vrijdag 3 september 2010

Debate over Oostenrijkse economie

Hier postte er iemand een 'anti-Oostenrijkse' standpunt. Ik kon het niet nalaten om het te bekritiseren.

Openingstatement:

I will argue that while capitalism, by certain definitions, is the best economic system yet discovered, the modern revival of the “Austrian” school of economics is misguided and in many ways counteractive to achieving the goal of free markets. There simply isn’t a scientific basis for most of the school’s claims and its proponents are often overzealous in their disdain for what they perceive as government intervention in the economy.

The Austrian school began in the late 19th century during the marginal revolution in economics, a period in which the previously mainstream labor theory of value was replaced by the concept of marginal utility. Carl Menger was one of the first to develop the idea and he and his students propagated it throughout Europe. Later, during the advent of socialism and through the Great Depression, this small group of Austrians was one of the few academic voices that spoke out for free markets and capitalism.

Unfortunately, while many of their criticisms of government control of the economy were correct, the Austrians held a backwards view of the scientific method which ultimately prevented their arguments from being more influential. Going into the 1940′s, Ludwig von Mises advanced on outdated notion of a priori knowledge that led most other economists to view the “Austrian school” as a bunch of quacks. Possibly due to the radical nature of its rhetoric, the school’s teachings became somewhat popular among laymen decades later, culminating in the quasi-revival seen today among young libertarians and conservatives.

Murray Rothbard, often seen as the originator of the revival, gained many followers with his secular deontology of “natural rights” that, according to him, demonstrated that all government action is both immoral and inefficient. This led to a strange mix of anarchism and rationalism masquerading as a progressive research program that was able to conquer the minds of many young liberty minded scholars.

Using the Ludwig von Mises Institute, the Library for Economics and Liberty and my own experience dealing with self-proclaimed Austrians, I’ve been able to determine several common areas where Austrians generally agree:

  1. A universal denial of math based models, statistics and empirical evidence. The only information an Austrian truly trusts is what he deduces from somehow self-evident first principles. A classic example- we know a priori that “humans act” because that statement is impossible to refute without acting. Therefore we get, well, all of economic theory.
  2. Inflation is the root of all evil. Ideally, we would return to a true gold standard and eliminate fractional banking. Some Austrians are willing to allow fractional reserve banking if the central bank is eliminated. Money supply growth is, in almost all cases, the ultimate cause of every major problem from warfare to recessions to mass poverty.
  3. If the government were eliminated or at least highly curtailed, all market-failures recognized by economists could be overcome. Free market roads would be cheap, national defense would either be unnecessary or highly robust and everyone worthy enough would be able to afford healthcare.

Of course most of this is nonsense. My response:

  1. There are bad statistical studies but good economists know how to spot them. Repeat offenders are generally ostracized and controversial material is debated in academic communities for years. I won’t really address the issue of a priori knowledge in depth as the topic has been a dead horse for literally thousands of years. Needless to say, pure deduction, besides being impossible, does not generate new knowledge. We live in a world of uncertainty and induction, empiricism and statistics are always going to be necessary to understand any phenomena.
  2. Unstable, rapid inflation can of course be harmful, even catastrophic under certain circumstances but to say that a 2-3% inflation rate during a period of economic expansion is somehow cancerous is preposterous. Wages go up with prices over time, so from a pure human wellbeing standpoint, the world isn’t over. But Austrians focus on the recession-causing aspects of inflation for which the supporting evidence is extremely weak. Different interest rates move in different directions in response to inflation which balances out most distortion it causes. In fact, rapid monetary expansion after a collapse has been proven again and again to be the best cure.
  3. I would of agree that government is overly intrusive in today’s world and that some market failure arguments are overstated. But there are very compelling arguments for the use of government in areas like law, national defense, monopoly regulation, etc. It is true that market integration with these sort of government activities would make them much more efficient but sometimes the use of force is necessary to make the world work. In addition, if you eliminate the strict libertarian moral adherence to a Lockean conception of property rights, some amount of wealth redistribution seems fine, even from an efficiency standpoint.
Mijn reactie:

Hi Jake,

thanks for engaging into the debate with the fundamentals of austrian economics. I’ll try to keep my comment as clear as possible. (I take it you are a friend of Zach?) I would also like to mention that I’m not native English, so my apologies if something is, because of the language barrier, unclear.

