Contra Eichengreen and Mitchener on ABCT

Abstract

PurposeAustrian Business Cycle Theory (ABCT) is a rare and precious flower. As adherents of this perspective, the present authors wish to share it with as many scholars as possible. They thus welcome criticisms of it, particularly emanating from neoclassical economists, who have for far too long ignored ABCT. However, at least in the case of the mainstream critics Eichengreen and Mitchener, a more accurate assessment of that which they were criticizing would have gone a long way in the direction of achieving real disagreement. To wit, they have misunderstood ABCT, and thus their criticisms fail to come to grips with this mode of analysis. The purpose of this paper is to correct the misunderstandings of Eichengreen and Mitchener regarding ABCT.Design/methodology/approachThe paper's objectives are achieved by quoting heavily from Eichengreen, and Mitchener, and contrasting their erroneous understanding of ABCT with its actual tenets. In this way the authors hope to improve their criticism. If they could be direct their attention to the actual ABCT, instead of a straw man version of it, real understanding, and progress in economic theory, might well be the result.FindingsThe findings are, unfortunately, that there still remains a lot of work to be done if real disagreement between Austrian and neoclassical economists is to be achieved, let alone where a state of affairs is achieved where real learning can occur. A minimal necessary condition for such an eventuality is accurate understanding of the position of the other must be attained. Eichengreen, and Mitchener show little evidence of this accomplishment.Originality/valueThis paper provides a useful explanation of the ABCT.