Friday, October 25, 2013

Two articles of interest in the recent Review of Austrian Economics

1. The empirical relevance of the Mises-Hayek theory of the trade cycle, by Robert B. Lester, Jonathan S. Wolff

I need to reread this one. They don't find evidence of the price and quantity effects in different stages of production predicted by ABCT (they're actually one of the few empirical studies of ABCT that don't find it), and yet they say in the abstract that evidence is therefore "mixed". I'm wondering if I missed something or if reviewers had problems with it and made them add caveats. Anyway, this is of interest to me because it is one of twenty empirical papers looking at ABCT that I discuss in my forthcoming Critical Review paper. I just turned the proofs back in a couple days ago, so at this point it's just a matter of waiting for the issue to come out.

2. The (quantity) theory of money and credit by Anthony J. Evans, Robert Thorpe

This is of interest because one of the authors is a regular commenter here. I don't think his identity is a particularly tightly kept secret, but in case it is I'll let him worry about taking credit for it. I classify the point here under the same heading as things like Sraffa's critique of the natural rate, in that the authors are definitely right that the simple stories you hear are actually wrong. Any quantity theory needs to be expressed in terms of the volume of transactions, NOT nominal GDP as you often see it. In most applications, as with the natural rate of interest, I think the nuanced version of the theory is unnecessary to derive important insights. It's one of those things that nobody should feel guilty about teaching in an intro course, for example (it's nice to motivate the LRAS with a naïve quantity theory). But if you do get into the details you really need to treat it more carefully.


  1. "But if you do get into the details you really need to treat it more carefully. "

    Part of what Anthony Evans and I were doing in that paper is trying to persuade people to treat quantity theory more carefully when discussing macro/monetary econ in depth.

  2. So that explains this section on your website.

    The article by A.J. Evans and Robert Thorpe reminded me of Professor Richard Werner of the University of Southampton. He has proposed what he calls a "Quantity Theory of Credit" some time ago, but given that they don't cite Werner, I think they're connected in name only. If anyone is interested, here's Werner's profile at the University of Southampton.

    1. Interesting, I'll have a look.

    2. Current: Don't mention it. But have you heard of Richard Koo? If so, have you read his 2003 book, Balance Sheet Recession: Japan's Struggle with Uncharted Economics and Its Global Implications, or his more recent book, The Holy Grail of Macroeconomics: Lessons from Japan's Great Recession?

      Like Richard Koo, Richard Werner is an economist with a long record of commentary on the Japanese economy. Like Richard Koo, Richard Werner's position apparently seems somewhat reminiscent of Irving Fisher's "debt-deflation theory of great depressions". Richard Werner has also written books on the Japanese economy, both of which were published before the U.S. housing bubble burst and gave the world the 2007/2008 global financial crisis. I have yet to read either of his books, but if you would like to own a copy of either of his books, they can be bought on Amazon UK.

      As you might have inferred from what I'm telling you, it looks like Richard Werner's position probably isn't all that aligned with the Austrian School's position, apart from both sides agreeing that there is a need for a theory of money and credit.

      According to this link on the website of the Post Keynesian Economics Study Group in the United Kingdom, he was invited to give a talk as part of the Keynes Seminar series in the 2012/2013 school year. The talk he delivered was called: "The Quantity Theory of Credit".


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