The Evolution Of Austrian Thoughts Of Trade Cycle

In terms of economic methodology,subjectivism is the most important feature of the Austrian School of Economics.It seperates thoughts of marginalism of Carl Menger from those of the other two famous marginalists during the Marginal Revolution,that is,Leon Walras and William Stanley Jevons,and also renders the Austrian School of Economics different from the Neoclassical School of Economics in research orientation.For years,most scholars of history of economic thought neglected this fact,and even in the early stage of development of the Austrian School,many Austrian economists had no clear understanding of this fact.It was in this context that the Austrian Theory of Business Cycle came into being.So,compared with the theories of entrepreneurship and market process which was developed later,there is an awkward relationship between the Austrian Theory of Business Cycle and the subjectivism.Ludwig M.Lachmann,an economist of the Austrian School,wrote: “its(the Austrian Theory of Business Cycle)theoretical pedigree was Wicksellian,and Wicksell’s major claim to fame was to have linked the Bohm-Bawerkian theory of capital to the Walrasian equilibrium system.” Obviously Bohm-Bawerkian theory of capital and the Walrasian equilibrium system were two pillars of the Austrian Theory of Business Cycle created by Ludwig von Mises,and subsequently developed by Friederich Hayek.Furthermore,it is easy to find that Bohm-Bawerkian theory of capital is a good example applying subjectivism to capital theory on one hand and a theory obviously influenced by Ricardian objectivism,on the other hand.Thus,the Austrian Theory of Business Cycle could be viewed as a product of the mingling and blending of subjectivism of the Austrian School,objectivism of Classical Economics,and the mechanical equilibrium method of Neoclassical School of Economics.However,by comparison between the theory of Mises and that of Hayek,to our surprise,there is a slight difference beween them in the application of subjectivism: Hayek was far unfaithful in subjectivism than Mises.This fact had a lot to do with the educational background of economics they received.Hayek and Mises was respectively a student of Friederich von Wieser and a student of Eugen von B?hm-Bawerk.Wieser differed sharply from B?hm-Bawerk in the attitude towards the Walrasian equilibrium system.After two great debates changing the fate of the Austrian School,that is,the Socialist Economic Calculation Debate and the money and business cycle theory debate,one party of which were some neoclassical market socialists,such as Oscar Lange and Abba Lerner,and John Maynard Keynes from Cambridge School,Mises and Hayek began to rethink subjectivism in economic studies of the school,and thus to rethink and correct their existing theories of Business Cycle.Maintaining that the relevant analysis should be under the framework of praxeology,Mises revised Wicksell’s interest theory from the perspective of human’s subjective time perference.Having imagined to recreate a theory of Business Cycle,Hayek attempted to create a new capital theory based on the relationship between goods with various subjective features,and to use ‘plan equilibrium’ embodied in human action to take the place of Walrasian equilibrium.But,it was a pity that he gave up his endeavor halfway due to his special politial and life environment The former is the outbreak of World War II,the latter is the shift in his academic interest from economics to other social sciences.Lachmann,a student of Hayek in the London School of Economics,guided by Hayek,did research on secondary depression and participated in the money and business cycle theory debate between Hayek and Keynes.In sharp contrast to Hayek obsessed by the Walrasian equilibrium,Lachmann,which was deeply influenced by “verstehende”(understanding)method of Max Weber,successfully applied subjectivism to his study on the business cycle to a greater extent.What is the most important is that,inspired by Hayek’s catallactics,Lachmann created a capital structure theory reflecting a spontaneous order and suspected that there is a tendency towards equilibrium.It is obvious that two pillars of the traditional Austrian Theory of Business Cycle were shaken and that theory was seriously challenged.After stagflation took place in 1970 s,Keynesian economics was questioned whereas Neo-Liberalism,such as Rational Expectations School,Monetarist School,and the Austrian School,ect.became popular.In this context,Roger Garrison corrected the Hayekian Austrian Theory of Business Cycle with the mainstream macroeconomic tools.Apparently neither the changes in Hayek’s thought of business cycle nor the challenge posed by Lachmann was taken by Garrison into account.So to speak,Garrison was inclined to adapt himself to the formalized analysis of the mainstream macroeconomics rather than to the development of subjectivism.Only a few years before,from the perspective of Menger’s account of the emergence of money,Cameron Hawick attempted to use Monetarist approach to analyze the asset bubbles and thus the business cycle.He kept himself away from the equilibrium analysis and tried another path of using the subjectivism in analysis of business cycle.At present,most literatures at home and abroad on the Austrian theory of Business Cycle centered around the early theories of Mises and Hayek.In these literatures,the theories of Mises and Hayek was viewed as identical.Nevertheless,only a very few literatures of history of economic thoughts noticed the changes in their thoughts of business cycle and the difference between them.Furthermore,not focusing on the economic methodology implicit in the theories of business cycle,or taking it for granted that these theories completely conformed to subjectivism,most relevant literatures at home and abroad either dived right into introducing the research value of them or directly analyze the economic reality with them regardless of the methodology.Because the defeat in two debates led the Austrian School to lapse into silence for nearly forty years,Lachmannian thought of business cycle emerged during this period only appeared in rare articles on other theme rather than in some dedicated articles.It was not difficult to find that few noticed the challenges facing the early theories of Mises and Hayek posed by Lachmann’s questioning of a tendency towards equilibrium.Some literatures abroad and a few of literatures at home introduced and evaluated Garrison’s thought of business cycle,however,hardly any article dealt with his thought from the angle of subjectivism.It was a few years before that Hawick developed his theory of business cycle in Mengerian account,so naturally his article was neglected.The paper aims at depicting the evolution of the thoughts of Autrian business cycle,that is,the forming,advancing and being challenged from Mises to Hayek to Lachmann to Garrison and Hawick,thereby analyzing the historical logic reflected in the evolution of these thoughts and from such historical logic,examining other theories of business cycle and finding out their contemporary research value.