Slate author displays a shallow ignorance of Austrian economics

Geoffrey Lawrence

I just came across this article on the left-leaning that purports to dispel the fallacies of Austrian economics. The article, called “What is ‘Austrian Economics’? And why is Ron Paul obsessed with it?” might be more convincing if it was clear that the author, Matthew Yglesias, had even read a single Austrian textbook or was familiar with the major theories.

I’ve noted some of the most glaring faults with the author’s narrative:

1. Hayek won the Nobel Prize for his explanation of monetary policy’s relation to the business cycle, not because of the recognition that prices convey information.

2. Both Rothbard and Hayek’s versions of the business cycle theory draw careful distinctions between shifts in consumer preference and the sudden collapse of demand across many sectors.

3. The Great Depression didn’t disprove Austrian business cycle theory – it gave it renewed credibility. Rothbard and Lionel Robbins’ books on the Great Depression are two of the best known Austrian works. Prior to the 1913, the only artificial credit expansion was due to fractional reserve banking. The recession of 1921 and the Depression were the first to add a new layer – artificial credit produced by the Fed.

4. Finally – and most importantly – the Austrians never assert that a bust is the inevitable result of a boom. They hold that booms are permanently sustainable so long as the capital structure is financed through genuine savings. It’s the expansion of artificial credit that creates calculation problems by disassociating interest rates from savings rates.

Come to think of it, I seem to recall explaining that in a recent R-J editorial. Perhaps Yglesias should have given me a call before embarrasing himself on the internet!

Geoffrey Lawrence

Geoffrey Lawrence

Director of Research

Geoffrey Lawrence is director of research at Nevada Policy.

Lawrence has broad experience as a financial executive in the public and private sectors and as a think tank analyst. Lawrence has been Chief Financial Officer of several growth-stage and publicly traded manufacturing companies and managed all financial reporting, internal control, and external compliance efforts with regulatory agencies including the U.S. Securities and Exchange Commission.  Lawrence has also served as the senior appointee to the Nevada State Controller’s Office, where he oversaw the state’s external financial reporting, covering nearly $10 billion in annual transactions. During each year of Lawrence’s tenure, the state received the Certificate of Achievement for Excellence in Financial Reporting Award from the Government Finance Officers’ Association.

From 2008 to 2014, Lawrence was director of research and legislative affairs at Nevada Policy and helped the institute develop its platform of ideas to advance and defend a free society.  Lawrence has also written for the Cato Institute and the Heritage Foundation, with particular expertise in state budgets and labor economics.  He was delighted at the opportunity to return to Nevada Policy in 2022 while concurrently serving as research director at the Reason Foundation.

Lawrence holds an M.A. in international economics from American University in Washington, D.C., an M.S. and a B.S. in accounting from Western Governors University, and a B.A. in international relations from the University of North Carolina at Pembroke.  He lives in Las Vegas with his beautiful wife, Jenna, and their two kids, Carson Hayek and Sage Aynne.