You start of by engaging 3 different propositions which you attribute to Austrian Economics proper. I would, however, note, that these aren’t good representations of – at least – the entire body of Austrian Economics. I will try and explain why.

First of all; Austrians don’t disregard the entire body of statistics and empirical evidence. What is true is that Austrians are very suspicious about the possibility of deducing (exact) economic laws from empirics – which isn’t the same. Austrian would generally note that data tells you something about a certain period, but we can’t deduce economic laws that help us predict the future in any quantitive way. You can use statistics and try to model human behavior; and even if there isn’t anything wrong with the math, there is something wrong with this method.

Secondly; the way that Austrians use data is to apply certain theories to it. (I’ll talk about the a priori and quantitative laws a bit further.) That way we can try to comprehend certain historical situations. Example; we can apply the ABCT to the Great Depression and see if it gives a plausible explanation. We can apply regime uncertainty and see if it fits. Etc. There is _no_ denial of empirical data. There is, obviously, a place for data. Austrians, however, argue that one has to understand the data in the light of correct theory. Imagine we study the movement of people in a train station as if it were atoms, with a certain regularity. We notice that the movements correlate with a 5 day – 2 day period, which happens to be Saturday and Sunday. We then ‘predict’ that it’ll be like this next week. But that week it’s Christmas on wednesday, so almost no movement on wednesday! An Austrian would say; in order to use the data regarding the movement of people we have to understand the people and their actions as they themselves perceive it. We can’t abstract away from these interpretations in order to understand this. This doesn’t invalidate the data we have collected – like how many people there are etc. – but it does require comprehension of the reason why the data is as such. Another relevant point is, obviously, the problem with all induction: ‘sunrise causes a lot of alarmclocks to go of!’ is something one could argue for if we disregard the comprehension of human action. Theory cannot be deduced from empirical data; theory has to make _sense_. Some Austrians argue that economic theory can only be from strictly a priori deductions. (I’ll come back to that.) Some argue that we can broaden this towards empirical generalizations, as long as the theory ‘makes sense’. These are the most relevant point, I think, Austrians make regarding the use of empirical data. I would note that this point isn’t weird or anything; it’s generally acknowledged in the scientific world of the moral sciences. Austrians just stress it even more. The bottomline is that theories who don’t try to comprehend people as acting people in a uncertain world, are doomed to fail. That’s the basic point and the methodological points follow from this point.

(3) Regarding ‘a priori’; I would say that it isn’t ‘dead’ for thousands of years. The history of ‘a priori’ reasoning has a long history in philosophy – starting with Aristotle, passing through the middle ages by various writers such as Aguino and going on to Kant and others. I would also note that just because the words ‘a priori’ aren’t used, doesn’t follow that people aren’t thinking a priori. It is true that a priori doesn’t tell us anything that isn’t implied in the concept, but it doesn’t follow that it isn’t usefull. Pythagorem theorem is implied by the triangle it is in, but it doesn’t follow that the theorem is not useful. The usefulness of a priori theory is to comprehend certain behaviors. Especially in the more advanced deductions in Austrian economy, the theories deduced are useful in analyzing history. I would also note that there is some discussion (as far as I see) wether or not economic theory is limited too deductions from the action axiom, or wether we allow certain empirical things. I’m of the position that a priori deduction does provide us with good theory, but that there is nothing a priori (hehe) wrong with certain theoretical statements not necessarily deduced. I’m open to investigate each of those claims on their own merit.

(4) I would also note that the Austrian theory isn’t purely deductive. There are some auxiliary assumptions, based on generalized empirical notions. First of all: the relative scarcity of labor versus land. Secondly: the fact that there are geographical and biological differences between humans. These are auxiliary assumptions. Technically; you could conceive an Austrian theory based on the assumption of the relative scarcity of land versus labor (Rothbard discusses this in Man, Economy and State) or on the biological and geographical equalness in the world.

