Why the Austrian Economists Won

November 22nd, 2010 at 7:01 am | 77 Comments |

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As David Frum has noted, treat Austrian economists are awfully popular among Republicans.  It’s an odd phenomenon: many of the world’s most influential economists are conservatives, recipe but none of them are Austrians.  And instead of embracing the most brilliant economists in the world, troche Republicans lift talking points from a group at the margins of modern economics.

At a superficial level, Austrians are influential because they’re so damn loud.  Ever listened to conservative talk radio or watched Beck’s TV program?  Chances are you’ve listened to an Austrian economist, probably one predicting impending economic apocalypse.  As an occasional contributor to FrumForum, I learned quickly that Austrian economics posts invite an army of e-critics.  (This piece will likely inspire an essay-length comment and about 84 links to articles on mises.org.)  But there’s something else going on.  Austrians aren’t just the most vocal and inspired advocates of capitalism; these days they often seem like capitalism’s only friends.

I don’t mean that no one likes the free market system.  Most do.  But free market advocacy comes in different shapes and sizes.  Those who research and combat the inefficiencies of government policy are free market advocates, but the typical conservative doesn’t have the time to grapple with the size and science of the Keynesian multiplier.  Conservatives do have the time to notice some glaring inconsistencies our nation’s economic history.  People tell me scary stories about the laissez-faire free market of the George W. Bush years, despite the fact that government grew rapidly during Bush’s tenure.  And it seems odd to call the pre-2008 housing market heavily deregulated when government sponsored companies owned trillions of dollars of housing debt.  Conservatives are smart enough to know that the anti-market narrative of the financial crisis is inaccurate.

The Austrian school rejected this narrative.  Its economists were accessible and spoke to the unease that many conservatives felt.  Their criticisms echoed those of mainstream economists.  They blamed the Fed’s monetary policy.  So did liberal economist Joe Stiglitz.  They blamed Fannie Mae and Freddie Mac.  So did Keynesian economist Ragu Rajan and Nobel laureate Gary Becker.  On this front, the Austrian school was as sensible as it was unremarkable.  But the Austrians’ passion and consistency made them excellent spokespersons for the market economy.  Without viable alternatives, conservatives understandably gravitated toward the Austrian school.

Some may object that generalities don’t matter.  People care about jobs, not bromides about the free market.  That view is inaccurate.  Conservatives definitely care about jobs, but the conservatives who really worry about public policy, who love to talk about politics, and who volunteer for Republicans causes don’t like it when others deride their principles.  Milton Friedman isn’t a conservative icon because his theories helped the Fed control runaway inflation.  He’s a conservative icon because of his brilliant defense of economic liberty.  In the wake of the financial crisis, no one outside of the Austrian school approached Friedman’s flair for free market advocacy.

Conservatives, while understandably drawn to the Austrian school, lose something in the bargain.  Austrians loathe modern Keynesian economists with a religious fervor, even the conservative ones.  Other economic libertarians (like Friedman) draw similar scorn.  Viewed through an Austrian perspective, public policy judgments are hastily rendered and motives easily impugned.  Take for example, the newest round of quantitative easing.  Bernanke’s gambit may not work, but Lew Rockwell published this gem about the policy.  Among its nuggets of wisdom: a guy who won the Nobel for his work on monetary policy is, yes, “weak” on monetary policy; the Cato Institute borrows ideas from Robert Mugabe’s Zimbawe; and  pernicious motives drive the Koch brothers.  Is it any wonder that so many Republicans were utterly dismissive of the Fed’s recent activity?

Luckily, Republican leaders rarely sound so insane.  And I’m optimistic that the Austrian influence has reached its peak within the party—the Austrian school’s disdain for American foreign policy and willingness to call Lincoln a tyrant don’t sit well with the base.  But Republicans want their leaders to articulately defend conservative principles.  If the party’s public intellectuals don’t deliver, this marriage of convenience between conservative populism and Austrian economics may continue indefinitely.

Recent Posts by J.D. Hamel

77 Comments so far ↓

  • quanta

    I love how low your proclaimed ‘intellectualism’ has sunk. I am so glad self-respecting conservative economists in the GOP will be rid of you lot soon.

