From Smiling Dave:
I've quoted Mises as saying that economics should teach a person two things: Predict the future, and what to do about it.
Menger on economics:
to reduce the complex phenomena of human economic activity to the simplest elements that can still be subjected to accurate observation, to apply to these elements the measure corresponding to their nature, and constantly adhering to this measure, to investigate the manner in which more complex phenomena evolve from their elements according to definite principles.
The goal of scholarly research is not only the cognition, but also the understanding of phenomena. We have gained cognition of a phenomenon when we have attained a mental image of it. We understand it when we have recognized the reason for its existence and for its characteristic quality (the reason for its being and for its being like it is)
Furthermore Jaffe on "Megerian Man":
Man, as Menger saw him, far from being a lightning calculator, is a bumbling, erring, ill-informed creature, plagued with uncertainty, forever hovering between alluring hopes and haunting fears, and congenitally incapable of making finely cali- brated decisions in pursuit of satisfactions. Hence Mengers scales of the declining importance of satisfactions are represented by discrete integers. In Mengers scheme of thought, positive first derivates and negative second derivates of utility with respect to quality had no place; nothing is differentiable.
If this is a major view of Mises, I would count it as a strike against him vs Austrian Economics and into a more "Walrasian" / traditional marginalist nature. To predic the future and tell peoplewhat to do about it seems insane.
"As in a kaleidoscope, the constellation of forces operating in the system as a whole is ever changing." - Ludwig Lachmann
"When A Man Dies A World Goes Out of Existence" - GLS Shackle
Dave,
It was perfectly clear that Mises was saying there is very little (not nothing) that economics can actually contribute to those running a business. He showed over and over that ideological and social issues have economics at their heart. That is the real application of economics, that is what Mises spends the vast majority of Human Action talking about. Originary interest, the consumer's democracy, the importance of capital goods, economic methodology, and the effects of socialism are next to useless for an entrepreneur while everything written in Human Action is absolutely essential to the intellectual who is attempting to discover the true nature of capitalism, socialism, and interventionism. That's 100 percent of the book that's useful for the politically inclined individual, and something like 20 to 30 that is not entirely useless to the business person.
Mises was interested in ideas and how they impacted the political realm much more than he was interested in the inner workings of businesses and how to help them. This is obvious from how he outlined the role of economics in society, which was primarily to help "society choose" its system. It's clear from the quote I gave above, which was almost all (maybe all I forget) of the section of how economics relates to business that the business person is generally alone, and ABCT is clearly one of the most applicable areas of economic theory to running a business in the real world.
However, you're free to interpret Mises however you'd like to in the face of direct contradiction.
When I called Mises' system "ideology" I was going for this definition:
"a system of ideas and ideals, especially one which forms the basis of economic or political theory and policy"
Mises' system is a collection of very specific ideas and methods that represent how one should approach political economy, and it has to do specifically with political ideologies and belief systems.
For whatever it's worth I think that this thread has totally been jacked from the purpose of the OP, although I can't for the life of me decide what that purpose really was.
Yes it has lost t's point - and it's kind of my fault, I posted something I shouldn't have in my 3rd post - that entire post was not supposed to have been up, as it's pointless (I thought I deleted the damn thing),
The main point of the thread was to prevent a soapbox going on in a fairly simple thread about what college courses people took. The secondary point was simply that if that is Mises view, I'm not so sure it could be seen as Mengers - and that's as far as I wanted to go with that.
"The main point of the thread was to prevent a soapbox going on in a fairly simple thread about what college courses people took. The secondary point was simply that if that is Mises view, I'm not so sure it could be seen as Mengers - and that's as far as I wanted to go with that."
You failed.
I do agree with Dave that the two views are not at all incompatible. I think that Menger, Mises, and Hayek all generally shared the view that the exact shape of the future is unknowable. It pervades all of Hayek's work and it really comes out in Mises with some of his later remarks in Human Action and a lot in Theory and History.
