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Critiques on Austrian Economics

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Joseph Gomez posted on Thu, Mar 11 2010 6:38 PM

Hello! My name is Joseph and I'm a newcomer to this forum! I've known about Mises.org for almost a year now and have read some articles and essays such as "What Has Government Done To Our Money?" by Murray Rothbard and I've watched a few lectures. There's so much reading material though! It's a bit daunting, to be honest. If anyone would be kind enough to point a beginner in the right direction, I would highly appreciate it!

So, I have a friend who is an Econ major at a local university who I've had some arguments with pertaining Austrian Economics (among other topics, but mostly Aust. Econ.). While I am not so versed on the subject (yet), I'm pretty confident about some of the most basic (very very basic) aspects, but I'm not quite sure how an Austrian Economist would respond to the following statements. I appreciate any and all responses! (By the way, these statements are taken from different conversations which would explain the disorderliness!)

 

“Most economists believe that Austrian economics is too imprecisely defined to be clearly used to explain or predict real world events. Economist Bryan Caplan noted that, 'What prevents Austrian economists from getting more publications in mainstream journals is that their papers rarely use mathematics or econometrics.'”

“To say that we understand economics to be immeasurable is BLASPHEMOUS... when it comes to economics, we can ascertain a lot of empirical data, of which is applicable in the real world. Just look...you can measure the GDP of a country easily...have you seen 'A Beautiful Mind'? It's about John Nash, whose works in game theory, differential geometry, and partial differential equations have provided insight into the forces that govern chance and events inside complex systems in daily life. His theories are used in market economics, computing, artificial intelligence, accounting and military theory. Therefore, economics can DEFINITELY be measured into numbers and statistical data. Trust me on this, I am an econ grad after all, my sister who went to UPENN's Wharton School of Business (the best business school in the country) is also an econ grad as well, and she would most certainly agree with me. I REALLY, REALLY suggest you branch out of Austrian economics.”

“Human action is WITHOUT A DOUBT measurable. Have you heard of game theory? Game theory attempts to mathematically capture behavior in strategic situations, in which an individual's success in making choices depends on the choices of others. While initially developed to analyze competitions in which one individual does better at another's expense, it has been expanded to treat a wide class of interactions, which are classified according to several criteria. Today, "game theory is a sort of umbrella or 'unified field' theory for the rational side of social science.”

“But like I mentioned before, most schools won't include Austrian economics in it's curriculum; in fact, the subject of Austrian economics are hardly ever used or published in mainstream economic journals. That should say something in itself. And because it does away with econometrics, Austrian economics teeters along the lines of sophistry.”

“Well, for starters, some government regulation is needed at some level. I think the REAL debate is how much? Otherwise without regulation, there is a serious potential for corruption. Just look at the Industrial Revolution, and the emergence of big corporations...you had child labor, poor wages, workers had no rights, etc. It was only through government intervention that led to reform. You can also look at our current history too, especially with the financial market today here in the U.S.. Although there has been some form of regulation, there has been very little or should I say not enough; and there is also a great deal of loopholes -of which a lot of people on Wall Street use and abuse. And unfortunately, this led to our current credit crisis; that is, they were very, very greedy and a lot of their practices and policies were going forth unregulated. Now this is all but one aspect of our economy, but was enough to affect it as a whole, which is frightening when you think about it especially since we could very well have had a second Great Depression. Simply put, everyone wants a piece of the pie, but some, some want the biggest piece or even the whole pie. I remember watching 'The Daily Show', where a guest had talked about how one CEO was content with his 50 ft. yacht, until a bigger one showed up in the harbor. You see, I believe that without regulation, corruption would run rampant, and this in turn would have unforeseen affects on the economy (and not just ours, but the world economy as a whole as we're seeing right now).”

“But to further critique Austrian economics, its theories are not formulated using mathematics but by using mainly verbal logic and what proponents claim are self-evident axioms. Mainstream economists believe that this makes Austrian theories too imprecisely defined to be clearly used to explain or predict real world events.”

“Another general criticism of Austrian economics, is although it does always with econometrics, it fails to provide viable alternatives for making positive contributions to economic theory. This is just but a couple of criticisms on a long-list of criticisms.”

"It was actually the lack of government regulation that led us to this health-care mess here in the U.S."

 

Thanks for taking the time to read this!

 

-Joseph Gomez

 

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Hi Joseph Gomez! Welcome!

Now, on to the meat...

“Most economists believe that Austrian economics is too imprecisely defined to be clearly used to explain or predict real world events. Economist Bryan Caplan noted that, 'What prevents Austrian economists from getting more publications in mainstream journals is that their papers rarely use mathematics or econometrics.'”

It can't predict things? Like the Great Depression and most recessions including this one? Heh. Score +1 for the Austrian school. And who cares about econometrics? It didn't seem to work for anyone using it. The models failed because they don't reflect reality. They deny the reality of the market by trying to pigeonhole it into equations. Too bad for them human action and evaluation are far too complex to be mathematically modeled.

“To say that we understand economics to be immeasurable is BLASPHEMOUS... when it comes to economics, we can ascertain a lot of empirical data, of which is applicable in the real world. Just look...you can measure the GDP of a country easily...have you seen 'A Beautiful Mind'? It's about John Nash, whose works in game theory, differential geometry, and partial differential equations have provided insight into the forces that govern chance and events inside complex systems in daily life. His theories are used in market economics, computing, artificial intelligence, accounting and military theory. Therefore, economics can DEFINITELY be measured into numbers and statistical data. Trust me on this, I am an econ grad after all, my sister who went to UPENN's Wharton School of Business (the best business school in the country) is also an econ grad as well, and she would most certainly agree with me. I REALLY, REALLY suggest you branch out of Austrian economics.”

Yet we can never seem to keep that output gap closed. And when we do, the economy tends to suffer an even harsher decline soon afterward. Economic calculation involves money. Valuation is incalculable because people don't measure value in "utils"... they arrange things from "most valuable" to "next most valuable" and so on. This is intangible and unmeasurable.