  • WillyP

    what are you babbling about? please exit the fantasy world for just one post. you brought the conversation from one of intellectual disputation to personal google searches. in doing so, you implicitly admitted defeat (duh).

    as rush might say, i could outsmart you with half my brain tied behind my back.

    and for the millionth time, there is no “liberal economics” and no “conservative economics,” just as there is no liberal physics and conservative physics. we’re not in soviet russia. economics is not a bourgeois science.

  • nhthinker

    I think quanta has told us he is a defense contractor but little else. Maybe he cleans out Port-a-Potties at a pork-barrel military base.
    I wonder if he will tell us a bit more about job so we can decide for ourselves if it’s a crappy job or a leechy type job.

  • TJ Parker

    Its really remarkable. Two years ago, citing Mises made you a crackpot. Nowadays, you’re mainstream. I think this is due to GOP party leaders Bachmann and Beck.

  • quanta

    I am a physicist (hence, quanta) for AF/Navy.

    What you engage in here is not ‘intellectual disputation’, so please don’t assert otherwise.

  • nhthinker


    Hmm, a scientist for a military contractor that won’t tell us an area he is working on so we can’t tell how untenable his application of physics is. Is the goal of your application of physics offensive or defensive? Is it being applied in the current wars or is it Star wars based?

    Tell us about how a physicist like you decided his first choice was to work for a military contractor. What was the great evil you were trying to right through the application of your intellect. Only then will we have an idea of how crappy or not your job is.

    Remember it was you that publicly started attacking a person’s job bringing to light information about the person that he was not volunteering for himself.

    We can stop as soon as you admit what you did was totally inappropriate.

  • WillyP

    frankly, quanta can continue so post whatever tidbits of information he finds on me. i have nothing to hide.

    the more of this is done, the less we have to hear about the so-called successes of liberalism (like keeping employment under 15%).

    some people are just naturally brighter than others. i don’t begrudge you for you dullness; that would be unkind. and i don’t say this merely because you disagree with me. i say this because it’s apparent to anybody with a brain that you are simply incapable of comprehending the subject matter. after examining your basically unintelligible posts, one hopes you are not well read in economics, history, or politics. if you are, so much more dullness can be attributed to you.

    i doubt you’re a physicist. physicists would, you know, appreciate the discovery and application of science. they would ask questions for clarification, isolate variables, identify constants, and attempt to get a genuine understanding of the problem at hand. you don’t sound like a scientist or anybody who makes a living through their intellect. you sound like keith olbermann and act like josef goebbels.

    scientists would realize that you cannot do the same with people/societies. the only way to rationally “assess” the likelihood for success, and to “predict” the outcome of human behavior is to make assumptions about their motives/ends. then you evaluate their choices (means) for attaining those ends. and once you categorize the different concepts they utilize to realize those ends (goods, capital, production, consumption, savings, investment, labor, money, wage rates, profit, interest, and all the other words that make up the economic lexicon) you then have a way of conceptualizing the working of an economy as it really exists.

    if you don’t clean port-a-potties, i think you’re probably shining the nuclear reactor on submarines. it’s very obvious when somebody has been outflanked. desperation is a stinky cologne.

  • quanta

    nhthinker: “Remember it was you that publicly started attacking a person’s job bringing to light information about the person that he was not volunteering for himself.” <- actually he volunteered it on numerous occasions to assert his "intelligence" and "class." Besides, he doesn't mind the information!

    WillyP: "physicists would, you know, appreciate the discovery and application of science. they would ask questions for clarification, isolate variables, identify constants, and attempt to get a genuine understanding of the problem at hand."

    You have no idea what a physicist (or a scientist) does, do you? Isolate variables? Identify constants? Solving equations on the blackboard is not primary concern of scientists/physicists. We are concerned with developing compact models of nature, often using simplifying approximations. All of the celebrated results from physics are only first-order approximations of nature, and wrong in many limits. Put another way, "All models are wrong, only some are useful."

    The other contribution of physicists is understanding complex phenomena by deriving models from first principles. I.e., from considering the newtonian mechanics of single particles, and then applying thermodynamic methods, we obtain equations of state for a simple gas. Or, by making a few simple assumptions about the quantization of particles, we derive all of quantum mechanics (albeit inelegantly — mostly everyone knows that QM is an incomplete model).

    All economic models are wrong, but most are useful. Austrian economists simply misunderstand neoclassical economics, and their 'results' have either been proven false, or shown to be equivalent to neoclassical predictions.

