12 Nov 2013

Answering David Friedman’s Questions About Austrian Economics

Austrian School, David Friedman 316 Comments

[UPDATE below, then UPDATE #2.]

In a recent post, David Friedman writes:

Yesterday I spoke at a Students for Liberty Conference. Before the talk I had a conversation with several students who identified themselves as supporters of the Austrian school of economics. I asked them if they could explain what that meant by identifying a proposition in economics that almost all Austrian economists and almost no non-Austrian economists would agree with.

One response was along the lines of “Austrians believe that one can derive economic conclusions from convincing axioms without adding any empirical facts.” So I asked them to give me an example of such a conclusion, of a statement that one could test, observe the truth or falsity of in reality, that could be derived in that way.

I now put the same two questions to any readers of this blog who consider themselves believers in Austrian economics. Can you state such a proposition? For the particular proposition that was proposed, can you give an example, a prediction about the real world that can be made with certainty from economic theory alone with no input of real world information?

I have to agree with Vijay in the comments, who wrote:

I’m a little surprised you ask this, Professor Friedman. You have been debating so-called Austrians for many years, and it seems to me you do not have basic exposure to the literature. Have you attempted to read Human Action by Mises? These questions, which are epistemological in nature, are answered in great depth in that book, among others.

This was, after all, the whole focus of our debate at Porcfest over the summer. I’m not expecting Friedman to agree with the Misesian/Rothbardian take (I’m not calling it “the Austrian take” since not all self-described Austrians buy into the a priori stuff), but his question entirely misconstrues what we’re saying. The whole point is that economic principles are not “testable” in the way he means.

So here are two statements that economists know about the “real world” with certainty:

==> People respond to incentives.

==> Choices always carry tradeoffs.

Those are the types of statements we can deduce just by thinking through the logic of rational behavior, or what Mises called “human action.” Notice that they aren’t mere definitions; I’m not saying, “Bachelors are unmarried.” Also notice that they are definitely useful in understanding the world. But, as I said, you can’t test them; there is nothing, even in principle, that would make an economist suddenly doubt either of the above. They are ways of interpreting reality.

Further, Mises wasn’t saying, “This is how we Austrians do economics; everyone else is an idiot.” On the contrary, Mises was codifying what economic science was. It was descriptive, not prescriptive, although as the 20th century progressed, the divergence between “Austrian economics” and “the mainstream” got wider and wider so it turned into the present situation, where Austrians come off wagging their fingers at everybody else.

But if you want to see how historically, the great economists adhered to this method, look at the opening section of Hoppe’s essay. He quotes from Say, Cairnes, and Lionel Robbins to show that Mises was not offering some idiosyncratic view in his methodological writings early on.

Last point: Friedman’s demand to hear something that almost all Austrians believe, but almost all non-Austrians don’t believe, is a loaded question. You could do that with anybody who claims to belong to a school of thought, in any discipline. Then when the person gives the answer, you can:

(A) Point out that no, actually most scholars in that field do believe the proposition, so there’s nothing special with his or her “school,”

or

(B) Point out that nobody else in his right mind believes such nonsense, so why the heck would he or she associate with such a “school”?

In closing, let me say that the tone of my present post here might sound very hostile. Just remember I’m the same guy who did this.

UPDATE: I should probably clarify that the two propositions I listed above are not “Austrian” propositions, but in fact are standard fare in micro textbooks, usually offered in the first section on “HOW TO THINK LIKE AN ECONOMIST.” Another example would be, “There’s no such thing as a free lunch.” Another would be, “Both parties benefit in a voluntary exchange.” I’m purposely picking mainstream stuff to get these guys and gals to realize that Mises is describing good economics. As I pointed out to David Friedman during our debate, nobody passionately believes in free trade because of a regression, but rather because of “thinking about it” in light of an essay by Bastiat or David Friedman, for that matter.

It is nothing but pure physics envy to think that to be “scientific” an economist needs to subject his or her propositions to empirical verification. There are statements in economic history–such as “What caused the US housing bubble?”–that rely on empirical content. But there is a core body of economic theory that you deduce just by “thinking things through.” I can teach a whole introductory class on economics without once having to resort to the authority of previous experiments or statistical tests.

UPDATE #2: In the comments, David says (correctly) that I didn’t offer anything to his first query. OK, here’s are two examples:

“Most Austrian economists think that it is a basic confusion to say that interest is equal to the marginal product of capital, in the way that wages are equal to the marginal product of labor.”

“Most Austrians think that to understand the business cycle, it is important to keep in mind that the capital structure is composed of heterogeneous physical goods, rather than a homogeneous ‘capital stock.’”

316 Responses to “Answering David Friedman’s Questions About Austrian Economics”

  1. Tel says:

    Can you state such a proposition? For the particular proposition that was proposed, can you give an example, a prediction about the real world that can be made with certainty from economic theory alone with no input of real world information?

    The axioms in Austrian economics are sourced from real world experience.

    However, one could argue that things like “printing more money will increase the supply of money” do not require empirical input because they are self evident. Going one step further and saying that money will eventually circulate so a larger supply of money implies more money in curculation is perhaps a bit more controversial but I think you can get there without making heroic assumptions.

    Choices always carry tradeoffs.

    I would argue that’s empirical and came from Thermodynamics as well as a lot of bitter experience in practice.

    • valueprax says:

      Damnit, I knew this would happen. I was signed up to go to that event just because I wanted to see if there were any cool Austrians in the immediate SoCal area, and I bailed at the last minute because I decided driving 3 hours and back to Malibu to go to a Koch-funded event likely filled with a bunch of clueless “minarchists” would be a gamble not worthy of my limited free time on a weekend… (tradeoffs)

      And for my snideliness I not only missed this encounter but also the pleasure of introducing myself to those few brave souls who not only showed their faces at this place but also were subjected to Freidman’s attempted-gotcha. AND the attempt to slam this very response of Murphy’s back in his face, live.

      Damn! Damn! Damn!

    • valueprax says:

      Would you argue that? Or do you?

    • Major_Freedom says:

      “I would argue that’s empirical and came from Thermodynamics as well as a lot of bitter experience in practice.”

      Put it this way Tel:

      Would it make any sense to you to suppose choices not carrying trade offs? What would that consist of? What would it be like for choices not to have trade-offs?

      So let’s assume it then. Let’s assume it is possible that when you decide to do X instead of Y, you can still do Y.

      Do you see how we cannot coherently regard this as an empirical question even if we tried? What does that tell you?

      • Major_Freedom says:

        When you think about it long enough, it starts to look something like a tautology, WHICH BY THE WAY IS NOT A DETRIMENT, even though at first you thought it could be an empirical statement subject to possible confirmation.

        At a high enough cognitive level, the Pythagorean theorem might seem to be a useless tautological statement concerning plane right triangles. But if that’s the case, why are we not able to know it immediately like we can know a solid wall is in front of us immediately? Why do mathematics teachers and professors have to spend lots of hours teaching it to students who don’t initially understand it?

        A priori deduction “of the external world”, IMO, is actually at its root a gradual discovery of the structure of our own minds (in addition to the structure of reality through the bridge of teleology, i.e. action).

        That is why we are not born with the tautological knowledge of geometry, or economics. There is a potentiality in our minds that Austrian economics explores more deeply than other schools.

      • valueprax says:

        Some people are really uncomfortable with the findings and mental disciplines of their favored branch of science NOT extending to cover the entire universe and everything in it. And I guess it’s especially hard to avoid this temptation when the scientific niche that’s most important or familiar to you is physics, because in a material sense it DOES.

        What I think these people miss is it might be true that, for example, choices have tradeoffs because of the way the law of thermodynamics dictates material existence in this universe which thereby undergirds everything we do and think… but it isn’t really helpful to assume this perspective in studying the particular problems of economics.

        There was a LessWrong sequence on this. I forget the exact example but I think they were talking about trying to explain why an airplane could fly by studying the construction of the airplane at the atomic level. The example here is that, yes, you COULD zoom everything down to the atomic level if you wanted to, but it really isn’t a helpful vantage point for studying the problems of aerodynamics and wing construction. It’s much more helpful to think of it at the level of materials and wing architecture rather than how the individual constituent atoms of sky and plane are interacting.

        I did a horrible job explaining that, if I can find the link I will post but this is what Tel is doing, and he does this a lot, tries to turn everything into an engineering problem which is really unhelpful and beside the point aside from the intellectual flamboyance of it.

        • Major_Freedom says:

          Then your job and my job is to provide for additional tools in the toolbox, so that the technician doesn’t keep using the same old tools for every new problem.

          This is something that is very difficult for anyone to do.

          “History is liable to turn man’s understanding from “the business before him” to misleading analogies, and men are naturally inclined to succumb to that temptation. For it requires a much greater effort to
          articulate a hitherto unarticulated situation in its particular character than to interpret it in the light of precedents which have been articulated already.” – Strauss, Natural Right and History.

        • valueprax says:

          Yeah, I boffed it.

          Let me try again with something really simple.

          If someone asked you, “Why do plants grow?”

          You could answer in a biological way and say, “Sunlight, soil and water, in abundant quantity.”

          That’s the level they’re looking at the event from.

          If instead you stated, “Well, the first law of thermodynamics states…” you aren’t really offering a description of the mechanics that are involved at the level the person is viewing the problem.

          If that’s still unclear, imagine the person asking is trying to get a plant in his backyard to grow. He has plenty of sunlight and he put the plant in soil, but he didn’t think to water it.

          If you tell him his plant needs water, he has a clear, actionable piece of knowledge he can use to improve his life with regards to the specific problem he faces.

          If you launch into a description of universal physical properties and thermodynamic minutiae, the plant will most likely die.

          • Major_Freedom says:

            Concerning humans, there are two phenomena: teleological and causal.

            Praxeology and thymology concerns the former, and biology and physics concerns the latter.

            Talking about the minutae of thermodynamics concerns non-teleological phenomena.

          • valueprax says:

            So did my “original” example make the cut here or not? I can’t tell if I am being scolded and corrected or you’re speaking to Tel’s confusion in epistemological terms?

            • Major_Freedom says:

              I’m just shooting the shit here. Don’t look too much into it. You’re not saying anything that is disconcerting. I’m just blabbing.

      • valueprax says:

        Hmmm, here is the link (I think… EY has a habit of rehashing and redeveloping old material in new postings so it might’ve been a different link referring to this earlier discussion): http://lesswrong.com/lw/on/reductionism/

        Now, he seems to be making a different point about “reductionism” than the specific one I was making above, so I guess my memory was fuzzy, but I still think there’s enough to go on there in that link to hopefully see what I was getting at, ie, “It’s all physics!” doesn’t provide a satisfying or even helpful insight for studying even basic economic phenomena.

        If the unemployment rate goes from 4% to 10% in the space of a month, saying something like, “Well, all lost energy in a system must be accounted for… ” is just nonsense. Just as it’d be really nonsensical for someone studying a physical problem to have an economist jump up behind him and shout, “There’s no such thing as a free lunch!”

        Each discipline might have a law which reflects that principle but introducing those laws into disciplines where they did not originate is misconstruing both the problems and the value of these respective insights.

        • Major_Freedom says:

          I recommend you read Fichte’s “Science of Knowledge.”

          He lays out the groundwork for any possible science whatever.

          • Samson Corwell says:

            Fichte??? The German idealist whose work went off into lala land following Kant?

            • Major_Freedom says:

              Not Fichte the man, but rather the specific work mentioned that was written by Fichte.

              Nice ad hominem though.

              Geez, it is as if pointing to Van Gogh’s insanity in his later life precludes us from appreciating his earlier artwork.

        • valueprax says:

          Uh, I’ll check it out but I don’t really know why you said that. Maybe I need to read the book to see how foolish/confused I am?

          • Major_Freedom says:

            It’s not because you’re confused, although you might be I don’t know, but rather it goes deep into the problem you addressed.

      • Tel says:

        Would it make any sense to you to suppose choices not carrying trade offs? What would that consist of? What would it be like for choices not to have trade-offs?

        If I had access to an unlimited energy source, I think my ability to compromise might rapidly diminish :-)

        So let’s assume it then. Let’s assume it is possible that when you decide to do X instead of Y, you can still do Y.

        A unix programmer would just invoke fork() and do both jobs in parallel. Humans don’t generally have that ability, but there’s no intrinsic reason why we couldn’t, we just don’t. That observation is empirical, and indeed at some point in the future it might become possible. If you think I’m whack, think about qubits, the physical world can exist in two places at once.

        • valueprax says:

          Wow, David Friedman does something like this below and in his other writings (re: “realspace”)… making references to futuristic knowledge, technologies and sometimes wishful sci-fi flights of fancy which don’t PRESENTLY exist, but may in the future, as if this somehow is a point in their favor.

          Qubits or not (never heard of them! which I don’t think you’d expect most ECONOMISTS talking about ECONOMICS to be well-versed in physical minutiae, once again, which makes this seem like a tactic for beating your opponent over the head with a hammer of sophistication), have you or anyone you know personally ever had the pleasure of enjoying the phenomena you talk about?

          That is, have you ever split your physical world (or whatever the hell happens with qubits) and both had your cake and eaten your cake, too, thus obviating the need to make tradeoffs with scarce resources like you would in most other situations?

          Hmmm, no? What a surprise.

          This is just a bunch of horseshit. It’s unimpressive you keep referring to stuff like this as if it’s relevant or refutes any economic knowledge.

        • Major_Freedom says:

          “A unix programmer would just invoke fork() and do both jobs in parallel. Humans don’t generally have that ability, but there’s no intrinsic reason why we couldn’t, we just don’t. That observation is empirical,”

          No Tel, the example you have described does not correspond to the argument that choices have trade-offs. The correct interpretation of your example is that “X” is “fork()”, or whatever parallel coding is done, and “Y” is the coding you didn’t do because your body, resources and time are all scarce. You cannot program infinite code. This is not an empirical question. It is a priori, because we can’t even comprehend doing something and not leaving any other conceivable alternative on the table.

          Your initial sentence, where you said “If I had access to an unlimited energy source, I think my ability to compromise might rapidly diminish” is not comprehensible. You cannot think, let alone do, everything at once.

          “If you think I’m whack, think about qubits, the physical world can exist in two places at once”

          That’s still an “X but not Y” scenario.

          • Tel says:

            …because your body, resources and time are all scarce.

            That conclusion took the physical sciences a long time to reach. Plenty of people were able to not only comprehend a world where this is not true, but went on to design, patent, and build perpetual motion machines in the genuine belief they would achieve infinite energy. So far none of these have worked, but maybe the next one will.

            At the moment, the empirical evidence does support limited resources, that’s exactly what the laws of Thermodynamics are all about, and they are very widely applicable.

            • valueprax says:

              Tel,

              What does the theory of relativity tell us about what will happen if the government institutes a minimum wage law?

            • Gene Callahan says:

              “That conclusion took the physical sciences a long time to reach.”

              True. But practical experience had reached this conclusion several billion years ago.

              Practical experience 1, physical sciences 0

              • Major_Freedom says:

                Scarcity is implied in the very nature of the empiricist method.

              • Major_Freedom says:

                Even if it took a million years, the knowledge is still a priori. A priori knowledge does NOT mean immediately known psychologically. Kant stressed that a priori knowledge sometimes takes painstaking thinking and study to reveal.

                If it takes a long time, it doesn’t necessarily mean it is empirical knowledge.

            • Major_Freedom says:

              “That conclusion took the physical sciences a long time to reach. ”

              No, it is known as a part of any action whatever.

              You’re conflating what is known psychologically, in the temporal sense, such as knowing the Pythagorean theorem only after being taught it, with the notion that such a priori knowledge is somehow “empirical” and requires testing for us to know it.

              “Plenty of people were able to not only comprehend a world where this is not true, but went on to design, patent, and build perpetual motion machines in the genuine belief they would achieve infinite energy.”

              He who is armed with the a priori knowledge of scarcity, doesn’t need to test the hypothesis of scarcity.

              I don’t have to test the theory that to do X implies I do not do ~X. I don’t need to actually attempt to do X in order to confirm the hypothesis that I did not do ~X.

              It’s built into the very meaning of X. X is not infinity. To DO X is to do a finite thing. It is a necessary category of thought. No matter what you think, you are thinking of a finite concept or set of concepts. In order to put those concepts into action, you are necessarily putting into action a finiteness. Because you’re putting into action a finiteness, there is a whole range of alternatives, known or not known, that you are NOT doing. Thus, scarcity is implied in the very concept of consciousness and thinking, and hence of acting.

              This is not knowledge grounded on continuous empirical testing. It can be known a priori.

              “At the moment, the empirical evidence does support limited resources, that’s exactly what the laws of Thermodynamics are all about, and they are very widely applicable.”

              At any conceivable moment, it’s necessarily true. Infinity anything is unintelligible. You cannot absorb into your mind actual infinity, because you are not the only thing that exists in the universe. I exist, and other things like material objects exist. In order for you know infinity, there cannot be anything other than you, with no observations of anything else outside of you, no being influenced by anything outside of you, and no thinking of anything other than you.

              Clearly since your thoughts are not capable of being made limitless, on account of me telling you that my ideas differ from yours, you are necessarily limited, and thus finite, and thus scarce.

              These are categories of any thought whatsoever. You think of anything, and you are thinking of something that necessarily “infringes” on your asserted potential of being unbounded to infinity.

              I am afraid that you don’t really understand what a priorism really means. You need to reflect back in on your arguments concerning empiricism, and to really grasp what empiricism is about. Remember, empiricism makes an implicit argument about the reality of consciousness. Consciousness in turn implies the existence of that which the consciousness is conscious of. If it is conscious of only itself, then empiricism becomes impossible, because empiricism requires observations, which implies a reality external to the consciousness.

