Jack of all trades Vs Master of one-
In his definition of the scope of Austrian economists Caplan discusses why he chooses the work of Mises and Rothbard over that of Hayek to be more “Austrian”. In other words Jack of All Trades aka Hayek vs Master of one aka Mises+ Rothbard . Now I am no expert on Austrain Economists, or economics in general, but from the discussions we have had at SWEET it is very apparent to me that maybe this is not the best way to judge whether someone’s economic ideas are well founded or developed enough. In our conversations at SWEET we always diverge off to talk about sciences relating to economics. We have also recently been talking about the importance of psychology in economics. This makes me think that maybe Hayek is a better rounded individual, maybe the fact that he is interested in “philosophy, law, and intellectual history after the 1930's” is not such a bad thing after all. Caplan’s first point about Mises and Rothbard rejecting many of the key elements of modern neoclassical economics seems to be valid but disregarding an economist who is also well versed in subjects that clearly relate to economics is not!

A Taste of New-
Finally! I have not been a fan of Austrian economics, but I really enjoyed reading this article because it really brings about light to newer economists, and how their thinking has evolved and changed. Reading Mises and Rothbard sounds outdated, something irrational, however I enjoyed reading neoclassical views like those that Caplan mentions about cardinal utility, and how this was viewed by Rothbard, and how neoclassical economists avoid it!

"Every market transaction benefits all participants”-
Welfare economics is where I think I most greatly differ in view from the Austrians. The above statement sounds very accurate. In simple terms I would think of this as the market allows for comparative advantage, which leads to resources being allocated fairly, which leads to the perfect balance between demand and supply. All this is fine and dandy, but where my criticism comes in is what type of equation does one use to determine market players? In other words who are these participants? It seems fair that some participants can afford a Ferrari whereas other participants like me will have to make do with a second hand Subaru. However, what if there exist participants that can afford medication for genetic disorders like cystic fibrosis and there are other participants that cannot. Does the market have a solution to this? The pharmaceutical industry cannot really cut costs because of crucial research that needs to be done in order to release drugs, research that costs billions of dollars. If government intervention is not key here, then what is the other solution?
Caplan also talks about how neoclassical thought can come up with, “Communism was inefficient, or rent control is inefficient, or piracy was inefficient.” I think that in the above example, taxes going to help the patient with cystic fibrosis are inefficient too, but inefficiency is not always the worst method to apply to an economy.

-sitara

There are no Austrian economists

Still being completely undereducated in the "Austrian school of thought", I feel that it is natural for me to agree with Dr. Caplan. I fear that I may be biased toward his arguments, yet I have not seen any convincing reason to question it. So far, I have seen what the Austrians claim as an independent school of thought as being nothing more than a slightly different interpretation of the same principles that lead to the same general conclusions. The attempt to rid economics of the devices of science seems to me a futile attempt to banter at other economists while the rest of the world pays no attention. The difference between whether or not a tree in the woods makes a sound, and the attempt to measure the distance of that sound, is purely semantic and has no bearing on the fundamental question at hand. Economics is a philosophic study at heart, but that does not mean we cannot measure it. To say that only through observation of physical decision making in a market we are able to deduce choice and therefore in the absence of action there is no preference is preposterous. Of course you can be indifferent between two goods. Here, choose between these identical dollar bills. Of course you can measure decision making with quantitative measures. A wise young man once said “you can’t count money without math”.

It's all about the, "la la la I can't hear you!" approach

So it was interesting to read the Caplan piece this week and to hear why the Austrians are a bit off kilter (it is quite different from our typical readings). I like how Caplan began by making the distinction of Rothbard and Mises being in the same school of Austrian Economics while Hayek is in his own camp.

One of the main failures in the economic school of Austrian thought, which is presented throughout this article is plain and simple...the matter of being stubborn. It is a good practice as an economist stick to a stance. However, typically we also hold some generally accepted principles (few but yes there are some). If we reject a theory or stance it should for the reasoning that it is illogical rather than an ego thing.

