Ludwig von Mises and the Great Depression

Many thanks to gliberty who just flagged for me a piece by Mark Spitznagel in today’s (where else?) Wall Street Journal about how Ludwig von Mises, alone among the economists of his day, foresaw the coming of the Great Depression, refusing the offer of a high executive position at the Kredit-Anstalt, Austria’s most important bank, in the summer of 1929, because, as he put it to his fiancée (whom he did not marry till 1938 just before escaping the Nazis), “a great crash is coming, and I don’t want my name in any way connected with it.”  Just how going to work for the Kredit Anstalt would have led to Mises’s name being associated with the crash (the result, in Mises’s view, of the inflationary policy of the US Federal Reserve) is left unclear.  But it’s such a nice story.

Ludwig von Mises was an extremely well-read and diligent economist, who had some extraordinary insights into economics and business and politics.  As a result he made some important contributions to economics, most important the discovery that idea of a fully centrally planned economy is not just an impossibility, it is incoherent.   He made other contributions to economics as well, but that insight, perhaps also perceived by Max Weber, was first spelled out and explained by Mises in his book Socialism. That contribution alone is enough to ensure Mises an honorable place in the history of economic thought.

Mises also perceived how the monetary theory of Knut Wicksell, based on a distinction between a market and a natural rate of interest, could be combined with the Austrian theory of capital, developed by his teacher Eugen von Bohm-Bawerk into a theory of business cycles.  Von Mises is therefore justly credited with being the father of Austrian business-cycle theory.  His own development of the theory was somewhat sketchy, and it was his student F. A. Hayek, who made the great intellectual effort of trying to work out the detailed steps in the argument by which monetary expansion would alter the structure of capital and production, leading to a crisis when the monetary expansion was halted or reversed.

Relying on their newly developed theory of business cycles, Mises and Hayek warned in the late 1920s that the decision of the Federal Reserve to reduce interest rates in 1927, when it appeared that the US economy could be heading into a recession, would distort the structure of production and lead eventually to an even worse downturn than the one the Fed avoided in 1927.  That was the basis for Mises’s “prediction” of a “crash” ahead of the Great Depression.

Of course, as I have pointed out previously, Mises and Hayek were not the only ones to have predicted that there could be a downturn.  R.G. Hawtrey and Gustav Cassel had been warning about that danger since 1919, should an international return to the gold standard not be managed properly, failing to prevent a rapid deflationary increase in the international monetary demand for gold.  When the insane Bank of France began accumulating gold at a breathtaking rate in 1928, and the US reversed its monetary stance in late 1928 and itself began accumulating gold, Hawtrey and Cassel recognized the potential for disaster and warned of the disastrous consequences of the change in Federal Reserve policy.

So Mises and Hayek were not alone in their prediction of a crash; Hawtrey and Cassel were also warning of a looming disaster, and were doing so on the basis of a theory that was both more obvious and more relevant to the situation than theory with which Mises and Hayek were working, a theory that, even giving it the benefit of every doubt, could not possibly have predicted a downturn even remotely approaching the severity of the 1929-31 downturn.  Indeed, as I have also pointed out, the irrelevance of the Mises and Hayek “explanation” of the Great Depression is perfectly illustrated by Hayek’s 1932 defense of the insane Bank of France, showing a complete misunderstanding of the international adjustment mechanism and the disastrous consequences of the gold accumulation policy of the insane Bank of France.

Mr. Spitznagel laments that the economics profession somehow ignored Ludwig von Mises.  Actually, they didn’t.  Some of the greatest economists of the twentieth century were lapsed believers in the Austrian business-cycle theory.  A partial list would include, Mises’s own students, Gottfried Haberler and Fritz Machlup; it would include  Hayek’s dear friend and colleague, Lionel Robbins who wrote a book on the Great Depression eloquently explaining it in terms of the Austrian theory in a way that even Mises might have approved, a book that Robbins later repudiated and refused to allow to be reprinted in his lifetime (but you can order a new edition here); it would include  Hayek’s students, Nobel Laureate J.R. Hicks, Nicholas Kaldor, Abba Lerner, G.L.S. Shackle, and Ludwig Lachmann (who sought a third way incorporating elements of Keynesian and Austrian theory).  Hayek himself modified his early views in important ways and admitted that he had given bad policy advice in the 1930s.  The only holdout was Mises himself, joined in later years after his arrival in America by a group of more doctrinaire (with at least one notable exception) disciples than Mises had found in Vienna in the 1920s and 1930s.  The notion that Austrian theory was ignored by the economics profession and has only lately been rediscovered is just the sort of revisionist history that one tends to find on a lot of wacko Austro-libertarian websites like Lewrockwell.org.  Apparently the Wall Street Journal editorial page is providing another, marginally more respectable, venue for such nonsense.  Rupert, you’re doing a heckuva job.

About these ads

54 Responses to “Ludwig von Mises and the Great Depression”


  1. 1 Bruce Bartlett February 10, 2012 at 12:33 pm

    It’s also worth remembering that Mises had an important publicist: Henry Hazlitt. Hazlitt was a columnist for Newsweek for 25 years after the war and was possibly the most widely read economics writer in the US. He tirelessly promoted Mises, reviewing his books in the New York Times and elsewhere. Thus the idea that Austrian economics was unknown is simply a fabrication.

  2. 2 Greg Ransom February 10, 2012 at 12:58 pm

    “It does not follow [from the fact that a disequilibrium generating inflation cannot be allowed to expand forever] that we should not endeavour to stop a real deflation when it threatens to set in. Although I do not regard deflation as the original cause of a decline in business activity, a disappointment of expectations has unquestionably tended to induce a process of deflation — what more than 40 years ago I called a ‘secondary deflation’ — the effect of which may be worse, and in the 1930s certainly was worse, than what the original cause of the reaction made necessary, and which has no steering function to perform.”

    – F. A. Hayek, “Full Employment at Any Price?”, 1975.

  3. 3 Greg Ransom February 10, 2012 at 1:07 pm

    In _Monetary Nationalism and International Stability_ Hayek seems well aware that gyrating gold policies and exchange policies can create economic ups and downs. Indeed, the foundations of Hayek’s monetary / trade cycle economics lies in the the assumptions that these sorts of changes matter. Why Hayek dismissed what Hawtrey and Cassel saw I don’t know, but nothing in his economics should have stopped Hayek from appreciated the possibility of real effects generated by changes in money demand — in fact Hayek identifies just such effects in Part IV of his _The Pure Theory of Capital_.

    Again, what has been identified if anything are errors in Hayek’s perception of the empirical facts on the ground — the causal mechanism Hayek presents is perfectly compatible with the Glasner/Hawtrey/Cassel story.

  4. 4 Greg Ransom February 10, 2012 at 1:14 pm

    Hayek insists that he modified nothing other than his empirical judgment about such things as the strength of the rigidity of wages in Britain given contingent historical facts of the time, or his judgment of the scope and role of the secondary deflation in America, etc.