              So any way you slice it, you do not know what you do.

        • Gene Callahan says:

          “A unix programmer would just invoke fork() and do both jobs in parallel.”

          Tel, doing jobs “in parallel” still involves trade-offs: the fact that two jobs toggle the CPU time does not magically make this time not scarce.

          “If you think I’m whack, think about qubits, the physical world can exist in two places at once.”

          Now I think you are even more whack than I thought before. You can speak sentences without having the least idea of a meaning behind them.

    • Gene Callahan says:

      “I would argue that’s empirical and came from Thermodynamics…”

      Right Tel! For the first million years of man’s existence, before thermodynamics was developed in the 1800s, no one realized choices involve trade-offs!

  2. Major_Freedom says:

    “The axioms in Austrian economics are sourced from real world experience.”

    Yes, but…

    As Kant noted:

    “That all our knowledge begins with experience there can be no doubt. For how is it possible that the faculty of cognition should be awakened into exercise otherwise than by means of objects which affect our senses, and partly of themselves produce representations, partly rouse our powers of understanding into activity, to compare to connect, or to separate these, and so to convert the raw material of our sensuous impressions into a knowledge of objects, which is called experience? In respect of time, therefore, no knowledge of ours
    is antecedent to experience, but begins with it.

    “But, though all our knowledge begins with experience, it by no means follows that all arises out of experience. For, on the contrary, it is quite possible that our empirical knowledge is a compound of that which we receive through impressions, and that which the faculty of cognition supplies from itself (sensuous impressions giving merely the occasion), an addition which we cannot distinguish from the original element given by sense, till long practice has made us attentive to, and skilful in separating it.”

  3. Blackadder says:

    Bob,

    You say that the statement “people respond to incentives” isn’t testable, and that there is nothing, even in principle, that could show it to be false (but that it also isn’t a tautology). I have a question in response that might sound a little weird, but such is the nature of the discussion.

    My question is this: do you think the statement “dead people respond to incentives” is empirically testable?

    • Major_Freedom says:

      Define “dead people” and define “respond”.

      By “dead people” do you mean corpses, or you do mean the idea of people who are no longer living and their bodies are no longer intact, or something else?

      By “respond”, do you mean a conscious judgment concerning external stimuli, or do you mean a physical motion only, such as frog corpses in the lab shaking when connected to an electrical current, or something else?

      • GabbyD says:

        why do any of those things matter to the ultimate answer to the question?

        • Major_Freedom says:

          Ask yourself if it’s possible to empirically test what would happen if external stimuli were put to a “dead person” defined as “the idea of a person no longer living whose body is no longer intact.”

          When you respond with “Well of course if you define things THAT way, then it’s silly”, then you’ll know why I asked.

          • valueprax says:

            Wow, I am so surprised that Blackadder didn’t respond after getting called out like this. Surely I thought he had a point that went beyond semantic obfuscation, which he could’ve shared with all of us after pointing out that wasn’t what he was attempting to do…

            • Blackadder says:

              Valueprax,

              I gave up responding to Major Freedom a while ago after long experience had proven it to be an uniformly pointless thing to do. My question was directed at Bob, and so far as I can tell he never answered.

              • Major_Freedom says:

                Understanding of course that “pointless” to you means “I can never get him to agree with me on substantive issues in heated debates”.

            • valueprax says:

              Maybe he gave up on responding to you for the exact same reason?

              I would.

              • Blackadder says:

                Value prax,

                Clearly not, as he continues to post responses to my comments even though I’ve long since stopped responding. If he (or you) want to stop responding to anything I write here, then go ahead. It won’t hurt my feelings.

            • Gene Callahan says:

              valueprax = total jerk?

    • valueprax says:

      I predict a major flipout/scoff-fest because when Murphy says “People respond to incentives” you don’t go all Spanish Inquisition on him, but when Blackadder tries to play gotcha, you start taking issue with word choice and meaning.

      Of course, I am a Rothbard-loving blackhearted ideologue so I understand and approve of this apparent two-faced contradiction, but I’m just saying… falsify my prediction!!

      • Major_Freedom says:

        If it’s any consolation VP, I don’t think the statement “People respond to incentives” is an a priori proposition. It carries with it a psychological component, which is outside the boundaries of praxeology.

        • valueprax says:

          Now I’m really confused… so is this not a statement about economic theory?

          I thought Bob was providing examples of economic truths but now you’re saying it’s psychology?

          • Major_Freedom says:

            I’m just saying I disagree with it. I am not saying I am absolutely certain I am right and that he is wrong.

            My reasoning is this: For a claim to be a priori, a good rule of thumb to know it really is an a priori argument, would be to consider whether the obverse is comprehensible and logical.

            Thus, I can imagine that the argument “People do not respond to incentives” is comprehensible. I can imagine a person not responding to anything external to them, because they are, for example, a so-called “vegetable”.

            I am not certain that I have this right, because maybe by “people” we mean actors. If we mean actors, then I would argue that anything absolutely required in and of action, would be an economic argument.

            It’s just that the term “people” isn’t concrete enough, and so allows what I think are obvious objections. But precisely because my objection seems obvious to me, I am not absolutely sure it’s right.

            • Ken B says:

              And BA’s question shows it IS comprehensible.

              • Major_Freedom says:

                As I said above, it depends on how we define the terms “dead people” and “respond”, taken from the range of typical definitions commonly attributed to those terms.

                Depending on how we define them, it may or may not be comprehensible.

                Merely asking a question isn’t sufficient for making anything comprehensible, including the question.

    • Bob Murphy says:

      Blackadder,

      The proposition “People respond to incentives” isn’t something from an Austrian tract; it’s a standard thing in intro micro textbooks and pop econ books in Barnes & Noble. I used that (as I said in the first Update) because I wanted mainstream economists to see that they actually don’t follow their own methodological prescriptions; what they think of as “the body of core economic principles” isn’t something that economists have learned through decades of painstaking experience.

      So to make it more rigorous, it would be something like, “If you see a person engaging in action, then the person responds to incentives.”

      • Bala says:

        This is what makes it all hilarious. It hit me in the face when I saw you mention “People respond to incentives” because it is sooooo non-Austrian. The only places where I have seen it is in mainstream economics textbooks. Makes me wonder how much all these people who routinely criticise Austrian economic theory have actually have read of it and how well they understand it.

      • Blackadder says:

        Bob,

        Got it. The thing I was reacting to was not the statement itself (which is true) but to the idea that there is no evidence, even in principle, that could cast doubt on it being true.

      • Gene Callahan says:

        “I used that (as I said in the first Update) because I wanted mainstream economists to see that they actually don’t follow their own methodological prescriptions”

        True dat.

  4. Daniil Gorbatenko says:

    Isn’t the Austrian Business Cycle theory an obvious example of a proposition that almost all non-mainstream economists reject?

    • Major_Freedom says:

      They’re coming around slowly.

      Sumner for example just recently started agreeing with the argument that low nominal interest rates caused the housing bubble.

      • valueprax says:

        I listened to a 2008 podcast of Allan Metlzer on EconTalk ( http://www.econtalk.org/archives/2008/05/meltzer_on_the.html ) and it was really funny because not only did he and Russ Roberts scoff at the idea that a recession was in the mix (and of course it was SILLY to think of a GREAT Recession), but Meltzer also said, and I ess you not,

        “The Fed held interest rates too low for too long.”

        I believe this was the “crude Austrian” analysis that Murphy swung at Warren Mosler in their debate that left Mosler to go berserk about what an odd, nonsensical idea of business cycles the crazy Austrians have. And here is the totally mainstream observer/historian of the Fed, Meltzer, saying it like the crudest of the Austrians, as if it was anything but controversial.

        Many more outstanding zingers in that now-classic interview, I recommend all listen for a teeth-gritting chucklefest (yes, you will both grit your teeth in agony AND laugh riotously at various moments).

      • Daniil Gorbatenko says:

        I don’t actually think that the housing bubble is an instance of Austrian boom. ABCT implies the existence of a cluster of long-term investment projects that are started in the beginning of the boom and not finished at its end. The single-family housing in which there was a boom prior to 2007 just doesn’t qualify in terms of duration of the construction of such houses.

        I propose an alternative version here: http://realismunleashed.wordpress.com/2013/11/06/the-mortgages-may-have-been-a-false-culprit/

        • Major_Freedom says:

          Houses, being durable goods, can be priced similarly to capital goods, in the face of changed interest rates.

          The production of houses is ongoing. There was a marked increase in new housing starts during the 2000s.

          Not sure why you preclude housing. They are relatively long term projects.

        • valueprax says:

          I think he’s hung up on the idea that the business cycle is a point-in-time event rather than a process, so he sees a bunch of completed homes (and apparently ignored all the acres of bare slabs…) and concludes “Nope, ABCT says projects go unfinished, but these are all finished… so this can’t be the ABCT here!” It implies a nonsensical kind of simultaneity of the whole thing, like when the boom starts, EVERYONE starts and then EVERYONE doesn’t complete their projects at the same time. So if anything actually gets completed during the boom… not ABCT.

          • Major_Freedom says:

            I have posed the following question many, many times to the “demand siders”, and I have yet to be given a solid response:

            Most demand siders argue something along the lines of “The Fed tightened up too much too soon and thus brought about recession/unemployment.”

            My question is that given the Fed wasn’t destroying other people’s money, why is it that so many people throughout the economy could not, as individuals, keep producing the goods and services they were producing that would be necessary to keep convincing buyers to keep spending their money out of cash balances that (we have just assumed above) was not destroyed by the Fed?

            Why did so many individuals so quickly fail to have their specialized produce goods and services bought by others?

          • valueprax says:

            What kinds of squishy responses have you gotten?

            • Major_Freedom says:

              They always try to understand it in terms of spending only, thus going in circles…

  5. Gamble says:

    Bob Murphy wrote:
    “Further, Mises wasn’t saying, “This is how we Austrians do economics; everyone else is an idiot.” On the contrary, Mises was codifying what economic science was. It was descriptive, not prescriptive, although as the 20th century progressed, the divergence between “Austrian economics” and “the mainstream” got wider and wider so it turned into the present situation, where Austrians come off wagging their fingers at everybody else.”

    I think finger wagging by Austrians and by people with a similar paradigm is a response to aggression. Mises taught non-aggression. He never taught theft or war. He taught the opposite. Any person teaching anything contrary to Mises has to be teaching aggression. Therefore I wag my finger, it is a defense mechanism.

    • Major_Freedom says:

      While Mises’s arguments concerning “self-determination” is an advocacy for anarchy, he believed that for technical considerations self-determination must be restricted to the will of the majority. In other words, he felt it was necessary that there be a majority aggressing against a minority.

      So Mises didn’t exactly teach non-aggression. Non-aggression was his ideal in a future world, but not in the present one, so he’s not different from a social democrat.

      • Gamble says:

        Major Freedom,

        I am not sure I agree with all of your assertions.

        Please site a clear example of Mises advocating aggression? Maybe pragmatically speaking he was calling it the way he saw it but I don’t think Mises ideal world would have much aggression. Implement sound money and squelch inflation, there is not much room for aggression, no?

        Define social Democrat before I agree Mises shares behavior? I am guessing he does not.

        • Major_Freedom says:

          Mises believed majority rule was a technical necessity during his lifetime.

          Imagine someone telling you that the technicalities of hunger and greed make robbery a necessity of life, at least for now.

          To argue that majority rule must occur, is not any different, from the perspective of anyone victimized by it, from someone saying that majority rule is something they prefer because they positively desire the majority aggressing against the outnumbered.

          If I was attacked by a sociopath who believes he MUST hurt people without his choice, it wouldn’t make that attacker a person who might be against aggression if only the universe were such that violence wasn’t a necessity.

          • Gamble says:

            Major Freedom,

            Are you equating majority rule with aggression?

            When did Mises advocate either majority rule or aggression?

            If Mises did advocate majority rule , was the purpose of this majority to aggress or defend against aggression?

            I cant seem to find any reference to Mises advocating majority rule or violence. I think Mises believed in voluntary trade and not much more. Sure he realized the world was much more complicated but he tried to share an economic system and political ideology that facilitates voluntary exchange.

            • Bala says:

              Can A rule over B without aggressing against B? Can the majority rule over the minority without aggressing against the minority? I think this is the key point MF is raising.

              • Gamble says:

                Well,

                All I know is socialist take a chunk of my fruits and claim my fruit basket was bigger because of the chunk they took. They haven’t proven to me they took less than they gave so at this point I consider it aggression and will continue to wag my finger at them. And it is not my index finger.

            • Major_Freedom says:

              “Are you equating majority rule with aggression?”

              I am saying majority rule is inherently aggression.

              9 people voting to take wealth from a 10th person, even if that 10th person does not consent, is an aggressive activity, despite the activity being one of majority rule.

              • Gamble says:

                Okay.
                Exactly where/when did Mises advocate majority rule?

                Here are a few quotes from Mises that seem to criticize majority rule/aggression.

                In the political field it is always the will of the majority that prevails, and the minorities must yield to it. Liberty and Property p. 12

                In the political sphere, there is no means for an individual or a small group of individuals to disobey the will of the majority. But in the intellectual field private property makes rebellion possible. Liberty and Property p. 12

                [They knew that] all men are liable to error and that it could happen that the majority, deluded by faulty doctrines propagated by irresponsible demagogues, could embark upon policies that would result in disaster, even in the entire destruction of civilization. The Ultimate Foundation of Economic Science p. 93

                When any sort of difference arises between law and opinion, a reaction must necessarily follow; a movement sets in against that part of the law that is felt to be unjust. Such conflicts always tend to end in a victory of opinion over the law; ultimately the views of the ruling class become embodied in the law.
                The Theory of Money and Credit p. 229

              • Major_Freedom says:

                He “advocated” for it in Human Action. He thought majority rule, at least during his lifetime, was a technical necessity.

                In a context of practical advocacy, which is really the only kind, I do not distinguish between the idea that murdering people is “a necessary reality of the time” and the idea that murdering people is a choice.

                In both cases, the result is murder based on ideas supporting murder. I consider that to be an “advocacy”.

                One of the most popular methods of hiding an advocacy is to communicate it as a law of nature, or a scientific necessity. By communicating it as such a “mechanical” reality, the advocate can shield his implicit moral claim from criticism, the way a person claims to have a bag of oranges when he really has a bag of apples. He’ll just keep saying “You continue to argue against me with your apples, when I can only be refuted using oranges.

                Marx did it.

                Keynes did it.

                So many do it because of a tendency in our current age of people putting more intellectual weight on science, rightfully so. But that doesn’t mean you should take what isn’t scientific, and communicating as such to get attention.

      • Gene Callahan says:

        “Non-aggression was his ideal in a future world…”

        Evidence?

        In fact, Mises never talks in these stupid “aggression” and “non-aggression” terms. It took Rothbard to drag the discussion down there.

        • Gamble says:

          Mises did constantly advocate capitalism, aka voluntarism/peace.

          Mises did constantly condemn interventionism, aka aggression/war.

          Mises never advocated theft or ignorance of private property.

          Mises never advocated taxation/theft.

          Let us flip this around Mr. Gene Callahan,

          You provide evidence of Mises advocating anything other than voluntary, non-aggressive human action.

  6. David Friedman says:

    I asked for “a proposition in economics that almost all Austrian economists and almost no non-Austrian economists would agree with.”

    You offer two propositions that all or almost all non-Austrian economists agree with, so you are not answering my first question at all. My second was:

    ” a prediction about the real world that can be made with certainty from economic theory alone with no input of real world information?”

    That’s not a prediction about the real world, it is an assumption that gets used in the process of making predictions about the real world.

    My point was that one view about what is special about Austrian economics is that it gives us conclusions that follow from the assumptions without requiring the addition of real world facts–that it is a pure a priori science. I don’t think you have offered any. Very likely that isn’t your view–but then you haven’t answered the question about what distinguishes Austrian economics from other approaches.

    • Hank says:

      Correct me if I’m wrong.
      Here is a proposition that a non-Austrian might regard as true:

      “The law of supply and demand is true because it has never been empirically falsified.”

      An Austrian would say:

      “The law of supply and demand is a logical necessity, deduced from the action axiom.”

      If you want to follow the chain of logic, read the plethora of Austrian authors who have already done so.

      • Ken B says:

        That’s not a statement about economics. The law of supply and demand is, and it’s accepted by most non Austrian economists, but a statement about its certainty is not an economics assertion.

        • valueprax says:

          Ken B,

          Are you making the point (which I stumbled upon down below) that Austrianism is actually an epistemological school, not an economic one?

          Or just this aspect of it?

          • Ken B says:

            I might well be, or at least identifying these statements as examples of where Bob is making an epist assertion not an economic one. I am not ready to argue there are no economic ones, but Bob was asked for examples of a cat and gave examples of a dog here.

        • Major_Freedom says:

          Yes it is. It is an economic proposition because it is deduced from human action.

          • Hank says:

            From what I understand, under Mises’ conception, economics is but one branch of praxeology .

            When talking about subjects such as:

            Production, consumption, goods, services, products, prices, interest, capital, savings, selling, buying

            We are doing economics. Praxeology may focus on other human actions that aren’t based on monetary calculation.

            Perhaps I one could say I made an economic proposition because I was talking about the law of supply and demand. However, I was not actually talking about any actions based on monetary calculation. The propositions I made were about the law itself, not about any human actions. Therefore, I think it’s fair to say they were not economic propositions.

            That is how I interpreted what Ken B was saying, but who knows what he was saying without him making any clarification?

            • Major_Freedom says:

              Don’t forget, to tell an economic story, thymology is also required, namely, the specific events that took place in history.

