Austrian economics

Austrian fanatics ruin it for the rest of us

The Adam Smith Institute has long been associated with the Austrian school of economics. There is a picture of Friedrich Hayek on the wall. Our Director, Dr. Eamonn Butler, has written Austrian Economics: A Primer and books on Hayek and Ludwig von Mises. With respect to myself, I am personally friendly with, and/or heavily influenced by Austrian-leaning economists including George Selgin, Anthony J. Evans, Emily Skarbek, Mark Pennington, Kevin Dowd, David Skarbek, Adam Martin and dozens of others. I own about 15 books by Ludwig von Mises. I went to a Man, Economy & State reading group. I am still technically a moderator on the Ludwig von Mises Institute forums. My very first post for this blog was on the Austrian theory of the business cycle.

Smart Austrian economists have done, and still do, lots of important work. I personally think that Israel Kirzner deserves a Nobel prize for his work on entrepreneurship. I don't think Austrians are deserving of the hit pieces that some less pleasant members of the mainstream level against them. But there is a genre of commentary, particularly seen below the fold in economics blog comment sections, whose contentless, nebulous, impossible-to-completely-eradicate nonsense unfairly tars all Austrian-influenced economists.

A recent example was left on Sam's post on NGDP targeting, and many of those in the genre follow a similar pattern. Here I will focus on one issue: the dismissal of Sam's argument as 'Keynesian', because it includes non-Austrian ideas. This is probably the worst and most annoying flaw internet Austrians display. Not all non-Austrian arguments are Keynesian.

There is nothing a Keynesian or New Keynesian or post-Keynesian would recognise as Keynesian in Sam's post: he doesn't talk about natural interest rates*, he doesn't talk about marginal propensities of consumption, he doesn't talk about multipliers, he doesn't advocate fiscal stimulus, he doesn't mention a paradox of thrift or liquidity trap. He uses the equation of exchange, which is about as non-Keynesian as you can get!

And many if not most (macro)economists through history have been neither Austrian nor Keynesian, including prominent figures such as Irving Fisher, Milton Friedman, Robert Lucas, and Ralph Hawtrey. At least two schools of thought are neither Keynesian nor Austrian: New Classical/freshwater macro, and monetarist/Chicago school macro. And these schools don't just differ from Keynesianism, they actively and vigorously oppose it on a host of important issues.

It just doesn't do to call all non-Austrian economists 'Keynesians'. It's inaccurate and it's irritating and it's idiotic. Economists have worried about demand-side or money-demand-caused recessions before Keynes and they've worried about them since without accepting any or all of his solutions.

What's more, there is no reason why being an Austrian economist should preclude one from interest in any of these approaches—something smart Austrian and Austrian-influenced economists like Hayek and Selgin have not shied away from. Hayek warned of the dangers of a 'secondary depression' caused by monetary contraction after the real shock involved in the Austrian theory. Austrian fanatics ruin it for everyone.

*George Selgin points out in the comments that natural interest rate ideas predate Keynes and are important in Austrian theory.