Understanding the business ciclye is very important, but it is not the only thing that is useful to entrepreneurs. Taxes and regulations are incredibly varied, not only at the federal level, but often at the state and local level too. Most entrepreneurs don't look too deep into what the effects of these various taxes and regulations will be. They just see what the costs are to them and decide if something is worth it. The problem is, if you aren't familiar with how things work, you can end up with bad investments. In other words, interest rates may be low, but that doesn't mean it's necessarily good to invest. Another example could be if you know that there is going to be a price ceiling put into effect in the near future on X good, then you might try to unload your stock at a lower price but still above the ceiling (else you can just wait for the ceiling to take effect) before the rule is put into effect.
Obviously that is a very basic example, and probably most people could figure that out without studying economics, but somehow there are a ton of people who don't get it (they support the price ceilings). At the very least this knowledge puts you ahead of them, and if it is relevant to your profession, you can make use of it over others. Don't forget that timing is also crucial for entrepreneurs. Remember when Peter Schiff (and Ron Paul!) predicted the housing bust? They applied basic economic reasoning (okay, do we consider the ABCT basic? It's been explained so many times that it must be...) to predict the crash. Schiff clearly stated that it would happen in either 2007 or 2008. That is more than enough relevant knowledge for an entrepreneur looking to enter the housing market. They know that they need to stay away until after the crash and things stabalize. Everyone else who didn't understand what real wealth is (I'm looking at you, Art Laffer) got slammed.
Also, don't invest in municipal bonds. Stockton, California declared bankruptcy. "But it's the government, it has to pay back it's debt!" Yeah, of course. There are only so many options available, and while this may not have been something that only Austrians could predict, Austrian economics stresses good reasoning. That alone would help people realize that governments can in fact declare bankruptcy and screw you.
PS I'll try to think of better examples than interest rates and price ceilings. It's late, so I guess I'll sleep on it and maybe I'll have some good examples tomorrow.
...learn to use the intertubes dude..."The law of superposition (or the principle of superposition) is a key axiom"...
So from 6 links we are down to one. And that one link, if one bothers to read to the end, states very explicitly that the so called axiom is often violated by reality. Learn to read, dude.
Oh, by the way, even the very first line of that article shows it's not "a priori". Learn to know what words mean before you use them, dude.
You don't have a degree. My mistake. OK.
My humble blog
It's easy to refute an argument if you first misrepresent it. William Keizer
My classic example is shrimp.
Have you heard of "ceteris parebis"?
You might... you may... it's possible...
2. When has this actually happened? Are you arguing from something imaginary?
Like Mises I see economics and praxeology as being primarily a political ideology...
Like Mises? Do you have a quote, something, anything, to back up that assertion? I provided 6 quotes in this very thread where he says the exact opposite.
>praxeology is actually pretty useless to the investor and entrepreneur by its very nature
Neodoxy, why not let the market decide?
http://en.wikipedia.org/wiki/Charles_G._Koch - "As of October 2012, Charles was ranked the 6th richest person in the world with an estimated net worth of $34 billion... In the book, Koch attempts to apply... Austrian entrepreneurial theory, such as that of Mises and Israel Kirzner, to organizational management.[17][18] T. Boone Pickens argues that Koch's business success lends credibility to the book's concept... especially influential upon Koch's philosophy are Ludwig Von Mises' Human Action"
@Gotlucky
Once again, I don't think that we really disagree here. I'm not saying that economics is entirely useless to the entrepreneur, only that generally it's not all that helpful and a knowledge of things like the inner-workings of an industry or a knack for understanding how prices in an industry shift will serve him much better.
@Dave
"Have you heard of "ceteris parebis"?"
Have you bothered to read what you're responding to?
"2. When has this actually happened? Are you arguing from something imaginary?"
My professor who deals heavily with environmental economics (some of his students in particular are involved in the production of "environmentally friendly" goods) has students working in certain fields where they often have the problem that because their products are cheap and environmentally friendly. Because they have both these qualities consumers assume that the product itself is lying to them and that it's not environmentally friendly (something most consumers find more desirable) and it is low quality, so they have a hard time selling these things.