    Your 'intellectual' diatribes are tiresome, as are your insults, and both are not worth responding to.

  • WillyP

    not terribly convincing. you sound like an undergrad who has had a little too much coffee. rotc/engineering undergrad? i mean, what makes you so special? and even if you were a real physicist (which you aren’t), einstein was a professed socialist. doesn’t really speak to highly of his civic knowledge, does it?

    one way to judge the scientific merits of a model is their accuracy at prediction. seeing as how the austrians have a far better track record at predicting macro trends, and accurately forecast the development of a never ending malaise (what we’re in now), i don’t see what there’s to like about neoclassical economics.

    you don’t like my diatribes? i don’t like your politics. they’re ruining my country.


  • nhthinker


    nhthinker: “Remember it was you that publicly started attacking a person’s job bringing to light information about the person that he was not volunteering for himself.”

    quanta: actually he volunteered it on numerous occasions to assert his “intelligence” and “class.” Besides, he doesn’t mind the information!

    Google does not show a single occasion where willyp identified his specific job title or specific company in this forum. Volunteering such information about another poster is almost universally viewed as totally inappropriate break in reasonable protocol on a forum such as this. Maybe you are too young to know better. An apology that includes a statement of regret is still in order.

    Also describing someone else’s job as a “crap job” is incredibly crass.

    He works in an industry designed to help people and make their lives better.
    You admit that your effort in quantum mechanics is for the benefit of the Air Force and the Navy. You are unwilling to let us know if your field of research is designed to:
    1) aim at humans ; 2) kill humans; 3) help humans communicate; 4) hide information from enemies; Isn’t there a job available for peaceful use of your field of research? Why did you decide you wanted to use your mind for the technology of war? Was it the money?

    Most physicists I know that work for the military will readily admit that working for the military was not their first choice (they would rather work in a non-military field) but it pays the bills. When you accuse others of having a crap job, you need to expect to be asked how you came to a conclusion that your own job is not a “crap job”.

  • WillyP

    Thanks for the support here, nhthinker. When I refer to the fact that I am classier than the leftists, I really do mean it with all my heart.

    It is completely irrelevant to me what quanta feels about my position. The left is obviously Stalinist and resorts to personal intimidation (or at least attempted personal intimidation) to silence its withering critics. Well the classless dolt, Mr. Quanta, can go shove it.

    The irony here is palpable. I am who I say I am and do what I say I do. I really do have a diploma from a fine institution of higher learning and work with brilliant minds everyday. This has all been verified thanks to Quanta.

    On the other hand, we have a shady character who can’t defend an argument, claiming to be (of all things!) a physicist. My best friend is very bright fellow, graduated with a high GPA from UMich, with the desire to become a physicist (Ph.D. level). He spoke to many professors of engineering and physics, and they universally recommended to apply for an engineering program. (He is now in an electrical engineering doctorate program at one of the top schools.) Getting into a Ph.D. level physics program is, as I understand it, significantly harder than getting into med school.

    So I don’t buy his story for a minute. I could see if there were tangential evidence of remarkable intelligence in his posts, but I see none. I assume he’s bullied by his classmates for being such a loud, not-so-bright, dweeb. In between the fits of self-loathing and mommy-crying, he takes out his obvious resentment on anonymous bloggers who disagree with his childish and ruinous politics.

    That about sum you up, quanta?

  • nhthinker


    There is certain transgressions, some worse than others on forums. You (and I) are guilty of musing and being judgmental too much, but displaying personal information based on web searches is not to be done lightly.

    Based on quanta’s expressed lack of whole-hearted support for military endeavors, I suspect he might be a bit conflicted about working for the military. It would be nice to get him to admit he has a “crap job”.

  • WillyP

    fact of the matter is that some people, when faced with the prospect of losing an argument, resort to personal attacks. perhaps my head might explode if i were a dedicated, obscurantist leftist, too.

    yes, this is a fairly serious “blog transgression.” but it’s also just downright pathetic and embarrassing.

    amazing what you learn about people when they’re desperate.

