Progress in Macroeconomic Policy?

by Mario Rizzo


In the last forty-five years, I am told by macroeconomists, there have been many advances in macroeconomic theory. Let us grant this. Then why is the Keynesian policy position – putting relatively small differences among proponents aside for the moment – more or less the same as when I was an undergraduate at Fordham University from 1966 – 1970? The talk is still about deficit-financed stimulus either through expenditure or, to a lesser extent, tax cuts. I am still hearing about multipliers (really R.F. Kahn’s invention). The numbers involved are larger, but conceptually the policy talk is as if the past forty-five years did not happen.


Let me put things another way. Suppose Gardner Ackley, the Chairman of the Council of Economic Advisors under Lyndon Johnson, had been asked in 1964 for his policy recommendations for a hypothetical just like today’s situation, what would be different in the fiscal realm between his advice and that of the Obama advisors?  Surely the advances of the past forty-five years would give us something new. What is it?


(Note: I chose Gardner Ackley because he was the author of the most widely used macroeconomic theory textbook for graduate students in the 1960s. Look at the book you’ll be surprised at how “up-to-date” it is.)


UPDATE: For a detailed examination of the stimulus idea see this article by Robert Murphy, an alumnus of the Colloquium. It is called, “Does ‘Depression Economics’ Change The Rules?”





59 thoughts on “Progress in Macroeconomic Policy?

  1. Mario makes an excellent point, and it is really worse than he says. Deficit financing as a cure for downturns is a pre-Keynes idea among American economists. The old Chicago School of Lloyd Mints and Paul Douglas were Keynesian before Keynes was. (They tried to persuade Keynes to their view with initially no success.) The Friedman argument on lags remains unrefuted. We don’t have the inofrmation to know when to apply fiscal stimulus. And the case for it assumes there is no opportunity cost to gov’t. spending. It is a particularly weak argument when private agents are trying to de-leverage (as is the case today).

  2. Mario, have you seen Arnold Kling’s hilarious parsing of Blanchard’s paper which concluded that the state of macro was good?

    I completely agree with the spirit of your post, Mario, but just for fun here is (what I take to be) the best defense a Krugman or DeLong could give you:

    “Look Professor Rizzo, what more do you guys want? The governments of the world tried your ‘just let the market fix it’ approach for years and the Depression kept getting worse. Then FDR got elected and things were getting better, and finally the US completely pulled out of the slump with the humongous deficit spending in WWII. So already, Keynesian economics had proved itself better than classical remedies.

    “Ah, but you nigglers didn’t like the aggregate framework. You wanted microfoundations. Fine, that’s what we’ve given you. We can now build models that yield scope for Keynesian stimulus, which are built on a representative utility-maximizing agent that has rational expectations.

    “Now I take it your point is that our basic remedies are still the same now as they were back in the 1950s. Well, like I said, that’s not surprising since our remedies work and yours clearly don’t. And yes we still can trace our lineage back to then.

    “What if we asked Lionel Robbins or Friedrich Hayek what to do in the 1930s? Isn’t your answer today the same as theirs was then? So I guess Austrian economics hasn’t advanced in 80 years.”

    Of course, like the demon in CS Lewis’ Screwtape Letters, I am purposely using some slightly dishonest tactics in the screed above. But what would you to something like that, Mario?

  3. Bob,

    My point is about the seeming lack of relevance of advances in modern macroeconomic theory for fiscal policy. Not only is there not much change from the mid-1960s but Keynes was arguing for the same policies as proposed today in the 1930s before he had written the General Theory. And as Jerry says the policies were popular with the old Chicago school. It is interesting that the new mathematical theory doesn’t seem have an impact on policy ideas.

    As to your point, I believe that the age of a policy idea is not relevant per se. After all, laissez-faire is older than the idea that fiscal deficits should be run in times of recession.

    My point has nothing to do with the appropriateness of the stimulus policy prescription. It has to do with the ultimate “cash value” of recent macro theory.

  4. Why should there be any progress? Those in power would have zero interest in change, because the status quo (even as it fails over and over again) advances their real goals…which are: getting elected and getting re-elected.

    New ideas will become relevant when our house of cards finally collapses and our mostly uninformed public forces our leaders to look at alternate theories.

    The sad truth is that we get the exact leadership that we ask for. The problem is we’ve been asking for the wrong type of leadership for at least a hundred years. I view the American public as analogous (on a much larger scale) to the UAW membership which has destroyed its own industry from the inside. Our country is being destroyed…and we have nobody to blame but ourselves.

  5. Mario:

    The current situation reinforces, it seems to me, the Austrian argument concerning the sterility of the “mainstream” macro (and micro) economic approaches.

    In essence, a good part (if not most) of mainstream macroeconomics over,say, the last forty years has been merely the mathematical refinement of the core Keynesian system of sixty years ago — with some modifications of the assumptions as “post-” and “new” Keynesians have attempted to incorporate some responses to the Monetarist and Rational Expectations “counter-revolutions” of the 1960s and 1970s and 1980s.

    But even these RE “fathers” have “caved in.” Robert Lucus had a piece in a colloquium of Nobel winners on the “Der Spiegel” website about, oh, a month ago. His conclusion about the current crisis: print money, and then more money. In other words (as Jerry was pointing out) a view not much different than the “old” Chicago school — Simons, Knight, Viner.

    The fact is, we have not been “free” of the Keynesian approach (or its model and math refinements) for over six decades, now. Even the Monetarist counter-revolution was only a “eminent” of criticism of Keynes — What is the elasticity of the demand for money curve? What are the behavior assumptions behind the consumption function? What is the “response function” of people’s money illusion to a change in the rate of price inflation?

    Merely modifying some of the parameters of the model, in other words. I think that is why the “pro-market” macroeconomists have so quickly fallen in lockstep behind the “activist” policy proposals of their more Keynesian “cousins.”

    And, interesting as a further aside, is that fact that when many of the prominent mainstreamers have been interviewed or asked for comments about the current crisis and why nearly nobody among them “predicted” it, they say that no one could have anticipated such a combination of simultaneous factors all happening at once, or their relative and combined intensities. (Or how can you anticipate people’s psychological responses?)

    In other words, their macro-predictive models failed. And, now, therefore, we are to turn to them and these models to “plan” the recovery of the economy.

    Richard Ebeling

  6. Excellent dialog, gentlemen. I am very keen on Richard Ebeling’s last commentary and support of the Austrian theory (to which I am also inclined), given the facts at hand.

    Question: Are any of you familiar with the Russian economist, Nikolai Kondratieff, and the “K-wave” theory (nicknamed after him)? His concept seems to be supported also by the research of Ralph Nelson Elliott (made famous in recent times by Robert R. Prechter, Jr) and his “Elliot-wave” theory.

    My question is mainly theoretical for you gentlemen, but on my part also theological, since I am a Christian minister and see a tie between the above theories and the “Jubilee-cycle” of Scripture. So do any of you have thoughts on the above theories from your perspective (i.e. not necessarily the theology which perhaps more my forte than yours)? Any comments might prove helpful (and perhaps Bob Murphy might want to throw in some additional comment on the theology if he has any).

