” May 23, 2011.

“Mises and Logic,” August 26, 2011.

“My Post on Praxeology gets some Attention,” March 7, 2012.

(3) Ludwig Lachmann and Radical Subjectivism
The only sensible wing of the Austrian school (comparatively speaking).
“Ludwig Lachmann on Government Intervention,” July 9, 2011.

“A Startling Admission from Ludwig Lachmann,” July 11, 2011.

“Austrians on Public Works and Fiscal Stimulus,” November 20, 2011.

“Audio Lecture by Ludwig M. Lachmann,” December 21, 2011.

“Ludwig Lachmann: Bibliography and Resources,” December 31, 2011.

“Lachmann Endorsed Keynesian Stimulus in a Depression,” February 8, 2012.

(4) Against the Pure Time Preference Theory of Interest Rates
“Robert P. Murphy on the Pure Time Preference Theory of the Interest Rate,” July 13, 2011.
Robert P. Murphy, an actual Austrian, debunks the pure time preference theory of interest.

(5) Against Say’s Law
“The Myth of Say’s Law,” October 7, 2010.

“Say’s Law Presupposes Aggregate Demand as a Meaningful Concept,” May 28, 2011.

“Say Repudiated Say’s Law,” December 1, 2011.

“Jean Baptiste Say on Failures of Aggregate Demand,” December 1, 2011.

(6) Austrians and the Concept of Uncertainty
“A Note on Mises and the Concept of Uncertainty,” August 1, 2011.

(7) Against the Austrian Theory of Money
“The Quantity Theory of Money: A Critique,” July 18, 2010.
While not, strictly speaking, an Austrian theory, many internet or vulgar Austrians repeat fables about the quantity theory of money.

“Austrian Measures of the Money Supply,” March 5, 2011.

“Keynes on the Special Properties of Money,” May 8, 2011.

“Hayek and the Myth of Neutral Money,” June 23, 2011.

“David Graeber’s Response to Robert Murphy,” September 9, 2011.

“Gold as Commodity Money and its Elasticity of Production,” November 18, 2011.

“Rothbard on the Bill of Exchange,” December 11, 2011.

“Money as Debt,” December 26, 2011.

“Menger on the Origin of Money,” January 5, 2012.

“The Origins of Money,” January 8, 2012.

“Mises on the Origin of Money,” January 12, 2012.

“David Graeber on the Origins of Money,” January 23, 2012.

“David Graeber versus Robert Murphy: A Review,” January 24, 2012.

“Quiggin on the Origin of Money,” February 10, 2012.

“Money as a Unit of Account and its Origins,” February 11, 2012.

“Observations on Non-Commercial Money,” February 18, 2012.

“Hayek Grasps Endogenous Money,” March 16, 2012.

“‘Funny Money’: A Loaded Phrase,” May 12, 2012.

“More on Goldsmiths’ Notes and the Act of 1704,” May 13, 2012.

(8) Against Mises’s Regression Theorem
“Mises’s Regression Theorem: A Critique,” January 13, 2012.

(9) Against the Austrian View of Deflation
Some Austrians think deflation is desirable; others do not. Hayek most notably changed his mind and condemned “secondary deflation.” The Austrians hold inconsistent views on deflation.

“Hayek on Secondary Deflation,” January 24, 2011

“Rothbard Refutes Rothbard on the Effects of Deflation,” January 28, 2011.

(10) Against the Austrian Theory of Inflation
“The Austrian Theory of Inflation: Myths and Reality,” April 15, 2010.

“Are Cantillon Effects an Argument Against Government Spending? ,” September 27, 2011.

“Two Austrian Definitions of Inflation,” November 22, 2011.

(11) Austrian Substitutes for GDP are just Aggregates too
“Austrian Substitutes for GDP – They are Aggregates!,” January 22, 2012

“Epic Fail from William L. Anderson,” March 8, 2012.

(12) Against Vulgar Austrians
Many internet Austrians are so ignorant they do not even understand fundamental Austrian concepts.

“Full Employment Equilibrium is Not an Austrian Concept,” April 27, 2011.

“Prediction, Empiricism and Austrian Economics,” August 31, 2011.

“Austrian Nonsense About Economic Calculation,” February 3, 2012.

“Economic Calculation Yet Again,” February 7, 2012.

“Economic Calculation, Part 3,” February 7, 2012.

“Some Discussion of Aggregates in the Blogosphere,” March 26, 2012.

