Over on Robert Wenzel’s “EconomicPolicyJournal” blog, it was suggested by a participant that Austrian Business Cycle Theory is a “religion” that Austrian Economists worship. The implication, of course, being that Austrian theory is not really open to logic and facts; rather, it is just some “faith-based” belief system.
I have written a brief comment in reply on, “The Applicability of the Austrian Theory of the Business Cycle for Analyzing and Interpreting the General Features of the Current Economic Crisis.”
I explain why central elements of the Austrian Theory of the Business Cycle are, in fact, ones that every economist “worships” and takes for granted as part of their theoretical tool kit — the logic of supply and demand, and the present value effect on assets and investments resulting from changes in the rate of interest — for analyzing market processes.
In fact, therefore, the Austrian use of and conclusions from the application of these analytical tools are ones that, in principle, every economist should agree with.
The fact that so many mainstream economists are reluctant or refuse to reach the same conclusions says more about their “faith-based” belief in the supposed “instability” of capitalism and their “religious” fanaticism in defense of the claimed social engineering powers of the paternalistic state.
One is reminded of the closing paragraph of Ludwig von Mises’ majestic treatise, Human Action:
“The body of economic knowledge is an essential element in the structure of human civilization; it is the foundation upon which modern industrialism and all the moral, intellectual, technological, and therapeutical achievements of the last centuries have been built. It rests with men whether they will make proper use of the rich treasure with which this knowledge provides them or whether they will leave it unused. But if they fail to take the best advantage of it and disregard its teachings and warnings, they will not annul economics; they will stamp out society and the human race.”
Richard Ebeling
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Why Do Mainstream, Empirical Economists Misunderstand Subjectivism?
One of the reasons mainstream economists misunderstand the unity of thought and the conviction and unwavering confidence exhibited by ‘students’ of classical liberalism is because it has an ethical foundation.
Since empiricism extracts the human element, it necessarily extracts ethics also. Then when it is time to apply their ‘economics’ they have to make some kind of interpretation to reapply it in an ethical context in the human world. Inevitably ego-driven interpretation is what results which sends us in steps towards totalitarianism.
And it is this same empiricism of mainstream economics that makes subjectivism a mystery to them and causes them to misrepresent the certitude of the scientists who use subjectivism.
Thank you for this piece. I think the use by the Fed of “the Full faith and Credit” of the People of the United States”, is religious. Some how, they believe that this faith is worth something no matter how much of it they use!
Case in point. Today that faith is to the tune of $30,000 per capita. For the vast majority of the individuals, this amount of faith will take them years to create and make real. I’m talking about the debt of course!
If debt is all there is to the money, then faith is all they have to back it up. If that ain’t religious, I don’t know what is!
So the banks are losing their religion, starting foreclosures, and then sitting on the property without proceeding through the foreclosure, thus denying closure to the individuals and keeping the asset, the property, on the asset side of the balance sheet. Seems having real property is better than faith.
Brad Delong wrote this this last week:
http://blog.mises.org/archives/011142.asp
“I am puzzled by your comment: it seems to me that I am (and you are) perfectly free to make contracts locking in gold (or silver) values as prices for the future. And you are perfectly free to demand that people buying things from you pay you in specie as well. I don’t see any restriction on your freedom here. Perhaps you want the government to mandate that its unit of account be fixed in terms of some precious metals? But it seems to me that that would be not an enhancement but a restriction of freedom–a restriction of our freedom as a people to hold a larger share of our wealth in what we regard as the safe form of U.S. government obligations when we become fearful and wish to do so.”
His faith in the “U.S. government obligations” would appear to be greater than the reality of gold, silver, and real estate! Except the banks are sitting on these real things because their faith is not as strong as Brad’s, apparently. Either that, or they know there must be a limit to faith.
The limit, by my back of the hand calculations is the productive lifespan of an individual. Exceed that limit, and your issuance of further “faith and credit” on that individual is bogus. You can’t beat a dead taxpayer! In other words, the full faith and credit of the United States Government, is limited to the productive lifespan of the average taxpayer and the amount of production that can be siphoned off of that individual in the time allotted. Add to this the adjustments for inflation over time, and the limits are hit pretty quickly. Once the first generation has passed, any leftover “obligations” have to be added to the obligations of the present bloodline, er, I mean taxpayers. Their share of the faith is now greater than the share their parents had.