    Here is a link regarding the “Jubilee Cycle” in reference to K-waves for your reference:

    And charts regarding the Elliot Wave theory, and how that may be playing out with regard to three different wave phenomena simultaneously:

    I know this is perhaps outside of your original direction of discussion, but given the lively nature and diverse views reflected in this discussion, I would appreciate any commentary you might provide after reviewing these two links.

    -Rich Vermillion

  7. Quick question concerning current market conditions and the state of macrotheory? I spent some time on Irving Fisher’s Debt Deflation theory while doing my MBA? Why has this framework gone by the wayside in terms of explaining current conditions?

    Also, is there any link between Fisher’s work and the Austrian school?

    I am not a professional economist, so pl forgive me if i am jumping in on an inappropriate thread. -van

  8. A significant difference between the pre-Keynesian American advocates of deficit spending stimulus packages was that they urged that the spending be on socially productive uses such as infrastructure and so forth, whereas Keynes at one point (in)famously argued that spending was all the same and that it could be on people digging holes and filling them back up again.

    Regarding multipliers, just when was it determined definitively that they are not greater than 1, please? Most urban and regional planners certainly assume local multipliers greater than one for new investment in export (“basic”) sectors in their economies. Are they all just ignorant or stupid?

  9. The cure for the common cold is the same as it was in the 60s or 30s, does that mean there have been no advances in medicine?

    Keynes was largely right in the 30s, he has since won the argument that a recession could be caused by a shortage in aggregate demand. Friedman added a comment in the 60s and Lucas in the 80s. A consensus has formed. Mainstream macroeconomists see two policy options fiscal stimulus and quantitative easing. It shouldn’t be distressing that we have consensus. It should be comforting. This is how science works. You ask questions, you come up with answers, when you get the right answer stop coming up with new answers, move on to another question.

  10. “My point has nothing to do with the appropriateness of the stimulus policy prescription. It has to do with the ultimate “cash value” of recent macro theory.”

    This is a bet, not a fact. If Fed policy and fiscal policy “work,” then they will have quite a bit of cash value. I put work in quotes, because that will be a matter for debate, but if this run-up is similar to 1930 and the worst we have is unemployment of 10% and another half a year or year of recession, that will be pretty good. If we have something much more severe, or even a “lost decade” like Japan, then macro will not look very good. I’m betting on macro.


  11. Whether Keynes was “largely right” depends on whether his analysis of aggregate demand is correct. Just that issue has always been the sticking point for Austrians. As a practical matter, fiscal stimulus failed to lift the economy out of the Great Depression. (Robert Higgs is on point.) Friedman is more than note in all this. His analysis of the information problem — policy lags — remains unrefuted. Even if fiscal policy could work in a model, we lack the information to implement it. Lucas’ “note” credits Hayek and not Keynes as the originator of rational expectations. (Actually, credit should have gone to Mises and Wicksell. But not to Keynes, who missed the point.)

  12. No progress in 40 years? Then Economics has achieved its aim – it’s just like Physics.

  13. Hello Mario.

    Arguably we have gone backwards in our understanding of the appropriate institutional framework for governing monetary policy – even Hayek seemed to shift in his later years to favouring price stability over monetary equilibrium. Some economists of the 1920s understood that easy policy would lead to a terrible bust; today we blame the Fed for being insufficiently easy during the bust rather than too easy during the boom. Maybe the formalisation of academic economics has led to a runaway game of status-seeking rivalry in the profession rather than genuine insight and understanding of economic phenomena. Since the stagflation of the 70s ended, we have had a particularly unchallenging economic environment that culminated in the ridiculous celebration of the “Great Moderation” – just when everything was about to fall apart. It seems to me that one big stimulus for the development of useful breakthroughs (the cash value yardstick) in a domain of economic thought is a genuine crisis, and we simply haven’t had very many of those in the macroeconomic area for a long time.

    Richard – a very interesting aside indeed. But economists generally have a horrible record in forecasting, particularly in forecasting the evolution of financial markets. It’s very rare to read even a timely and correct recession forecast from any mainstream economist, whether academic, business or bank. So it ought not to be surprising that most economists did not see an event of this magnitude coming, and virtually none got the timing right.

    There are of course some market analysts who called this move very well, and perhaps it is notable that many of these have a strong Austrian influence on their thinking. Marc Faber, is perhaps the best of these (and he has a long records over decades of being right for the right reasons). To the extent that somebody has grasped the dynamic of the forces at work and successfully worked through the implications when few others have, one might tend to favour consideration of their policy solution more strongly than that of those who did not see this whole mess coming. I believe he favours letting the banks fail and enduring the incredible recession that would follow rather than paying a worse price the next time round.

    > (Or how can you anticipate people’s psychological
    > responses?)
    Economists have thrown up their hands at the idea of anticipating the ebb and flow of animal spirits. But perhaps risk appetite has its own rhythm to it; perhaps although not rational in its nature it is nonetheless susceptible to rational analysis. Techniques developed for that purpose currently have much greater standing amongst people who need to be right rather than amongst economists. Maybe that is why economics is so bad at predicting.

    Rich – interest in cycles is itself cyclical. In a major bull market, the trend dominates cycles and nobody cares about them. In our time, I expect a major bull market in interest in such studies. You might care to explore the work of the Foundation for the Study of Cycles – many gems in old articles published in Cycles Magazine (whose archives are accessible online at a minimal fee). Some market practitioners influenced by the work of W.D. Gann have studied the cycles mentioned in the Bible and some have found them useful to understanding market and social phenomena today. You might take a look at Eric Hadik’s work at (note the double i). There is also the Benner crisis cycle as well as Martin Armstrong’s work. Email me if you would like to discuss further. my email is laeeth… at…. laeeth dot com

  14. Nobody should be surprised that statists will choose a Keynesian approach to a problem caused by Keynesian thinking in the first place because statists favour intervention in the market. There is nothing wrong with economic theory because what happened was predicted well ahead of time by the Austrian school, which is marginalized because it believes in economic liberty and opposes government meddling.

  15. Thank you Laeeth for the references, and I may just email you soon to discuss this further.

    In the mean time, let me clarify my goal in asking about K-waves and Elliot waves as not being regarding investment strategies, but more from a theoretical perspective and how they might be even pointing to biblical issues regarding MODERN economics as well. Essentially, as I continue my economic studies (I have invested quite a bit into primarily Austrian school works thus far, and am digesting these daily) I notice several things:

    First, that the Austrians discuss the business cycle of “booms and busts” quite a bit, and of course, emphasize the intertemporal elements of the capital structure (along with its maladjustments when credit expansion exists without true banking by voluntary savings). In essence, the “boom and bust” cycle is one created by debt, piled upon debt. Whether one is looking at “normal” bank credit expansion increasing the money supply through fiduciary media, or the lack of backing in the fiat currencies of the world, or the liquidity injections by central banks, or the consumer spending habits based on easy credit, (& etc. & etc) you still come to one core element: DEBT. Even the massive derivatives market can be described as one giant mountain of debt, based upon a miniscule supply of supporting currencies (which themselves are nothing but debt unbacked by monetary commodities). Thus, again, I see DEBT at the heart of the issue as described by even the Austrian school’s theory of the trade cycle.