              Praxeology is the steel girders and frame of a skyscraper. Thymology is the concrete and drywall. There will be a “reality” if there was just the frame standing there, but it won’t be a building, there won’t be any stories, if there is no filler.

        • Hank says:

          Okay, I can easily point out lots of propositions that have nothing to do with “certainty”, which Autrians regard as true, while many non-Austrians regard as false.

          AUSTRIAN BUSINESS CYCLE THEORY

          PURE TIME-PREFERENCE THEORY OF INTEREST

          SUBJECTIVE THEORY OF VALUE

          All these are positions Austrians take that many non-Austrians do not take. Do these not count for some reason, or have you simply not heard of them?

          • Gene Callahan says:

            Hank, neither the PURE TIME-PREFERENCE THEORY OF INTEREST nor the SUBJECTIVE THEORY OF VALUE are particularly Austrian.

            • Hank says:

              Says Law is an example of something Keynes specifically rejected, while Austrians accept.

              There ya go.

    • Major_Freedom says:

      David,

      Austrians need not provide you with examples of economic propositions that almost no non-Austrians agrees with, in order to show you how Austrian economics is distinguished from other schools. Most Christians disagree with cosmologists, but that doesn’t mean they have to disagree on whether the universe is expanding or contracting, or whether the Earth revolves around the Sun.

      Now of course you can certainly ask for such propositions, but hopefully with the understanding that any absence of adequate responses does not constitute a concession that Austrianism is not distinguished, fundamentally so.

      What separates Austrians from non-Austrians, fundamentally, is epistemology, not so much the content of economic conclusions in the form of propositions such as the law of marginal utility, or the proposition that choices carry trade-offs. There are of course some disagreements such as whether ABCT is true, but these are exceptions to the rule.

      Non-Austrians believe that the quantity theory of money for example is an empirically driven proposition, whereas Austrians hold it to be a priori. They agree with the general version of the conclusion, but they disagree on how we come to know it.

      Regarding your second question, Austrian economics does not make predictions about the future. Indeed, it spells out in detail why we cannot predict the future of human action and thus economic outcomes, based on the use of constants derived from past events.

      A good question to ask an Austrian would be: “Give me one example of a proposition that is a priori, i.e. that is not empirically testable, and yet says something true about economic reality.”

      The law of demand is another proposition derived a priori according to the Austrians.

      There are many examples spelled out it detail within the more epistemology oriented economic literature.

      • Bala says:

        Don’t you think the Law of Demand is in itself a good example to present to David? When you state it as

        At lower hypothetical prices, the quantity demanded would always be the same or more

        is it not something almost no non-Austrian would agree with? Don’t they all have some exception to demonstrate that demand can fall at lower prices and rise at higher prices?

        • Ken B says:

          Geffen goods, accepted by mainstream economists. Demonstrated in bird experiments too.

          • Bala says:

            If your intent was to prove my point, I agree. The part about being demonstrated in bird experiments is especially interesting.

          • valueprax (@valueprax) says:

            If I was a rothbardian cultist (which I am) I think I would say (which I will) that the reason a geffen good doesn’t satisfy falsification of this principle is because what people are demanding is actually prestige, and so when the former prestige good falls in price it also falls in prestige and so they demand less of it and more of something with relatively more prestige. So I guess that’s like a demand shift rather than some kind of bizarro move along the curve if wrre thinking about that.

            But as a RC I WOULD try to define the supposed problem away like that.

            Also, if I was wrong to do so I’m not clear what he implications are? Prsxeology is wrong? Austrian econ is crankish? Mises was an imbecile?

            • Bob Murphy says:

              If anybody cares, it’s GIFFEN good. To write “geffen good” sounds like a mild swear. “Norton, we are NOT goin bowling! Put that geffen good back in the closet.”

              • Bill Woolsey says:

                Along with the spelling correction, Giffen goods have nothing to do with prestige. They are inferior goods. When income goes up, demand goes down.

                Nominal income for the buyers is taken as given. The price of the Giffen good falls. Real income rises. People buy less of the Giffen good because they are better off. They are instead purchasing more normal goods.

                Usually inferior goods are described as low quality goods. Normal goods are “normal,” in that people buy more when they can afford more.

                What is called the “substitution effect” still applies to inferior goods. Those who like to claim that the law of demand still applies to Giffen goods will argue that the law of demand _is_ the substitution effect. It applies ceteris paribus, and the change in real income implied by a lower price and given nominal income is a violation of ceteris paribus.

                If you don’t look at it that way, then the question is whether the substitution effect is greater or less than the income effect. Giffen goods are inferior goods where the income effect is greater than the substitution effect.

                I never heard about the chicken experiment. I imagine that Giffen goods could be generated in human experiments. The traditional historical example was potatoes in 19th century Ireland. Some empirical economist found evidence that the law of demand applied to potatoes.

              • Major_Freedom says:

                Bill:

                No Bill, “Giffen” goods are goods whose demand rises when the price rises, i.e. “prestige” goods.

                Your statement “When income goes up, demand goes down” is actually just a statement concerning relative demand between goods. The proposition “income goes up” is itself the proposition that demand is going up, to whatever context is considered. Income is the same thing as nominal demand.

                “Nominal income for the buyers is taken as given. The price of the Giffen good falls. Real income rises. People buy less of the Giffen good because they are better off. They are instead purchasing more normal goods.”

                You just violated basic economic logic, and mathematics.

                If you hold income as constant, then if you posit a fall in prices, then it is a necessity that the quantity demanded is going up, not down. If the quantity demanded went down, in the face of a fall in price, then you are actually talking about something other than unchanged nominal income.

                You need to do some more studying.

            • Ken B says:

              Look up the bird experiments; they used water at low levels needed to survive. Not much prestige involved.

              • Bala says:

                No problems looking it up but the very idea of extending from bird behaviour to purposeful behaviour of humans is very interesting.

              • Bala says:

                In any case, thanks for demonstrating that my example was an apt one to present to David.

              • Ken B says:

                It might well be. I’m interested in his response if he replies. if you are right they are a serious problem for Austrians.

              • Bala says:

                The problem is more for the non-Austrians because the debate would then move into the methodological space.

            • Major_Freedom says:

              VP:

              You got it. For Giffen goods, if the price falls, then the value would decline due to it no longer serving the purpose for which the high value previously served.

              We would be talking about two different goods, despite the physicality of the good remaining the same.

              Subjective value theory does not require equal valuations for equally physical goods.

              • Major_Freedom says:

                In other words, if we can imagine a good believed to be a Giffen good retaining its high value even in the face of a decline in price, that is, if the price is still sufficiently high to retain that good’s usefulness, then a decline in a price within that range would indeed be accompanied by a rise in quantity demanded.

          • Major_Freedom says:

            Giffen goods do not stand as a refutation or falsification of the law of demand.

            The law of demand is that ceteris paribus, the quantity demanded of a good is the greater, the lower is its price, and the smaller, the higher is its price.

            It is true that if the price of the Giffen good fell below a certain point, then a part of the demand for it would disappear. But this still does not mean that people prefer to pay more, ceteris paribus, rather than less.

            In such cases, the decline in value would represent a loss of one of the good’s useful, valued properties. It would be akin to the demand for anything whatever falling when its properties are degraded.

            So long as the good retains sufficient value to serve the purposes for which a high value makes it qualified to serve, then, within that range, the quantity demanded varies inversely with the price.

            What is happening with the case of a Giffen good is that the good’s price itself becomes a useful property for valuation for the good. If the price declines sufficiently, then that good would cease serving the purpose that the high value originally made possible. A lower price would constitute a lower quality good, not the same good.

            The law of demand is grounded on ceteris paribus. You seem not to understand that.

          • valueprax says:

            Holy fright, you’re right, it is Giffen good. Geffen is like David Geffen, the movie and music producer. Maybe we have been talking about his personal possessions this entire time!!

            And in response to whoever argued about how Geffen goods work down below (“they’re inferior goods!”)… yeah, maybe I need to mea culpa here as I got myself confused. Can’t remember now what all the different irregular goods are (is that what we economists call them? I don’t remember…) my point about defining our way into problems that don’t actually exist remains though.

            I am reminded of another LessWrong article I read at this point: http://wiki.lesswrong.com/wiki/Mysterious_Answers_to_Mysterious_Questions

            If I were to botch the summary of this one like I did before, I think what he was saying was that if you come up with a mysterious answer to a mysterious question (aka, you resolve an apparent contradiction by saying, “Well, sometimes reality is contradictory!”) that’s actually a good hint that you haven’t actually solved the problem and maybe you don’t have a problem outside of how you define things.

            It seems funny how, for example, we convince ourselves all these little exceptions to the rules exist with stuff like this, but no one has suddenly found themselves walking on a ceiling while everyone else follows the law of gravity. Weird…

      • Gene Callahan says:

        “Non-Austrians believe that the quantity theory of money for example is an empirically driven proposition, whereas Austrians hold it to be a priori.”

        You are quite the comedian, MF, because I know you are well aware that Mises REJECTED the quantity theory:

        “It was not difficult to prove that the supposition that changes in the value of money must be proportionate to changes in the quantity of money, so that for example a doubling of the quantity of money would lead to a doubling of prices also, was not in accordance with facts and could not be theoretically established in any way whatever. It was still simpler to show the untenability of the naive version of the theory which regarded the total quantity of money and the total stock of money as equivalent.”

        … …

        “There is no justification whatever for the widespread belief that variations in the quantity of money must lead to inversely proportionate variations in the objective exchange value of money, so that, for example, a doubling of the quantity of money must lead to a halving of the purchasing power of money.”

        • Major_Freedom says:

          Mises rejected “a” quantity theory of money, which is the one you quoted Mises as describing.

          Of course I also reject such a formulation. It would be absurd to argue that this quantity theory of money stated that way is a priori true. I would have to have a hole in my head to blatantly disregard the other human choice implicated in it, which is of course the demand for money holding.

          That is why the quantity theory of money, PROPERLY stated, as all a priori arguments are properly stated, is the inclusion of cetaris paribus. Mises did not attack a quantity theory of money with the ceteris paribus. He attacked what is actually an empirical argument. It is an empirical question just how high the demand for money holding will in fact be, in order to know how much an increase in the supply of money will lead to rising prices, if at all.

          My argument about the quantity theory of money is stated this way:

          “Given that all else is equal (including the demand for money holding) a rise in the quantity of money will be accompanied by a fall in purchasing power.”

          Like I said above, when you think about a priori arguments long enough, they start to seem tautological. That is actually a good sign. It not means it isn’t empirical, but it also means that the conclusion really does necessarily follow from the premises.

          A being with a level of cognition and thinking far greater than ours might think that the Pythagorean theorem is a statement akin to “All single men are bachelors”. But then again I think we can say pretty definitely that a stupid person would have to be taught that all single men are bachelors. Tautologies are not necessarily useless. They really do expand our knowledge of the world.

    • valueprax says:

      David,

      Off topic but– have you ever read “The Ego and His Own” by Max Stirner and, if so, have you posted any comments about it in a public place?

      Thanks

      • Major_Freedom says:

        Dangerous book.

      • valueprax says:

        Alright, tell me. Why is it a dangerous book?

        I assume you read it as well.

        • Major_Freedom says:

          Yes, I’ve read it. A couple of times, which is what I always do with philosophical treatises.

          I think it’s dangerous because in it Stirner makes a case, which I honestly cannot find a solid ground for absolutely refuting as of yet, that ALL “sacred” universal concepts, even “Freedom” understood as the moral proposal that individuals be constrained to dealing with each other in accordance with private property rights, i.e. peacefully, be wholly rejected as just another God to prostrate under.

          Due to the fact that I cannot as of yet find an absolute ground to reject it (since my grounding is as of now praxeology, which is value-free, and so cannot be used to reject the immorality of violence), I am admittedly at a loss of how I could deal with others who take Stirner’s book seriously enough that they act in accordance with it. If I were not paying attention, a full fledged Stirnerite would have no qualms with murdering me if that is what his desired “My intercourse” happened to be.

          Now you could say that because I have read it, and yet did not become a practising Stirnerite, in that I sacrifice my short term benefits my restrining from initiating violence against others even if I knew I could get away with it, that it isn’t as dangerous as I make it sound, but I can’t guarantee everyone else would do the same.

          I wrangled my mind for quite some time trying to come to grips with the Ego and His Own. I found myself not refuting it apodictically, but rather avoiding it because it discomforted me so much that my moral intuition and upbringing made integrating it in my mind an insurmountable task.

          I think I have to read it again to see if such a philosophy put into practise makes social cohesion possible. Perhaps it can. I am just intellectually unable to do so at this time, because my emotion of fear is still too great.

          • valueprax says:

            ps. I think a lot of people (we generally call them “pragmatists” or “amoralists”) actually DO live like Stirnerites. They are, best as we can see, pure egoists. And yeah, they can do some nasty things. Which I can see would threaten your position as a competing ego.

            That doesn’t make it “wrong” or illogical.

            What makes it “wrong” or illogical is claiming you are contributing to society when you’re a barbarian who is recking it. That’s pretty dangerous for everybody involved. If you’re going to be a barbarian just be a barbarian, don’t try to pretend you’re a capitalist on top of it :)

            • Gene Callahan says:

              ‘That doesn’t make it “wrong”’

              Confirmed! valueprax does indeed equal total jerk!

            • Major_Freedom says:

              A Stirnerite, indeed anyone, are not forced by physical law to only advocate those ethics that “contribute to society.”

              It is not a valid argument against Stirnerism as such. You are only saying that Stirnerism cannot be used IF we want to choose X instead of Y. But even there it is not apodictic, because I think it might be possible for everyone to “contribute to society” on the basis that either Stirnerism universalized may have a progressing tendency in general, as Egos repel to result in balance, or their own particular Egoism would be maximally satisfied by abstaining from killing people wantonly, or something else.

              Stirnerism has to be refuted not as a tool for a particular desired outcome, but internally, in itself. I personally have yet to do so. At this point, my rejection is based on, like I said, moral intuition and upbringing, such as it is.

        • valueprax says:

          Oh, okay, that makes sense and is kind of what I thought you’d say but I wanted to hear it straight from you.

          Also, you’re in small company. I think there are maybe 5 of us that have read it. In the world.

          I won’t turn this into the Stirner-debate blog but I will make a few comments:

          1.) He proposes a non-violent policy, the “Union of Egoists” for “collective action” in the social realm
          2.) Even if Stirner is correct that all universal concepts are “sacred” (and therefore, not sacred as we understand the term meaning not to be interfered with), there is no ought from that is, so I don’t really see what is to be feared…
          3.) It can still be true that particular ends people decide to pursue necessarily exclude particular means, and that if “civilization” is one of those ends, “wanton, arbitrary violence against other people” could be one of those means… so we don’t have to give up on the whole project just because Stirner might be right

          As for #3, this was the case I was making recently in the comments on another blog post, ie, “There is no objective case for morality”, only objectivity within various subjectively chosen paradigms, following means-ends analysis.

          I don’t really get what praxeology has to do with this but I am always open to gettin’ schooled on it!

          • Major_Freedom says:

            1) Actually Stirner does not propose “non-violence”. Yes, in his sole mention of any mention of Egoism making “society” possible, is a “Union of Egoists.” But he doesn’t go into any analysis or detail. His example is a bunch of young people playing outside on the grass in a jovial manner. But Stirner would NOT argue that he is duty-bound to “obey” a certain universal concept, such as “non-violence.” That is exactly what Stirnerism rejects. He rejected ANY and ALL universal obligations or duty concepts. He made it crystal clear that the only thing that limits the individuals “intercourse” in the world, is not any morality, or duty towards others, but only their power (which I believe Nietzsche lifted from Stirner in his work).

            Stirner advocated that he do whatever is in his power to do, and that implies killing people and taking possession of their wealth, if one can get away with it. Stirner himself, in his personal life, was actually very reserved, and some of his contemporaries even said he was courteous, and mild-mannered.

            But Stirnerism in practise doesn’t necessarily imply this. It COULD mean this, if the individual really does find his self-interest maximized by making non-violent choices. But if the individual finds it in their interest to wage war on the weak, if they desire to enslave others, then Stirnerism would in effect say “Go for it! Just don’t get caught!”

            2) Think of it as an absence of ALL universal oughts. Think about the implications of that. Think about rejecting “don’t murder”, and “don’t steal”, and “don’t rape”. Stirner is calling on everyone to recognize that these universal moralities are nothing but “gears in the head”. He said that at first man prostrated themselves under the gear “God.” At his time, he said that in man’s quest to escape from God, they started to think “Humanity” is the path towards freedom. But he argued that if “Humanity” is free, then the unique individual enslaved by that concept.

            To Stirner, only by recognizing the unique Ego as unbridled, subject to no universal concept or “gear in the head”, will that individual’s true freedom be had.

            3) Agreed, but the problem is that what if an individual does NOT want “society” or “civilization” as anyone else understands it? If Stirnerism is to be utilized, there is nothing in “The Ego and His Own” that would in any way suggest that this individual is “wrong”. He would only say do what is in your power to do.

            Regarding your last point, as far as I can tell so far, there is no way for praxeology to “refute” Stirnerism, because Stirner’s Ego is pure unmitigated creative activity, a la Fichte, the only exception that instead of a universal, infinite, eternal abstract Ego being the primary foundation, for Stirner it is instead the mortal, finite, limited, unique Ego.

            Praxeology is just the analytic study of activity. It isn’t a moral code.

          • Major_Freedom says:

            “Also, you’re in small company. I think there are maybe 5 of us that have read it. In the world.”

            I came across Stirner by reading Marx and Engel’s critique of Stirner in their manuscript “The German Ideology”, which I believe was published posthumously.