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  • quanta

    Try Physics PhD at a top university. Don’t try to compare resumes with me; I’m way out of your league. But resumes are no a substitute for the ability to reason, which you seem to have little of.

    nhthinker, I don’t work in quantum theory, my area of research is in condensed matter physics. I love the military, and I come from a military family. That doesn’t mean I don’t criticize bad military policy and/or waste when i see it. Also, WillyP linked to his public profile, and I was curious of this background.

    WillyP, ask your physics friend (or any of brilliant scientists you work with) whether my depiction of what physicists really do is incorrect. By the way, EE programs and physics doctorate programs these days can overlap significantly, so I don’t think your friend is very far off. Getting into a physics PhD program requires much less work than med school; fewer required courses, no MCATs, and GPA does not matter as much. More important is your prior research experience, and recommendations from faculty. “Difficult” is a harder to quantify term; the two are so different in nature that a comparison would be meaningless.

    “one way to judge the scientific merits of a model is their accuracy at prediction. seeing as how the austrians have a far better track record at predicting macro trends, and accurately forecast the development of a never ending malaise (what we’re in now), i don’t see what there’s to like about neoclassical economics.”

    Your simplistic understanding of the interaction between theory and experiment belies your scientific illiteracy.

  • quanta

    Oh, and please stop calling me a liberal. I have voted GOP my entire life.

  • WillyP

    you’re so full of it. what are you even babbling about. i think you’re as pathetic as we all suspect. why don’t you prove me wrong and demonstrate your immense scientific knowledge.

    i don’t know where you get your information… honestly. medical school is a what, 3, 4 (with residence) endeavor? my friend’s ee program is 5 years. as for your description of a natural science, re: modeling, a 7th grade text book on “physical science” would tell me so much. i’m sorry if i’m less than impressed.

    again, if you’re a ph.d. physicist (something i absolutely doubt) then why don’t you imbue us with some scientific knowledge? why don’t you enlighten our simple minds? really? i’m not a scientist and i’m not a science enthusiast. i work in business. i’m sure someone with your caliber mind (way out of my league) could learn me a lot. how about you grace us all with a lesson of what forces keep the nucleus of an atom together, or something. this shouldn’t be too hard for you.

    i have seen no proof at all of your genius. i have seen terrible arguments, half developed, and thrown at anybody who disagrees with reckless abandon. i suppose it is theoretically possible you might be a world-class physicist and an ignoramus about politics/economics (sorry, this is indisputable). much more likely is that you are a hobby physics nerd and a true moron politically.

    if you are who you say you are then how about some good old fashioned proof. really stick it to us with a lecture on condensed matter physics. because right now you stink like a punk.

    and really, even if you are being truthful about your background (which i hope you are, for your own sake), it still does nothing to vindicate either modern liberalism (i.e. statism) or neoclassical economics/keynesianism, as both have (again) been proven failures.

    so great. again i prove myself correct and all i get is my name and title posted publicly. this place truly does suck.

  • WillyP

    quanta // Nov 23, 2010 at 5:43 pm

    Oh, and please stop calling me a liberal. I have voted GOP my entire life.

    Yes, this is the problem. Please join the other side. They’re calling for you.

  • nhthinker

    “nhthinker, I don’t work in quantum theory, my area of research is in condensed matter physics. I love the military, and I come from a military family. That doesn’t mean I don’t criticize bad military policy and/or waste when i see it. Also, WillyP linked to his public profile, and I was curious of this background.”

    You still haven’t told us if you have a crappy job and whether the application field you are in is intended to kill people. You’ve expressed where you think military policy should not be applied but AFAIK have never said once that there has been a good application of military policy.

    There is nothing wrong with being curious about another blogger’s profile and clicking through and looking at it. There is everything wrong about trying to pick parts of resume information from it and publish it on this blog. That you admit no culpability in such a well-known part of blog etiquette is really quite extraordinary. Maybe you can get a more informed friend or relative to explain it to you. You do have friends, don’t you?

  • JD Hamel

    I always try and respond to a few comments. Here we go:
    WillyP: You may be intelligent, and you may even be a nice person, but your comments almost invariably start out with some ridiculous insult–either to the author or your fellow commentators. I have no interest in your kind of discussion. Others should just ignore him.

    I only hope that people look back at what the Austrians say and realize that if you predict imminent doom every day for a half-century, you’re bound to be right every two decades or so. The neoclassical economists, like every other school of economics that doesn’t predict certain doom weekly, had some economists who saw the crisis coming and others who didn’t.