(5) No Austrian proper would say that you don’t need empirics to understand any phenomena in the real world. But it doesn’t follow that we can’t have theory at all. Just as we have math to apply in the real world, we have economics to apply and comprehend the real world. Also; it goes like this: ‘If and when we can talk about x, y and z, then it follows logically that we have a, b and c’. The question wether or not we can speak of x, y and z is an empirical one, which we have to investigate, obviously. Example: ‘the minimumwage will raise the amount of people who will be self-employed (or ‘unemployment’)’ is a theoretical deduction. But in order to apply this, we have to know wether or not a certain law is a minimumwage, wether peope perceive it as a minimumwage, etc. This requires empirical research.

(5) Uncertainty is an area that has been greatly examined by Austrians. I don’t think just saying ‘hey, we live in an uncertain world, therefore deduction is wrong’ is enough to argue against Austrians in general.

I thus have to conclude that based on these 4 sentences, I don’t think you have a good grasp of the whole more nuanced vision of the Austrians regarding methodology. I’m perfectly willing to admit that there are people who don’t fully grasp the nuanced position regarding methodology. I’m not quite sure wether I do. But I would say that it’s my believe that you don’t do justice to the position.

That’s the first issue.

The second issue is money and inflation. I also have some points regarding this issue.

(1) First: Let’s disregard the fact that ‘austrianism’ can’t make valuejudgements as such; but that this is more a point _based_ upon Austrian theory to deduce certain normative conclusions.

(2) I would say that it’s not the Austrian position that inflation causes death and all destruction This would be based upon an empirical investigation – not on a priori reasoning. In the inflationrate was 0.0001%, obviously; the effects would be less damaging than if it were 100000%. :) What you note about ‘warefare, recessions and mass poverty’ is that we can analyze history in such a way that inflation is used to support war (as a hidden tax), causes recessions because of the ABCT and is also a possible cause of redistribution from the poor to the rich. All of these claims aren’t a priori; but are based upon historical research, using certain theories.

(3) Little sidenote: the ABCT is an a priori deduced theory, but the application to it in historical circumstances is not. We can only know wether or not a certain recession is caused by the ABCT if we look at the facts and interpret them.

(4) It is true that a ‘mild’ inflation of 2 a 3% won’t have the same distorting effects as, say, 100%. (Don’t forget, however; a 2% yearly inflation doubles the money supply in 37 years or so. I would say that’s still a lot.)

(5) The fact that the ‘empirical evidence is extremely weak’ and that ‘Different interest rates move in different directions in response to inflation which balances out most distortion it causes.’ are, just that, empirical questions. The least you could do is to provide empirical evidence for it. The thing I would like to note is that this is, indeed, an empirical discussion. It’s an empirical discussion wether or not certain theories – like the ABCT – are applicable to a certain period. This doesn’t, however, require the normal empirical method: ‘how low was the interestrate?’ but it would require _counterfactual_ thinking. The abct is a theory that says ‘if the interestrate is lower then it would otherwise have been’… So we need to try to comprehend wether or not the interestrate was too low compared to what it otherwise would have been. This is an empirical matter, but with respect for the counterfactual. (Most, if not all, economic laws can be formulated in terms of counterfactuals; ‘if not x, then z’.)

(6) ‘Has proven the best method’ is also very peculiar. Again; this requires counterfactual thinking, which cannot be done by just ‘looking’ at the data, but comprehending the data in the light of certain theories. How do those theories come to be? Well; they need to make sense…

To sum up: wether or not the claims regarding history (of money and banking) make sense, requires historical investigation. This, however, cannot be done based by mere ‘looking’, but has to be done by ‘comprehending in light of theory’. So we need correct theory: how does correct theory come to be? Well: it has to make sense. How does it make sense? Well: by deducing it from things that make sense.