            Apparently this manuscript is widely considered as “the” definitive criticism, some would say demolition, of Stirner.

            But I’ve read it in detail, and I am convinced their critique falls flat. They showed they didn’t even understand it. Stirner wrote a reply to his “Critics”, but Stirner’s book itself is enough. As I read The German Ideology, the section on Stirner, I kept shaking my head thinking “That’s not what Stirner meant…”. And this was after having to sift through the sarcasm, name calling, you know, the usual Marx M.O. I felt I wasted my time a little at how poor their arguments were. I think they felt obligated to respond to Stirner because they recognized he was a big threat to their own theory.

            Marx’s essential point about Stirner is that his philosophy represents a symptom of German philosophy at the time, of being too passive, of trying to find freedom by merely thinking differently, whereas Marx thought freedom can only come through labor, through interaction with the world and taking control of it.

            But Stirnerism is not merely idealistic. It is very much a philosophy of “praxis” to quote Marx. Stirner devoted a large portion of his book to “My Intercourse”. I find it astonishing that Marx could have thought Stirnerism is purely idealistic. Yes, it is supposed to be a “new” way of thinking, but it is also a “new” way of acting. Marx attacked a straw man.

            Their other criticism was that Stirner’s Ego is, to quote Kolakowski, “barren by definition”.

            Kolakowski, in his book “Main Currents of Marxism”, supports Marx’s critique. His own criticism is even weaker though. Kolakowski claimed that Stirnerism has no qualms about a march towards fascism. His reasoning is that if the individual finds it in his self-interest to be a member of a fascist party, then because Stirnerism gives the thumbs up, it therefore implies that Stirnerism can imply fascism. But this is a non-sequitur. For Stirner’s philosophy is a philosophy of ALL individuals, separately of course, but excluding none. Thus, if an individual, or group of individuals, tried to enact a fascist state, then Stirnerism properly utilized would be for those intended victims of fascism to fight back in all their power, in the face of the fascists fighting in all their power as well in the other direction. Stirnerism does not obligate any individual to “support” fascism. It only says that if fascism is on the rise, every individual can use their power to fight back, or fight for it. Whatever happens, Stirnerism cannot claim is “wrong”. But to not call an outcome “wrong” is not the same thing as positively calling for fascism, or does it necessarily imply it.

            If the world were such that individuals were so Egoistic that they would not tolerate any other individual from ruling over them, not even a soft democracy style “representation” rule, then surely fascism would be difficult if not impossible to achieve. Fascism, I think, requires millions of individuals to do exactly what Stirner said is a “delusion”, namely, idolize the nationstate, dictatorship, militarism, and other “universal” concepts that are “gears in the head.” But it’s true, Stirnerism would have nothing to say against anyone who succeeded in establishing a fascist state.

            I believe it is this absence of criticism of states Marx did not like that most annoyed Marx. But if that’s really his criticism, then his own worldview collapses, because it would imply that Marx was advocating a morality when he called for Communism, instead of what he claimed it was, which was a law of nature, and inevitable. One who thinks Communism is inevitable is not being consistent by critiquing another’s absence of moralizing against a non-communist society, such as a fascist society.

  7. Ken B says:

    I watched that debate, and here is Bob declaring ” it’s only a flesh wound!” Well to rub a little salt — it helps healing, this hurts me more than it hurts you — update 2is not a testable prediction at all, it’s a vaguery about understanding. Similarly, what about the “confusion” is testable?

    • Bob Murphy says:

      Well to rub a little salt — it helps healing, this hurts me more than it hurts you — update 2is not a testable prediction at all, it’s a vaguery about understanding. Similarly, what about the “confusion” is testable?

      ?? He asked for two distinct things. First, he wanted a proposition that Austrians believe yet non-Austrians don’t believe. I gave him two. (In the second update.)

      Then, he wanted a testable proposition that we can know with certainty, before looking at the data, in order to see if this “Austrian” idea made any sense. I pointed out that there is no such “testable” proposition because he’s misunderstanding the Austrian position.

      From now on, I’m going to insist that your arguments are all magenta, Ken. And if you get exasperated and say that makes no sense, I’m going to say to the crowd, “Well, looks like Ken B. can’t answer my simple request, to show me a magenta argument.”

      • Ken B says:

        These are not proposition in economics Bob. “Physics is more mathematical than semiotics” is not an assertion in physics. You talk about confusion and certainty; economics is not the study of confusion or certainty.

        • Samson Corwell says:

          It’s often confused, though!

          • Ken B says:

            The most confused are often the most certain.

          • valueprax says:

            Of course this stunning insight doesn’t apply to you, Ken B. You never demonstrate certainty.

        • Major_Freedom says:

          “Economics is not the study of confusion or certainty.”

          Action implies uncertainty. For if we were all certain about the future, we would know the future, and if we would know the future, action would become incomprehensible. We would be absorbed into determinism and lose self-consciousness.

          • Samson Corwell says:

            I don’t know where you get that from, but action in no way implies uncertainty.

            • Major_Freedom says:

              Of course action implies uncertainty.

              You have to think about it more by reading more praxeology material. Part of being a praxeologist is adding your own contributions to it.

              The reason action implies uncertainty is through setting up the opposite, and finding that it leads to a contradiction of action.

              The following is a summary of course, but imagine that every “actor” had perfect foresight of the future. What would that really mean? It would mean that they will know exactly what not only will happen “out there” in the world, but it would also imply that they know exactly what they will do themselves. It would be like, and try not to take this too literally, but it would be like you actually living the life of Luke Skywalker but intellectually being George Lucas. Imagine yourself becoming Luke. If you’re Luke, then your “story” is set. Imagine you started out as Luke as a teen on Tatooine. Since you have perfect foresight, and no uncertainty, it would mean that, cognitively speaking, in considering this, there is NOTHING you can do to do anything else other than go through the story of Star Wars as it was written. On the one hand, it is correct to argue that you would know exactly what, when and where everything ahead of you will transpire. On the other hand, since Star Wars is a story of history, it is also correct to argue that you would not know that Leia was your sister prior to and during her kissing you. You would not know that Vader is your father. This is also a valid argument because in order to BE Luke, you have to think like him, and to think like Luke means to NOT know the future exactly.

              So we have an antinomy. We have two plausible arguments about what is implied in a world where you as an actor have perfect foresight of what would happen, both in terms of events, and in terms of what people think and when they think it.

              Remember, history is one where we learn over time. Prior to knowing something, we obviously don’t know it.

              What I argue is the meaning behind this antinomy, is that action cannot be regarded as implying anything other than uncertainty. As actors, the idea of having perfect foresight would have the effect of us cease being actors. We would become a part of “mechanical” processes. We would be “absorbed” into the cause and effect aspect of the universe.

              Action is a point of departure from pure cause and effect mechanics. We cannot coherently regard ourselves as causally determined.

              Since it is only in causal mechanics that pure certainty would even be in the ballpark of analysis, the fact that action is NOT subject to any constants of causality (see Mises), it means that the only other alternative is UN-certainty.

              Thus, action implies uncertainty.

              Again, the above is a summary, but it gives you the main points.

          • valueprax says:

            You don’t seem to get how he is using the words because you don’t seem to spend much time studying Austrian economics/praxeology, despite trolling this blog, so it makes sense why you’d say something like that.

      • Ken B says:

        Just to be clear about magenta. I think it’s perfectly ok for blog owners to legislate color.

    • valueprax (@valueprax) says:

      What if it wasn’t just the case that Murphy THINKS Ken B makes no sense, but in reality independent of Murphy’s mind it was ACTUALLY the case that Ken B makes no sense?

      I wonder what would happen then… woah… trippy.

      • Bob Murphy says:

        No, we create our own reality. I’m just furious with myself for creating Ken B.

        • Ken B says:

          Think how I feel, creating Valueprax.

        • valueprax says:

          I’m a real disappointment as far as figments of Ken B’s imagination go. And I am truly sorry for that!

    • Bala says:

      Why is only that which is testable science?

      • Ken B says:

        Why is only that which walks on two legs bipedal?

        • Bala says:

          Interesting response that demonstrates a hijacking of science.

          • Ken B says:

            I’m sorry, I forgot you guys classify pseudoscience as a type of science. In that case you’re right; no empirical tests are needed.

            • Major_Freedom says:

              Empirically prove that a physical law that is supposedly valid in the past, must also be valid in the future.

              If you claim that this is not necessary for empiricism to itself be valid, then congrats, you just opened the door for empiricism to be a relic of history, and not an a priori valid approach to learning truths about the universe.

              There is no content to your assertion of “pseudo-science” other than it is just an assertion. If someone told you that empiricism is pseudo-science, it would on an equal argumentative footing.

            • Bala says:

              And while all Austrians are busy practising their pseudoscience, Ken B is going to engage in really mind-blowing scientific testing of economic propositions where he is going to collect empirical data related to the counterfactuals that are inherent to economic reasoning.

              He is going to test the Austrian explanation of the distortionary effect of a particular intervention on price by empirically measuring prices as they are after the intervention and prices as they would have been in the absence of the particular intervention. He is going to observe the parallel universe that doesn’t exist and come up with the most comprehensive demonstration of the truth or falsehood of the Austrian approach.

              Man! Am I excited!!!

              • Major_Freedom says:

                LOL.

                Then if we’re living under Fascism Ken B is going to prove laissez-faire capitalism is worse by collecting observable data.

        • Major_Freedom says:

          Ken B is on a mission to convince the science faculties at universities around the world to remove mathematics.

          Hahaha

      • valueprax says:

        Here’s my question that I never hear people like Ken B or DK or others answer: why is the evidence of logic less valuable than the evidence of empirical observation?

        If something was logically true but empirically false, why would we reject the logical evidence rather than our interpretation of the empirical evidence?

        Is there an empirical test for the logical conditions of science?

        I am not sure I worded that last bit correctly so I’ll try again– the scientific method is a logical construct, isn’t it? No one used the scientific method to discover the scientific method. They came up with it logically and then started applying it to the phenomena of the world around them.

        Okay, so, if logic is good enough for establishing the authority of the scientific method, why isn’t it good enough for establishing the authority of economic theory?

        • Ken B says:

          “why is the evidence of logic less valuable than the evidence of empirical observation?”

          Whoever said it was?

          • Bala says:

            You did. How do you plan to pretend that you did not?

            • Ken B says:

              You confuse difference and value.

              • Bala says:

                I do not. When you say that propositions developed through reasoning must be testable based on empirical evidence, you have let the cat out of the bag. Maybe you should stop pretending.

              • Ken B says:

                When have I ever said that the proof of the Analytic Function Theorem requires empirical proof? I haven’t, so your claim is false. Laughably so.

              • Bala says:

                Ha Ha Ha!! Who was it (apart from David Friedman) that kept insisting that being testable was the ultimate requirement sound economic theory must pass?

                OK! I was wrong. You should keep pretending. It’s far more hilarious.

        • valueprax says:

          That’s what seems to be implied here, but instead of trying to mess with my head by turning this into The Hunt For The Red Logical October, why don’t you just explain my confusion away by telling me what you actually meant, rather than what I thought you meant?

          • Ken B says:

            I’m not sure what you guys are on about. Are There are lots of logical arguments that everyone — except the religious, who carve out exceptions — accepts and uses. Most of what we do based on science is based on logical deductions from a few premises. For example, a routine thing in studying physics is to derive the elliptical orbit of the earth from the gravitational law applied to 2 point objects. So to suggest that the observation that science is an empirical discipline tethered by observational tests implies its a rejection of logic and reasoning is false. To conclude that because scientists reason they do not rely on empirics is likewise false.

            • Bala says:

              So to suggest that the observation that science is an empirical discipline tethered by observational tests implies its a rejection of logic and reasoning is false.

              But to insist that observational tests must be used even in fields of study (economics being one) where such observational tests are fundamentally incapable of providing any assistance in evaluating theory is to have succumbed to scientism. So, the only falsehood out here is that which is coming from you.

          • valueprax says:

            Ken B,

            I am not sure what you’re on about now. Maybe you didn’t understand from what I said, what I was hoping you’d understand?

            Here is what I was hoping you’d understand:

            Imagine a situation where logic dictates X, but empirical evidence dictates Y. (this would be certain economic phenomena, according to certain schools of thought?)

            My question is why we reject X as valid evidence derived from logic and put Y on a pedestal because it came from an empirical “experiment”.

            I am not saying empirical science is a rejection of logic, and I am not saying reason is a rejection of empirics.

            Rather, what I am saying is that because both reason and empirics are studying the same reality, their findings should correspond. They should be consistent, not contradictory.

            And to the extent they do not, we should wonder, “What the hell is going on here?”

            But instead, some people go, “To hell with the logic, empirics wins the day!”

            Why is that okay to do? Why is empirical evidence more valuable than logical evidence in such a situation?

            For an analogy:

            I am a space man visiting a new planet. I have two O2 gauges. One of them reads “Safe — plenty of O2!” the other reads “Toxic — Not enough O2!” What would lead me to reject one gauge’s reading over the other?

            I can already see how it’s a bad analogy, so please don’t get hung up on my inability to create witty analogies (and if anything, help me out in improving mine)… but maybe we have gauges that were made by different companies, or they sampled the air differently, I don’t know.

            My point with the analogy is to wonder how we’d determine that the evidence of one gauge can be safely ignored when, if we assume both of the gauges work and they accurately reflect the state of reality, we would assume they should both give out the same reading.

            • Tony N says:

              I think to improve the analogy we need to allow the logic-based gauge to measure everything, including other gauges. It would be this totally awesome, super duper universal gauge. So if there are conflicting readings, you should apply your logic gauge to the data gauge to gauge its gauginess. If your logic gauge detects a problem with data gauge, then you recalibrate your data gauge and measure the O2 again. Maybe the data gauge’s reading changes a la the OPERA experiment.

              If the logic gauge can’t detect a problem with the data gauge then you should make no changes and measure with the data gauge again and again and again. If the data gauge’s reading remains constant than you need to recalibrate your logic gauge pursuant to the readings of the data gauge a la the double split experiment.

              I know. It’s problematic in theory.

              But maybe this exposes the rub. Logic and empiricism aren’t separate magisteria in the non abstract world. They inform each other, with logic making sense of data, and data largely shaping what is and isn’t logical. These are instruments that calibrate each other. I don’t think they work very well as separate, distinct instruments.

            • valueprax says:

              Tony N,

              Thanks. I was trying to avoid one of my gauges measuring O2 based off of “logic” because that was too blunt but this still seems like an improvement over my original analogy because now one gauge is used to measure all other gauges.

              I am not sure if you are agreeing with my concerns above or repudiating them, though.

              I’m trying to wrap my head around what you mean by how they inform each other. Could you give me an example (or another analogy!) of how empirical evidence could shape logic?

              • Tony N says:

                “I am not sure if you are agreeing with my concerns above or repudiating them, though.”

                I’m not sure either, valueprax. Hah.

                Anyway, as far as empirical evidence shaping logic (and I’m leaving the office in a hurry, so I apologize if I’m not clear in the following): I think experience is the most basic form of empiricism. Same root, after all. If it is illogical to expect to roll around in an ant pile and not get bitten, it’s because experience has taught humans that rolling around in ant piles pisses ants off and makes them bite. It’s not that we expect ants to bite a priori. Surely, most basic if-then statements make sense because we have seen the if- then in action. After all, cause and effect are real world phenomena that we experience, and both together are the core of logic. So, in that sense, I think empiricism substantially determines the parameters of logic.

                Also, I think the double-split experiment is a good example of strict, physical experimentation turning an axiom of physics on its head. Prior to that experiment, anyone who expected an outcome based on the notion of matter existing as both wave and particle–and, better yet, existing everywhere at once– would be accused of expecting an illogical outcome. But now we know otherwise.

              • valueprax says:

                Hmm, okay. I don’t know the double split thing but going off what you’re saying, I think my response would be that once we have a better understanding of the empirical reality, we would be able to arrive at a logical statement that is not contradictory of this evidence and is also not contradictory of the rules of logic itself.

    • Bala says:

      More fundamentally, why does only that which is testable adds to our knowledge of reality?

      • Bala says:

        *add

        • Tony N says:

          valueprax,

          I think we agree here. And forgive the typo, it was meant to read double “slit” experiment. But you hit the nail on the head when you say that what we observe in terms of an empirical reality enables us to arrive as workable logical statements. That’s the linkage I’m talking about.

          • Ken B says:

            I knew it was a typo but I feared you had gone full Landsburg and cited the double slut experiment.

            • Tony N says:

              I think I’d like to participate in that one!

  8. valueprax (@valueprax) says:

    Publicly eating a bit of crow here for people in the audience:

    I was contacted offsite and informed that SFL and this conference are not Koch-funded. I “could’ve sworn” I read that one or the other were and I don’t feel like looking it up now so I’ll jUST take my source as reliable on this and admit a mistake.

    Next, I was told that SFL is big tent and while anarchists are not a majority, they aren’t a small group either. So it was wrong of me to assume I wouldn’t meet any solid thinkers like that.

    Also for the records I like David Friedman and learned a lot from his machinery of freedom book and so when I said I missed an opportunity to slam him I meant it in the sense of intellextual combat. Not a gotcha opportunity to make him feel bad or besmirch his quirky reputation.

    I will echo Murphys request that Friedman try reading some o the Austrian literature before acting like he’s confused as to why were so defensive about our place in the world.

    And finally, if all that separates us is epistemology then doesn’t that make us an epistemological school, not an economic one? And same for the other guys?

  9. Samson Corwell says:

    You sure people always respond to incentives? Because I’ve know types that really just don’t give a crap either way.

    • Bob Murphy says:

      You sure people always respond to incentives? Because I’ve know types that really just don’t give a crap either way.

