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Why I Am Not an Austrian Economist

169 points by crunchiebones 8y ago

baby_wipe 8y ago
> while Hayek turned almost entirely to philosophy, law, and intellectual history after the 1930's If he's claiming The Use of Knowledge in Society (1942) isn't about economics, then you have a very narrow view of economics. I mention it only because this essay was such a major contribution.
- throwawayjava 8y ago
  > If he's claiming He's not. To take your example, Section 3.1 critiques The Use of Knowledge in Society via a critique of Human Action (which was published by Mises nearly a decade after 1942). Many of the observations in Section 3 (and 3.1 especially) are directly relevant to The Use of Knowledge in Society.
freedomben 8y ago
Might consider adding (1997) to the title. Even tho the article isn't date stamped, the author indicates the approximate year: > I was able to attend the 1989 Mises Institute summer seminar at Stanford, where I met Murray Rothbard and many of the leading Austrian economists for the first time. It is now eight years later;
- yig 8y ago
  He also writes: "I have just completed my Ph.D. in economics at Princeton, and will be joining the faculty of the economics department at George Mason in the fall." He joined GMU in 1997 according to http://econfaculty.gmu.edu/bcaplan/cv.html http://econfaculty.gmu.edu/bcaplan/cv.html .
  - EGreg 8y ago
    He also wrote “last week, as we were celebrating the summer solstice...” which puts the article probably sometime in late July.
f00_ 8y ago
Last year, I finished The Great Transformation by Karl Polyani, published in 1944 (the same year Hayek published The Road to Serfdom), Judea Pearl's The Book of Why and Mastering Metrics by Angrist and Pischke. The methodology of Austrian economics seems completely unscientific, I believe a part of praxeology is disregarding empirical evidence(?). Reminds me of something like Ayn Rand's egoism. It just seems to me you can't persuasively argue a philosophical theory without empirical justification I have a more favorable view towards Polyani's methodology, who largely draws on historical sources. The historical approach seems at least some what grounded compared to the pure theory used in much of economics Economic theory and statistics can't answer questions like "How much of an effect can we expect if we were to raise minimum wage by one dollar an hour". A randomized control trial is the gold standard, and the way forward seems to be more experiments like the RAND Health Insurance Experience and the Oregon Health Insurance Experiment. Even these results and their policy implications are subject to debate, so how could pure theory even get close? However, randomized experiments in the social sciences often aren't feasible for cost or ethical reasons. So econometrics has developed tools to work on natural experiments, or even observational data, like Differences-in-Differences, Instrumental Variables, Regression Discontinuity designs. Even a brief skim of methodological considerations in economics reveals how much uncertainty there is. I am only a fan of economics (only high school and college microeconomics) so I'm likely wrong
- minikites 8y ago
  >The methodology of Austrian economics seems completely unscientific, I believe a part of praxeology is disregarding empirical evidence. That's exactly it, it's more of a religion you have to accept on faith as opposed to a useful model for governing a society. https://en.wikipedia.org/wiki/Praxeology https://en.wikipedia.org/wiki/Praxeology >Austrians argue that that empirical data itself is insufficient to describe economics; that consequently empirical data cannot falsify economic theory; that logical positivism cannot predict or explain human action; and that the methodological requirements of logical positivism are impossible to obtain for economic questions. Ludwig von Mises in particular argued against empiricist approaches to the social sciences in general, because human events are unique and "unrepeatable".
SquishyPanda23 8y ago
It was interesting to see his comments on Hayek. Friedman had something similar to say about Hayek: "[I am] an enormous admirer of Hayek, but not for his economics. I think Prices and Production is a very flawed book. I think his [Pure Theory of Capital] is unreadable. On the other hand, The Road to Serfdom is one of the great books of our time". From https://en.m.wikipedia.org/wiki/Friedrich_Hayek https://en.m.wikipedia.org/wiki/Friedrich_Hayek
- mikeyouse 8y ago
  It's funny that modern Hayek adherents are so militant about preventing things that Hayek himself was completely fine with. He saw a government role in pricing externalities, banning poisons, preventing deforestation and pollution, limiting working hours or other manipulative labor contracts, preventing private fraud, and in wealthy societies, providing minimum food, clothing, housing and social insurance. That list would make many at Mises scream bloody murder. Man our discourse is just so petty.
  - atoav 8y ago
    As an Austrian I can tell you that these are things that most Austrians agree to without much controversy. Austria is such a small nation that feeling any benefit from destroying parts of its environment or population for profit doesn’t really feel like a good goal to most.
    - mikeyouse 8y ago
      Austrians as those who follow that school of economic thought, not as natives from Austria. Austrians are phenomenal! "Austrians" are often.. not the most pleasant people.. (apologies if I read past some sarcasm) https://en.wikipedia.org/wiki/Austrian_School https://en.wikipedia.org/wiki/Austrian_School
      - atoav 8y ago
        I should have marked the sarcasm better, not your fault, sorry for the miscommunication.
crb002 8y ago
Secretary of Polk County Iowa Libertarians here. It's an information theory issue. Information travels at the speed of light or less. Hayek married his cousin, but he was right that information transfer over large distances creates huge latencies in CAP theorem analysis of Markets. To me, Austrian just means don't pretend information latency is zero or bandwidth is infinite.
- crb002 8y ago
  I've been meaning to write an essay on Modern Austrian economics that takes into account results after 1930 from Kolmogorov, Shannon, and CAP theorem. Policies that work at a local level don't scale to a Frederal level. Even with the internet we have meatspace high latency constraints.
  - throwawayjava 8y ago
    "...statements made in technical jargon often sound absurd if you forget the underlying definitions." - the article
    - crb002 8y ago
      Kolmogorov had deep insight into bandwidth needed to send information, i.e. the limits of compression. Shannon showed the limits of communication over a noisy channel. CAP teased out constraints on distributed information processing systems over large distances.
      - throwawayjava 8y ago
        Sure. But from none of this does it follow that "Policies that work at a local level don't scale to a Frederal level". Or to put it another way, to the extent that we interpret local and federal and so on formally enough that they retain any connection to information theory, we're no longer talking about politics. The words either have their political meaning or their formal meaning, but pseudomathematical sophistry that conflates formal and informal statements in the same breath leads to quackery and nonsense, which is exactly one of the article's critiques of libertarianism as a framework. The CAP theorem occupies a similar place in pseudomathematics as Goedels theorems. An important result, but almost never for the reasons that someone attempting to use it to make a non-rigorous mathematical argument thinks it is...
LiweiZ 8y ago
As a layman, I think Austrian school lacks of quantitive ways to do repetitive applied work for fields and industries compared to the mainstream schools. And many of the tools and information sources were not available at Mises' time. Our society is based on calculation. Economics as a tool for management teams has to provide effective calculation for as many things as possible. People communicate and make decisions based on the calculation framework and the results. The world's economic states are modelled in a more or less approximate way. The school that can offer more "fact-based" and measurable data and results are welcomed by decision makers and the people work for them. Organizations need them. When many of organizations are using similar frameworks, the can communicate with other similar parties. It's easier for parties to make their data and results compatible to their own system. Just some random thoughts from a layman. And yes, I love Mises' work. But the tooling is missing for a lot of applications. There can be very limited actionable decision you can make if you adopt it. I'm probably misinformed, misunderstood and biased. Just some of my observations and thoughts.
- parasubvert 8y ago
  You make good points, the main reason these tools don’t exist , however, is that I thought Mises and others felt that economics was about logical deduction from the axioms of human action - Praexology. and thus there was no need for math or empiricism to validate the theories - they were Prima facie correct.
  - LiweiZ 8y ago
    I believe what they try to achieve is beyond what we currently have. And if Mises was born in this age, he would've probably go to the biology level or even deeper to start his work. The tooling and data to connect the dots in his mind was simply not there. To me, he wanted something that is not approximate. For those purposes, what you mentioned might be the best tools one can have at starting stage. I think some work in micro-economics has something similar to Mises'. They can work on simulations now to have fact-based and measurable discoveries. In the end, most likely what human can do is limited to the tooling, not the understanding and educated imagination.
throwawayjava 8y ago
I enjoyed this article because it provided a level-headed and analytical critique of a topic that is mired in politically charged emotion. For example, sections 2.1 and 2.2 resonated with me because, as a mathematician, because I can plainly see how the algebraic structure chosen by Rothbard for representing utility is going to severely impact the reasonableness of his models. There are several other compelling examples, where anyone who has done a bit of mathematical modeling can see that the neoclassical school of thought is simply providing better tools for achieving the desired outcomes.
throwaway_98554 8y ago
