Spreading Hayek, Spurning Keynes

We’re delighted to see that the Wall Street Journal has published a profile piece on Cobden Centre Advisory Board member Prof. Peter J. Boettke:

Eight decades ago, in the midst of the Great Depression, the Austrian school and its leading scholar, Friedrich A. von Hayek, fell out of favor relative to the more activist theories of John Maynard Keynes. The British economist’s ideas, which called for aggressive government spending during recessions, triumphed then and in the decades since, reflected most recently in measures like the $814 billion stimulus package. Austrian adherents were marginalized, losing influence in prominent journals and among policy makers.

But as the economy flounders, debt mounts and growth—revised downward Friday—flags, Mr. Hayek and his Austrian-school adherents like Mr. Boettke are resurgent as their views resonate with more people.

“What I’m really worried about is an endless cycle of deficits, debt, and debasement of currency,” Mr. Boettke says. “What we’ve done is engage in a set of policies that’s turned a market correction into an economy-wide crisis.”

4 Comments

  • Manuel says:

    I think the main reason why Austrians were marginalized is because the failed to develop a sound monetary theory.

    In my opinion, the soundness of their ideas and concepts is by far much more scientific and precise than those of the Keynesians or Monetarists, but Austrians failed to make a clear diference on this.

    Mises and Hayek did not follow the path that Carl Menger initiated once they admitted credit as a kind of money. This was a deathly concession because once they admitted credit as money the Austrians begun to fight on the Monetarists territory.

    Money, as of Menger definition, is “The most marketeable commodity”, thus money must be always a present good, which credit is not.

    People might use credit as a currency (medium of exchange), that´s OK, but it should be never confused with money. Because money can be lend out only once, but if you say credit is also money, then the same “money” can be lent again and again in and endless fashion.

    Carlos Bondone is an Austrian economist that has solved this problem in a simple and elegant fashion, here is his book:

    http://www.carlosbondone.com/en/theory-of-economic-time/economic-theory/economic-theory.html

    • Current says:

      Manuel,

      We observe that what we call money *is* the most marketable item traded. And, what we call money is a form of credit.

      The concept of “medium of exchange” and “most marketable commodity” are closely linked. Because an asset is the most marketable commodity it becomes the easiest form of indirect exchange, and becomes the accepted medium of exchange.

      Now you may argue that money today isn’t a *commodity*, that it is a financial asset. However, this doesn’t mean that it isn’t money. It’s been accepted since the days of Adam Smith that economists should use everyday language in the everyday sense, and create separate terms for other uses. The accepted use of the word money is that it means a medium of exchange.

      What you have really given is “manuel’s definition of money”. Now, you can have your own definition of money certainly, that’s fine. But that definition doesn’t prove anything by itself.

  • Manuel says:

    Well, thanks but the definition is not mine, it comes from Carl Menger, the founder of the Austrian School of economics.

    If an austrian (Mises or Hayek) wants to include credit as a form of money, they have to justify it because they are ammending or complementing Menger´s definition.

    Of course both money and credit may be used as currency (medium of exchange) but that does not make them equal just as aspartamus and sugar are chemically different regardarless of their common use as sweeteners.

    The demonstration that credit should not be treated as money is made through accounting:
    – Money, oposed to credit, is not the liability of anyone else.
    – Credit is always due to dissapear when it matures. Its duration is inherently limited, while money does not dissapear unless it is destructed or lost.

    Money, credit and currency are all every day language.

    Do you think it would be correct if an architect considers ground any kind of floor, no matter if it is 1st storie or the 20th storie of a building? Just because on everyday language it could be called floor on both cases? If you do that you admit theoretically that a building could have infinite floors.

    The same thing happens is you scientifically admit credit as money.

  • Manuel says:

    I forgot to say that I am not an economist, and my english is not very good. So my explanation is probably very poor.

    A sound version of what I am saying can be found on the work an research performed by Carlos Bondone on Monetary Theory. I really think is really worth taking a look at it:

    Pages 21 to 26 from this book: http://www.carlosbondone.com/pdf/Capitalism_and_Currency_(Carlos_Bondone).pdf

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