Austrian Business Cycle Theory and the Current Economic Crisis
Over on Robert Wenzel’s “EconomicPolicyJournal” blog, it was suggested by a participant that Austrian Business Cycle Theory is a “religion” that Austrian Economists worship. The implication, of course, being that Austrian theory is not really open to logic and facts; rather, it is just some “faith-based” belief system.
I have written a brief comment in reply on, “The Applicability of the Austrian Theory of the Business Cycle for Analyzing and Interpreting the General Features of the Current Economic Crisis.”
I explain why central elements of the Austrian Theory of the Business Cycle are, in fact, ones that every economist “worships” and takes for granted as part of their theoretical tool kit — the logic of supply and demand, and the present value effect on assets and investments resulting from changes in the rate of interest — for analyzing market processes.
In fact, therefore, the Austrian use of and conclusions from the application of these analytical tools are ones that, in principle, every economist should agree with.
The fact that so many mainstream economists are reluctant or refuse to reach the same conclusions says more about their “faith-based” belief in the supposed “instability” of capitalism and their “religious” fanaticism in defense of the claimed social engineering powers of the paternalistic state.
One is reminded of the closing paragraph of Ludwig von Mises’ majestic treatise, Human Action:
“The body of economic knowledge is an essential element in the structure of human civilization; it is the foundation upon which modern industrialism and all the moral, intellectual, technological, and therapeutical achievements of the last centuries have been built. It rests with men whether they will make proper use of the rich treasure with which this knowledge provides them or whether they will leave it unused. But if they fail to take the best advantage of it and disregard its teachings and warnings, they will not annul economics; they will stamp out society and the human race.”