"(...)Mises alone, and perhaps Rothbard, who stumbled upon Operationalism in economics, but instead of comprehending that a truthful proposition must be BOTH externally correspondent, and existentially possible to construct via a series of rationally testable operations, attempted to somehow conflate Jewish Law, and Mathematical Logic and instead, created the pseudoscience of ‘praxeology’ under which they claim all economics must be produced by a sequence of operations. This left Mises respected but a laughing stock without a position. Unfortunately he did not understand what he had stumbled upon, and he could have reformed economics. But he failed. He failed because he was committed to his dogma, and committed to his error." https://www.quora.com/What-are-some-criticisms-of-the-Austrian-school-of-economic-thought/answer/Curt-Doolittle https://www.quora.com/What-are-some-criticisms-of-the-Austri...
Mikeb85 8y ago
This article didn't need to be written. No serious economist is an 'Austrian' economist. No one identifies themselves by the labels that modern day 'Austrians' argue about. The field has moved on. It's all about quantitative modelling, maths, observation, etc... Past Austrian school economists have contributed things, but the modern day 'Austrians' are basically neckbeards who argue on the internet about Hayek and Mises and contribute nothing new to the field.
- aetherson 8y ago
  Note that the article is from approximately 20 years ago.
  - notahacker 8y ago
    It's also probably increased in relevance since then, given that Mises-style Austrian economics has been much more successful in establishing itself as an important theory on the internet than it ever has been in academia. Above all, it's a well-reasoned piece from someone who was sympathetic and proximate to leading contemporary Austrian economists.
- ardy42 8y ago
  I think it did need to be written, but it's perhaps more useful now to laymen than professional economists. I've only been vaguely aware of "Austrian" economics, and loosely associated it with the kind of strident internet ideologues you mentioned. This article has given me a clearer view that's free of the distortions that I might have otherwise had to filter out with effort.
SubiculumCode 8y ago
I wonder about Modern Money Theory Economcs..often thought of as the polar opposite of Austrian Economics. https://en.wikipedia.org/wiki/Modern_Monetary_Theory https://en.wikipedia.org/wiki/Modern_Monetary_Theory
- Gibbon1 8y ago
  I tend to see MMT as on the right track in seeing money/finance as a system of control. In that the limits are never financial but resource, technological, social and political.
  - SubiculumCode 8y ago
    Agreed. I think that is the main contribution: Resource, technological, social and political limitations can lead to inflation. I have issues with some MMT proposals however. For example, the full employment federal job guarantee proposal goes in the wrong direction I think, because I do not think, as a amateur, that understanding the limits of money creation, role of taxes, etc, implies that centrally planned solutions are the best option (ie. Federal government guarantees you a job), when Top-to-bottom-up (i.e. unrestricted basic income) alternatives might leverage market forces rather than central planning in how that money is spent to better lives or to help fund new businesses.
    - jabl 8y ago
      The common MMT objection against UBI is that it's inflationary, that is, the state spends money (UBI) without getting anything (production) in return. The "efficiency" of job guarantee (JG) jobs is perhaps not the best, but OTOH it's not zero either. The general idea in the JG is that it provides minimum wage jobs, functioning as a social safety net (or, JG effectively sets a minimum wage). When the economy does well, workers migrate to non-JG jobs, and vice versa in a downturn, keeping full employment at all times. To some extent I think there's also a philosophical point here. Do we regard jobs as inherently useful, e.g. providing a social setting for peoples lives, or are most jobs "bullshit jobs" that serve no useful function whatsoever? How you answer that probably makes a difference in how you view JG vs. UBI as well.
freedomben 8y ago
For people interested in learning more about the author's (Bryan Caplan) background and views: http://thepolitic.org/an-interview-with-bryan-caplan-professor-of-economics-at-george-mason-university/ http://thepolitic.org/an-interview-with-bryan-caplan-profess...
- thedailymail 8y ago
  I don't agree with Prof Caplan on a lot of things but generallly respect his intellect. But I was very surprised and disappointed to read his views here on alcoholism being a matter of choosing "a beverage over one's family" rather than a legitimate medical issue.
  - hopler 8y ago
    Many people who are experts in one field like economics assume they are experts in all fields including medicine.
    - megous 8y ago
      That's not it. It's more like the belief that economics and psychology are separate and economic theory should restrict itself to dealing with expressed preferences, and not be concerned with how those preferences came to be.
  - fingerlocks 8y ago
    I believe the professor is discussing the implications of choosing A over B, not examining why the choice was made.
    - thedailymail 8y ago
      But that is the point. Most addiction experts don't describe alcohol dependence in terms of choice, but as a physical addiction.
- throwaway98121 8y ago
rajacombinator 8y ago
Long and interesting read, still working through it. He has numerous logical errors and he fails at refuting any of Mises’ arguments so far in my reading. Perhaps Mises and his followers have not been able to construct as elaborate machinery as the neoclassicalists, perhaps it is not possible. Either way it doesn’t matter, policy and action should and do follow moral (or immoral) principles. Modern economic theory is just the theology justifying it.
dmichulke 8y ago
The five reasons given are IMO attributes of Rothbard and Mises but in my view neither of them is substantial to Austrian economic theory. They deal with modelling preferences (point 1-3), the influence of third parties (point 4) and a kind of ridiculous "you use 'subjectivism' so often, it sounds like you're implying we don't care about subjectivism" discussion (point 5). Since none of the are integral to Austrian economic theory but a few of them are against opinions of Mises and Rothbard (and I wouldn't even disagree with the author's view points here), it's comparable to saying "Darwin said you should always explore distant nature in a naval vessel and he believed in God, therefore his theories are wrong". To substantiate: 1. Utility Functions vs. Value Scales Everyone can use the representation of utility he wants, it just has to be decided whether it's appropriate in the case he applies it to or not. I assume small quantities of every day items (say potatoes) are easier modeled in continuous well-defined functions while preferences for the quantity of shopping malls is much harder to model that way. Neither means the other is necessarily wrong but as always modelling is not the same as reality. 2. Indifference I can personally see how I am indifferent to a few things but it's unlikely you see it in my actions (other than watching me flip a coin). Now how is that again related to Austrian Economics? 3. Continuity Basically Mises and Rothbard are arguing against modelling various dimensions as continuous functions. I see how their claim can be true under some circumstances and how it can be useful under others. So again how is that relevant to being (or not) an Austrian Economist? 4. Welfare Economics > Rothbard could only claim the welfare effects of government intervention upon "social utility" are indeterminate Agreed. Government is not necessarily bad. The rest of the discussion there is about "assumptions": Whether and how a third party affects a voluntary exchange. Again, this is not at all necessary for Austrian economics, and attacking it is an exercise in futility. 5. Subjectivism This argument is not an argument, it's about word usage frequencies and how they imply things. WTF
- roymurdock 8y ago
  look at all of his arguments as a framing of neoclassical (math/calculus-based econ) vs. austrian (non-continuous/messy/favoring nature/functions too complex to be described and calculated econ) 1. author argues that Rothbard's austrian "value scale" approach is unable to derive the key income and substitution effects used in neoclassical modeling, but that Rothbard adds them into his framework ad hoc without properly deriving them this has nothing to do with the reality of modeling the utility of potatoes for individuals vs. shopping malls for society, rather deriving key properties that are used in logical predictive modeling (eg my wages increase ∴ consumption curve shifts right BY income effect) 2. yeah, not related to any precepts of austrian or neoclassical economics, more of a philosophical discussion of how preferences must be revealed by action in econ rather than introspection, freezing time, or flipping a coin every time you're indifferent. he's rejecting both of their rejections of an implication of neoclassical theory, but it's not practically important, just a reflection of caplan's beliefs 3. rothbard and mises reject the notion that preferences are continuous, which means they can't be neatly drawn on 2D graphs and used in calculus. Rothbard continues to use diagrams and calculus somewhat hypocritically, while Mises doesn't use diagrams. author thinks (as do most economists) that graphing utility and preference functions as continuous and therefore being able to do useful things such as find their intersections, take their derivatives, etc. far outweighs the utility of describing them in non-continuous terms author thinks all austrian economists reject continuous micro functions, which is untrue (just Rothbard and Mises) but supports his larger theory that austrian economics is not as useful/actionable as neoclassical 4. author is defending the principle of pareto efficiency, another fundamental neoclassical principle which allows economists to measure how free market distortions such as communism and rent control effect different groups within the economy. author is criticizing rothbard's framework which only allows one to call acts of government welfare "indeterminate" and thus be unable to measure their effect and get things done 5. defending the technical definition of "efficiency" again because the technical definition is needed to construct proofs and get things done basically author is saying neoclassical is much more useful for getting things done with economics, and that rothbard and mises (who he takes to represent the whole school of austrian econ) didn't provide many useful tools from which others could predict/model/build off
tobmlt 8y ago
