Salerno comments on the Mainstream
Current Austrian economists are the true heirs to the neoclassical economics that thrived up through the 1930s. It was in the spirit of Carl Menger and stressed the discovery of true causal laws that explained real economic phenomena such as business cycles. By the 1950s this Mengerian-neoclassical mainstream had been hijacked by positivists, Keynesians and mathematical modelers who have held sway ever since. One happy result of the current financial crisis and depression is that the Austrian Theory of the Business Cycle, perhaps the greatest fruit of this neoclassical style of reasoning, is once again commanding the attention of financial investors, media commentators and the economics profession itself. Causal-realist economists associated with Mises Institute like Bob Murphy, Mark Thornton, Tom Woods and others have been ubiquitous online, on the radio and in articles and best-selling books offering a clear and coherent explanation of the real causes of the housing boom and subsequent financial crisis and depression based on the Austrian theory. In sharp contrast the mathematical pretenders to “mainstream economics” are still frantically trying to understand the very very concept of a business cycle with ever more arcane and inscrutable models. For example, below is an abstract for a recent article on “Fluctuations in Overlapping Generations Economies” from the Berkeley Electronic Journal of Economic Theory by Mich Tvede, University of Copenhagen:
“In the present paper stationary pure-exchange overlapping generations economies with L goods per date and M consumers per generation are considered. It is shown that for an open and dense set of utility functions there exist endowment vectors such that N-cycles exist for N less than or equal to L+1 and L less than or equal to M. The approach to existence of endogenous fluctuations is basic in the sense that the prime ingredients are the implicit function theorem and linear algebra. Moreover it is sketched how the approach can be applied to show that for an open and dense set of utility functions there exist endowment vectors such that sunspot equilibria, where prices at every date only depends on the state at that date, exist.”
It is articles like these that hasten the day when the Misesian-Rothbardians will reclaim their rightful place as THE new neoclassical mainstream.
Dr. Joseph T. Salerno