Potpourri
==> Martin Weitzman is one of the leading economic theorists in the case FOR aggressive government action against greenhouse gas emissions. Here he is on EconTalk.
==> An interesting graphic from John Christy’s testimony showing 102 climate models’ predictions vs. observations on global temperatures.
==> Daniel Kuehn bringing power to the people.
==> Ryan Murphy (basically) agrees with David R. Henderson and me on the ordinal/cardinal utility stuff. However, on Facebook I backed down somewhat in an argument with David Friedman, because when I was reading the climate change economics stuff (without thinking of this debate) I realized that the “pure discount rate” is clearly talking about the percentage comparison of a util today versus a util next year. Yes, there are ways you can relate this to ordinal rankings of flows of consumption over time, but economists in the trenches are clearly thinking of this as cardinal utility. (Indeed, that’s why in my dissertation I criticized Mises’ writings on the pure time preference theory–I said in certain passages Mises only makes sense if we think utility is cardinal, and surely he doesn’t want to go down that road.)
==> Tom Woods vs. Austin Petersen. It’s just what you hoped it would be. In the future I think we should build a road around Austin and then not feed him.
==> On a more serious note, Tatiana Moroz interviews Lynn Ulbricht, whose son Ross was just sentenced to life in prison for his role in the Silk Road.
“In the future I think we should build a road around Austin and then not feed him”
I think overall, your philosophy is probably in pretty good shape when the biggest problem with it someone can identify is, “But what if people bring you up in a hot air balloon and then throw you out of it!”
Bob, if people’s preferences satisfied the von Neumann-Morgenstern axioms, could you solve Sraffa’s multiple own-rates problem by defining a discount rate in terms of the vNM utility function? Quantities of the form (u(x) – u(y))/(u(x)-u(w)) are invariant under affine transformations, so it would be uniquely defined.
I’m happy and surprised to learn we are apparently in complete agreement on the utility issue.
From the Daniel_Kuehn article:
“Does not account for future inflation, which cannot yet be measured.”
It almost sounds like it’s saying “Don’t worry, one day we’ll be able to measure inflation before it happens!”
Think a central bank that never changes forecasts, because its policy is so carefully done.
Awkward wording an editor had me put in because some other analysis getting a lot of clicks projected inflation and I had no interest in doing that.
Why does Silas_Barta always think my middle name is an underscore sign?
I autocomplete everyone’s handle like that.
A million micro-efficiencies will eventually add up!
Write software for a while and (_) becomes a synonym for ( ). I didn’t even notice until you pointed it out.
It almost sounds like it’s saying “Don’t worry, one day we’ll be able to measure inflation before it happens!”
Tachyons, man.
I totally agree that a local minimum wage is going to do a lot less harm than an across the board national minimum wage. It may even do a little bit of good. The reasons that immediately come to mind are if a local minimum wage is set too high, people will look for jobs in nearby areas (and not long after, business will move too) so it should be quickly obvious that there’s a problem. This automatically regulates the level and will immediately answer the “Why no $100 per hour?” question.
The other reason is that some areas simply are more wealthy than other areas, and generally both wages and cost of living are higher in some areas and lower in others. If the concept of “minimum wage” has even a small chance of working, it needs to adapt to that simple fact. That’s just what came to my head, before reading Daniel Kuehn’s article, but now I do read it I see he makes a big point of local regional price variations, so we certainly agree on that one.
Seriously, “stronger methodologies”? That means more adjustments, right?
Economists and Utility Posted by rhmurphy on May 25, 2015:
Errr, isn’t that the whole idea of an ordinal scale that it defines the “greater than” and “less than” operations, without defining a cardinal unit? That would appear to be the meaning of “ordinal” as in “ordered set”.
Regarding Kuehn’s article:
“Only time will tell…”
Actually, according to the rules of empiricism, which is what Kuehn believes can enable us to know the effects of wage rate floors, time will never tell. No matter what we observe, empiricism prohibits coming to any apodictic conclusion about the effects of wage rate floors. At best, all that could be said about it is “Heretofore when A takes place, B has (or has not) followed, however it is possible that during some future period, we might observe the reverse.”
Of course, there is always the question of why there has to be a minimum wage at all as the basis from which we have to “test” things. Why not have no minimum wage and then we can “test” and “test” again over and over and quibble about it? Why can’t we have no minimum wage and then say “Time will tell?”
The answer of course is that the economics of the minimum wages is totally secondary to the politics of it. Unions are the originators who intellectually created and pushed for the minimum wage in order to price out competing non-unionized workers. They did this on purpose. They knew that minimum wage laws keeps out competing lower cost non-unionized labor from the market.
Yet today we have bozos in the economics establishment who now believe “the best methods show it has no effect” or worse, that it has some positive effect on employment.
Kuehn is not ambivalent or have any healthy skepticism. He is comfortable with minimum wage laws forbad economic reasons and selfish political reasons, and falsely asserts that “weak” methods are associated with arguing against it for helping employment, and “strong” methods are associated with arguing for it for helping employment.
If minimum wage increases are not followed by reductions in employment, then the proper “strong” theory here is not that minimum wage laws have no effect on employment. Rather, it is that the rate of employment would have otherwise been higher than it was if the minimum wage was not increased, or else as a third alternative, the minimum wage set by law is below the market rate for those workers in that wage rate range, which is to say the law is moot.
Empirical studies cannot show us the unobservable world that would have existed without minimum wage laws. Yet it is that unobservable world that is the ultimate determinant of whether or not minimum wage laws are reducing or increasing employment. No empirical study that Kuehn is safely comfortably labelling as “strong” actually shows that minimum wage laws have no effect on employment, or any other effect.
The only method, let alone the strongest or weakest method, that can enable us to know the actual effect of wage rate floors on employment, is by a priori deduction. It is the only way we can address the counterfactual component of economic analysis.
Kuehn’s school does not encourage or welcome actual economic thinking. It welcomes and encourages safe, comfortable, popular, mainstream, boring technobabble.
Empiricism also prevents us coming to any guaranteed certain conclusion about gravity, because we don’t know whether it’s about to change tomorrow (we just make the presumption it won’t change) and we don’t know whether some new experiment will demonstrate anti-gravity.
That said, many people are highly confident that gravity operates as advertised. I’ve not yet run into the problem of accidentally losing my footing and flying up into space, although I concede that I have no proof this cannot happen.
The micro-economic experiment of many local regions setting minimum wage is a much better source of empirical data than the macro-economic national minimum wage. On the micro scale you have many things to compare against, while on the macro scale you are stuck with only one sample point.
Very true, in economics it is difficult to construct a control experiment. You can never observe the unseen, which is a very important pitfall to keep in mind at all times. However, to say, “We won’t look at these results *at all* because we cannot achieve perfect measurement conditions,” seems defeatist. Yes, I agree you cross a threshold when you do that… you are out of the realm of traditional Austrian economics, and Mises did draw the line clearly at that point. By all means put down a solid demarcation, make it clear what is happening here.
However, don’t try to say, “Nothing exists on the other side of the line,” because if you say that, then you cannot say that socialism has failed when it was tried… this would be an empirical statement.
Mises showed socialism cannot have cost calculation even before it is tried.
We don’t have to try worldwide communism before we can know there won’t be a world price system for the means of production.
Calculation and Socialism | Joseph T. Salerno
https://www.youtube.com/watch?v=KseRuyAjlHY
I’m helping!
😀
Regarding Ross Ulbricht:
His arrest is proof that everything any anti-capitalist says disparingly about free markets, by way of empirical evidence, is total and complete hogwash.
Regarding Mises’ “pure discount rate”…
Mises’ theory of interest does not actually imply or require cardinal utility. All it says is that present goods are valued more than future goods. It does not say by how much or what intensity, both of which would suggest cardinality.
The key is that the notion of present goods being valued “more than” future goods, ceteris paribus, then manifests in various observable, measurable quantities like nominal interest rates, the existence of perpetual profits even in an economy with invariable money, and so on.
Think of the pure time preference theory as a category of action. Don’t think of it as a measurable one dimensional concept that only has meaning when numerical values are associated with it, like apples or utils.
Regarding the climate change models:
The dire predictions were made in order to bolster socialist activity.
Regarding “greenhouse gases”:
Nobody has ever given a good explanation for why carbon dioxide, which every human being produces, is something that is justly responded to by way of (small) group A stealing from or coercing (larger) group B.
If we all produce CO2, then why can’t citizens steal from and coerce politicians?
MF, Humans do not produce CO2, they re-cycle it. All CO2 you breathe out came recently from your food, which came from CO2 in the atmosphere fixed by plants.
The only CO2 we are concerned about is fossil CO2, which increases the amount in the atmosphere today.
Oil is made from recycled plants and animals.
CO2 in the atmosphere was much higher in prehistoric times than it is today.
One giant recycle with a long frequency.