“Austrians Can’t Get their Story Straight on the Effects of Austerity,” May 25, 2012.

(13) Hayek’s Bigotry Exposed
“Hayek the Ethnic Bigot and the Perils of the Ad Hominem Fallacy,” January 14, 2012.

(14) Hayek’s Interventionism
“Hayek on Monetary Stabilisation in a Secondary Deflation,” August 6, 2011.

“Did Hayek Advocate Public Works in a Depression?,” September 25, 2011.

“When Did Hayek Renounce Liquidationism?,” January 1, 2012.

“Hayek the Evil Socialist,” January 1, 2012.

(15) Austrian Myths on Government Debt
“Robert Murphy versus Paul Krugman on Government Debt,” January 29, 2012.

(16) Questionable or Failed Austrian Predictions
“It’s 2011 and Still No Hyperinflation,” January 11, 2011.

“Mises Did Not Predict the US Stock Crash of 1929,” May 30, 2011.

“Keynes on the End of the Gold Exchange Standard,” June 21, 2011.

“Another Failed Prediction by Mises,” December 2, 2011.

“Austrians Predicted the Housing Bubble? – But so did Post Keynesians and Marxists,” December 14, 2011.

“Hayek and the Stock Market Crash of 1929: So Much for His Predictive Powers,” December 28, 2011.

“Lionel Robbins and the Myth of Hayek’s Prediction of the Great Depression,” February 5, 2012.

(17) Against Free Trade / Law of Ricardian Association
“The Early British Industrial Revolution and Infant Industry Protectionism: The Case of Cotton Textiles,” June 22, 2010.

“Mises on the Ricardian Law of Association: The Flaws of Praxeology,” January 25, 2011.

(18) Against Austrian Interpretations of the Great Depression
“Smoot Hawley and the US Contraction of 1929–1933,” February 26, 2011.

“Herbert Hoover’s Budget Deficits: A Drop in the Ocean,” May 24, 2011.

“Roosevelt’s Record on Unemployment: The Myth and Reality,” June 10, 2011.

“Debunking Catalán on the Recession of 1937–1938,” August 16, 2011.

“What Hoover Should have Done in 1931,” January 26, 2012.

“Steven Horwitz on Herbert Hoover: Mostly Misleading,” February 20, 2012.

(19) Austrian Myths about the 19th century Gold Standard Era
“US Unemployment in the 1890s,” January 24, 2012.

“US Unemployment, 1869–1899,” January 26, 2012.

(20) Austrians Misrepresent the Post-1945 Boom in America
“Keynesianism in America in the 1940s and 1950s,” January 22, 2011.

“The Post-1945 Boom in America,” July 15, 2011.

“Thomas E. Woods on Keynesian Predictions vs. American History: A Critique,” May 29, 2012.

“What Did Paul Samuelson really say about the Post-WWII US Economy?,” May 31, 2012.

(21) Against Rothbard
“Rothbard on Monopoly Price on the Unhampered Market,” July 24, 2011.

“Rothbard on Torture,” October 3, 2011.

(22) Against Ron Paul
“Ron Paul versus Paul Krugman,” May 1, 2012.

(23) Austrian Myths about Ancient Rome
“Inflation and the Fall of the Roman Empire,” June 12, 2011.

“Debt Deflationary Crisis in the Late Roman Republic,” June 16, 2011.

(24) Austrian Misrepresentations of Keynesianism
“William L. Anderson Flunks Keynesian Economics 101,” May 25, 2011.

“The Concept of “Animal Spirits” is a Red Herring,” June 27, 2011.

“Austrians have No Sense of Humour,” August 24, 2011.

“Keynes and Pyramid-Building: What He Really Meant,” August 25, 2011.

“Turning Stone into Bread?,” December 2, 2011.

“Keynes on Mises’s Theory of Money and Credit,” March 11, 2012.

“Fascism and Keynesianism?,” May 22, 2012.

“Robert P. Murphy Gets it Wrong on Stimulus in Sweden and the US,” May 22, 2012.

(25) Austrians and Equilibrium Theory
“Mises’s Three Concepts of Equilibrium,” June 23, 2011.

“Hayek and the Concept of Equilibrium,” September 20, 2011.

“Hayek and Equilibrium as a Starting Point for an Austrian Trade Cycle ,” September 21, 2011.

“Equilibrium Amongst the Austrians,” January 28, 2012.