Since this is trending, you might be interested in the responses from the Austrians themselves: https://mises.org/wire/caplan-and-responses https://mises.org/wire/caplan-and-responses Note Caplan replies to some of this and it's linked in the same place. Reader beware - I do not recall the jist of it all as it's been some time (~10 yrs) since I last saw this. Interestingly, Caplan has a profile on Mises.org: https://mises.org/profile/bryan-caplan https://mises.org/profile/bryan-caplan Cheers. Edit, more Caplan stuff I find worth linking http://econfaculty.gmu.edu/bcaplan/anarfaq.htm#part18 http://econfaculty.gmu.edu/bcaplan/anarfaq.htm#part18
Proven 8y ago
This is telling: > Austrian scholars have made important contributions to economics in recent years. I personally am most impressed by the work of Lawrence White and George Selgin on free banking and other monetary issues Selgin is not even against central banking. Just a bunch of socialists!
AndyMcConachie 8y ago
The Koch brothers gave money to the GMU economics department and played a hand at picking professorships. https://www.washingtonpost.com/local/education/george-mason-president-some-donations-fall-short-of-academic-standards/2018/04/28/bb927576-4af0-11e8-8b5a-3b1697adcc2a_story.html https://www.washingtonpost.com/local/education/george-mason-...
- soVeryTired 8y ago
  Finally, an explanation for the existence of Tyler Cowen!
stuaxo 8y ago
The Mises quote is completely anti-science: > But the main fact is that there are no constant relations. > Economics is not, as ignorant positivists repeat again and > again, backward because it is not "quantitative." > It is not quantitative because there are no constants. > Statistical figures referring to economic events are historical data. They tell us what happened in a nonrepeatable historical case.[27]
- andrenth 8y ago
  It doesn’t strike me as anti-science, more like anti bad science? If you can’t reliably reproduce an experiment, you can’t make statistical inference from it. The reproducibility crisis in the humanities is very well known.
  - notahacker 8y ago
    Mises' argument was that even a systematic pattern of results in economics should always be understood as merely a set of discrete observations dependent on historical context and unobservable phenomena and therefore no valid conclusions could be reached from induction, not even falsification of a claim.
jayalpha 8y ago
I have posted it already but I will post it again (as a former Austrian). 1. Mises, who did not work one day in his whole live in a private free market enterprise, has fundamentally not understood capitalism. He describes free market barter economies, e.g. in the middle ages, that have nothing to do with capitalism. At least he describes them very good, including, why interest exits etc. 2. He fundamentally does not understand the need to pre-finance industrial production. The pressure to recover the debt gives capitalism its impressive dynamic. But in the end it is basically a ponzi scheme that relies on a) ever increasing debt, because previous debt is settled with new debt. b) a growing economy that allows the creation of more debt. Mises got the idea, while thinking very hard on a desk in an academic environment, that companies "save money to make investments". This can not be observed in reality. Very few companies are able to do this (e.g. IT companies like google). Most companies take shitloads of loans to pre-finance new production in the expectation that this loans can be repaid,recoverd with future economic growth. e.g. selling more cars. Gail Trevberg touches some of this ideas (I got it from a German book from 1998) in this blog post: https://ourfiniteworld.com/2011/02/21/there-is-no-steady-state-economy-except-at-a-very-basic-level/ https://ourfiniteworld.com/2011/02/21/there-is-no-steady-sta... 3. Credit expansion can bring about a temporary boom. But such a fictitious prosperity must end in a general depression of trade, a slump.” — Ludwig von Mises This is his biggest joke since it is a tautology. Every boom goes with a credit expansion and every credit expansion goes with a boom. It is the principle of a debt based society. He is correct that a boom always ends in a bust. But this is a feature of capitalism, not a bug. This is how capitalism works: https://i.ibb.co/9nms8xK/Net-Worth.jpg https://i.ibb.co/9nms8xK/Net-Worth.jpg
- Gibbon1 8y ago
  > Mises, who did not work one day in his whole live in a private free market enterprise, This is one of my big big complaints about economists.
- AnimalMuppet 8y ago
  > Mises got the idea, while thinking very hard on a desk in an academic environment, that companies "save money to make investments". This can not be observed in reality. Very few companies are able to do this (e.g. IT companies like google). Most companies take shitloads of loans to pre-finance new production in the expectation that this loans can be repaid,recoverd with future economic growth. e.g. selling more cars. If I understand correctly (and I may not), Mises' position was closer to true in his day than it is today. The debt-based investment is a more recent phenomenon.
jonathanstrange 8y ago
I'm not convinced by the way the author argues. For example, he gives U=aln(quantity of apples)+(1-a)ln(quantity of oranges) as an example of a utility function and in the very same section claims that neoclassical economists only use ordinal scales, hence the criticism of presuming cardinal utility doesn't apply. But does it really make sense to use a nonlinear function to represent ordinal preferences? As a philosopher working in the so-called theory of value structure - basically, about the meaning of 'better than' - my criticism of preference modelling would be different and applies to both camps. First, if the modelling is descriptive we know that people have e.g. non-transitive preferences and completeness also doesn't hold. Second, there are also pretty good arguments against the transitivity of 'better than' from a normative perspective that at least need to be defused somehow. IMHO, the right solution points towards conditional preferences and/or lexicographic decision procedures. In a nutshell, multiple criteria interact in complicated ways and the assumption that the outcome of aggregating them is a neat complete preorder is generally not warranted. (And there is plenty of work on nontraditional decision theory by e.g. Fishburn to support alternatives.) Third, there are good arguments why some of our evaluative comparisons between items are cardinal, at least on an interval scale, whereas others are purely ordinal. I understand why this would be an undesirable point of view for an economist, though, since there is no known rationally and normatively justifiable way of aggregating ordinal and cardinal utilities into a meaningful overall assessment. From a measurement-theoretic perspective, an overall ordinal utility is the best you can get in this case. There seems to be a certain tendency of economists to dismiss certain plausible views because they are technically undesirable rather than on the basis of substantive arguments. Another thing is that as far as I can see, economists who presume ordinal utilities do not seem to care enough about Arrow's Theorem in contexts with multiple attributes. At least they should make clear that IIA ought not hold when ordinal preferences are aggregated.
- soVeryTired 8y ago
  I think I agree with the crux of what you have to say, but do you have an example of people having non-transitive preferences? I can't think of one off the top of my head, and the classical economic argument is that non-transitive preferences would create a 'happiness pump' where I get stuck in a loop trading one thing for another and feeling good about the trade every time.
soVeryTired 8y ago
Regarding points 1 and 2, I think any argument that relies on the concept of utility in some essential way is either false or trivial. Take for example the theorem that "utility-maximizing individuals equalize the marginal utilities of goods consumed divided by their prices". Utility can't be measured directly, and must be inferred from a consumer's behaviour. It's begging the question to infer an agent's utility function from their behaviour and to simultaneously conclude that the behaviour maximises the utility function: that's true by construction. On the other hand, we can assume a functional form for an agent's utiilty for a given basket of goods. I guarantee that real-world preferences are more complicated than any function we can write down, so any prediction we make about an agent's preferences will almost certainly be wrong. All in all, utilities are a nice toy, but aren't really any use outside of the world of theory.
- roymurdock 8y ago
  in econ 101 utility is measured in “utils” eg 1 banana = 10 utils, 1 apple = 5 utils, 1 car = 100 utils, etc utils are just a proxy for money and/or time which are interchangeable through wages paid for labor money is our real world way of valuing the utility of goods, labor, and more generally time (the scarcest resource of them all) utility functions will never describe an individuals preferences perfectly (hell you couldn’t perfectly describe the utility of any of the transactions you make) but they’re useful when describing and predicting aggregate behavior, especially when fed a lot of consumer data (higher confidence) all of game theory also uses the concept of utility to weigh payoffs and there are many many real world applications of game theory its not perfect but no models are perfect, that’s why we have statistics and probability theory to guide us as well
  - wazoox 8y ago
    Except you can't compare the utility of things from different classes like bananas, hammers, cars, overcoats and paintings. It just doesn't make any sense. Finally "utility" is a different way to formulate the same thing as "use value" as opposed to "exchange value". In Marginalism, you compare utility from agent to agent but you can never attribute an absolute value.
mark_l_watson 8y ago
re “I conclude that while self-labeled Austrian economists have some valid contributions to make to economics, these are simply not distinctive enough to sustain a school of thought“ This seems a little crazy to me. I think there is a world of difference between current economic philosophy that runs the US-centered world and Austrian Economics as depicted on the Mises web site. I am not an economist but I do sometimes read the Mises.org web site and until recently I made monthly contributions to support the site. I credit Mises.org with information that led me to divest my retirement accounts out of the stock market in 1997. That saved me a lot of money.
- simias 8y ago