Once upon a time I was at the grocery store with my mother. She told me to go and purchase tomato spaghetti sauce with no further instructions. I knew nothing about the various brands and qualities of tomato spaghetti sauce, so when I went to the appropriate aisle and I saw many different types of tomato spaghetti sauce I didn't know what to do. I didn't choose the cheaper kinds of spaghetti sauce because I assumed it was of a lower quality. I chose something in the middle in terms of price because I assumed that it was of a high enough quality without being unnecessarily expensive. In this case the producer of that type of spaghetti sauce would have decreased their demand if they had decreased their price. Behavioral economics shows that people tend to make decisions in these kinds of ways when confronted with limited information on a large number of brands. It often makes sense to be in the middle.
Finally, let's go with the fact that Mises seemed to pin down the death of mixed-economic capitalism not too long after the 1950's. This would indicate that the number of praxeological possibilities that could have been taken were very high. Either the interventionist policies could have had an especially large or rather small affect on overall capital accumulation and growth depending upon the exact conditions of the day. The latter seems to have occurred
"Like Mises? Do you have a quote, something, anything, to back up that assertion? I provided 6 quotes in this very thread where he says the exact opposite."
Off of skimming what you posted I count 3 times where Mises seems to write that it's useful politically and zero times where he seems to say that it's useful in any other context.
Economics isn't very useful for businesspeople:
When the businessmen finally learned that the boom created by credit expansion cannot last and must necessarily lead to a slump, they realized that it was important for them to know in time the date of the break. They turned to economists for advice. The economist knows that such a boom must result in a depression. But he does not and cannot know when the crisis will appear. This depends on the special conditions of each case. Many political events can influence the outcome. There are no rules according to which the duration of the boom or 870 HUMAN ACTION of the following depression can be computed. And even if such rules were available, they would be of no use to businessmen. What the individual businessman needs in order to avoid losses is knowledge about the date of the turning point at a time when other businessmen still believe that the crash is farther away than is really the case. Then his superior knowledge will give him the opportunity to arrange his own operations in such a way as to come out unharmed. But if the end of the boom could be calculated according to a formula, all businessmen would learn the date at the same time. Their endeavors to adjust their conduct of affairs to this information would immediately result in the appearance of all the phenomena of the depression. It would be too late for any of them to avoid being victimized. If it were possible to calculate the future state of the market, the future would not be uncertain. There would be neither entrepreneurial loss nor profit. What people expect from the economists is beyond the power of any mortal man. The very idea that the future is predictable, that some formulas could be substituted for the specific understanding which is the essence of entrepreneurial activity, and that familiarity with these formulas could make it possible for anybody to take over the conduct of business is, of course, an outgrowth of the whole complex of fallacies and misconceptions which are at the bottom of present-day anticapitalistic policies. There is in the whole body of what is called the Marxian philosophy not the slightest reference to the fact that the main task of action is to provide for the events of an uncertain future. The fact that the term speculator is today used only with an opprobrious connotation clearly shows that our contemporaries do not even suspect in what the fundamental problem of action consists. Entrepreneurial judgment cannot be bought on the market. The entrepreneurial idea that carries on and brings profit is precisely that idea which did not occur to the majority. It is not correct foresight as such that yields profits, but foresight better than that of the rest. The prize goes only to the dissenters, who do not let themselves by misled by the errors accepted by the multitude. What makes profits emerge is the provision for future needs for which others have neglected to make adequate provision. Entrepreneurs and capitalists expose their own material well-being if they are fully convinced of the soundness of their plans. They would never venture to take their economic life into their hands because an expert advised them to do so. Those ignorant people who operate on the stock and commodity exchanges according to tips are destined to lose their money, from THE PLACE OF ECONOMICS IN LEARNING 871whatever source they may have got their inspiration and “inside” information. In fact reasonable businessmen are fully aware of the uncertainty of the future. They realize that the economists do not dispense any reliable information about things to come and that all that they provide is interpretation of statistical data referring to the past. For the capitalists and entrepreneurs the economists’ opinions about the future count only as questionable conjectures. They are skeptical and not easily fooled. But as they quite correctly believe that it is useful to know all the data which could possibly have any relevance for their affairs, they subscribe to the newspapers and periodicals publishing the forecasts. Anxious not to neglect any source of information available, big business employs staffs of economists and statisticians. Business forecasting fails in the vain attempts to make the uncertainty of the future disappear and to deprive entrepreneurship of its inherent speculative character. But it renders some services in assembling and interpreting the available data about economic trends and developments of the recent past.