    And there is much evidence for Hayek’s account — i.e. as early as 1931 we find Hayek endorsing various proposals for countering a post-bust secondary deflation, and as early as 1929 we find Hayek discussing the causal role of changes in liquidity preference in the disequalibration of the economy.

    We see Hayek modifying his views of the facts on the ground at the time, but we don’t see him in any fundamental way changes his account about how fluctuations in money demand and supply have real effects on the economy.

    David writes,

    “Hayek himself modified his early views in important ways and admitted that he had given bad policy advice in the 1930s.”

  5. 5 Becky Hargrove February 10, 2012 at 4:31 pm

    As always, your ability to present economic history in easily understandable ways is outstanding. Thanks. Also I’m glad that Bruce mentioned Henry Hazlitt, as Hazlitt’s presence was a greater part of ‘common wisdom’ than some realize.

  6. 6 Greg Ransom February 10, 2012 at 7:35 pm

    Let’s be clear. John Hicks, Nicholas Kaldor & Abba Lerner had years of advanced economics under their belts before Hayek arrived and began conducting joint seminars at the LSE — and these seminars were classic paper presentation seminars with presentations by all sorts of different people working on all sorts of different topics at which everyone asked questions and made points, and at which Hayek himself rarely presented.

    And at the time Hicks, Kaldor and Lerner were already teaching their own students, and producing their own papers.

    Hicks was working on a book on the theory of wages, and already had much of his project completed by the time Hayek helped revolutionize Hicks’ way of looking at things — but Hicks never gave up his own British economics background and never came close to looking at things the way someone raised in the work of Menger, Weiser, Mises and Bohm-Bawerk would look at the world.

    Similar things could be said about Kaldor and Lerner — Kaldor’s papers on “Austrian” trade cycle theory betray a non-Austrian way of approaching basic economic questions — a clash of paradigms made plain by Hayek in his rejoinders to Kaldor. Ditto with the work of Lerner on any number of topics, including on the topic economics planning.

    It’s really bad history of economic thought to suggest that these guys were soaking in a Menger / Weiser / Mises / Hayek / Bohm-Bawerk mental world and “grew out of it”. They were never in it, and Hayek makes it plain that his own teaching was not “indoctrination” into his own Austrian world, but focused instead an economics from every tradition, British and Continental, with the core coming straight out Frank Knight’s textbook.

    The extent that Hicks, Kaldor and Lerner never “got it” when it comes to Hayek’s basic picture of the explanatory strategy of economics is plain when one looks at the very non-Hayekian perspective each brought to their own economic work. They grappled with bits and pieces of Hayek, but evidence doesn’t show they got much beyond that. They did not share a common paradigm or perspective — and the clash of paradigms between what they had learned _prior_ to confronting Hayek and Hayek’s own deeply different paradigm is made plain by a look at their work.

  7. 7 Bill Woolsey February 11, 2012 at 7:09 am

    Greg:

    But the general point that Mises view was “unknown” is clearly false. Leading economists knew about it. They were sympathetic. But finally rejected it. Your point is that they never really understood it properly and if they did, they wouldn’t have rejected it. Maybe.

    I was recently reading the Denationalization of Money. While not very technical, it is clear that Hayek has a monetary disequilibrium view. He also recognized that price level stabilization would not in fact cause significant problems along the lines of malivestment. But he does still consider the distortionary effects of monetary problems to be a problem. Apparently, the difference between a constant volume of nominal expenditure and changes in that volume as needed to keep the total price of a basket of commodities stable would not be a significant problem.

    I am pretty sure that was Milton Friedman’s view. Malinvestment is possible, but not really that significant problem, and certainly not a significant problem with any plausible monetary rule.

    Shortages of money, on the other hand, can have surprisingly awful consequences. And persistently high inflation is surprisingly disruptive as well. And while these disruptions could be described as “malinvestments” of a sort, a clear pattern of adjustment of production in ways that invovle provision of consumption for the more distant future (more durable goods or projects that only realize an saleable output in the more distant future, is not necessarily it. Quite the contrary, there are forces working in the opposite direction too when uncertain inflation make the payoff on debt contracts more uncertain and so deter more “capital intensive” or “round-about” projects. Increasing the portion of wealth held in the form of inflation hedges, does not promote round-about production methods. Quite the contrary.

    A monetary policy aimed at keeping real interest rates low, especially when combined with all sorts of regulations on nominal interest rates and even price controls, might well result in malinvestment as described by Mises and Hayek. And I think that if we assume that entrepreneurs believe that a low real interest rate policy is feasible, malinvestment could occur even without supportive regulation. While that is a useful thought experiment, we are getting well past the point where any of that is a realistic assessment. And it is doubtful that the twenties in the U.S. should be described in that fashion.

    It remains a live question today. Any entrepreur who made long term investment decisions based upon an assumption that the 1% Federal Funds rate of 2000 represented a permanent -1% real interest rate was a fool.

  8. 8 Greg Ransom February 11, 2012 at 9:21 am

    Bill, the history is bogus is several ways — it’s like pointing out how all of the German and French and even many of the American and British biologists “rejected” Darwinian biology until fairly late in the 20th century.

    To begin with, we know that most of them had a false understanding of the character of Darwinian explanation. Furthermore, it was not clear what the theory claimed or what went together with the theory and what could make the theory turn out to be true. The neo-Darwinian synthesis didn’t take place until the 1930s still isn’t fully completed and resolved even to the current day. So people who were rejecting Darwin were rejecting science that was in the process of being formed. It was not clear what relation Darwinian theory had to Lamarck or to the developing “germ” theory or the discovery and neglect and rediscovery of genetics, etc. The role of epigenesis is _still_ not clear.

    And it is a fact of the history of ideas that Hayek’s work was in the middle of being formed in the 1930s, as was Keynes work — and that the differences between them were not at all clear even to Hayek and Keynes. And it it clear that many — most prominently Keynes — were completely incompetent when it came to core aspects of the Hayek / Austrian paradigm.

    Hayek makes plain the situation:

    “I knew [in the mid 1930s] that there was something more fundamental than the difference [with Keynes] on [the question of the relation of employment to aggregate demand], but the concepts of this difference, between macro- and micro- theory, had then not yet become quite clear. I was only becoming aware of the fact that really [an engagement with Keynes and Cambridge macroeconomics more generally] to be discussion of the contrasts between micro- and macro- theory.” — F. A. Hayek

    And note well, many of Hayek’s landmark papers were inspired as much by the paradigm clash between the micro perspective and the Keynes perspective as much as anything else, e.g. the “Use of Knowledge in Society” paper, the “Economics and Knowledge” paper, the “Scientism” papers, etc.

    So this notion of “rejection” doesn’t carry much weight and doesn’t tell us much — anymore than the “rejection” of Darwin by all of the French and German biologists tells us anything about Darwinian biology — there is too much flux, too much failure of understanding, too much grappling between alternative perspectives, too much groping toward an unknown future.

  9. 9 Greg Ransom February 11, 2012 at 9:23 am

    “it is clear that Hayek has a monetary disequilibrium view.”

