Sunday, January 31, 2010

Austrian Business Cycle Theory As Uninteresting And Esoteric

I have been unsuccessful in getting my refutation of Austrian Business Cycle Theory accepted for publication in a peer-reviewed journal. My latest publically available version is downloadable from SSRN. I have had a later version rejected a couple of weeks ago. This version's references include Roger Garrison's 2006 "Reflections on Reswitching and Roundaboutness". I hope quoting an extract from a review is acceptable, since some might find this of interest:
"Hayek had washed his hands of the triangles [that ground his theory of the trade cycle] long before the ink was dry on his Pure Theory of Capital... Modern Austrian school economists like Roger Garrison still find the triangle-logic compelling, but I have the impression that, with the possible exception of Leland Yeager’s 1976 Economic Inquiry paper, no systematic attempt has been made to show that Austrian economics is immune to the capital critique; the arguments are intuitive rather than carefully drawn. (Even Yeager’s piece struck me when I read it, many years ago, as largely intuitive.) ...the arguments had never been put forward in a robust way..."


Anonymous said...

I cannot say that I'm too surprised at that. I had hoped that I would be proved wrong, but there you go.

Most "Austrians" are 100% convinced of the validity of their ideology -- obviously related to the farcical premise that because Austrian economics is simply logical deductions from the axiom "humans act" it must be true.

Have you read David L. Prychitko's Markets, Planning and Democracy: essays after the collapse of communism (Edward Elgar, Northampton, 2002)? He discusses the difficulty he experienced getting his fellow "Austrians" to acknowledge the logical errors in von Mises and Rothbard.

Two areas of interest in this were Rothbard's attempt to "scientifically" show that state intervention could not increase social utility and his dismissal of "market syndicalism" (i.e., mutualism or market socialism). In both cases, Prychitko showed he had made basic errors of logic.

And need I mention the apparent lack of existence of both Sraffa and Kaldor from most "Austrian" accounts of their history? Sraffa rarely gets a mention, Kaldor seems to be a unperson. Still, I've not read all introductions to "Austrian" economics so maybe their critiques are mentioned somewhere!

Ultimately, of course, the "Austrian" business cycle theory is premised on equilibrium analysis and the hope that banks will not act like capitalist entrepreneurs. All of which seems a bit self-contradictory given their other arguments. And Marx discussed credit expansion and its role in crisis long before von Mises. You should be congratulated in showing that even if we accept all the unrealistic assumptions, their theory is still wrong.

An Anarchist FAQ

Robert Vienneau said...

Iain, I haven't read Prychitko. This go-around my problem was not with defenders of ABCT who said I did not adequately address the theory. It is with reviewers that think ABCT is so obviously "not even wrong" that it is not worthwhile to even bother attacking it.

Ziragt said...

The blog you linked to is commenting on a question I asked Roger Garrison at a FEE seminar. His answer was as unsatisfying in person as it is in print. He gave the standard argument about the unrealistic nature of re-switching, even though there are empirical studies of it. It seems a waste that so many modern Austrian are being taught Hayekian capital theory in a form that is so heavily affected by the problems raised during the CCC.

Robert Vienneau said...

Ziragt, on another topic entirely... Based on your post of last 27 July, you might be interested in: (1) J. Huston McCulloch's article "The Austrian Theory of the Marginal Use and of Ordinal Marginal Utility" (Journal of Economics, V. 37, N. 3-4 (1977): pp. 249-280); (2) K. J. Lancaster's article "A New Approach to Consumer Theory" (Journal of Political Economy", V. 75 (1966): pp. 132-157); and (3) S. Abu Turab Rizvi referenced a click away from one of my blog posts.

Ziragt said...

Interesting, thanks for the references. I'll try to get around to reading them. The one on ordinal utility looks particularly interesting; it's rare that someone with a background like the author's would write a piece like that.
As for the topic of akrasia, I wonder if that can be accounted for in some of the newer models of choice, that do not utilize expected utility. Also, is there a complete version of that dissertation somewhere online?

BruceMcF said...

I'd definitely expect at the Journal of Economic Issues to be, "seems right, but its already wrong in so many ways", unless it was part of a general round up of approaches that do and do not fall into aggregated real capital fallacies.

Robert Vienneau said...

My rejection was from the Review of Radical Political Economics. Apparently, I do not find my paper easier to publish in journals that are of schools I'm more likely to agree with; it must be in a journal where ABCT is taken seriously. I'm running out of jounals.

Since I have reviewers' comments, I'll revise my paper, again. But I don't know if I'll go further than to put one more revision up on SSRN.

Chris Butler said...

Hmmm. I'm surprised that a trailblazing journal like Review of Radical Political Economics wouldn't want to publish your piece. Perhaps you're not being radical enough? Or, maybe you can take a page from Sraffa and Kaldor. Those input-output matrices were totally rad! Get back to the basics, my man. Evil markets are keeping you down. The evil market for scholarly research is just the latest iteration...

Anonymous said...


I started reading your essay on ABCT refutation and I almost immediately stopped here
"The classification of commodities into lower and higher
“orders”, depending on their distance in production processes from the consumers, is one
aspect of Austrian capital theory. This section demonstrates why any given commodity
cannot generally be classified into a specific order."

I would suggest reading Mises in "Hman Action"where he clearly agree with you: the classification of goods does not depend on any objective feature. Also Kizner in "ssays on capital"

I just r if these issues make irrelevant your critique


Robert Vienneau said...

No, these issues do not make my critique irrelevant.

I have clearly read both some Kirzner and Mises. A serious person would (1) use his name and (2) reference a specific passage in, say, Human Action.