“Austrians Need to Make Some Noise (and They Are!),” ThinkMarkets, June 14, 2013.At one point, Rizzo describes one of the purposes of The Economics of Time and Ignorance (a book which holds interest for some Post Keynesians), as follows:
“We also wanted to draw connections with other schools of though – especially some aspects of Post Keynesianism and other version of subjectivist economics. We saw that, behind political or ideological differences, we had some fundamental ideas that we could share and discuss with these people. We wanted to make clear that Austrian economics is not coextensive with classical liberalism. We were not propagandists for capitalism.”But the political views or prescriptive anti-government ideology of Austrians is precisely what gets in the way of mutual dialogue, since all Austrians appear to be either minimal state liberals or anarcho-capitalists.
For example, can anyone name a modern Austrian economist who is pragmatic on government interventions in economic life? While Hayek appears to have endorsed some government interventions in the mature phase of his career, there is no doubt he was still in essence strongly opposed to government intervention.
But what are the similarities between (some) versions of Austrian economics and Post Keynesianism?
One might list them as follows:
(1) the importance of time in economic life in a dynamic sense and fundamental uncertainty (more or less the same as Knightian uncertainty);But even with these similarities there are important differences.
(2) many events of the future relevant for economic life and decision making today cannot be calculated with objective probability scores.
(3) from (1) and (2) it follows that expectations are subjective, not “rational” in the neoclassical sense;
(4) a rejection of the neoclassical view that markets converge towards general equilibrium states. But here some Austrians have their own substitutes for Walrasian general equilibrium, such as the Misesian final state of rest, plan coordination, or pattern coordination, and accept other (alleged) equilibrating processes such as the Wicksellian natural rate of interest, loanable funds theory, and equilibrium prices, so it is perhaps only the Lachmannian radical subjectivists with whom Post Keynesians are in agreement on the lack of equilibrium tendencies in market economies.
(5) a belief that the quantity theory of money is unsatisfactory, but for different reasons, and the Post Keynesian rejection of the quantity theory is much stronger.
Post Keynesian price theory is radically different from Austrian theory and stresses the importance of administered prices, while Austrian price theory is not much more than a development of neoclassical price theory. Aggregate demand is seen as a fundamental driving force of investment and production in Post Keynesianism (along with business expectations), while Austrians seem to see the driving force as saving, even with some version of Say’s law.
The Austrian business cycle theory is unacceptable to Post Keynesians, and inflation is seen as driven by factor input and wage cost increases (cost push inflation) and not just demand-pull inflation, and so on.
And another fundamental difference is political outlook: Post Keynesians have no dogmatic hostility to government intervention, as their theory tells them (and rightly so) that market economies are in need of macroeconomic steering and regulation.
Frankly, I don't think there is any point in extending the olive branch at all. Those Austrians that are not doctrinaire are just sloppy. Once you accept fundamental uncertainty EVERYTHING in the neoclassical/Austrian doctrine comes apart at the seams completely.
ReplyDeletePrices cannot be determined in line with supply and demand in an uncertain environment. Thus they are inherently speculative or, what is the other side of the same coin, precautionary. Once we understand that the price system functions essentially as a series of insurance contracts (no, not ones calculated in line with known probabilities) and bets then none of the marginalist stuff makes sense.
Also, marginal utility makes no sense outside of static time. So, any Austrian trying to argue that they take historical time into account and at the same time espouse marginalism is guaranteed to be a second-rate thinker who doesn't understand what marginalism is all about.
"Once you accept fundamental uncertainty EVERYTHING in the neoclassical/Austrian doctrine comes apart at the seams completely"
DeleteOdd then that Mises should write in Human Action:
"The uncertainty of the future is already implied in the very notion of action. That man acts and that the future is uncertain are by no means two independent matters. They are only two different modes of establishing one thing . . . If man knew the future, he
would not have to choose and would not act"
Rob Rawlings,
DeletePost Keynesian critics know that Austrians say they accept fundamental uncertainty or pay lip service to it, but the charge is they have not properly applied it to their theories and thought through the implications.
E.g., if business expectations are subjective and can be shattered, loanable funds theory doesn't work, because lower interest rates will not induce the necessary investment.
Exactly. It's such a farce. Like when Austrians say that macro concepts are wrong and then start talking about GDP or the unemployment rate.
DeleteBy the way, I'll also say that Schumpeter -- who many PKs like (don't ask me why...) -- is also completely incoherent on these points. You can't have your cake and eat it. I do wish people would be consistent. But this is far too much to ask of most economists -- especially Austrians, whose exposure to philosophy is confined... Mises... ugh! It's about as sophisticated as Rand.
"Like when Austrians say that macro concepts are wrong and then start talking about GDP or the unemployment rate."
DeleteSomething which I can confirm happens frequently with internet Austrians!
My personal favourite is when we are told that aggregate demand is nonsense or meaningless, but -- hey presto! -- somehow Say's law is absolute truth, even though it presupposes the existence and meaningfulness of aggregate demand.
So because you can find some Austrians who talk as though uncertainty doesn't exists - they all must ?
Delete"if business expectations are subjective and can be shattered, loanable funds theory doesn't work, because lower interest rates will not induce the necessary investment."
If business expectations lower then this will affect the desire to borrow (and perhaps to lend) and this will affect the money rate of interest - but how does that undermine the whole theory, its part of the theory !