  I'm not sure I understand your argument, the Mises Institute could make valid contributions to the field of economics without being a distinctive school of thought. I mean the paragraph you've quoted says exactly as much, in full: >I conclude that while self-labeled Austrian economists have some valid contributions to make to economics, these are simply not distinctive enough to sustain a school of thought. The task of developing an alternate Austrian paradigm has largely failed, producing an abundance of meta-economics (philosophy, methodology, and history of thought), but few substantive results. Whatever Austrian economists have that is worth saying should be simply be addressed to the broader economics profession, which (in spite of itself) remains eager for original, true, and substantive ideas. He doesn't say that Austrian economists are always wrong, he says that even when they're right their works do not justify a completely different economic paradigm. The fact that anecdotally you saved some money by following their advice doesn't really contradict that IMO.
  - jplayer01 8y ago
    I don't even see how he saved money. If he'd stayed in the market, he would've made tons of returns by now. It's more like he avoided short-term loss and long-term profit. Unless for some reason he was invested in companies like stufffordogs.com.
    - mark_l_watson 8y ago
sudoaza 8y ago
Wow economy is really bullshit, not only the Austrian arguments, but also this article authors.
ThomPete 8y ago
Any economic school of thought holds the answer to unknowns in other economic school of thoughts. The idea of following a specific school always struck be as desparate. Any economics thinker worth their salt would never subscribe to just one school as they would know, at least today, that the world isnt predictable and there are fare more externalities to considder. This is also why i am a big opponent of policy guided by economists. They should serve as advisors not policy makers which is often the case today.
- candiodari 8y ago
  Instead of listening to people who know a little, we should listen to people who know nothing at all ? Surely I'm misunderstanding something here.
  - ThomPete 8y ago
    The questions is what it is they know. You can be very wrong even though you are completely logical all the way down to your premise. All policy decisions have consequences sooner or later. Economist can neither predict, save or create the financial market. The things economists can say something useful about are different than what they are being used for. We should ask economists to calculate how public spending is going to be affected by various policies but the idea that they should be asked for advice on fundamental questions and thus what to implement as policy and not is simply a misguided idea to begin with. People make the economy not economists. Economists should be treated as custodians not psychics which is happening all to often today IMO.
    - candiodari 8y ago
      I wonder who you would suggest does better ? > Economist can neither predict, save or create the financial market. I would argue the problem is much more than the government selects economists based on what exactly they predict. For example: https://www.cnbc.com/2017/11/02/trump-picks-jerome-powell-to-succeed-yellen-as-fed-chair.html https://www.cnbc.com/2017/11/02/trump-picks-jerome-powell-to... https://www.theguardian.com/business/2013/oct/09/obama-janet-yellen-us-federal-reserve https://www.theguardian.com/business/2013/oct/09/obama-janet... In both cases the selection procedure gave up what these people did to get selected. Janet Yellen had strong academic credentials and a theory on how to prevent economic crashes, which clearly Obama was partial to. Of course we just pretend she wasn't Vice Chair in 2011, because that would be a definite fly in the soup. Powell seems to have been selected on a promise to take the market into account (ie. to try to preserve the inflated prices of stocks), which Trump seems to like, or at least he used to. The point is, both people were selected based on their opinions. To say that their actions represent economists is stupid. They represent Obama's and Trump's philosophies, not economists.
snidane 8y ago
Good article, but a bit too long for me to participate into discussion. Will read the rest of it later. This debate between neoclassicals and austrians reminds me of logicians and people from static typing systems endlessly arguing about which logic or type system is the best and complete, without flaws, inconsistencies and paradoxes. They are trying to reconstruct the world from axioms but get stuck at the very bottom in these petty debates. In the meantime we have people which just whip out Python or other dynamic language, accept its flaws, but produce some real working software which powers the world. Similarly in logic, people just infer generalizations from examples (inductive reasoning) instead trying to build axiomatic truth so that they can reason deductively. My 'real world' comments to that economic debate. 1. subjectivity. Humans share 99% of DNA not only among themselves but also with pigs. It's evident that some people have subjective preferences, but vast majority of human needs are similar. Housing and food are obviously the largest markets out there 2. welfare, ie. connecting micro to macro When you observe microparticles of gas (motion, collisions, velocity) you don't get macro (temperature, pressure, density) values until you put the gas into a container, ie. introduce a boundary condition. Similarly for economics, you can observe individual collisions (transactions) but unless you observe what happens at the boundary (scarcity of certain goods) you won't make it to macro values (wealth distribution, poverty) 3. monopoly. You get monopoly when you constrain supply of certain good in the economy. This can happen artificially (pharma industry preventing other companies from entering the market because of inexperience and safety). Or naturally (network effects - all utility (electricity, gas, water, railroad, internet providers, law and justice) companies eventually merging into one). Because of natural monopolies you need a government, but only for those. The last point about monopolies is the georgist (Henry George) critique of both neoclassicals and austrians. The monopolies are the cause of poverty and unequal wealth distribution, because in the money eventually ends up in the black holes (monopolies) and rarely make it out. The biggest market of all - housing - is a perfect example. All the money ends up parked in real estate. George back then proposed a remedy. To price 'private property' as a service. The private property owners are those consuming the government services. Eg. Houses require guarding by firefighters, police against squatters and court system to resolve disputes. These services should be financed from taxes based on property then. But nowadays they are financed from taxes on labor (income tax) and consumption (vat, sales taxes). In other words those people that don't own anything pay for the services of those that do own. It's likely no conspiracy, it's just one of those cases where people measure the thing which is easier to measure, not the one which is important to measure.
kriro 8y ago
Oh boy from experience this is a very loaded discussion. I personally like the Austrian framework because I find it aesthetically pleasing (I guess I'm a sucker for deduction). Some of the writing is simply intellectually interesting and also very scholastic for lack of a better word. For example, even if you completely disagree with the analysis I'd argue that "America's Great Depression" is a very good read simply from an intellectual point of view and "Man, Economy, State" is a very good tome that contains a framework of thought. I also enjoy the science theoretical musings quite a bit. The writing on Aristotelian ontology is very good for example. There's also works where I constantly shake my head at the implications and political conclusions but intellectually I still love them. "The Ethics of Liberty" is probably the clearest example of this. Do I think that letting a baby starve to death because it is basically a parasite is morally desirable: no. Do I find the idea of trying to deduce an entire ethical framework from first principles fascinating and the way it is done interesting: yes There are lots of things about AE that I find irking but the core theory and the science theoretical basis is very interesting/intriguing to read. I also like that pretty much everything is readily available on mises.org. I wish all "schools of thought" would be this forward thinking.
- jcfrei 8y ago
  I read the ethics of liberty as well and came to the conclusion that the deduction of its ethical framework is flawed (though interesting nonetheless). Here's a link for those interested in my write-up: http://jcfrei.com/on-the-ethics-of-liberty/ http://jcfrei.com/on-the-ethics-of-liberty/
- stillbourne 8y ago
  Did you see the guys title? Assistant Professor, Department of Economics, George Mason University. I'm sorry but what was yours? > Do I think that letting a baby starve to death because it is basically a parasite is morally desirable: no. Do I find the idea of trying to deduce an entire ethical framework from first principles fascinating and the way it is done interesting: yes Oh, so while the thought of a baby starving to death is detestable, you'd still let it happen because... an economics based framework for ethics is somehow superior to a principled one. Got it. How very forward thinking of you.
feenix566 8y ago
Imagine you're the President and the economy just collapsed. You have two economists in your office offering advice. One tells you to spend a lot of money and go into debt to get the economy working again and the other tells you to cut back on spending and otherwise do nothing. Which one are you going to listen to? Obviously the first one's advice would be a lot more popular than the second. If we begin with the assumption that politicians are selfless servants of the people who only want to do what's best for society at large in the long run, then you would conclude that politicians will carefully examine the theories and methods of the two economists' schools of thought. If we begin with the assumption that everyone, including politicians, is primarily self-interested, then you would conclude that a politician would just do what's popular with no regard for how the two economists arrived at their advice. I believe people are primarily self-interested. From that perspective none of this discussion about economic theories matters because politicians are just going to do what's popular anyway. The proposition that people are primarily self-interested is therefore in my opinion the only idea of value that's come out of the study of economics, which is the study of human behavior after all.

