This is one of those comment sections that I blog for. I'll take responsibility for the recent lack of such comment sections, since the last month has been insane for me and I haven't posted very substantive stuff.
Let's work through some of this stuff.
1. Mises and Expectations
Current shared a really great quote from Mises in "The Cause of Economic Crises" that needs to be posted:
"...credit expansion is tied in with certain anticipations. If the
entrepreneurs expect low interest rates to continue, they will use the
low interest rates as a basis for their computations. Only then will
entrepreneurs allow themselves to be tempted, by the offer of more ample
and cheaper credit, to consider business enterprises which would not appear profitable at the higher interest rates that would prevail on the unaltered loan market.
If it is publicly proclaimed that care will be taken to stop the
creation of additional credit in time, then the hoped-for gains must
fail to appear. No entrepreneur will want to embark on a new business if
it is clear to him in advance that the business cannot be carried
through to completion successfully. The failure of recent pump-priming
attempts and statements of the authorities responsible for banking
policy make it evident that the time of cheap money will very soon come
to an end. If there is talk of restriction in the future, one cannot
continue to 'prime the pump' with credit expansion."
- "The Cause of Economic Crises" p.188.
He mentioned it in the context of a criticism of Keynes. I don't entirely see it that way probably because I don't think Keynes is guilty of some of the things Austrians suggest he is. But the other thing Current noted about the passage (that I like too) is how it dealt with expectations. The second paragraph is particularly good. It was written in the 1930s, but if you didn't have that context you could have sworn it was written in the 1980s or 1990s in the height of discussions about commitment and expectations in monetary policy. People in the past are not as naive as we usually think they are. I made this same point a couple weeks back in discussing a quote from Keynes where he talks about consumption decisions being made on the basis of expectations for future streams of income and consumption - another New Keynesian, forward-looking rational expectations analysis (in other words, NOT the consumption function your professors attributed to Keynes). Great stuff.
2. The Natural Rate of Interest
Unlearningecon is also skeptical of the Austrian reliance on the natural rate to draw business cycle conclusions, despite all the problems with the concept, and Gene mentions Bob Murphy's dissertation that shares these criticisms of the natural rate. I've linked to it before, but here it is again. I've never been too concerned about this. Even if there isn't a single natural rate, it still seems like the various interest rates out there are compared to whatever "natural rate" might be relevant in a particular situation, and the same dynamics (Keynesian, Austrian, or otherwise) would still apply. That there is not a single natural rate doesn't seem to me to change the fundamental points, but people can correct me if I'm wrong on that.
3. And then there was Hazlitt...
I had claimed that I don't think there's really a decent critique of Keynes by Austrians, and Kaj brings up the perennial suggestion of Hazlitt. I have not read Hazlitt in its entirety but I have read chunks of it and have read and discussed his section on liquidity preference particularly closely. I did not think it was very good, but would have to reread it to remember my specific concerns. I hear this suggestion a lot. I don't have plans to read him because I haven't been impressed with what I have read, but if you have specific sections you think are worthwhile reading, please share them with me. It's not just me being cranky, either. The fact is, Henry Hazlitt is widely considered to have a weak grasp of Keynes. I find it interesting that people are so attracted to him... I think its just that they like to have a "point by point refutation" to cite. It's nice to have something comprehensive you can just point to. And Hazlitt is certainly comprehensive. The question is, is he good? Gene has this to share on Hazlitt:
"I told a leading Austrian
macroeconomist that I wanted to understand Keynes, and so I was planning
on reading Hazlitt. He said, "Oooh, no, I wouldn't bother: Hazlitt
doesn't really get Keynes.""
I get this impression from a lot of people, and this was also my impression from the handful of sections I read.
Some people do like him. Peter Boettke recently shared a paper on him. I don't see the appeal. I know this is a vague criticism, but I didn't prepare for a post on Hazlitt. And anyway, the advocacy of Hazlitt is usually pretty vague too, is it not?
If you want to understand Keynesian economics pick up a textbook. If you want to understand "the economics of Keynes", I always suggest reading Lawrence Klein's The Keynesian Revolution. It's quite good, and that's when a lot of things "clicked" for me about what was unique in what Keynes was saying and particularly what he cared a lot about that may have been downplayed in subsequent syntheses. And of course read Keynes himself. A lot of people think he's hard to get... I've never really thought so, but that's obviously a good thing to go for if you want. I also like Meltzer's (1983) JEL article for understanding "the economics of Keynes". I have not read his book on the same subject, but I imagine it makes similar points.