What percentage of the average lifespan is the turning point from asset to loss?
To rephrase the question: When the wealth is based on time and ability to produce, at what point is the “loan” granted to the government beyond the point of sustainability of the individuals who must pay for it?
To paraphrase (I want an answer to this!) :
How much blood (taxation) can be sucked out of the body politic (the tax base) for how long, and without killing the patient, and adjusted for thinning(inflation), and corrected for productive lifespan(no retirement, you just die).
Given:
50years Productive Life (my guess, one half the current average lifespan. The other half is growing up 20yrs and retirement and death 30yrs If you have a better figure, use it)
$30,000 – Debt/Capita (gold@$1160/oz currently)
$50,233.00 – US Average income (From Wiki, your mileage may vary)
2% – Fed’s faithful inflation target. (which is a result of the issuance of the future production to the present as currency and loans)
308,000,000 – Number of individuals in US
2.1% average replacement rate (kids per couple)
25 – Average age of parent with first of 2.1 kids.
Help me out here Doctors. My math skills are geometric not algebraic!
Where does the “faith” end? When does it become impossible for Joe Average to pay off the “Faith” of the U.S. Governemnt? How much time and money can be sucked out of him before he can no longer sustain the vampire?
As a vampire of the Fed, I would be looking very closely at this calculation. When Joe Average is dead, I can’t eat any more.
The original accusation of “religion” came from Tyler Cowen, who thinks he understands Austrin econ, but anyone familiar with his writings knows he doesn’t. Cowen is not a serious economist, though he does want to play one on TV. His main goal is to be popular with the kids. Doing so means acting like them and that means finding someone to snear at so you can assume a posture of superiority. However, you can’t snear at just anyone. The target has to be someone who is unpopular with the youth; someone who breaks youthful taboos.
The chief taboo among young people is to be certain about anything important. You can have very strong feelings about food, as Cowen does, but not anything important, like economics. To show any kind of certainty about economics, but especially any certainty about truth, is considered arrogant by the young. On the other hand, you have to have great passion about something because youth worship emotions, so you have to choose something like food or art to be really passionate about and demonstrate your not emotionally dead.
There is one exception to the rule requiring uncertainty about important things, and that is the environment. Young people have chosen tolerance on all important subjects as the only accepable attitude except for the environment. For that exception, no one can be intolerant enough. Certainty about humans destroying the planet is the only certainty allowed and they will crush anyone who is not as certain as they are.
PS, It might help the debate some if people would give up the stupid idea that religion is irrational. That’s the whole point of contrasting science and religion. Scientists can be as irrational as any religious leader. The AGW hysteria is a perfect example, as was the eugenics nonsense. And religion can be as rational as science. Since long before Thomas Aquinas, Christianity has made reason its hallmark. And the history of science demonstrates that Christianity gave modern science to the world.
Contrasting all religion with all science is a poinless insult and does nothing but advertise the ignorance of the person making the insult.
@fundamentalist
Point taken. It’s true Religion per se is not nessesarily irrational. Quite the contrary. However, I think the slur to “worship” is not so much an attack on religion as it is an attack on the irrational behaviour of some folks, religious or otherwise.
My post is an attack on “faith”, as applied to future production, and the seeming unending “faith” the government has in the flow of that production in spite of it’s efforts to reduce it via “regulation”.
Religious faith and rational spirituality and worship are not under attack. These areas deal with the mystery of life and are personal.
The attacks of “worship” and “faith” are based on the analogy of “mystery”. It’s right and rational to be faithful in ones spiritual life. It’s not right to be “faithful and worshipful” in finance and science!
Fundamentalist,
Well played.
Accusing something of being religion = no better way to ‘attack’ or handle it = arrogant scientistic presumption = braindead response to something one cannot crapple with = get a goddamn life, socialist scrub.
