Thursday, January 20, 2005

Keynes the Austrian

There's a silly debate going on about who's a closet Austrian. First, Tyler Cowen accused Brad Delong of being an Austrian, essentially because he thinks the current account deficit is a problem.
Personally, I think the litmus test for Austrians is whether they think that improperly set interest rates will inevitably lead to inflation, and while I am sympathetic to that idea, I don't consider myself an Austrian. On that note, I would defend Delong from the accusation on the grounds that he doesn't think monetary policy should be tightened.

But then again, just about anyone could be accused of being an Austrian. Keynes had many ideas that Austrians tend to espouse. For example, an aversion to index numbers.

Llewellyn Rockwell makes the point rather starkly: "If Austrians had their way, the government would never collect another economic statistic. Such data is used primarily to plan the economy."

It turns out that Keynes thought along similar lines. From his General theory:

...the proper place for such things as net real output and the general level of prices lies within the field of historical and statistical description, and their purpose should be to satisfy historical or social curiosity, a purpose for which perfect precision — such as our causal analysis requires, whether or not our knowledge of the actual values of the relevant quantities is complete or exact — is neither usual nor necessary. To say that net output to-day is greater, but the price-level lower, than ten years ago or one year ago, is a proposition of a similar character to the statement that Queen Victoria was a better queen but not a happier woman than Queen Elizabeth — a proposition not without meaning and not without interest, but unsuitable as material for the differential calculus. Our precision will be a mock precision if we try to use such partly vague and non-quantitative concepts as the basis of a quantitative analysis. Keynes was a closet Austrian.


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