      I’m trying not to respond to the incentive you’ve given me, right here.

      • Ken B says:

        Obviously some people don’t respond to some incentives sometimes. They might require a threshold for instance, or be asleep. So cases like that don’t refute the claim. But surely if we have persons B, a lot of them, who are consistently offered significant incentives we should expect them to behave more and more in line with those the higher they become. A greater level of the incentive should elicit a greater response. Would you agree Bob, and isn’t that testable?

        • Bob Murphy says:

          No, you are missing the point entirely Ken B. It’s almost as if you have an incentive to do so.

          If you are interpreting someone as an acting being, then that implies the person is responding to incentives. If you keep offering more money and elicit no response, it’s because money isn’t an incentive to that person, or because you haven’t offered enough.

          • Ken B says:

            I get that Bob. I confess I have an example in mind. But there is still the problem of identifying these postulated internal mental responses with things in the real world that you assert act as incentives. You identify these definitional incentives with real things when you talk about economic reality. You do talk about prices.

            It’s like Euclid. He defines a straight line as the shortest distance between two points. His conclusions based on that are solid. What is not is the idea that what we think of as a straight line is really the shortest distance between two points in space.

            • Major_Freedom says:

              “But there is still the problem of identifying these postulated internal mental responses with things in the real world that you assert act as incentives.”

              If you are not implying that it’s possible for an actor to respond to incentives in a vacuum, then the problem you are addressing is not critical to the original proposition about incentives. You’re talking about how we can go about identifying what is serving as an incentive, not whether or not people respond to incentives at all.

            • Keshav Srinivasan says:

              That’s definitely not Euclid’s definition of a straight line. Defining a straight line as the shortest distance between two points would have made no sense to Euclid, because unlike later mathematicians like Archimedes, Euclid did not believe that the length of a straight line and the length of a curved line were comparable magnitudes. He saw them as being as different from one another as they are from the area of a square. Euclid defines a straight line as a line which “lies evenly with the point’s on itself”, a rather vague definition based on the intuition that straight lines stay level as you move along them.

              Euclid did, however, prove what we would consider a special case of the fact that the shortest path between two paths is a straight line, namely the triangle inequality which is Proposition 20 of Book I.

              • Ken B says:

                Substitute any modern introductory text on Euclidean which is formulated in terms of that axiom. The point isn’t about which Greeks thought lengths comensurate.

    • Bala says:

      Maybe the thing they didn’t give a crap about wasn’t an incentive.

    • Major_Freedom says:

      They were given the wrong incentives.

    • valueprax says:

      Indifference curves!

      Indifference Economics: “Meh, I guess I’ll do this…”

  10. Michael Duff says:

    Ah David Friedman, cock-blocking libertarians since 1968. The statist team is up by 70 points in the 4th quarter and team libertarian is stuck in the huddle, convinced that they can’t run a play until they all have their shoes tied exactly the same way.

    • Bob Murphy says:

      Michael Duff I’m not sure if you’re making fun of me too, but I don’t care, that was hilarious.

      • Michael Duff says:

        Bad news is, Team Blue scored another touchdown while we were arguing, bringing the score to 77-0 with 10 minutes on the clock.

        HOWEVER, we do have some progress on Team L. David Friedman is now willing to consider the possibility that Bob ties his shoes in the proper way, but is still upset that Bob performs the procedure with his eyes closed.

    • Gamble says:
      • Michael Duff says:

        Thank you. No sarcasm. No BS. Thank you.

        • Gamble says:

          You are welcome. I hope to regroup and win one someday.

  11. Michael Duff says:

    I have such respect for both of you, but I get so frustrated watching threads like this. This isn’t an honest disagreement between two contrasting philosophies. David just likes to use debating tricks and watch earnest people tie themselves in knots.

    I remember watching him humiliate the faithful in humanities.philosophy.objectivism back in the day. He came up with a perfectly-formulated conundrum that exposed a weakness in Rand’s theory of ethics.

    I chased the rabbit for a while, then was smart enough (or maybe just humble enough) to give up and admit defeat.

    I threw up my hands and said, “Fine! You win! Rand can’t solve this problem. So what’s your solution?”

    But David didn’t have a solution. He wasn’t interested in solving the problem, he just wanted to show the Objectivists a flaw in their philosophy.

    That’s when I realized David is not a philosopher. He’s more like an anti-philosopher or maybe even an anti-economist.

    He’s not selling any kind of grand alternative theory, but he can destroy any preconception that you’ve got in your head. And he doesn’t seem particularly interested in using these powers on statists, socialists, or garden-variety Democrats.

    He spends his days destroying other versions of libertarianism, explaining precisely why libertarianism won’t work. He’s not arguing for statism, of course, but he’s done more to destroy libertarian ideas than anyone I know.

    Young idealists come into the movement through Rand or Mises, then they encounter Friedman and walk away believing nothing at all. God knows what kind of toxic crap takes root after that.

    • Major_Freedom says:

      If possible, could you cite or explain this exposing of a hole in Rand’s ethics? This is something I would be interested in reading…

    • Bala says:

      He came up with a perfectly-formulated conundrum that exposed a weakness in Rand’s theory of ethics.

      Was it the one about spiders?

      • Bala says:

        MF got it right. It was about the mantis.

    • Major_Freedom says:

      If all one did was critique other ideas, that isn’t necessarily an impoverished approach. Some philosophers have made some pretty compelling arguments that the right approach is criticism, and criticism only.

    • Ken B says:

      So let me get this straight. David isn’t interested in honest debate, he just goes around convincingly refuting mistaken theories, as if that we’re a contribution.

      • Michael Duff says:

        I don’t want to be a jerk about it and imply there’s some kind of dark motive here. But most people, when they argue, are arguing FROM somewhere.

        Even if they’re just asking questions, they have some kind of alternative theory in mind.

        That is not necessarily true of David. He’s not asking questions to lead you to some kind of alternate solution. He just wants to expose why you’re wrong.

        And he’s so damn good at it, it actually makes him kind of dangerous. He can destroy convictions that you’ve held for years, but he offers nothing to replace them with.

        That technique can be really dangerous when used against college students or young people just starting to care about economics.

        Because there’s a whole world full of powerful people ready to fill that gap with progressive ideas. And Blue Team has a LOT of pretty girls on it.

        • Major_Freedom says:

          Friedman’s book “The Machinery of Freedom” seems to be a positive case that you say is lacking in his body of work…

          • Michael Duff says:

            MoF is a great book and David Friedman is a great mind, but he loves to lead people down rabbit holes, and I am just tired of watching libertarians chase rabbits, while the larger culture is crumbling around us.

            David is a pretty strict utilitarian. I guess you can call that a positive point of view (no pun). But in practice I don’t see him as an advocate for utilitarianism so much as a critic of any form of libertarianism that tries to come from another place.

            I groan out loud when I see my favorite writers (Bob) tangle with him because it’s like watching a friend get caught in a Chinese finger puzzle.

            He’ll spend hours trying to get out of it, commenters will spend hours trying to think their way out of it, but in the end, it doesn’t lead to a greater understanding of anything.

            It’s just a debaters’ trick that can be used against anybody who believes in anything.

            • Michael Duff says:

              In response to David’s correction below…

              Machinery of freedom is a series of utilitarian arguments for libertarianism although he would not use that word to describe himself.

              This is part of what bothers me about his work but I think I’ve done enough Friedman bashing for one day.

            • Major_Freedom says:

              If you assert that Friedman is positively advocating for Utilitarianism, then you can’t also assert that he is advocating for no positive worldview.

              You’re saying two mutually incompatible things. Either he advocates for a positive worldview (i.e. Utilitarianism), or he doesn’t (i.e. no Utilitarianism).

              • Michael Duff says:

                It’s actually a bit more complicated than that.

                MoF is full of Utilitarian arguments but David is not advocating for Utilitarianism.

                I was very pleased to see his post below, where he finally explained what he is trying to accomplish with these questions for Bob.

                I wish he would do this every time.

                And you’ll notice, in his explanation, he is not arguing in favor of a contrasting POV.

        • Samson Corwell says:

          Methinks someone can’t take what they dish out.

        • Samson Corwell says:

          Are we talking about contemporary progressives or ye olde progressives? Because I think some of the original progressives were admirable (i.e., Louis Brandeis).

    • RPLong says:

      This is preposterous. To ignore a hole in logic or theory just because you’re cheering for libertarianism is sloppy, irrational, and unacceptable. Friedman does us all a service by insisting that we bring more to the table than ideas that only *almost* prove workable.

      Is it your position that [insert name of libertarian philosopher here] has provided all the important answers even despite holes in their reasoning?

      • Michael Duff says:

        No, of course not. But Friedman’s attacks are often so obscure, so precise, and so limited in context that they make it harder to understand the core concepts.

        I worry about libertarian philosophy discussions that degenerate into argument for its own sake, to the point where it alienates students and potential converts.

        The Murphy/Friedman debate is an unfortunate example of this – two brilliant people talking past each other, to the point where it actually works against the core mission of educating the public.

        And on the subject of “ideas proving workable” I’ve become skeptical of this whole process as I’ve grown older.

        Winning the debate on the Internet doesn’t make your ideas work, and losing the debate doesn’t necessarily make you wrong.

        The guy who wins the argument isn’t always the guy with the best ideas. Sometimes he’s just really good at debate.

        In fact, I’d say our whole modern world is the result of smart people winning arguments with ideas that don’t work.

        Larry Summers has never lost an argument in his life, but he’s wrong about damn near everything.

        I’d love to see Murphy vs. Krugman, of course, but I’d pay serious money to see Summers vs. Friedman.

        • RPLong says:

          “the core mission of educating the public.”

          I think that’s probably where our disagreement lies. You think the core mission is educating the public; I think the core mission is truth.

          I agree that such debates should be had in the correct forum, i.e. some ideas should be pursued academically by academics, and some ideas ought to be agreed upon and promoted by people who promote. But Friedman is an academic. To fault him for being an incredibly good one seems a bit unfair.

          Criticisms like his advance the discipline. That’s important.

        • valueprax says:

          I think you’re misreading him.

          My guess is the accuracy of what he educates the public with is important to him.

          But he also recognizes that diving deep into philosophic minutiae with the man on the street will probably lead to LESS understanding of what is known about the truth, rather than more.

          And because David and Bob are arguing about this stuff publicly, rather than trying to hash it out in some private place in and ivory tower, there is an opportunity for propagandist passersby to take this dispute as evidence that all of libertarianism is full of shit and use it to mislead and confuse people when we actually know a great deal about a lot of this stuff.

        • Samson Corwell says:

          How can something be simultaneously obscure and precise?

    • Tibor Mach says:

      So are you suggesting it is better if people argue for things that are false? Or is it better if people consider some things perfect just because they (in fact) are “the least wrong”? I doubt that. I consider myself a libertarian. But I don’t like libertarians who like to pretend that there are no problems with libertarianism…perhaps because they feel they either need to have a perfect philosophy or nothing. I don’t think this is the case. The world, life and everything is complicated. I don’t think we can really have a perfect theory. Libertarianism comes better of (in my view) than other worldviews, but still I can admit there are imperfections. It is not a reason for me to reject it as a whole, because I don’t know of a better alternative. But if you just try to “hide” the imperfections so that they don’t “poison” people’s minds and (sic!) make them perhaps doubt that libertarianism is the one and only TRUTH, I think you are making things worse rather than better. You may end up with few more libertarians, but at the same time, these evangelical libertarians may as well convince a lot of intelligent people that libertarians are a sect of true believers who really don’t take any effort in thinking about it thoroughly and accept a dogma instead (…just like a lot of objectivists).

      So I would argue that on the contrary David Friedman with his constant questioning of both things other than libertarianism and libertarianism (and therefore his own views) itself does a better service for the libertarian “movement” than any libertarian “evangelist”. If you don’t examine your own views (whatever they are), they cease to be based on reason and logic and simply become a religion.

      • Tibor Mach says:

        better ofF… I should read it before posting it next time (possibly more typos still there, sorry for that)

  12. Matt Tanous says:

    I like Walter Block’s story about his graduate work on rent control at Colombia. His professor (not an Austrian) basically told Walter that any econometric tests showing that rent control actually improves housing quality (the opposite of Walter’s thesis) can not be correct. Rent control, the professor intuitively knew, harms housing quality.

    Something tells me that Professor Friedman would have much the same response. If not… I’m going to Chicago, my friends, to use some econometric tests to disprove all of the Chicago-school theory. =P

  13. David Friedman says:

    “He’s not selling any kind of grand alternative theory, but he can destroy any preconception that you’ve got in your head. ”

    At this point, shouldn’t you be offering me a glass of hemlock?

    I have views of my own and have explained them at considerable length, in print, including two books on economics and one on its application to law. You even linked to an explanation of my view of moral philosophy from my online arguments. If your complaint is only that I don’t argue for views that can be summed up and defended in a few appealing sentences or pretend to be able to prove things I can’t prove, including a “grand alternative theory,”I plead guilty.

    I prefer to argue for views that I believe are correct.

    • Michael Duff says:

      Of course not. I think we’re both old enough now that we have to stick with Diet Hemlock.

  14. Peter St. Onge says:

    On money: Inflation is a function of intersection of Ms and Md, rather than “push” from costs. The proposition does not need to be tested, though you might enjoy testing for elasticities in a given moment.

    On money: Any good that shares any feature of money (durability, fungibility, etc) is a money substitute. Thus Md is influenced by gold, bonds, houses, Renminbi, etc. Again, elasticities are fun to test, but the relationship is self-evident if we understand Md is based on features of money as a good, not on magic money shrouds.

    On cycles: Below-market interest rates lead to malinvestment. Non-Austrians believe that below-market interest rates lead to healthy growth, and coincidentally investors sometimes go crazy (Minskyites believe below-market rates make investors crazy). I do not need to test to know that 0% interest will lead, cet par, to a great deal of physical capital that will subsequently need to be closed or expensively repurposed. I might still like empiricals to try and identify which physical capital will go, but I don’t need to test whether it exists.

    On competition: Because prices are subjective, a more expensive product can defeat a cheaper product only if customer subjective valuation of a incremental features outweigh subjective valuation of incremental costs. This being a self-evident proposition, it need not be tested. Like money elasticities above, it might be useful to empirically test elasticities when making a strategic decision.

    I could literally go on all day. The thread is our apodictic models of how people price options, while mainstreamers are Groundhog Day rediscovering anew each day this thing called humanity.

  15. David Friedman says:

    Speaking as an economist, I don’t think diet hemlock makes a great deal of sense.

    “David is a pretty strict utilitarian. ”

    Could have fooled me. Try looking up “utilitarian” in the index to _Machinery of Freedom_.

    Robert offers two propositions to answer my challenge. I think I agree that the first is one that non-Austrian economists would be unlikely to agree with–certainly I would be. Perhaps the next time we encounter each other in realspace he can explain why he thinks it is true. As to whether most Austrian economists agree with it, that goes beyond my area of expertise.

    The second I’m not so sure of, in part because I don’t think anyone has a really satisfactory theory of the business cycle so don’t know what fraction of non-Austrians would reject that as a possible element of one.Also, macro isn’t an area I work in, which makes me reluctant to offer opinions about what people in the field would or would not consider possible.

    • skylien says:

      “The second I’m not so sure of, in part because I don’t think anyone has a really satisfactory theory of the business cycle so don’t know what fraction of non-Austrians would reject that as a possible element of one.Also, macro isn’t an area I work in, which makes me reluctant to offer opinions about what people in the field would or would not consider possible.”

      It is amazing. The most important question that economists try to answer since ages is still something even very knowledgeable economists*1 think isn’t solved at all!

      *1 Ok, you are the first one I see to say this, even if you are alone with this opinion, I still find it amazing and sad…

    • Rick Hull says:

      Let me preface this comment with an expression of gratitude for your appearance and responses here.

      > I think I agree that the first is one that non-Austrian economists would be unlikely to agree with–certainly I would be.

      Just so I’m understanding correctly: non-Austrians are unlikely to agree with #1, and you are unlikely to agree as well. Your agreement is limited to the expression of disagreement?

    • Keshav Srinivasan says:

      These posts may help explain the first one:
      consultingbyrpm.com/blog/2013/01/interest-does-not-equal-the-marginal-product-of-capital-even-in-equilibrium.html

      consultingbyrpm.com/blog/2013/01/why-wages-labor-is-not-like-interest-physical-capital.html

  16. RPLong says:

    Speaking from the sidelines, I think Friedman has the stronger position here. It seems far too coincidental that any time anyone asks a variant of Friedman’s question, Austrian adherents regress to the most fundamental tenets of economic science like “incentives” and “margins” and the Law of Demand and stuff.

    I think Mises had a really strong grasp on economics, and really interesting ideas on interest. I think his ideas laid the foundation for free banking, which is a remarkably important contribution to economics IMO. I think much of what Mises and Hayek wrote inspired the Chicago School, and the value of that contribution speaks for itself.

    But I don’t see any value in sticking to Austrian orthodoxy at this point. A good scientist draws value from all sources, provided they are relevant. I empathize with Austrian critiques of modern economic methodology, and I think that is another valuable contribution to the science of econ, but beyond that I think it would be best for everyone if the “Austrians” just started calling themselves “economists.”

    Even Boettke changed the name of his blog.

    • valueprax says:

      You have a fruitful sounding position here until we stop thinking about “Austrian orthodoxy” as “Austrian orthodoxy” and instead imagine the possibility that it represents “the real way to do economic science.”

      If it IS the “real way to do economic science” then we should continue along this methodological path and see what else we can learn about economics.

      If it ISN’T, then I agree, we should not only consider other claims but probably ignore the Austrians as cranks.