Which is why I said it increases the CO2 in atmosphere today. The half life of CO2 in the atmosphere is somewhere around 100 yrs. The carbon laid down in oil was millions of years ago. We could call it recycling, but over time periods of this length the overall carbon levels in the atmosphere today will be seriously affected. Recycling over timescales much less than the residence time of carbon in the atmosphere will have no effect on the atmospheric levels.
This is the explanation that you said nobody has ever given. Humans do not affect the climate by the CO2 they produce by respiration. Using fossil fuels does. End of story.
The half life of CO2 in the atmosphere is not a constant.
We know this because of the high degree of varying CO2 levels in the atmosphere over long periods.
Are you suggesting that the half life could be millions of years? I think you need to give up on this one. Anyway, it is the half life at the moment that is important.
CO2 levels are increasing and it is because we are introducing carbon that was stored millions of years ago. If we took out carbon yesterday and re-introduce it today it will not change the mean CO2 level over the measurement period.
This horse is dead, please stop flogging it.
No, I am suggesting that it is wrong to assume it is a constsnt as you did.
No, the half life in the future is what is important.
CO2 in the atmosphere was much higher in the distant past than it is today. See the ice core samples.
Yes, the horse is indeed dead. But the horse that is dead is the one you keep beating, not me.
MF -please stop changing the subject and making false claims. I did not claim the half life was constant – I said it is 100 years not that it has always been 100 yrs. The half life in the immediate future is unlikely to be radically different from today unless you invoke totally unexpected science, so the claim is irrelevant. I never denied CO2 levels were different in the distant past – it is not relevant to the discussion. You keep introducing irrelevant points and then disputing them.
Look – you said every human produces CO2. In the context of atmospheric concentration they do not produce CO2 because they remove an exactly equal amount. Waffling about prehistoric co2 levels and whether that can be called recycling is beside the point.
Bob, Going back to your dissertation, I see a problem with your sense 2 of TPTP. I see it saddled with a fundamental error.
You said
Basically, you can’t interpret Mises as defining TP in this way. He defines it as the preference for end satisfaction in the present over the same end satisfaction in the future. I see no room for enjoyment of a given utility in Mises’ position on TP. So there is no discounting of utility as you put here
The entire notion of discounting future utility is so un-Mises like that it seems deeply flawed to interpret Mises’ statements on that standard. There is only TP and hence a higher ranking for end satisfaction in the present to end satisfaction in the future. This means that, ceteris paribus, a unit of a means now satisfies a more valued end than does one unit of the same means in the future. This only means that, ceteris paribus, a means whose usefulness (utility) is end satisfaction now will get a higher ranking on the value scale than will an identical unit of identical means whose usefulness (utility) is end satisfaction in the future.
I just do not see any room for discounting utility. As I understand it, that significantly weakens your argument against TPTP.
Basically, Bob, I am saying that you have straw-manned TPTP in your thesis.
In fact, I see a problem with sense 1 as well. You said
I think preference for end satisfaction in the present over identical end satisfaction in the future is the correct definition of time preference. Greater valuation of a present good over a future good is a consequence of this definition and the point that means are valued with respect to their role and usefulness in end satisfaction.
All this only gives me more reason to say you have straw-manned TPTP.
Problem is, if you use percent per annum to be your measure of interest rates, you automatically accept the multiply operator is legitimate for utility and “presto” you have cardinal utility.
But there’s more: if you don’t accept percent per annum as being applicable to time preference then WTF are you doing with interest rates?
Is the WTF (and in fact the entire comment) directed at me or at Bob? Wanted to be clear before deciding to respond.
http://edition.cnn.com/2015/05/26/living/merriam-webster-new-words-2015/index.html
I was just testing the new words recently made available to me. Don’t get me started on net neutrality, I assure you the clickbait will photobomb your emoji.
No!!! I mean seriously. I wasn’t upset or anything. WTF can be serious about WTF? I was unclear whether you were objecting to what I said or to what Bob has said.
Seriously though, (sans Internet lingo), it’s not possible to apply a percentage to an ordinal scale.
If you see present day utility as ordinal, and also time preference as ordinal, then there’s no way to get interest rates out of that.
OK. So it is to me.
You are wrong. Ordinal utility with ordinal time preference allows you to rank present and future units of money of the same unit size as well as future units of money of varying unit size on the same value scale using 3 laws
1. The Law of Time Preference
2. The Law of Diminishing Marginal Utility
3. The Law of Increasing Total Utility
Thus, you can come up with the concept of interest rate as a cardinal number from ordinal TP and utility. No problem with that. Check the John Smith-James Robinson value scales in MESPM (pp 380 and 381).
That’s not what a percent interest rate means. Percent requires a multiply operation. Saying 10% of X implies you are using multiply.
Ordinal scales do not define multiplication. Suppose I prefer chocolate to strawberry, then what is 10% of that? What does it mean?
Suppose 100 people run a marathon race and come 1st, 2nd, 3rd, etc then someone asks you to calculate 90% of those race results… what can you come up with?
You are still missing the point. If John Smith offers 10 oz of present money accepting in exchange 16 oz of money 10 years from now, assuming the simplification of simple interest, the rate of interest is 6%.
Here, the rate of interest emerges because some quantity of money in the future greater than 10 oz would figure above 10 oz in the present and the interest rate is figured out from that. I am using division, not multiplication to figure out the rate of interest.
You are wrongly using the example of chocolate and strawberry while talking of interest rate. You ned to be talking of
1. Units of money given up from stock now
2. Units of money added to stock now
3. Future unit of money of the same size.
4. Future units of money of higher sizes than in 3 above
Each of these units of money in 4 stands for a certain hypothetical interest rate. So 11 oz after 10 years for 10 oz today stands for 1%. Likewise for every other amount of money in the future.
Ordinal scales may not define multiplication, but when they allow us to factor in pre-multiplied numbers and place them on the value scale, we have our task done for us.
I think that the recent police violence all over the country suddenly being in the news all the time is a deliberate plan to massage and prepare the public to have state and city level police replaced with a new police force under federal authority.
What about the “Ferguson effect” articles that are basically saying “crime is up and people who criticize the police are to blame!” (Basically taking it as a given that if you criticize the police they will just choose to stop doing their job and that this is a completely okay thing for them to do)
Then again there’s:
http://data.giss.nasa.gov/gistemp/graphs_v3/
From Bob Murphy’s dissertation:
“Mises seems to be arguing that time preference refers to the fact that present goods are preferred to future goods (i.e. TP in sense [i] as we have defined it above) and that this preference explains the higher prices for capital goods over the original factors required for their construction.”
It’s time preference all the way up the structure of production, is Mises’ point.
This is logical, since all of the value for a finished good is derived from the subjective preferences of consumers. The consumer buys from the store because it imposes a lower opportunity cost than not buying. The store sells because the consumer is willing to pay a price that is higher than the opportunity costs, to the seller, of running a store.
The consumer sets the maximum price that anyone within a given structure of production can make off of lower stages of production (those closest to producing finished goods).
Only those producers and buyers of originary factors who can make mutual profit will be a part of the same structure of production (barring fraud or mistakes).
So, prices higher than the factors themselves [like all higher order goods] are baked in all the way up the structure of production *based on* demand from the next lower order of production – all the way down to the consumer.
Production takes time, so those in lower order stages will pay for higher order goods based on their time preference for payment from stages that are lower still.
For those interested, Joseph Salerno explained this in his discussion of Menger’s Theory of Imputation, here:
[Time stamped]
The Birth of the Austrian School Josep T. Salerno
https://www.youtube.com/watch?v=dZRZKX5zAD4#t=43m09s
There’s a possible answer to the utility question that I’m going to propose here. Two types of utility can simultaneously coexist: ordinal utility which is a property of individuals, and also cardinal utility which is a statistical property of sufficiently large groups of individuals (how large exactly? better hire a statistician).
This solves the question of interpersonal utility comparison — it can’t be done because individuals use the ordinal version of utility. It also solves the problem of time preference being measured as an interest rate — that’s a property of the group (i.e. interest rates are a market price for loans), and is indeed ordinal. It also answers the traditional “Progressive” statement that the marginal utility of money is less for a rich individual than a poor individual — can’t be done because individuals have only ordinal utility.
If anyone is weirded by this, you can feel comforted because the physicists got there first… individual particles can have kinetic energy, but a group of particles bouncing around in a box have the statistical property known as “temperature”. The individual particles bouncing around in the box also each have kinetic energy but it’s meaningless because with a billion particles you have a billion different kinetic energy values (not individually measurable), and they change all the time as particles bounce off each other. That’s why temperature is useful, because it allows you to talk about aggregate behaviour of large numbers of individual particles.
Nice idea Tel, and well put. Once we have cardinal utility as an emergent property of groups we can talk about social welfare etc. This system is incompatible with Austrian approach though, I think. Certainly MF totally reject any such concession, although as you describe it is something we do all the time in other spheres.