    On the other hand, I see Keynesians and Monetarists discussing at times the issues of “expectation” regarding economic phenomena. Many Austrians often draw back to Mises’ points about praxeology (i.e. the study of human action) with regard to how things are developing in the economy (and I agree with the Austrian view). I also see in the wave theories previously mentioned is a graphical measurement of the phenomena of the business cycle repeating in roughly 50-year cycles. These of course, seem to correspond with the “Jubilee-cycle” of the Bible regarding the Law’s economic elements. In short, I am investigating within my own studies (as a minister, and now also an earnest student of economics) the possibility that the Bible’s economic ordinances might actually solve the very theoretical problems that all the economic schools of though hereto mentioned have found.

    Consider: Every seventh year under the Law of Moses was to be a “Sabbatical year” in which all debts were to be released, and Jewish slaves freed. This cyclical debt cancellation was to be planned for by the population, and in the seventh year even the land was to “rest” and not be cultivated. The population could eat whatever grew on its own, but they could not work and harvest the land. This gave the entire nation a cyclical economic slow-down that was PLANNED, and which did not catch ANY of the population by surprise as the cyclical “booms and busts” of recent history all do.

    This system caused the people to develop habits: capital savings (which Austrians believe is the sound basis for all economic growth), strategic short and long-term planning…and even good lending practices. The creditors wanted to be sure they loaned their capital to people would repay and not just let the Sabbatical year cancel their debts. Meanwhile the borrowers wanted to be sure they repaid their fair debts within that time to avoid being blackballed from future capital loans because of a bad reputation for abusing the Sabbatical system. The historical tendency of the nation during the periods in which they obeyed these laws was for considerable economic progress to immerge in seven year cycles as the debt system was purged and capital savings were increased. Their lands produced richer harvests (which AG researchers have found “resting” the land will do), and booms followed PLANNED economic slow downs, giving continual growth in cyclical fashion. (The life expectancy of the population was also remarkably long, which could possibly be attributed in part to the rest years.)

    Every 7th Sabbatical year was a “Jubilee Year” in which the lands all returned to their rightful family owners, but that would be another topic too lengthy to mention here (and beside my immediate point).

    Thus, in such a scheduled economic cycle system, the business cycle is predictable and stable, because the debt has been purged and many of the excesses of human nature (e.g. credit expansion, over-speculation, etc.) have been negated. This, then, solves much of the praxeology issues of Austrian theory also, and then answers the “expectation” quandaries of the Keynesians and Monetarists nicely as well.

    Again, I see the core issue of the business cycles being actually debt cycles in essence. I seem to see this reflected in the K-waves and Elliot waves theories also (which they attribute in-part to cyclical mass psychology behavior). Thus, my growing conclusion as I study economics (again, in the light of the Bible as a Christian minister) is that the KEY issues that cause these cycles have already been solved in a Levitical fashion within the Bible itself. Those principles could theoretically be applied to even modern economies today.

    Consequently, one of my key goals of my studies (and my questions posed within this thread) is to answer the question: If these biblical principles were applied to a modern economy (regardless of size), would it render some of the theoretical frameworks used today to understand these “boom and bust” cycles irrelevant, because the cycles themselves would cease to be erratic and destructive?

    Given the level of discourse of this particular discussion thread I postulated by previous question to the group, and I am very thankful to you Laeeth for a direct response. I hope my further exegesis here stimulates even more response, now that I have clarified by purpose as not being merely an investment strategy, but truly a theoretical investigation.

    Any further comment would be appreciated.

    -Rev. Rich Vermillion

  16. “The life expectancy of the population was also remarkably long, which could possibly be attributed in part to the rest years.”

    Where is the historical evidence for this?

  17. Gene,

    The life expectancy issue was a side point, and so not expounded upon in detail within my comment. I appologize if that was a curiosity “tickler” without sufficient supporting evidence.

    In short, you can find historical evidence within the works of Flavius Josephus (who lived in 1st Century AD), as well as various Bible dictionaries which detail archeological findings (e.g. primarily tablets among the Israelites and some neighboring peoples, but often obelisks among others, and even hieroglyphic writing in the case of Egypt, & etc.) that indicate life expectancies were very long among the Israelites in comparison with other ancient cultures in that area (apart from periodic effects of war and famine, of course). The Bible itself details this, naturally, and some study Bibles available (the Spirit-Filled Life Bible, for instance) cite sources within their notes concerning such passages.

    Also, please note that I said “…could possibly be attributed in-part” because that is a theoretical statement. Israel’s advanced health, diet, and cleaning laws were literally millennia more advanced than Gentile practices, and are most often cited as the reasons for their longevity by scholars. However, “rest, diet, and exercise” are cited as core longevity practices by experts today, so the reference to the Sabbatical years playing a part in the ancient Israelites’ extended life spans is scientifically reasonable in the light of current health research, though not as often mentioned by theologians regarding this topic.

    Due to my own time constraints and desire to keep my own portion of the discussion on topic, I will refrain from taking the time to cite references more specifically. However, I trust this quick note helps to point you toward some sources for further study. 🙂

    -Rev. Rich Vermillion

  18. Gene,

    One more quick thought: It has been a while since I read the best-selling “The Maker’s Diet” by Jordan Rubin, but I remember him discussing all of the above elements quite extensively as contributing to the longevity of the ancient Israelites, but within the medical framework he is most strongly suited to discuss. So that might be a good reference for you check out as well.

    -Rev. Rich

  19. I am of the opinion that macroeconomic policy has become needlessly complex and, therefore, less effective in practice.

    The more one tries to quantify direct returns the more one must rely on cute little stat tricks (hedonic regression for example) and the less accurate the model becomes. Macroeconomic policy today is based on intricate modeling which requires much too many presuppositions to have sustained relevance.

    In the quest to quantify everything we make tiny not-quite-accurate assumptions on the micro level and variance gets compounded by several orders of magnitude when these assumptions get applied on the macro end.

    What public policy comes down to is facilitating competitive markets with the lowest possible administrative cost and the highest possible social utility returns. Sometimes that means completely unregulated markets, sometimes self regulated and sometimes fully governmentally controlled. It all depends on the market structure of the sector and the externalities involved.

    I understand this is a simplified outlook but sometimes sticking to fundamentals is FTW PWNage. laterz n00bz.

  20. Why am I not surprised? I use the same Pythagorean theorem that Pythagoras used 2500 years ago.

    As for fiscal stimulus ending the Great Depression, it depends on whom you ask. Most people I knew who survived that era were quite happy to take any job, and the New Deal created all sorts of jobs. Sure, it might not have satisfied every macro-economics ideologue, but most people live in a micro-economy. The universe may be expanding, but that doesn’t have much effect on chemical reactions over their typical durations.

    Basically, a lot more people will be happier with a paying job in a stagnant or collapsing economy than being unemployed and unable to make ends meet in a growing economy. It would be nice to have both, but a rising standard of living can compensate quite nicely for the lack of GDP growth. Most of that went to their boss’s bosses anyway.

  21. Rich

    I think that you might be interested in Rothbard’s commentary on Kondratiev waves. For what it is worth, I agree with Rothbard’s conclusions and believe that Kondratiev is mostly a waste of time.