    This is also clear in his original 1929 book _Monetary Theory and the Trade Cycle_.

  10. 10 Greg Ransom February 11, 2012 at 10:36 am

    Hayek is explicit in saying that different institutional contingencies with create boom / bust cycles with different structural particularities, e.g. depending on the regulatory regime, the changing role of finance, etc.

    “A monetary policy aimed at keeping real interest rates low, especially when combined with all sorts of regulations on nominal interest rates and even price controls, might well result in malinvestment as described by Mises and Hayek.”

  11. 11 Greg Ransom February 11, 2012 at 10:47 am

    The general point that Mises’ revolutionary alternative explanatory paradigm was not comprehended by most every economist outside a small circle in Vienna is essentially true. There is a great paradigm divide between those who “got” the significance of Mises paper on calculation under socialism and those who didn’t. Most didn’t. And there are deep connections between this divide and the divide over “macroeconomics”, e.g. Hayek’s whole point about prices as signals which are falsely conceived by math constructs — a point that first comes up no by coincidence in Hayek’s work in his work on monetary economics and the trade cycle.

    One indicator of the situation, which turned out to be a continuing one: Hayek repeatedly points out how no one in Britain in the 1930s knew or comprehended the debates which had taken place on the Continent, excepting perhaps Robbins.

    Bill

    “But the general point that Mises view was “unknown” is clearly false.”

  12. 12 stickman February 11, 2012 at 11:53 am

    David, a thought-provoking post as ever.

    @Greg,

    Since you mention Darwinian theory alongside the broader acceptance of the Misean/Hayekian argument, here’s an interesting passage from Paul Samuelson:

    [sc. My] generation were brought up witnessing the great debate between von Mises and Lerner-Lange concerning the feasibility of socialist rational pricing to produce Utopia. (That was a reprise of earlier Pareto-Barone-Wieser-Taylor debates.) Many contemporaries believed Lerner-Lange triumphed in the debate. I came to believe that Friedrich Hayek was the true victor.

    Under static conditions where all is known or knowable (to whom?), whatever optimal states laissez-faire might occasion, so could some computer solution or some algorithms of play the game of competition also achieve. But in the real world all is changing, even in the time it takes me to write this sentence. Hayek has been persuasive — not in Whig ideology or in declaring that moderate reform of laissez-faire leads inevitably down the road to totalitarian socialism but — in arguing that experience suggests that only with heavy dependence on market pricing mechanisms can there be realized quasi-efficient and quasi-progressive organization of societies involving humans as Darwinian history has bequeathed them[...]

  13. 13 Jon Finegold February 11, 2012 at 1:01 pm

    David (if I may),

    You write,

    That was the basis for Mises’s “prediction” of a “crash” ahead of the Great Depression.

    I am not sure this is quite correct.

    If I remember correctly, in Causes of the Economic Crisis Mises doesn’t look at the rate of interest, but rather points out that the telling point is the fact that the price of consumer goods did not fall during the boom period.

  14. 15 Greg Ransom February 11, 2012 at 6:04 pm

    stickman, Samuelson was in attendance when Hayek presented his “The Use of Knowledge in Society” paper in Schumpeter’s graduate seminar at Harvard.

    Hayek didn’t read the last few paragraphs of that paper, which directly identified Schumpeter’s own confusions on the issue.

  15. 16 Benjamin Cole February 11, 2012 at 9:17 pm

    It is tiresome to read about the Austrian School. At this stage, the Austrian School is staffed by Econo-Shamans chanting monetary voodoo, and mumbling mystic verses while genuflecting to gold. It is rank Theo-Monetarism, a demented danger to American prosperity, assented to mostly by deranged partisan hacks and men who wear jodhpurs and jackboots at home. P.U. to the Austrian School and its hoary, encrusted shibboleths.

    Meanwhile, over at Market Monetarism, Lars C. has unearthed some old FOMC minutes that suggest Greenspan was a pioneer Market Monetarist. Fascinating, as Greenspan ushered in the Great Moderation.

  16. 17 Lord Keynes February 12, 2012 at 2:03 am

    “Relying on their newly developed theory of business cycles, Mises and Hayek warned in the late 1920s that the decision of the Federal Reserve to reduce interest rates in 1927, when it appeared that the US economy could be heading into a recession, would distort the structure of production and lead eventually to an even worse downturn than the one the Fed avoided in 1927. “

    While I enjoyed your post very much, what is your evidence for this?

    On the contrary, Hayek does not appear to have predicted the Great Depression:

    http://socialdemocracy21stcentury.blogspot.com.au/2012/02/lionel-robbins-and-myth-of-hayeks.html

    http://socialdemocracy21stcentury.blogspot.com.au/2011/12/hayek-and-stock-market-crash-of-1929-so.html

    Hayek also wrote (or approved of as editor) this astonishingly and embarrassingly wrong prediction:

    “However, at present there is no reason to expect a sudden crash of the New York stock exchange. However, it is not impossible that the end of the absolutely amazing price increases has arrived, and [that] the [price] level should slowly crumble. The credit possibilities/conditions are, at any rate, currently very great, and therefore it appears assured that an outright crisis-like destruction of the present high [sc. price] level should not be feared. At the moment, European funds are already being withdrawn in large amounts, so that the value of the [US] dollar is down.” Monatsberichte des österreichischen Institutes für Konjunkturforschung, 3. Jahrgang, Nr. 10 (26 October, 1929), p. 182.

    http://www.wifo.ac.at/bibliothek/archiv/MOBE/1929Heft10.pdf

    This was days before the historic stock market crash of October 28, 1929.

  17. 18 David Glasner February 12, 2012 at 2:25 pm

    Bruce, Thanks for your very useful comment, which seems totally right to me. My recollection of Hazlitt is pretty sketchy. I only know of him through a couple of books which I skimmed or read and an occasional essay of his. He was just bowing out of his weekly Newsweek column (replaced by Milton Friedman, Paul Samuelson and Henry Wallich) when I started getting interested in economics, so my grasp of his importance in the 1940s and 1950s is obviously lacking. On the other hand, I doubt that Hazlitt’s enthusiasm carried much weight among professional economists.

    Greg, I think that the quotation from Hayek’s “Full Employment at Any Price?” bears out my characterization of the change in Hayek’s views after the 1930s.

    You suggest that Hayek could have accepted Hawtrey’s and Cassel’s account of the monetary shock that brought about the Great Depression. I agree. He could have. Unfortunately, despite being aware of what Hawtrey and Cassel were saying, as evidenced by his lengthy criticism of their views in his 1932 paper on the fate of the gold standard, he very emphatically rejected it. The problem I believe was his conception of the price-specie-flow mechanism and its role in bringing about international adjustment. So there was a basic mistake in his understanding of the operation of the gold standard, which I believe is also reflected in Monetary Nationalism and International Stability. The basic mistake is the notion that national price levels are determined by the quantity of money in each country and that the gold standard operates to change the quantity of money in each country until there is an equilibrium in which the national price levels are equalized.
    The problem was not that Hayek didn’t know the facts on the ground. When he defended the policy of the insane Bank of France in 1932, he was not misinformed about the policy of the Bank of France; he thought that the policy was fine, or at least, unproblematic. There was a conceptual problem in Hayek’s understanding, not a lack of information.

