Sunday, September 13, 2015

Walter Block on Tyler Cowen

As a follow up to my post, Tyler Cowen is Not Exactly in Tune with Austrian School Business Cycle Theory, Walter Block emails:
Dear Bob:

It has been a while since Cowen was an Austrian, on business cycles:

Barnett, William II and Walter E. Block. 2006. “Tyler Cowen on Austrian Business Cycle Theory: A Critique.” New Perspectives on Political Economy, Vol. 2, No. 2, pp. 26-84;

Best regards,


Walter E. Block, Ph.D.
Harold E. Wirth Eminent Scholar Endowed Chair and Professor of Economics
Joseph A. Butt, S.J. College of Business                
Loyola University New Orleans


  1. I have read the first 11 pages of the article very quickly and it is very good.

    I do not know if the following express distinction is made (since I haven’t finished the article) but it appears to have been implicitly made:

    Austrian analysis differentiates between:

    a) The phenomena which are ubiquitous to artificial credit expansion in the realm of “human action plus economic calculation” which include injection and distribution effects (including theft of purchasing power), funny money injections as temporary and unsustainable subsidies, and the inducement of distorted, false and unsustainable prices; as opposed to

    b) The impact of those ubiquitous phenomena described in (a) upon human behavior. Attacking (b) does not address the analysis of (a). Yes, some people may decide to not invest at all upon learning the problems associated with credit expansion while others may run off and build the world’s tallest building. So what? The market does not fail and credit expansion mucks things up. How it mucks things up is a question of fact pursuant to (b). The phenomena of (a) are not questions of fact, they are a priori (to coin a phrase) and ubiquitous.

    In my opinion, Cowen (and all non-Austrians) always attempt of obfuscate the differences between (a) and (b). Austrians could be clearer regarding those differences.

  2. It's not that hard to see the bubbles preceding the crashes and to inquire as to their cause. It's weird that someone would understand it, and then choose to reject the theory.

    1. I have long maintained that neither the Friedmanites, Keynesians, “post-Keynesians” or MMTers will engage our concepts of a) injection and distribution effects and or b) economic miscalculation caused by the inducement of false and unsustainable prices by funny money injections. Further, they will not engage or discern the essential difference between a voluntary exchange and a coerced exchange and they will ignore that a recipient of new funny money is receiving a temporary subsidy at the expense of everyone else. To the anti-Austrian, it’s all “capitalism”. They are afraid. Very afraid.

      The hero of both the “post-Keynesians” and the MMTers is Hyman Minsky and his “financial instability hypothesis”. It is nothing more than Austrian analysis but purposefully omitting the above essential and fundamental Austrian concepts and analysis. Thus, the problems are not interventions in the market but “capitalism”. In Minsky's own words, this is the essence of their analysis:

      The financial instability hypothesis has both empirical and theoretical aspects. The readily observed empirical aspect is that, from time to time, capitalist economies exhibit inflations and debt deflations which seem to have the potential to spin out of control. In such processes the economic system's reactions to a movement of the economy amplify the movement--inflation feeds upon inflation and debt-deflation feeds upon debt-deflation. Government interventions aimed to contain the deterioration seem to have been inept in some of the historical crises. These historical episodes are evidence supporting the view that the economy does not always conform to the classic precepts of Smith and Walras: they implied that the economy can best be understood by assuming that it is constantly an equilibrium seeking and sustaining system.

      Perhaps it’s a sign of our strength that neither the funny money left nor the war-vangelical right have the courage to engage our devastating alternative explanations. All they can do is run and hide. And that’s what they do.