    You also have to consider that most ancient debts conveniently came due before the year of debt forgiveness, so not many borrowers were able to get profit by transferring wealth from the lenders to themselves.

  22. Kaleberg

    The make work projects of the Great Depression caused more harm to labour than any benefits that they are credited with. The diversion of labour and scarce resources into low productivity ventures did not help the economy and the US economy and labour markets did not really recover until well into the 1940s. Anyone who believes that government is better at allocating capital or creating wealth than the unhampered market is basing his decision on faith rather than reason.

  23. Van

    The Austrians have never thought much of Fisher or his ideas because they didn’t think much of his theories and arguments. At the 1932, conference at the University of Chicago, which was sponsored by Institute on Gold and Monetary Stabilization, At the conference, Gottfried von Haberler, who was a follower of Ludwig von Mises, argued that the mainstream monetary theory of the trade cycle was too concerned with the stability of the price level and that the recommendation to attack on falling prices was misguided because it would not end the depressions.

    Hebler’s argument opposed the recommendations of respected economists like Fisher and Hawtrey. Hebler stated that the price level was misleading because prices are affected by credit expansion and pointed out that there was nothing wrong with productivity driven prices declines. Like other Austrians Hebler stated that the mainstream economists needed to understood that the 1924-1929 period should have been characterized by major price declines since it was a period of unprecedented productivity gains as new technology and capital improvements made labour so much more productive. Of course, the alarm was not sounded because the Fed’s monetary inflation policies created inflation that was hidden by the productivity increases and because both the government and the mainstream economists thought that inflation was not a bad thing.

    The Austrians understood that it was the Fed’s inflationary policies of the 1920s that triggered the depression. As interest rates fell the production cycle lengthened and many projects that would never have been funded were financed by individuals who were fooled by the artificial signal sent by the declining rates. To the Austrians, as Haberler pointed out, a depression was the necessary liquidation of these malinvestments and for the economy to get healthy a major adjustment of capital and labour had to take place as rapidly as possible

    It is very sad that economists do not seem to have learned very much from the events that preceded the 1929 crash and from the subsequent depression that was created by meddling of the federal government. The very policies that made things worse and prolonged the crisis are now seen as the blueprint of how to proceed this time around.

    If you want to learn about the events that created the Great Depression I suggest that you look at Rothbard’s, the Great American Depression. You can download the book for free from the Mises Institute web site by clicking on the link below .

    Click to access agd.pdf

  24. […] I would also be very interested in finding out just what it is “that we have learned in the last 60 years of macroeconomic research” that we are ignoring. Not that I don’t agree with Sargent that most of the discussions take place on a level that’s barely above what I can understand with a measly undergrad+ education economics (I don’t know whether this should flatter me or scare me). But what useful innovations have taken place in macroeconomics that shed some light on how we should conduct fiscal policy in practice, I do not know and I’m comforted by the fact that it seems neither does Sargent’s NYU colleague Mario Rizzo. […]

  25. Vangel,

    “Makework projects” in the 1930s were shifting labor from productive to unproductive uses when the unemployment rate was 25%? You have to be kidding, unless you want to argue that the makework projects were actually of negative productivity. However, I see people camping today in places fixed up by the CCC back then.

    Gerry O’Driscoll,

    Mises and Hayek discovered rational expectations? That is too bad, as that is an idea that has been largely discredited in reality by many sources.

    Some years ago in Critical Review I wrote an essay criticizing Tyler Cowen’s book on “New Austrian Business Cycle” theory, precisely on the grounds that he was imposing ratex and I used Hayek and the Old Austrians to beat him over the head for wasting everybody’s time with such nonsense. And here you go saying they were the sources of the nonsense. Gosh.

  26. Barkley,

    I don’t know if you saw my response to your comment at Marginal Revolution but here are the parts relevant here:

    ” I am not sure of the point about about Keynes because in many places he expressed the idea that the investments should be “self-liquidating” (pay for themselves) over the longer run. I’ll bet these points about holes are from the early 1930s.

    I am also not sure what Barkley means when he says …that to assume multiplier effects exist is ludicrous. In my post on “What Gets Stimulated…” I said: “Let’s assume for the sake of argument that, initially, increased government expenditure does stimulate a meaningful measure of national income.” FOR THE SAKE OF ARGUMENT. My point was to disaggregate the putative effect and see just what is stimulated. There is some evidence that the dominant effect is on the directly stimulated sectors with investment-consumption in other fields only weakly affected. Agents outside of the directly affected sectors may not wish to invest or consumer on the basis of what they see as a temporary increase in demand. My recollection is that Keynes expresses similiar concern.”

    As an update on my general point about the relevance of modern macro, see the Chicago Tribune article referenced in my latest post — especially the quotation from Tom Sargent.

  27. On Barkley,

    Mises articulated the core idea of rational expectations with his “Lincoln’s Law.” Wicksell did it with his parable of the man who sets his watch ahead so he won’t be late. Hayek pointed out the repeated application of the same means — expansionary monetary policy — will eventually cease to have the desired results. Friedman and Phelps did much the same thing with their distinction between the short- and long-run Phillips curve. (I count 3 Nobel prizes deservedly awarded for these insights.) The core idea of rational expectations is surely correct. What RE theorists have done with it is another matter. These issues were covered years ago in a volume edited by Mario Rizzo from papers given at an NYU conference.

    I hope we can keep this discussion civil.

  28. Mario,

    Point well taken. I would add that the best available evidence suggests that aside from the sectors themselves, the most cogent multiplier effects are those occurring in the localities where those initial effects hit. That is, the people who get the initial increases in disposable income spend lots of it in their local communities, the first round effects. Beyong those, things start to get much more tenuous, faster than would be expected from the usual textbook calculations.


    Well, of course, the person who did not get a Nobel was John Muth, who should have as he coined the term and laid out the argument in more detail, although one can also find it pretty well laid out in a paper in 1950 by Jacob Marshak.

    Friedman’s Nobel was officially for his permanent income hypothesis, although one can argue that this idea has ratex implicit in it. That there might be a long run PC that eventually people go to as repeated efforts at a discretionary monetary policy become increasingly ineffective is not identical with the strong form of ratex, and Phelps has disavowed that strong form openly.

    I do not remember Lincoln’s Law, but certainly the setting one’s watch forward argument is not inconsistent with ratex, and I can see that Hayek’s monetary theory can be seen as not inconsistent with it also, although I suspect Tyler might disagree. However, Hayek, or at least the later Hayek, was much more open to the sorts of uncertainty arguments that you and Mario have also pointed out as coming from the Austrian tradition, and which can also be found in Mises, which is a lot harder to reconcile with ratex. But, I am not going to get on their cases for such apparent inconsistencies. Peoples’ views change over time, or sometimes it can be argued that a principle holds for certain cases or time horizons while not for others.

    As for being civil, well I guess you have heard that I am a @#$%^&*+! with whom civil discourse is simply and utterly impossible, so I apologize for dragging you into such a hopeless swamp of mortification and fratricide, :-).