169 points by crunchiebones 8y ago

> while Hayek turned almost entirely to philosophy, law, and intellectual history after the 1930's If he's claiming The Use of Knowledge in Society (1942) isn't about economics, then you have a very narrow view of economics. I mention it only because this essay was such a major contribution.

throwawayjava 8y ago
> If he's claiming He's not. To take your example, Section 3.1 critiques The Use of Knowledge in Society via a critique of Human Action (which was published by Mises nearly a decade after 1942). Many of the observations in Section 3 (and 3.1 especially) are directly relevant to The Use of Knowledge in Society.

freedomben 8y ago

Might consider adding (1997) to the title. Even tho the article isn't date stamped, the author indicates the approximate year: > I was able to attend the 1989 Mises Institute summer seminar at Stanford, where I met Murray Rothbard and many of the leading Austrian economists for the first time. It is now eight years later;

yig 8y ago
He also writes: "I have just completed my Ph.D. in economics at Princeton, and will be joining the faculty of the economics department at George Mason in the fall." He joined GMU in 1997 according to http://econfaculty.gmu.edu/bcaplan/cv.html http://econfaculty.gmu.edu/bcaplan/cv.html .
- EGreg 8y ago
  He also wrote “last week, as we were celebrating the summer solstice...” which puts the article probably sometime in late July.

f00_ 8y ago

Last year, I finished The Great Transformation by Karl Polyani, published in 1944 (the same year Hayek published The Road to Serfdom), Judea Pearl's The Book of Why and Mastering Metrics by Angrist and Pischke. The methodology of Austrian economics seems completely unscientific, I believe a part of praxeology is disregarding empirical evidence(?). Reminds me of something like Ayn Rand's egoism. It just seems to me you can't persuasively argue a philosophical theory without empirical justification I have a more favorable view towards Polyani's methodology, who largely draws on historical sources. The historical approach seems at least some what grounded compared to the pure theory used in much of economics Economic theory and statistics can't answer questions like "How much of an effect can we expect if we were to raise minimum wage by one dollar an hour". A randomized control trial is the gold standard, and the way forward seems to be more experiments like the RAND Health Insurance Experience and the Oregon Health Insurance Experiment. Even these results and their policy implications are subject to debate, so how could pure theory even get close? However, randomized experiments in the social sciences often aren't feasible for cost or ethical reasons. So econometrics has developed tools to work on natural experiments, or even observational data, like Differences-in-Differences, Instrumental Variables, Regression Discontinuity designs. Even a brief skim of methodological considerations in economics reveals how much uncertainty there is. I am only a fan of economics (only high school and college microeconomics) so I'm likely wrong

minikites 8y ago
>The methodology of Austrian economics seems completely unscientific, I believe a part of praxeology is disregarding empirical evidence. That's exactly it, it's more of a religion you have to accept on faith as opposed to a useful model for governing a society. https://en.wikipedia.org/wiki/Praxeology https://en.wikipedia.org/wiki/Praxeology >Austrians argue that that empirical data itself is insufficient to describe economics; that consequently empirical data cannot falsify economic theory; that logical positivism cannot predict or explain human action; and that the methodological requirements of logical positivism are impossible to obtain for economic questions. Ludwig von Mises in particular argued against empiricist approaches to the social sciences in general, because human events are unique and "unrepeatable".

SquishyPanda23 8y ago

It was interesting to see his comments on Hayek. Friedman had something similar to say about Hayek: "[I am] an enormous admirer of Hayek, but not for his economics. I think Prices and Production is a very flawed book. I think his [Pure Theory of Capital] is unreadable. On the other hand, The Road to Serfdom is one of the great books of our time". From https://en.m.wikipedia.org/wiki/Friedrich_Hayek https://en.m.wikipedia.org/wiki/Friedrich_Hayek

mikeyouse 8y ago
It's funny that modern Hayek adherents are so militant about preventing things that Hayek himself was completely fine with. He saw a government role in pricing externalities, banning poisons, preventing deforestation and pollution, limiting working hours or other manipulative labor contracts, preventing private fraud, and in wealthy societies, providing minimum food, clothing, housing and social insurance. That list would make many at Mises scream bloody murder. Man our discourse is just so petty.
- atoav 8y ago
  As an Austrian I can tell you that these are things that most Austrians agree to without much controversy. Austria is such a small nation that feeling any benefit from destroying parts of its environment or population for profit doesn’t really feel like a good goal to most.
  - mikeyouse 8y ago
    Austrians as those who follow that school of economic thought, not as natives from Austria. Austrians are phenomenal! "Austrians" are often.. not the most pleasant people.. (apologies if I read past some sarcasm) https://en.wikipedia.org/wiki/Austrian_School https://en.wikipedia.org/wiki/Austrian_School
    - atoav 8y ago
      I should have marked the sarcasm better, not your fault, sorry for the miscommunication.

crb002 8y ago

Secretary of Polk County Iowa Libertarians here. It's an information theory issue. Information travels at the speed of light or less. Hayek married his cousin, but he was right that information transfer over large distances creates huge latencies in CAP theorem analysis of Markets. To me, Austrian just means don't pretend information latency is zero or bandwidth is infinite.

crb002 8y ago
I've been meaning to write an essay on Modern Austrian economics that takes into account results after 1930 from Kolmogorov, Shannon, and CAP theorem. Policies that work at a local level don't scale to a Frederal level. Even with the internet we have meatspace high latency constraints.
- throwawayjava 8y ago
  "...statements made in technical jargon often sound absurd if you forget the underlying definitions." - the article
  - crb002 8y ago
    Kolmogorov had deep insight into bandwidth needed to send information, i.e. the limits of compression. Shannon showed the limits of communication over a noisy channel. CAP teased out constraints on distributed information processing systems over large distances.
    - throwawayjava 8y ago
      Sure. But from none of this does it follow that "Policies that work at a local level don't scale to a Frederal level". Or to put it another way, to the extent that we interpret local and federal and so on formally enough that they retain any connection to information theory, we're no longer talking about politics. The words either have their political meaning or their formal meaning, but pseudomathematical sophistry that conflates formal and informal statements in the same breath leads to quackery and nonsense, which is exactly one of the article's critiques of libertarianism as a framework. The CAP theorem occupies a similar place in pseudomathematics as Goedels theorems. An important result, but almost never for the reasons that someone attempting to use it to make a non-rigorous mathematical argument thinks it is...

LiweiZ 8y ago

As a layman, I think Austrian school lacks of quantitive ways to do repetitive applied work for fields and industries compared to the mainstream schools. And many of the tools and information sources were not available at Mises' time. Our society is based on calculation. Economics as a tool for management teams has to provide effective calculation for as many things as possible. People communicate and make decisions based on the calculation framework and the results. The world's economic states are modelled in a more or less approximate way. The school that can offer more "fact-based" and measurable data and results are welcomed by decision makers and the people work for them. Organizations need them. When many of organizations are using similar frameworks, the can communicate with other similar parties. It's easier for parties to make their data and results compatible to their own system. Just some random thoughts from a layman. And yes, I love Mises' work. But the tooling is missing for a lot of applications. There can be very limited actionable decision you can make if you adopt it. I'm probably misinformed, misunderstood and biased. Just some of my observations and thoughts.

parasubvert 8y ago
You make good points, the main reason these tools don’t exist , however, is that I thought Mises and others felt that economics was about logical deduction from the axioms of human action - Praexology. and thus there was no need for math or empiricism to validate the theories - they were Prima facie correct.
- LiweiZ 8y ago
  I believe what they try to achieve is beyond what we currently have. And if Mises was born in this age, he would've probably go to the biology level or even deeper to start his work. The tooling and data to connect the dots in his mind was simply not there. To me, he wanted something that is not approximate. For those purposes, what you mentioned might be the best tools one can have at starting stage. I think some work in micro-economics has something similar to Mises'. They can work on simulations now to have fact-based and measurable discoveries. In the end, most likely what human can do is limited to the tooling, not the understanding and educated imagination.

throwawayjava 8y ago

I enjoyed this article because it provided a level-headed and analytical critique of a topic that is mired in politically charged emotion. For example, sections 2.1 and 2.2 resonated with me because, as a mathematician, because I can plainly see how the algebraic structure chosen by Rothbard for representing utility is going to severely impact the reasonableness of his models. There are several other compelling examples, where anyone who has done a bit of mathematical modeling can see that the neoclassical school of thought is simply providing better tools for achieving the desired outcomes.

throwaway_98554 8y ago

"(...)Mises alone, and perhaps Rothbard, who stumbled upon Operationalism in economics, but instead of comprehending that a truthful proposition must be BOTH externally correspondent, and existentially possible to construct via a series of rationally testable operations, attempted to somehow conflate Jewish Law, and Mathematical Logic and instead, created the pseudoscience of ‘praxeology’ under which they claim all economics must be produced by a sequence of operations. This left Mises respected but a laughing stock without a position. Unfortunately he did not understand what he had stumbled upon, and he could have reformed economics. But he failed. He failed because he was committed to his dogma, and committed to his error." https://www.quora.com/What-are-some-criticisms-of-the-Austrian-school-of-economic-thought/answer/Curt-Doolittle https://www.quora.com/What-are-some-criticisms-of-the-Austri...