    LauraNo: I think the Republican Party has gravitated toward the Austrians because other conservative economists are too uninterested in popular discourse. Robert Barro, for example, does brilliant work on government stimulus programs, but writes for the WSJ every few months, if that.

    Sinz: I’m not too sure Friedman would support the newest round of quantitative easing. He might, but I think he’d be more worried that our banks are sitting on about 2.3 trillion dollars in reserves and more interested in addressing that problem. The two approaches could, of course, go hand-in-hand, though.

    PCasey: Ron Paul may have predicted the crisis, but others did so, too. At least one senator (Dorgan) predicted the crisis and placed blame much differently than Paul.

    The rest of the comments generally illustrate the problem that comes with the Republican embrace of the Austrians. The president’s stimulus policies are not uncontroversial among mainstream economists: an army Nobel winners and future Nobel winners thought the stimulus was a mistake. Even many Keynesians approach questions of stimulus differently than Paul Krugman. I worry that in a debate between Austrians and Stiglitz/Krugman, Republican policy ideas lose. Substitute neoclassical economics (and conservative Keynesians) for the Austrian school, and the Republican Party stands on very firm ground.

    That’s where I’d like to take the debate. Less hysterical (just look at some of the less intelligent comments on this article for examples), more measured, and more aware that the pro-free market approach to economic policy makes a great deal of sense.

    To most of you: thanks for intelligent comments and criticisms. It’s always the best part about posting at FrumForum.

  • WillyP

    On the scale of immaturity, I’d say the intellectual fraud committed every single day on FF is leaps and bounds ahead of my (mostly) jostling insults.

    If you’re going to offer up a critique of a tradition of social science/economics that is hundreds of years old and has firm philosophical roots, it helps to demonstrate the understanding before offering a drive-by hit piece. The article presented here really does read as though all Mr. Hamel has done is read some popular accounts of the intra-Republican spats, as reported by the usual suspects, over the last year. I’m sorry; the article is neither informative, nor polemic, nor compelling. It’s not well contextualized. It really is as if the author said, “You know what, I don’t like these Austrians and they’re annoying me lately. Let me write out the way I think about them for the world to see. ”

    Is this insulting? I don’t see why, as a member of the public, I need to remain silent while opinion makers issue more and more ridiculous and unqualified opinions. This problem is not unique to FF. The vast majority of the news media/opinion makers are truly deficient. The best out there are the reporters who stick to the facts and give proper context. The worst out there are the Douthats, Frums, and Brooks who, while ostensibly representing Conservatives, mangle every single argument and never manage to get past their immediate need to be provocative, to say nothing of their obsequiousness towards the liberal media establishment. Buckley took the mainstream to task with wit and erudition, and didn’t worry what the pathetic and wrongheaded liberal elites thought of his tone.

    The Austrian school of economics is not a prescription for public policy so much as it is an insistence on proper methodology. Separate and apart from liberal vs. conservative, it is focused on how to properly approach the subject and what conclusions are valid.

    It is possible to be an arch-statist and still accept the precepts of the Austrian school. It might make one mildly schizophrenic, but not necessarily illogical, if one’s end goal is control.

    The problem with neoclassical economics is that they offer only a very tenuous defense of freedom. You can have a model spit whatever out you want… change the numbers and assumptions. Who can prove you wrong? Nobody. Say, “Universal Healthcare will Save Taxpayers Money! See My Graph Here!” The “conservative” neoclassical economist will say, “MY model says we’ll actually pay more, so there. You’re wrong, you liberal.” And then we’re left with two graphs, dozens of pages of statistical assumptions, and very little confidence in either study.

    With the Austrian school, you can say, very simply – Centralizing control of healthcare will result in a deterioration of services, longer “queues,” less innovation, less choice, and more pain and suffering. We know this on a theoretical level, and by drawing on the experience in other centralized industries… like, say, money. We also have Canada and Britain to point to. And we have the entire history of politbureaus and commissars.

    More than that, Austrian economics has the entire Liberal tradition to draw from. All the literature and polemic from every decent political scientist since practically the Renaissance. And the backstop is Natural Rights, God – not “efficient public policy.”