  29. Jerry,

    For the record, that an idea received Nobel Prizes does not convince me of its worthiness, anymore than does an individual receiving it do so. If you check around you will find that I made some complaints about the recent award to Krugman, not on the grounds of Pete Boettke and some others that he is a naughty liberal critic of G.W. Bush, but that he failed to cite people who first discovered the ideas for which he supposedly received the prize.

    I do happen to think that for various reasons Friedman, Hayek, Lucas, and Phelps all deserved to win the prize, with Lucas being the one who most clearly got it for ratex. Certainly it is an important idea in theory. My problem has been when people go from thinking about its theoretical implications to deciding that it holds in reality, the evidence for which is weak at best.

    As for a vertical long-run Phillips Curve, what is the evidence of that? I accept that at any given moment of time one may well be able to find a “natural rate of unemployment” as it was originally defined by Friedman. But, as noted by Phelps, that natural rate is likely to move around so much that it will have moved before you will have had enough time for that good old long run Phillips Curve to actually be established and be measured. In short, it is another idea that is a nice idea, but not very useful in practice.

  30. “If you check around you will find that I made some complaints about the recent award to Krugman, not on the grounds of Pete Boettke and some others that he is a naughty liberal critic of G.W. Bush”

    You’re claiming that Pete Boettke has complained about Krugman because Krugman has critized Bush?! I think you’ve just made that up out of whole cloth. You can prove me wrong, though, by posting a link to this criticism. Otherwise, I would expect to see you posting an apology to Pete here.

  31. I did say the prizes were “deservedly awarded.” I said nothing about a vertical Phillips curve, but a long-run Phillips curve. I don’t think the natural rate of employment is a constant, any more than I think the natural rate of interest is a constant.

  32. Jerry,

    Offhand, it looks like we are not all that far apart, even if I am a fratricidal @#$%^&*+! :-).


    I suggest you look at You will find a link there to Pete’s initial reaction on The Austrian Economists, which was quite negative. The precise remarks about politics were drawn from a reaction on Cafe Hayek by Russ Roberts. Later Pete made a lower key statement, attributing to Krugman some good ideas, but still worrying that all this would be lost in the hubbub of his political punditry and the negative effects from puffing him up.

    At that site you can also see a reaction by Mario, and also an explanation and source from my work on the really serious problems with Krugman’s prize by Roger Koppl.

    Anyway, I don’t think I owe Pete an apology, and I would be quite surprised if somehow he felt that I owed him one. However, if he does think so, I would be willing to oblige, if I have in fact misrepresented his views. As it is, I think you do not know what you are talking about.

  33. “Anyway, I don’t think I owe Pete an apology, and I would be quite surprised if somehow he felt that I owed him one. However, if he does think so, I would be willing to oblige, if I have in fact misrepresented his views. As it is, I think you do not know what you are talking about.”

    So, you defend your mis-attribution of a view to Pete that I’m sure he has never held — he doesn’t like Krugman because Krugman criticizes Bush — by citing a blog entry in which Pete does not once mention Bush! Then you say I don’t know what I’m talking about?! What sort of rubbish scholarly standards are on display here?

  34. By the way, Barkley, I’m willing to make you a large bet that, if we can get Pete to comment here, he’s going to say, “I think Krugman’s economic policy views are pretty bad, but I love the way he’s been a big critic of Bush.”

    How much you in for?

  35. Barkley

    What caused the high unemployment rates in the first place was the massive investment that was encouraged by the Fed’s lowering of interest rates in the first place. The economy could not heal until those malinvestments were liquidated but Hoover and FDR prevented that from happening. The simple undisputed fact is that FDR’s administration chose to engage in a series of make work projects which diverted resources from other uses and that this did not work because the net effect was to turn a recession into a decade long depression. This type of ‘stimulus’ has been discredited and the supporters of such an approach cannot provide a single example where it worked to lift an economy out of depression.

    I also don’t believe that you understand what the Austrians mean by rational expectations. As Mises pointed out, men act because they prefer that action over an alternative. That is as far as the rationality goes; he certainly did not mean that the judgement to act was infallible.

  36. Gene,

    Here are Pete’s own words:
    “Unfortunately, and unlike both Friedman and Galbraith, Krugman’s work devolved from science to ideology and finally to political partisanship. . . . he has used his platform as an economist and as a columnist for the New York Times for his Democratic partisanship purposes.”

    If Krugman was guilty of “Democratic partisanship” in recent years, at whom, pray tell, might his barbs have been aimed . . . ? Yes, yes, Barkley’s exact words might suggest Pete digs W. Let the record show nobody thinks Pete digs W. Barkley’s minor infelicity of language — on a blog! — is hardly evidence of “rubbish scholarly standards.” Please take a valium and lie down.

  37. I meant to get back here sooner but was busy with various things, and then my internet connection went blooey.


    So, I would fully agree that I did not intend to attribute to Pete Boettke any love or support of George W. Bush. I would agree that he should not have been mentioned here at all in this discussion. The point was that Pete was unhappy with Krugman’s nonclassical liberal position, and concerned that he may have been given his prize because of it (others at the time brought up his criticism of Bush, but not Pete, when making similar general complaints), and concerned that his receiving the prize would give him more attention and all that. So, I should have been more careful

    If you wish to accuse me of sloppiness, fine, you are right. However, I suspect that Pete Boettke, whom I have known for a long time, is probably not nearly as upset by my careless statements as you are. If you want, I shall apologize to you. If Pete himself asks for an apology, I shall apologize to him. However, I suspect that he is not going to demand one, and I will stick with my remark that you do not know what you are talking about. After all, I am the one person in the world who has shown the real reason why Krugman may not have deserved the Nobel, or at a minimum should have shared it with others not named by him or anybody elsle in the world other than me (although I happen to know that there has been a non-publicized formal complaint about the award by certain knowledgeable geographers citing my work). And, btw, Pete is well aware of some of this, unlike you, which is one of the reasons why he will give me a pass on my having inadvertently and accidentally appeared to suggest that he might have ever been a supporter of our soon to depart president.

    BTW, and for the record here, I have received very serious condemnation in other quarters for bringing up these matters about Krugman, very serious. After all, the flip side of Pete and others getting all bent out of shape over PK’s Nobel for political reasons is all the people who were ignorantly cheering for the same reason, and very much not wanting to hear the negative grumblings from the likes of me. I am now personal non grata in certain quarters as a result of this, or at least persona not quite so acceptable (I even heard this from a job candidate in my department whose lecture I was attending earlier today so that I could not clear up this matter sooner).

    Of course, Gene, I suspect you have no idea what this is all about, although if you do, you could make yourself look like less of an ignorant fool by explaining it for those of us who are less well informed than glorious you (yes, Jerry, I am a @#$%^&*+!, when provoked by annoying ignorami).


    You are right that I do not know what Mises or Hayek meant by “rational expectations” because they did not either, the concept not existing when they wrote, although Hayek lived until it came to be known and wrote afterwards, but I am unaware of him ever making any comment about the concept, although I stand to be corrected on this matter. Of course, various people calling themselves “Austrians” have since done so, but without any unanimaity that I am aware of.