    Becky, Thanks for your comment.

    Greg, I did not say that Hicks, Kaldor and Lerner were not formidable intellects in their own right when they encountered Hayek, but they all found his ideas very compelling. Compelling enough for Kaldor to translate Hayek’s Monetary Theory and the Trade Cycle. But only for a short time. They all went in very different directions. But you can’t say that they didn’t know or understand what Hayek and Mises were talking about. So your assertion that looking at their later work proves that they never bought into Hayek’s theory is very puzzling. Why would you assume that after having rejected Hayek’s work, they would write like Hayekians? Once they rejected him, they obviously rejected him.
    “I don’t care if the transfers are instantaneous, laggy, or never take place at all. Your income this week is what I produce this week, less what you pay me this week. It doesn’t matter if what you pay me this week is for what I produced this week, last week, in the Stone Age, or next year. It doesn’t even matter if I never have or will produce anything. Between us, our income rises by what I produce. It doesn’t matter one bit if your business self pays your household self. That would only transform business income into household income, but do nothing for the aggregate.”

    You said:

    “It’s really bad history of economic thought to suggest that these guys were soaking in a Menger / Weiser / Mises / Hayek / Bohm-Bawerk mental world and “grew out of it”. They were never in it, and Hayek makes it plain that his own teaching was not “indoctrination” into his own Austrian world, but focused instead an economics from every tradition, British and Continental, with the core coming straight out Frank Knight’s textbook.”

    I made no such suggestion. And would you have urged Hayek to engage in indoctrination? By the way, Knight’s textbook, Risk, Uncertainty, and Profit has almost nothing in it that any even von Mises would have found objectionable.

    Finally, leave aside Hicks, Kaldor and Lerner. What do have to say about Haberler, Machlup, Robbins, and Shackle?

    Bill, Good points.

    Greg, You are going off in another direction. The question is not whether Hayek’s paradigm was fully comprehended. It is whether his work and the work of von Mises were ignored? It clearly was not, because some of the leading economists of the time, paid a lot of serious attention to their work, exhibiting various degrees of allegiance to it, but they all eventually decided it was not right. You may be right that they were wrong, but if so, they were not wrong because they didn’t give it due consideration, but because, as fallible human beings, they were in error.

    Stickman, Thanks.

    Jon, The failure of the prices of consumption goods to fall is part of the story, but I think that Mises certainly held that the Fed pushed the market interest rate below the natural rate. The immediate object of his criticism was the reduction of the discount rate by the Fed in 1927 to 3.5%.

    Luis, Thanks.

    Benjamin, Stop trying to be Mr. Nice Guy, and tell us what do you really think about Austrian economics.

  18. 19 Will February 12, 2012 at 3:36 pm

    Mises’s and Hayek’s supposed prediction of the downturn has been disputed:

    http://socialdemocracy21stcentury.blogspot.com.au/2011/05/mises-did-not-predict-us-stock-crash-of.html

    http://socialdemocracy21stcentury.blogspot.com.au/2012/02/lionel-robbins-and-myth-of-hayeks.html

    The cult surrounding both figures has little to do with the merits of their work, and a lot to do with the desire to reject everything the state does. Someone will have to explain to me what power law it is that makes it so that even though Austrians are a tiny portion of the general population and of economists, they still receive a huge share of attention.

  19. 20 Craig February 13, 2012 at 12:55 am

    Re Hazlitt – the historian Paul Milazzo has edited a collection of all of Hazlitt’s newsweek columns. It’s called, I think, ‘Business Tides.’ And of course, ‘Economics in One Lesson’ sold a lot of copies.

  20. 21 Greg Ransom February 13, 2012 at 6:49 am

    Hayek on Lionel Robbins:

    “Watching, in the case of a man I so much admired like Lionel Robbins, I’ve no doubt that [government service] corrupts the attitude of the economist. He becomes a statesman instead of an economist.”
    — F. A. Hayek

  21. 22 Greg Ransom February 13, 2012 at 6:52 am

    Cassell was saying something different than you are say, David.

    We need to get clear on what Cassell was claiming, and what Hayek was objecting to in Hayek.

    It doesn’t help with clarity when empirical disagreements are being muddled with theoretical disagreements, which is happening here.

    David wrote:

    “You suggest that Hayek could have accepted Hawtrey’s and Cassel’s account of the monetary shock that brought about the Great Depression. I agree. He could have. Unfortunately, despite being aware of what Hawtrey and Cassel were saying, as evidenced by his lengthy criticism of their views in his 1932 paper on the fate of the gold standard, he very emphatically rejected it.”

  22. 23 Greg Ransom February 13, 2012 at 7:02 am

    I don’t find Hayek saying that much about France:

    “When he defended the policy of the insane Bank of France in 1932.”

    The big issue seems to be whether or not gold was being sterilized by the United States, and part of the background is whether Britain is causing the problem by its own behavior.

    Hayek had a different idea about who was ultimately responsible for the problem.

    Is the cause of the fire the fact that there is gas there or the fact that a match was struck? How we assign causal responsibility can depend on our understanding of the background facts.

    An innocent man lights a match for his cigarette in a spot, someone else has illegally dumped gas were it doesn’t belong unbeknownst to the man.

    Who caused the fire might turn up in a court case ….

  23. 24 Greg Ransom February 13, 2012 at 7:10 am

    This isn’t the core of Hayek’s monetary disequilibrium with real effects picture, and so it is clear that it isn’t a core disagreement with what you are arguing.

    David writes,

    “The problem I believe was his conception of the price-specie-flow mechanism and its role in bringing about international adjustment.”

    Darwin was wrong about Lamarckian adaptation — at one point he was talked into conceding that it was the primary adaptive force in nature. This mistake about the empirical facts and misjudgment about theory didn’t void the core of Darwin’s work and didn’t make his work incompatible with the new “germ” theory of genetic / cellular isolation.

  24. 25 Greg Ransom February 13, 2012 at 7:13 am

    We know as a matter of fact that Hayek’s empirical understanding of the 1920s-1930s changed radically over time.

    We know that his theoretical work was taking form across 3 or 4 decades.

    It’s a category mistake to say that Hayek’s errors in perceiving what was happening in the 1925-1935 voids his theoretical work.

  25. 26 Greg Ransom February 13, 2012 at 8:57 am

    A big part of Hayek’s argument turns on the relative productivity of America over Britain, i.e. America was producing more at less cost and Britain’s labor cost was increasingly uncompetiive — these empirical assumptions had complex implications for gold policy and Cassell as far as I am aware didn’t account for effect of productivity on money demand.