I hope, to the very least, I can convince you that the whole of Austrian methodology makes some sense? :)

The third issue isn’t really an ‘Austrian’ one, but more of a ‘Libertarian’ one, to be honest. But in any case; I hope you do realize that you are just begging the question? :) ‘there are very compelling arguments for…’ Oke; that is probably true – else nobody would believe that these things should be provided by the government. But it doesn’t follow that there couldn’t be very compelling arguments the other way around, now does it? :) I would say that from a theoretical and empirical point of view; most – if not all – things that government provide can (and have been) provided private. An economist can’t say wether or not this is a good thing, but as an economist, we should keep in mind that a whole lot of things have been provided privately. I would also say that empirically; the robustness of ‘markets’, i.e. entrepreneurial discovery of alternatives when the state is absent, is pretty amazing .Someone like Elionor Ostrom did some great work on that. :)

The last point is the moral one; which is, again, a libertarian one, not an (austrian) economics one. I would say that some economists – like Israël Kirzner and Mises (especially in his work Socialism) – has written on redistribution, without inserting value statements. Just saying ‘if x, then z’. So I would advise you those, if you want to discuss redistribution from a pure economic point of view.

I hope this is of value to you. Greetings!


Zijn follow-up:

Thanks for your comment, Lode. And yes, I am a friend of Zach’s. He will be providing the counterpoint to this.

You make it seem as if economists just look at numbers and then just draw a line to show a trend. Everyone starts with a theory. The point is that only falsifiable models are able to generate new knowledge. No one is trying to develop a set of exact laws that cover all behavior in one model.

ABCT is not an “a priori” theory. It assumes all sorts of things such as the behavior of interest rates and banks during periods of inflation. True, I asserted something about the behavior of interest rates myself but only because most Austrian followers have never even considered the issue.

All Austrian followers are basically libertarian so I don’t think the distinction is necessary in this case.

What I was getting at was that there should be some room for argument that Austrians typically don’t provide when it comes to market failure. Austrians routinely say that such and such market failure is a myth without really backing up their claims. Orthodox economists make the same points sometimes but they actually use evidence to support them.

Mijn reactie:

Well; I wasn’t trying to make a caricature of economics in general. That’s why I said this: ” I would note that this point isn’t weird or anything; it’s generally acknowledged in the scientific world of the moral sciences. Austrians just stress it even more. The bottomline is that theories who don’t try to comprehend people as acting people in a uncertain world, are doomed to fail. That’s the basic point and the methodological points follow from this point.”

The point that ‘only falsifiable models are able to generate new knowledge’ is something that is weird. Why would that the _only_ way of generating knowledge be? Of course, one could, like Popper, define it like that, but that isn’t very useful. If one wants to say that that’s the only way of generating knowledge, one should, to the very least, provide an argument for it. In any case, the Austrians have defended (1) the use of a priori pretty good and (2) have criticized the use of falsification and induction. Maybe it doesn’t follow that induction and falsification is always useful, but there sure are some problems with it.

And I believe you are confucing the ABCT with the application of it. As I stressed earlier; there is a difference between _constructing_ a theory and _applying_ it to the real world. The ABCT is a a priori theory; based on the categories of interest, time preference, interestrate control, etc. Wether or not a certain historical period was hit by the ABCT is something that requires investigation into the nature of banks and interest rates during that period. See the difference? Suppose we can comprehend that (1) there is a recession, but (2) that the interestrates in general weren’t lower then usual. This would mean that the ABCT isn’t useful in comprehending this period. So no, the ABCT doesn’t ‘assume’ these things. People who _apply_ the abct have to argue why it is applicable. People who disagree; can argue why it isn’t. That’s the way Austrians ‘do’ theory and history.

Because just because ‘most’ – doesn’t mean ‘all’. And still; just because most vegans like animals, doesn’t mean that we should confuse the consequences of a vegan diet with animal loving – or something like that. (I’m not that good at finding analogies.)

Well; I’m not sure if you aren’t confusing the academic work done by Austrians with the ‘you-tube-austrians’ you tend to find. Austrian economics is easy to learn, but hard to master. So it isn’t difficult to come across a lot of newbie Austrians, who don’t know all the ins and outs. That’s fine; I’m not judging them. But I think one ought to know better than to think that they are the standard of everything.

I would, for instance, argue that ‘market failure’ is a flawed concept. It doesn’t make sense to speak of a ‘failure’, because ‘failure’ implies an end in and of itself that one has failed to achieve. The market process however has no end, so it can’t ‘fail’ in such a way. The idea that markets aren’t perfect is distinguished from it and is certainly true. More general; there is a lot of empirical proof that a lot of so called theoretical ‘market failures’ have been solved through the market process. But I also agree with the criticism that ‘market failure’ is a subjective evaluation of a certain state of affairs and not an objective point that one can make – and thus irrelevant for the body of economics.