      • RPLong says:

        Right – I agree that the crux of the matter is being able to differentiate between Austrianism and not-Austrianism. But that’s not particularly easy to do, hence David Friedman’s questions.

    • Bala says:

      David Friedman is highly over-rated. His errors are so fundamental and obvious that I am surprised so many people miss it so completely. Maybe being too polite is not a good approach in intellectual pursuits.

      Exhibit 1 – His criticism of the Objectivist approach to the is-ought problem
      Exhibit 2 – His repeated insistence on the testability of economic propositions and on predictive power as the measure of correctness of economic theory.

    • valueprax says:

      Bala,

      Can you show us why these exhibits serve as evidence of the claim you make rather than assuming it is self-evident to us?

      • Bala says:

        I guess you would have checked out the link MF provided on Exhibit 1. Just go through the bit about the male mantis. He says

        The claim here, quite clearly, is that living things other than human beings automatically act for their own survival. That claim is false.

        And how does he demonstrate it to be false? Here it comes.

        A male mantis, for example, mates, even though the final step of the process consists of being eaten by the female. Female mammals get pregnant, even though (especially in species where the male does not help support female and offspring) doing so substantially reduces their chances of survival.

        Is David guilty of assuming that the male mantis and the female of many mammalian species are capable of forming the concepts he is implying that they are capable of? Is the male mantis mating even though it knows that it is going to be eaten by the female? Did it act purposefully knowing this consequence to be inevitable? Does that mean that it has the capability to form these complex concepts? Impressive stuff!

        Similarly, is he guilty of assuming that the female of many a mammalian species is capable of forming the concept of chance of survival and then act in the face of that knowledge?

        If this is valid and good criticism, heaven help us.

        On Exhibit 2, one needs to start with the proper methodology of economics and answer the key question of whether being testable and possessing good predictive power are the sole or most important yardsticks to evaluate economic theories.

      • Bala says:

        Actually, I did send David a mail many (maybe 7 or 8) years ago. Out there, I had strongly critiqued his entire criticism line by line. I am yet to receive an acknowledgement. That very fact makes him not too worthy of my respect.

        • Bala says:

          Sorry about that silly smiley. It was unintentional. I have no clue how it got there.

          • Bala says:

            That was (7 or 8 ). The lack of a space between 8 and ) made it that silly smiley :)

        • valueprax says:

          Interesting. Maybe you had behaved in a way before that that didn’t meet his needs and so he decided to ignore you. But it does raise my suspicions a noticeable amount when stuff like this happens.

          • Bala says:

            <blockquote<Maybe you had behaved in a way before that …..

            That’s impossible. I sent him just 1 mail – my critique.

      • valueprax says:

        Thanks. I noticed the same things. I just wanted you to spell them out to make sure we were on the same page and to avoid the criticism that you were “arguing from the self-evident” when the subject was contentious.

        Would love to hear David Friedman’s response and it’s funny, it seems to come down to use of language once again.

        • Bala says:

          Of course it comes down to language and the critical role played by concepts in knowledge and its acquisition. In fact, it starts with the very words know and knowledge.

    • Bob Murphy says:

      RPLong wrote:

      Speaking from the sidelines, I think Friedman has the stronger position here. It seems far too coincidental that any time anyone asks a variant of Friedman’s question, Austrian adherents regress to the most fundamental tenets of economic science like “incentives” and “margins” and the Law of Demand and stuff.

      Hang on a second. In the second update to the OP I gave two very specific examples of technical economic propositions, to explain why I think the Austrian School is special. In his response, Friedman said he thought r=MPK was fine, so that’s definitely a good example I picked (assuming we think it’s important to understand interest rates). I.e. if the Austrians are right, and most other economists are totally confused on interest/capital, that’s a big deal.

      The reason I stuck to really simple things like “people respond to incentives” or the people in David’s comments talk about the Law of Demand, is that we’re trying to pick something that all economists agree with, to then how it’s not empirical. There is nothing, even in principle, that would show “you can’t model prices with supply and demand.”

      So there were two things going on in David’s original post: He wanted to know what was special about Austrian economics, and then he wanted an example of an economic proposition that would could know without resort to empirical testing.

      • Bala says:

        Actually, the reason I picked on the Law of Demand was that the way Austrians present it (with the always) is something almost no non-Austrian will agree with – precisely what David wanted.

        • Major_Freedom says:

          Always empirically or always ceteris paribus?

      • RPLong says:

        Yeah, that is a fair point. I think your subsequent examples are good ones, Bob.

  17. Andy Katherman says:

    I think the problem with Friedman’s question is the premise that economic propositions must be testable/falsifiable or “predict” and coincide with the method of the natural sciences in the realm of epistemology. Economic history and/or forecasting are outside the body of knowledge that Austrians consider “Economic Theory”.

    I have an essay where I tackle the distinctive nature of the methodology that Austrians (and others Mises) adhere that does in fact differ from those in the positivist camp.

    http://www.libertyforlaymen.com/2013/09/austrian-school-methodology.html

    I gladly welcome critiques on this subject since it is important.

  18. valueprax says:

    For David Freidman/Bob Murphy,

    I am not really clear what Freidman was attempting to do here:

    a.) try to show that some Austrian “truths” are false
    b.) try to show that there is no substantial difference between Austrian “truths” and everyone else’s “truths”

    I am again returning to the idea here, which I hope someone will comment on, that maybe David Freidman’s point/The Point is this:

    “Austrian economics” is not an approach to economics but rather an approach to epistemology. And all other economics are similarly an approach to epistemology, not economics.

    Is that The Point?

    What is “economics” then?

  19. David Friedman says:

    “Just so I’m understanding correctly: non-Austrians are unlikely to agree with #1, and you are unlikely to agree as well. ”

    Correct. I think the interest rate is, among other things, the marginal value product of capital just as the wage rate is, among other things, the marginal value product of labor–just as P=MV=MC more generally. In all cases, the equality assumes the usual simplifying assumptions. The wage rate isn’t equal to the marginal product of labor if for some reason all employers are mistaken about what the marginal value product of labor is, similarly in the other cases.

    On the general question of macro. It isn’t my field but my conclusion long ago, as an observer, was that a course in macro is a tour of either a cemetery or a construction site. It’s an important problem but also a hard one, because it is a theory of disequlibrium–in some sense a theory of mistakes. That appears to be as much true of the Austrian version as of other versions. We don’t have good theories about what mistakes people will make–whether, for instance, employees will think job offers better or worse than they really are because of seeing them in nominal rather than real terms, or whether investors will assume the current interest rate is the long term interest rate because of not allowing for the effects of central bank activities, to take examples from two approaches.

    What I am attempting to do is to show one of two things:

    1. There is no sharp division between Austrian economics and neo-classical economics more generally, just differences in emphasis, so no proposition that almost all Austrian economists and almost no non-Austrian economists would agree with. That was my impression reading Menger and Marshall long ago, to go back to the beginning of the schools.

    2. There is a sharp division, and Austrian economics alone is either false or empty. By empty I mean unable by itself to tell us anything about the real world.

    One possible response is that Austrian economics can’t tell us anything by itself, but it is a tool that is then combined with facts about the real world to tell us things–with the combination labeled something other than
    “economics.” That response makes the “sharp division” purely a matter of labeling, with the Austrians using “economics” to mean what non-Austrians would see as part of economics, both groups in fact doing the same thing.

    I am pushing the point because there seem to be a lot of people, in particular a lot of libertarians, who think Austrian economics is sharply different, many of whom also think it is obviously right and alternatives wrong. As best I can tell, that belief depends on some combination of not understanding how non-Austrian economists work (imagining that they believe in blind curve fitting, which is nonsense), and not seeing what the limits would be to a pure a priori version of economics.

    • valueprax says:

      David,

      re: errors

      Have you read this paper by Guido Hulsmann in which he tried to approach the idea of business cycles as a theory of systematic error-making?

      (pdf) http://mises.org/journals/qjae/pdf/qjae1_4_1.pdf

    • Bob Murphy says:

      David Friedman wrote:

      Correct. I think the interest rate is, among other things, the marginal value product of capital just as the wage rate is, among other things, the marginal value product of labor–just as P=MV=MC more generally.

      David, then how do you explain the rental price of a capital good? Isn’t that equal to the marginal product of capital?

      Outside of very contrived settings (such as an economy with one good), don’t you think the interest rate and the rental price of a capital good have to be distinct concepts?

      I elaborate on those points at these two links (thanks to Keshav for digging them up):

      consultingbyrpm.com/blog/2013/01/interest-does-not-equal-the-marginal-product-of-capital-even-in-equilibrium.html

      consultingbyrpm.com/blog/2013/01/why-wages-labor-is-not-like-interest-physical-capital.html

    • Michael Duff says:

      I’m really glad to see this explanation of what you are trying to accomplish, presented in a form that students and random lurkers can understand.

      I wish both of you would do this more, to provide essential grounding for students at different levels of understanding who may wander by this blog.

  20. Gamble says:

    This entire argument/challenge is silly.

    I never knew about “Austrian Economics” but I did have many of my own ideas from simple living and owning/ operating a business. Also from reading the Bible. Yes I see the world through the tainted lens of the Bible.

    Then came time for me to find others who thought like I did. Many of them happened to call themselves Austrian Economist for some reason.Maybe Menger? I don’t really care that these people call themselves Austrians because they are allies in my war against statism.

    I have always known Austrian principles and ideas came way before Menger. You can find these ideas in the Bible. You can find these ideas expressed with hieroglyphs.

    Freedom and slavery existed long before Menger.

    Humanity is all about cult of personality. This is just the way it is. I try to align with cults that support Biblical ideas, even if these cults are unaware. I support the Bible because this book describes human action better than Mises ever did although Mises is a close second.

    Ecclesiastes 1:9
    9 What has been will be again,
    what has been done will be done again;
    there is nothing new under the sun.

  21. David Friedman says:

    “I do not need to test to know that 0% interest will lead, cet par, to a great deal of physical capital that will subsequently need to be closed or expensively repurposed.”

    That illustrates a point I touched on in my previous post. A 0% current interest rate does not have that effect unless investors assume that the interest rate will stay zero. If Austrian economics is correct, a rational investor ought to realize that the low interest rate is a temporary result of central bank manipulations, and make his investment decisions correctly on that basis. So Austrian business cycle theory depends on a particular assumption about what mistakes investors will make–an assumption that cannot be deduced from the axioms of human choice.

    • valueprax says:

      David,

      Even if every person in the economy knew what the government was doing (which they don’t, because they purposefully obscure what they’re doing) with interest rates and the money supply, because money is fungible no one would really have any idea “what part” of their economic activity, or anyone else’s, was the unsustainable part. It’d all get mixed up.

      It isn’t the case that the money supply expands by $50B, let’s say, due to the decisions of the authorities, and everyone can figure out which $50B of new economic activity is the unsustainable part.

      Meanwhile, it doesn’t really matter.

      Here is something Scott Sumner said (echoing your point about permanence) on EconTalk in March:

      That’s the quantity theory of money. But it only applies if the monetary increase is permanent. Because think about this. Suppose the Fed announced that we’re going to double the money supply for four weeks, and then we’re going to bring it back down to the original level. I don’t think there’s any quantity theorist on earth who would say: oh, the price level will double for four weeks and then it will fall back down to the original level. Because think about it: Would you buy a house that went up from $200,000 to $400,000 for four weeks and then drop back down to $200,000? Obviously not. No one would pay the $400,000. So, when you have a monetary injection, it’s not going to have much effect on the price level unless it’s expected to be permanent. And that means that what really matters when we set asset prices–house prices, gold prices, stocks, bonds–every asset out there is priced based on what people think the Fed will be doing in the future.

      The reason this doesn’t impact the way he thinks it does is that the Fed doesn’t instantaneously raise everyone’s money balances equally, and people don’t all increase their prices instantly in direct proportion. Cantillon effects and inevitable and that’s even ignoring the various subsidies (fees) that the money launderers… err… brokers in the finance industry… would be sweeping off the top along the way.

      WHERE that 100% extra money gets “injected” into the economy, first, would disrupt the previous pattern of exchange and production based off the previously existing framework of economic information carried by prices preceding it.

      • RPLong says:

        Even if every person in the economy knew what the government was doing (which they don’t, because they purposefully obscure what they’re doing) with interest rates and the money supply, because money is fungible no one would really have any idea “what part” of their economic activity, or anyone else’s, was the unsustainable part. It’d all get mixed up.

        It isn’t the case that the money supply expands by $50B, let’s say, due to the decisions of the authorities, and everyone can figure out which $50B of new economic activity is the unsustainable part.

        Can’t we say exactly the same thing about non-bubble conditions? Isn’t some part of EVERY macroeconomic quantity of money misallocated during acts of unsuccessful speculation, bubble or no?

        It seems to me that what you’re saying is that the exact quantity of malinvestment doesn’t matter, since the malinvestment itself is the real economic insight.

        But if we’re talking about something that may also be true in non-bubble conditions, then how do I know I’m looking at something ABCT predicted, versus something that just happens as a natural result of speculation regardless of business cycles?

      • valueprax says:

        RPLong,

        Good question. I think the answer is that money touches everything, whereas individual mistakes are… individual. I can make an error with just my capital and not cause a business cycle because most of the rest of what everyone else does isn’t a “mistake”.

        But if everyone’s decision making is being filtered through money prices and interest rates, and these are not accurately reflecting real scarcity and preference within that scarcity set because there are injections of new nominal resources, then everyone might make mistakes all at once.

        I think that’s what you were asking. But I am not sure because I don’t get what you mean by “macroeconomic quantity of money”.

        Incidentally, I think you’re kind of making the argument Krugman made where he was talking about the Hangover Theory: http://krugman.blogs.nytimes.com/2010/08/24/hangover-theory-at-the-fed

        • RPLong says:

          valueprax, I am doing my best to “out-valueprax valueprax” because I really respect the level of rationality you bring to discussions.

          Specifically, what I am saying is this:

          (1) Not all speculation is successful;
          (1a) Thus, some speculation is malinvestment;
          (2) ABCT predicts malinvestment during booms;
          (3) Speculation occurs during booms and not during booms;
          (4) Therefore, ABCT predicts something that is observed regardless of whether there is a boom.

          Logic suggests that if the hypothesis is P -> Q and we ALWAYS observe Q, then either P does not actually -> Q or P is occurring all the time, in every scenario. In either case, we have a bad theory because it doesn’t actually predict anything.

          …UNLESS the Austrians’ claim is that booms create more malinvestment than there otherwise would be. The only way to determine that is to agree upon a measurement and then measure it, and that’s a problem for ABCT because it’s an empirical test.

          Right?

        • valueprax says:

          Okay, I think I follow you a little more.

          First, maybe you typoed but speculation and malinvestment are square/rectangle issues terminologically. All malinvestment occurs as a result of speculation, but not all speculation is malinvestment. So your syllogistic chain doesn’t really make sense to me.

          Second, skipping all that I am jumping to your conclusion to respond:

          …UNLESS the Austrians’ claim is that booms create more malinvestment than there otherwise would be. The only way to determine that is to agree upon a measurement and then measure it, and that’s a problem for ABCT because it’s an empirical test.
          Right?

          The boom does create more malinvestment than there otherwise would be. And it creates systematic malinvestment. EVERYONE makes mistakes and they can’t NOT make mistakes. Why? Because what happens in the boom, because of the way the boom occurs, results in a distribution of goods that doesn’t correspond to patterns of voluntary production and exchange. If people were going to do what they do during the boom anyway, voluntarily, you would never need to implement the monetary policy that leads to those effects. (Like… if you were okay with the pattern of exchange that would occur in the absence of coercive violence, what need do you have of implementing it?)

          But to your last point, no, it doesn’t have to be empirically measured to be verified.

          Just like I don’t have to “empirically” verify that government regulation X leaves society net worse off by interviewing everyone and trying to query their value scales. It is implied in the logic.

          Here is the logic:

          If left to their own devices, A and B will exchange in a certain way based off their respective value scales.

          If they are threatened with violence, A and B will exchange based off of someone else’s value scale.

          If A and B saw the other person’s value scale as better than their own, then they would just exchange that way. And then the third person would never have to threaten them with violence.

          The fact that they don’t exchange the way the third party wants them to, logically implies they will be worse off if they are forced to exchange this way versus the way they would exchange without being forced.

          • RPLong says:

            I didn’t make a typo. I didn’t say ALL speculation was malinvestment, I said SOME of it was. And I think that’s uncontestable, right?

            So the relevant question is only whether there is “surplus” or “systemic” malinvestment.

            We know that we always observe malinvestment, so if the test were ONLY a test for the presence of malinvestment, we would not be able to know whether we are in a bubble.

            Thus, to know for sure whether or not we’re right, we have to see more malinvestment than we would ordinarily expect. That requires some empirical measurements.

            I understand ABCT and I am sympathetic to its story. But it is insufficient to simply declare that ABCT happens and that actual observations are beside the point. There is only so far you can take the whole, “But you’re ignoring THE UNSEEN” reasoning.

            Sooner or later we have to make our beliefs pay rent, right? So how do we make ABCT pay rent?

            • valueprax says:

              (2) ABCT predicts malinvestment during booms;
              (3) Speculation occurs during booms and not during booms;
              (4) Therefore, ABCT predicts something that is observed regardless of whether there is a boom.

              ABCT doesn’t “predict” speculation. It “predicts” systematic malinvestment.

              But again… I think you’re in this mindtrap because you’re insisting on using the word predict. Predict is like something concrete it sounds like.

              But ABCT doesn’t “predict”. It describes a general causal relationship. If X, then Y.

              It doesn’t say how much or where or what it looks like or smells like, etc.

