Theory, history, and the great recession

Theory, history, and the great recession This paper honors Don Lavoie’s work on the relationship between theory and history in Austrian economics by using the current recession as an example of many of the ideas found in his paper on the “Interpretive Dimension of Economics.” More specifically, I start from the premise that all history comes from theory because it is theory that guides what we count as “facts” or “data.” From Menger onward, a core element of the Austrian approach has been to see the purpose of theory as rendering human action and its unintended consequences intelligible. We do that by telling historical narratives where theory is the logical glue that holds the story together. I look at the Austrian story of the Great Recession in light of these ideas. What the Great Recession demonstrates is that the core theoretical elements of Austrian business cycle theory are narrower than we might think, but that consciously recognizing the contingent elements gives the theory additional flexibility to explain more of various real-world crises when augmented by additional ideal typifications properly used. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Review of Austrian Economics Springer Journals

Theory, history, and the great recession

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Publisher
Springer US
Copyright
Copyright © 2011 by Springer Science+Business Media, LLC
Subject
Economics; Public Finance; Political Science; History of Economic Thought/Methodology
ISSN
0889-3047
eISSN
1573-7128
D.O.I.
10.1007/s11138-011-0141-9
Publisher site
See Article on Publisher Site

Abstract

This paper honors Don Lavoie’s work on the relationship between theory and history in Austrian economics by using the current recession as an example of many of the ideas found in his paper on the “Interpretive Dimension of Economics.” More specifically, I start from the premise that all history comes from theory because it is theory that guides what we count as “facts” or “data.” From Menger onward, a core element of the Austrian approach has been to see the purpose of theory as rendering human action and its unintended consequences intelligible. We do that by telling historical narratives where theory is the logical glue that holds the story together. I look at the Austrian story of the Great Recession in light of these ideas. What the Great Recession demonstrates is that the core theoretical elements of Austrian business cycle theory are narrower than we might think, but that consciously recognizing the contingent elements gives the theory additional flexibility to explain more of various real-world crises when augmented by additional ideal typifications properly used.

Journal

The Review of Austrian EconomicsSpringer Journals

Published: Jan 18, 2011

References

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