Lesson 5 of 6
Four pieces that will test you
The criticisms to read in the original rather than in summary, what each one attacks, and which of them this academy could obtain and which it could not.
By Javier Sanz
Founder of ValueScreener. Built Ninety Nine, a securities services provider, and sold it to a tier-one global bank; ran operations and internationalization at Alpaca, the brokerage API.
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In one minute
- Four pieces, chosen because each attacks something the theory needs rather than a popular summary of it, and because each is short enough to read in an evening.
- Two of them were obtainable for this academy and two were not. Which is which is stated, because a reading list that hides its gaps is not a reading list.
- Read them in the original. Every one of them has been summarised badly somewhere, usually by someone answering it.
The previous course worked through the objections. This lesson is about going to the documents, which is a different act: a summary tells you what an argument concluded, and the original tells you what it assumed.
The four, and what each attacks
Obtained and read here
- Tullock in 1987, with Salerno's comment and Tullock's reply. Attacks the step from misallocation to general unemployment.
- Caplan's essay on why he is not an Austrian economist. Attacks expectations, the internal consistency of the boom and bust, and the claim to explain stagflation.
Named, not obtained here
- Sraffa's 1932 review. Attacks the concept of a single natural rate, and was read here only in reproduction.
- Kaldor's two papers of 1939 and 1942. Attack the mechanism and the evidence, and were read here only through the reply to them.
A reading list that does not say what its author could not get is selling confidence rather than information.
What each one is for
Tullock's article is the shortest and the most concrete. It takes the mechanism as given and asks what would actually happen to firms, workers and equipment, and concludes that the answer is bankruptcies rather than a slump. Read it with Salerno's comment and Tullock's reply, both in the following volume, because the exchange is where the two sides discover they are using one word for two things.
Caplan's essay is the most systematic. It separates the parts of the theory that mainstream economics accepts from the parts it rejects, which is a service to both sides, and then presses the expectations objection harder than anyone else in print. It is also written by someone who was inside the tradition earlier, which changes the tone without softening the argument.
Sraffa's review is the deepest, because it attacks a concept rather than a conclusion. If there is no single natural rate outside a stationary state, the instruction at the centre of the theory needs restating, and a modern writer inside the tradition agrees and has tried to restate it.
Kaldor's papers are the technical core of the 1930s dispute and they named the concertina effect. They are also the hardest to obtain of the four.
A note on where to look
Two of these are freely available and two are not, and that asymmetry shapes what most people know about this argument.
Tullock's article, the comment and the reply are published in a journal whose older volumes circulate freely, and so is Caplan's essay. Sraffa's review and Kaldor's papers are in journals whose 1930s and 1940s volumes sit behind paywalls.
The practical consequence is that the objections most often summarised online are the two that are easy to get, and the two oldest and most fundamental are usually passed on secondhand. That is a reason to be careful with any account of the Sraffa and Kaldor disputes, including the account in this academy, which says in both lessons exactly what it was working from.
What to read alongside them
One defence, chosen for the same reason: Garrison's article in the Review of Austrian Economics, which was written as a reply to Tullock and sets the theory beside its rivals.
Reading a critic and a defender who are answering each other, rather than two people writing past each other, is the fastest way to find out where the real disagreement is. In this case it turns out to be about what the word depression refers to and about whether capital has a time structure worth modelling.
Check yourself
Why read a criticism in the original rather than in summary?
- Because summaries are usually dishonest
- Because a summary reports what the argument concluded and the original shows what it assumed
- Because originals are shorter
Show the answer
Answer: B.
The assumptions are where an argument can be answered, and they are the first thing a summary drops.Which two of the four could this academy not obtain?
- Tullock and Caplan
- Sraffa's review and Kaldor's two papers
- Caplan's essay and Salerno's comment
Show the answer
Answer: B.
Both lessons that use them say so, and both explain what they were working from instead.What does the availability asymmetry do to the public argument?
- Nothing, since all four are widely discussed
- The two easiest to obtain are the ones most often summarised, and the two oldest are usually passed on secondhand
- It makes the older objections obsolete
Show the answer
Answer: B.
That is a reason to treat any account of the Sraffa and Kaldor disputes carefully, including the account in this academy.Sources
- Tullock, 'Why the Austrians Are Wrong About Depressions', Review of Austrian Economics, volume two, 1987; Salerno's comment and Tullock's reply, both in volume three of the same journal.
- Caplan, 'Why I Am Not an Austrian Economist', an essay published on the author's university page at George Mason University.
- Sraffa, 'Dr. Hayek on Money and Capital', The Economic Journal, volume 42, 1932, with Hayek's reply and Sraffa's rejoinder in the following issue. Not obtained for this academy.
- Kaldor, 'Capital Intensity and the Trade Cycle', Economica, volume 6, February 1939, and 'Professor Hayek and the Concertina-Effect', Economica, volume 9, 1942. Not obtained for this academy.
- Garrison, 'The Austrian Theory of the Business Cycle in the Light of Modern Macroeconomics', Review of Austrian Economics, volume three, as the defence written in reply to the first of these.
What this leaves out
- This is a heterodox tradition. The mainstream account of the same phenomenon differs, and nothing here is a forecast or a view on any security.
- Four pieces is a starting point, not a survey. The previous course names several further studies it could not obtain, and the literature is larger than either list.
- Two of the four were not read in full for this academy. The lessons that use them say what they were working from instead, and a reader should weight them accordingly.