Mikeb85 8y ago

This article didn't need to be written. No serious economist is an 'Austrian' economist. No one identifies themselves by the labels that modern day 'Austrians' argue about. The field has moved on. It's all about quantitative modelling, maths, observation, etc... Past Austrian school economists have contributed things, but the modern day 'Austrians' are basically neckbeards who argue on the internet about Hayek and Mises and contribute nothing new to the field.

aetherson 8y ago
Note that the article is from approximately 20 years ago.
- notahacker 8y ago
  It's also probably increased in relevance since then, given that Mises-style Austrian economics has been much more successful in establishing itself as an important theory on the internet than it ever has been in academia. Above all, it's a well-reasoned piece from someone who was sympathetic and proximate to leading contemporary Austrian economists.
ardy42 8y ago
I think it did need to be written, but it's perhaps more useful now to laymen than professional economists. I've only been vaguely aware of "Austrian" economics, and loosely associated it with the kind of strident internet ideologues you mentioned. This article has given me a clearer view that's free of the distortions that I might have otherwise had to filter out with effort.

SubiculumCode 8y ago

I wonder about Modern Money Theory Economcs..often thought of as the polar opposite of Austrian Economics. https://en.wikipedia.org/wiki/Modern_Monetary_Theory https://en.wikipedia.org/wiki/Modern_Monetary_Theory

Gibbon1 8y ago
I tend to see MMT as on the right track in seeing money/finance as a system of control. In that the limits are never financial but resource, technological, social and political.
- SubiculumCode 8y ago
  Agreed. I think that is the main contribution: Resource, technological, social and political limitations can lead to inflation. I have issues with some MMT proposals however. For example, the full employment federal job guarantee proposal goes in the wrong direction I think, because I do not think, as a amateur, that understanding the limits of money creation, role of taxes, etc, implies that centrally planned solutions are the best option (ie. Federal government guarantees you a job), when Top-to-bottom-up (i.e. unrestricted basic income) alternatives might leverage market forces rather than central planning in how that money is spent to better lives or to help fund new businesses.
  - jabl 8y ago
    The common MMT objection against UBI is that it's inflationary, that is, the state spends money (UBI) without getting anything (production) in return. The "efficiency" of job guarantee (JG) jobs is perhaps not the best, but OTOH it's not zero either. The general idea in the JG is that it provides minimum wage jobs, functioning as a social safety net (or, JG effectively sets a minimum wage). When the economy does well, workers migrate to non-JG jobs, and vice versa in a downturn, keeping full employment at all times. To some extent I think there's also a philosophical point here. Do we regard jobs as inherently useful, e.g. providing a social setting for peoples lives, or are most jobs "bullshit jobs" that serve no useful function whatsoever? How you answer that probably makes a difference in how you view JG vs. UBI as well.

freedomben 8y ago

For people interested in learning more about the author's (Bryan Caplan) background and views: http://thepolitic.org/an-interview-with-bryan-caplan-professor-of-economics-at-george-mason-university/ http://thepolitic.org/an-interview-with-bryan-caplan-profess...

thedailymail 8y ago
I don't agree with Prof Caplan on a lot of things but generallly respect his intellect. But I was very surprised and disappointed to read his views here on alcoholism being a matter of choosing "a beverage over one's family" rather than a legitimate medical issue.
- hopler 8y ago
  Many people who are experts in one field like economics assume they are experts in all fields including medicine.
  - megous 8y ago
    That's not it. It's more like the belief that economics and psychology are separate and economic theory should restrict itself to dealing with expressed preferences, and not be concerned with how those preferences came to be.
- fingerlocks 8y ago
  I believe the professor is discussing the implications of choosing A over B, not examining why the choice was made.
  - thedailymail 8y ago
    But that is the point. Most addiction experts don't describe alcohol dependence in terms of choice, but as a physical addiction.
throwaway98121 8y ago

rajacombinator 8y ago

Long and interesting read, still working through it. He has numerous logical errors and he fails at refuting any of Mises’ arguments so far in my reading. Perhaps Mises and his followers have not been able to construct as elaborate machinery as the neoclassicalists, perhaps it is not possible. Either way it doesn’t matter, policy and action should and do follow moral (or immoral) principles. Modern economic theory is just the theology justifying it.

dmichulke 8y ago

The five reasons given are IMO attributes of Rothbard and Mises but in my view neither of them is substantial to Austrian economic theory. They deal with modelling preferences (point 1-3), the influence of third parties (point 4) and a kind of ridiculous "you use 'subjectivism' so often, it sounds like you're implying we don't care about subjectivism" discussion (point 5). Since none of the are integral to Austrian economic theory but a few of them are against opinions of Mises and Rothbard (and I wouldn't even disagree with the author's view points here), it's comparable to saying "Darwin said you should always explore distant nature in a naval vessel and he believed in God, therefore his theories are wrong". To substantiate: 1. Utility Functions vs. Value Scales Everyone can use the representation of utility he wants, it just has to be decided whether it's appropriate in the case he applies it to or not. I assume small quantities of every day items (say potatoes) are easier modeled in continuous well-defined functions while preferences for the quantity of shopping malls is much harder to model that way. Neither means the other is necessarily wrong but as always modelling is not the same as reality. 2. Indifference I can personally see how I am indifferent to a few things but it's unlikely you see it in my actions (other than watching me flip a coin). Now how is that again related to Austrian Economics? 3. Continuity Basically Mises and Rothbard are arguing against modelling various dimensions as continuous functions. I see how their claim can be true under some circumstances and how it can be useful under others. So again how is that relevant to being (or not) an Austrian Economist? 4. Welfare Economics > Rothbard could only claim the welfare effects of government intervention upon "social utility" are indeterminate Agreed. Government is not necessarily bad. The rest of the discussion there is about "assumptions": Whether and how a third party affects a voluntary exchange. Again, this is not at all necessary for Austrian economics, and attacking it is an exercise in futility. 5. Subjectivism This argument is not an argument, it's about word usage frequencies and how they imply things. WTF

roymurdock 8y ago
look at all of his arguments as a framing of neoclassical (math/calculus-based econ) vs. austrian (non-continuous/messy/favoring nature/functions too complex to be described and calculated econ) 1. author argues that Rothbard's austrian "value scale" approach is unable to derive the key income and substitution effects used in neoclassical modeling, but that Rothbard adds them into his framework ad hoc without properly deriving them this has nothing to do with the reality of modeling the utility of potatoes for individuals vs. shopping malls for society, rather deriving key properties that are used in logical predictive modeling (eg my wages increase ∴ consumption curve shifts right BY income effect) 2. yeah, not related to any precepts of austrian or neoclassical economics, more of a philosophical discussion of how preferences must be revealed by action in econ rather than introspection, freezing time, or flipping a coin every time you're indifferent. he's rejecting both of their rejections of an implication of neoclassical theory, but it's not practically important, just a reflection of caplan's beliefs 3. rothbard and mises reject the notion that preferences are continuous, which means they can't be neatly drawn on 2D graphs and used in calculus. Rothbard continues to use diagrams and calculus somewhat hypocritically, while Mises doesn't use diagrams. author thinks (as do most economists) that graphing utility and preference functions as continuous and therefore being able to do useful things such as find their intersections, take their derivatives, etc. far outweighs the utility of describing them in non-continuous terms author thinks all austrian economists reject continuous micro functions, which is untrue (just Rothbard and Mises) but supports his larger theory that austrian economics is not as useful/actionable as neoclassical 4. author is defending the principle of pareto efficiency, another fundamental neoclassical principle which allows economists to measure how free market distortions such as communism and rent control effect different groups within the economy. author is criticizing rothbard's framework which only allows one to call acts of government welfare "indeterminate" and thus be unable to measure their effect and get things done 5. defending the technical definition of "efficiency" again because the technical definition is needed to construct proofs and get things done basically author is saying neoclassical is much more useful for getting things done with economics, and that rothbard and mises (who he takes to represent the whole school of austrian econ) didn't provide many useful tools from which others could predict/model/build off

tobmlt 8y ago

Since this is trending, you might be interested in the responses from the Austrians themselves: https://mises.org/wire/caplan-and-responses https://mises.org/wire/caplan-and-responses Note Caplan replies to some of this and it's linked in the same place. Reader beware - I do not recall the jist of it all as it's been some time (~10 yrs) since I last saw this. Interestingly, Caplan has a profile on Mises.org: https://mises.org/profile/bryan-caplan https://mises.org/profile/bryan-caplan Cheers. Edit, more Caplan stuff I find worth linking http://econfaculty.gmu.edu/bcaplan/anarfaq.htm#part18 http://econfaculty.gmu.edu/bcaplan/anarfaq.htm#part18

Proven 8y ago

This is telling: > Austrian scholars have made important contributions to economics in recent years. I personally am most impressed by the work of Lawrence White and George Selgin on free banking and other monetary issues Selgin is not even against central banking. Just a bunch of socialists!