I think you have to start with the Austrian approach as it applies to individuals before you can even go looking for emergent properties with regards to the group. Just being cautious about clarifying whether you are speaking with reference to individuals or groups is pretty important (and many economists gloss over the difference without a second thought).
For example, individuals make transactions and each transaction has a nominal price, but a “market price” doesn’t make sense unless you have enough individuals on both the buying and selling side to create genuine competition amongst the buyers and sellers. There’s a bunch of additional assumptions that must be justified before the “market price” property does emerge.
Another example, individuals vote… not just in Presidential elections but in lots of other things like shareholders voting for a board of directors, or a club voting on how much they will spend on clubhouse maintenance next year. We cannot pretend that individual preferences are irrelevant here, of course individual preferences must play a part, and yet the final decision is a product of that group (including influence by the structure of how the group operates).
“… and also cardinal utility which is a statistical property of sufficiently large groups of individuals (how large exactly? better hire a statistician).”
Such a statistical property would be meaningless, since groups do not have ends for which means provide utility.
Only individuals have ends, however coordinated they may be with other individuals’ ends.
Clearly temperature is not a useless property, even though it arises out of individual molecules’ kinetic energy. Yet we did need to invent a new name for the emergent property – and a new scale for it. We don’t measure temperature in energy units. Similarly Guest may have a point that the emergent property of groups is not the same as the property of the individual, like temperature is not the same as energy.
I think all this is coming together for me. I don’t know if this makes sense, but here goes.
Austrian economics, praxeology etc deal with the individual only. It is not predictive, and only describes what will happen if something else happens.
It is possible that there is an emergent property of groups, akin to temperature, which we could call “social welfare”. Austrian economics has nothing to say about this hypothetical property, even whether it could or does exist.
Austrian economists therefore wonder at people talking about such a thing, which they see as not economics at all, but something else. Everyone else wonders at Austrians for failing to see the importance, or even the existence of something they see great value in studying.
This may not make any sense – just thought I would get the idea down whilst I still had it.
“It is possible that there is an emergent property of groups, akin to temperature, which we could call “social welfare”. Austrian economics has nothing to say about this hypothetical property, even whether it could or does exist.”
Austrian Economics would definitely say that there is no such thing as social welfare, because only individuals can experience welfare; and that the supposed emergent property of groups is an imprecise description either of 1) the specific individual who is made better off by the actions of other specific individuals, or 2) the greater number of individuals who can take advantage of the actions of other specific individuals, as compared to a scenario where the other individuals didn’t act.
On the supposedly cardinal nature of the subjective experience of temperature, given the cardinal measurment of temperature:
Toward a Reconstruction of Utility and Welfare Economics
II – Utility Theory
The Neo-Cardinalists: the von Neumann-Morgenstern Approach
https://mises.org/library/toward-reconstruction-utility-and-welfare-economics-0#2d
“Measurement, on any sensible definition, implies the possibility of a unique assignment of numbers which can be meaningfully subjected to all the operations of arithmetic. To accomplish this, it is necessary to define a fixed unit. In order to define such a unit, the property to be measured must be extensive in space, so that the unit can be objectively agreed upon by all. Therefore, subjective states, being intensive rather than objectively extensive, cannot be measured and subjected to arithmetical operations. And utility refers to intensive states. …”
“… A favorite rebuttal is that subjective states have been measured; thus, the old, unscientific subjective feeling of heat has given way to the objective science of thermometry.[42] But this rebuttal is erroneous; thermometry does not measure the intensive subjective feelings themselves. It assumes an approximate correlation between the intensive property and an objective extensive event — such as the physical expansion of gas or mercury. And thermometry can certainly lay no claim to precise measurement of subjective states: we all know that some people, for various reasons, feel warmer or colder at different times even if the external temperature remains the same.[43] Certainly no correlation whatever can be found for demonstrated preference scales in relation to physical lengths. For preferences have no direct physical basis, as do feelings of heat. …”
“… If an object is extensive, then it is at least theoretically capable of being measured, for an objective fixed unit can, in principle, be defined. If it is intensive, then no such fixed unit can apply, and any assignment of number would have to be ordinal. There is no room for an intermediate case. The favorite example of quasi-measurability that is always offered is, again, temperature. In thermometry, centigrade and Fahrenheit scales are supposed to be convertible into each other not at a multiplicative constant (cardinality) but by multiplying and then adding a constant (a “linear transform”). More careful analysis, however, reveals that both scales are simply derivations from one scale based on an absolute zero point. …”
“… Furthermore, the actual measurement in temperature is a measurement of length (say, of the mercury column) so that temperature is really a derived measure based on the cardinally measurable magnitude of length.[44]
“Jacob Marschak, one of the leading members of the Neumann-Morgenstern school, has conceded that the temperature case is inappropriate for the establishment of quasi-measurability, because it is derived from the fundamental, cardinal measurement of distance. Yet, astonishingly, he offers altitude in its place. But if “temperature readings are nothing but distance,” what else is altitude, which is solely and purely distance and length?[45]”
“because only individuals can experience welfare;” That surely depends how you define welfare. Only the individual can act, we can argue that utility makes sense only for the individual, but why can we not have something else for groups that we call welfare? I have not yet defined this, but I don’t see how Austrian economics can say anything about it except that it cannot be the same as utility for individuals.
To bring this back to our other discussion could this not be based on emotions? We can have a property of emotional optimisation. Praxeology says nothing about this except that it is not praxeology.
“… but why can we not have something else for groups that we call welfare?”
Maybe this can help:
Man, Economy, and State
with Power and Markets
Chapter 12: The Economics of Violent Intervention in the Market
Appendix B
“Collective Goods” and “External Benefits”:
Two Arguments for Government Activity
https://mises.org/sites/default/files/Man%2C%20Economy%2C%20and%20State%2C%20with%20Power%20and%20Market_2.pdf
[Page 1030]
“Secondly, the very concept of “collective goods” is a highly dubious one. How, first of all, can a “collective” want, think, or act? Only an individual exists, and can do these things. There is no existential referent of the “collective” that supposedly wants and then receives goods.”
A group does not have cognition, and therefore cannot experience welfare.
Many individuals can experience welfare at the same time, but they do so as individuals.
How do you know that? Did you ask the group? If you did, then how did you go about asking the group? If you never asked the group, then “groups do not have ends” is merely a statement of belief, not based on any direct evidence.
You would accept (I hope) that groups exhibit behaviour that can be different to what each individual in the group would exhibit on his/her own.
If you went around interviewing individual Americans asking whether they thought that torturing prisoners was a good idea, I’m confident the majority would say, “No!” If you took this one step further and put each individual American citizen into a room, put the tools in their hand and told them to go torture a prisoner you would find almost every one of them INCAPABLE of doing it. Yet, that being said, the USA *as a group* did indeed torture prisoners, and I don’t accept for a moment the “few bad apples” explanation, that some front line grunts just decided to start doing it without any command structure supporting the activity.
Of course, I’m picking up a pathological example, but never the less it did happen, so there must be a reason it happened. If we want to be scientific we need at least a theory to explain what we observe.
One explanation that people offer is that although the USA is nominally a democratic nation, the process of democracy is broken (either by accident or design, or perhaps it never could work) and thus we get these broken outcomes that do not reflect the will of the people. Even that idea “democracy is broken” implies some property of the group must exist beyond just the individuals in that group. If individuals were all that mattered then laws, traditions, constitutions, and all that stuff would have no influence on the outcome.
“Did you ask the group?”
Questions cannot be asked of groups; only of individuals.
“If we want to be scientific we need at least a theory to explain what we observe.”
May I suggest Methodological Individualism?
“You would accept (I hope) that groups exhibit behaviour that can be different to what each individual in the group would exhibit on his/her own.”
Individuals can be emboldened by the perception of support from multiple sources.
But it’s still the individual acting.
MF and I had a discussion a while ago, which although different had certain similarities. I think I understand his position better now. The hypothetical was that he wanted factories. His preferences are 2 factories>1 factory>1 pot of gold. A factory costs 1 pot of gold. He believed if he buried his gold in the garden pixies would double it, so he would be able to get 2 factories. We specify that there are no pixies. MF argued that he is better off if the gold is left there and no factories are built, even though this is his least preferred option. I argued he is better off if LK digs it up without his knowledge and builds a factory for him.
If we consider only action, we must ignore what I would say MF “wants” – it has no meaning. I would say his action is clearly going to fail to achieve what he “wants”, but that is outside praxeology.
We could say that his preferred order is 1 pot of gold buried in the garden>2 factories>1 factory>1 pot of gold not buried in the garden, and therefore leaving the gold leaves him better off.
Whilst this does have a certain internal logic, there is also a valid interpretation that he is better off with the factory. Since this is a hypothetical, we are allowed to know things we would not in practice, so we know he only prefers the gold in the garden because of a false belief. However, praxeology forbids up to consider the origins or veracity of his beliefs.
