Hey all,
This might be a touchy subject for some; I have been studying Austrian economics for a while now, and it seems pretty consistent and covers almost everything, so I'm not trying to start a flame war or anything. My question is, what are the present limits of Austrian theory? What doesn't it cover very well? Where is there room for improvement?
I really like Austrian economics, but I know that the system probably can't be entirely complete or consistent yet. In that case, I'd just like to know what the Austrian system has problems with, instead of always hearing what it has right, and what has already been solved. That's great for evangelism or political speeches, but I'm interested in learning economics ;)
Pointers to other articles or books are certainly welcome; I'm not averse to reading.
I don't think Austrian econ has any particular limitations, especially compared to other schools of economics. Its epistemological foundations are in need of clarification, which philosophers like Barry Smith, Roderick Long, Geoffrey A. Plauche and others have already attempted to bring about. Basically it needs to try escape the usage of vague Kantian terminology and eschew it in favour of clearer, more modern terms. It also seems a bit anachronistic in its concern with positivism, but I guess that is only because mainstream economics is stuck in the past in this regard. I'm also not convinced its hostility to mathematics and game theory is wholly justified, and that I think it can incorporate these without sacrificing its unique (and correct) methodological approach. It also needs to focus a bit more on modern economists and some it's neglected, such as Sraffa, to the exclusion of Keynes, who has received more than enough attention.
A limitation of praxeology in general is that it has not yet been extended to any great degree to fields like sociology and the like, which means there's work to be done.
-Jon
To darkness I condemn you...
One of the criticisms I have read is why do businessmen who are rational actors not know what is going with the credit expansion by governments and respond by not taking part in the asset boom.
(But as most economists seem to be unaware of Austrian economics, I do not think it is unreasonable that most businessmen are unaware of it as well.)
How could they know? The only "measuring stick" is the interest rate, and the CB keeps changing it! Even if they could know, staying out would put them at a disadvantage compared to others who didn't - the "sensible" thing to do is to play musical chairs: take part and hope they can liquidate their malinvestments before the crunch.
Why can't business anticipate the crisis? If they do, they simply leave the market and cease to be competitive players. Anyone is free to become a monk. But so long as you are in the market, you must compete and part of that competition means paying close attention to existing prices, including prices for credit. Prices are not things that one can ignore in a market, no matter what your intellectual orientation is.
What if you try to start a cartel of easy-money skeptics, so that all businesses ignore fauty credit signals at once? That creates an incentive and opportunity to break from the pack and make big if temporary profits.
Finally, there is the question of where the turning point is. No one knows for sure. Most businesses that do no believe the price signals but going along anyway believe that they will get out before the turn.
For all these reasons, "rational expectations" do no erase cycle effects.
Jeffrey TuckerEditorial VP, Mises
Remnant: One of the criticisms I have read is why do businessmen who are rational actors not know what is going with the credit expansion by governments and respond by not taking part in the asset boom. (But as most economists seem to be unaware of Austrian economics, I do not think it is unreasonable that most businessmen are unaware of it as well.)
Imagine that you are a farmer who knows that farm subsidies will one day be abolished by politicians. Do you respond by not accepting farm subsidies?
Microsecession as a strategy for revolution | Challenge to minarchist | How would a private road system work?
Here is an excellent article that deals with the anticipation of error:
http://www.qjae.org/journals/qjae/pdf/Qjae41.pdf
It is Hulsmann's "Toward a General Theory of Error Cycles". It specifically addresses the fact that ent. don't accurately anticipate credit boom and bust as error signals.
I also think Jeffery is correct - if your competition is going for the 1% loan, you can't compete if you don't. A conservative position doesn't do you much good if you go out of business in the boom because your competitors are succeeding from government largesse.
ps I meant to say thank you to the fellow who linked this article into another thread - I found it enlightening - but I can't find the thread. So a general thank you to Mises.org!!
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