Now obviously what I mean by Keynesians and Austrians, in the title, are the orthodoxy strands of both schools. It is actually quite funny, I find close similarities between orthodoxy Austrianism and orthodoxy Keynesianism, and I find close similarities between the heterodoxy strands of both schools. Of course I am mainly talking about the theories of the schools and not their general political stance, whether left or right. I hope people do see this insight because it would decrease the tensions between the schools. Maybe if the schools acknowledge this insight, we could give respectable critiques of one another, cough cough Paul Davidson.
But anyway, the top paragraph is more of a side note than what I want to talk about in this post.
Anyway, Murray Rothbard stated this about mainstream Keynesian in his Chaos Theory article:
Here the chaos theorists have directly challenged orthodox neoclassical theory of the stock market, which assumes that the expectations of the market are “rational,” that is, are omniscient about the future. If all stock or commodity market prices perfectly discount and incorporate perfect knowledge of the future, then the patterns of stock market prices must be purely accidental, meaningless, and random (“random walk”), since all the underlying basic knowledge is already known and incorporated into the price. [I]f rational expectations theory violates the real world, then so too does general equilibrium, the use of the calculus in assuming infinitesimally small steps, perfect knowledge, and all the rest of the elaborate neo-classical apparatus.
What I want to show here is not the theory of Chaos Theory, but just know that they have similar critiques on mainstream economics as the heterodoxy, more specifically, the Austrians. Here Rothbard made a strong case that the rational expectation assumption in mainstream economics was absurd because it assumed that people were ‘omniscient about the future.’ Furthermore, a rejection of this flawed assumption also implied a rejection of general equilibrium, perfect knowledge and ‘the rest of the elaborate neoclassical apparatus.’ On the whole I agree with Rothbard, but does Rothbard actually believe this? Keep this question in mind.
Roger Garrison is known for his interpretation of the Austrian Theory of the Business Cycle and of Capital Theory. In the early 70’s, Garrison wrote a paper, Austrian Macroeconomics: A Diagrammatical Exposition, merging the ideas of the structure of capital with models, which had neoclassical assumptions, a key assumption was the general equilibrium. Now one would assume that Rothbard would have been against this, considering that the Rothbard passage above rejected the assumptions that Garrison made in his models. But Rothbard liked this concept, hell, Garrison said that the reason Rothbard invited him over to his house for the first time was because of his paper, and as Garrison said, the reviews were generally positive. And ‘Rothbard was clearly enthused about the diagrammatical exposition; he saw it as beating the Keynesians at their own game.‘*
Beating Keynesians at their own game? To me, that is probably one of the worst quotes ever by an Austrian Economist. Yes, lets beat X by using X’s flawed theories, what kind of logic is that? This quote basically implies that the Austrian movement saw this neoclassical synthesis has a positive, but yet I thought Austrian Economics opposed neoclassical theory.
So now back to our question: Does Rothbard actually believe his criticisms towards neoclassical theory? Does he only reject neoclassical theory whenever Keynesians use it and praise it whenever Austrians use it?