“Human action is WITHOUT A DOUBT measurable. Have you heard of game theory? Game theory attempts to mathematically capture behavior in strategic situations, in which an individual's success in making choices depends on the choices of others. While initially developed to analyze competitions in which one individual does better at another's expense, it has been expanded to treat a wide class of interactions, which are classified according to several criteria. Today, "game theory is a sort of umbrella or 'unified field' theory for the rational side of social science.”

I frequently speak with someone who is a renowned expert in game theory, and I've learned a lot. I've also learned plenty about human action. In this prisoner's dilemma game, a person can choose to co-operate or defect against the other player. In real life, they can beat up the interrogator, laugh hysterically and urinate themselves, scratch their eyes out, start singing, do a dance, or anything else. Again, more mathematical pigeonholing that completely misses reality. Anyone who knows anything about the applicability of game theory knows this.

“But like I mentioned before, most schools won't include Austrian economics in it's curriculum; in fact, the subject of Austrian economics are hardly ever used or published in mainstream economic journals. That should say something in itself. And because it does away with econometrics, Austrian economics teeters along the lines of sophistry.”

At one time, it was taught that the Sun revolved around the Earth, and anyone who taught the opposite was a lunatic. "Do you not see with your own eyes, the Sun travels across our sky, not us against its."

So it's not an argument. It's an appeal to populism.

“Well, for starters, some government regulation is needed at some level. I think the REAL debate is how much? Otherwise without regulation, there is a serious potential for corruption.

Because there is no such thing as government corruption? Oh, right. They set the rules, so when they do it it's not breaking the rules.

ust look at the Industrial Revolution, and the emergence of big corporations...you had child labor, poor wages, workers had no rights, etc.

Corporations as they exist today are government created and mandated entities. Without this government standard or protection, they would be very susceptible to the tastes of consumers. As a government entity, they get protection from liability. It's terrible. Get rid of the government-granted status of corporation, and hold the individuals who obviously committed crimes responsible.

Child labor was eliminated for two reasons. The first was that children didn't have to work anymore because of the advancement and accumulation of capital that allowed people to spend much more time leisurely. The second reason was that during the great depression, adults didn't want to compete with children for jobs. Child labor wasn't outlawed to protect children, but to protect adults from competition from children!

You can also look at our current history too, especially with the financial market today here in the U.S.. Although there has been some form of regulation, there has been very little or should I say not enough; and there is also a great deal of loopholes -of which a lot of people on Wall Street use and abuse. And unfortunately, this led to our current credit crisis; that is, they were very, very greedy and a lot of their practices and policies were going forth unregulated. Now this is all but one aspect of our economy, but was enough to affect it as a whole, which is frightening when you think about it especially since we could very well have had a second Great Depression. Simply put, everyone wants a piece of the pie, but some, some want the biggest piece or even the whole pie. I remember watching 'The Daily Show', where a guest had talked about how one CEO was content with his 50 ft. yacht, until a bigger one showed up in the harbor. You see, I believe that without regulation, corruption would run rampant, and this in turn would have unforeseen affects on the economy (and not just ours, but the world economy as a whole as we're seeing right now).”

The monetary system in the US is 100% government owned and operated. People must use American dollars or face government coercion. How is this industry NOT regulated? The fed pumps out all the money it wants to its friends and doesn't have to worry about sudden devaluation because the government has made all other money, for the most part, illegal to use within the borders of the country! Maybe it's a good idea for your friend to learn something, ANYTHING about money and banking. I've yet to see one case where regulation has "saved" us without costing us something much greater. It's important that an economist see the seen and the unseen.

“But to further critique Austrian economics, its theories are not formulated using mathematics but by using mainly verbal logic and what proponents claim are self-evident axioms. Mainstream economists believe that this makes Austrian theories too imprecisely defined to be clearly used to explain or predict real world events.”

It's  true that it didn't use mathematics. It used something just as powerful (if not more powerful): deductive logic. I'd like to see which axioms aren't self-evident. Has this guy seen the "Peter Schiff was right" video on youtube? ...And there's another appeal to authority about mainstream blah blah blah. Who cares? That's not an argument. That's just following the crowd. An appeal to authority is the most sheepish behavior any person could exhibit.

Unless this person is willing to stop being scared and willing to hold in doubt, just for a moment, what they've learned about, they might be worth your time. Until he's willing to hold his narratives in doubt, you won't get anywhere with this person.

Toss him a copy of this: http://mises.org/store/Economics-in-One-Lesson-P33.aspx

It dispels many myths, including some that your friend might believe.

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Joseph Gomez:
So, I have a friend who is an Econ major at a local university who I've had some arguments with pertaining Austrian Economics (among other topics, but mostly Aust. Econ.). Because I am not so versed on the subject (yet), I tend to do most of the listening. While I'm pretty confident about some of the most basic (very very basic) aspects, I'm not quite sure how an Austrian Economist would respond to the following statements.

Most of it is all about methodology, which is essentially what makes Austrian Economics different from the mainstream.

The Mantle of Science

Praxeology as the method of the Social Sciences

Praxeology: The methodology of the Social Sciences

A Note on Mathematical Economics

and this is also great; Mathematics and Economic Analysis - William Anderson

Ron Paul is for self-government when compared to the Constitution. He's an anarcho-capitalist. Proof.
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Joseph Gomez:
If anyone would be kind enough to point a beginner in the right direction, I would highly appreciate it!

Here is the place to start, the list of literature by Henry Hazlitt.  Also, read Economics in One Lesson (obtained in the Mises store or any bookstore).  Giant Joe recommended it at the end of his post. 

Specifically, from the Mises Literature list, try Failure of the New Economics.  This might address some of your specific questions.

Joseph Gomez:
You can also look at our current history too, especially with the financial market today here in the U.S.. Although there has been some form of regulation, there has been very little or should I say not enough; and there is also a great deal of loopholes -of which a lot of people on Wall Street use and abuse. And unfortunately, this led to our current credit crisis; that is, they were very, very greedy and a lot of their practices and policies were going forth unregulated.