  38. Gene,

    I just googled “Hayek rationa expectations.” Just as I expected I found contradictory entries. I am not going to name name, but some folks see Hayek as a prophet of ratex and others say his views do not agree with it. Just as I said.

  39. OK, Barkley, at least you are admitting you were wrong, even though, somehow, I am still an ignoramus despite having been right! I really don’t see what in the world your personal involvement with any Krugman-related disputes has to do with whether or not Pete was pouting because Krugman criticized his boy Bush, which is pretty clearly what your first post on this implied, and pretty clearly makes Pete look like he objects to the Nobel for petty, personal reasons. I am sorry to hear that you are having troubles related to this matter, and I admit I knew nothing about them until your recent post, but I don’t think they are in the least relevant to my point.

  40. Ah, I’ve figured out, I think, the reason that Barkley is still calling me an ignoramus and saying I have no idea what I’m talking about. Here goes:

    Let’s say I am invited to a private dinner party with Barley, Pete, and Roger, who are old friends, and I’m a newcomer. At the table, Barkley makes some remark about Pete that seems insulting to me, but Pete and Roger just laugh. At this point, what I should do is say to myself, “These are old friends, and there are subtleties and nuances here I don’t understand — I should sit back and learn what’s really going on before I comment.” If, instead, I jumped up and yelled, Barkley, you have insulted Pete — please apologize,” I am being an ignoramus.

    If that is the sense in which you mean these remarks, Barkley, let me suggest you have mistaken the context in which we are conversing — this is not a private dinner party, but a public blog. In this situation, commenters can and should only be expected to know the public aspects of what is being discussed. In this context someone who jumped in and didn’t, say, know who Krugman is, or that Pete has criticized him publically, would indeed, be an ignoramus. But you are not justified in expecting commentators at a public blog to know about your years of friendship with Pete, or the personal travails you have suffered in relation to Krugman’s prize. The general readers of this blog are going to interpret your remarks against a backdrop of general, public knowledge, and not suspect that they are a species of inside joke, or something of the sort.

  41. Barkley

    First, I do not expect unanimity in the Austrian School. It is a big tent and there is room for a great deal of disagreement on some points. Many Austrians still consider Hayek to be too far on the statist left to be considered representative on the majority view except on a few issues.

    As I wrote before, Mises understood what he was writing about and from the way I read him it is clear that he opposed government’s intervention in the market and the diversion of resources into make-work projects. History certainly showed that the Austrians were right because the crisis that was caused by the central bankers’ loose monetary policies in the 1920s was made longer by the intervention of the 1930s. Nobody is writing much about the depression of 1920-1921 because the government cut taxes and federal spending as it allowed wages to decline and liquidation of malinvestments to take place.

  42. Gene,

    The point of my original remark was in the bit about Krugman being a “naughty [nonclassical] liberal,” with the part about his criticizing Bush being essentially extraneous. While lots of people who were upset about Krugman getting the prize were openly upset because of his criticism of Bush, that was not Pete’s position. However, Pete was indeed upset about the political aspects of it and the fact that Krugman would get more attention for his political-economic views “nonclassically liberal” ones, as a result of his getting the prize. That part of my remarks remains valid.

    The whole business about Bush was a sideshow. I was wisecracking, and all of a sudden you were coming on demanding apologies. Again, I seriously doubt that Pete would have demanded (or will) an apology over this. You were off on a silly goose chase, even if you were in some sense “right.” So, have fun with your irrelevant “rightness.”


    One can criticize loose monetary policy withouth believing in rational expectations. They are separate issues.

  43. Barkley,

    I think it’s probably fair to say that Pete’s issue wasn’t so much Krugman’s politic preferences as is political partisanship, which is why Galbraith comes in for a favorable mention in Pete’s comments. I think Pete was worried that the award to Krugman would encourage more coarse partisanship among economists. I also think you didn’t really mean to suggest anything to the contrary. Since this has become such a dustup, however, I thought it worth saying.

  44. Roger,

    Fair enough. It should be kept in mind by anyone really interested in this that Pete made two separate statements about the matter, both of which are pretty easily tracked down. The second was much more carefully stated and would clearly fit with Roger’s statement here.

    For those of you who somehow continue to want to hang the crime of inventing rational expectations on the heads of Mises and Hayek, allow me to remind you of the argument of Tyler Cowen in his book on the New Austrian Business Cycle Theory. Tyler points out that if agents have ratex, then the arguments of Mises and Hayek about the effects of sloppy monetary policy will not hold. Why not? Because agents will known when a central bank is pushing interest rates too low and will not be taken in by this and will not engage in borrowing and investing based on this. The awful overinvestment leading to the subsequent crash will not happen. So, you should thank me for using Mises and Hayek to beat Tyler over the head regarding how useless the ratex assumption and how it does not hold in reality, thereby allowing for classical Austrian business cycle theory to work.

    Oh, and Gene Callahan. Allow me to suggest that the next time you want to publicly demand an apology from somebody on behalf of somebody else, check with the person you are supposedly standing up for to see if they really want to have that apology made or not first.

  45. Barkley

    I agree that a person can criticize loose monetary policy without believing in rational expectations.

    My point is that when I read Mises I understand him to have a very clear understanding of rationality that is very different from the assumption of rational expectations that are made by mainstream economists. Mises said that when people acted they selected the most attractive choice among different alternatives. He never said that the rational choice indicated good judgement. I suspect that you know that most Austrians would argue that since in our complex, non-linear world the future is not knowable and because of this we cannot argue that any choice is truly rational in the mainstream sense. What we can do is go back to the Mises point and claim that when each of us makes a choice it is because we found it more attractive than the various alternatives that we considered. Once again, that view of rationality is different than what is meant by rational expectations by mainstream economics.

    As an engineer, I came late to the study of economics and very late to the focus on the Austrian School. Had I not been working in China and paid attention to debates there I would have been unlikely to look to the work of Mises, Rothbard or the other Austrians. Two Chinese acquaintances, who worked for the local government were big supporters of the Misesian economic theories. (That said, they thought him to be too statist when compared to others in the school.) They suggested that I read a few of Mises’ books and that I look to Rothbard for a better explanation of American economic history, particularly his book on the Great Depression and Man, Economy & State. After reading them I have come to the conclusion that the Austrian School has the best understanding of economics and because of their understanding Austrian economists are best positioned to make accurate predictions about the effect of policies on future economic conditions over the medium to long term.

    I am quite willing to look at alternative views on various topics and have searched for material that would improve my understanding of economics. But try as I might I have yet to find any approach that is even close to the Austrians.

  46. Vangel,

    Thank you for responding to my query regarding the K-wave issue. I have started to digest the article you referenced, and will compare Rothbard’s insights with those of pro-long wave theory advocates to analyze both sides of the spectrum before reaching conclusions of my own.

    Regarding you point: You also have to consider that most ancient debts conveniently came due before the year of debt forgiveness, so not many borrowers were able to get profit by transferring wealth from the lenders to themselves. I never suggested anything in my previous post to suggest that borrowers were in the habit of utilizing the Sabbatical cycle to profit of of the lenders.