I was skimming a review of Cowens book on Austrian econ and his alternative cycle theory from 1997. I haven’t read the book, but if the quotes taken from it by the reviewer are accurate, Cowen either does not understand Austrian economics or he deliberately misrepresents it. I don’t understand why it is so hard for mainstream economists to be honest. When he is not misrepresenting Austrian econ, he claims it is wrong because it doesn’t agree with neo-classical econ. Duh!
Talk about irrationality, the dogma of rational expectations (RE) that Cowen and all mainstream economists advocate is just plain silly. RE assumes that all actors have perfect knowledge of the plans of entrepreneurs and tastes of consumers. RE is necessary in the fictional world of equilibrium, but ridiculous in the real world. From Knight to Cowen, I can’t understand how they can insist that the rigid and unrealistic assumptions of equilibrium apply to the real world. Didn’t anyone ever tell them that equilibrium is a fictional construct? Equilibrium is a mental tool necessary because economists can’t conduct controlled experiments. We have to use equilibrium in order to hold all things constant while we change one variable at a time.
I am one who does not concede that we are freer today than, say, fifty years ago, in spite of the position taken by Brad DeLong.
Are we wealthier in terms of a wide variety of goods and services. Yes, and this has been due to that portion of the open and innovative market economy still relatively free from the increasingly controlling hand of the interventionist state.
Do we have some wider arenas of civil or personal liberty, I will admit that. Though even here, the State has restricted my freedom of association through compulsory affirmative and anti-discrimination laws.
(I wish to make clear this is not an apology or defense of racist conduct in earlier decades in the U.S. As an advocate of liberty I oppose BOTH segregation laws and compulsory integration laws. The friend of freedom believes in and advocates freedom of association as a logical extension of individual freedom. Just because some people do stupid and morally despicable things does not justify immoral things from an opposite direction.)
The State has narrowed other economically related civil liberties, such as my right to allow smoking, for example, in my place of business if I believe that service is demanded by my customers.
(Again, this is not a defense of the goodness of smoking. It is the idea that individuals should be allowed to do even what others consider “harmful” things as long as they do not force it upon others. And, no, I do not force “secondary smoke” on someone by allowing others to smoke in, say, my restaurant.)
Think of the extent to which the State and it agencies can and does intrude into our privacy under the name of “homeland security.” The State can listen into our telephone calls, read our emails, and can monitor what we write on our computer keyboards, etc.
We in the United States are not freer in the central realm of economic liberty. The State regulates, controls, subsidizes, and manipulates to a far greater degree than half a century ago.
And right now that intrusive power is expanding. The financial markets are more intrusively manipulated now in this economic crisis than before — and they were already heavily controlled by the various regulatory agencies and the Federal Reserve.
The automobile industry in America is now practically a nationalized industry. And the government is about to take over the health care and medical industry.
If cap-and-trade pass the Federal government will have nationalized the entire atmosphere over the United States, granting permission and permits that will in affect determine what industries and companies “live and die,” what they produce and how, and for what consumer purposes.
We are moving in the direction of a fascist economy. And I use the term “fascist” not for unfair emotional affect, but as an economic theoretical category derived from the economic model practiced for part of the time in Italy between the two World Wars.
The fascist state did not nationalize industry, rather it imposed central regulations and controls through the mandatory “corporitivist” structure that resulted in a planned economy. The government determined wages, prices, production, work conditions, and distribution of output. We already have a variety of pay and industry “czars” in place.
It shows how far intellectually and culturally we have moved down Hayek’s “road to serfdom” that so many in America don’t even realize the degree to which their freedoms have been reduced or lost over the last several decades.
How far we have come from what, say, Adam Smith, or David Ricardo, or Jean-Baptiste Say, or Nassau Senior, or even John Stuart Mill (even with his concessions to socialist arguements) would have considered a reasonable and free system of commerce and industry.
And all of these gentlemen would have had a very low opinion of a monetary system not anchored in a market-based commodity (like gold), and which was open to discretionary manipulation and abuse through a fiat currency.
refuting brad de long is casting pearls before swine.
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