          • valueprax says:

            I’m not really sure why you think this belief isn’t paying rent. I don’t understand why it’s “insufficient”?

            Why can you only take “the Unseen” so far? How far is that?

            You aren’t really communicating to me why you don’t think this is enough. Maybe you misunderstand what theory can and can’t do for you?

            I guess if I were to flip it back at you I’d ask how you’d be able to understand the observed phenomena of a real, live bubble, without a pre-existing mental framework for understanding how the various elements interplay?

          • valueprax says:

            BTW, if we’re working with the Less Wrong terminology (is that where you got “pay rent”), I guess I think you’re wrong about how you’ve interpreted what it means for something to pay rent. And the reason is again the epistemological thing… you think all knowledge pays rent in terms of what and how it can predict, the same way.

            I don’t think that’s true. With your typical physical relationship, for example, you can pretty well isolate the thing you want to study and see if it pays rent.

            I don’t know how you isolate an economic relationship. How do you hold all else equal and just test/measure what you want to test/measure and nothing else?

            • RPLong says:

              ABCT doesn’t “predict” speculation. It “predicts” systematic malinvestment… It describes a general causal relationship. If X, then Y.

              Then ABCT is even weaker than I thought. If ABCT describes a causal relationship between X and Y, but Y is observed in cases when X is not observed, then ABCT does not describe much about Y at all.

              Why can you only take “the Unseen” so far? How far is that?

              What I mean is that it’s a handy conceptual tool to illustrate e.g. the broken window fallacy, but it can only go “so far” because even in the broken window fallacy we can actually see the “unseen.” If something truly is UNSEEN then either we’re not seeing or it doesn’t exist. And the longer it remains unseen, the less likely we should consider its existence. Right?

              I don’t know how you isolate an economic relationship. How do you hold all else equal and just test/measure what you want to test/measure and nothing else?

              You’re right that it may be difficult to do this. But this doesn’t make a particular theory true.

              I guess if I were to flip it back at you I’d ask how you’d be able to understand the observed phenomena of a real, live bubble, without a pre-existing mental framework for understanding how the various elements interplay?

              I agree with your epistemology, and I want to agree with ABCT. My problem is that the way it is described by its adherents leads me to believe that it cannot be relied on to make coherent predictions. This is why I mean by “pay rent,” I mean that if I believe X, then that belief should change my expectations for future observations, and if those observations are inconsistent with X then I have to reject X.

              The problem is that I seem to observe Y regardless of what I believe about X. So of what value to me is X? What is X actually telling me?

              • Hank says:

                What did you observe?

                If you made an observation somehow invalidates ABCT, then please share.

                I think, a true Austrian would say that it is impossible to empirically invalidate ABCT. It would mean you did not take into consideration all the factors involved in making your observation.

                The 2008 housing bubble is a classic case of ABCT. The fed increased printing, made a bubble, decreased printing, and the problem manifested itself.

                ABCT cannot make direct predictions, but it can capture the general atmosphere. Multiple times throughout history, the fed decreased printing, and the problem manifested itself.

                In almost every economic downturn in this century that I am aware of, the decrease in printing has resulted in recession or depression.

                These are just illustrations of ABCT. It is not subject to empirical falsification. This is why a wordsmith like Krugman can claim to invalidate ABCT, but ultimately, he just ignored certain factors not taken into consideration. Certain factors can only be speculated upon because they are not measured nor can they be properly measured e.g. utility.

              • RPLong says:

                Hank,

                If you made an observation somehow invalidates ABCT, then please share.

                “Prove me wrong” is not a good approach to science. We shouldn’t accept a theory until it is conclusively falsified. Rather, we should reject all theories until the evidence in their favor is so overwhelming that we cannot conclude anything else.

              • Bob Murphy says:

                RPLong wrote:

                “Prove me wrong” is not a good approach to science.

                Except in evolutionary biology.

                (And no, haters, I’m not endorsing a Young Earth by that statement.)

              • RPLong says:

                LOL well played, Bob. Except in defense of evolutionary biology, I’d argue that we’re choosing the theory with the greatest amount of evidence, however inconclusive it may yet be.

              • Tony N says:

                “‘Prove me wrong’ is not a good approach to science.

                Except in evolutionary biology.

                (And no, haters, I’m not endorsing a Young Earth by that statement.)”

                But “prove me wrong” trumps “here’s a theory that can’t possibly be proven wrong.”

                Doesn’t professing the existence of God represent the latter?

              • Ken B says:

                I just want to point out something I have remarked upon before: Bob seems to think that Austrian theory is a science but biology isn’t.

              • Bob Murphy says:

                OK, and I want to point out that Ken B. seems to think rainbows taste good. Prove me wrong, kids, prove me wrong.

              • Hank says:

                “evidence in their favor is so overwhelming”

                In the natural science, evidence overwhelmingly supports the theory of gravity (lets not get bogged down in a discussion about dark matter etc.) You can make a theory, and test the theory as much as you want. Until you falsify the theory, the theory is accepted.

                In economics, evidence is history, which is not reproducible unless you have a time machine. You can point to multiple historical events that you claim supports a theory. Any claim you make, however, is not testable. It can only be denied through the pointing out of logical fallacies.

                The problem is that you are desperately trying to apply a method, often used in the natural sciences, to economics.

                Karl Menger used the terms “exact laws” and “empirical laws”. I suggest you read up on his “Investigations on the Method of the Social Sciences”

                “The types and typical relationships (the laws) of the world of phenomena are not equally strict in all cases. A glance at the theoretical sciences teaches us rather that the regularities in the coexistence and in the succession of phenomena are in part without exception; indeed they are such that the possibility of an exception seems quite out of the question. However, some are such that they do indeed exhibit exceptions, or that in their case exceptions seem possible. The first are called laws of nature, the latter empirical laws.” (note: laws of nature for which no exception seems possible Menger terms “exact laws”)

              • RPLong says:

                Hank, as I previously remarked to Valueprax, insisting that one cannot validate Austrian theory with empirics makes the case for Austrianism weaker, not stronger.

                It’s fair to suggest that Theory X cannot be falsified, so long as you also accept that this means there is no evidence for it.

                Essentially, you’re taking it on faith. This might be what economics is to you, but it’s not what economics is to me.

              • Hank says:

                “Austrian theory with empirics makes the case for Austrianism weaker, not stronger.”

                Wrong. Exact laws, as termed by Menger, are much more certain than empirical laws.

                Take the statement:

                “I walk toward A, so I must walk away from B”

                This is a much more strong position than saying.

                “I tested that 100% of people that walked toward A, also walked away from B.”

                The second statement implies this event could possibly be falsified, which it can’t. We know it cannot be falsified because it is logically necessary relationship.

              • Gene Callahan says:

                “Rather, we should reject all theories until the evidence in their favor is so overwhelming that we cannot conclude anything else.”

                Wow, no science would ever have gotten a foot off the ground using this principle!

              • RPLong says:

                Hank, exact laws can be observed, and “observed” means empirics.

                Think about what you’re saying. You’re saying that there are exact laws that are always true and yet cannot be observed empirically. If that’s not selling vaporware then I don’t know what is.

              • Gene Callahan says:

                “And the longer it remains unseen, the less likely we should consider its existence. Right?”

                Right: so the Pythagorean theorem, having failed to make itself visible for 2500 years, must be rejected.

              • RPLong says:

                The Pythagorean Theorem is observable in 100% of visible right triangles.

              • joe z says:

                “Then ABCT is even weaker than I thought. If ABCT describes a causal relationship between X and Y, but Y is observed in cases when X is not observed, then ABCT does not describe much about Y at all.”

                When someone proposes “If X, then Y”, and you subsequently observe Y without observing X, you have NOT refuted his proposition. If instead you subsequently observe X, but not Y, then you HAVE refuted it.

                Here is an (imperfect) example: Suppose we somehow deduce the proposition “If Jones is ‘male’, then Jones has an X chromosome” and then we observe that Jones is ‘male’, we can conclude that Jones must have an X chromosome without having to bother to observe it.

                In this case, the converse of the statement is “If Jones has an X chromosome, then Jones is ‘male’.” This is obviously not true, as Jones could be ‘female’ and also have an X chromosome.

                The fact that you observe an X chromosome in a non-male does not mean that if you observe a male you shouldn’t expect to observe an X chromosome. Thus, the knowledge that “Jones is of the sex ‘male’” is still valuable since it tells you the he has an X chromosome even if you do not bother to look and see.

                In short, you are looking at an “if-then” proposition and concluding it is worthless because it is not an “if-and-only-if” proposition, which is clearly absurd.

                In the case of ABCT, Austrians do NOT posit that every single instance of malinvestment is the result of a manipulated interest rate. However, Austrians DO posit that any manipulation of the interest rate, ceteris paribus, will increase the level of malinvestment in the economy. Id est, Austrians do NOT claim that “The level of malinvestment increases if and only if there is a manipulation of the interest rate.”

              • RPLong says:

                joe z,

                Unfortunately, you have demonstrated my point perfectly. The statement “If Joe is male, then Jones has an X chromosome” is completely vacuous since EVERY human being has an X chromosome.

                It’s not that the statement about Jones is false, it’s that it is a truth that conveys no new information about Jones.

                “If Jones is male then Jones has an X chromosome” is neither a theory about gender nor a theory about chromosomes. It brings nothing new to the table and is thus no better than the simply statement “Jones is.”

              • Ken B says:

                Mmmmm, rainbow. Tastes like chicken.

              • Gamble says:

                Ken B wrote:
                “I just want to point out something I have remarked upon before: Bob seems to think that Austrian theory is a science but biology isn’t”

                Mises said the exact opposite. He said human action is not the same as a natural science and can never be tested or proved in the same mannerism. I think he said only a fool would try this. Seriously, I will find the quote.

                On a side note, why are we arguing with the obvious, because some socialist told us to?

              • joe z says:

                joe z,

                Unfortunately, you have demonstrated my point perfectly. The statement “If Joe is male, then Jones has an X chromosome” is completely vacuous since EVERY human being has an X chromosome.

                It’s not that the statement about Jones is false, it’s that it is a truth that conveys no new information about Jones.

                “If Jones is male then Jones has an X chromosome” is neither a theory about gender nor a theory about chromosomes. It brings nothing new to the table and is thus no better than the simply statement “Jones is.”

                You missed the point. I called it an “imperfect example” because it is not a perfect example. The point, however, is the logical structure of the argument.

                I suppose I should have just posted this:

                X->Y
                Y
                therefore: X (invalid)

                XY
                Y
                therefore: X (valid)

                You are claiming that the first set of propositions is worthless simply because it is NOT the second set of propositions, apparently unaware that X->Y is not the same proposition as XY

              • joe z says:

                That should read X (two sided arrow) Y, not XY.

              • RPLong says:

                joe z,

                Almost. What I am actually claiming is that this:

                X -> Y
                Y
                Therefore, X.

                …is not a very strong case for X -> Y when it is also true that W -> Y.

                Thus, if we want to advance the argument that X -> Y, we either need to be able to differentiate between X and W when Y is observed, or we need to be more precise about X. Maybe X -> Y’; or maybe X -> 2Y; or maybe X|W -> Y.

                But whatever the case, it does not suffice to claim that X -> Y and then state that empirical studies of Y are invalid.

              • Hank says:

                “You’re saying that there are exact laws that are always true and yet cannot be observed empirically.”

                I said no such thing. It doesn’t make much sense to say an “exact law” is “observable”. It just a law that describes necessary causal relationships, like the one I pointed out.

                You can apply the law to certain content which may be observable, such as government intervention. If we assume something happened, then we can deduce analytical propositions drawing from the category of action. This is popularly known as methodological individualism.

                The Pythagorean Theorem, from what little I know about math and physics, is not strictly observable in reality since our universe is not strictly Euclidean. You are wrong in saying that the Pythagorean Theorem applies to 100% of right triangles. This is probably outside the scope of your knowledge, as it is mine.

                However, from Euclid’s axioms, the Pythagorean Theorem does necessarily follow WITHOUT drawing from any empirical sources. Just like the how economic propositions necessarily follow from the action axiom.

              • RPLong says:

                Hank, our disagreement is not about the nature of exact laws, but rather how we know we are even talking about an exact law in the first place.

                Let’s say you have two ALLEGED exact laws as follows:

                1) X –> Y
                2) N –> Q

                You are told that one of these is an exact law, and one of them is not. But you are not told which one is the exact law.

                So, pop quiz: How do you determine which one is the exact law?

              • RPLong says:

                Hank, I already got all that info from reading Human Action and Epistemological Problems of Economics. Just because praxeology is a social science doesn’t mean it can ignore the rules of logic. Stating, as Mises does, that all economic laws are already contained within economics and need only be articulated is a nice story, but for one little hiccough: Sometimes we think we have identified a law that we might not have.

                In that case, how will we know we’ve erred?

            • valueprax says:

              Okay, let me try again. And keep in mind you’re working with my demonstrated penchant for making crappy analogies (Arrested Development: “But you know that she’s kind of used to being with me, right? So… it would be sort of like going from prime rib to—I don’t know—weird brother of prime rib. So…”).

              Let’s say using the laws of physics you could predict the trajectory of a rocket. You’re able to calculate all prevalent forces with accuracy and so at any given moment in time you can “predict” where that rocket will be in 3D space– on the launchpad, flying through the air, crashing back into the ground. None of that would come as a surprise or shock to you and you could be specific, using GPS coordinates, altitude, velocity, etc. Before the rocket even takes off you could predict all of this, ie, “At 6m52s, the rocket will be 5600 ft in altitude with velocity of 1000mi/hr” etc.

              That is how you make the physical law “pay rent” with a useful prediction.

              But you wouldn’t chastise the physical law as a useless piece of knowledge when you recognized that, in spite of a specific event to predict like this, it will only give you a general causal relationship.

              Now, with economic laws we can get the general causal relationships but we can’t make it “pay rent” in the specific way a physical law can because we’re studying human action. The rocket has no volition. It will always do what you say it should do because its path is deterministic.

              But the economy and the people in it are not deterministic.

              So, I might make a “specific prediction” using ABCT: if the money supply is expanded in an involuntary manner, there will be a bubble in Ken Griffey Jr Rookie baseball cards!

              But then a bubble forms in housing, instead, and you scoff and say, Ugh, what a useless theory, it can’t pay rent in predictions!

              I might’ve made the prediction based on my current knowledge of people’s past demonstrated desire to acquire KGJ baseball cards. But it turns out that people have developed a new passion for houses and a lot of the new money gets channeled into buying those instead. It has nothing to do with the value of ABCT as knowledge and everything to do with the serendipity of volatile human preference.

              Do you eat the same thing for breakfast every day? Do you do the same thing for entertainment every Saturday? Do you have the exact same needs right this moment that you did at this same calendar moment 20 years ago?

              The economy is constantly changing because people’s needs are constantly changing. We can’t make a specific prediction of where malinvestment will occur or what it will look like because of this.

              That doesn’t mean the theory can’t “pay rent.”

              For example, if the theory is CORRECT, and people, including politicians, could actually be convinced of it and they stopped causing the boom-bust cycle the way ABCT describes, that’d result in huge economic benefit for everyone in society.

              That seems pretty valuable to me.

              As for the rest of your comments…

              ABCT doesn’t JUST describe a causal relationship between X and Y as you suggest. It describes the mechanism by which X influences all Y, or that is to say, mass Y, or call it Z, the cluster of Y. One person making a mistake while everyone else does not is a different situation from everyone seeming to make mistakes all at once.

              I don’t think you understand what “The Unseen” means in economics. It is the opportunity cost. It is an alternative one could imagine was a potential choice at a particular moment, but it was not taken because another decision was made. It doesn’t have anything to do with actual physical obscurity or translucence and it has nothing to do with existence.

              “The Seen” is what we experience actually occurring. The “Unseen” is that which might have occurred had a different choice been made. The whole point of the exercise is to highlight the idea that costs (tradeoffs) are incurred with every decision, whether we recognize them or not. AKA, There’s No Such Thing As a Free Lunch.

              I truly don’t get your comment about the challenge of empiricism in economics. If it is difficult/impossible to do, then it isn’t a viable means of obtaining knowledge. What are we left with? Groping around in the dark?

              The rest of your insistence about prediction and rent paying just sounds like more gobbledygook to me. I don’t get what you think you should be able to say or see that you can’t.

              What is your response, for example, to those studies that purport to show that instituting a minimum wage actually results in lower unemployment?

              • RPLong says:

                Valueprax, if ABCT describes a causal relationship between observable events, but we cannot rely on observation to validate our theory, then why is ours the superior theory? I understand that if we assume our theory is correct then getting people to believe it would result in positive outcomes. I’m not talking about the benefits of using the best available theory, I’m talking about how we know we actually have the best available theory.

                So when you describe at length the many ways we cannot ever hold anything ceteris paribus, you’re making the case for ABCT weaker, not stronger.

                Re: minimum wage – I believe they are important evidence to add to the pile, but when compared to the (imho) better empirical evidence and a priori theoretical cases against the minimum wage, they aren’t sufficient to change my mind about the minimum wage’s efficacy.

                But I do not just write them off on a priori terms. I consider them first.

              • Ken B says:

                “weaker not stronger”

                Exactly right. Let’s take another hypothetical example. A global warming alarmist has a model with 10000 parameters, all of which are very sensitive and interact. He says he predicts disaster. He dismisses 50 years of cooling and cites his model. A skeptic has a very simple model tied to sunspots and cites 50 years of close corelation. Which of these guys has the stronger theory and which the weaker.

              • valueprax says:

                Hmmmm… if it makes ABCT weaker, doesn’t it make all theories of the business cycle weaker?