    Finally, the main punch of the Austrian school is its critique on central banking. No other school even comes close to delivering such a well developed and withering critique. Milton Friedman had a Fed fetish. That disturbs a lot of people, and for good reason. In his later years he reconsidered and believed in repealing legal tender laws (i.e. ending the fiat money monopoly), but what he is known for first and foremost is Monetarism, or the belief you can fix things by printing money.

    Thankfully, for all, Austrian adherents deplore “wonks.” “Wonk” is a weasel word for a control freak, or mastermind. “We’ll move these people over here into this group, create a pool here, diversify this risk pool, tax this class another 2.3%, permit for these exceptions,” blah blah blah until you just realize they’re frustrated novelists. These “wonks” are anti-Burke, anti-de Tocqueville, anti-Smith, anti-Hayek. They are therefore anti-Conservative.

    The near worshiping of certain bloggers, the wonk class, actually makes me slightly nauseous. Personally, I can’t imagine anything more frightening than a group of sycophants who quibbled over every word I wrote as it relates to “public policy.” I won’t keep too worried… most people here seem to keep their distance, if they don’t outright detest me… which is what I prefer from the Frummies.

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  • btimsah

    To simplify this, basically Austrians advocate for no central economic planning and/or Federal Reserve and without a Fed you can’t have your unlimited wars. That’s the only reason for the hesitation toward Austrian economics. Come over to the dark side, war has not gotten us anything but enemies, debt and a tyrannical police state. Stealing money to redistribute is no better than stealing money to force democracy on other nations. Neither was intended for America. Oh and RON PAUL and his economic adviser, Peter Schiff are largely responsible for the growth of Austrian Economics. Thomas Woods deserves later mention.

  • kazvorpal

    The author, as well as some commentators, confuse Rothbardians with Austrian economics.

    The Rothbardians are a departure from real Austrian philosophy and methodology.

    For example, the Rothbardians want a static amount of money, claim deflation is good, and wish to impose a gold standard by fiat, while actual Austrian Friedrich Hayek wanted a balanced supply/demand ratio of money (which requires an expansion of the money supply with economic growth), abhorred deflation, and wanted a free market in money.

    Hayek would have described the kind of hypersaving the Rothbardians call for “hoarding”, which is undesirable. He did not oppose credit or lending, did not want a socialist prohibition on fractional reserve banking, and understood that you must consider both money volume and velocity, in order to understand the supply/demand curve of money.

    There is, really, a struggle right now between the ACTUAL Austrians, represented by supporters of Hayek, and the Rothbardians, touting their namesake’s ignorance of actual monetary theory.

    Likewise, Hayek did not despise Friedman, nor even Keynes. He had an actual understanding of Keynes’ theories, whereas the Rothbardians do not. You will routinely find a Rothbardian claiming Keynes promoted inflation, when in fact Keynes was as opposed to inflation as any Austrian.

    Ironically, the Rothbardians depart from Austrian perspectives in a way that is very Keynesian, themselves:

    Keynes advocated budget deficits to “stimulate” during a depression, but said that there must be an equal budget surpluses during the subsequent recovery/boom…as if the economy were a zero sum game that would even out.

    Rothbardians advocate a response to an “inflationary” period and its boom with an equal deflationary period and bust…as if the economy were a zero sum game that would even out.

    Hayek, an actual Austrian, dismissed this imposed deflationary backlash as needless and harmful…even “silly”.

    Likewise, Hayek was willing to actually consider facts and truths, while Rothbardians often stick to dogma blindly:

    The depression we are in now was set off by a period of unusually low monetary growth — from 2004-2008 was a sixty year low in growth of domestic money supply — the deflationary effects of this triggering low money velocity, the collapse of unstable commodity prices like real estate, runs on banks, et cetera, yet the Rothbardians continue to claim that it was an excessive expansion of money supply that caused our “recession”.

    What we need are REAL Austrians, not Rothbardians…and, fortunately, there is increasing recognition of the difference. Note that Newsweek recently covered Hayek, not Rothbard.

  • WillyP

    Your post is completely wrong. Anybody who reads it should be encouraged to look up what Hayek wrote with regard to Misean economics.

    Rothbard and Hayek agreed that gold makes the best money; they agreed that inflation causes economic cycles; they agreed that a free market in money would likely lead to the adoption of a gold standard; they both opposed fractional reserve banking; they both opposed inflation; both opposed central banking (see Hayek’s “Tiger by the Tail”); both vigorously opposed Keynes; and both found fatal flaws in Friedman’s monetarism.