Group behaviour is similar. Praxeology would have us ignore the altering of motivation that other members of the group cause. By definition that is outside praxeology.
This is to some extent fine, and we can possibly agree that this is what praxeology is. Then why anyone should concern themselves with praxeology? It tells us very little about behaviour, only action, which I argue is a small part of behaviour.
This is demonstrated by the issue of rationality. According to Mises and Rothbard, action cannot be irrational. Yet behaviour can be irrational. Action therefore cannot be behaviour. Either we accept this, or we reject the concept of irrational behaviour. Maybe rejecting this concept is what is required of accepting this view, but why would we choose to study that which rejects the possibility of a concept we find so useful?
Harold,
If I wanted to own another factory, rather than a pot of gold in the ground, then I would purchase or finance the construction of a new factory.
You have no right, no leg to stand on, to tell me that what you say is better for me, is better for me than what I want for me. I don’t want to own another factory, have you considered that?
Geez Louise, it is like you believe you have some mystical connection to the universe that enables you to declare another factory is absolutely without a doubt despite what I say or think or feel, better for me than what I know to be better for me.
If I bury a pot of gold instead of investing it, then sorry to break your totalitarian minded bubble, but that is in fact what is best for me, period, end of story.
Harold,
My argument about hoarding gold resulting in more factories was predicated on the sound economic theory that the same investment spending, coupled with a reduced consumption that takes the form of gold hoarding, has an effect on the relative profitability of capital goods versus consumer goods.
I don’t bury cash because I want another factory. The change in relative profitability would have to be decided upon by others on this instance. If they WANT to earn fewer profits, then they can. But you can’t know this a priori, so you can’t claim that you know I would be better off if LK robbed from me and used the loot to build a factory.
Good lord!
MF, I did say “We could say that his preferred order is 1 pot of gold buried in the garden>2 factories>1 factory>1 pot of gold not buried in the garden, and therefore leaving the gold [in his garden] leaves him better off.”
I think this expresses your position accurately, please tell me if I am wrong. I said I thought I understood your position better now, and that was my attempt at expressing that understanding.
I do not think that the MF in the real world actually wants to bury his gold for the pixies.
Your approach does not consider the veracity of your beliefs – that is outside the analysis, as Mises and Rothbard agree.
A lot of people find it unsatisfactory to say that wealth has increased because you buried your pot in the garden on some crazy belief, rather than build a factory with it – when it is actually a factory you want. You are of course entitled to disagree with them.
In the real world I can never know what you want, but in a hypothetical I can, because I am saying IF this, THEN so and so. There is no requirement for the situation to ever occur. We can say I bury the gold because I want the pixies to double it, and I know that is because I want two factories. Is there a problem with me knowing what I want?
Please understand I am not saying your approach (as I understand it) is necessarily wrong. I am discussing whether its incompleteness makes it less useful, and there is a real sense that we might like to consider in which wealth is increased by LK digging up the gold and building me a factory. Not your definition of wealth, but another definition that could actually be useful.
Harold,
Please be more clear on this.
Theft is not a hypothetical. It is an action that totally obliterates any chances of me doing what I want with the gold.
Your hypothetical that you don’t know for sure if the reason I bury the gold is due to a belief that is objectively wrong, and thus theft may have the outcome of my desired ends, suggests at least two premises that you haven’t addressed.
One, that my wanting to keep the gold buried is somehow not in itself a utility deriving activity, as if reducing my utility there does not exist.
Two, that you believe people are entitled to steal based on their own subjective value of “I have a right to bring about the ends that follow the means for others”, rather than the subjective value of the owner.
Nowhere have you explained either of these two.
You wrote:
“A lot of people find it unsatisfactory to say that wealth has increased because you buried your pot in the garden on some crazy belief, rather than build a factory with it – when it is actually a factory you want. You are of course entitled to disagree with them.”
But “A lot of people” does not not constitute the standard for MY values. I do. You say “I am entitled to disagree” as if it is an established truth that a belief becomes true if “a lot of people” believe it, and then there’s me with my only option to “accept” or “deny”, and not point out that they can all be wrong, since they are not me and yet presume to speak about wealth from my perspective.
The theory of revealed preferences is not “incomplete”, because that suggests economics can enable you to read my mind, and it is only up to the theory of economics to play catch up.
The possibility of me being wrong about the ends I hope to achieve, using the means I do achieve, and studying how and why certain means did not achieve certain ends, is the task of the natural sciences, not economics.
And you have not addressed the argument I made about the change in relative profitability that provides incentives to others to build another factory.
Giving money directly is just another type of incentive.
“suggests at least two premises that you haven’t addressed.
One, that my wanting to keep the gold buried is somehow not in itself a utility deriving activity” Yes, switch it to my gold, and I can assure you burying the gold per se gives me no satisfaction. It is only in the expectation of pixies that I do it.
” Two, that you believe people are entitled to steal based on their own subjective value… ”
You overstate my position; I have said no such thing. I said we might like to consider our definition of wealth, not that we should then permit theft.
““A lot of people” does not not constitute the standard for MY values.”
Indeed, but why should we care about your values?
“…is the task of the natural sciences, not economics.”
Some things are not true or false, but depend on agreement. The meaning of words for example. Economics means what everyone agrees it means. If we all agreed it meant collecting mushrooms, then that is what it would be. You say it is one thing, but if a lot of people do not agree, then you have no right to claim your interpretation is the “right” one. You can qualify by saying something like “Austrian Economics” is such and such. Everyone else can then decide if they want to be bothered with this, or whether they want to carry on collecting mushrooms.
The argument about relative profitability addressed a different point in the original argument I think.
Harold:
“Yes, switch it to my gold, and I can assure you burying the gold per se gives me no satisfaction. It is only in the expectation of pixies that I do it.”
Ah but according to your arguments above, it is hypothetically possible that whatever you do choose to do, you may fail to achieve your desired utility. Hence stealing from you may bring about the results that I believe I should do for you without your consent.
” Two, that you believe people are entitled to steal based on their own subjective value… ”
“You overstate my position; I have said no such thing. I said we might like to consider our definition of wealth, not that we should then permit theft.”
What do you mean “our” definition? Clearly you want to play semantics and convince me that if two people want to define wealth as X, whereas little old me wants to define wealth according to Y, then I would “have no right” (as if the two people do acquire some right by mere agreement with each other?) to define wealth as that which includes gold buried in the ground.
Your basis is ultimately do as I say about your person and property, because “we” outnumber you.
““A lot of people” does not not constitute the standard for MY values.”
“Indeed, but why should we care about your values?”
Let’s be clear. I am talking about my values concerning the use of my person and property.
Why should you care? For the same reason anyone should care about anyone else’s value concerning their own lives. I care about your values concerning your person and property. If you rhetorically ask me why you should care, as if it is my job and my responsibility to convince you, then by that logic, I could rhetorically ask you the same thing. Are you sure you want to tell me that you don’t care about my values concerning my body and property? For if you don’t, then I would have no qualms with shooting you to stop you from acting on your lack of caring as you attempt to steal from me. No offense.
“…is the task of the natural sciences, not economics.”
“Some things are not true or false, but depend on agreement. The meaning of words for example. Economics means what everyone agrees it means. If we all agreed it meant collecting mushrooms, then that is what it would be. You say it is one thing, but if a lot of people do not agree, then you have no right to claim your interpretation is the “right” one. You can qualify by saying something like “Austrian Economics” is such and such. Everyone else can then decide if they want to be bothered with this, or whether they want to carry on collecting mushrooms.”
If universal agreement were requisite for any word or phrase to have a definition, then there would be no such thing as a definition.
I never claimed, and in fact I have always made it a point to consider, that one person’s definition is neither true nor false. You are presuming I am arguing to the contrary. I am not. You have no right to force me to use your definitions, no matter how many more people use it compared to my definition.
What is important is what the definitions refer to. That it seems you choose not to engage, because you are pretending this was a semantics argument the whole time, when it wasn’t.
“The argument about relative profitability addressed a different point in the original argument I think.”
So what? It was in the original argument that you challenged my theory about.
Actually it addresses your claim that my desire to reduce my consumption and bury gold has no effect on capital accumulation. It in fact does. You continue to dodge it. You were the one who challenged me on that point.
If investment spending rises RELATIVE to consumer spending, which occurs when people reduce their consumption and “hoard” their money earnings, that encourages longer term, more capital intensive projects to take place.
The issue is whether we take into consideration the fact that my hypothetical action is based on a mistaken belief. You say Austrian economics says no, it is of no relevance. If that is the case, why should anyone, least of all policy makers, bother about Austrian economics? The end result could be misery for everyone.
I mean, what a pitch.
“Hey Mr. President, I have this system, that if followed, will maximise utility! ”
“Will it make people happy?”