    Quite the contrary, as I stated “The creditors wanted to be sure they loaned their capital to people would repay and not just let the Sabbatical year cancel their debts. Meanwhile the borrowers wanted to be sure they repaid their fair debts within that time to avoid being blackballed from future capital loans because of a bad reputation for abusing the Sabbatical system.” Thus, I would agree with your statement, but do not see the point in relation to my own.

    The MAIN issue I am concerned with was stated in detail in my second post: If debt-related issues seem to be at the heart of the Austrian Business Cycle theories, then could biblical precepts (such as the Sabbatical system, commodity-based money of high purity, etc) solve the “boom then bust” problems, and thus, render much of the economic debates moot?

    I have been enjoying the vigorous debate of this thread, I must say (emotional issues aside). Though I am probably one of the newest here to the Austrian school of thought, would like to suggest that Roger Garrison’s Time and Money: The Macroeconomics of Capital Structure (which I am currently reading and enjoying) seems to address some of your controversy within this thread nicely. He even states in his introduction that, “The capital-based macroeconomics offered in this volume is intended to help put capital back in macro and help put macro back in modern Austrian economics.”

    Austrian economist Jesus Huerto de Soto was very keen on Garrison’s book, and added references to it within the footnotes of his mammoth tome, Money, Bank Credit, and Economic Cycles which was originally written in Spanish prior to Garrison’s book (thus he footnotes references to it after the fact in his subsequent Spanish editions, and the English translation which is based on the 2nd edition).

    Again, if anyone has any direct comment that would be helpful (from your economic viewpoints) to my theoretical/theological questions regarding the potential affects of biblical monetary policies on modern economic cycles (e.g. scheduled debt cancellations), I would be most appreciative. I already know the Austrian school is favorable to the biblical standards of 100% reserve banking and precious metals commodities as money, but these other aspects of biblical economic thought are generally not mentioned in the texts I have seen to date.

    Many thanks again, however, to those who have given me commentary on the other points.

    -Rev. Rich Vermillion

  47. Well, I am concerned “koppl” that your quip reveals that you apparently do not know your economic history. Quoting directly from the website concerning Murray N. Rothbard’s two volumes concerning economic history, we discover that Rothbard certainly saw theological contributions to modern Austrian economic thought (note the bold texts in particular):

    In Economic Thought Before Adam Smith, Murray Rothbard traces economic ideas from ancient sources to show that laissez-faire liberalism and economic thought itself began with the scholastics and early Roman, Greek, and canon law. He celebrates Aristotle and Democritus, for example, but loathes Plato and Diogenes. He is kind toward Taoism and Stoicism. He is no fan of Tertullian but very much likes St. Jerome, who defended the merchant class. Now, that takes us only to page 33, just the beginning of a wild ride through the middle ages and renaissance and modern times through 1870.

    Classical Economics offers new perspectives on both Ricardo and Say and their followers. The author suggests that Ricardianism declined after 1820 and was only revived with the work of John Stuart Mill. The book also resurrects the important Anglo-Irish school of thought at Trinity College, Dublin under Archbishop Richard Whatley. Later chapters focus on the roots of Karl Marx and the nature of his doctrines, and laissez-faire thought in France including the work of Frederic Bastiat. Also included is a comprehensive treatment of the bullionist versus the anti-bullionist and the currency versus banking school controversies in the first half of the nineteenth century, and their influence outside Great Britain.

    So, thankfully, Rothbard did not agree with your assessment of theological contributions to modern economic science. In fact, any honest evaluation of ANY field of science will find its roots in the works of people whose research they considered an extension of their theological beliefs. The scientific method itself was devised, defined, and refined, primarily by Christians, many of whom were even ministers as well. Thus if you remove the theological foundations from ANY field of scientific endeavor (most especially Judeo-Christian theological contributions) you will rip the very heart and soul out of that science and find yourself holding non-intelligent sewage as a result.

    Case in point: Note the above reference to Karl Marx. I think nary a single Austrian economist visiting this discussion thread would argue that his entire concept of capital theory and economics was intellectually stupid, and empirically moronic. Many an Austrian has “sliced and diced” his theory such that no thinking person should ever consider a shred of it seriously…yet many still do. Why?

    The Austrian school’s greatest weakness (in my opinion) is the fact that it OFTEN ignores religious and ideological roots of opposing economic theories, and thus, the true agendas of those who propagate them. The theories continue to spread in influence via the ideologies that underpin them, while the Austrians argue theory and empirical data. Thus, the Austrians too often fail to recognize (much less nullify) the evil ideological and religious “vehicles” that continue to carry their opponents’ theories wide and far.

    In the example of Karl Marx, all Austrians recognize he was a pure Statist. But do most of you know he was also a practicing Satanist? (Do your own homework, and you will find that is the case.) Do you know that Satanists and Occultists generally believe in the coming of a “New World Order” and a global leader (known in Christian theology as the Anti-Christ)? Therefore, most of you are probably missing Marx’s main true agenda, which was not an earthly Utopia but the creation of a super-state, the destruction of Judeo-Christian theology (including those regarding honest government and sound economics), and the purposeful enslavement of the masses for the benefit of a ruling elite.

    Another shocker: Did any of you realize that John Maynard Keynes was a “Fabian Socialists” and connected with various secret societies and occultic groups? Essentially, the ideological (i.e. religious) root of his economic theory is the same as Karl Marx…who he also highly regarded. So therein is also the reason Keynesianism is so widely adopted by Western governments. Many of those in governments are members of secret societies which are occultic at their root (e.g. G.W. Bush as a satanic “Skull and Bones” member, and never really a Christian, and his agenda-serving monetary policy). Consequently, Keynes’ theory was widely adopted by Western leaders because it fit their own ideological (i.e. religious) agendas.

    It would seem that few modern Austrians understand the importance of ideological agendas as driving forces in errant economic theory proliferation.

    This brings me back to my general purpose: If the Communism and Socialism economic protocols could spread so widely via their ideological mechanisms, what ideological/theological mechanism could there be that would propagate Austrian theories to the masses of the world’s populations, and neutralize the errant influences of the false? Answer: Judeo-Christian theology, as Rothbard correctly noted was already a major contributor to the Austrian school of thought anyway.

    In other words: My specific goal (and the basis for my questions within this thread) is to identify in purely economic terms what the probable affects would be of certain biblical economic practices on a modern economy, and by extension, on praxeology (i.e. probable human action) in general. If the Austrian concept of commodity-based money is found already within Scriptures (and it is…written thousands of years before the word “Austrian” became a reference to any school of economic thought), and the Austrian concepts of sound banking practices such as 100% reserve requirements are found therein (and they are)… then could the modern application of some of the other economic practices of Scripture actually solve some of the current business cycle dilemmas quickly and simply also?

    If so, then we have a MAJOR opportunity to capitalize upon. For if such economic concepts can be communicated to the ONE BILLION Christians on the planet through biblical points of reference, then the ideas of the Austrian school can actually be propagated FASTER than those of their Communist and Socialist antagonists.

