It is somewhat astonishing, then, to see one remark on a recent post showing strange ignorance of basic Austrian theory, in the comment here:
“Free market systems ALWAYs converge to full employment/high employment ‘equilibrium’. Keynesians and statist wars, government spending and funny money dilution impair that process and make adjustments to it painful.”The trouble is that full employment/high employment “equilibrium” is a neoclassical, not an Austrian, concept.
Austrian economics, as far as I understand it, does not use the neoclassical concept of full employment “equilibrium.”
Instead, some Austrians invoke the concept of pattern/plan co-ordination (e.g., Hayek, Rizzo and O’Driscoll), while others would agree with me (e.g., Lachmann and other radical subjectivists) that there is no tendency to pattern/plan co-ordination or full employment “equilibrium” in a free market economy.
Because of uncertainty, subjective expectations, money as a store of value, financial asset markets, debt deflation, etc., Say’s law does not work, as I have shown here:
“The Myth of Say’s Law,” October 7, 2010.I would also recommend the classic essay by Ludwig Lachmann called “From Mises to Shackle: An Essay on Austrian Economics and the Kaleidic Society.” A sample:
“F. H. Hahn in a Candid Moment on Neo-Walrasian Equilibrium,” January 29, 2011.
“In a kaleidic society the equilibrating forces, operating slowly, especially where much of the capital equipment is durable and specific, are always overtaken by unexpected change before they have done their work, and the results of their operation disrupted before they can bear fruit. Restless asset markets, redistributing wealth every day by engendering capital gains and losses, are just one instance, though in a market economy an important one, of the forces of change thwarting the equilibrating forces. Equilibrium of the economic system as a whole will thus never be reached. Marshallian markets for individual goods may for a time find their respective equilibria. The economic system never does. What emerges from our reflections is an image of the market as a particular kind of process, a continuous process without beginning or end, propelled by the interaction between the forces of equilibrium and the forces of change. General equilibrium theory only knows interaction between the former.”What Lachmann says here is much the same as what Keynes and Post Keynesians would say. The “plan coordination” imagined by Hayek and other Austrians will not occur under these conditions of uncertainty, subjective expectations, and money with a store of value function.
(L. M. Lachmann, 1976. “From Mises to Shackle: An Essay on Austrian Economics and the Kaleidic Society,” Journal of Economic Literature 14.1: pp. 60–1).
But Keynesians would draw a different conclusion from Lachmann: with no full employment equilibrium and optimum use of resources, there is a space for government intervention on both moral and economic grounds.
Lachmann, L. M. 1976. “From Mises to Shackle: An Essay on Austrian Economics and the Kaleidic Society,” Journal of Economic Literature 14.1: 54–62.