“No idea.”
“Will it get people what they want?”
“No idea.”
Will it generate more money?”
“No idea”
“Why should I listen to you?”
“Well…utility! My system is logically consistent!”
Harold,
You said this
which tells me that you have not understood economics as the Austrian explains it. Austrians do not talk of maximising utility. Utility is a subjective tool used to rank means with respect to the ends they satisfy and how well the acting man evaluating them thinks they will enable that goal of end satisfaction.
The Austrian system focuses not on maximising utility but on maximising subjectively assessed well-being by looking at the ends satisfied. Basically, the more the highest ranked ends that are satisfied, the greater the individual’s well-being. At a social level, the more universal is the attainment of such a state of greatest possible individual well-being, the better off society is as a whole.
It is when you universalise this principle that you realise one of the key insights of the Austrian school – that from the point of view of overall well-being, the free market of voluntary exchange creates a pareto optimal situation that cannot be improved by the introduction of violent exchange, that category of exchange under which all government intervention falls. So when the Austrian suggests that some serious consideration be given to the free market approach, he is pitching for a raising of the general state of human wellbeing. Whether you call it happiness or whatever else you like is your call. All Austrians say is that the free-market maximises well-being.
Of course, you can’t pitch this to a politician who is likely to be least interested in general well-being and very interested in using violence to win votes.
“Basically, the more the highest ranked ends that are satisfied, the greater the individual’s well-being.”
This is the problem -well-being is not a precise term and can mean many different things. What it does not mean is that which is maximised by action. Yet in Praxeology all we can talk about is what people do. That is why I said utility – I cannot use well-being because that is not what I think it means.
Can we not say that in this context utility means subjectively assessed “well being” and leave it as it is? Quotes to indicate well being is used in an unusual way.
You cannot say that society as a whole is better off unless you have some idea what it means for a society to be better off. That entails attributing some property to the group. I am quite happy to do that, but we have no way to link it to what is maximised by action.
“Whether you call it happiness or whatever else you like is your call. ”
It is not my call – I thought we had firmly established that we definitely could NOT call it happiness. Whatever it is that is maximised is NOT happiness, so we cannot call it that. I do not think we can call it well-being either. The only thing I can think of to call it is utility.
To paraphrase your last statement: he [the Austrian] is pitching for a raising of the general state of something that is definitely not happiness. All Austrians say is that the free-market maximises this something.
Which is pretty much what I said in my hypothetical pitch. I don’t think I have miss-understood at all.
Once again, despite your claims to the contrary, you show that you do not understand the Austrian argument. Well-being means something specific. It means how “satisfactory” his state of existence is as subjectively appraised by the acting man himself.
The beauty of the Austrian approach, which you do not yet get, is that it explains clearly that man necessarily has ends which he ranks on a preference scale. There are more preferred ends and less preferred ends. It identifies the not-so-obvious-to-all point that man faces choices and that he needs to forgo some ends in order to satisfy some other ends. It uses the concept of the value scale to demonstrate that acting man necessarily satisfies his most preferred ends by forsaking his lower valued ends.
A man who has satisfied a more valued end by forsaking a lower valued end is said to have attained a state of greater well-being or a state of existence that is more satisfactory to him than is every other state of existence conceivable to him. So, a man who, by virtue of participating in the free market process of voluntary exchange, has satisfied his n top-ranked ends is in the state of greatest well-being possible to him in the real world, i.e., in the state of existence that is more satisfactory to him than is every other state of existence conceivable to him in the real world.
In a free-market of voluntary exchange, every individual is in such a state of existence that is more satisfactory to him than is every other state of existence conceivable to him in the real world. Therefore, contrary to your claim below
I am able to define clearly what it means for a society to be better off without attributing any property to the group and by linking it to what is “maximised” by action. The composite (though not additive) of the well-being of all individuals is societal well-being.
Therefore, I am forced to conclude that you have no understanding of the Austrian position that you seem to be claiming has little relevance for real-world decision making.
You are further evading the simple Austrian point that violent exchange introduced into the free-market necessarily lowers the well-being of the victims of violence, though it may raise the well-being of the perpetrators. You are evading the point that government intervention is by definition a form of violent exchange and therefore necessarily lowers the well-being of the victims of its violence, i.e., the people it “governs”.
I think you are missing my point.
What I think you are doing is using the word “well-being” in a very specific way to make your argument about the validity of praxeology, then using it in different way to justify the relevance of praxeology. An indication is where you say “…is said to have attained a greater well-being” – it is “said to” have attained, rather than it “has” attained. However, this is fine as we can use any definition you want, as long as we are consistent.
One definition of well-being – call it definition A – is: “the state of being comfortable, healthy, or happy.” This is a fairly normal definition, and would probably be broadly accepted by most people. This is not what you mean by well-being; clearly health and happiness have no relevance. Other definitions are similar and contain elements of health and emotional satisfaction which have nothing to do with what is maximised by action – as we argued about at length in a recent post.
So what do you mean by “well-being? Correct me if I am wrong, but I see it as the result man gets when he acts. It is a tautology, as Mises said and MF emphasised. Call this definition B.
We can work with whatever definition you want, as long as we are consistent. So we can say policy based on Austrian economics does not maximise well-being (definition A), or we can say it maximises well-being, but well being means something specific in this context, and not what people might understand by the term (definition B).
I think you are using definition B when discussion Praxeology, and definition A when discussing the relevance to policy.
Rather than re-defining existing words to fit your very specific meaning, why not use a word that seems better designed to fit – i.e. utility? We can say that man acts to maximise utility, and utility is what is maximised by acting man. If we start to use other words we have to use quotes or other qualifiers to indicate that they are not being used in their normal way-as you did with “satisfactory” and Mises did with “happiness”.
Which brings us back again to my original question. If I am interested in health, happiness, well being or any of these type of things, why should I concern myself with Austrian economics, which has nothing to say about these things? What is wrong with my pitch?
Harold,
This link should address all your points and show you how wrong you are and that I am not redefining terms.
well-being
ps – Frankly, I was taken aback when I read the definition out there. It looks like it was written for you and for this discussion.
OK – lets agree to stick to this definition. “Good” and “satisfactory “are a bit vague, but this bit: “a state characterized by health, happiness, and prosperity” makes my case completely.
We established quite clearly that praxeology was not about happiness or wealth or health. If these are the very things that characterise well-being, then very clearly it is not well-being that is maximised by action.
So I ask again, if I care about well-being, why should I concern myself with praxeology or Austrian economics?
This is an absolutely crucial question.
Harold,
Looks like you do not read what is presented to you. The link I showed has this to say about well-being
Austrian Economics explains the economic phenomenon of price starting from the fundamental fact of human action. It starts with the simple point that action presupposes a preference for certain states of existence over certain others, labels these man’s ends that he acts to attain, then proceeds to demonstrate that man must have his ends ranked from the most preferred down to the least, and takes the reasoning all the way to demonstrate that the free market is where every man has the greatest number of most preferred ends satisfied and that any alternative lowers the number of his most preferred ends satisfied.
If you take the definition of well-being as a good or satisfactory condition of existence and the insight of Austrian Economics that the free-market is the way to attain the best (as subjectively appraised by acting man) state of existence possible to him of all the states of existence he could possibly be in, one is forced to draw the conclusion that Austrian Economics explains the path to man’s greatest possible well-being.
Therefore, anyone interested in maximising his well-being should try to understand Austrian Economics. What’s surprising is how you are managing to miss/evade this obvious point.
You do realise that you had to throw out 2/3 of the definition to make it fit your interpretation?
So my argument stands that you have to use well-being in a narrow restricted sense. Use it as the full definition and your argument fails completely.
If you want to use well-being in a restricted sense, we must then chase down exactly what good and satisfactory mean in this context.
Action is the momentary preference for one thing over another. There is no reason why that must led to a good or satisfactory position, unless we define good and satisfactory as the position we end up with after we have acted.
I am sticking to logic here. This is not a nit-picky argument. This is where the is of praxeology meets the ought of real life. I do not see a bridge between them.
Harold,
This is hilarious. You are accusing me of leaving 2/3 of the definition when you have left the core? The core of the definition was
This is what well-being IS. The rest of it is key attributes that characterise well-being but the bit above is THE definition. You took the frills and left the core out. Why? Because of this?
When the basic DEFINITION says that well-being IS a good or satisfactory state of existence, you ignore it because it is vague? Actually, it is because you are clearly incapable of dealing with it.
A working knowledge of English will tell you that good is an adjective in the positive form whose comparative form is better and superlative form is best.
With this in mind, I explain that acting man chooses the among ends and in doing so, he is demonstrating which between two ends is the “better” state of existence for him. When he chooses the most preferred end, he is demonstrating which end is the best state of existence in his eyes. In Newspeak, it would be called Double Plus Good.
