“It is in this light that one has to see Wieser’s personal impact on the education of the rising generations of Austrian economists. [sc. Wieser] … held Menger’s former position from 1903 to 1920 and continued to teach as an emeritus until his death in 1926. During this entire period, it was Wieser who taught the introductory courses in economic science at the University of Vienna. Until 1914, Böhm-Bawerk’s presence provided some counterbalance, but after his death, Wieser’s position was that of an unquestioned authority in all matters of general economic theory, a position reinforced by the publication that same year of his general treatise, Theorie der gesellschaftlichen Wirtschaft.Hülsmann is making quite a claim here. I suppose these would be his “fourth generation of Austrian economists”:
The entire fourth generation of Austrian economists—brilliant young men like Hayek, Machlup, Haberler, Morgenstern, and Rosenstein-Rodan—were thus shaped by the Wieserian mold before they set off on their own intellectual paths. Largely ignorant of Menger’s Principles (out of print since the 1880s), they were trained in the spirit of the neoclassical synthesis. As a result of these circumstances, there was strictly speaking no fourth generation of “Austrian” economists in the Mengerian sense. All the young men who are commonly held to be fourth-generation members were in fact lost to the neoclassical school—with the possible exception of Hayek, who decades later rediscovered some Mengerian themes in his work on the Counterrevolution of Science (1954)” (Hülsmann 2007: 160–161).
Fourth Generation of the Austrian SchoolThis generation of Austrians were “lost to the neoclassical school.” So the question arises: were they even Austrians at all then?
Friedrich August von Hayek 1889–1992
Oskar Morgenstern 1902–1976
Gottfried von Haberler 1900–1995
Fritz Machlup 1902–1983
Ewald Schams 1899–1955
Paul N. Rosenstein-Rodan 1902–1985.
This also raises the question of why Hayek’s business cycle theory work in the 1930s, which is obviously macroeconomic theorizing requiring neoclassical notions of general equilibrium, remains such an important part of Austrian theory:
“Previous to [sc. 1937] ... Hayek’s own thought was dominated by General Equilibrium theory. This comes out repeatedly in Monetary Theory and the Trade Cycle (1929; English edition 1933), where he talks of ‘the unquestionable methods of equilibrium’ (p. 57), and also in Prices and Production. He says, ‘it is my conviction that if one wants to explain economic phenomena at all we have no means available but to build on the foundations given by the concept of a tendency toward equilibrium’ ... . Hayek points out in a footnote that by equilibrium he means the Lausanne formulation of General Equilibrium” (McCloughry 1984: viii).And, as Lachmann argued:
“Professor Hayek and Mises both espouse the market process, but do not ignore equilibrium as its final stage. The former, whose early work was clearly under the influence of the general equilibrium model, at one time appeared to regard a strong tendency towards general equilibrium as a real phenomenon of the market economy. Mises, calling the Austrians ‘logical’ and neoclassicals ‘mathematical’ economists, wrote: ‘Both the logical and the mathematical economists assert that human action ultimately aims at the establishment of such a state of equilibrium and would reach it if all further changes in data were to cease’ … . It is this view of the market process as at least potentially terminating in a state of long-run general equilibrium that now appears to require revision” (Lachmann 1976: 60–61).The influence of general equilibrium theory on both Wieser and Hayek is also supported by Salerno (2002).
To the extent that Hayek relies on Walrasian general equilibrium theory, he is subject to the critique of that theory in Post Keynesian economics. Hayek also used Wicksellian ideas on monetary equilibrium and the natural rate of interest, concepts that are also invalid (for a statement of how Wicksellian monetary theory can be overthrown by issues related to the Cambridge capital controversies, see Rogers 1989: 21–44).
I just starting to read Robert L. Vienneau, “Some Fallacies of Austrian Economics” (September 2006), and he provides a critique of Austrian business cycle theory from the perspective of Post Keynesian theory as well, particularly the Cambridge capital controversies.
Butos, W. N. 1985. “Hayek and General Equilibrium Analysis,” Southern Economic Journal 52.2: 332–343.
Hülsmann, J. G. 2007. Mises: The Last Knight of Liberalism, Ludwig von Mises Institute, Auburn, Ala.
