Austrian business cycle theory blamed politics and left crisis victims unsupported

Evidence

Austrian business cycle theory was developed by Hayek and Mises in the 1920s, and Hayek’s main contribution to the field came out soon after. It argues, in a nutshell, that the reason for any crisis of capitalism lies not in the moment and context of crisis itself. Treatment should be for the boom, not for the bust. Crises, in this shorthand, become malformations of mishandled growth processes and responsibility for them can thus be laid at the doorsteps of politics. As a result of such a position (which Hayek revised throughout the 1930s after a spate of criticism), those suffering from economic crises would be left without any support until markets rebalance and new employment emerges. Beside more obvious critics of such a position, such as fellow macroeconomist and welfare theorist John Hicks, even Milton Friedman later criticized Austrian business cycle theory for its apparent prescription of letting “the bottom drop out of the world.” — Dieter Plehwe, Quinn Slobodian & Philip Mirowski (eds.), Nine Lives of Neoliberalism, 395

Categorization

• XREF: Friedman’s quotation of Hayek-style ‘let the bottom drop out’ resonates with the book’s theme of internal dissent among neoliberal schools. — connects to: Austrian economics frames recessions as necessary austerity after an interventionist party — Mark Blyth, Austerity: The History of a Dangerous…, 316; Austrian theory holds that government intervention prolongs recessions and triggers capital strikes — Mark Blyth, Austerity: The History of a Dangerous…, 393; Austrian self-healing doctrine cannot explain persistent unemployment given low US unionization — Mark Blyth, Austerity: The History of a Dangerous…, 399 (+6 more)

Broader Connections

• The crisis narrative blaming government interference absorbed leftwing grievances to defend market orthodoxy #responds-to (0.80) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 496
• Austrian noninterventionism produces permanent rather than temporary austerity #expands (0.78) — Mark Blyth, Austerity, 403
• Austerity theory only holds in a special case unlike actual economies #expands (0.72) — Mark Blyth, Austerity, 480