  26. 27 David Glasner February 13, 2012 at 9:29 am

    Lord Keynes, Sorry, I can’t cite chapter and verse for you on this one, but I think that I do recall reading criticisms of the Fed’s reduction of interest rates in 1927 that warned that using monetary policy to avoid a recession would only result in a worse downturn later on. I think that is the basis for the idea that von Mises predicted the Great Depression. Actually, as I write this, I am also recalling (or perhaps imagining) that the Nobel committee made reference to such a prediction in its citation of Hayek when it announced that he had been selected as a recipient of the Nobel Prize. But your evidence is certainly interesting and perhaps a dose of revisionism is in order.

    Will, I agree that there is a cultish aspect to ABCT, which I find highly distasteful, but where is it written that the amount of attention that any group or idea receives is proportional to its population size?

    Craig, Thanks for the info. Economics in One Lesson was also before my time. I read it when I was an undergrad, I think, and found it vastly inferior to the greatest economics textbook ever written, but it was a mere popular primer not a full-fledged textbook, so the comparison is not exactly a fair one. But clearly Hazlitt, though knowledgeable and a fine writer and expositor was not a real economist. Apparently it was a huge publishing success, but eventually its readership was confined to the ranks of libertarians and libertarian wannabes.

    Greg, Of all the things that I really dislike about Austrian Business Cycle Theory, what I find most offensive is the cult-like tendency to ascribe any disagreement with the self-evidently true propositions of ABCT to venal motives. That tendency was apparently handed down from the founder of ABCT, Professor von Mises, himself, who, owing to his own personal insecurities or other psychological and personal issues, found it impossible to tolerate disagreement with his dicta on the part of his students, cutting off relations with fomer students like Haberler and Machlup after they showed signs of deviationist tendencies. Hayek, to his great credit, almost never stooped to such disreputable tactics. So you have done your hero no service by dredging up an obscure quote in which he allowed himself to indulge in the kind of personal attack that characterizes ABCT in its cultish manifestations. Beyond the disturbing aspersions on Robbins’s character, the statement is totally worthless as a critique of anything Robbins ever wrote or believed.

    About Cassel, why don’t you explain to me what it is you believe Cassel was saying?

    About the Bank of France. In the post to which I link, I explained exactly what was wrong with Hayek’s analysis of what the Bank of France was doing. You are right that Hayek criticized the Fed and the Bank of England. He argued that it was the Fed and the Bank of England that were to blame, and he was dead wrong about that just as he was dead wrong about the insane Bank of France. So your analogies about match lighting are way off base.

    About the core of Hayek’s monetary disequilibrium theory and PSFM, I agree that PSFM was not the core of his theory. But his conceptual misunderstanding about PSFM led him into a disastrous misunderstanding and misinterpretation of the implications and effects of the insane policy of the insane Bank of France, misattributing those effects to the policies of the Fed (before 1928) and the Bank of England.

    About Hayek’s theoretical work, I never said that his errors (which went beyond misperception of facts) voids his theoretical work, which, I agree, has great value regardless of whether it has direct policy application.

  27. 28 Greg Ransom February 13, 2012 at 10:06 am

    David writes,

    “What do have to say about Haberler, Machlup, Robbins, and Shackle?”

    David, I’m looking at this as Kuhn has taught us to look at periods of revolutionary science — people choose alternative paths over surface topics based on deeper pictures of how to understand the phenomena which have yet to be well articulated.

    In the 1930s we have a grand mix of half-formed explanatory paradigms being sorted out in this period — there are deeper and shallower layers of understanding here and great streams of cross currents.

    People are bringing deep currents to new material which they are looking at on a surface level.

    E.g. people are bringing thick and heavily blindered Marshallian lens and are watching a small clip of an expansive Austrian play still in the first act.

    So what of Haberler, Machlup, Robbins, and Shackle?

    What we know is that Haberler and Robbins had a more brittle conception of monetary disequilibrium economics than found in Hayek’s 1929/1931 book — and we know that both became embarrassed by their false view that a crude version of the ABCT offered a complete explanation of the Great Depression. Hayek seems as early as the 1929-1932 period to be much more deeply soaked in the history of monetary economics than either Haberler or Robbins, and seems much more aware of the significance of a secondary deflation/depression. As early as 1931 Hayek was endorsing various anti-secondary deflation schemes. Haberler and Robbins seem not to have Hayek’s deeper and wider view, and they seem to be attempting to distance themselves from a narrow vision Hayek never shared.

    But I can’t say I am an expert on what Haberler came up with in his League of Nations summation of the field or his work after that, nor am I an expert on what sort of macroeconomics Robbins developed after the 1930s. Did they adopt the vulgar Keynesianism of Alvin Hansen or Nick Kaldor? Would that count as a move to a higher point the overall adaptive typography, or a trap in a very shallow high point?

    As for deeper currents, we know that Robbins was most heavily influenced by Wicksteed and he was a master of schools of economic thought. He did not grow up soaking in Menger and Wieser and Mises and Wicksell and Bohm-Bawerk — so he didn’t come to the upper level formal mechanism with the deeper and wider understanding that some others brought to the material.

    Haberler is a different story — a story I don’t know well. We was a student of Wieser, and Wieser in many ways had “objective” / non-Mengerian elements built into his economics, elements that tied well together with the growing Walras/Pareto/Hick-Allen/Schumpeter/Fisher mathematical mainstream that solidified with Samuelson’s textbook. But I simply don’t know what Haberler taught or what he produced after the 1930s.

    Machlup — well, Machlup wrote the brief advocating a Nobel Prize for Hayek’s work in macroeconomics, and he seems always to be supportive of Hayek’s work in their correspondence. So I don’t know what to make of Machlup as rejecting Hayek — do you have a particular article by Machlup laying out his position. If I’ve read it, I’ve forgotten the contents.

    On bit issue behind the Machlup / Haberler thing is the correspondence between them on the growing awareness of the deep inadequacy of the “average period of production” construct. Hayek had always seen it as a make-shift, but it is not clear that others had understood that it was only a make-shift. Dumping the makeshift made the whole “story” no longer one of simple mathematics. Machlup argues that Hayek’s greatest scientific achievement is is work in _The Pure Theory of Capital_ developing the non-makeshift economics of valuational structure across time in the domain of production, but it is clear that most economists wanted to PUNT at this point — do ANYTHING but the hard work of thinking such things through.

    We’ve seen scientists punt in other fields — i.e. Behaviorism was essentially a giant punt in the science of brain/psychology which set back the science for generations.

    All sorts of sciences PUNTED when it came to the whole domain of non-linear dynamic phenomena — pretending these didn’t exit because the math didn’t produce the simple results scientists wanted to deal with.

    Etc.

    Now what about Shackle? Well, what is the lesson of Shackle? I’m not sure. The guy studied with all sorts of different people at the LSE, and he participate in discussions with Cambridge folks. Shackle didn’t come with a fixed “Hayekian” background.

    So it turns out the guy wanted to pursue his own interests, he was working in a community of graduate students and young instructors who were grappling with Keynes, and he wanted to have something on the job market that would get him a job. So he changed his research focus while working under Hayek on a dissertation.

    I’m not an expert on Shackle. His writing is very wordy and for me the gains of sorting out what his concerns are are in tension with my patience and time preferences.

    What are his arguments against Hayek? Someone needs to remind me.

    People have their own research interests. Machlup worked on monopoly and all sorts of other issues. Terrific work. How does it count against Hayek?

    Shackle was interested in epistemology and making sense of the notion of equilibrium — Hayekian themes. But how does it count against Hayek?

    Haberler’s work on the production possibilities frontier is used by Garrison to explicate the differences between Hayek and Keynes — it’s not incompatible with it.

    Robbins — I’ve forgotten what research interests Robbins took after the 1930s. I need reminding.

  28. 29 Greg Ransom February 13, 2012 at 10:17 am

    Here’s my question. What significance did it have that geologists rejected Alfred Wegener’s continental drift theory, or that biologists overwhelmingly rejected Darwin’s theory of the origin of species by adaptation and natural selection?

    These are complex stories. The stories are a mish-mash of personal biography, cross-currents of deep paradigm clashes, and on and on. There is no simple story.

    And the stories almost always reveal that people didn’t have a good grip on what Darwin or Wegener were arguing, or a good grip on the phenomena at questions — and to say that Darwin’s theory wasn’t “well-known” may sound paradoxical, but is was certainly not “well-known” in the sense of being well understood or deeply understood, and most certainly was not “well-known” in the sense that people lived within the theory as a deep structure of their mental and perceptual approach to the world.

  29. 30 Greg Ransom February 13, 2012 at 10:38 am

    Compare a 19th century biologist who is committed to a belief in the Christian God and to Special Creation, compared with Alvin Hansen in the 1930s and 1940s who is committed to a belief in Secular Stagnation and government spending as the only solution to this problem.

    The biologist can superficially lay out with not too many huge blunders some surface parts of Darwin’s explanatory mechanics, but at a deeper level the mechanics simply do not match his deepest perceptual categories or explanatory concerns, and the biologist at deeper levels is completely blind to the assumptions and understandings at the deeper levels of Darwins’s explanatory picture (e.g. tiny relative adaptation differences across tiny variations across immense spans of time, etc.)

    Ditto with Alvin Hansen. Hansen can superficially lay out with not too many huge blunders some surface parts of Hayek’s explanatory mechanics, but at a deeper level the mechanics simply do not match Hansen’s deepest perceptual categories or explanatory concerns, and Hansen at deeper levels is completely blind to the assumptions and understandings at the deeper levels of Hayek’s explanatory picture (e.g. prices as imperfect signals, near-money liquidity fluctuations as disequilibrium elements in the real economy, and the whole domain of the theory capital).

  30. 31 David Glasner February 13, 2012 at 10:45 am

    Greg, You are looking at this through a distorted lens in the following sense. I mentioned all these economists simply to counter an ignorant claim made in silly little op-ed piece in the Wall Street Journal implying that despite the brilliant and uncanny prediction by von Mises that there was going to be a crash in 1929, the entire economics profession simply ignored his work because the profession was seduced by the wily and serpentine John Maynard Keynes, causing not just the economics profession, but Western Civilization, to be cast out of the Garden of Eden that Austrian Business Cycle Theory had prepared for us, and dispatching us into an evil world of government control and inflation and ever-worsening business cycles. A deep analysis of Hayek’s thought, worthwhile and commendable to be sure, is just not necessary to dispose of such obvious claptrap.

  31. 32 Greg Ransom February 13, 2012 at 1:51 pm

    Except David, you went well beyond simply countering ignorant claims — it is equally misleading and ignorant to mischaracterize what was taking place in the 1930s. Mises had hardly written more than a few sentences on the boom and bust cycle, and what was at stake in the 1930s or how it related to empirical phenomena certainly wasn’t clear to anyone.

    My point stands. Kuhn is on what is happening during revolutionary episodes in science is relevant. It’s not true that what Mises was doing was deeply appreciated, esp. not in the 1930s. Hardly any of it was even in English, a good deal of it wasn’t even written.

    Spitznagel’s particular argument doesn’t interest me.

    What interests me is this false notion that surface engagement across deeply non-commensurable paradigms can represents a shared “belief”in an particular thing — Kuhn and the history of science shows us that that notion is completely bogus when we look at periods of paradigm revolutions, clashes, and engagements.

    In other words, your “counter” is as misleading as Spitznagle’s original claim.

    David writes,

    “Mr. Spitznagel laments that the economics profession somehow ignored Ludwig von Mises. Actually, they didn’t. Some of the greatest economists of the twentieth century were lapsed believers in the Austrian business-cycle theory. A partial list would include, Mises’s own students, Gottfried Haberler and Fritz Machlup; it would include Hayek’s dear friend and colleague, Lionel Robbins”

  32. 33 Lord Keynes February 13, 2012 at 6:38 pm

    Greg Ransom@February 13, 2012 at 10:06 am:

    “As early as 1931 Hayek was endorsing various anti-secondary deflation schemes. “

    What is your evidence for this?

    On the contrary, as late as the second edition of Prices and Production (1935) Hayek writes this:

    “And so, at the end of our analysis, we arrive at results which only confirm the old truth that we may perhaps prevent a crisis by checking expansion in time, but that we can do nothing to get out of it before its natural end, once it has come.” (Hayek, F. A. von, 2008. Prices and Production and Other Works: F. A. Hayek on Money, the Business Cycle, and the Gold Standard, Ludwig von Mises Institute, Auburn, Ala. pp. 274–275).

  33. 34 Lord Keynes February 13, 2012 at 6:50 pm

    Greg Ransom@February 13, 2012 at 1:51 pm

    “What interests me is this false notion that surface engagement across deeply non-commensurable paradigms can represents a shared “belief”in an particular thing”

    Are you asserting that economists only had a “surface engagement” with Hayek’s ABCT in the 1930s?

    Not so. There was intense, protracted discussion of the technical details of Hayek’s ABCT, and Hayek lost the debates.

    Indeed Hayek abandoned his business cycle research because of the difficulties of his Wicksellian natural interest rate concept, the impossibility of neutral money, the problems of equilibrium theory, and the complicating role of expectations and Knightian uncertainty. A sample of 1930s technical debates on Hayek’s ABCT:

    Sraffa, P. 1932a. “Dr. Hayek on Money and Capital,” Economic Journal 42: 42–53.

    Sraffa, P. 1932b. “A Rejoinder,” Economic Journal 42 (June): 249–251.

    Myrdal, G. 1933. “Der Gleichgewichtsbegriff als Instrument der geld-theoretischen Analyse,” in F. A. Hayek (ed.), Beitrage zur Geldtheorie, Vienna. 361–487. see p. 385.

    Kaldor, N. 1939. “Capital Intensity and the Trade Cycle,” Economica n.s. 6.21: 40–66.

    Kaldor, N. 1940. “The Trade Cycle and Capital Intensity: A Reply,” Economica n.s. 7.25: 16–22.