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.
McCloughry, R. 1984. “Editor’s Introduction,” in F. A. von Hayek, Money, Capital & Fluctuations: Early Essays (ed. by R. McCloughry), Routledge & Kegan Paul, London. vii–x.
Rogers, C. 1989. Money, Interest and Capital: A Study in the Foundations of Monetary Theory, Cambridge University Press, Cambridge.
Salerno, J. T. 2002. “Friedrich von Wieser and Friedrich A. Hayek: The General Equilibrium Tradition in Austrian Economics,” Journal des Economistes et des Etudes Humaines 12.2: 357–377.
Vienneau, R. L. 2006. “Some Fallacies of Austrian Economics,” September
Vienneau, R. L. 2010. “Some Capital-Theoretic Fallacies in Garrison’s Exposition of Austrian Business Cycle Theory,” September 4
I find the Cambridge Capital Controversies attacks on Hayek (and also on the Austrian capital theory and Austrian Business Cycle Theory) very weak. Even if we acknowledge that a lowering of the interest rates would not always trigger "more roundabout processes of production", the process described by Mises (and more thoroughly explained now by Jesus Huerta de Soto) would still happen.ReplyDelete
They also stress a lot the idea of "reswitching", which even knowing it is possible both theoretically and practically, it would remain a pure empirical issue to determine to what extent it affects the "lengthening of the structure of production" as stated by Austrians like Hayek or Rothbard.
"Even if we acknowledge that a lowering of the interest rates would not always trigger "more roundabout processes of production", the process described by Mises (and more thoroughly explained now by Jesus Huerta de Soto) would still happen."ReplyDelete
And what process is that? References?
Presumably, the references are Human Action and de Soto's book, Money, Bank Credit, and Economic Cycles. A free pdf of a translation of the second edition of the latter is downloadable somewhere from mises.org.ReplyDelete
No such process is described anywhere in these books. De Soto has no idea what he is talking about and, like Von Mises, can only be mystical on these topics.
If I ever get some iteration published, I will not reference de Soto. My most recent reviewer had this to say about de Soto: "just garbage. Why bother readers with all this?"
"My most recent reviewer had this to say about de Soto: 'just garbage. Why bother readers with all this?'"ReplyDelete
I rarely use it. but LOL...
Another thing I notice is that ABCT is like the geocentric theory of the universe/solar system: the empirical evidence is constantly inconsistent with it, and its Austrian supporters are constantly changing it, -madly flogging teh dead horse - refining it to desparately make it work, like adding epicycles.
For example, ABCT clearly doesn't work for the 2002-2009 cycle, when bad debts to consumers for houses or refinancing mortgages led to an asset bubble, so let's just pretend houses are capital goods!
Also, by the way, nice to see you on my blog, I admire your workReplyDelete
Hi Robert, I also like your blog!ReplyDelete
What you say is mostly right Lord Keynes, when you state that empirical evidence does not always follow the process as described by most formulations of the ABCT. I really don't get some of the underlying ideas of the traditional ABCT, such as the notion that consumer credit won't trigger a cycle (now acknowledge by De Soto, don't know of any other Austrian who doesn't still believe this) and I'm also quite sceptic about the idea that lowering the interest rate will produce a "lengthening of the production" or will impact more in those "stages further away from the consumer". What I do believe is that creating new fiduciary media that lowers the interest rates may trigger a boom in capital and/or financial markets, thus modifying the structure of production into an unsustainable path. I think most of the ABCT is right, but as a theory it can only explain some given crisis, but not all of them. I may also say that knowing the impact of monetary policy is not exclusively Austrian, but most still insist in applying it.
Here's de Soto's relevant part of his book:
About (Post) Keynesianism, one of the most significant ideas it states is that of the underemployment equilibrium. I just don't understand how can it happen, I think you should elaborate more on that.
"What I do believe is that creating new fiduciary media that lowers the interest rates may trigger a boom in capital and/or financial markets, thus modifying the structure of production into an unsustainable path"ReplyDelete
But then we have an explantion of an asset bubble/debt delfationary cycle not really different from a Post Keynesian/Minskyian explanation.
Here's de Soto's relevant part of his book: