What Austrians can Learn from Post Keynesians

First off, as a person influenced by Ludwig Lachmann and George Shackle, I do not necessarily see a difference in how Austrians (Radical Subjectivists specifically) and Keynesians (Post-Keynesians specifically) begin to view economics. Shackle is quite known as an economist that uses Austrian premises and Keynesian conclusions and that is how I generally view Post Keynesians. Austrians need to get that there is a ‘middle ground’ that unites the two schools, as paradoxical as it might seem. But while we might agree with stuff like general equilibrium flaws, perfect competition flaws, rational expectations flaws, uncertainty, subjectivism, etc etc, Post Keynesians have been more consistent in showing how these things apply (or don’t apply) to economics.  Thus, I believe it would be beneficial to Austrians to at least give Post Keynesians a try. I am not saying that we should automatically advocate the amount of government they like, for example, but we should be willing to learn for its theory. Here are some quick things I think that Austrians can learn, and I hope they do, from Post Keynesians:

1) Uncertainty

I put this as number one because Austrians claim that there has been a great deal of Austrian literature to explain and further the idea of uncertainty. But I think it is quite the contrary. What is funny is that Austrians, as well as Post Keynesians, have a Knightian way of looking at uncertainty. This is to say that we make plans but we do not know they will be successful in the future. But yet, I think the Austrians, while claiming to have, or claiming that it is similar to, a Knightian sense of uncertainty, they fail to show it in theory, whether it is by Roger Garrison accepting general equilibrium when it comes to modeling the business cycle or accepting an ergodic view of the world.

2) Knowledge

The view of knowledge to most Austrians is a bit flawed, it is because they fail to grasp the concept of uncertainty. Most Austrians claim that uncertainty exists because the world is complex. The more knowledge  we can obtain in this complex world, the more certain we become. But this view of uncertainty and knowledge only holds if we assume that there is no further change in data. Austrians need to accept the fact that uncertainty exists because of human action and expectations. The world is spontaneous and data is constantly changing. Thus, it is useless to view obtaining knowledge as reducing uncertainty.

3) Expectations and 4) market instability

If we accept subjective expectations, then by default we accept the notion of market instability. While Post Keynesians have great literature on this, most Austrians reject market instability. A big part of instabilty is due to the fact that people have high expectations in periods of perceived tranquility.

In conclusion

For the most part all of these points can be put in one category, which is that of uncertainty. Understanding the true implications of uncertainty does indeed implying accepting subjective expectations, market instability, and the ontological nature of knowledge. Also, these are not at all original ideas of Post Keynesians, Ludwig Lachmann claimed that in order for the Austrian school to further, they must take these implications to the next level. In ignoring what Lachmann had to say, it seems that the Post Keynesians have indeed beat Austrians at their own game. Ironically, I do not think that Austrian economics can advance without the help of the Post Keynesians.

I highly recommend reading Lord Keynes’ blog Social Democracy for the 21st Century and New Economic Perspectives. From what I read in Unlearning Economics, I would consider it a great Post Keynesian blog, but I just started following it a couple days ago. The first post ‘How to Unlearn Economics’ is a fantastic post in my opinion.

-Isaac Marmolejo

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5 responses to “What Austrians can Learn from Post Keynesians

  1. Thank you for the endorsement and judgement on my blog – I am most grateful.

    I think a useful and valuable start would be both Austrians and Post Keynesians examining Ludwig Lachmann’s work, and seeing what they agree and disagree about. Perhaps this is a starting point for bibliography:

    http://socialdemocracy21stcentury.blogspot.com/2011/12/ludwig-lachmann-bibliography-and.html

    I will attempt to do more posts on Lachmann on my blog in the future.

    Incidentally, I highly recommend this article by Lachmann:

    Lachmann, L. M. 1988. “Speculative Markets and Economic Complexity,” Economic Affairs 8.2: 7–10.

    Another important issue is: what are the areas/economic phenomena where Knightian uncertainty does not apply? This actually seems worth pursuing.
    For example, if we have deposit insurance and a central bank today are we today free from the uncertainty associated with fractional reserve banking runs that affected economies in the past?

  2. I think the lip service point is important. When I mention a market ‘imperfection’ to an Austrian it generally goes something like this:

    Me:’How do Austrians deal with ‘?

    Austrian: ‘ is pervasive in the real world, but nowhere moreso than government. How do we overcome ? Through the dispersed knowledge, learning process of the market. Market actors are best positioned to eliminate , not self-serving government bureaucrats.’

  3. I’m really bewitched by the interactions between Austrian and post-Keynesian schools (since I read the Snowdon’s book, and since I zoomed in their interpretations of financial crises), in particular the similarities between the radical subjectivism and the Keynesian view of radical uncertainty. When I ended my Minskyan analysis of the causes and the mechanisms of the “Great Recession”, my university teacher said “I feel I’m reading Hayek”. If a synthesis of the narrowstream/underground schools of thought is possible, it’s definitively on this path!

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