This line of reasoning is completely wrong.  To demonstrate that government intervention caused the problem, ask them what the financial system would have looked like if their were no taxpayer bailouts or central bank.  I mean none; never in the past, never promised or expected in the future.  What would the banking system look like if it had to "stand on its own bottom".  The banking system was able to blow up because of the Fed and taxpayer bailouts, plain and simple.  The financial crisis, and the human suffering that has resulted, is a function of goverment intervention.  Free markets are not to blame since there are no free markets.

Joseph Gomez:
Simply put, everyone wants a piece of the pie, but some, some want the biggest piece or even the whole pie.
.

So what? It is government intervention that puts up barriers to entry and prevents competion.  Who is to say how big a "piece" belongs to him? In an unhampered market, he has to earn it, that is, he has to provide the means to satisfy the wants, or ends, of his consumers, who could change their preferences on a dime, causing him to lose everything.  To avoid this, he must improve and innovate, become more productive.  Who loses in this scenario?  (Answer: Everyone wins.)  Under intervention, it is completely different.  He can influence legislation to create barriers to entry, etc.  He doesn't have to innovate, he is protected by "the government".  Now, who loses? 

Joseph Gomez:
I remember watching 'The Daily Show', where a guest had talked about how one CEO was content with his 50 ft. yacht, until a bigger one showed up in the harbor.

Again, so what?  I see a man who has ambition.  In an unhampered market, unless he steals the bigger yacht, he would have to organize capital in such a way as to satisfy consumer demand, thus, earning enough to buy a yacht.  Everyone wins!  Go yachts!  By the way, where do the yachts come from?  Conjured into existence from thin air?  Notice, there would be no yachts without the capital needed for the yacht factory.  And, in an unhampered market, the availability of capital for yacht building would be determined by...the unhampered market!  Amazing, isn't it!

Joseph Gomez:
You see, I believe that without regulation, corruption would run rampant, and this in turn would have unforeseen affects on the economy (and not just ours, but the world economy as a whole as we're seeing right now).”

How about, "You see, with government intervention, which is what we've had for at least 80 years, corruption is running rampant, and this in turn has led to the predicted and inevitable effects on the economy (not just ours, but the world economy as we're seeing right now".

Free market economics is not an ideology.  Is is actually, simply, "economics".  "The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely  for one group but for all groups." - This is the "One Lesson" that Hazlitt expands upon in his book.  Your friends are not looking at all consequences for all groups affected.  They are practicing "bad economics".

"The market is a process." - Ludwig von Mises, as related by Israel Kirzner.   "Capital formation is a beautiful thing" - Chloe732.

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Joseph Gomez:

Hello! My name is Joseph and I'm a newcomer to this forum! I've known about Mises.org for almost a year now and have read some articles and essays such as "What Has Government Done To Our Money?" by Murray Rothbard and I've watched a few lectures. There's so much reading material though! It's a bit daunting, to be honest. If anyone would be kind enough to point a beginner in the right direction, I would highly appreciate it!

So, I have a friend who is an Econ major at a local university who I've had some arguments with pertaining Austrian Economics (among other topics, but mostly Aust. Econ.). Because I am not so versed on the subject (yet), I tend to do most of the listening. While I'm pretty confident about some of the most basic (very very basic) aspects, I'm not quite sure how an Austrian Economist would respond to the following statements. I appreciate any and all responses! (By the way, these statements are taken from different conversations which would explain the disorderliness!)

Welcome Joseph. OK I'll try a few. Let me say by way of intro that I will send the reader to search this site for those of his arguments that require lengthy refutations

 

“Most economists believe that Austrian economics is too imprecisely defined to be clearly used to explain or predict real world events.

Utter nonsense. Which word is not defined?

Economist Bryan Caplan noted that, 'What prevents Austrian economists from getting more publications in mainstream journals is that their papers rarely use mathematics or econometrics.'”

This is true. Note that it is not related to the previous line. Also note that it is like saying "The reason Pasteur doesn't get published in our Journal of Witch Doctory is because he refuses to use magic spells, relying on his silly germ theory." In other words, the fault dear Brutus, is not in ourselves, but in  the journals.


“To say that we understand economics to be immeasurable is BLASPHEMOUS...

This guy needs a a dictionary.

when it comes to economics, we can ascertain a lot of empirical data, of which is applicable in the real world.

and a grammer teacher. In any case, who said otherwise?

Just look...you can measure the GDP of a country easily...

And your proof that it is a meaningful statistic is? Also, because you can measure that your child grew, does that mean you knoiw WHY he grew?

have you seen 'A Beautiful Mind'?

So Austrian Economics has finally met its match. A hollywoood movie killed it dead.

It's about John Nash, whose works in game theory, differential geometry, and partial differential equations have provided insight into the forces that govern chance

There are no forces governing chance. If there were, it wouldnt be chance, would it?

and events inside complex systems in daily life. His theories are used in market economics, computing, artificial intelligence, accounting and military theory.

accounting? uses diferential geometry? Not in this world.

How does any of this contradict AE?

Therefore, economics can DEFINITELY be measured into numbers and statistical data.

Anything can be measured. The question is, what do the measurements tell you? What is the right thing to measure? Who says tomorrows measurements will have any relation to today's?

Trust me on this,

Trust you? Is that how knowledge is to be pursued? By trusting you on this?

Are you or your sister or all yuor professors able to summarize the position of AE in such a way that I will agree with your summary, and then tell me why it's wrong? After all, that is the rock bottom minimum to be able to consider any of you competent to have an opinion, much less be trusted.

I am an econ grad after all,

Econ grads do not learn true economics, because it's not taught in schools nowadays. They only teach Keynes and his offshoots, in other words, fairy tales.

my sister who went to UPENN's Wharton School of Business (the best business school in the country) is also an econ grad as well, and she would most certainly agree with me.

Hey, with all due respect to your charming sister, I disagree with her professors, not with her. She only has digested what they fed her.

I REALLY, REALLY suggest you branch out of Austrian economics.”

TY for your concern.

“Human action is WITHOUT A DOUBT measurable.

SO? Does that mean we can predict something from the measurements?

