Roger Garrison calls our attention to this fascinating post by David Laidler, who is discussing the Austrian theory of the trade cycle. His description seems fairly competent and his account of the times is strikingly interesting. But what in particular draws my attention is his account of why the promising theory of the Austrians never went mainstream in the years that it might have:
The Austrian model seemed to its exponents to yield nihilistic policy implications for dealing with the depression… The only remedy was to let the passage of time restore equilibrium between the desired time-structures of consumption and production. This message had considerable resonance in conservative financial market circles where “passive-money�? banking school ideas taught that one had to await recovery before allowing credit and money to expand. But it also ran counter to a widespread political desire in more progressive circles, to defend the liberal political order against the idea that only totalitarian regimes could manage the economy – recall the political situation in europe in the mid-1930s. This is an important reason why the theoretical ideas of The General Theory caught on so quickly after 1936, and why Austrian theory was abandoned.
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I have a question: when David Laidler uses the phrase “liberal political order” is he referring to classical liberalism, or to the 20th century statist variety of “liberalism”? I was not sure from his article.
What Dennis said. I read that paragraph over and over, trying to wrap my brain around the “progressive” qualifier versus “the liberal political order” and “totalitarian”, and I completely failed.
That’s an epistemic pretzel if I ever saw one.
Dennis, the obfuscation here is typical and very mainstream. Not everyone clearly sees a break in the liberal tradition between, say, 1850 and 1950, which is why, e.g. both Cobden and Keynes are called liberals. And since so many people believe that the New Deal saved old-style liberalism from extinction in the face of socialism and fascism, the New Deal’s obviously illiberal means are themselves called liberal because they supposedly served liberal ends. That’s one reason it was intriguing to see true liberalism here called nihilism, as if to say: if you don’t believe that the state should act, you don’t believe in anything at all!
Thanks, Jeff, for the clarification. It is another indication of the shameful state of affairs in academia that this obfuscation exists and is so widespread. Also shameful is the use of the pejorative term nihilism to describe those who place scientific correctness in trade cycle research above politics and power.
If those Austrians are nihilists, what does that make the Lachmann-Shackle-Lavoie types? Super-nihilists?
David Laidler states: “But there was another reason – the concept of a ‘natural’ rate of interest determined solely in the real economy was analytically unsustainable except under extremely special assumptions, so there was a serious logical flaw at the very heart of the theory, and Hayek himself came to realise this (cf The Pure theory of Capital).”
Did Hayek actually come to this realization? Also, someone please correct me if I am wrong, but it is my understanding that Mises (and Rothbard) never supported the conclusion that Laidler draws regarding the natural rate of interest.
In addition, Laidler’s article seems to ignore the fact that Mises accepted the general equilibrium framework only as a mental tool to help economists analyze a world of incessant change. And finally, Laidler apparently ignores, or is not familiar with Mises’s business cycle writings of the late 1920s and early 1930s and his presentation of this issue in Human Action. Laidler considers Hayek as most representative of the Austrian school, which, in this case at least, I do not believe is accurate.
Gotta love that term “nihilism.” T. H. Huxley famously accused Herbert Spencer of Administrative Nihilism. (Spencer responded in Specialized Administration.) How soon before the neocons start calling people who are against torture “torture nihilists”?
I’m not sure what Laidler is referring to regarding Hayek in his “Pure Theory of Capital.” I’ve been reading the book off and on this summer and Hayek’s ideas about the natural rate appear to follow from Wicksell and Mises as well as Strigl. Strigl also seems to accept that the theory of the Austrian theory on the natural rate flows directly from Wicksell and Mises and so is part of overall Austrian (Austro-Swedish?) business cycle theory. This also then extends, with qualifications according to Strigl, to Bohm-Bawerk’s take on capital theory.
But, following Strigl’s lead, which is often clearer than Mises and definitely more so than Hayek, the natural rate proceeds as part of the relationship between the subsistence fund and the roundabout process of production. This then becomes part of the analytical tool box of the evenly rotating economy. How this is “analytically unsustainable” and/or “nihilistic” is beyond me. Perhaps Laidler is confused about the conceptual framework of economic analysis of the evenly rotating economy that is a common feature of Mises, Strigl and Hayek v. analysis of the “real” economy.
I don’t think you need to accept torture to be a neo-con, and some like Block and Kinsella have written that there are situations in which it would be acceptable to torture in anarcho-capitalism.
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