Ludwig M. Lachmann Against the Cambridge School

While in the early 1930s Keynes and Hayek were the major figures in a heated academic debate about money and capital, in which Keynes also and especially involved the Italian Piero Sraffa, it might seem at first sight that the Austrian economist set aside an organic demolition of the ideas expressed in 1936 by his rival in the General Theory. Hayek himself, in the future, would regret not having devoted an organic work to criticising the new Keynesian theories. However, as demonstrated in Sanz Bas (2011), although it is not possible to find a debate such as the one on the Treatise on Money, Hayek's subsequent works do include timely and reasoned criticisms as regards the main conclusions of the new Cambridge macroeconomics. But the 'Austrian knight' of a new Vienna-Cambridge debate, in the subsequent decades, was the German economist Ludwig M. Lachmann (1906-1990), a student of Hayek at LSE during the 1930s and later a professor in Johannesburg and New York. Lachmann was one of the protagonists of the Austrian revival after 1974 and the founding leader of the 'nermeneutic stream', opposed by the Rothbardian stream. Lachmann, defending Keynes's subjectivism and expectation theory, revived the Vienna-Cambridge controversy, criticising not Keynes but his followers, in particular the 'new' Cambridge School, developed by Joan Robinson and Piero Sraffa. Lachmann's life sight was to build a new economics paradigm, centred on the idea of market process, expectations and kaleidic society (Shackle); in order to do so he developed a deep attack toward the new Cambridge macroeconomics mainstream, arising from World War II ashes during the 1950s and 1960s. His polemic toward the 'modern' macroeconomics can be read in all his books and papers, but it is particularly evident in Lachmann (1973, [1986a] 1994). His preferred targets were Sraffa and Joan Robinson, 'guilty', according to Lachmann, to overcome Keynes's subjectivism and to develop a new Neo-Ricardian approach. The resulting macroeconomics is accused to be excessively formalist, ignoring the microfoundations that are at the very root of human action and choice. But Lachmann's attack was not only an epistemological one. He intensively tried to demolish all the pillars of the Cambridge macroeconomics: capital as aggregate, long run equilibrium, the absence of innovation and technological change and the conception of rate of profit. His starting point was an economics based on human expectations as the only possible source of human actions. A source, however, never at rest, and continuously influenced by technological change and changing information

The Natural Cycle: WHY Economic Fluctuations are Inevitable. A Schumpeterian Extension of the Austrian Business Cycle Theory

The conventional version of Austrian business cycle theory focuses on a temporary imbalance between natural and monetary rates of interest. When, because of the role of monetary authorities in defining the monetary rate, the two values are in a situation of imbalance, the resulting expansion stage is followed by a recession. On the other hand, if instead the expansive phase arises without any interference by monetary authorities but through re-adaptation of the productive structure to a modified structure of temporal preferences, a period of sustainable growth begins that will not be followed by a crisis. The purpose of this essay is to demonstrate, on the other hand, that because of profit-expectations and the combined action of Schumpeterian elements (imitations-speculations and the ‘creation of money' by banks), even a so-called ‘sustainable' boom will be affected by a liquidation and settling crisis. What distinguishes the latter situation from the conventional case of imbalance between monetary and natural rates is not the onset or otherwise of a crisis but, rather, its intensity and duration. We will define as natural an economic cycle characterised by a stage of expansion considered to be ‘sustainable' in the Austrian theory but followed by an inevitable readjustment crisis