AndyMcConachie 8y ago

The Koch brothers gave money to the GMU economics department and played a hand at picking professorships. https://www.washingtonpost.com/local/education/george-mason-president-some-donations-fall-short-of-academic-standards/2018/04/28/bb927576-4af0-11e8-8b5a-3b1697adcc2a_story.html https://www.washingtonpost.com/local/education/george-mason-...

soVeryTired 8y ago
Finally, an explanation for the existence of Tyler Cowen!

stuaxo 8y ago

The Mises quote is completely anti-science: > But the main fact is that there are no constant relations. > Economics is not, as ignorant positivists repeat again and > again, backward because it is not "quantitative." > It is not quantitative because there are no constants. > Statistical figures referring to economic events are historical data. They tell us what happened in a nonrepeatable historical case.[27]

andrenth 8y ago
It doesn’t strike me as anti-science, more like anti bad science? If you can’t reliably reproduce an experiment, you can’t make statistical inference from it. The reproducibility crisis in the humanities is very well known.
- notahacker 8y ago
  Mises' argument was that even a systematic pattern of results in economics should always be understood as merely a set of discrete observations dependent on historical context and unobservable phenomena and therefore no valid conclusions could be reached from induction, not even falsification of a claim.

jayalpha 8y ago

I have posted it already but I will post it again (as a former Austrian). 1. Mises, who did not work one day in his whole live in a private free market enterprise, has fundamentally not understood capitalism. He describes free market barter economies, e.g. in the middle ages, that have nothing to do with capitalism. At least he describes them very good, including, why interest exits etc. 2. He fundamentally does not understand the need to pre-finance industrial production. The pressure to recover the debt gives capitalism its impressive dynamic. But in the end it is basically a ponzi scheme that relies on a) ever increasing debt, because previous debt is settled with new debt. b) a growing economy that allows the creation of more debt. Mises got the idea, while thinking very hard on a desk in an academic environment, that companies "save money to make investments". This can not be observed in reality. Very few companies are able to do this (e.g. IT companies like google). Most companies take shitloads of loans to pre-finance new production in the expectation that this loans can be repaid,recoverd with future economic growth. e.g. selling more cars. Gail Trevberg touches some of this ideas (I got it from a German book from 1998) in this blog post: https://ourfiniteworld.com/2011/02/21/there-is-no-steady-state-economy-except-at-a-very-basic-level/ https://ourfiniteworld.com/2011/02/21/there-is-no-steady-sta... 3. Credit expansion can bring about a temporary boom. But such a fictitious prosperity must end in a general depression of trade, a slump.” — Ludwig von Mises This is his biggest joke since it is a tautology. Every boom goes with a credit expansion and every credit expansion goes with a boom. It is the principle of a debt based society. He is correct that a boom always ends in a bust. But this is a feature of capitalism, not a bug. This is how capitalism works: https://i.ibb.co/9nms8xK/Net-Worth.jpg https://i.ibb.co/9nms8xK/Net-Worth.jpg

Gibbon1 8y ago
> Mises, who did not work one day in his whole live in a private free market enterprise, This is one of my big big complaints about economists.
AnimalMuppet 8y ago
> Mises got the idea, while thinking very hard on a desk in an academic environment, that companies "save money to make investments". This can not be observed in reality. Very few companies are able to do this (e.g. IT companies like google). Most companies take shitloads of loans to pre-finance new production in the expectation that this loans can be repaid,recoverd with future economic growth. e.g. selling more cars. If I understand correctly (and I may not), Mises' position was closer to true in his day than it is today. The debt-based investment is a more recent phenomenon.

jonathanstrange 8y ago

I'm not convinced by the way the author argues. For example, he gives U=aln(quantity of apples)+(1-a)ln(quantity of oranges) as an example of a utility function and in the very same section claims that neoclassical economists only use ordinal scales, hence the criticism of presuming cardinal utility doesn't apply. But does it really make sense to use a nonlinear function to represent ordinal preferences? As a philosopher working in the so-called theory of value structure - basically, about the meaning of 'better than' - my criticism of preference modelling would be different and applies to both camps. First, if the modelling is descriptive we know that people have e.g. non-transitive preferences and completeness also doesn't hold. Second, there are also pretty good arguments against the transitivity of 'better than' from a normative perspective that at least need to be defused somehow. IMHO, the right solution points towards conditional preferences and/or lexicographic decision procedures. In a nutshell, multiple criteria interact in complicated ways and the assumption that the outcome of aggregating them is a neat complete preorder is generally not warranted. (And there is plenty of work on nontraditional decision theory by e.g. Fishburn to support alternatives.) Third, there are good arguments why some of our evaluative comparisons between items are cardinal, at least on an interval scale, whereas others are purely ordinal. I understand why this would be an undesirable point of view for an economist, though, since there is no known rationally and normatively justifiable way of aggregating ordinal and cardinal utilities into a meaningful overall assessment. From a measurement-theoretic perspective, an overall ordinal utility is the best you can get in this case. There seems to be a certain tendency of economists to dismiss certain plausible views because they are technically undesirable rather than on the basis of substantive arguments. Another thing is that as far as I can see, economists who presume ordinal utilities do not seem to care enough about Arrow's Theorem in contexts with multiple attributes. At least they should make clear that IIA ought not hold when ordinal preferences are aggregated.

soVeryTired 8y ago
I think I agree with the crux of what you have to say, but do you have an example of people having non-transitive preferences? I can't think of one off the top of my head, and the classical economic argument is that non-transitive preferences would create a 'happiness pump' where I get stuck in a loop trading one thing for another and feeling good about the trade every time.

soVeryTired 8y ago

Regarding points 1 and 2, I think any argument that relies on the concept of utility in some essential way is either false or trivial. Take for example the theorem that "utility-maximizing individuals equalize the marginal utilities of goods consumed divided by their prices". Utility can't be measured directly, and must be inferred from a consumer's behaviour. It's begging the question to infer an agent's utility function from their behaviour and to simultaneously conclude that the behaviour maximises the utility function: that's true by construction. On the other hand, we can assume a functional form for an agent's utiilty for a given basket of goods. I guarantee that real-world preferences are more complicated than any function we can write down, so any prediction we make about an agent's preferences will almost certainly be wrong. All in all, utilities are a nice toy, but aren't really any use outside of the world of theory.

roymurdock 8y ago
in econ 101 utility is measured in “utils” eg 1 banana = 10 utils, 1 apple = 5 utils, 1 car = 100 utils, etc utils are just a proxy for money and/or time which are interchangeable through wages paid for labor money is our real world way of valuing the utility of goods, labor, and more generally time (the scarcest resource of them all) utility functions will never describe an individuals preferences perfectly (hell you couldn’t perfectly describe the utility of any of the transactions you make) but they’re useful when describing and predicting aggregate behavior, especially when fed a lot of consumer data (higher confidence) all of game theory also uses the concept of utility to weigh payoffs and there are many many real world applications of game theory its not perfect but no models are perfect, that’s why we have statistics and probability theory to guide us as well
- wazoox 8y ago
  Except you can't compare the utility of things from different classes like bananas, hammers, cars, overcoats and paintings. It just doesn't make any sense. Finally "utility" is a different way to formulate the same thing as "use value" as opposed to "exchange value". In Marginalism, you compare utility from agent to agent but you can never attribute an absolute value.