I also explain that with this framework, Austrian economics shows man that the best way to attain the best state of existence possible to him is the free market, you say this is a selective interpretation based on ignoring 2/3 of the definition?
When there are 2 statements
1. Well-being is a good or satisfactory state of existence
2. A state characterized by health, happiness, and prosperity; welfare
it is clear the the first is THE definition and the second is an ancillary statement identifying some attributes that are normally associated with well-being. You are the one ignoring the definition because you lack the tools to deal with it and instead deal with incidentals and accuse the one dealing with the definition correctly of ignoring the definition.
That’s either chutzpah or plain blindness.
Action is purposeful behaviour. Purposeful behaviour presupposes ends or states of existence. Purposeful behaviour presupposes a choice between different states of existence. Purposeful behaviour presupposes causality, rationality and that one state of existence is necessarily preferred or considered “better” (more good) than the other.
And then you say this???
You have clearly not understood even the most elementary logical implications of the fact that man acts and you claim this???
No! You are butchering logic.
I am going to continue at the bottom, as this arguing in a small strip up the edge is a bit iirritating. See you there!
Harold said:
“His preferences are 2 factories>1 factory>1 pot of gold.”
Major Freedom said:
“If I wanted to own another factory, rather than a pot of gold in the ground, then I would purchase or finance the construction of a new factory.”
LOL. I totally remember this.
Major Freedom’s scenario, at the time, had him preferring to put gold in the ground, not so that it could hold or gain value in the future to a greater extent than a factory could, but because he just wanted to put some gold in the ground.
That’s it. That was the highest ranked preference in his scenario.
See, the way I read this is that there’s still a lot of mixup between what applies to an individual and what applies to a group.
If the individual is burying gold, (as far as I can see) that would be an individual choice.
From a group perspective you end up with different metrics: e.g. 15% of the population choose to bury gold, the typical gold cache is between 10oz and 100oz, average depth of gold buried, average time before the cache is dug up again… all of those are cardinal measurements (presuming the group is large enough that granularity of each item can be ignored).
Cardinal measurements are a lot easier when they refer to something physical. However, the concept of group “welfare” is much more tricky. Since we have no way to measure individual welfare in a consistent manner we cannot simply average a bunch of non-measurements. There’s a bunch of problems with group concepts like: [1] does the group exist for the purpose of serving the individuals, or [2] do the individuals exist for the purpose of serving the group?
Re climate models. I don’t think the average of CMIP-5 models is a prediction of future climate. It is a projection of what future climate would be like given different scenarios. In order to compare the physical model with the reality we would need to select the scenario that has turned out to be closest to reality and compare that with the actual temperature. The figure shown therefore shows us nothing at all.
We can confirm this by comparing the IPCC’s reported likely temperatre predictions. The IPCC says in AR5 “The global mean surface temperature change for the period 2016–2035 relative to 1986–2005 will likely be in the range of 0.3°C to 0.7°C” We see in the graph of average CMIP-5 projections (not predictions) that the anomaly is well over 1°C by 2025. Although the comparison dates do not coincide exactly it is very obvious that the graph shown does not reflect the likely temperature predicted in IPCC AR-5.
I don’t think this is true in the way you mean it. The models Christy draws from the IPCC report are attempts to predict the future given the trend in CO2 concentration- the models only really differ in the weights that they give to various items (sun cycle, water vapor etc.). It isn’t like the pause is caused by a pause in CO2 concentration or by any major volcanic activity. Christy is making exactly that point- the models have failed to predict the present trend in temperatures for the last 20 years, even though CO2 concentration trend is unchanged. The real question you have to ask is this- why haven’t the modelers been adapting to this new data- or, at the very least, why hasn’t the IPCC scrapped that list of models for the newer ones that fit the model to the recent data? They were doing it in the past- see, for example, the effects on the models of the two volcanic eruptions in 1982 and 1992- that is an example of response to temperature data as it was coming in during that decade and after. The only really rational explanation is that if the models were to fit to the recent temperature data, it would likely lead to models that start lowering the weight given to CO2. Surely you can see why the politicians that support the Green agenda wouldn’t like that at all.
My point is the graphic he shows is useless for showing what he wants it to show.
“The models Christy draws from the IPCC report are attempts to predict the future given the trend in CO2 concentration- the models only really differ in the weights that they give to various items (sun cycle, water vapor etc.).”
The models give projections for different scenarios, not predictions. Christy is using them as predictions. They only become a prediction when combined with a selection of a scenario.
Since the graphic shows a much higher temperature rise than the IPCC actually predict, we can conclude that the scenarios modelled are not the ones the IPCC thinks most likely.
If he were to show the appropriate graphic we would see the actual temperature bumping along near the bottom of the predicted range. Worrying for the modellers, sure, but not yet disastrous.
Bob,
The more I study your PhD Thesis, the clearer it is becoming as to how wrong your arguments against TPTP are, especially your critique of what you called Mises’ strongest argument. A simple theoretical analysis with value scales, on the same lines on which Rothbard has worked out the John Smith/James Robinson value scales in MESPM, shows you to be utterly wrong.
OK. After typing that, I managed to put my words together in (what I think is) a simple structure. So here it is.
Let’s take it that money is dealt with in units of 10 oz of gold. We are operating in the time market where the individual has a stock of a certain number of units of money and is facing the choice of whether or not to offer one or more of them for money in the future.
If time preference were negative, then at any point in time, the individual will value every unit of 10 oz in the future over anything from the first unit of 10 oz given up to the billionth. This means that even at an interest rate of 0%, the individual must necessarily find the same amount of money in the future (however near or remote) more valuable and placed higher on his value scale than any (1st or billionth) 10 oz of gold given up.
This means that at that instant, he offers every unit of money in hand to accept the same amount of money in the future. This means no unit of money is preferred for end satisfaction now.
To make matters worse, one can always conceive of a future sufficiently remote that 10 oz of money in that remote future is necessarily more valuable than all goods he could obtain for a unit of 10 oz in the present. This absolutely rules out consumption and necessitates offering every unit of 10 oz of gold in hand, from the first to the billionth given up, for 10 oz in that remote future.
The same situation would persist at any point in time and therefore we see that the individual with negative time preference finds himself in a situation where he is forever offering all units of money in hand to accept the same amount of money in the future and never consuming.
So this is why I think your critique of Mises’ strongest argument is wrong.
A small correction in one of the paragraphs above…
If time preference were negative, then at any point in time, the individual will value every unit of 10 oz in the future over anything from the first unit of 10 oz given up now to the billionth. This means that even at an interest rate of 0%, the individual must necessarily find the same amount of money in the future (however near or remote) more valuable and placed higher on his value scale than any (1st or billionth) 10 oz of gold given up now.
Thanks Bala.
Sorry if I cheesed you off, but this issue has been bothering me for too long now. In my head, I need to reconcile the fact that Bob Murphy (of all the people) thinks TPTP is not what orthodox Austrians think it is cracked to be with my own intellectual conviction regarding TPTP. I can’t do that completely inside my own head without driving myself insane (unless I already am).
I suspect that the same discrepancy is responsible for his position on bitcoins.
At some point along Methodological Individualist analysis, he abandons the logical progression from individual purposeful action and market prices, for some reason.
Maybe he thinks the link is not necessary in some cases.
Maybe he thinks that if people find it easier to describe economic activity in terms of cardinality, and it’s close enough, then there’s something about the cardinal interpretation that’s necessary.
Kind of like how everyone talks about a laborer “adding value” and we generally get what’s being communicated, except that because all value comes from the consumer, that can logically never happen.
(The means – the laborer- is a cost to the capitalist. The value is coming from the lower stages of production.
(The capitalist wants to employ the means that imposes the lowest opportunity cost, but a more efficient laborer as compared to others isn’t “adding value”, he’s just lowering the costs of satisfying his end.
(This is the proper way to think of labor, even though it feels unwieldy, and the other way of thinking about it is “close enough” for most purposes.)
Bala I don’t know what more I can do. I wrote a whole essay on what I thought were the problems. You’re saying Mises doesn’t employ a cardinal notion in his rendering of it. Well, the PTPT forces Mises to say:
“Originary interest is the ratio of the value assigned to want-satisfaction in the immediate
future and the value assigned to want-satisfaction in remote periods of the future”
(Mises 1966, p. 526).
If you want to tell yourself that you can take the ratios of subjective values to explain the percentage market rate of interest, without using a cardinal notion of value–then I can see why you’re going insane.
If this is how carelessly you are going to interpret Mises, it is not surprising that you come to the erroneous conclusions you have reached. I am sure you know as well as anyone else that value has 2 meanings – the subjective preference (sense 1) and the valuation as in a price (sense 2). The word “assigned” should have alerted you to that distinction, but clearly it hasn’t. You “assign” only numerical value. Subjective value is is expressed in action as choices. You do not “assign” a preference. You have it and demonstrate it.
