His article is over here:
OK, read the thing, then you can follow my rejoinder.
2. I object to this line. “…self-styled Austrian economists, or even of those possessing bona fide academic status”.
It seems to imply that a self styled Austrian is in some way inferior to someone with bona fide academic status.
Henry Hazlitt was a self styled Austrian, with a high school diploma at best. But I consider him superior by far to many academics.
By the same standard, Euclid was a mere “self styled” Geometer, but he is far superior to many academics. There are many many more examples.
3. I like his distinction between theoretical economics and applied economics, and think he got that part right. Unlike him, I would place econometrics in a third category, the one where alchemy and voodoo and witch doctory belong.
4. OK, here’s the hatchet job on Rothbard:
Yet the theoretical framework that takes up the book’s opening chapters is, as Rothbard himself indicates, one which supports “[t]he Austrian policy of refraining at all times from monetary inflation” (my emphasis). Thus Rothbard the Austrian praxeologist is led, by a chain of deductive reasoning starting from the action axiom, to deny the potential utility of monetary expansion even under circumstances which, according to Rothbard the historian, made severe unemployment inevitable in the absence of such expansion.
There are productive jobs and parasitic jobs. One can derive from first principles that jobs created by monetary expansion are all parasitic. Basically, if they were productive, you wouldn’t need govt subsidies to keep them alive. So they must be parasitic. in other words, Rothbard was 100% correct. We have discussed this point many times on this humble blog. Here is a recent one. Search this humble blog for “parasitic” if you need more help.
This all goes back to Keynes, who decided that the goal of economic activity should be full employment, parasitic or not. The fallacy of such a position has been refuted early on, such as in chapter 26 of Hazlitt’s Failure of the New Economics.
6. The attack on Rothbard continues:
But is the fact that, when credit expansion takes place, interest rates are lower than they would otherwise be, really the only “important” thing? Allowing, as Rothbard would certainly allow, that the Austrian boom-bust theory is only applicable to circumstances in which credit expansion has indeed taken place, and that the Austrian theory is logically valid, does the mere fact that credit expansion did indeed take place during the latter 1920s suffice to establish that the theory “explains” the Great Depression, either wholly or in part? If we cannot, as Rothbard insists, employ statistics to tell us how much difference the expansion made, then how can we know that the difference it made wasn’t trivial, and that the true causes of the depression must consequently be sought elsewhere? How, in other words, can we tell that the theory is not just logically valid but actually useful in explaining any particular episode for which it might be relevant?
What counts is not the interest rate, but the amount of increase of the money supply. Rothbard goes on and on [All of Chapter 4], to establish beyond any doubt that the increase in money supply was HUGE in the twenties, by any metric.
To summarize Selgin’s argument, with money supply instead of interest rate, it would go something like this:
I. AE predicts that huge increase in money supply will create a business cycle. It explains logically, step by step, why this must happen. No one has ever refuted the logical chain of reasoning employed.
II. In the twenties, there was a huge increase in the money supply, and a business cycle happened, just as AE predicted.
III. But maybe it’s a coincidence.
Very flawed reasoning.
7. Now comes a real howler:
The praxeological—which is to say, Misesian and therefore “Austrian”—view of empirics suffers from its implicit assumption that quantities are irrelevant, not merely for constructing economic theories, but for doing applied economics.
AGD, the very book Selgin attacked a few lines ago, goes on and on [in Chapter 4] about quantities.
But I will grant Selgin one thing. He admits he never found any Austrian saying that quantities are irrelevant. It’s “implicit”, a polite way of saying “non existent.”
8. Selgin then defends econometrics by saying that there are important questions it can answer. That econometrics is not as useless as Mises made it out to be.
By how much were interest rates driven below their “natural” levels as a result of the open-market purchases and discount rate reductions that took place between 1922 and 1928? How much additional investment activity can be attributed to the difference? How great was the substitution of more capital intensive or “roundabout” investment activities for less roundabout ones? (How, indeed, might one quantify roundaboutness?) How, finally, does the scale of consequences statistically attributable to the mechanism described by the Austrian theory compare to that attributable to, say, the monetarist theory, which blames the depression on monetary contraction?
Yes, it certainly would be nice to know all these things. But it can’t be done. Econometricians, tell us all the simplifying assumptions you make when you do your econometrics, so we can get a good laugh.
BTW, that last line of his shows great ignorance of AE. According to AE, the bust always starts with a monetary contraction, just like the monetarists say. That is not an issue where monetarists and Austrians differ.
9. He then makes the assertion that statistics can disprove logically valid statements. In other words, statistics can disprove the Pythagorean theorem. Good luck with that one.
10. Finally, he shows he misunderstood McCloskey. But that’s a whole ‘nother kettle of fish.
LATER: Selgin responded to me over at the forum. His post in full:
I’m a great Hazlitt fan, and I never disparaged non-academic Austrians as such. Had you really read Horwitz (I do not believe your claim to have done so) you’d know why I referred to “bona fide” academics.
And my reply:
In that case, apology accepted.
And, as Ripley is my witness, I read that Hurwitz article.