I get the sense that there is an ego problem with the Austrian school. I think back to the Rothbard article we read spring semester about Keynes that was pure slander with little to no reference to how his economics made no sense but more of this emotional "your're a pansy" that's why your wrong approach. He had a personal vendetta. After all he did state about Karl Marx that, "At least he wasn't a Keynesian." This statement would have more value if it mentioned really what are the flaws in the Keynesian school rather than going for the emotional grip. Because there is one thing that economists can agree on is feelings and econ don't mix well. I do like the way in Caplan's article that he focuses on the inconsistencies of logic to explain why he disagrees with the Austrians and how he left non-applicable arguments out of story.

I don't mean to single Rothbard out here lots of economists can get caught up in this trap. And the Austrian school is not the only felon in economic schools of thought. The problem is that different schools of thought need to hear out each other before they proclaim, "Your WRONG!." As the "la la la" I can't hear you approach only can last for so long before you start to become a joke. You see this in a lot of the responses to the argument we brought up last week and also present in the reading in regards to the views of empirical analysis within the Austrian school.

I think the best approach is one which is open that that of others.

Economists Agree and Agree to Disagree

There's a joke that if you put three economists in a room to debate an issue you'll get at least six different opinions on the matter. Economists don't agree on much, but according to this survey there are quite a few issues where there seems to be a general consensus. Areas of agreement include the elimination of tariffs, subsidies, as well as the benefits of Walmart and markets for human organs.

This survey keeps coming up at the meetings so I thought I'd take the liberty of posting it

EDIT: Now with working link.

mises missed his measles

“In Political Economy, accordingly, hypothesis is never used as a help toward the discovery of ultimate causes and laws." This is a direct quote from the article we read. I have to disagree with Mises on this issue, amongst others. I am no master on politics, but I have taken a couple of classes in political science. What I have determined after writing several papers on different subjects of political science is that when studying the political landscape, especially in terms of economics, political scientists look for trends. So for example they might determine whether people voted for more economic control by the government in the last recession, then they might compare the situation to present day and draw conclusions. In this way they do try to, just like in economics, which Mises called a priori science, make logical justifications based on “logical human behavior”.
My other critique comes in when Mises talks about prediction in natural sciences. He talks about how in science we make assumptions, and there is no way of knowing whether something will work or not. What he fails to mention is that in science things tend to work on principles and rules. A chlorine atom is always negatively charged, or some molecules and always polar and others non polar. Scientists use this proved and worked out theory to help guide them when making predictions. It is not a random prediction, and in most cases the study and theory do end up with a hypothesis that is correct. Im most cases scientists don’t get results they didn’t expect, all they get is new directions, or new leads to discovering new rules/ laws. I feel like the author misrepresented the scientific method.

Not convinced, but thank you Mises

This week's readings seemed to be an attack on empirical methods in economics. I have found that in my own field of political science there are many scholars who will attack the empirical method as well, but this is often due to their dissatisfaction with a specific school of thought. Makes sense, doesn't it? Someone identifies a trend or a problem with clear and accurate information. How do you attack such findings? All you simply have to do is discredit their methods entirely. Austrian economics is well known for its philosophical and theoretical perspectives. Aside from the fact that I disagree with their findings and views altogether, this method simply is not satisfying. I saw, for instance, that he brought the minimum wage issue. Now, if I were to go by the Austrian perspective, it would make great sense to me that more money would mean a rise in unemployment. However, if I were to go by an empirical analysis, like I have before when I have investigated this issue, I would quickly realize that this is simply not true and that there is no evidence of such occurring. Why? Well, there are a number of different factors to consider, such as the amount of company funds that actually go into the paychecks in the first place. An empirical study would investigate this and disprove the Austrian viewpoint entirely.

I Disagree (Can we still be friends?)

A Direct Quote

Hoppe, page 9:

“Could it be that Blaug’s and others’ rejection of Mises’s apriorism may have more to do with the fact that the demanding standards of argumentative rigor which anapriorist methodology implies, proves too much for them?"