If John Smith is ready to offer 10 oz in the present to accept 16 oz 10 years later, 10 oz is the “value” (in sense 2) that is “assigned” to end satisfaction in the present while 16 oz is the “value” assigned to end satisfaction 10 years later. These are the monetary valuations of the goods he is ready to exchange given his time preference. Originary interest pops up when you divide 16 by 10, subtract 1 and multiply the resulting number by 100.
These numbers are the manifestations of the valuation (in sense 1) which result in ranking of the first unit of 10 oz given up in the present and of units of various sizes upwards of 10 oz 10 years later. Subjective time preference leads to ranking which leads to numerical values of exchanged quantities of goods (or money) which leads to their ratio and hence originary interest.
“These are the monetary valuations of the goods he is ready to exchange given his time preference. Originary interest pops up when you divide 16 by 10, subtract 1 and multiply the resulting number by 100.”
What you’re saying is that 16 *happens to be* 160% of 10; That, even though there are actual numbers of oz. being valued, the numbers are marginal units that are being valued ordinally, even though, naturally, there is going to be a cardinal value (ratio) that can be assigned when comparing the two numbers.
“happens to be” is the right way to put it. They “happen to be” because of the intensity of time preference of that individual. The 10 oz now and the 16 oz in the future are marginal units being valued ordinally. You are also right in saying that once you are dealing with two quantities (both cardinal numbers) which are being valued ordinally, a ratio is possible. In this case, the ratio is what turns out to be meaningful.
Bala wrote:
If John Smith is ready to offer 10 oz in the present to accept 16 oz 10 years later, 10 oz is the “value” (in sense 2) that is “assigned” to end satisfaction in the present while 16 oz is the “value” assigned to end satisfaction 10 years later.
People in Europe right now are ready to offer 100 units of money today for 99 units next year. But you don’t think that’s negative time preference Bala. And if I suggested it were, you would no doubt insult me again as to how I could be so stupid to think that was an implication of what you just wrote.
Bob, I for one have not forgotten the basic principle that propositions identified through deductive reasoning from axioms are not demonstrated false by identifying an instance to the contrary. You need to disprove the axiom.
So I don’t see what you are proving with this example of Europe. At best, it tells you to look for those other factors that could influence the outcome. If, for instance, people expect that prices will fall 10%, offering 100 now for 99 in the future is equivalent to an interest rate of 10%.
Another possibility, Bob, is that people expect the banking system to give all deposit holders a hair-cut of 10%, which too implies that offering 100 now for 99 a year later would be tantamount to an interest rate of 10%.
What about the point that european insurers and banks are required by law to hold government bonds?
Bob,
You said
and I agree. That can at best be a manifestation of negative time preference (if that in turn is possible). Negative time preference would be preference for end satisfaction in the future over end satisfaction in the present.
That you imply that this is negative time preference is in itself indicative of the error in your thinking.
It could be seen as a fee for storing the money in the bank perhaps? People pay to have safety deposit boxes after all.
“It could be seen as a fee for storing the money in the bank perhaps?”
But since paying the fee still results in the perception that there will likely be more money available than if the fee wasn’t paid, the time preference is positive, as is the real interest rate.
Bala is right on this.
Even if we observe A loaning 100 to B after which B pays back only 99 in one year, that does not disprove the law of time preference.
Ask yourself what a person might be thinking when they loan 100 in order to get back 99. Are they thinking they might lose MORE by not loaning it? Maybe there are some other factors that are influencing the nominal rate of return?
If I had 10 billion in cash in my basement, and lots of people knew about it, I might very well be willing to pay a safe bank or vault owner an annual fee to keep my money safer. That would result in a negative nominal interest rate, but it would definitely not be an instance of me valuing a good more in the future than that same good in the present.
The law of time preference does not predict or insist as a universal that nominal rates of interest must be positive everywhere and for all time.
Mises even warned his readers not to conflate interest rates on loans with “originary rates”.
Yes, I was saying that a fee for security could be why they were expecting less in the future, not because of negative time preference. You would not say the renter of a safe deposit box had a negative time preference.
Talking of what more you can do, maybe you can be fair to Mises and his arguments.
The point is simple. Even an elementary analysis based on ends and their satisfaction (which is the core of the Misesian definite of TP in the first place, not your sense 1 or sense 2) tells us that Mises was right. Negative time preference means end satisfaction in the future is preferred to and hence ranked higher on the value scale than end satisfaction now. Hence, such an man acting must forsake the latter for the former in the case of every end and not satisfy any end now. But then that would mean that he is not acting. Given that man acts, this is clearly a contradiction.
Coming back to what you could do, maybe you could stop failing to see this obvious and straightforward contradiction that is a result solely of the assumption of negative time preference. Therefore you could acknowledge the point that Mises was right and you are wrong.
Bala, why do we not consider the time preferenc of the marginal unit?Say we have negative time preference for the first 10oz, so I spend it for lesser return tomorrow. Once that has gone we then consider the next. At some point the person gets hungry and a positive time preference kicks in. It is quite possible that a permanent negative time preference is not possible, but why can’t we treat this marginally like everything else?
Whatever gave you the impression that I my analysis is not on the margins? Before going to analysis on the margins, however, I am taking care to construct the value scale of the individual with negative time preference without contradicting the basic point that he has a negative time preference.
That value scale has units of 10 oz in an ever remoter future stacked ever higher on the value scale with respect to 10 oz now. So, whatever the stock size of which the 10 oz being given up now is the marginal unit, you will find a 10 oz in the future that is valued above it.
And if 10 oz units in ever remoter futures are stacked ever higher than any unit of 10 oz now, there is necessarily going to be 10 oz in some remote enough future that has to be valued higher than the 1st unit of any good he might exchange 10 oz now for. Hence, he cannot consume.
“Say we have negative time preference for the first 10oz, so I spend it for lesser return tomorrow.”
I think what you’re describing is a positive time preference for the thing you spent your money on, now.
You may have gotten a higher nominal return tomorrow had you not spent 10 oz. today, but that just means you valued consumption, today, over consumption tomorrow.
Bala and Guest – I think I have Bala’s argument now.
I have a pile of gold coins (say 10oz each) I also am a bit hungry. I prefer a sandwich to my first coin. However, I also have a negative time preference, so I value gold in the future more than gold today. If I value gold tomorrow just a little bit more than gold today, I may still prefer the sandwich. However, I will value the gold the day after that even more than the gold tomorrow. At some point in the future I will value the future gold coin more than the sandwich, so I will not buy the sandwich with my first coin. Is that about it?
Harold,
That’s a nice and simple way to put it. You could extend it to just about any good simultaneously and say that man with negative time preference cannot ever consume any good at all.
guest:
“I think what you’re describing is a positive time preference for the thing you spent your money on, now.”
Precisely.
Time preference is a category of action. It goes much deeper than the specific content of historical choices.
Time preference is not a theory of predicting the content of choices. It describes what is going on when ANY choices are made.
I think Reisman has the best explanation of what time preference is really about:
“Time preference is implied in the very nature of valuation, and, indeed, of human life itself. All other things being equal, to want something is to want it sooner rather than later. If all other things are equal in two succeeding periods of time and a good exists which could be consumed in either period, then the very fact of the good’s being valued implies that it must be consumed in the first period. If it is not consumed in the first period, then the identity of conditions implies that it also cannot be consumed in the second period. Hence, the good simply would not be consumed and, by implication, its consumption would be demonstrated not to be valued. If, however, the good is consumed in the first period, its nonconsumption in the second period does not contradict its being wanted just as much in the second period; it is simply unavailable in the second period.”
“The nature of human life implies time preference, because life cannot be interrupted. To be alive two years from now, one must be alive one year from now. To be alive tomorrow, one must be alive today. Whatever value or importance one attaches to being alive in the future, one must attach to being alive in the present, because being alive in the present is the indispensable precondition to being alive in the future. The value of life in the present thus carries with it whatever value one attaches to life in the future, of which it is the precondition, plus whatever value one attaches to life in the present for its own sake. In the nature of being alive, it is thus more important to be alive now than at any other, succeeding time, and more important to be alive in each moment of the nearer future than in each moment of the more remote future. If, for example, a person can project being alive for the next thirty years, say, then the value he attaches to being alive in the coming year carries with it whatever value he attaches to being alive in the following twenty-nine years, plus whatever value he attaches to being alive in the coming year for its own sake. This is necessarily a greater value than he attaches to being alive in the year starting next year. Similarly, the value he attaches to being alive from next year on is greater than the value he attaches to being alive starting two years from now, for it subsumes the latter value and represents that of an additional year besides.”
“If all other things are equal in two succeeding periods of time and a good exists which could be consumed in either period, then the very fact of the good’s being valued implies that it must be consumed in the first period.”
Because to say otherwise is to say that something *else* is preferred, and that is what will be consumed in the first period.
Even if what is preferred is leisure.
Exactly.