OK, I like vanilla ice cream, but  I like chocolate too, only a little less. Please measure how much less.

Have you heard of game theory? Game theory attempts to mathematically capture behavior in strategic situations, in which an individual's success in making choices depends on the choices of others. While initially developed to analyze competitions in which one individual does better at another's expense, it has been expanded to treat a wide class of interactions, which are classified according to several criteria. Today, "game theory is a sort of umbrella or 'unified field' theory for the rational side of social science.”

Economics is not about strategic situations. It is about what I like and dislike, what I want to spend my money on. I don't have a opponent, so game theory doesn't apply.

“But like I mentioned before, most schools won't include Austrian economics in it's curriculum; in fact, the subject of Austrian economics are hardly ever used or published in mainstream economic journals. That should say something in itself.

It does indeed. But does it say soemthing about AE, or about mainstream econ journals?

besides, appealing to authority is not a logical argument. The idea is to examine the arguments, not who said them.

And because it does away with econometrics, Austrian economics teeters along the lines of sophistry.”

Firts of all, that's a non sequitor. Like I said , he needs a dictionary. Not to mention that a thing is either sophistry or it's not. It's like saying a number teeters along the lines of being even.

“Well, for starters, some government regulation is needed at some level.

no

I think the REAL debate is how much?

no

Otherwise without regulation, there is a serious potential for corruption.

This one line is the funniest of the whole piece, and it has many competitors. This site has plenty of resources which prove that the regulations are themselves the corruption.

Just look at the Industrial Revolution, and the emergence of big corporations...you had child labor, poor wages, workers had no rights, etc. It was only through government intervention that led to reform.

Though we may ignore the poor grammer, we cannot ignore the wrong facts. Many resources on this site to disprove this myth.

You can also look at our current history too, especially with the financial market today here in the U.S.. Although there has been some form of regulation, there has been very little

You know not of which you speak, son. The financial market is the most regulated part of the economy. Try and open a bank, or be a stock broker, and find out.

or should I say not enough;

you mean too much.

and there is also a great deal of loopholes -of which a lot of people on Wall Street use and abuse.

Regulations have been around since forever. they are always full of loopholes, it seems, but THIS TIME we'll get it right.

And unfortunately, this led to our current credit crisis; that is, they were very, very greedy and a lot of their practices and policies were going forth unregulated.

This sounds like something straight out of TV.

Note that differential geometry and partial differential equations and game theory didn't predict this real world problem, did it? What is the greed equation, btw, just so you can impress me with your econometrics?

But the truth is, lack of regulations and greed DID NOT cause this disaster. [Show me the equations that say they did]. This is also covered here.

Now this is all but one aspect of our economy, but was enough to affect it as a whole, which is frightening when you think about it especially since we could very well have had a second Great Depression. Simply put, everyone wants a piece of the pie, but some, some want the biggest piece or even the whole pie. I remember watching 'The Daily Show', where a guest had talked about how one CEO was content with his 50 ft. yacht, until a bigger one showed up in the harbor. You see, I believe that without regulation, corruption would run rampant, and this in turn would have unforeseen affects on the economy (and not just ours, but the world economy as a whole as we're seeing right now).”

What's the equation for this?

GD= Y>50. The Great Depression was caused by a Yacht longer than 50 feet.

Even your version of economics, equations, fails to show how greed caused the recession we are in. And the truth is, greed has nothing to do with it. Govt intervention has everything to with it. All explained on this site.

“But to further critique Austrian economics, its theories are not formulated using mathematics but by using mainly verbal logic

So verbal logic is somehow flawed, it seems. Is that why you have abandoned it here?

and what proponents claim are self-evident axioms. Mainstream economists believe that this makes Austrian theories too imprecisely defined

right here your verbal logic is missing. why does using "verbal logic" [which, make no mistake, is just ordinary common sense that no rational human can deny] and possibly self evident axioms make the definitions imprecise?

Let me spell this out for you. A deductive science lays down its definitons first thing. It then states axioms using the definitions. it may or may not declare the axioms as self evident. Then it uses "verbal logic" [otherwise known as "sound reasoning"] to deduce theorems.

It's like saying because you painted the wood a color I dont like and built a house I dont want to live in, that PROVES that the wood is rotten. The wood is rotten or sound irrespective of what happens to it afterward.

By the way, let me tell you a lil secret. Ever since Godel in 1933, the mathematical world universally accepts that the basis of all Mathematics is , hold your breath, verbal logic! yes!

to be clearly used to explain or predict real world events.”

Which is why Austrians have predicted the depressions and recessions, and mainstream economists never have. Way to go picking your weakest spot to attack from.

“Another general criticism of Austrian economics, is although it does always with econometrics, it fails to provide viable alternatives for making positive contributions to economic theory.

So no book has ever been written on AE, he's saying.

This is just but a couple of criticisms on a long-list of criticisms.”

And these are probably a representative sample of how foolish the criticisms are.

"It was actually the lack of government regulation that led us to this health-care mess here in the U.S."

No it's the the AMA, medicaire and medicaide. All govt meddling. Plenty of sources on this site about that.

Thanks for taking the time to read this!

YW

-Joseph Gomez

 

My humble blog

It's easy to refute an argument if you first misrepresent it. William Keizer

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Hi Joseph Gomez! Welcome!

Now, on to the meat...

“Most economists believe that Austrian economics is too imprecisely defined to be clearly used to explain or predict real world events. Economist Bryan Caplan noted that, 'What prevents Austrian economists from getting more publications in mainstream journals is that their papers rarely use mathematics or econometrics.'”

It can't predict things? Like the Great Depression and most recessions including this one? Heh. Score +1 for the Austrian school. And who cares about econometrics? It didn't seem to work for anyone using it. The models failed because they don't reflect reality. They deny the reality of the market by trying to pigeonhole it into equations. Too bad for them human action and evaluation are far too complex to be mathematically modeled.

