More Mainstream Acceptance of Austrian Economics

A graceful piece from Canada’s own CTV:


He’s the man the economics profession left behind.

Friedrich August von Hayek, born in Vienna in 1899, was an emerging star in the early 1930s. He was lured to the London School of Economics at that time to counter the growing influence of Cambridge University’s John Maynard Keynes, who was developing his ideas on how governments could counter recessions by replacing lost private demand.

Hayek saw the business cycle differently: Booms and busts were unavoidable because business investment always gets ahead of consumer demand. Tampering by politicians and central bankers will only make things worse by encouraging “malinvestment,” which only prolongs the downturn.

Many economists said Hayek’s theory was sounder than Keynes’s early work. But the Austrian couldn’t hold his supporters. Keynes’s gifts as a “persuader” were supreme, according to Robert Skidelsky, the author of a three-volume biography of Keynes, and the economic recovery that followed the heavy public spending during the Second World War appeared to reinforce his views.

Keynes, who died in 1946, inspired a legion of disciples and economics textbook writers who took over the field. When the Chicago School of economists pushed back against government intervention in the 1960s and 1970s, it was Milton Friedman who came to dominate the resistance, despite Hayek being awarded a Nobel Prize in economics in 1974. By the time of his death in 1992, Hayek had been mostly forgotten or dismissed.

“When I began studying economics at Oxford in the early eighties, Hayek was widely seen as a right-wing nut,” writes journalist John Cassidy in his 2009 book How Markets Fail: The Logic of Economic Calamities.

But in 2011, Hayek is poised to exact a measure of revenge. The stage for his comeback is already set: Capitol Hill.

The ideas of Hayek, his mentor Ludwig von Mises, and others from the so-called Austrian School of economics figure prominently in the intellectual underpinning of the Tea Party movement that stormed the American political establishment’s barricades at November’s mid-term elections.




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