Connecting this to nominal interest rates being negative now:
The very fact that a person enters into such a contract means they prefer it now rather than later, if all else is equal. They did not delay entering into such a contract in order to enter into some other mutually exclusive contract (as all alternative contracts would be).
They valued this contract now rather than later.
The particular content of the contract is irrelevant.
If negative nominal interest rates somehow proves the existence of a contradiction to the law of time preference, then so would a give-away of money to charity. For this would be akin to a loan with an interest rate of -100%. You pay 100 now, and you get zero back in the future.
Oh there is some psychological component here? Of utility derived from giving away money? Bingo. Now think that same exact thing when it comes to a contract that pays -1% interest. Clearly the lenders are getting something NOW that is worth more than that exact same something in the future.
“The very fact that a person enters into such a contract means they prefer it now rather than later, if all else is equal. …”
“… Oh there is some psychological component here?”
Positive time preference is being expressed for *something*, otherwise, as Bala was saying, the negative nominal interest rates would never end up being agreed to.
In this case, it is access to more liquidity than would otherwise be available absent the negative rate.
On the Tom Woods vs. Austin Petersen podcast:
Austin is right that everyone has a right to not be aggressed against.
Where he goes wrong is that he believes either that he has a right to compel others to protect his property, or that he has a right to force others to pay for the defense of his property.
Presumably, he would say that rights ought to be defended whether or not the government is “doing its job”, in his view. But you can only hold this position if you believe that there are rights which transcend the law.
And that’s the libertarian’s point: legalese is only as just as the principles on which it is based, and its justness does not depend on the ability to defend it.
Simply having a central authority codifying what rights are solves nothing. If the central authority is wrong, then the law is unjust, and should be opposed.
And Austin, deep down, agrees with this because, again, he would otherwise have no basis for critiquing the current central authority if it disagreed with him, and yet he things rights “ought to be” defended.
Slightly off topic, but Steve Keen’s video is worth watching if you have an hour spare:
https://youtu.be/U6kUl_NW-nU
That’s not to say I agree with him, but he brings up a lot of important issues, and I think Austrians will get something out of Keen’s view of banking and credit expansion. He also makes a sidelong jibe at Krugman on the issue of debt and “we owe it to ourselves”.
Test
bullet
sub bullet
Wanted to give your video some attention, though I was listening to it while doing other things.
Here’s the Conclusion Prof. Steve Keen put on his screen at the end (sorry about how the “bullets” look):
“- Economics must “grow up”
_ – Dump 19th century equilibrium fetish
___ – Instead adopt far from equilibrium methods
_ – Dump “methodological individualism”
___ – Adopt complexity & emergent properties perspective
_ – Dump barter fantasy
___ – See capitalism as inherently monetary
___ – Do stock-flow consistent dynamic monetary modelling
“- All possible today with modern simulation tools
_ – System dynamics (like Minsky, Vensim, Simulink)
_ – Multi-agent modelling (Swarm, AnyLogic, NetLogo)
_ – “Big Data” “Data is the model” systems”
A couple of things:
He said the NeoClassicals couldn’t explain downward-sloping demand curves. Some of his conclusions seem to be directed toward Austrian-ish thinking, as well, so I’m guessing that the following would be relevant to his criticisms.
In the following short video [09:45], Tom Woods explains, among other things, how downward-sloping demand curves are logically implied from the Action Axiom:
Tom Woods lecture on Praxeology
http://www.youtube.com/watch?v=1PRTFAXX5Us
He refers to something called Methodological Barter, which seems to me like something I believe very strongly is implied by the Action Axiom, and is why I have such a problem with bitcoins.
He says that the economy, today, is purely a monetary issue, and he says that if you change the money supply, that it doesn’t change the economy – only the prices.
But here, I think he is half right. Yes, a change in the money supply changes prices without changing the economy, but that’s precisely what’s wrong with it (consistent with the Methodological Barter position that I hold).
Since the real economy is measured in stuff (as not-Skylien said; Sorry, forgot your name again, whoever that was), to change the prices in such a way that it seems to communicate a consumer preference for the underlying stuff of the economy that doesn’t actually exist, causes malinvestments.
Prices are information. They are information about the perceived subjective value of individuals. People never just use prices divorced from some underlying actual means (physical goods, or services). Humans act because they are attempting to alieviate some felt uneasiness.
So, there is some good or plan for consumption of a certain amount and/or kind of good(s) from a presumed level of availability of stores or sources that is behind the price that consumers are willing to pay.
When you cause the price of goods to diverge from the subjective use-values of goods, you cause coordinated malinvestments.
I’ll have to go back and watch it, again, if I want to address the predictions he said he was able to make about the 2007 housing market crash.
He said he thought that the speed of growth was a problem.
Austrians have no problems with how fast businesses grow (Austro-Libertarians, anyway). They explain the seeming “overgrowth” of certain businesses as resulting from the malinvestments entrepreneurs were mislead into because of artificially low interest rates.
If there were no malinvestments, businesses could sustainably grow as fast as consumer demand permitted them.
Thanks for the video.
Back with a sensible sized box.
“When there are 2 statements
1. Well-being is a good or satisfactory state of existence
2. A state characterized by health, happiness, and prosperity; welfare
it is clear the the first is THE definition and the second is an ancillary statement identifying some attributes that are normally associated with well-being. ”
If you look at the definition there are not two numbered statements – they are independent clauses linked with a semi-colon. I think that means the second part is an integral part of the definition and cannot simply be ignored. Anyway, that doesn’t matter since you say that health, prosperity and happiness are normally associated with well-being, which is pretty much what I have been saying all along.
Now we get to the difficult bit. Acting man aims to reduce his unease, and while that action is occuring, there is no requirement for any other wants to be considered. We do not know precisely what the nature of this unease is. We cannot call it unhappiness for example. This is because the existence of the unease can only be demonstrated by action. There would be no action unless there was unease.
Bala says “Purposeful behaviour presupposes… that one state of existence is necessarily preferred or considered “better” (more good) than the other.” This is wrong, because all we can say is that it is preferred, not that it is better, unless we define better as what is preferred.
This is the crucial bit. We cannot point to a condition and say “that condition is bad – that will lead to action.” I think you will agree with that. We can only say after there has been action that the person must have anticipated some reduction of unease, or there would have been no action. So if we cannot point to a condition before action and say it is bad, equally we cannot point to a condition after action and say “that is good compared to the situation before action.” That is UNLESSS we define “good” as the result of action. This is what it means to be a tautology. It has the benefit of never being wrong, but has the limitation I have just described. So we cannot say that action results in a good outcome – unless we define good as the outcome we get from action.
Do you notice Bala put quotation marks around “better”? That is because there is no way to describe in what way it is better, except that there has been action. Yes, within this tautological framework things are better. But when we try to explain in what way they are better we simply fail to do so, because the only explanation is that things must be better, or there would not have been action. So you try to smuggle in the wider, normal meaning of words like well-being, good and better – and in Mises case “happiness”, whereas all you have proved is the narrow, specialist meaning. The preferred thing must be the better thng, and so it is good. But all we can say is that the preferred thing is the preferred thing. We cannot say it is better in any general sense, only within the confines of action.
Now what I think you want to do is say “of course the situation is better in a general sense after action – it must be because otherwise there would be no action.” But we can only say things are better with that narrow definition we had before – i.e. better is what you get after action. We can say that we have reduced unease, but we are back to the tautology again. We cannot say that this means anything other than action has occured.
Have a look back at the examples and really try to define what you mean by “good” and “better”. The only thing they mean is preferred.
So I go back to my earlier question, which remains unanswered. If I care about well-being in the sense we all seem to agree is the normal one, why should I care about praxeology or Austrian economics? There is nothing in them that says anything about well-being, and everyone seems to agree that action may leave you poorer, sicker and more miserable.
I can see two answers.
1) You should not care about well-being in the normal sense of the word. It has no meaning, since action is all there is, and action is the only thing you should care about.
2) If you do care about well-being, then praxeology can not help you, as you need to look at psychology and the natural sciences.
A third (and wrong) answer would be that action will inevitably lead to increased well-being. As well as lacking logical consistency, that proposition is surely demonstrably false.
I am out of patience. To know why you are wrong, read Human Action.
What I have read is consistent with my argument. I do not believe Mises has the answer to this.
We are just going round in circles – I had thought we probably were not getting anywhere and it is as well to stop here.
My insight here explains some of my unease with Mises. It had long bothered me that action is by definition rational, yet we know people can behave irrationally. Once I realised the full implications of the tautological nature of the action / preference dynamic I could see how this could be so. The outcome of action cannot be related to anything except action itself. This is difficult to explain since the words we use to describe action are loaded and innacurate – like good, better, well-being. We almost can’t help grant them more meaning than they deserve in this context.
Anyway, thanks for the discussion. It may crop up again if I can think of a way to explain it better.