(26) Debunking Austrian Ethical Theories
There are at least two positions taken by Austrians on ethics: (1) some (like Mises) support a kind of utilitarianism/consequentialism, and (2) others support natural rights (Rothbard) or argumentation ethics (Hoppe).

“Economics and Ethics: A Brief Survey,” October 8, 2010.

“Ethical Theories: A Classification,” June 9, 2011.

“Was Mises a Socialist?: Why Mises Refutes Himself on Government Intervention,” October 7, 2010.

“Rothbard on Mises’ Utilitarianism: Why the Systems of Mises and Rothbard both Collapse,” October 8, 2010.

“Would Anarcho-Capitalists Allow the Earth to be Destroyed?,” February 28, 2011.

“Coercion and the ‘Taxation is Theft’ Argument,” May 25, 2011.

“More on ‘Taxation is Theft’,” May 26, 2011.

“Rothbard’s Argument for Natural Rights: A Critique,” August 15, 2011.

“Mises on Utilitarianism,” September 2, 2011.

“A Note on the Libertarian Asteroid Dilemma,” September 15, 2011.

“Hoppe on Argumentation Ethics,” October 23, 2011.

“Libertarianism and Christianity: A Contradiction in Terms?,” November 22, 2011.

“Government is Not Inherently Evil,” January 1, 2012.

(27) Mises and Fascism
“Mises on Fascism in 1927: An Embarrassment,” October 27, 2010.

“Mises the Hypocrite: When Reality Trumps Praxeology,” March 8, 2011.

“Keynes’s Remarks in the German Edition of the General Theory,” June 7, 2011.

(28) Keynes and Hayek
“Hayek and Keynes: Not So Far Apart?,” April 19, 2011.

“Who Cares if Hayek Won the Nobel Prize in Economics?,” April 26, 2011.

“Hayek vs. Keynes Round 2: Amusing Rubbish,” May 4, 2011.

“Bruce Caldwell on Hayek versus Keynes,” June 28, 2011.

“The Personal Relationship of Hayek and Keynes,” July 1, 2011.

“Skidelsky versus Selgin on Keynes and Hayek,” August 4, 2011.

“Skidelsky versus Selgin: The Full Version,” August 13, 2011.

“Another Keynes versus Hayek Debate,” November 14, 2011.

“Nicholas Wapshott Lecture on Keynes versus Hayek,” November 19, 2011.

“Krugman, Hayek versus Keynes and the Austrians,” December 9, 2011.

(29) Debunking the Austrians on the Recession of 1920–1921
“The US Recession of 1920–1921: Some Austrian Myths,” October 23, 2010.

“There was no US Recovery in 1921 under Austrian Trade Cycle Theory!,” June 25, 2011.

“The Depression of 1920–1921: An Austrian Myth,” December 9, 2011.

“A Video on the US Recession of 1920-1921: Debunking the Libertarian Narrative,” February 5, 2012.

(30) Fractional Reserve Banking is not Fraud (against the Rothbardians)
“Hayek’s Original View of Fractional Reserve Banking,” February 29, 2012.

“Fractional Reserve Banking, Option Clauses, and Government,” January 31, 2012.

“Are the Public Ignorant of the Nature of Fractional Reserve Banking?,” December 17, 2011.

“Why is the Fractional Reserve Account a Mutuum, not a Bailment?,” December 17, 2011.

“Callable Option Loans and Fractional Reserve Accounts,” December 16, 2011.

“Future Goods and Fractional Reserve Banking,” December 15, 2011.

“Rothbard on the Bill of Exchange,” December 11, 2011.

“Hoppe on Fractional Reserve Banking: A Critique,” December 11, 2011.

“The Monetary Production Economy and Fiduciary Media,” December 11, 2011

“Fractional Reserve Banking: An Evil?,” June 26, 2010.

“The Romans and Fractional Reserve Banking,” February 23, 2011.

“Gene Callahan on Fractional Reserve Banking,” February 18, 2011.

“Lawrence H. White refutes Huerta de Soto on Fractional Reserve Banking,” February 22, 2011.

“Selgin on Fractional Reserve Banking,” June 1, 2011.

“Schumpeter on Fractional Reserve Banking,” June 12, 2011.

“If Fractional Reserve Banking is Fraudulent, Why isn’t the Insurance Industry Fraud?,” September 29, 2011.

“The Mutuum Contract in Anglo-American Law,” September 30, 2011.