For example; externalities seem to be a legal failure, not an economic one.

Zijn follow-up:

I’m not confusing anything. I have been to many Austrian paper presentations.

The difference between correlation and causation is probably the first thing anyone learns in statistics. Economists understand the distinction. If you want to call someone out on a specific error that’s fine, but your sweeping generalities about Austrians’ superior skepticism are absurd

You are simply arguing semantics when you talk about market failure and the application of ABCT. The only thing that matters is that a model generates testable predictions. I don’t think it needs to be argued that people want to be happy and that policy should reflect that.

I won’t hold your hand in your quest for knowledge. I have pointed you in what I think is the right direction. I am not going to re-prove here what has been discussed elsewhere. If I haven’t demonstrated a point well enough then ask for clarification, don’t lecture me on basic concepts.

- Dan zijn er 2 reacties van iemand anders, waar hij op reageert. Deze reactie post ik hier, omdat ik daar zelf op reageer. -

Zijn reactie:

Lee-

If the core of Austrian economics is its reliance on some amount of a priori theory then it is all nonsense. There simply is no such thing as a priori knowledge. Give me a proposition you feel is a priori and I can show you how it isn’t.

Logic must be true? Maybe it’s just the only way we can understand the world, that doesn’t make it correct. Humans act? I could show you some animals classified as humans who don’t act. Maybe everything is programmed and free will is an illusion. These are simply assumptions that make inquiry into the nature of the word easier. It is impossible to get anything else out of them other than empty tautologies.

There are always alternative scenarios that can be imagined. There have been negative interest rates. There are circumstances under which the broken window fallacy would not apply. None of these propositions are infallible a priori tenets.

So, if you eliminate this aspect of Austrian economics then all you are left with is the ABCT which hardly constitutes a school of thought.

There is a difference between a priori knowledge and an arbitrary tautology. That bachelors are unmarried men is an arbitrary definition. It isn’t a priori knowledge.

Those statements are meant to refute the a priori status of those propositions. Knowledge without experience is impossible.

Mijn reactie:

Jake,

“The difference between correlation and causation is probably the first thing anyone learns in statistics. Economists understand the distinction. ”

Obviously the difference between correlation and causation is clear. The point isn’t that I think that many economist think or would claim that the sunrise cause alarmclocks to go of. The point is, however, that when there are a lot of factors into play; it isn’t that easy anymore. Take, for example, the whole discussion regarding the interest rate, debt, unemployment, the right course of action, etc. Here we have a whole lot of economists claiming that their theory fits the empirical data. But some theories just don’t make sense, e.g. the one that holds that the interest rate doesn’t reflect something like time preference and uncertainty, but it reflects a preference for liquidity. But this can’t be known and can’t be understood based on empirical data as such.

Another problem with the deduction of empirical data is that a whole lot of theories can be supported by the same or similar data sets. Was the Great Depression caused by the FED not expanding enough after 1929 or by the FED expanding to much before 1929? Just ‘looking at the data’ isn’t sufficient; and obviously, a crude understanding of correlation and causation isn’t sufficient either.

Again; I’m _not_ saying that the whole of economics professions are retards claiming that the sun rise cause alarm clocks to go of. That is not what I’m saying. What I am saying is that Austrians (over)emphasize what a lot of non-Austrians take for granted and they do this with reason. Because it also changes the way one looks and interprets data. Take another example; the question wether or not a minimum wage causes more self-employment of unemployment. Typically – like Card & Krueger – one would look at the data as such and see if the unemployment rate is higher afterwards or not. But this doesn’t make sense; we know – a priori – that a (relevant) minimum wage decreases, on the margin, the amount of people who receive a wage (legally). For an Austrian it is not to look at a certain situation and see wether or not the minimumwage has caused unemployment to rise. The thing is to try to comprehend a certain situation. If the data shows that employment is actually up, after, for example, a rise in the minimum wage, something else is going on. This is one obvious example of a specific mistake.