mark_l_watson 8y ago

re “I conclude that while self-labeled Austrian economists have some valid contributions to make to economics, these are simply not distinctive enough to sustain a school of thought“ This seems a little crazy to me. I think there is a world of difference between current economic philosophy that runs the US-centered world and Austrian Economics as depicted on the Mises web site. I am not an economist but I do sometimes read the Mises.org web site and until recently I made monthly contributions to support the site. I credit Mises.org with information that led me to divest my retirement accounts out of the stock market in 1997. That saved me a lot of money.

simias 8y ago
I'm not sure I understand your argument, the Mises Institute could make valid contributions to the field of economics without being a distinctive school of thought. I mean the paragraph you've quoted says exactly as much, in full: >I conclude that while self-labeled Austrian economists have some valid contributions to make to economics, these are simply not distinctive enough to sustain a school of thought. The task of developing an alternate Austrian paradigm has largely failed, producing an abundance of meta-economics (philosophy, methodology, and history of thought), but few substantive results. Whatever Austrian economists have that is worth saying should be simply be addressed to the broader economics profession, which (in spite of itself) remains eager for original, true, and substantive ideas. He doesn't say that Austrian economists are always wrong, he says that even when they're right their works do not justify a completely different economic paradigm. The fact that anecdotally you saved some money by following their advice doesn't really contradict that IMO.
- jplayer01 8y ago
  I don't even see how he saved money. If he'd stayed in the market, he would've made tons of returns by now. It's more like he avoided short-term loss and long-term profit. Unless for some reason he was invested in companies like stufffordogs.com.
  - mark_l_watson 8y ago

sudoaza 8y ago

Wow economy is really bullshit, not only the Austrian arguments, but also this article authors.

ThomPete 8y ago

Any economic school of thought holds the answer to unknowns in other economic school of thoughts. The idea of following a specific school always struck be as desparate. Any economics thinker worth their salt would never subscribe to just one school as they would know, at least today, that the world isnt predictable and there are fare more externalities to considder. This is also why i am a big opponent of policy guided by economists. They should serve as advisors not policy makers which is often the case today.

candiodari 8y ago
Instead of listening to people who know a little, we should listen to people who know nothing at all ? Surely I'm misunderstanding something here.
- ThomPete 8y ago
  The questions is what it is they know. You can be very wrong even though you are completely logical all the way down to your premise. All policy decisions have consequences sooner or later. Economist can neither predict, save or create the financial market. The things economists can say something useful about are different than what they are being used for. We should ask economists to calculate how public spending is going to be affected by various policies but the idea that they should be asked for advice on fundamental questions and thus what to implement as policy and not is simply a misguided idea to begin with. People make the economy not economists. Economists should be treated as custodians not psychics which is happening all to often today IMO.
  - candiodari 8y ago
    I wonder who you would suggest does better ? > Economist can neither predict, save or create the financial market. I would argue the problem is much more than the government selects economists based on what exactly they predict. For example: https://www.cnbc.com/2017/11/02/trump-picks-jerome-powell-to-succeed-yellen-as-fed-chair.html https://www.cnbc.com/2017/11/02/trump-picks-jerome-powell-to... https://www.theguardian.com/business/2013/oct/09/obama-janet-yellen-us-federal-reserve https://www.theguardian.com/business/2013/oct/09/obama-janet... In both cases the selection procedure gave up what these people did to get selected. Janet Yellen had strong academic credentials and a theory on how to prevent economic crashes, which clearly Obama was partial to. Of course we just pretend she wasn't Vice Chair in 2011, because that would be a definite fly in the soup. Powell seems to have been selected on a promise to take the market into account (ie. to try to preserve the inflated prices of stocks), which Trump seems to like, or at least he used to. The point is, both people were selected based on their opinions. To say that their actions represent economists is stupid. They represent Obama's and Trump's philosophies, not economists.

snidane 8y ago

Good article, but a bit too long for me to participate into discussion. Will read the rest of it later. This debate between neoclassicals and austrians reminds me of logicians and people from static typing systems endlessly arguing about which logic or type system is the best and complete, without flaws, inconsistencies and paradoxes. They are trying to reconstruct the world from axioms but get stuck at the very bottom in these petty debates. In the meantime we have people which just whip out Python or other dynamic language, accept its flaws, but produce some real working software which powers the world. Similarly in logic, people just infer generalizations from examples (inductive reasoning) instead trying to build axiomatic truth so that they can reason deductively. My 'real world' comments to that economic debate. 1. subjectivity. Humans share 99% of DNA not only among themselves but also with pigs. It's evident that some people have subjective preferences, but vast majority of human needs are similar. Housing and food are obviously the largest markets out there 2. welfare, ie. connecting micro to macro When you observe microparticles of gas (motion, collisions, velocity) you don't get macro (temperature, pressure, density) values until you put the gas into a container, ie. introduce a boundary condition. Similarly for economics, you can observe individual collisions (transactions) but unless you observe what happens at the boundary (scarcity of certain goods) you won't make it to macro values (wealth distribution, poverty) 3. monopoly. You get monopoly when you constrain supply of certain good in the economy. This can happen artificially (pharma industry preventing other companies from entering the market because of inexperience and safety). Or naturally (network effects - all utility (electricity, gas, water, railroad, internet providers, law and justice) companies eventually merging into one). Because of natural monopolies you need a government, but only for those. The last point about monopolies is the georgist (Henry George) critique of both neoclassicals and austrians. The monopolies are the cause of poverty and unequal wealth distribution, because in the money eventually ends up in the black holes (monopolies) and rarely make it out. The biggest market of all - housing - is a perfect example. All the money ends up parked in real estate. George back then proposed a remedy. To price 'private property' as a service. The private property owners are those consuming the government services. Eg. Houses require guarding by firefighters, police against squatters and court system to resolve disputes. These services should be financed from taxes based on property then. But nowadays they are financed from taxes on labor (income tax) and consumption (vat, sales taxes). In other words those people that don't own anything pay for the services of those that do own. It's likely no conspiracy, it's just one of those cases where people measure the thing which is easier to measure, not the one which is important to measure.

kriro 8y ago

Oh boy from experience this is a very loaded discussion. I personally like the Austrian framework because I find it aesthetically pleasing (I guess I'm a sucker for deduction). Some of the writing is simply intellectually interesting and also very scholastic for lack of a better word. For example, even if you completely disagree with the analysis I'd argue that "America's Great Depression" is a very good read simply from an intellectual point of view and "Man, Economy, State" is a very good tome that contains a framework of thought. I also enjoy the science theoretical musings quite a bit. The writing on Aristotelian ontology is very good for example. There's also works where I constantly shake my head at the implications and political conclusions but intellectually I still love them. "The Ethics of Liberty" is probably the clearest example of this. Do I think that letting a baby starve to death because it is basically a parasite is morally desirable: no. Do I find the idea of trying to deduce an entire ethical framework from first principles fascinating and the way it is done interesting: yes There are lots of things about AE that I find irking but the core theory and the science theoretical basis is very interesting/intriguing to read. I also like that pretty much everything is readily available on mises.org. I wish all "schools of thought" would be this forward thinking.

jcfrei 8y ago
I read the ethics of liberty as well and came to the conclusion that the deduction of its ethical framework is flawed (though interesting nonetheless). Here's a link for those interested in my write-up: http://jcfrei.com/on-the-ethics-of-liberty/ http://jcfrei.com/on-the-ethics-of-liberty/
stillbourne 8y ago
Did you see the guys title? Assistant Professor, Department of Economics, George Mason University. I'm sorry but what was yours? > Do I think that letting a baby starve to death because it is basically a parasite is morally desirable: no. Do I find the idea of trying to deduce an entire ethical framework from first principles fascinating and the way it is done interesting: yes Oh, so while the thought of a baby starving to death is detestable, you'd still let it happen because... an economics based framework for ethics is somehow superior to a principled one. Got it. How very forward thinking of you.

feenix566 8y ago

Imagine you're the President and the economy just collapsed. You have two economists in your office offering advice. One tells you to spend a lot of money and go into debt to get the economy working again and the other tells you to cut back on spending and otherwise do nothing. Which one are you going to listen to? Obviously the first one's advice would be a lot more popular than the second. If we begin with the assumption that politicians are selfless servants of the people who only want to do what's best for society at large in the long run, then you would conclude that politicians will carefully examine the theories and methods of the two economists' schools of thought. If we begin with the assumption that everyone, including politicians, is primarily self-interested, then you would conclude that a politician would just do what's popular with no regard for how the two economists arrived at their advice. I believe people are primarily self-interested. From that perspective none of this discussion about economic theories matters because politicians are just going to do what's popular anyway. The proposition that people are primarily self-interested is therefore in my opinion the only idea of value that's come out of the study of economics, which is the study of human behavior after all.