I can't resist calling the author on this point. The critics he speaks of have often been studying economic theory for decades, building on the contributions of their mentors and colleagues. The author needs to be reminded that disagreeing is not a character flaw.

The Quarrel

Here it is: I do not agree that praxeology and logical constructions are the only acceptable methodology in economic theory. Hoppe offers what I believe to be in incomplete interpretation of the methods of natural sciences in order to contrast them with the field of economics. There are two questions that must be considered. Is it true that the hypotheses of natural science force infinite examination, and do economic activities fall victim to the same troubles?

If I am forced to respond to the first question, I would need to clarify after saying yes. There should be continuing confirmation that the natural sciences have evaluated in interaction and predicted the outcome of the events. Given this, why don't we see physicists trying to confirm the effect of gravity through continuing experimentation. Why are baking soda volcanoes not being documented in the leading peer-reviewed journals of our time? The reason our experiments are not infinitely repeated is that we have more interesting things to do than continue to deal with the same hypotheses (or hypotheticals, in the vernacular of Hoppe). We have theories, identified through past experiments and generally accepted by well informed persons. Every field of the natural sciences allows for generally accepted ideas that cannot be fully confirmed.

With their theories, natural scientists take on questions and attempt to make predictions. Certainly these predictions can be flawed, skewed, or made difficult by chaos and randomness. Still, there can be value in the predictions. Consider the example of the Citric Acid Cycle, the process which breaks sugar apart to make energy available in a cell. Each sugar may yield somewhere between 29 and 38 ATP units, depending on the efficiency of conversion and random, chaotic factors (did someone sneeze?). There is uncertainty in exactly the number of energy units produced, and further study is likely to try to reduce uncertainty, but certainly the aggregated evidence is substantial enough to claim that the Citric Acid Cycle breaks down glucose and yields more than 20 energy units.

In the same way, a price floor has resulted in surpluses when economists have seen examples of the practice. We accept that unemployment can stem from minimum wages, and we accept that wheat could end up rotting if the mandated price is too high for the market. Although I accept these concepts, I cannot agree with Hoppe that these ideas are absolute and ineffable fact. I believe there is still some chance that possibly a situation exists where these examples are not true. Now, I am not interested in setting up an infinite volume of market studies with price floors in every conceivable setting and reviewing the results of this potentially infinite series of confirmations of my opinion. Someone else can stress about that while I sort out my sock drawer.

Self Evident Axioms

Hoppe cites Kant and Mises to support the division of economic thought into some basic unit where it would be self-evident. Mises in particular proposes the axiom of action, which clarifies for anyone who was confused that humans act. I will admit that there is an elegance in the derivation of economic concepts from the simple idea that people act, this axiom of action. Certainly there are useful conclusions to be drawn from this application of praxeological thought, but theories can be flawed and still be useful.

This is not the only such axiom of a metaphysical activity pondered throughout the ages. Cogito, ergo sum is one particularly popular one. I think, therefore I am (after all, if I am thinking than something must exist that as able to think). One may continue and build a praxeological universe, with axiology defining every meticulous existence and event. In that praxeological universe, guided by metaphysics and logic, I hope you'll find some value in inviting me to exist. I'll tell you that I know that I know nothing, and this sentence is false; you can derive an axiom of faction so we are allowed to have opposing views on the question.

Alternatively:

We can admit that the Periodic Table doesn't need to be flawless (it's not), the 54th digit of pi is irrelevant (it's 0), and the exact number of unemployed people from minimum wage laws is impossible to determine. We can study market trends without presuming to have a perfect awareness of the actions. We can make economic predictions if we acknowledge the uncertainty inherent in our predictions.

Why the Austrians are Wrong

Let me start by saying that I love Mises to pieces. I even have his work of genius, Human Action, sitting on my desk. I've read some of it, and I've even understood some of what I read. It's a damn shame Mises was wrong. Mises was a genius like Aristotle was a genius. They were both pretty amazing and groundbreakingly awesome until science came along and showed them to be wrong. There aren't four elements that make up everything in the universe, sorry Aristotle.

