ABCT Investing is based on the Austrian business
cycle theory, so I become mildly concerned when others criticize the
theory. I never become seriously concerned because I have learned over
the years that most critics are unbelievably lazy.
If they bother to read Mises or Hayek they do so through the lenses of
mainstream econ and fail to understand what the authors are actually
saying.
The Social Democracy blog has posted a long
diatribe against Ludwig von Mises, which I would normally ignore had
Paul Krugman not advertised it. Krugman even gets wrong much of what the
blog says, but the blog gets a few things wrong
so here are my responses:
Natural rate of interest
The blog is right that the “natural rate” of interest
doesn’t exist. Of course, neither does “equilibrium.” Both are
theoretical constructs to help us think about economics. Wicksell
defined the natural rate as
the rate of interest in a barter economy. Interest would exist if we were forced
to barter goods because interest is nothing but the opportunity cost of
giving up the use of something for a period of time. Austrian economists
picked up on the idea as a useful way to
explain how interest under barter differs from interest using money.
It’s a teaching devise. But if you don’t like it you can ignore it. It
helps teach the ABCT, but has little importance to the working of the
theory.
Mises and fascism