Editorial: Hayek, Keynes and the Crisis: Analyses and Remedies. An Introduction

I am glad to present to the readers of the Journal of Reviews on Global Economics this special issue titled "Hayek, Keynes and the crisis. Analyses and Remedies", named after a scientific conference which was heldbetween 22 and 24 January 2015 at the Amphithéâtre Vedel, Université Paris-Sud, Faculté Jean Monnet, Sceaux, in France. The conference was organized by the Research Centres of the Université Paris-Sud “Collège d'Etudes Interdisciplinaires" and “Réseaux Innovation Territoires et Mondialisationâ" and sponsored by the International Journal of Political Economy, the Review of Keynesian Economics, the book series"New Directions in Post-Keynesian Economics" (published by Edward Elgar), the Association pour le Développement des Etudes Keynésiennes and the Association Française d’Economie Politique. Important scholars from all around the world answered the call from Bernard Vallageas and François Facchini in order to discuss the heritage, for present day economics, of the Hayek/Keynes controversy, developed during the 1930s. The controversies between Hayek and Keynes began in 1929 when Hayek, presented his lectures on business cycles at the London School of Economics, invited by Lionel Robbins. The opposition appeared in their respective books Prices and Production, Monetary Theory and the Trade Cycle, A Treatise on Money and their comments on these books published in journals. The object of the conference was to analyze the controversies between Hayek and Hayekians on one side and Keynes and Keynesians on the other side. This special issue hosts some of the contributions presented during that conference (Levy Orlik, Facchini, Sanz Bas and Morillo, Ferlito). However, together with the JRGE editors we decided to open the debate to a widerspectrum of scholars and the papers here published are the result of a call for papers on the topic. We are therefore glad to present here original contributions by Heinz D. Kurz, André Getzmann, Sebastian Lang, Klaus Spremann, Max Gillman and Giovanni Bella. We open the special issue with the paper by Heinz D. Kurz, who brings new light on the debate on crises and cycles between Hayek, Keynes and Sraffa; in particular, prof. Kurz demonstrates how Sraffa, while strongly criticizing the Hayek's perspective, at the same time did not support Keynes' view. The theme will be reprised in my paper, published as the last one, in which the Sraffa/Hayek debate is analyzed with Lachmann's eyes; the Germaneconomist, in looking for microfoundations for the capital analysis, accused Sraffa and the Cambridge School to develop a new neo-Ricardian approach, grounded on macroformalism and aggregation. Noemi Levy Orlik, while discussing Hayek and the Austrian monetary school innovative ideas in terms of money in capitalist economies, embraces a new-Keyensian view according to which the main way to overcome economicactivity fluctuations is to implement expansive fiscal policies, opposing wages cuts, and promoting financial market regulation. A conciliatory approach is instead proposed by François Facchini, who explains how the regulated capitalism is the cause of market instability and financial fragility: moral hazard encourages commercial banks to take risks and therefore post-2008 crisis policies went in the wrong direction. David Sanz Bas and Juan Morillo come back to the main issue, the Hayek/Keynes debate, and demonstrate how the general idea according to which, after the debate on the Treatise on Money Hayek renounced to criticize The General Theory, is wrong. We need instead to accurately read post-1936 Hayek's works to find how a wide criticism can be found. André Getzmann, Sebastian Lang and Klaus Spremann try to combine Hayek's and Keynes' approaches looking at companies' decisions to finance investments and at their agility to adjust their capital structure. They then study the relationship between capital structure to finance corporate production and shifts in aggregate demand. Their results provide evidence for Keynes' General Theory from a firm level perspective: firms respond very fast to aggregate demand by adjusting capital and production structure correspondingly. Giovanni Bella contributes to the new Keynesian literature by showing that stable endogenous cycles can emerge as equilibrium solutions of the traditional IS-LM model. The application of the original Bogdanov-Takens theorem allows him to determine the regions of the parametric space where the model exhibits a global indeterminate solution, and a low-growth trapping region, characterized by a continuum of equilibrium trajectories in the proximity of a homoclinic bifurcation. Finally, Max Gillman retrospectively look at how Hayek's and Fisher's idea on the Great Depression arose as opposed to Keynes' interventionism. Through an interesting quantitative analysis, Gillman demonstrate that thepresent Great Recession calls for free market oriented policies and not for further pro-active policies

Disproportionality and Business Cycle from Tugan-Baranovskij to Spiethoff

In the second half of the 19th century, German-speaking countries developed a very intense economic debate about crises. Mikhail Ivanovich Tugan-Baranovskij's analysis may be considered as the point of transition between different crisis theories and the development of organic thinking about the business cycle. It was an integral part of the German debate and had a decisive influence on Arthur Spiethoff's elaboration - perhaps the most organic analysis of the cycle developed within the German historical school. Arthurs Spiethoff's influence was recognized by important authors such as Friedrich A. von Hayek and Joseph A. Schumpeter. Both the Austrian economists admitted their debt toward the German scholar in elaborating their business cycle theories. The present paper aims to illustrate one of the important roots in Spiethoff's approach, an approach that in turn became a crucial reference for other important economists

Il Ciclo Naturale. Perche' le fluttuazioni economiche sono inevitabili. Un'estensione schumpeteriana della teoria austriaca del ciclo economico