Also, Humans don't Act, sorry Mises. I thought the bit about siding with Liebniz was interesting: "He sides with Leibniz when he answers Locke's famous dictum "nothing is in the intellect that has not previously been in the senses" with his equally famous one "except the intellect itself." The problem is that the more we look into how consciousness works, the more we realize that it isn't above and separate from the universe, or even the senses. Consciousness itself may actually be an illusion! For more on this I'd like to refer you to Consciousness Explained by Dan Dennett. As we are able to peer closer and closer into the brain and how that three and a half pound organ generates what we call "the mind" we realize that humans don't necessarily "act" the way Mises defines action. It's more like we react.

I'd also like to recommend the book, How We Decide, by Jonah Lehrer. It shows how decisions are made often before the person consciously knows he made them. We are learning that the brain isn't one coherent machine guided and focused by the consciousness. It's more like a mish-mash of misappropriated mini mind modules that fight with each other and try to override each other. We have a patchwork of brain components that each may have had one purpose way back in our evolutionary history but are doing something different now. Our consciousness often makes up a story about how we actually 'decided' to do something or 'acted' in a certain way after the fact.

It's telling that a brain scientist can pop your head in an fMRI machine and ask you to 'act' in an economic sense. He can then look at the data on his screen in real time and determine what you are going to do, often before you 'make up your mind'. I wish I could do a better job explaining this, but HUMANS don't ACT. We react. And when we are done reacting, we tell ourselves a lie about how we planned to do what we just did all along.

As far as Mises is concerned, he may have gotten many things right about economics, but it wasn't based on the strengths of his givens. It was a happy accident. I don't think any less of him, just like I don't think any less of Aristotle just because the universe is made of atoms (and things even smaller) rather then different mixtures of dirt, water, fire, and air.

An Unnecessary Attack

In the text Hoppe makes a great case in the defense of Mises' "priori axioms". He outlines the various axioms or Mises' writing and does a good job of pointing out their validity. He however oversteps the line when he uses priori knowledge to bite back at the empiricalists. He oversteps his bounds and becomes the same as his criticizers.

This argument seems to outline and defend the notion of rationality using the basic axioms as a defense. I ask what the value is in this? Will monetarists and Keynesians disagree that people act? How does this axiom validate the Austrian school over the others? Rather than being solely an Austrian confirmation it seems to be an Economic confirmation. I do however understand it is more in line with the Austrian perspective.

I will assert that rather than using these axioms to attack or defend against other economic schools their value is placed against outside attack. This is an excellent defense on the core of economics from the people who will question it due to lack of scientific rigor or empirical reenforcement. People who only tout the hard sciences will attack things like economics and anthropology due to the inability to test the core foundations.

What happens in Hoppes text is an invalidation of the empiricalist argument. Even in the hard sciences there is a reliability on logical assumptions. These logical assumptions can be equated to the economic axioms. When a physicist relies on mathematics he is allowing a relative margin of irrelevance.

This can be equated in a theoretical problem. How many digits of pi would one need to know the circumference of the universe within one hydrogen atom?

24. Despite the fact that we would be ignoring the infinitesimal amount of digits remaining in pi they become irrelevant.

This is where I see the hubris in Hoppe and Mises' argument. Priori knowledge does not invalidate empirical knowledge just creates a separation. Rather than using this to show a relative balance of the accuracy and value of Austrian economic theory Hoppe tries to argue that praxeology is the only "pure" form of knowledge.

I find the use of the axiom of action to have great utility in defending the rationalist argument but not in solely defending the Austrian method.

Practice of Praxeology

In Economics, like any other major, if your studying it you get to hear the same load of clichéd statements about it when you tell strangers what you are studying (these are listed below):

"Economics, the study of money"
"Economics, the dismal science"
"Economics, the science of decision making"
"Economics, what do you think about the recession?"

Though, the occurrence of facing these statements often seems very daunting (especially the last one, which always makes me cringe and think, "ok here we go again.") I can always try to take something from these statements about what the general person thinks of the discipline of economics.