    Kaldor, N. 1942. “Professor Hayek and the Concertina-Effect,” Economica n.s. 9.36: 359–382.

  34. 35 David Glasner February 14, 2012 at 8:53 am

    Greg, I didn’t say that Mises’s work “was deeply appreciated.” But it was hardly ignored. It was known, as was Wicksell’s work, even though it had not been translated into English. And it became even better known after 1930-31 through Hayek’s work, which built on Mises’s. But the relevant point in this discussion is not whether Hayek and Mises were “deeply appreciated,” but whether the economics profession and policy makers were right not to follow their policy prescriptions for responding to the Great Depression. And I thought that by now even you had conceded, as practically everyone living at the time (with one notable exception) came to concede that the policy advice provided by Mises and Hayek in the early 1930s was wrong, indeed, disastrously wrong. So I have no idea what you are arguing about at this point.

    Lord Keynes, Thanks for the references.

  35. 36 Greg Ransom February 14, 2012 at 10:31 am

    I stand by my claim that what [redacted] lists were indeed essentially surface engagements, and that this is essentially BS:

    “Are you asserting that economists only had a “surface engagement” with Hayek’s ABCT in the 1930s?

    Not so. There was intense, protracted discussion of the technical details of Hayek’s ABCT, and Hayek lost the debates.”

    Note well — “technical details” does not equal deep, and these articles you sight MAKE my Kuhnian point, the offer powerful almost inconvertible evidence supporting my position.

  36. 37 Greg Ransom February 14, 2012 at 10:32 am

    David — you still insist on muddling theoretical achievements with historical empirical evaluations.

    Why?

  37. 38 Greg Ransom February 14, 2012 at 10:37 am

    David, you’ve made it clear that you believe Hayek’s theoretical misunderstanding of the gold standard led to his failures to evaluate the contingent historical situation in the 1920s and 1930s. But then you play bait and switch, and use that theoretical/empirical failure to marginalize something else entirely (i.e. the Mises/Hayek monetary disequilibrium / real structure work) offering no scientific grounds for that — beyond as far as I can see innuendo and guilt by association.

  38. 39 Greg Ransom February 14, 2012 at 10:41 am

    David or Lord [redacted] Keynes, straight up — have either of you read Thomas Kuhn.

    Straight up — do you have any idea what Kuhn is talking about when he talks about people with deep differences in vision, miscommunicating over shared technical details?

    Are you familiar with any of the scientific episodes recounted by Kuhn illustrating this sort of thing?

  39. 40 Greg Ransom February 14, 2012 at 11:08 am

    This is also [redacted] — [redacted] is not an argument:

    Lord [redacted] writes,

    “Indeed Hayek abandoned his business cycle research because of the difficulties of his Wicksellian natural interest rate concept, the impossibility of neutral money, the problems of equilibrium theory, and the complicating role of expectations and Knightian uncertainty.”

  40. 41 David Glasner February 14, 2012 at 11:37 am

    Greg, I find the tone of your most recent posts to be abusive and unwelcome on this blog. I have redacted the most offensive parts, but in the future I will just delete them entirely. I value your participation on the blog, but I would really appreciate it if you would not lose it. Those are the rules of conduct on this blog. In due course, I will try to respond to your substantive comments.

  41. 42 David Glasner February 14, 2012 at 2:01 pm

    Greg, It is one thing to argue that Hayek’s critics misunderstood or did not comprehend his position, it is quite another to suggest that he was ignored. Hayek would not have been the first scientist to be ahead of his time, advancing a theory that was ahead of its time in the sense that it demanded too large a paradigm shift (now where have I heard that phrase before?) for others to be able to come to terms with it. But that doesn’t mean that he was ignored. Obviously people were paying a lot of attention to him and taking him seriously. Unfortunately, Hayek was unable to find anyone else willing to join him in the battle, and he could not wage it single-handedly.

    You said:

    “David — you still insist on muddling theoretical achievements with historical empirical evaluations.”

    Greg, I am sorry, but I haven’t the faintest idea of what you are talking about.

    You said:

    “David, you’ve made it clear that you believe Hayek’s theoretical misunderstanding of the gold standard led to his failures to evaluate the contingent historical situation in the 1920s and 1930s. But then you play bait and switch, and use that theoretical/empirical failure to marginalize something else entirely (i.e. the Mises/Hayek monetary disequilibrium / real structure work) offering no scientific grounds for that — beyond as far as I can see innuendo and guilt by association.”

    Greg, I resent the implication that I am arguing in bad faith. I am not trying to marginalize “Mises/Hayek monetary disequilibrium/real structure work.” My criticism of the Austrian business cycle theory is strictly that it is nearly or totally irrelevant to an understanding of the Great Depression. I think that it may have some validity as a theory of classical business cycles under the gold standard, and it has a lot to contribute to an understanding of intertemporal relationships particularly the role of expectations in determining the course of economic activity over time. But I also view it as one of many useful ways of thinking about problems of economic coordination.

    Greg, Yes I have read Kuhn, but I see no reason to see why I should submit to being interrogated about it. If you want to have a discussion, fine, but don’t assume that you are entitled to interrogate me.

  42. 43 Lord Keynes February 14, 2012 at 8:56 pm

    Greg Ransom@February 14, 2012 at 10:31 am

    Note well — “technical details” does not equal deep …

    For any normal human being, intense and long (that is, over a number of years) discussions of the technical aspects of some thesis would obviously be a “deep” discussion of it.

    You have clearly lost your argument, and your statement above smacks of the most absurd, irrational attempt to deny the natural meaning of an English word.

    This is also [redacted] — [redacted] is not an argument:

    Lord [redacted] writes,

    “Indeed Hayek abandoned his business cycle …etc.

    Strictly speaking, it is merely a statement, relevant to this discussion.

    My statement is backed up by a considerable of amount of evidence here:

    http://socialdemocracy21stcentury.blogspot.com.au/2012/01/hayeks-trade-cycle-theory-equilibrium.html

  43. 44 Greg Ransom February 15, 2012 at 9:28 am

    David, I resent being challenged with historically false claims coming from a sock puppet hiding behind a fake name. These folks often engage in drive by smears, and they have zero accountability. I’m frankly sick of being victimized by them on blogs which don’t protect commenters from these anonymous posters posting false claims with no accountability.

    The philosopher Harry Frankfurt has an excellent book on the topic using the word you find so offensive. (I don’t find the word offensive, I find it the best word in English for the thing at issue — almost essential. And I find it silly that anyone finds the word offensive in this day and age.)

    “Greg, I find the tone of your most recent posts to be abusive and unwelcome on this blog.”

  44. 45 Greg Ransom February 15, 2012 at 9:30 am

    Why suggest that I’ve said that Hayek was ignored?

    “It is one thing to argue that Hayek’s critics misunderstood or did not comprehend his position, it is quite another to suggest that he was ignored.”

  45. 46 Greg Ransom February 15, 2012 at 9:32 am

    Read the second part of Hayek’s review of Keynes’s _Treatise_, written in 1931.