“Rothbard Mangles the Legal History of Fractional Reserve Banking,” October 1, 2011.

“More Historical Evidence on the Mutuum Contract,” October 1, 2011.

“What British Law Says about the Mutuum Contract,” October 2, 2011.

“If Fractional Reserve Banking is Voluntary, Where is the Fraud?,” October 3, 2011.

(31) Against the Austrian Business Theory (ABCT)
“Austrian Business Cycle Theory: Its Failure to explain the Crisis of 2008,” October 18, 2010.

“Kirzner on Austrian Business Cycle Theory,” May 30, 2011.

“ABCT and Idle Resources,” June 6, 2011.

“Austrian Business Cycle Theory: Epicycles on Epicycles,” June 6, 2011.

“The Natural Rate of Interest: A Wicksellian Fable,” June 6, 2011.

“Austrian Business Cycle Theory (ABCT) and the Natural Rate of Interest,” June 18, 2011.

“Mises’s “Evenly Rotating Economy” (ERE) and ABCT,” June 20, 2011.

“Austrian Business Cycle Theory: The Various Versions and a Critique,” June 21, 2011.

“Mises’s “Originary Interest Rate” Theory,” June 21, 2011.

“The Differences Between Mises and Hayek on ABCT,” June 23, 2011.

“Hayek and the Myth of Neutral Money,” June 23, 2011.

“Milton Friedman on ABCT,” June 24, 2011.

“There was no US Recovery in 1921 under Austrian Trade Cycle Theory!,” June 25, 2011.

“Vaughn on Mises’s Trade Cycle Theory,” June 29, 2011.

“Hayek on the Flaws and Irrelevance of his Trade Cycle Theory,” June 29, 2011.

“Mises’s Versions of ABCT,” July 1, 2011.

“ABCT and Full Employment,” July 1, 2011.

“Hayek’s Trade Cycle Theory and its Appeal to Socialists,” July 1, 2011.

“Robert P. Murphy on the Sraffa-Hayek Debate,” July 19, 2011.

“Bibliography on the Sraffa-Hayek Debate,” July 20, 2011.

“Robert P. Murphy on the Pure Time Preference Theory of the Interest Rate,” July 13, 2011.

“Lachmann on Trade Cycle Models,” August 27, 2011.

“David Glasner on Hayek versus Sraffa,” September 10, 2011.

“Hayek and the Concept of Equilibrium,” September 20, 2011.

“Hayek and Equilibrium as a Starting Point for an Austrian Trade Cycle,” September 21, 2011.

“ABCT without a Unique Natural Rate of Interest?,” September 22, 2011.

“Did Hayek Advocate Public Works in a Depression?,” September 25, 2011.

“ABCT and the Flow of Credit,” October 6, 2011.

“Michael Emmett Brady on Hayek’s Concept of Uncertainty,” October 11, 2011.

“Austrians Predicted the Housing Bubble? – But so did Post Keynesians and Marxists,” December 14, 2011.

“Hayek’s Natural Rate on Capital Goods, Sraffa and ABCT,” December 27, 2011.

“Hayek’s Trade Cycle Theory, Equilibrium, Knowledge and Expectations,” January 4, 2012

“Equilibrium Amongst the Austrians,” January 28, 2012.

“Hülsmann on Mises’s Business Cycle Theory,” February 11, 2012.

“Bloggers Debate the Austrian Business Cycle Theory,” February 12, 2012.

“Jonathan Finegold Catalán on Free Banking and ABCT,” May 14, 2012.

“Why Isn’t the Boom of 1946-1948 a Problem for Austrians?,” June 2, 2012.


  1. Jan said: I must say a impressive work Lord Keynes!And very needed!My best regards!

  2. We're all taking a read through from /r/austrian_economics, we'll tell you what we think there.

  3. Good list.
    But why do you talk about austrians so much? They have very little influence if any over public policy.

    1. It is, of course, that they are marginal and have virtually zero influence on policy. But I do actually criticize neoclassical theory as well.

      There are many other good heterodox/progressive economics blogs about that debunk mainstream neoclassical economics (e.g., Steve Keen) so I try to add something original to what's available by providing a critique of Austrians.

    2. correction:

      "It is true, of course ..."

    3. This website provides a great service. Austrian economics will become the last resort of the neo-liberals.

  4. Astonishing.

    I sometimes wonder why my disillusionment with internet Austrianism was so sudden. But I see it was pretty far from sudden - you and other bloggers and other columnists had worked prolifically for days, months, and years to refute every misconception.