                Let me turn this on you… how would one form an empirical theory of the business cycle? How would that work and how would we understand it’s conclusions to be reliable?

              • valueprax says:

                Let me give another example:

                Logically we can understand that, all else being equal, if the supply of money increases, prices should rise in correspondence, right? More money to bid for the same goods means prices should rise.

                So if we see empirically the money supply increasing, and we see empirically “prices” falling, what do we conclude then, RP Long?

              • RPLong says:

                Valueprax,

                This can’t really be turned back on me, because the failure of Theory Y is not a valid argument for Theory X. I want to accept Theory X, so I need evidence for Theory X. That’s what hypothesis testing is all about.

                Also, I accept that theories are logically prior to observation, so all ideas must begin life as theories. But I take this a step further and say that something is just a theory unless it is actually observed. In other words, we have to know when we’re right or when we’re wrong. If we never know that from observation then we have a theory that doesn’t actually give us any information.

                Re: What do we conclude if we see the money supply increase while prices are decreasing? I am not particularly sure. I personally would conclude that we need to collect more information, expand our theory to involve more ideas than just supply/demand of money, and venture a new guess.

                But again, our new guess ought to be testable, for reasons described above.

              • valueprax says:

                If you want to continue this (and I do), email me. I am getting tired of scrolling ten pages and trying to figure out if you responded to me or not.

              • valueprax says:

                And it definitely can be turned back on you. I didn’t say “If Theory Y is bunk, Theory X therefore wins.” That is something you just introduced reflexively because you’re spitting out cargo cult scientistic philosophy at me instead of trying to think through this issue “deeply” as the Less Wrong folk say.

                I asked you a pretty simple question… what does forming an empirical theory of the biz cycle look like? Why haven’t you started that project, since the a priori approach is BS?

                That’s not a gotcha. That’s a question. But please email me on it because like I said, I’ve had it with the sextuple indent scrollfest.

    • valueprax says:

      I wanted to add:

      Since in Sumner’s example he doesn’t clearly explain how the money supply will be doubled and then halved it’s hard to understand what kind of consequences would befall people who gave in to the temptation to spend some of that new money balance they received. And so in the absence of a clear mechanism for consequence, it’s not clear why someone wouldn’t attempt to buy, and another person attempt to sell, while they happened to have increased money balances.

      The person who had $200,000 now has $400,000, he can go buy his $200,000 house “for free” and still have the same amount of money leftover. And since no one is bothering to raise prices, he can acquire twice as many real goods. Is the government going to tax him $200,000 at the end of it or something?

      Regardless, this isn’t actually how the Fed or any other monetary manipulator/FRB system tends to work, anyway. They tend to slowly but surely increase leverage in the system, always upwards, until there is a problem and suddenly it all gets sucked out. Imagine they are able to run up everyone’s money balances for, say, not four weeks, but 4+ years, 2003-2007?

      Four years is a long time to sit on the sidelines because “they’re just going to lower the money supply again.” Meanwhile, you lose a lot of real purchasing power by waiting because “it’s not permanent”.

      • Gamble says:

        Valuprax asked: “Let me turn this on you… how would one form an empirical theory of the business cycle? How would that work and how would we understand it’s conclusions to be reliable?”

        I have been think about that a lot lately. I was part of Free Market Free People seminar and the instructor pretended to be the demand wizard, purple wizard hat and all. He had a table with a few different items; granola bar, bag of ships, soda pop, chewing gum. He passed 1 item out to all 30 people. We were all mostly disappointed HE gave us all 1 trade with each other. He then gave us all 1 more trade. Guess what, 99% of the students were happy.

        I think you conduct a similar, larger experiment with simple school children and come close to proving the ABCT. Which by the way, is why ABCT copied reality because this human action existed before Mises or Menger.

    • Hank says:

      “…a rational investor ought to realize that the low interest rate is a temporary result of central bank manipulations”

      However, the investor does not know what the interest rate would be without the manipulation. The best the investor could do, in this situation, is guess. Therefore, an investor could only make correct investment decisions through shear luck.

      The investor could only make his decisions based on a theoretical interest rate (or what he believes it to be), which the prices do not currently reflect. He could only know this through an indicator other than prices. I’ll leave it to you to determine how the investor would do this.

      Therefore, the investor would most likely make the incorrect decision and I did not need an empirical study to tell me this, nor can an empirical study invalidate it (if the logic is correct).

      • Gamble says:

        Hank wrote: “The best the investor could do, in this situation, is guess.”

        Hence Gamble amongst other reasons/examples.

        Now can we all stop falling for the greatest trick, the trick of being pacified with conversation about an economy that does not exist…

  22. Peter St. Onge says:

    David,

    You write inre 0% rates, “a rational investor ought to realize that the low interest rate is a temporary result of central bank manipulations, and make his investment decisions correctly on that basis.” Very true, that’s the interesting riddle and there is a nice literature in Austrian as to why errors (losses), empirically cluster. Because mainstream is unaware of the low rates -> malinvestment pattern, they don’t notice the error clusters, rather I think see grouped losses as derivative of overall malaise.

    As to why errors cluster, Rothbard emphasizes opacity of monetary policy for the typical businessperson — if even economists can’t agree on consequences of low rates, is it so odd that laypersons cannot? Other theories include relaxation of liquidity constraints: fools are always with us, but only get investment loans when money is easy.

    The larger point of the error question is that Austrian (a misnomer I think; we should call it “classical”) economics offers a point of view that opens up fruitful inquiries. Things like error cluster should be studied, but there are too few Austrians: mainstream models hog up most of the economic brains. Since academia rewards novelty, I find it a bit mysterious why so few mainstreams don’t dip a toe.

    • Tel says:

      I think it’s more insidious than that.

      Let’s suppose you have malinvestment, so the first person to discover the problem is usually the person closest to the problem, and their instinct is to ease themselves out of that position by offloading onto a bigger sucker.

      To in practical terms person “A” made some errors, but still walked away with a profit because person “B” was able to be convinced that this project still had some potential. Then it cascades to person “C”, person “D”, each coming to the understanding that there’s a problem, and each one going in search of a bigger fool.

      The errors compound and cascade but remain hidden. This can be assisted by clever accounting but also by genuine uncertainty. No one knows a correct method for valuation of twitter shares or facebook shares.

      So of course, the cluster happens when the house of cards falls over. They run out of bigger fools, and the malinvestment that had been building for some time cannot be concealed any more.

      • Peter St. Onge says:

        Tel, what you describe seems to exactly have happened with sub-prime. You’re familiar with Michael Burry (who I think is blameless) followed by various bankers who slowly realized how bad their hands were and took their sweet time letting counterparties in on this.

  23. Gamble says:

    Check out this brand new radio interview between Tom Woods and David Friedman.

    http://www.schiffradio.com/pg/jsp/verticals/archive.jsp?dispid=310&pid=62962

  24. Bala says:

    I wish some day people like David Friedman and Ken B realise that economic reasoning deals with counterfactuals. When an Austrian says “Prices would be higher than they would have been in the absence of X intervention”, he means that they would be higher than they would have been in an alternate universe where everything else remains the same but X intervention never happened.

    This alternate universe does not exist and can never be observed. Therefore, no empirical testing can be done. Empirical testing of economic propositions can only gather data from the universe that exists. It cannot gather data from the alternative universe that constitutes the counterfactual. To compare different bits of empirical data and make pronouncements on the truth/falsehood of economic propositions is to reveal one’s complete failure to comprehend economic theorising and its method. David, Ken B and their cohorts can pretend all they want that they have done rigorous empirical testing but, in reality, all their rigorous empirical testing would just be tomfoolery.

    Refusing to accept the fact that empirical testing is ruled out by the very nature of the subject matter of economic science, i.e., economic phenomena as they occur in the real world and which cannot be created in controlled conditions in a lab, is nothing but throwing a childish tantrum.

    • Major_Freedom says:

      The necessity of counter-factuals is another way of saying that a true understanding of reality requires more than what is observed. It requires an analysis of consciousness that is doing the observing.

    • Ken B says:

      I wish Bala would understand that every analysis involves counterfactuals not just economics. Did the bullet kill him? That involves a counterfactual. Will the bridge fall if two bolts fail? Will this drug kill spirochetes? These all involve counterfactuals, so the fact they do does not imply empirical tests are useless or superfluous or irrelevant.

      • Bala says:

        Ha Ha Ha!! The bridge without 2 bolts can be made and tested. It can exist in parallel with the actual bridge. Not so for the counterfactual in economics. That is the point I was making. But then how are you to see this simple point once you have chosen to be blind to it?

        • Ken B says:

          The hypothetical other bridge does not relieve you of the counterfactual. And of course you are relying on empiricism here to argue from experience that this test is possible and the other imagined bridge would be similar enough –ceteris paribus and all that.

          • Bala says:

            And of course you are relying on empiricism here to argue from experience that this test is possible

            Of course! And rightly so for we are dealing with the natural sciences when we talk of failure of the bridge. Who said empirical methods have no place in the natural sciences? It is their place in the study of economics that is in question.

          • Bala says:

            I am not talking of the hypothetical other bridge. I am talking of an actual comparable bridge that is identical in every respect except that two specific bolts have failed. So, I am in a position to actually observe the actual and the counterfactual.

            This is not possible in economics as it deals with acting man.

            • Keshav Srinivasan says:

              But how can you make two bridges that are exactly identical and subject them to exactly identical conditions?

              • Ken B says:

                Exactly. The ceteris is never exactly paribus. The problem may be harder in some subjects than others, but its the same problem. Bala is special pleading for an exemption.

              • Bala says:

                I can just remove the bolts in question or replace them with failed ones and observe what happens.

              • Bala says:

                There is also the fundamental point about repeatability in the natural sciences leading to the possibility of modelling.

              • Bala says:

                Ken B,

                Empricism presupposes repeatability. There is no repeatability in human action. There is repeatability in the natural world. Hence, empricism is applicable to the natural sciences and not applicable to economics.

              • Tel says:

                Empricism presupposes repeatability.

                Yes, that’s a good point.

                There’s a hidden counter-factual in any physical experiment, “Did I build it right?” If I’m fallible (and everyone is) then my observations are therefore fallible and my experimental technique is fallible. But then how can I depend on anything?

                That’s where repeatability comes into the picture. The cold fusion caper was an interesting example, because it seems quite plausible that cold fusion might work. Lots of people around the world attempted to reproduce the
                experiment… and failed in that particular case.

                Repeat something enough times and people gradually accept that it must work. Of course, groups of people can also be infallible, in other ways:

                Millikan measured the charge on an electron by an experiment with falling oil drops, and got an answer which we now know not to be quite right. It’s a little bit off, because he had the incorrect value for the viscosity of air. It’s interesting to look at the history of measurements of the charge of the electron, after Millikan. If you plot them as a function of time, you find that one is a little bigger than Millikan’s, and the next one’s a little bit bigger than that, and the next one’s a little bit bigger than that, until finally they settle down to a number which is higher.

                Why didn’t they discover that the new number was higher right away? It’s a thing that scientists are ashamed of—this history—because it’s apparent that people did things like this: When they got a number that was too high above Millikan’s, they thought something must be wrong—and they would look for and find a reason why something might be wrong. When they got a number closer to Millikan’s value they didn’t look so hard. And so they eliminated the numbers that were too far off, and did other things like that.

                http://www.newyorker.com/online/blogs/newsdesk/2011/01/jonah-lehrer-more-thoughts-on-the-decline-effect.html

                So you still don’t know.

      • Bala says:

        Have you started your observations of and recording of economic data from the alternate universe? I am waiting with bated breath.

        • Ken B says:

          Where’s your alternative universe for the man with a bullet in his brain?

          • Bala says:

            Are we talking natural sciences? If so, is another man without a bullet in his brain good enough? I would think so.

            • Keshav Srinivasan says:

              But they’re bodies have all sorts of differences, and the conditions under which they’re either shot or not shot have all kinds of differences. Like what if the man who was not shot had a heart attack at that very moment?

              • Bala says:

                Once again, are we talking of the natural sciences? Are we talking of the species man? While there could be minor differences, isn’t the key point of a species that most key attributes are pretty similar across all members of a species? Don’t all men have a brain whose structure is broadly the same? Wouldn’t almost every man die if a bullet were put through the brain? Of course some people do survive a bullet in the brain (as Malala did) but isn’t that the exception rather than the norm?

                Now compare that with acting man valuing ends and means and acting to apply means to satisfy his ends and tell me if what you say makes any sense.

              • Tel says:

                Phineas Gage suffered an iron rod shot through his brain, powered by black power explosive it must have been very close to a bullet.

                He survived, but had some personal issues afterwards. Fascinating case, well worth reading.

              • Ken B says:

                The special pleading is i hope clear to all now.

                Other than observation Bala, how do you know what is “repeatable”? Nothing is exactly, so its an assessment that close enough is good enough. These bridges are similar enough, these bodies are similar enough. You cannot tell that a priori. Thats based on observation.

              • Major_Freedom says:

                It’s intuition that establishes what isn’t observable, i.e. for human action there are no constancies in relations.

              • Bala says:

                Other than observation Bala, how do you know what is “repeatable”?

                This is mindblowingly hilarious. Observation only tells you that something has repeated in the past. It does not tell you that it is in the nature of the phenomenon concerned to be repeatable. That is something you can only realise by reflecting on the phenomenon and the nature of the entities concerned to come to the conclusion that the phenomenon is indeed repeatable.

                And YOU are accusing ME of engaging in special pleading?

      • Bala says:

        Just take note of these statements I made

        This alternate universe does not exist and can never be observed.

        Empirical testing of economic propositions can only gather data from the universe that exists. It cannot gather data from the alternative universe that constitutes the counterfactual.

        economic phenomena as they occur in the real world and which cannot be created in controlled conditions in a lab

        and then tell me how you plan to evaluate economic propositions as identified by Austrians given that they always compare what is with what would have been in the alternate universe of the counterfactual and not with what was. It will help you if you check to see whether you are comparing what is with what was and, if so, realise that you have not tested the economic proposition you wanted to test.

        Of course, all this depends on your wanting to do so.

      • Gamble says:

        Would he have died if he were not shot?

        • Gamble says:

          He is dead now from the bullet so I can not answer your question. He may have been healthy and lived another 20 years but hen again he may have dropped dead from a heart attack or been struck by a speeding car.

          Wish I could help.

  25. Bob Murphy says:

    Major Freedom, you recently gave a list of Krugman quotes saying something, in order to show why he’s in such hot water now. Can you remember what it was? I meant to keep track of it for something I’m going to do in the future, but now I lost it.

    And I hate to ask, but can you please email me

    rpm@consultingbyrpm.com

    if you remember what I’m talking about? If you post it here, I might not see it.

    • Keshav Srinivasan says:

      Here it is: consultingbyrpm.com/blog/2013/11/krugman-death-panels.html#comment-77466

  26. Ken B says:

    VP: “Let me turn this on you… how would one form an empirical theory of the business cycle? How would that work and how would we understand it’s conclusions to be reliable?”

    Example 1, sunspots cause it. It’s an unlikely theory but seems fairly easy to test.
    example 2, the consumption of the drink spiritae animalia cause it. Same comment.
    Example 3, rising levels of inventory of non perishable goods cause contractions. Not entirely crazy, and one can possible tests.

    As for reliability, how do we know vitamin c cures scurvy?

    • Tel says:

      Example 1, sunspots cause it. It’s an unlikely theory but seems fairly easy to test.

      Why unlikely? A good fraction of the world’s economy is still linked to agriculture and human moods are strongly linked to the sun and also people are effected by food availability, winter cold, summer heat, etc.

  27. steve rose says:

    ” … a proposition in economics that almost all Austrian economists and almost no non-Austrian economists would agree with. ”

    Do these examples meet Friedman’s condition?

    In “Man Economy and State” Rothbard rejects …

    1. The quantification of consumer surplus. Chap 4 Part 4
    2. Producers shifting taxes to consumers. Chap 12 Part 8 Section C.

  28. Ken B says:

    Let me summarize the Austrian position, as adumbrated above.
    1. We cannot be wrong.
    2. We don’t need evidence.
    3. You must do what we say or disaster awaits. Just don’t ask what disaster when; we don’t do predictions.

    • Major_Freedom says:

      Let me summarize Ken B’s confusions about Austrian theory:

      1. To challenge the notion of absolute truth that can be known, leads to undercutting one’s own conviction of the opposite view.
      2. Observable evidence is not the only evidence. Necessary categories of all conceivable thought and all conceivable action whatsoever are truths about an aspect of the universe centered on activity.
      3. If we knew when the disaster would occur, it would imply humans can predict their own future path of learning and action. This leads to incoherence, since if we could know what we will know, we would know it now, which means we aren’t learning now what we will learn in the future after all. Thus, we cannot know our own future learning, and as such, cannot predict when we will learn of malinvestment such that a “disaster” occurs.

      Ken B, if you’re going to criticize Austrian theory, then you ought to at least have a crude, vague, and basic understanding of it. Yes, this would be multiple orders of magnitude more sophisticated than where you currently are, but if you only put in as much effort to self-education as in trying to be an unfunny smarta$$, then it should be a piece of cake.

    • Bala says:

      This is just a reflection of how poor your comprehension of what was said above is. Here is the position restated

      1. We are not wrong. You are free to refute our axioms (which are rooted in reality) or find a flaw in our reasoning. If you cannot, the least you can do is to show some humility and try to understand why you are wrong.
      2. Evidence is incapable of proving us wrong because it will only represent one side. You can fool yourself all you want that a comparison of past and present empirical data can and does disprove our propositions.
      3. You better understand what we are saying for you are indeed causing a disaster by not doing so.

Leave a Reply