By the way; the ‘difference between correlation and causation’ is something that is based upon a comprehension of the facts involved, not based on empirical data as such. Obviously; the fact that the sun rise doesn’t cause alarm clocks to go of isn’t based on _pure_ empirics, because that can’t say wether or not this is true. It’s based on a comprehension of the fact that people act purposeful. Some Austrians are very skeptical regarding the whole body of economics deducing a priori; but all are united in acknowledging that we have to interpret human beings as purposeful beings who try to achieve ends with goals. That’s a very easy to understand statement, but you need this to comprehend why we see a general correlation between sunrises and alarmclocks. Comprehending human action is the whole point.

You see that ‘The only thing that matters is that a model generates testable predictions.’ This requires 2 reactions. First of all: what does one mean by ‘testable predictions’? Austrian economics has a whole lot of testable predictions. Austrian economics has generated a lot of _qualitative_ economic laws. Obviously not quantitative, because this is literally impossible; one historical data set can’t ‘prove’ or ‘help to predict’ the next. But we have qualitative laws, i.e. of x and y, then a and b will happen. For example; if you raise the minimum wage (in such a way that people perceive is as a rise) then unemployment will go up. The amount of unemployment depends on the level of the minimum wage. One could use some econometrics to try and calculate the amount, but this is very prone to error and I would argue that this isn’t part of the scientific body of economics, but is part of an entrepreneurial action.

The other thing is; why is this the only thing that matters? Why isn’t a comprehension of the historical situation important too? Why isn’t doing research on the Great Depression to understand the causes and prolonging effects important too? Based on this historical research one could deduce certain qualitative statements – not quantitative, because we aren’t the 1930′s anymore – that would help us to guide into policy. And because of the sheer complexity of a society, we can’t just look at it without a theory; so the theory has to make sense. So good economists try to construct a theory based upon a comprehension of human action. Again; a lot of economists do this already, Austrians just stress it even more. And Austrians have a different way of looking at data; empirics can’t disprove a theory as such, just proof it not applicable to a certain situation. See the difference?

I’m thus actually not talking semantics regarding the use of the ABCT. Absolutely not. I was making a very important point regarding the relation between theory and history in the Austrian methodology.

You could argue that I was arguing semantics regarding ‘market failure’; but besides the point that I was arguing that it doesn’t make sense to speak of a failure of something that has no telos, I was also making the point that ‘market failure’ is not an objective characteristic, but an arbitrary leap of judgement by some people – imo caused by contrasting it with models like perfect competition. If you relax these models and see that the market is a process with lack of information, externalities, scale advantages, etc. everywhere, one can only conclude that ‘market failure’ is an arbitrary judgement; ‘up until this point, we have a good market, but more than that, is a failure’. Again; this is not claiming that the market is always perfect, nor does this proof that we never (might) need government intervention. (The opposition against all government intervention requires other (moral) arguments.) But I think there are some good theoretical reasons why the market is a better process then the government – prices, appraisement, etc. – but there might be an argument that based on something like transactions costs or something the government might step in and do a cheaper job.

Well; I don’t think I’m ‘lecturing’. I think I’m trying to make clear why I believe you don’t do justice to the specific points the Austrians make. For example; you dismiss a priori out of hand. But even disregarding the epistemological name you give to it, the fact that humans act purposefully to achieve ends, using means, in an uncertain world, etc. isn’t that hard to grasp. But it’s not something you can ‘test’. It’s something you have to take for granted to understand the (economic) world we live in.


“Those statements are meant to refute the a priori status of those propositions. Knowledge without experience is impossible.”

““thoughts without content are empty, intuitions without concepts are blind” – Immanual Kant; sums it up quite nicely. :) But yes; knowledge without experience is possible in a sense. In another sense it is, however, true that we get the categories like ‘trade’ and ‘money’ and so on from empirical comprehension. But theorizing about the concept can be done without experience. If and when we talk about trade, we talk about the voluntary exchange of goods. If and when we talk about trade, people expect this to be of an ex ante benefit. Etc. All of this follows from the concept of action and trade. The empirical connection is the question wether or not we can talk about trade in a certain period: did the people involved perceived it as such? If so; then we are talking about trade. Again; it’s hard to try to conceive trade when you were born alone on an island and all, but just because we ‘see’ trade, doesn’t mean that we can theorize about it in an abstract way. We abstract away from the _specific_ content of a certain trade, to try and describe what can logically be said of any trade. What is _essential_ to it.