The conventional version of Austrian business cycle theory focuses on a temporary imbalance between natural and monetary rates of interest. When, because of the role of monetary authorities in defining the monetary rate, the two values are in a situation of imbalance, the resulting expansion stage is followed by a recession. On the other hand, if instead the expansive phase arises without any interference by monetary authorities but through re-adaptation of the productive structure to a modified structure of temporal preferences, a period of sustainable growth begins that will not be followed by a crisis. The purpose of this essay is to demonstrate, on the other hand, that because of profit expectations and the combined action of Schumpeterian elements (imitations-speculations and the ‘creation of money’ by banks), even a so-called ‘sustainable’ boom will be affected by a liquidation and settling crisis. What distinguishes the latter situation from the conventional case of imbalance between monetary and natural rates is not the onset or otherwise of a crisis but, rather, its intensity and duration. We will define as natural an economic cycle characterised by a stage of expansion considered to be ‘sustainable’ in the Austrian theory but followed by an inevitable readjustment crisis

Ludwig M. Lachmann contro la Scuola di Cambridge

While in the early 1930s Keynes and Hayek were the major figures in a heated academic debate about money and capital, in which Keynes also and especially involved the Italian Piero Sraffa, it might seem at first sight that the Austrian economist set aside an organic demolition of the ideas expressed in 1936 by his rival in the General Theory. But the ‘Austrian knight’ of a new Vienna-Cambridge debate, in the subsequent decades, was the German economist Ludwig M. Lachmann (1906-1990), a student of Hayek at LSE during the 1930s and later a professor in Johannesburg and New York. Lachmann was one of the protagonists of the Austrian revival after 1974 and the founding leader of the ‘hermeneutic stream’, opposed by the Rothbardian stream. Lachmann, defending Keynes’s subjectivism and expectation theory, revived the Vienna-Cambridge controversy, criticising not Keynes but his followers, in particular the ‘new’ Cambridge School, developed by Joan Robinson and Piero Sraffa. Lachmann’s life sight was to build a new economics paradigm, centred on the idea of market process, expectations and kaleidic society (Shackle)

Sylos Labini's Unpublished Notes on Schumpeter's Business Cycles

Paolo Sylos Labini (1920–2005) was the one of the most influential economists in Italy after the Second World War. After graduating in 1942, Sylos Labini won a fellowship in the USA. After an initial period in Chicago, he moved to Harvard, where he was able to attend Schumpeter’s lectures from 1948 to 1950. During this period, Sylos Labini read Schumpeter’s Business Cycles and decided to write down his impressions before giving them to his former professor in February 1949, who discussed them over a couple of lessons. These notes are still unpublished, and Sylos gave me a copy at our first meeting (2002), saying that it was time to publish them. This paper discusses the content of the unpublished notes, focusing on the critical aspects of Schumpeter’s business cycle theory to which Labini draws attention. In the last section, I present Sylos Labini’s business cycle theory, an interesting mix of Schumpeterian, Keynesian and Marxian elements

Per un'analisi del costo della vita nella Verona del Settecento

Focusing on the urban context of Verona (a major city in the Venice Republic) during the XVIII century, the paper aim to clarify if, and in which measure, the cost of living of the employed population changed along the century. Instead of simply analyzing salaries and prices, the Author built a data analysis able to clarify if those salaries and prices allowed workers to survive and how the purchasing power modified from the beginning to the end of the XVIII century

Bruno Leoni and the Socialist Economic Calculation Debate

The Italian contribution to the Socialist Economic Calculation Debate (SECD) cannot be limited to the important and fundamental works by Pareto and Barone. In fact, if their contributions are still ambiguous and we have to wait for the Mises’ paper in 1920 in order to get the needed clarifications, during the 1960s Bruno Leoni follows the Austrian footsteps on the topic, stimulating in Italy a great debate. Bruno Leoni’s role is important because of the debate he promotes and the scholars he involves, but also because he places the matter of the socialist economic calculation in the broader context of the rule of law

Malaysia NAP: More Shadows than Lights

After World War II, and in particular during the 1960s and the 1970s, many developing countries began their industrial revolution path. In particular, most of them followed a path of government-led industrial development, with central planning at the heart of the industrial policy. Such a model is not new in economic history and it is typical of many ‘second-comers’ in the industrialization process. The most famous one is the case of Prussia/Germany: with the Zollverein (1833-34) and after the unification in 1870, it was the government which stimulated the development of a powerful heavy industrial system, following what was preached at the time by Friedrich List. In particular, the key point of List preaching was that second-comers countries need to protect their industrialization process (characterized by infant industries) from foreign competition. According to List, once the protected industries reach an adequate competitive level, protection should be removed and the national companies should face competition in the market, in order to stimulate further technological development. Many second-comers countries embraced this model; however, in most cases they failed to follow the second part of List’s recommendations: opening to the market in a second stage