Tuesday, 3 April 2012

Austrians gone Mad

Fair is Foul, Foul is Fair: Hover through the fog and filthy air
Recently, your Blogger has been following Alex Goodyear's Weblog. Mr Goodyear is sympathetic to an heterodox school of economic thought that stems from the collective and evolving philosophies of Murray Rothbard, Ludwig Von Mises, Fredrick Hayek, inter alia; mislabelled the 'Austrian School of Economics'. Let us not confuse it with true Austrian inspired philosophies from the Vienna Circle of Logical Positivism, whose impact on Economics and Science since has been invaluable, to the beginnings of Psychoanalysis in the City of Dreams, and further still, of the extraordinary musical wunder from Mozart to Mahler.

The Austrian School unfortunately is anything but 'Austrian'. Its serious practitioners [those not including past and current Republican presidential runners!] have a deep mistrust of econometric techniques and an insouciance towards the scientific application in and of Economics. Their theories on Monetary Economics is based on an ephemeral natural rate of interest determined by the fundamental forces of the 'free market' and not by a seigniorage haemorrhaging Central Bank; What Austrians think of as 'free markets' are ultimately unfree, they are a political dystopia, a Hobbesian State of Nature. Further, Austrians prod for a return to the good ole' Unit Free-banking days which would prevent all the vices that come with credit-binges, or so it is claimed!

Their theory on business cycles ignores market defects, sticky wage inflexibility and rigidity. Any government induced stimulus prevents the long term, albeit ahistorical, structural adjustment required of labour and product markets to get rid of the excesses of the past. Additionally, their theories on money longs for a return to the supposed nominal anchor and stability provided by precious weights like Gold; I have argued in the past against its worth! The gold standard was an accident of its time. Any return to it would be calamitous.

So it is not surprising, that I look askance at the Austrian School. Paul Krugman has described it "as worthy of study as [the] phlogiston theory of fire". Imposing overt ideology on Economic History, one of the few natural experiments Economics has, is ultimately poisonous. It is best to read old thinkers, like Von Mises and Rothbard, with a grain of salt.