A Commonsense Approach to the Austrian-Mainstream Methodenstreit
Austrian economics vs. mainstream economics
[Mainstream mathematical economics treats people as unthinking cattle. Math cannot determine the ever changing actions by human beings. This is an important article to read to learn more about Austrian economics. - JRD]
A Commonsense Approach to the Austrian-Mainstream Methodenstreit (see definition below)
“Mainstream economists claim that Austrian economics is "discredited" because Austrians use deductive reasoning instead of employing complicated calculus and statistics. The irony is that Austrian analysis is better at explaining real-world economic phenomena.”
“Another interesting point to note is that Wall Street seems to understand Austrian business cycle theory. The year 2022 has been bad for the US stock market. To summarize: in 2020 and 2021 the Fed printed and distributed enormous amounts of cash, and this caused severe price inflation. To combat inflation, the Fed has raised interest rates (and it seems like they will raise rates further) and the rate increases (and expectation of further raises) make investors bearish, as many companies are ridiculously leveraged, and higher interest rates will render them insolvent. The easy money created malinvestment and price inflation, and the only way to solve price inflation is by raising rates, which bursts the malinvestment bubble and creates a recession. This relates to the Wall Street maxim: ‘Don’t fight the Fed.’”
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Methodenstreit (German) is a dispute, argument or controversy over methods; specifically, it was the controversy over the method and epistemological character of economics carried on in the late 80's and early 90s of the nineteenth century between the supporters of the Austrian School of Economics, led by Carl Menger and the proponents of the (German) Historical School, led by Gustav von Schmoller. The Historical School contended that economists could develop new and better social laws from the collection and study of statistics and historical materials. Their thought dominated German universities in the last half of the nineteenth century. This led to the ridicule of "liberal" economics in the universities. It thus assisted the growth of state or socialist planning which in turn paved the way for Nazi ideas.[1]