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Šimon Biľo on Hayek’s Business Cycle Theory

There is a new Working Paper out on Hayek’s version of the Austrian Business Cycle Theory. While I long ago has given up on ABCT I still think there are insights from ABCT that we should understand and which makes of better able to understand the world we live in.

This is the abstract from Šimon Biľo’s new paper “Hayek’s Theory of Business Cycles: Theory That Will Remain Obscure”

Hayek’s theory of business cycles has been criticized for its unfeasible policy prescriptions, weak empirical support, and lack of technical rigor. Although the theory can be defended against these criticisms, it violates the rational expectations hypothesis, a criterion by which economists tend to judge the quality of economic arguments. Since Hayek and his followers failed to remedy or justify the violation, the theory cannot capture the interest of the economics profession today. To change this outcome, Hayek’s theory either needs a satisfactory restatement, or it has to wait until economists change the criteria for judging the quality of arguments.

While I did not read the paper yet I certainly agree with the main points in the abstract. So I better read the rest of the paper soon – and so should you.

HT Will Luther

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3 Comments

  1. I’m certainly looking forward to read Simon’s draft.
    Given the abstract, the topic, and comments I saw in facebook I think the topic of this paper might of interest as it goes to the core of the ABCT argument:
    http://papers.ssrn.com/abstract=2411022

    (excuse my self-promotion.)

    This is the latest version of the my paper that Simon quotes in his work:
    http://0-link.springer.com.skyline.ucdenver.edu/article/10.1007/s11138-014-0267-7

    Reply
  2. Nicolai Foss

     /  April 1, 2014

    William Butos noted decades ago (in a paper in Southern Economic Journal) that Hayek’s story may not be consistent with the RET. Or, to put it more precisely, in chapter II of Prices and Production, Hayek works with a perfect foresight barter economy. Then in chapter III money appears, and all foresight seems to be gone. (I wrote this in my master thesis in 1989). What is new in Bilo’s WP?

    Reply

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