Huben and Kangas claim that Austrian Econimics is "crank science" and that everyone that believes in it does so for ideological reasons. The only thing that Huben and Kangas prove is that they do not understand economics, Austrian or otherwise. There are several deficiencies in their critique of Austrian analysis. First, Huben and Kangas single out a few of the more controversial contributions made by the Rothbardian wing of the Austrian School. Consequently Huben and Kangas ignore many universally accepted Austrian contributions to economic analysis. Second, to the extent that Huben and Kangas do critique Austrian economics they grossly misrepresent Austrian theory, methodolgy, and conclusions. To put it simply, they are either ignorant or perpetrating deliberate fraud.

Gross Misrepresentations by Huben and Kangas

Ideology

There is no single ideological or political position in the Austrian school. Hayek started his career as a Fabian Socialist and ended it as an advocate of limited government. Mises also favored limited government (Mises went so far as to accept the draft during wartime), but less so than Hayek. Weiser was a Socialist until the day he died. Robbins ended up favoring Keynesian Economics. Rothbard favored anarchism. Nowadays, Austrians advocate either limited government, in varying degrees, or anarchism. The argument that people believe in Austrian Economics because of ideology depends upon a restrictive definition that equates Austrian Economics with a distorted and selective version of Rothbardian Economics created by Huben and Kangas. This is absurd. I accepted the theory first and my attitudes changed latter.

Methodology

Free Banking

Kangas claims that Austrian believe that a private banking systems adopt 100% reserve requirements. This is utterly false. The indisputable truth is that Austrians do not agree on this issue. The truth is that there are three Austrian positions on the issue of bank reserves.

1. 0% reserve requirements. In 1979 Hayek published a book (denationalization of money) where he argued that a private banking system could operate without reserves (a fiat system). Many give Hayek for stimulating debate in this area, but few agree with his thesis (it is notable that Hayek favored central banking during most of his carrer).
2. 100% reserve requirements. Followers of Rothbard argue that bankers in a private system will want to hold fractional reserves (less than 100%) but that we ought to legislate against it. Kangas’s claim that Austrians believe that bankers will opt for 100% reserves proves that he knows not of what he writes.
3. Fractional Reserve Banking (0%>reserves<100%). Larry White and George Selgin are the primary Austrian proponents of this argument for free banking. Bankers in a decentralized banking system will circulate notes against their reserves and the note clearing process (not the government) will regulate them.

Try doing a little homework on this Huben, or have you already?

Undisputed Austrian Contributions

Subjective Marginal Value Theory Jevons and Walras share credit with Menger for refuting the Labor Theory of Value, but among these three Menger was the only one that recognized that both utility and cost were subjective.

Opportunity Cost Other econmists hinted at it, but Mengers’ student Friedrich Weiser nailed this concept down.

The Scarcity (Rational Choice) Definition of (approach to) Economics Lionel Robbins demolished the material welfare definition in his "Essay on the Nature and Significance of Economic Science". Hayek and Mises deserve much credit in this area as well for the influence that they both had on Robbins on this subject.

Ordinalism There is no scientific basis for interpersonal comparisons of utility. Thank you Lionel Robbins, were it not for your "Essay on the Nature and Significance of Economic Science" economists might still be babbling about counting utils (though a few psuedo economists, like Sen, still do)

The Knowledge Problem Both Friedman and Samuelson agreed that Hayek’s work in this area was exceptional (perhaps the only time that these to Nobel prize winners agreed on anything in economics). Hayek proved that prices play an indispesible role in communicating "knowledge of particular circumstances of time and place" throughout society.

Marginal Distribution Theory Menger wrote so little, but delivered so much. Economists hardly even mention this subject any more, and with good reason. This is a dead issue. Employers pay owners of factors of production their marginal products based on anticipated values of final products. Clark argued that this is just, some disagree over these ethical arguments, but no competent economist doubts that this is how competitive resource markets divide income.

Money as an Evolutionary Institution Menger strikes again! Nobody plans to use money, it just evolves out of barter. Adam Smith discussed this a bit, but Carl Menger nailed this issue down.

Disputed Austrian Contributions

Austrian Trade Cycle Theory Hayek won his Nobel Prize for his work in this area (in "Prices and Production"). Also, Mises established his professional reputation for his book on the Trade Cycle ("The Theory of Money and Credit"). Often vilified as extremist, Austrian Trade Cycle Theory is actually quite reasonable. As Garrison points out, in Chicago Macroeconomics markets work so well that it is hard to imagine how depressions ever happen while in Keynesian "theory" markets work so poorly that it is hard to imagine how depression ever stop.

Competritive

Relatively Unknown Austrian Contributions

Roundabout Production Some Freshman level texts mention Bohm Bawerks capital theory, but most economists ignore his contributions in this area.

Public Goods Austrian Economist Emil Sax made an early, and largely forgotten contribution on the theory of public expenditure. Walter Block has done some interesting work in this area recently as well.

The Regression Theorem Von Mises proved that Mengers explanation is the only explanation for the origin of money. Modern economists would do wel to rediscover this theorem

Time Preference Ethics Theory In his "The Foundations of Morality" Henry Hazlitt constructs a choice-theoretic basis for ethics and moral rules. Hazlitt also deals with some of the topics that Gary Becker dealt with in his "Treatise on the Family". Hazlitt was a genius.

Issues That Austrian Anticipated

Rational Expectations Yes, Austrians wrote in terms of anticipated values. Time and expectations formations played a prominent role in early Austrian writings. Modern Austrian complain about the Rational Expectations Hypothesis, but that is

only because the REH is too strict for them.

Public Choice Hayek’s Road to Serfdom (despite its’ faults) recognized that

Contestable Markets The New Learning about competition in concentrated industries is not as new as many believe. Hayek, Mises, and Kirzner all recognized that potential competition works just as well as actual competition.

The Austrian Critique of Keynesian Arguments

The reason why most Keynesians like to forget about Keynes’ "Treatise on Money" is because Hayek demolished it. Hayek also predicted (in the 30’s) that Keynesian policies would lead to ever increasing inflation rather than permanent reductions in unemployment (Remember the 70’s?).

Lets see, Austrian are responsible for defining the subject matter of economics; defining economics itself; developing the correct concepts of opportunity cost, subjective marginal price theory, marginal distribution theory, and ordinally measurable utility. Austrians also anticipated Public Choice and Contestable Markets. Not bad for a "crank science"!

The assertions that Huben and Kangas make about Austrian economics are ridiculous. They claim that Austrians are merely a fringe group. However, even a superficial survey of the history of economic thought reveals that a great deal of modern (and universally accepted) economics originated with Austrians. Austrians were also right on target with Keynes. Huben and Kangas obviously put a fair amount of research into writing their pages. So why is it that they made so many mistakes about Austrian Economics? I suspect deliberate fraud.