    You could compile all this data into a book that would comprise the most comprehensive criticism of the Austrian School. Of course, book publishing is difficult and expensive business.

  5. i am having troubles understanding the radcial subjectivism branch. is there a book or resource to atleast give the basic understanding of what radical subjecivism is?

    1. Austrian radical subjectivism is essentially the economics of Ludwig Lachmann.
      Also, try this blog:

  6. "(31) Against the Austrian Business Theory (ABCT)"
    And ... how about this ?
    Empirical Evidence for the Austrian Business Cycle Theory

  7. Awesome. I've linked this at the new Critiques Of Libertarianism under Austrian Economics. I'm so grateful for this work! For two decades I've endured claims by Austrians without much ability to respond besides various blanket dismissals. And I really haven't wanted to do the serious, hard labor of mastering enough literature to show that they are fools.

    1. Yes, in my view most "libertarian" economics is really just some form of Austrian economics, though there are some neoclassical libertarians about.

      Randians are not even economists at all: whatever economic theories they purport to have are probably just taken from Mises.

  8. We probably wouldn't have "Austrian economics" of the Mises/Rothbard sort in the U.S. now if Mises hadn't found a patron in the ad man Lawrence Fertig. Fertig apparently bribed New York University into giving Mises an office and pretending that he had a job there as a "visiting professor." Fertig then paid Mises a salary from his own pocket. While working on Fertig's dime, Mises revised and translated one of his German-language books and published it as Human Action in the U.S. From hindsight it looks as if Fertig hired Mises as an outside contractor to create an advertising campaign in support of Fertig's political views.

  9. Lord Keynes, do I have permission to copy/mirror this post to my own blog (with crediting you, of course)?

    1. Absolutely, yes: I have no problem with that.

  10. As someone who identifies himself as a libertarian in the mold of Hayek or Friedman, I too have observed time and time again the overreach of "web intellectuals" who read or watch some videos on the Mises Institute site, or read some Rothbard and voila, have seen through all the delusions of modern economics. The most insufferable by far are the Lew Rockwell/Murray Rothbardians - they just rant about the evils of the state non-stop. They seem to have no idea that the ideas they prattle on about have been thoroughly examined before they were born.

    However, I do want to make two general points that I learned by informally studying Austrian economics on my own. I'm not claiming to be some seer, or an economic genius, but I am familiar with many of the criticisms this author has pointed out as well as many Austrian economists ideas. I was deeply affected by their thinking, so let me summarize in plain English why. I welcome feedback - but I will not engage in pseudo-intellectual, faux-academic debate as I'm not an academic. That said, my thoughts follow.

    1. Praxeology - While it is not a complete answer methodologically, it gave me a renewed focus on micro-economics when thinking about the economy. We are so used to seeing macro-economic aggregates that I think many people see them as disconnected from individual action , rather than a result of it. In particular, it made me see how private exchanges of property (in a legal framework that protects rights) are uniquely wealth creating activities. In fact, it's the sharpness of these dealings that is the engine of wealth creation. Once you get that the individual has complex interests they are trying to satisfy (they don't seek equilibrium), and have unique knowledge of time and place that are crucial in optimizing these transactions to maximize wealth creation, it's hard to listen to some politician talk about govt "creating jobs" or other such nonsense.

    2. Methodological critique - Hayek and other's critique of economic methodology provides real insight into why say the current monetary policies we are pursuing are not creating growth. I did not realize how full a criticism existed of such thinking (while acknowledging that there is wide disagreement about this among even free market economists).

    I'm not going to debate all the abstruse aspects of these ideas - I can tell that the author has deep knowledge of economics, well beyond what I possess. However, these ideas taught me more about economics than say my macro textbook, written by Heilbronner (who finally admitted defeat in the "Socialist Calculation Debate" in '89).

    Just sayin'...

  11. Hey LK Jeremy Warner has gone all Austrian sort him out :)

  12. I believed that you have miss characterised the relationship between Mises and Popper. Have you read this -

    There is essentially little difference between the methodology of the two. If you don't believe me, read Popper's 'Models instruments and truth' in his book myth of the framework. In many ways, Mises was way ahead of Popper in methodology - it was just that neither of them realised it.

  13. Lord Keynes,

    “Limits of the Human Action Axiom,” February 28, 2011

    contains a bad link. Just FYI.