“To say that we understand economics to be immeasurable is BLASPHEMOUS... when it comes to economics, we can ascertain a lot of empirical data, of which is applicable in the real world. Just look...you can measure the GDP of a country easily...have you seen 'A Beautiful Mind'? It's about John Nash, whose works in game theory, differential geometry, and partial differential equations have provided insight into the forces that govern chance and events inside complex systems in daily life. His theories are used in market economics, computing, artificial intelligence, accounting and military theory. Therefore, economics can DEFINITELY be measured into numbers and statistical data. Trust me on this, I am an econ grad after all, my sister who went to UPENN's Wharton School of Business (the best business school in the country) is also an econ grad as well, and she would most certainly agree with me. I REALLY, REALLY suggest you branch out of Austrian economics.”

Yet we can never seem to keep that output gap closed. And when we do, the economy tends to suffer an even harsher decline soon afterward. Economic calculation involves money. Valuation is incalculable because people don't measure value in "utils"... they arrange things from "most valuable" to "next most valuable" and so on. This is intangible and unmeasurable.

“Human action is WITHOUT A DOUBT measurable. Have you heard of game theory? Game theory attempts to mathematically capture behavior in strategic situations, in which an individual's success in making choices depends on the choices of others. While initially developed to analyze competitions in which one individual does better at another's expense, it has been expanded to treat a wide class of interactions, which are classified according to several criteria. Today, "game theory is a sort of umbrella or 'unified field' theory for the rational side of social science.”

I frequently speak with someone who is a renowned expert in game theory, and I've learned a lot. I've also learned plenty about human action. In this prisoner's dilemma game, a person can choose to co-operate or defect against the other player. In real life, they can beat up the interrogator, laugh hysterically and urinate themselves, scratch their eyes out, start singing, do a dance, or anything else. Again, more mathematical pigeonholing that completely misses reality. Anyone who knows anything about the applicability of game theory knows this.

“But like I mentioned before, most schools won't include Austrian economics in it's curriculum; in fact, the subject of Austrian economics are hardly ever used or published in mainstream economic journals. That should say something in itself. And because it does away with econometrics, Austrian economics teeters along the lines of sophistry.”

At one time, it was taught that the Sun revolved around the Earth, and anyone who taught the opposite was a lunatic. "Do you not see with your own eyes, the Sun travels across our sky, not us against its."

So it's not an argument. It's an appeal to populism.

“Well, for starters, some government regulation is needed at some level. I think the REAL debate is how much? Otherwise without regulation, there is a serious potential for corruption.

Because there is no such thing as government corruption? Oh, right. They set the rules, so when they do it it's not breaking the rules.

ust look at the Industrial Revolution, and the emergence of big corporations...you had child labor, poor wages, workers had no rights, etc.

Corporations as they exist today are government created and mandated entities. Without this government standard or protection, they would be very susceptible to the tastes of consumers. As a government entity, they get protection from liability. It's terrible. Get rid of the government-granted status of corporation, and hold the individuals who obviously committed crimes responsible.

Child labor was eliminated for two reasons. The first was that children didn't have to work anymore because of the advancement and accumulation of capital that allowed people to spend much more time leisurely. The second reason was that during the great depression, adults didn't want to compete with children for jobs. Child labor wasn't outlawed to protect children, but to protect adults from competition from children!

You can also look at our current history too, especially with the financial market today here in the U.S.. Although there has been some form of regulation, there has been very little or should I say not enough; and there is also a great deal of loopholes -of which a lot of people on Wall Street use and abuse. And unfortunately, this led to our current credit crisis; that is, they were very, very greedy and a lot of their practices and policies were going forth unregulated. Now this is all but one aspect of our economy, but was enough to affect it as a whole, which is frightening when you think about it especially since we could very well have had a second Great Depression. Simply put, everyone wants a piece of the pie, but some, some want the biggest piece or even the whole pie. I remember watching 'The Daily Show', where a guest had talked about how one CEO was content with his 50 ft. yacht, until a bigger one showed up in the harbor. You see, I believe that without regulation, corruption would run rampant, and this in turn would have unforeseen affects on the economy (and not just ours, but the world economy as a whole as we're seeing right now).”

The monetary system in the US is 100% government owned and operated. People must use American dollars or face government coercion. How is this industry NOT regulated? The fed pumps out all the money it wants to its friends and doesn't have to worry about sudden devaluation because the government has made all other money, for the most part, illegal to use within the borders of the country! Maybe it's a good idea for your friend to learn something, ANYTHING about money and banking. I've yet to see one case where regulation has "saved" us without costing us something much greater. It's important that an economist see the seen and the unseen.

“But to further critique Austrian economics, its theories are not formulated using mathematics but by using mainly verbal logic and what proponents claim are self-evident axioms. Mainstream economists believe that this makes Austrian theories too imprecisely defined to be clearly used to explain or predict real world events.”

It's  true that it didn't use mathematics. It used something just as powerful (if not more powerful): deductive logic. I'd like to see which axioms aren't self-evident. Has this guy seen the "Peter Schiff was right" video on youtube? ...And there's another appeal to authority about mainstream blah blah blah. Who cares? That's not an argument. That's just following the crowd. An appeal to authority is the most sheepish behavior any person could exhibit.

Unless this person is willing to stop being scared and willing to hold in doubt, just for a moment, what they've learned about, they might be worth your time. Until he's willing to hold his narratives in doubt, you won't get anywhere with this person.

Toss him a copy of this: http://mises.org/store/Economics-in-One-Lesson-P33.aspx

It dispels many myths, including some that your friend might believe.

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Joseph Gomez:
So, I have a friend who is an Econ major at a local university who I've had some arguments with pertaining Austrian Economics (among other topics, but mostly Aust. Econ.). Because I am not so versed on the subject (yet), I tend to do most of the listening. While I'm pretty confident about some of the most basic (very very basic) aspects, I'm not quite sure how an Austrian Economist would respond to the following statements.

Most of it is all about methodology, which is essentially what makes Austrian Economics different from the mainstream.

The Mantle of Science

Praxeology as the method of the Social Sciences

Praxeology: The methodology of the Social Sciences

A Note on Mathematical Economics

and this is also great; Mathematics and Economic Analysis - William Anderson

Ron Paul is for self-government when compared to the Constitution. He's an anarcho-capitalist. Proof.
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Joseph Gomez:
If anyone would be kind enough to point a beginner in the right direction, I would highly appreciate it!

Here is the place to start, the list of literature by Henry Hazlitt.  Also, read Economics in One Lesson (obtained in the Mises store or any bookstore).  Giant Joe recommended it at the end of his post. 

Specifically, from the Mises Literature list, try Failure of the New Economics.  This might address some of your specific questions.

Joseph Gomez:
You can also look at our current history too, especially with the financial market today here in the U.S.. Although there has been some form of regulation, there has been very little or should I say not enough; and there is also a great deal of loopholes -of which a lot of people on Wall Street use and abuse. And unfortunately, this led to our current credit crisis; that is, they were very, very greedy and a lot of their practices and policies were going forth unregulated.

This line of reasoning is completely wrong.  To demonstrate that government intervention caused the problem, ask them what the financial system would have looked like if their were no taxpayer bailouts or central bank.  I mean none; never in the past, never promised or expected in the future.  What would the banking system look like if it had to "stand on its own bottom".  The banking system was able to blow up because of the Fed and taxpayer bailouts, plain and simple.  The financial crisis, and the human suffering that has resulted, is a function of goverment intervention.  Free markets are not to blame since there are no free markets.

Joseph Gomez:
Simply put, everyone wants a piece of the pie, but some, some want the biggest piece or even the whole pie.
.

So what? It is government intervention that puts up barriers to entry and prevents competion.  Who is to say how big a "piece" belongs to him? In an unhampered market, he has to earn it, that is, he has to provide the means to satisfy the wants, or ends, of his consumers, who could change their preferences on a dime, causing him to lose everything.  To avoid this, he must improve and innovate, become more productive.  Who loses in this scenario?  (Answer: Everyone wins.)  Under intervention, it is completely different.  He can influence legislation to create barriers to entry, etc.  He doesn't have to innovate, he is protected by "the government".  Now, who loses? 

Joseph Gomez:
I remember watching 'The Daily Show', where a guest had talked about how one CEO was content with his 50 ft. yacht, until a bigger one showed up in the harbor.

Again, so what?  I see a man who has ambition.  In an unhampered market, unless he steals the bigger yacht, he would have to organize capital in such a way as to satisfy consumer demand, thus, earning enough to buy a yacht.  Everyone wins!  Go yachts!  By the way, where do the yachts come from?  Conjured into existence from thin air?  Notice, there would be no yachts without the capital needed for the yacht factory.  And, in an unhampered market, the availability of capital for yacht building would be determined by...the unhampered market!  Amazing, isn't it!

Joseph Gomez:
You see, I believe that without regulation, corruption would run rampant, and this in turn would have unforeseen affects on the economy (and not just ours, but the world economy as a whole as we're seeing right now).”

How about, "You see, with government intervention, which is what we've had for at least 80 years, corruption is running rampant, and this in turn has led to the predicted and inevitable effects on the economy (not just ours, but the world economy as we're seeing right now".

Free market economics is not an ideology.  Is is actually, simply, "economics".  "The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely  for one group but for all groups." - This is the "One Lesson" that Hazlitt expands upon in his book.  Your friends are not looking at all consequences for all groups affected.  They are practicing "bad economics".

"The market is a process." - Ludwig von Mises, as related by Israel Kirzner.   "Capital formation is a beautiful thing" - Chloe732.

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Joseph Gomez:

Hello! My name is Joseph and I'm a newcomer to this forum! I've known about Mises.org for almost a year now and have read some articles and essays such as "What Has Government Done To Our Money?" by Murray Rothbard and I've watched a few lectures. There's so much reading material though! It's a bit daunting, to be honest. If anyone would be kind enough to point a beginner in the right direction, I would highly appreciate it!

So, I have a friend who is an Econ major at a local university who I've had some arguments with pertaining Austrian Economics (among other topics, but mostly Aust. Econ.). Because I am not so versed on the subject (yet), I tend to do most of the listening. While I'm pretty confident about some of the most basic (very very basic) aspects, I'm not quite sure how an Austrian Economist would respond to the following statements. I appreciate any and all responses! (By the way, these statements are taken from different conversations which would explain the disorderliness!)

Welcome Joseph. OK I'll try a few. Let me say by way of intro that I will send the reader to search this site for those of his arguments that require lengthy refutations

 

“Most economists believe that Austrian economics is too imprecisely defined to be clearly used to explain or predict real world events.

Utter nonsense. Which word is not defined?

Economist Bryan Caplan noted that, 'What prevents Austrian economists from getting more publications in mainstream journals is that their papers rarely use mathematics or econometrics.'”

This is true. Note that it is not related to the previous line. Also note that it is like saying "The reason Pasteur doesn't get published in our Journal of Witch Doctory is because he refuses to use magic spells, relying on his silly germ theory." In other words, the fault dear Brutus, is not in ourselves, but in  the journals.


“To say that we understand economics to be immeasurable is BLASPHEMOUS...

This guy needs a a dictionary.

when it comes to economics, we can ascertain a lot of empirical data, of which is applicable in the real world.

and a grammer teacher. In any case, who said otherwise?

Just look...you can measure the GDP of a country easily...

And your proof that it is a meaningful statistic is? Also, because you can measure that your child grew, does that mean you knoiw WHY he grew?

have you seen 'A Beautiful Mind'?

So Austrian Economics has finally met its match. A hollywoood movie killed it dead.

It's about John Nash, whose works in game theory, differential geometry, and partial differential equations have provided insight into the forces that govern chance

There are no forces governing chance. If there were, it wouldnt be chance, would it?

and events inside complex systems in daily life. His theories are used in market economics, computing, artificial intelligence, accounting and military theory.

accounting? uses diferential geometry? Not in this world.

How does any of this contradict AE?

Therefore, economics can DEFINITELY be measured into numbers and statistical data.

Anything can be measured. The question is, what do the measurements tell you? What is the right thing to measure? Who says tomorrows measurements will have any relation to today's?

Trust me on this,

Trust you? Is that how knowledge is to be pursued? By trusting you on this?

Are you or your sister or all yuor professors able to summarize the position of AE in such a way that I will agree with your summary, and then tell me why it's wrong? After all, that is the rock bottom minimum to be able to consider any of you competent to have an opinion, much less be trusted.

I am an econ grad after all,

Econ grads do not learn true economics, because it's not taught in schools nowadays. They only teach Keynes and his offshoots, in other words, fairy tales.

my sister who went to UPENN's Wharton School of Business (the best business school in the country) is also an econ grad as well, and she would most certainly agree with me.

Hey, with all due respect to your charming sister, I disagree with her professors, not with her. She only has digested what they fed her.

I REALLY, REALLY suggest you branch out of Austrian economics.”

TY for your concern.

“Human action is WITHOUT A DOUBT measurable.

SO? Does that mean we can predict something from the measurements?

OK, I like vanilla ice cream, but  I like chocolate too, only a little less. Please measure how much less.

Have you heard of game theory? Game theory attempts to mathematically capture behavior in strategic situations, in which an individual's success in making choices depends on the choices of others. While initially developed to analyze competitions in which one individual does better at another's expense, it has been expanded to treat a wide class of interactions, which are classified according to several criteria. Today, "game theory is a sort of umbrella or 'unified field' theory for the rational side of social science.”

Economics is not about strategic situations. It is about what I like and dislike, what I want to spend my money on. I don't have a opponent, so game theory doesn't apply.

“But like I mentioned before, most schools won't include Austrian economics in it's curriculum; in fact, the subject of Austrian economics are hardly ever used or published in mainstream economic journals. That should say something in itself.

It does indeed. But does it say soemthing about AE, or about mainstream econ journals?

besides, appealing to authority is not a logical argument. The idea is to examine the arguments, not who said them.

And because it does away with econometrics, Austrian economics teeters along the lines of sophistry.”

Firts of all, that's a non sequitor. Like I said , he needs a dictionary. Not to mention that a thing is either sophistry or it's not. It's like saying a number teeters along the lines of being even.

“Well, for starters, some government regulation is needed at some level.

no

I think the REAL debate is how much?

no

Otherwise without regulation, there is a serious potential for corruption.

This one line is the funniest of the whole piece, and it has many competitors. This site has plenty of resources which prove that the regulations are themselves the corruption.

Just look at the Industrial Revolution, and the emergence of big corporations...you had child labor, poor wages, workers had no rights, etc. It was only through government intervention that led to reform.

Though we may ignore the poor grammer, we cannot ignore the wrong facts. Many resources on this site to disprove this myth.

You can also look at our current history too, especially with the financial market today here in the U.S.. Although there has been some form of regulation, there has been very little

You know not of which you speak, son. The financial market is the most regulated part of the economy. Try and open a bank, or be a stock broker, and find out.

or should I say not enough;

you mean too much.

and there is also a great deal of loopholes -of which a lot of people on Wall Street use and abuse.

Regulations have been around since forever. they are always full of loopholes, it seems, but THIS TIME we'll get it right.

And unfortunately, this led to our current credit crisis; that is, they were very, very greedy and a lot of their practices and policies were going forth unregulated.

This sounds like something straight out of TV.

Note that differential geometry and partial differential equations and game theory didn't predict this real world problem, did it? What is the greed equation, btw, just so you can impress me with your econometrics?

But the truth is, lack of regulations and greed DID NOT cause this disaster. [Show me the equations that say they did]. This is also covered here.

Now this is all but one aspect of our economy, but was enough to affect it as a whole, which is frightening when you think about it especially since we could very well have had a second Great Depression. Simply put, everyone wants a piece of the pie, but some, some want the biggest piece or even the whole pie. I remember watching 'The Daily Show', where a guest had talked about how one CEO was content with his 50 ft. yacht, until a bigger one showed up in the harbor. You see, I believe that without regulation, corruption would run rampant, and this in turn would have unforeseen affects on the economy (and not just ours, but the world economy as a whole as we're seeing right now).”

What's the equation for this?

GD= Y>50. The Great Depression was caused by a Yacht longer than 50 feet.

Even your version of economics, equations, fails to show how greed caused the recession we are in. And the truth is, greed has nothing to do with it. Govt intervention has everything to with it. All explained on this site.

“But to further critique Austrian economics, its theories are not formulated using mathematics but by using mainly verbal logic

So verbal logic is somehow flawed, it seems. Is that why you have abandoned it here?

and what proponents claim are self-evident axioms. Mainstream economists believe that this makes Austrian theories too imprecisely defined

right here your verbal logic is missing. why does using "verbal logic" [which, make no mistake, is just ordinary common sense that no rational human can deny] and possibly self evident axioms make the definitions imprecise?

Let me spell this out for you. A deductive science lays down its definitons first thing. It then states axioms using the definitions. it may or may not declare the axioms as self evident. Then it uses "verbal logic" [otherwise known as "sound reasoning"] to deduce theorems.

It's like saying because you painted the wood a color I dont like and built a house I dont want to live in, that PROVES that the wood is rotten. The wood is rotten or sound irrespective of what happens to it afterward.

By the way, let me tell you a lil secret. Ever since Godel in 1933, the mathematical world universally accepts that the basis of all Mathematics is , hold your breath, verbal logic! yes!

to be clearly used to explain or predict real world events.”

Which is why Austrians have predicted the depressions and recessions, and mainstream economists never have. Way to go picking your weakest spot to attack from.

“Another general criticism of Austrian economics, is although it does always with econometrics, it fails to provide viable alternatives for making positive contributions to economic theory.

So no book has ever been written on AE, he's saying.

This is just but a couple of criticisms on a long-list of criticisms.”

And these are probably a representative sample of how foolish the criticisms are.

"It was actually the lack of government regulation that led us to this health-care mess here in the U.S."

No it's the the AMA, medicaire and medicaide. All govt meddling. Plenty of sources on this site about that.

Thanks for taking the time to read this!

YW

-Joseph Gomez

 

My humble blog

It's easy to refute an argument if you first misrepresent it. William Keizer

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Giant_Joe, Conza88, chloe732, Smiling Dave:

 

Thank you very much for all the information! I didn't expect such quick and amazing responses! I truly appreciate it! I feel much more comfortable now about continuing my AE education. =) Thanks again!

 

Joseph Gomez

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filc replied on Fri, Mar 12 2010 12:14 AM

Joseph,

I am not sure how much it is worth your time continuing to engage your economist friend. Your welcome to present your friend this forum and he can pose his critique's here, but it sounds like this man has made up his mind and is unwilling to scrutinize any of the logic he's employed. He believes in faith, rather then science, logic, and actually finding the truth of anything.

-Filc

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hugolp replied on Fri, Mar 12 2010 12:35 AM

Others have alredy answered better than I could, but I could not let this go:

Joseph Gomez:
His theories are used in market economics, computing, artificial intelligence, accounting and military theory. Therefore, economics can DEFINITELY be measured into numbers and statistical data. Trust me on this, I am an econ grad after all, my sister who went to UPENN's Wharton School of Business (the best business school in the country) is also an econ grad as well, and she would most certainly agree with me. I REALLY, REALLY suggest you branch out of Austrian economics.”

I am an engineer and I know a bit about computing, artifical intelligence and have developed a bit of knowledge of ecoomics on my free time. The problem of this guy (and his sister) is that he is an economist. The economy that they study at college is mainly bullshit and they can not get their head out of that. I have a friend who is studying economics, and he is very tired of the bullshit he has to study. I allways tell him he will never be a great economist because he is alredy tainted. :D

The way you can study the empirical sciences is very different to the way you can study social sciences like economics.

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hugolp:

Others have alredy answered better than I could, but I could not let this go:

Joseph Gomez:
His theories are used in market economics, computing, artificial intelligence, accounting and military theory. Therefore, economics can DEFINITELY be measured into numbers and statistical data. Trust me on this, I am an econ grad after all, my sister who went to UPENN's Wharton School of Business (the best business school in the country) is also an econ grad as well, and she would most certainly agree with me. I REALLY, REALLY suggest you branch out of Austrian economics.”

I am an engineer and I know a bit about computing, artifical intelligence and have developed a bit of knowledge of ecoomics on my free time. The problem of this guy (and his sister) is that he is an economist. The economy that they study at college is mainly bullshit and they can not get their head out of that. I have a friend who is studying economics, and he is very tired of the bullshit he has to study. I allways tell him he will never be a great economist because he is alredy tainted. :D

The way you can study the empirical sciences is very different to the way you can study social sciences like economics.

I also had to throw my hat in the ring.  I have a Ph.D. in physics.  I focused on computational neuroscience.  I promise I know more math than your friend even knows exists.  I always have a chuckle when people try to use verbal arguments to discount the use of verbal arguments.  :)  Even in the 

Isn't the main issue that mainstream economists want to treat the study of economics in the same fashion as physics or some other hard science?  They attack the Austrians for NOT doing this.  But since they cannot do experiments, I just don't see how they can believe that they are proceeding using the same methods as a hard science?

Their mathematical methods only apply to large populations.  They completely melt down when attempting to describe anything on the individual scale.  Ask him to write down an equation that explains why I like Van Gogh better than Picasso.  And, as we've seen, they do a pretty horrid job even on a large scale.  Don't allow them to mislead you, it is the Keynsians and the like who are inexact.  Beyond being inexact that are just flat out incorrect!  The Austrian theory is precise.

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Wolf:
But since they cannot do experiments, I just don't see how they can believe that they are proceeding using the same methods as a hard science?

Ya know, this is so obvious, and I never thought of it. Thanks!

 

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chloe732 replied on Fri, Mar 12 2010 10:42 PM

Wolf:
I also had to throw my hat in the ring.  I have a Ph.D. in physics.  I focused on computational neuroscience.  I promise I know more math than your friend even knows exists.

Wolf:
But since they cannot do experiments, I just don't see how they can believe that they are proceeding using the same methods as a hard science?

Wolf:
Their mathematical methods only apply to large populations.  They completely melt down when attempting to describe anything on the individual scale.  Ask him to write down an equation that explains why I like Van Gogh better than Picasso.  And, as we've seen, they do a pretty horrid job even on a large scale.  Don't allow them to mislead you, it is the Keynsians and the like who are inexact.  Beyond being inexact that are just flat out incorrect!  The Austrian theory is precise.

Thanks, Wolf.  This is an amazing post.  I favorited it for reference during the next debate about mainstream vs. Austrian methodologies.  Look forward to seeing you "throw your hat into the ring" often.

 

"The market is a process." - Ludwig von Mises, as related by Israel Kirzner.   "Capital formation is a beautiful thing" - Chloe732.

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An analogy I sometimes think of is that of Quantum Mechanics (QM).  The standard theory of QM states that it is impossible to know exactly the position and momentum  of a quantum particle at the same time.  This is not a failure of the Quantum theory, it is in fact an important result.  Many of the claims of the "inexactness" of the Austrian method are akin to claiming the theory of Quantum Mechanics is inexact because it cannot simultaneously tell you the position and momentum of a particle.  The reality is that any theory that professed to give both the position and momentum of a quantum particle, exactly and at the same time, would be obviously incorrect simply because of that claim.  Just as any economic theory that claimed to be able to calculate an exact numerical value for a good is obviously incorrect because of that claim.

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Property rights are a huge criticism of Austrian economics.

Many Austrians believe that you can pollute a well if you own it and others do not.   They believe that you must pay for clean water when in fact, they never produced clean water.

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OK, so how is difference in beliefs a 'huge criticism' exactly?

Freedom of markets is positively correlated with the degree of evolution in any society...

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hugolp replied on Sat, Mar 13 2010 10:05 AM

IDigSluts_ky:

Property rights are a huge criticism of Austrian economics.

Many Austrians believe that you can pollute a well if you own it and others do not.   They believe that you must pay for clean water when in fact, they never produced clean water.

Yes, believing that you can polute any part and anyone property if you have enough money to lobby politicians is undoubtelly the moreal option. Confused

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