Sunday, September 25, 2011

Vulgar Austrians and Aggregates

Often in blog discussion threads, one sees amateur Austrians popping up and saying things like, "Oh, your theory relies on aggregates, and those have no causal power!" or "No real economic actor ever acts based on aggregates!" or something of the sort. (I doubt you'd see Steve Horwitz or Roger Garrison or George Selgin saying anything like this.) Have they ever stopped to consider the fact that "credit expansion" is itself an aggregate concept, and their dictum has just shot down the Austrian theory of the business cycle along with their target?


  1. Not to mention the fact that aggregate concepts are required by Say's law (e.g., total factor payments considered as aggregate supply and the aggregate of spending from total factor payments on output as aggregate demand).

    If aggregate concepts are invalid, then Say's law is also invalid.

    Try explaining that to internet "pop" Austrians and watch their childish tantrums.

  2. I am certain I can find even the "good Austrians" saying just this thing Gene. I would be prepared to bet $200 to your $50. But I wouldn't trust that you would agree with me. "Oh, Bob, Rizzo used a semicolon in that quote you just gave me, so it doesn't count."

  3. Well, look Bob, I included a Mises Institute senior scholar in my list of people who wouldn't say this! And, what I specifically addressed was blog commentators.

    In any case, what I recall Roger saying was that Keynes works at *too high* a level of aggregation to catch what is important about the business cycle. That's a lot different than rejecting all aggregate concepts, which, after all, are necessary for ABC and Say's Law!

  4. "I am certain I can find even the "good Austrians" saying just this thing Gene."

    Are you including Mr William L. Anderson in your list of "good Austrians"?:

    'When Krugman uses "demand," he means "aggregate demand," which economically speaking is a nonsensical term. There is no such thing as "aggregate demand;'

    '"For all of his "credentials," let us not forget that Krugman is a Keynesian who has no clue whatsoever what happens in a real economy. His world is the imaginary world of aggregates, GDP numbers, crude graphs, and no real people and certainly no real production.'

    Denial that aggregates are valid and especially that aggregate demand supposedly does not even "exist" seems to me to be common amongst Austrians.

    The denial is bizarre given their militant attempts to defend Say's law.

  5. I'm not sure if I get Lord Keynes representation of Say's law. Is that a correct way of formulating Say's law?

  6. I think it is Adriaan -- Thomas Sowell defines it much the same way in his book on the subject: He reads it as saying that all levels of aggregate supply are equilibrium levels.

  7. I haven't read his book, only the one on 'classical economics', in which there is a chapter on Say's law, where he discusses different meanings of Say's law.

    Maybe I'll reread it. I'm still not sure.

    Rereading the quote; I just don't get what he's saying. "Total factor payments" is 'aggregate supply' and also that 'total factor payments on output' is also 'aggregate demand'.

    What does that even mean?

    (Not an economist; just a lay men interest.)

    Lord Keynes; can you clarify a bit more?

  8. Well, LK can speak for himself, but what I understand him to be saying is that Say's Law involves an ex ante supply (measured by total factor payments) equating to an ex post demand (measured by the spending from total factor payments).

    I think that is a reasonable interpretation of Say's Law. So we would have Say's Law failing to hold when $1,000,000 was spent to achieve an output which could only be sold for $900,000.