    See? kazvorpal you’re misinformed.

  • p lotor

    Keep up the good work Willy P. This article is juvenile. Hamel’s ignorance of even the most basic economics, let alone austrian or any other school, is offensive. This piece reads like an 8th grade research project. He looked up “economic schools” on wikipedia, and went from there.

    ” instead of embracing the most brilliant economists in the world, Republicans lift talking points from a group at the margins of modern economics.”

    This guy Hamel, who looked up economics on wikipedia, is qualified to tell the world that the most brilliant economists in the world include no austrian economists? Marginal utility which is a foundation of mainstream economics was developed by Carl Menger, one of the first Austrian economists. Hamel has never heard of marginal utility. Who are the most brilliant economists in the world Hamel? Even if you list off some names, have you read any of there work? No? I am shocked..

    You do the world a disservice with this garbage opinion piece. It’s ok if you dissagree with every principle of austrian economics. But..you have to know what they are first.

  • Otiose8

    Hamel, I think you overlook something obvious – that Austrian economics is gaining ground because it better explains how the world really works.

    Seriously you need to learn more about the underlying assumptions of Austrian economics and not make superficial comments about expressed opinions of people who advocate the Austrian point of view. You take one person who says they’re an Austrian and assume (?) that their opinion prevails among all people who share the same basic assumptions.

    Just a few differences – in Austrian point of view, Say’s Law that economic value is created on the production side not the demand side is key and explains one reason why conservatives are drawn to this point of view. It’s another way of saying that spending does not create value and that includes most importantly government spending. Understanding this basic difference also calls into question the components of GNP (Keynesians believe government spending can create sustainable growth and therefore include it), the savings paradox (doesn’t exist), the multiplier (also doesn’t exist), and the touching but misguided belief that by keeping prices above market levels they can sustain the economy.

    Austrian theory explores the impact of interest rates on the capital structure (e.g. housing) – something Keynesian and Monetarist advocates pretty much ignore or assume away. Low interest rates underpin the formation of excessive debt which fuels asset bubbles.

    Austrian theory has a much more thorough appreciation for relative vs general price increases and the implications for the economy/capital structure for relative changes. Keynesians are fixated on the belief that all deflation is bad when in fact deflation – the good kind – means the standard of living is improving. In periods of rapid improvement in the standard of living, the Keynesians in charge of the central banks tend to get nervous about any deflation and lower interests and/or increase money supply faster than real economic growth thus ensuring a painful asset bubble gets underway.

    Generally, the differences between Keynesian/Monetarists and the Austrians separate on how to reset prices when they are pushed out of market by government intervention. The K/M tend to prefer a moderate inflation, which tends to bias the system towards asset/debt bubbles (and the busts, bad particularly when bank centered) whereas the Austrians prefer to let supply/demand prices reset to market keeping monetary pricing stable, which means labor has to accept major occasional adjustments downward – something never popular.

    Also generally, the assumption that spending can create sustainable growth tends to bias things towards ever larger government as every time there’s a mild reset required, government spending goes up. The assumption that growth is on the private production side favors limited government. These basic difference pretty well explain why conservatives – once they learn about it – are drawn to the basic Austrian view, and why ‘progressive’ types who believe that ever bigger government is the answer are repelled by the same.

    This is also the basic reason why establishment academic economics – given the liberal bias of university culture these past few decades – has been taken under control by non-Austrian types. There are other reasons, but that’s a basic one.

    Even though I disagree on a number of points and issues with many of the Austrian types I find their assumptions and theories much more in align with what I see in the real world than anything I was taught in my economics courses in schools.

    As a banker I’ve been reading Austrian works for more than 10 years, and it has provided me hugely useful insights that have kept me and my bank out of losses during both the Internet and Housing bubbles. The Austrians were discussing both of those as they were developing and while they didn’t foresee all the moving parts that went bad and how it played out, the fact is that the K/M types didn’t see either coming at all. The unfortunate fact is this – the K/M economists didn’t see it coming because their theories IMO are flawed and yet they are the ones advising the people in power about how to get economies back on the growth path. I’m skeptical that the people who still don’t understand how we got here have any idea how to get us out.