    So in conclusion: I would expect that anyone reading this discussion thread (who is favorable toward the Austrian school of economic thought in its many variations) would be delighted to “put their thinking caps on” and give me constructive feedback on how such principles could be applied to modern economies, and what the likely results might be. For if I am successful in connecting the pragmatic aspects of biblical economics to modern economic theories that give empirical evidence of their viability (which, thus far, I am) then as a Christian MINISTER (and award-winning author, by the way) I can communicate these ideas to other Jewish and Christian ministers also; and together, we can spread it rapidly to the “masses” that could not care less about trying to understand complex capital theories…but who DO know their Bibles and would readily accept an economic theory that could be communicated to them in a manner to which they can relate easily.

    In short, ancient Israel practiced many of these same pragmatic economic principles found in the Scriptures during the reigns of David and Solomon, and that nation became the wealthiest of that region by far during that time (as archeology regularly confirms). So could these also work today? Please help me from your economic perspectives to think this out in a modern context, so that I (and others) can then “take them to the street” where they can be implemented by the masses…rather than be merely discussed within a thread.

    Thank you again for your time.

    -Rev. Rich Vermillion

  48. Oh dear. Well I suppose it is my fault for responding at all.

    Reverend Vermillion, you can deliver “the ONE BILLION Christians on the planet” for Austrian economics? Swell. Knock yourself out. Good luck with that. Me, I’m going back to my garden and tilling that. Please forgive me for disturbing your non-ideological peace.

  49. Well, I can sure make an effort to communicate Austrian-friendly economic concepts to the estimated one billion Christians (plus all the Jews, of course) in the world through a biblical worldview.

    The reality is, if the concepts of Austrian economics stay within the confines of theoretical debate, the Austrian school will remain the minority opinion. If there are biblical basses for many Austrian principles (and there are, which is why I think they actually work) then complex theories can be simplified within a biblical context, and more people can grasp and embrace these principles.

    Please do not consider my lengthy reply to your brief quip as a sign I am offended, because I am not. Rather, I am simply trying to establish the context of my queries while expressing a very pragmatic reason for those of the Austrian school to ponder reasonable answers.

    In other words, we are on the same team (i.e. propagating individual and economic liberty), but playing different positions (i.e. primarily theological on my part, but economic on yours). So I am merely reaching out with an invitation…namely, let’s play together so we can BOTH win. 😉

  50. Rich

    English is not my first language and I am sometimes careless because I write faster than I should. I did not mean to suggest that you implied something that you did not and used the word ‘You’ when I should have written ‘We.” The sentence should have read, “We also have to consider that most ancient debts conveniently came due before the year of debt forgiveness, so not many borrowers were able to get profit by transferring wealth from the lenders to themselves.”

    It has been claimed by many that as libertarians, Austrians ignore man’s spiritual nature. That is not true because Austrians point out that we can get to the libertarian position if we start from a religious position that values the individual, natural rights, free will and private property just as easily as we could if we used a secular, reason based approach to get to the same place. Rothbard, although not religious, certainly was a great admirer of the scholastics and St. Thomas Aquinas and who said that his favourite author was that Catholic writer G. K. Chesterton. His split with Ayn Rand was mainly due to her intolerance and outright hostility to religion.

    On that note, if you have a few minutes to spare you might enjoy the performance of Rothbard’s one act play, Motzart Was a Red, in which Murray takes his shots at Rand and her inner circle.

  51. Thank you Vangel for your response. The video was amusing as well. However, it raised a couple of questions for me that you might be able to answer.

    Question 1: Was Rand Ayn of the Austrian-school then? Since she and Rothbard “split” it would suggest she was. I have her book on Capitalism: The Unknown Ideal. I purchased it in order to obtain the chapter by Alan Greenspan regarding the gold standard, within the context of the entire book in which it was published (and I must confess, I have not yet read the entire book, but surely intend to do so).

    Question 2: If so, was Greenspan also originally among the Austrians? This would be quite a remarkable thing to me if, in fact, he was.

    Regarding the reputation of Austrians as irreligious: I am not concerned. I see nothing inherent in Austrian theories hostile to biblical concepts. (Individuals will all have their own beliefs and opinions, of course, and I have no problem with that.) Rather, I find that most of these same Austrian theories are quite biblical, and I firmly believe that “Statism” and all its manifestations is rejected by the Scriptures (in fact, it is actually “Anti-Christ” if you want to be theologically specific about its place within the Bible).

    Nevertheless, thank you for commenting on that point. I agree that starting from a religious position of “[valuing] the individual, natural rights, free will and private property” forms a sound basis upon which Christian-Austrians can interface with their less religious counterparts to propagate these same values we share. In fact, you can consider me a “Bibliotarian” if you would like. 🙂

    Question 3: Do you have any specific ideas on how a Sabbatical system of regular debt cancellations (coupled with 100% reserve banking and commodity-backed money) might actually affect a modern economy?

    Thank you again for your feedback.

    -Rev. Rich Vermillion

  52. Rich

    I am a bit short of time at the moment so I will only provide a few very short answers. When I get more time I will try to respond more thouroughly if I can.

    First, Rand was not an Austrian but she had many ideas that were very similar to those as the Austrians. Like them, she believed in economic liberty and individualism. Rothbard’s split was the result of the Randian hypocritical intolerance, which required conformity of thought on issues such as religion even as it talked about freedom and individualism.

    Second, Greenspan was a Randian but not really an Austrian. While he understood the Austrian position on money and credit and had a very good essay that defended gold as the protector of property rights and freedom, Greenspan chose to do what was politically practical and popular over what he believed to be right.

    Third, as supporters of freedom, Austrians believe in freedom of religion. Their problem is with the use of religion to limit the freedom of people who do not believe in the same thing.

    I do not have time to complete this post because I have to go. We can continue later.

  53. Excellent Vangel. Thank you for taking the time to jot this quick reply. I look forward to your continuance when your time permits.

    For the record, I agree with the Austrian approach to freedom of religion (including non-religion), with the only exception being those religions that are hostile to humanity (e.g. cults and those willing to kill to propagate their beliefs).

    You will notice that though I was clear in my own objectives, I have been endeavoring to invite input to my own query from economists herein regardless of their religious beliefs, but rather simply on the basis of an intellectual theorizing of how such policies would play out in a modern economy. For my stated purposes, I could not care less what religious beliefs any answering economists adheres to, so long as their input is intellectually honest.

    Again, I have been enjoying your input thus far, Vangel, and look forward to more.


  54. I suggest that Rich Vermillion and Vangel continue this exhange privately. In particular, long comments are not read by visitors and tend to discourage contributions by other people.

  55. Mario,

    I agree wholeheartedly, and was actually already thinking the same thing. I had thought it might be best to relocate my inquiries elsewhere to continue the dialog with both Vangel and anyone else who might wish to provide me input. Your wise moderation request above is well received, and I extend to you my sincere apologies.

    I reformulated my questions on a hitherto undeveloped blog of mine regarding gold. Anyone interested in discussing the concept of implementing biblical economic policy within a modern economy, can find that post here: ALL honest commentary is welcome, regardless of religious preference of the commentator.

    Thank you again Mario for your patience with me. I will continue to monitor this discussion thread for the posts related to YOUR topic at hand, since this has been most interesting. If I post any other comment, I promise it will be specific to the topic you originally intended this time. 😉

    Again, please accept my apologies.


    -Rev. Rich Vermillion

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