To these people economics is something thats somewhat abstracted and in some cases overly simplified. The one I agree with the most is the idea of economics as being the science of decision making. This view is very similar to that of what Hoppe sites Mises as having. The idea of Economics being a "Praxeolgy." I can agree with this when I think of base economic theory, I think of pure logic. So much of economics is reliant on simple logic and I think this is a notion that those in the Austrian school have which is spot on with the foundation of the economic way of thinking.

However, I think that there is more. I want to recognize that if economics is to be taken seriously it needs to have an approach that utilizes multiple angles. And this is were I disagree with the Austrians. I believe that both the application of logic and empiric practices are necessary for the advancement of the field. I don't believe that a scientific approach has hurt the way economics is. We already face the challenge of studying something so huge and every changing it would be ignorant to add the constraints as to how we are to study our dynamic systems of production and exchange.

As my brother stated when I was talking to him about Econ grad school programs last year, "Macro is dead...Experimental is where it's at." The attacks on the empirical scientific study of economics in this weeks reading is focused on taking down the Keynesian macro models, which center on the idea of "oh, if we can find the trends we can also control the economy to a certain extent." However, the branch of economics which has been developing and progressing at an increasing rate (experimental economics) also has an empirical focus, but it is going in a whole different direction then ol' macro and this should be recognized.

If we think right down to the basic idea of "praxeology"/logic, it makes sense to develop and use multiple ways of looking at both the aggregate economy and its individual decision makers with both a logical and scientific approaches, as economics is a discipline which has developed over time in a dynamic manner....it's an ever ongoing process there is no reason to add constrains as to how we should look at it but moreover we should ask what we can learn? and how can we apply this learning?

People Act, But The Disagreement is in How and Why

No economist regardless of training or methodological background would deny that people "act". It might be the only axiom all social scientists have to accept as a prerequisite to the study of human behavior. That people "act" is not really a point of contention among economists. The real disagreement between Austrians and other schools of thought isn't that people act, it's how and why they act the way they do.

The axiom of action is one the foundational assumptions on which most Austrian theories are based on, and it's probably a perfectly valid starting place. But you can only take such an initial assumption so far before you're forced to start making heroic leaps in your successive assumptions and end up reasoning your way into absurdity. In Mises' case when you go from a fairly uncontroversial truism like "action is an attempt to substitute a more satisfactory state of affairs for a less satisfactory one" to dubious claims like "deflation and credit restriction never played a noticeable role in economic history" you've obviously taken a logical misstep somewhere along the road. If your conclusion doesn't follow from the premise your deduction is invalid and it's time to go back to the drawing board.

Therin lies one of my problems with the Austrian methodology. The Austrians are so convinced of the validity of their own axioms and what should logically follow, that they assume to even bother testing their predictions against the reality of the observable world would just be a waste of time. Sure you can try, but doing so will only confirm their self-evident truth and make you look silly, so why bother? Fair enough. But just for kicks let's say we want to put one of Austrians' "perfect" deductions to the test anyway, Austrian Business Cycle Theory for example. We gather our data, analyze it, and compare it to what theory would predict only to find that it totally fails to accurately model the reality of human behavior. People are acting, but they're not acting how the ABCT would expect them to. What now?

Well when reality contradicts theory, most economists would agree that we made a mistake somewhere along the road and it's the theory that needs to be thrown out, not reality. But the Austrians do just the opposite. When the real world contradicts their simplistic assumptions about what must follow, given the axiom of action, they simply distort reality to fit what their over-exerted reasoning should've predicted. This axiomatic fundamentalism and an inability to admit to flaws when their theories fail to stand up to facts and evidence is one of the reasons scholars of the Austrian tradition haven't made any worthwhile contributions to modern economics in decades and the reason mainstream economists rightly ignore them.

Just A Reminder...

Posts must be submitted no later than 11:55pm the Tuesday night prior to our meetings in order to count. Posts must be "substantial", (at the very least a few hundred words). Sizable comments on the posts of others are acceptable if you're having writer's block, and are encouraged even if you have already made a post. If you miss 5 posts or meetings you forfeit your stipend for the semester.