Causality is a synthetic a priori; we perceive everything in terms of causal connections, but this can’t be just ‘seen’. It requires _interpretation_ of the facts involved. It is a priori because it’s prior to empirical observation, and it’s synthetic because it is relevant for the outside world. It’s not just a tautological definition like a bachelor.

Incidentally: This is why the very first sentence that started the whole of Austrian Economics is this: “All things are subject to the laws of cause and effect.” and Menger thus explained prices by being caused be people acting in an uncertain world, evaluating goods, etc.

Combining this; the Austrian school is also called the ‘causal-realist’ school of economics, precisely for this reason.

You say that you can ‘point’ to certain humans who don’t act. But that’s irrelevant: the point is that _when_ we talk about purposeful action (wether or not it be from humans or aliens) it follows that certain parts of economic theory apply. Do we understand people as purposeful beings? Yes; but we can’t know this just by ‘looking’ at them; we need to comprehend that they are acting – synthetic a priori.

The free will problem is, indeed, a problem. But that’s a problem for all moral sciences. Mises is quite clear that we accept the decision making unit as the ultimate datum; because no theory has ever come up with a model that can predict the whole of economic behavior, similar as we do with the natural sciences.

“There are always alternative scenarios that can be imagined. There have been negative interest rates. There are circumstances under which the broken window fallacy would not apply. None of these propositions are infallible a priori tenets.”

<= This would be very cool if you were to give proof it, in stead of assertions. Again; it's possible that there are (in our) mixed economy, negative real interestrates. It doesn't follow, however, that the time preference theory is wrong, nor would this refute anything. A negative interest rate (in a free market) would just mean that the person lending out doesn't valuate monetary returns. I have given negative interest rates to certain people; they borrow a $100, but they only return $90 after a month, and then I waiver the other part. This is a negative interest rate, but it doesn't follow that the Austrian theory is wrong, just that we need more to analyze this complex phenomena.

Maybe a relevant point; the whole of Austrian theory is required (in our opinion) to analyze the complex phenomena in real life. When you see something like the above example one could easily say; 'well, so far for the Austrian theory!' But it just doesn't follow; it only follows that the world is more complex and that different things happen in different times. We thus need correct theory to comprehend it. Saying that negative interest rates refute the theory is thus epistemologically wrong.

I don't know any theoretical circumstance in which the Broken Window Fallacy wouldn't apply; if one gets the BWF. It _only_ says that we can't increase wealth by destroying something _ceteris_paribus_. Of course; in the real world, ceteris paribus never holds and there might be certain circumstances that actually does increase the wealth in the long run. Imagine me destroying the bakers garden (in stead of the window) and because of it certain events happen which makes us as society a whole lot richer, faster than if the garden wasn't destroyed. I'm sure we can think of an example that can fit in there, but it doesn't follow that the BWF is incorrect. It only means that we have to take into account when we apply the BWF in real life to the limits of the theory regarding the historical data. And it also says proves that the reasoning 'just because we are rebuilding something, we are getting richer' is obviously wrong. When you want to make that claim, you need auxiliary things that might or might not be true empirically; and we can talk about it then. But the BWF, as a theoretical notion, is right.


- voorlopig is dit alles; maar meer wrslk onderweg!







3 opmerkingen:

Troy Camplin zei

Das ist gut. Good stuff. Good point too about the fact that Austrian analysis isn't about ethics but rather is a purely scientific critique of socialism -- socialism is proven not to be able to deliver on its promises. That is a fact. Which is why socialists have changed their rhetoric to moral concerns. Though one has to wonder how making people poorer and having a less efficient economy is more ethical.

Robbert zei

Very clear and theoretically strong discussion of some key points of Austrian economics. :) I will personally start the Cossaer Institute in 50 years!

Adriaan zei

Thanks both of you. I would like to note that the discussion is still continuing on the blog itself, so if you are interested in his and mine follow ups, feel free to click the link above. :)