    As early as 1931 Hayek was endorsing various anti-secondary deflation schemes. “

    What is your evidence for this?

  46. 47 Greg Ransom February 15, 2012 at 9:41 am

    “Lord Keynes’, Hayek wrote on monetary economics and trade cycle theory for year and decades after the issue you mention were on the radar screen.

    Hayek got excited about the very foundation of how economics works as an explanatory science when he saw how Keynes & Lerner etc were crashing economics into a brick wall. E.g. Hayek’s 1936 essay “Economics and Knowledge” was the most exiting event in his scientific career, and sent Hayek off on a 50 year multi-aspect research project. And at its core this project was Hayek countering the pseudo-scientific cul de sac built into the mistakes of Keynes, Lerner et al.

    Articulating different paradigms and communicating across paradigms is extremely difficult — esp. with people who are emotionally committed to killing the rival messenger and message. And don’t be confused — Hayek and his rival alternative picture was despised and actively marginalized by many economists and economic departments, as Hayek himself reports.

  47. 48 Greg Ransom February 15, 2012 at 9:44 am

    “people who are emotionally committed to killing the rival messenger and message”

    Let me suggest that this fairly well describes “Lord Keynes”‘s angle and effort ..

  48. 49 Greg Ransom February 15, 2012 at 3:06 pm

    David, it’s a common thing for one circle of interlocutors to use a pat and settled formula as what is called a “conversation ender”.

    But when you are conducting a conversation _across_ conversational circles, i.e. when you are presuming to be conversing in a manner that cuts across deep rival explanatory visions, a gentlemanly “conversation ender” is no such thing — it is the starting point for a conversation, and an off-putting one at that.

    A “conversation ender” typically begs some deeper contested question and contested way of seeing the world.

    And whether or not you a much aware of it, your repeated frustration with “Austrians” and Austrian monetary and trade cycle theory has repeatedly been brought to a conversational close with a suggestive “conversational ender” that — for those Austrians you are countering — raises more issues than it closes.

    “Conversation Closer”: The notion that true believers in Austrian trade cycle theory X, Y and Z abandoned Austrian economics .. well, that doesn’t close a conversation, that starts one.

    Ditto many of the statements you’ve made about Hayek’s work and it’s relation to the Great Depression.

    The suggestion implied by those statements used as “conversation enders” when the topic is Hayek’s trade cycle theory is very different than what you have only now clarified and revealed in your discussion of Hayek’s failures to understand the gold standard or how money works.

    This is how a gentlemanly “conversation ender” can raise controversy and irritation and confusion when it is used to end a conversation across communities where the “conversation ender” has no force and only _begins_ the conversation.

    Conversations across deep differences in perception / theory are hard — and they are made harder unless folks stop to point out where they “go on together” in a conversation and where they don’t.

    This is one reason why I’ve attempted to find out exactly that on a number of matters, e.g. you haven’t yet made it plain that you get the point about deep differences in understanding brought to a common technical question, which isn’t resolved by technical arguments. (See Kuhn on astronomy, etc.)

    Conversation is hard work.

    Using “conversation enders” is a question begging fashion is good fun, but doesn’t put a conversation to beg — it starts one.

  49. 50 Greg Ransom February 15, 2012 at 3:27 pm

    David, here’s an example.

    A) Economist Y lays out the argument for a productivity norm when talking about changes in the “price level”, etc.

    B) Economist Y identifies an expansion of money and credit in an economy with massive productivity gains and a “stable” consumer price index between the years XXXX and ZZZZ.

    C) Government economists provide a set of numbers charting the consumer price index and the growth of various kinds of money and credit.

    D) Economist X argues that economist Y is wrong about the theory of inflation because economist Y’s theory of implies that there was inflation between the years XXXX and ZZZZ but the evidence shows on the contrary that the consumer price index was stable during those years.

    What is CASE D ? — case D is a muddle between facts and theory, a botched misapplication of facts to statements dependent on a false understanding of the theory at issue, resulting in a muddled combination of theory / fact that fails to tell us something about the validity of the science.

    This kind of thing happens all of the time in conversations across deep and rival explanatory paradigms.

    Examples later.

    “David — you still insist on muddling theoretical achievements with historical empirical evaluations.”

    David writes,

    “Greg, I am sorry, but I haven’t the faintest idea of what you are talking about.”

  50. 51 David Glasner February 16, 2012 at 6:59 pm

    Greg, You said:
    “I resent being challenged with historically false claims coming from a sock puppet hiding behind a fake name. These folks often engage in drive by smears, and they have zero accountability. I’m frankly sick of being victimized by them on blogs which don’t protect commenters from these anonymous posters posting false claims with no accountability.”

    I am uncomfortable with anonymous posting, but the commenter that you have a problem with runs his own blog and has adopted a public cyberspace persona , which is not all that different from a nom de plume, a device with a long history.

    “The philosopher Harry Frankfurt has an excellent book on the topic using the word you find so offensive. (I don’t find the word offensive, I find it the best word in English for the thing at issue — almost essential. And I find it silly that anyone finds the word offensive in this day and age.)”

    My objections went well beyond your use of a particular word, which is certainly clear to you from the words that I redacted from your post. In addition, I could easily retort that I find it silly for you to get bent out of shape because someone, in this day and age, uses a moniker when posting on the internet.

    You said:

    “Why suggest that I’ve said that Hayek was ignored?”

    This post was written as a critique of a piece in the WSJ alleging that Mises’s work was ignored. For purposes of this discussion, I have taken the liberty of conflating Mises and Hayek. So my comment was not specifically directed at you but at the op-ed piece that triggered by post.

    Greg, I am prepared to have a discussion with you, but there are limits to how much time I can devote to discussing the Hayek’s intellectual history, especially when I find that I have extreme difficulty in figuring out what you are talking about.


  1. 1 I am blaming Murray Rothbard for my writer’s block « The Market Monetarist Trackback on February 11, 2012 at 7:14 am
  2. 2 Mises on the Depression | Economic Thought Trackback on February 11, 2012 at 1:47 pm
  3. 3 Skepticlawyer » The misbegotten birth of macro Trackback on August 27, 2012 at 5:01 pm

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s




About Me

David Glasner
Washington, DC

I am an economist at the Federal Trade Commission. Nothing that you read on this blog necessarily reflects the views of the FTC or the individual commissioners. Although I work at the FTC as an antitrust economist, most of my research and writing has been on monetary economics and policy and the history of monetary theory. In my book Free Banking and Monetary Reform, I argued for a non-Monetarist non-Keynesian approach to monetary policy, based on a theory of a competitive supply of money. Over the years, I have become increasingly impressed by the similarities between my approach and that of R. G. Hawtrey and hope to bring Hawtrey's unduly neglected contributions to the attention of a wider audience.

Enter your email address to follow this blog and receive notifications of new posts by email.

Join 275 other followers


Follow

Get every new post delivered to your Inbox.

Join 275 other followers

%d bloggers like this: