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Economics as social incentive study (philosophy of economics)

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Aristophanes Posted: Sun, Jan 20 2013 3:53 PM

Philosophy of Economics

The influence of contemporary sociology of science and social studies of science, coupled with the difficulties methodologists have had making sense of and rationalizing the conduct of economics, have led to a sociological turn within methodological reflection itself. Rather than showing that there is good evidence supporting developments in economic theory or that those developments have other broadly epistemic virtues, methodologists and historians such as D. Wade Hands (2001); Hands and Mirowski 1998), Philip Mirowski (2002), and E. Roy Weintraub (1991) have argued that these changes reflect a wide variety of non-rational factors, from changes in funding for theoretical economics, political commitments, personal rivalries, attachments to metaphors, or mathematical interests.

Furthermore, many of the same methodologists and historians have argued that economics is not only an object of social inquiry, but that it can be a tool of social inquiry. By studying the incentive structure of scientific disciplines and the implicit or explicit market forces impinging on research (including, of course, research in economics), it should be possible to write the economics of science and the economics of economics itself (Hands 1995, Hull 1988, Leonard 2002 Mirowski and Sent 2002).

Exactly how, if at all, this work is supposed to bear on questions concerning how well supported are the claims economists make is not clear. Though eschewing traditional methodology, Mirowski's monograph on the role of physical analogy in economics (1990) is often very critical of mainstream economics. In his Reflection without Rules (2001) D. W. Hands maintains that general methodological rules are of little use. He defends a naturalistic view of methodology and is skeptical of prescriptions that are not based on detailed knowledge. But he does not argue that no rules apply.

This is obviously not new to all here, but I thought this was funny and wanted to know what others thought.

Economics as a topic and subject of study and development is a joke to to other intellectuals.  They see it as nothing more than witchcraft that exists because of political and market incentives.  It is not even worthy of study in itself, but we can study it to see (using economic methodology, ironically) how the academic world responds to outside market and political forces.

I think they are kind of right, however.  They simultaneously write off the mathematical approach and the purely theoretical due to inadequacies in epistemological and ontological terms.  Not to mention the intention and choice theory.

Rothbard on that same subject:

It should be noted that, as in the triumph of the Keynesian revolution and many other conquests by various schools of economics, the Friedman article did not win the hearts and minds of economists in the pattern of what we might call the Whig theory of the history of science: by patient refutation of competing or prevailing doctrines. As in the case of the Mises-Hayek business-cycle theory dominant before Keynes's General Theory, the Robbins book was not refuted; it was simply passed over and forgotten. Here the Thomas Kuhn theory of successive paradigms is accurate on the sociology or process of economic thought, deplorable as it might be as a prescription for the development of a science. Too often in philosophy or the social sciences, schools of thought have succeeded each other as whim or fashion, much as one style of ladies' hemlines has succeeded another. Of course, in economics as in other sciences of human action, more sinister forces, such as politics and the drive for power, often deliberately skew the whims of fashion in their own behalf.

What Milton Friedman did was to import into economics the doctrine that had dominated philosophy for over a decade, namely logical positivism. Ironically, Friedman imported logical positivism at just about the time when its iron control over the philosophical profession in the United States had already passed its peak. For three decades, we have had to endure the smug insistence on the vital importance of empirical testing of deductions from hypotheses as a justification for the prevalence of econometric models and forecasting, as well as a universal excuse for theory being grounded on admittedly false and wildly unrealistic hypotheses. For neoclassical economic theory clearly rests on absurdly unrealistic assumptions, such as perfect knowledge, the continuing existence of a general equilibrium with no profits, no losses, and no uncertainty, and human action being encompassed by the use of calculus that assumes infinitesimally tiny changes in our perceptions and choices.

I know Mises' theory of action is pretty scare compared to non-economist philosophers, but I would like to see a response to it somewhere in the academic philosophy world.  Does anyone know of a philosophical critique of Mises?

"The Fed does not make predictions. It makes forecasts..." - Mustang19
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Egon replied on Wed, Jan 23 2013 5:19 AM

An excellent question.  And just to show you that someone cares, I'm telling you that I have no idea.  But I am interested.

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Adam Knott replied on Wed, Jan 23 2013 11:32 AM

"I know Mises' theory of action is pretty scare compared to non-economist philosophers, but I would like to see a response to it somewhere in the academic philosophy world.  Does anyone know of a philosophical critique of Mises?"


From Rothbard's The Ethics of Liberty:


C. Ludwig von Mises and “Value-Free” Laissez Faire13

     Let us now turn to the position of Ludwig von Mises on the entire matter of praxeology, value-judgments, and the advocacy of public policy. The case of Mises is particularly interesting, for he was, of all the economists in the twentieth century, at one and the same time the most uncompromising and passionate adherent of laissez faire and the most rigorous and uncompromising advocate of value-free economics and opponent of any sort of objective ethics. How then did he attempt to reconcile these two positions?14

     Mises offered two separate and very different solutions to this problem. The first is a variant of the Unanimity Principle. Essentially this variant affirms that an economist per se cannot say that a given governmental policy is “good” or “bad.” However, if a given policy will lead to consequences, as explained by praxeology, which every one of the supporters of the policy will agree is bad, then the value-free economist is justified in calling the policy a “bad” one. Thus, Mises writes:

An economist investigates whether a measure a can bring about the result p for the attainment of which it is recommended, and finds that a does not result in p but in g, an effect which even the supporters of the measure a consider undesirable. If the economist states the outcome of his investigation by saying that a is a bad measure, he does not pronounce a judgment of value. He merely says that from the point of view of those aiming at the goal p, the measure a is inappropriate.15

     And again:

Economics does not say that . . . government interference with the prices of only one commodity . . . is unfair, bad, or unfeasible. It says, that it makes conditions worse, not better, from the point of view of the government and those backing its interference.16

     Now this is surely an ingenious attempt to allow pronouncements of “good” or “bad” by the economist without making a value judgment; for the economist is supposed to be only a praxeologist, a technician, pointing out to his readers or listeners that they will all consider a policy “bad” once he reveals its full consequences. But ingenious as it is, the attempt completely fails. For how does Mises know what the advocates of the particular policy consider desirable? How does he know what their value-scales are now or what they will be when the consequences of the measure appear? One of the great contributions of praxeologic economics is that the economist realizes that he doesn’t know what anyone’s value scales are except as those value preferences are demonstrated by a person’s concrete action. Mises himself emphasized that:

one must not forget that the scale of values or wants manifests itself only in the reality of action. These scales have no independent existence apart from the actual behavior of individuals. The only source from which our knowledge concerning these scales is derived is the observation of a man’s actions. Every action is always in perfect agreement with the scale of values or wants because these scales are nothing but an instrument for the interpretation of a man’s acting.17

Given Mises’s own analysis, then, how can the economist know what the motives for advocating various policies really are, or how people will regard the consequences of these policies?

     Thus, Mises, qua economist, may show that price control (to use his example) will lead to unforeseen shortages of a good to the consumers. But how does Mises know that some advocates of price control do not want shortages? They may, for example, be socialists, anxious to use the controls as a step toward full collectivism. Some may be egalitarians who prefer shortages because the rich will not be able to use their money to buy more of the product than poorer people. Some may be nihilists, eager to see shortages of goods. Others may be one of the numerous legion of contemporary intellectuals who are eternally complaining about the “excessive affluence” of our society, or about the great “waste” of energy; they may all delight in the shortages of goods. Still others may favor price control, even after learning of the shortages, because they, or their political allies, will enjoy well-paying jobs or power in the price-control bureaucracy. All sorts of such possibilities exist, and none of them is compatible with Mises asserting, as a value-free economist, that all the supporters of the price control—or of any other government intervention—must concede, after learning economics, that the measure is bad. In fact, once Mises concedes that even a single advocate of price control or any other interventionist measure may acknowledge the economic consequences and still favor it, for whatever reason, then Mises, as a praxeologist and economist, can no longer call any of these measures “bad” or “good,” or even “appropriate” or “inappropriate,” without inserting into his economic policy pronouncements the very value judgments that Mises himself holds to be inadmissible in a scientist of human action.18 For then he is no longer being a technical reporter to all advocates of a certain policy, but himself an advocate participating on one side of a value conflict.

     Moreover, there is another fundamental reason for advocates of “inappropriate” policies to refuse to change their minds even after hearing and acknowledging the praxeological chain of consequences. For praxeology may indeed show that all types of government policies will have consequences that most people, at least, will tend to abhor; however, (and this is a vital qualification) most of these consequences take time, some a great deal of time. No economist has done more than Ludwig von Mises to elucidate the universality of time-preference in human affairs—the praxeologic law that everyone prefers to attain a given satisfaction sooner than later. And certainly, Mises, as a value-free scientist, could never presume to criticize anyone’s rate of time preference, to say that A’s was “too high” or B’s “too low.” But, in that case, what about the high-time-preference people in society who may retort to the praxeologist: “perhaps this high tax and subsidy policy will lead to a decline of capital; perhaps even the price control will lead to shortages, but I don’t care. Having a high time-preference, I value more highly the short-run subsidies, or the short-run enjoyment of buying the current good at cheaper prices, than the prospect of suffering the future consequences.” And Mises, as a value-free scientist and opponent of any concept of objective ethics, cannot call them wrong. There is no way that he can assert the superiority of the long-run over the short-run without overriding the values of the high time-preference people; and this cannot be cogently done without abandoning his own subjectivist ethics.

     In this connection, one of Mises’s basic arguments for the free market is that, on the market, there is a “harmony of the rightly understood interests of all members of the market society.” It is clear from his discussion that he doesn’t merely mean “interests” after learning the praxeological consequences of market activity or of government intervention. He also, and in particular, means people’s “long-run” interests, for, as Mises states, “For ‘rightly understood’ interests we may as well say interests ‘in the long run.”‘19 But what about the high-time-preference folk, who prefer to consult their short-run interests? How can the long-run be called “better” than the short-run; why must “right understanding” necessarily be the long-run?20 We see, therefore, that Misesfs attempt to advocate laissez-faire while remaining value-free, by assuming that all of the advocates of government intervention will abandon their position once they learn of its consequences, falls completely to the ground.

     There is another and very different way however, that Mises attempts to reconcile his passionate advocacy of laissez faire with the absolute value freedom of the scientist. This is to take a position much more compatible with praxeology: by recognizing that the economist qua economist can only trace chains of cause and effect and may not engage in value judgments or advocate public policy. This route of Mises concedes that the economic scientist cannot advocate laissez faire, but then adds that he as a citizen can do so. Mises, as a citizen, then proposes a value-system but it is a curiously scanty one. For he is here caught in a dilemma. As a praxeologist he knows that he cannot (as an economic scientist) pronounce value judgments or advocate policy; yet he cannot bring himself simply to assert and inject arbitrary value judgments. And so, as a utilitarian (for Mises, along with most economists, is indeed a utilitarian in ethics, although a Kantian in epistemology), what he does is to make only one narrow value judgment: that he desires to fulfill the goals of the majority of the public (happily, in this formulation, Mises does not presume to know the goals of everyone).

     As Mises explains, in his second variant:

Liberalism [i.e., laissez-faire liberalism] is a political doctrine. . . . As a political doctrine liberalism (in contrast to economic science) is not neutral with regard to values and ultimate ends sought by action. It assumes that all men or at least the majority of people are intent upon attaining certain goals. It gives them information about the means suitable to the realization of their plans. The champions of liberal doctrines are fully aware of the fact that their teachings are valid only for people who are committed to their valuational principles. While praxeology, and therefore economics too, uses the terms happiness and removal of uneasiness in a purely formal sense, liberalism attaches to them a concrete meaning. It presupposes that people prefer life to death, health to sickness . . . abundance to poverty. It teaches men how to act in accordance with these valuations.21

     In this second variant, Mises has successfully escaped the self-contradiction of being a value-free praxeologist advocating laissez faire. Granting in this variant that the economist may not make such advocacy, he takes his stand as a “citizen” willing to make value judgments. But he is not willing to simply assert an ad hoc value judgment; presumably he feels that a valuing intellectual must present some sort of ethical system to justify such value judgments. But, as a utilitarian, Mises’s system is a curiously bloodless one; even as a valuing laissez-faire liberal, he is only willing to make the one value judgment that he joins the majority of the people in favoring their common peace, prosperity, and abundance. In this way as an opponent of objective ethics, and uncomfortable as he must be with making any value judgments even as a citizen, he makes the minimal possible degree of such judgments. True to his utilitarian position, his value judgment is the desirability of fulfilling the subjectively desired goals of the bulk of the populace.

     A few points in critique of this position may here be made. In the first place, while praxeology can indeed demonstrate that laissez faire will lead to harmony, prosperity, and abundance, whereas government intervention leads to conflict and impoverishment,22 and while it is probably true that most people value the former highly, it is not true that these are their only goals or values. The great analyst of ranked value scales and diminishing marginal utility should have been more aware of such competing values and goals. For example, many people, whether through envy or a misplaced theory of justice, may prefer far more equality of income than will be attained on the free market. Many people, pace the aforementioned intellectuals, may want less abundance in order to whittle down our allegedly “excessive” affluence. Others, as we have mentioned above, may prefer to loot the capital of the rich or the businessman in the short-run, while acknowledging but dismissing the long-run ill effects, because they have a high time-preference. Probably very few of these people will want to push statist measures to the point of total impoverishment and destruction—although this may well happen. But a majority coalition of the above might well opt for some reduction in wealth and prosperity on behalf of these other values. They may well decide that it is worth sacrificing a modicum of wealth and efficient production because of the high opportunity cost of not being able to enjoy an alleviation of envy, or a lust for power or submission to power, or, for example, the thrill of “national unity” which they might enjoy from a (short-lived) economic crisis.

     What can Mises reply to a majority of the public who have indeed considered all the praxeological consequences, and still prefer a modicum–or, for that matter, even a drastic amount—of statism in order to achieve some of their competing goals? As a utilitarian, he cannot quarrel with the ethical nature of their chosen goals, for, as a utilitarian, he must confine himself to the one value judgment that he favors the majority achieving their chosen goals. The only reply that Mises can make within his own framework is to point out that government intervention has a cumulative effect, that eventually the economy must move either toward the free market or toward full socialism, which praxeology shows will bring chaos and drastic impoverishment, at least to an industrial society. But this, too, is not a fully satisfactory answer. While many or most programs of statist intervention—especially price controls—are indeed cumulative, others are not. Furthermore, the cumulative impact takes such a long time that the time-preferences of the majority might well lead them, in full acknowledgment of the consequences, to ignore the effect. And then what?

     Mises attempted to use the cumulative argument to answer the contention that the majority of the public prefer egalitarian measures even knowingly at the expense of a portion of their own wealth. Mises’s comment was that the “reserve fund” was on the point of being exhausted in Europe, and therefore that any further egalitarian measures would have to come directly out of the pockets of the masses through increased taxation. Mises assumed that once this became clear, the masses would no longer support interventionist measures.23 But, in the first place, this is not a strong argument against the previous egalitarian measures, nor in favor of their repeal. But secondly, while the masses might well be convinced, there is certainly no apodictic certainty involved; and the masses have certainly in the past, and presumably will in the future continue knowingly to support egalitarian and other statist measures on behalf of others of their goals, despite the knowledge that their income and wealth would be reduced.

     Thus, Dean Rappard pointed out in his thoughtful critique of Mises’s position:

Does the British voter, for instance, favor confiscatory taxation of large incomes primarily in the hope that it will redound to his material advantage, or in the certainty that it tends to reduce unwelcome and irritating social inequalities? In general, is the urge towards equality in our modern democracies not often stronger than the desire to improve one’s material lot?

     And, on his own country, Switzerland, Dean Rappard pointed out that the urban industrial and commercial majority of the country have repeatedly, and often at popular referenda, endorsed measures to subsidize the minority of farmers in a deliberate effort to retard industrialization and the growth of their own incomes.

     Rappard noted that the urban majority did not do so in the “absurd belief that they were thereby increasing their real income.” Instead,

quite deliberately and expressly, political parties have sacrificed the immediate material welfare of their members in order to prevent, or at least somewhat to retard, the complete industrialization of the country. A more agricultural Switzerland, though poorer, such is the dominant wish of the Swiss people today.24

The point here is that Mises, not only as a praxeologist but even as a utilitarian liberal, can have no word of criticism against these statist measures once the majority of the public have taken their praxeological consequences into account and chosen them anyway on behalf of goals other than wealth and prosperity.

     Furthermore, there are other types of statist intervention which clearly have little or no cumulative effect, and which may even have very little effect in diminishing production or prosperity. Let us for example assume again—and this assumption is not very farfetched in view of the record of human history—that the great majority of a society hate and revile redheads. Let us further assume that there are very few redheads in the society. This large majority then decides that it would like very much to murder all redheads. Here they are; the murder of redheads is high on the value-scales of the great majority of the public; there are few redheads so that there will be little loss in production on the market. How can Mises rebut this proposed policy either as a praxeologist or as a utilitarian liberal? I submit that he cannot do so.

     Mises makes one further attempt to establish his position, but it is even less successful. Criticizing the arguments for state intervention on behalf of equality or other moral concerns, he dismisses them as “emotional talk.” After reaffirming that “praxeology and economics . . . are neutral with regard to any moral precepts,” and asserting that “the fact that the immense majority of men prefer a richer supply of material goods to a less ample supply is a datum of history; it does not have any place in economic theory,” he concludes by insisting that “he who disagrees with the teachings of economics ought to refute them by discursive reasoning, not by . . . the appeal to arbitrary, allegedly ethical standards.”25

     But I submit that this will not do. For Mises must concede that no one can decide upon any policy whatever unless he makes an ultimate ethical or value judgment. But since this is so, and since according to Mises all ultimate value judgments or ethical standards are arbitrary, how then can he denounce these particular ethical judgments as “arbitrary”? Furthermore, it is hardly correct for Mises to dismiss these judgments as “emotional,” since for him as a utilitarian, reason cannot establish ultimate ethical principles; which can therefore only be established by subjective emotions. It is pointless for Mises to call for his critics to use “discursive reasoning,” since he himself denies that discursive reasoning can ever be used to establish ultimate ethical values. Furthermore, the man whose ultimate ethical principles would lead him to support the free market should also be dismissed by Mises as equally “arbitrary” and “emotional,” even if he has taken the laws of praxeology into account before making his ultimately ethical decision. And we have seen above that the majority of the public very often has other goals which they hold, at least to a certain extent, higher than their own material well-being.

     Thus, while praxeological economic theory is extremely useful for providing data and knowledge for framing economic policy, it cannot be sufficient by itself to enable the economist to make any value pronouncements or to advocate any public policy whatsoever. More specifically, Ludwig von Mises to the contrary notwithstanding, neither praxeological economics nor Mises’s utilitarian liberalism is sufficient to make the case for laissez faire and the free-market economy. To make such a case, one must go beyond economics and utilitarianism to establish an objective ethics which affirms the overriding value of liberty, and morally condemns all forms of statism, from egalitarianism to “the murder of redheads,” as well as such goals as the lust for power and the satisfaction of envy. To make the full case for liberty, one cannot be a methodological slave to every goal that the majority of the public might happen to cherish.

"It would be preposterous to assert apodictically that science will never succeed in developing a praxeological aprioristic doctrine of political organization..." (Mises, UF, p.98)

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hashem replied on Wed, Jan 23 2013 2:15 PM

Does anyone know of a philosophical critique of Mises?

Here's a philosophical critique of Mises: he was the modern father of a school of economics which proved intervention to be utterly indefensible, and yet he was a statist.

Whenever you find yourself on the side of the majority, it's time to pause and reflect. —Mark Twain
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