Economics is primarily political:
Economics must not be relegated to classrooms and statistical offices and must not be left to esoteric circles. It is the philosophy of human life and action and concerns everybody and everything. It is the pith of civilization and of man’s human existence. To mention this fact is not to indulge in the often derided weakness of specialists who overate the importance of their own branch of knowledge. Not the economists, but all the people today assign this eminent place to economics. All present-day political issues concern problems commonly called economic. All arguments advanced in contemporary discussion of social and public affairs deal with fundamental matters of praxeology and economics. Everybody’s mind is preoccupied with economic doctrines. Novels and plays today treat all things human— including sex relations—from the angle of economic doctrines. Everybody thinks of economics whether he is aware of it or not. In joining a political party and in casting his ballot, the citizen implicitly takes a stand upon essential economic theories
Not only in the countries ruled by barbarian and neobarbarian despots, but no less in the so-called Western democracies, the study of economics is practically outlawed today. The public discussion of economic problems ignores almost entirely all that has been said by economists in the last two hundred years. Prices, wage rates, interest rates, and profits are dealt with as if their determination were not subject to any law. Governments try to decree and to enforce maximum commodity prices and minimum wage rates. Statesmen exhort businessmen to cut down profits, to lower prices, and to raise wage rates as if these matters were dependent on the laudable intentions of individuals. In the treatment of international economic relations people blithely resort to the most naive fallacies of Mercantilism. Few are aware of the shortcomings of all these popular doctrines, or realize why the policies based upon them invariably spread disaster.
The significance of this fundamental epistemological difference becomes clear if we realize that the practical utilization of the teachings of economics presupposes their endorsement by public opinion. In the market economy the realization of technological innovations does not require anything more than the cognizance of their reasonableness by one or a few enlightened spirits. No dullness and clumsiness on the part of the masses can stop the pioneers of improvement. There is no need for them to win the approval of inert people beforehand. They are free to embark upon their projects even if everyone else laughs at them. Later, when the new, better and cheaper products appear on the market, these scoffers will scramble for them. However dull a man may be, he knows how to tell the difference between a cheaper shoe and a more expensive one, and to appreciate the usefulness of new products. But it is different in the field of social organization and economic policies. Here the best theories are useless if not supported by public opinion. They cannot work if not accepted by a majority of the people. Whatever the system of government may be, there cannot be any question of ruling a nation lastingly on the ground of doctrines at variance with public opinion. In the end the philosophy of the majority prevails. In the long run there cannot be any such thing as an unpopular system of government. The difference between democracy and despotism does not affect the final outcome. It refers only to the method by which by which the adjustment of the system of government to the ideology held by public opinion is brought about. Unpopular autocrats can only be dethroned by revolutionary upheavals, while unpopular democratic rulers are peacefully ousted in the next election. The supremacy of public opinion determines not only the singular role that economics occupies in the complex of thought and knowledge. It determines the whole process of human history. The customary discussions concerning the role the individual plays in history miss the point. Everything that is thought, done and accomplished is a performance of individuals. New ideas and innovations are always an achievement of uncommon men. But these great men cannot succeed in THE NONDESCRIPT CHARACTER OF ECONOMICS 863
"In this sense we may say that economics is apolitical or nonpolitical, it is the foundation of politics and of every kind of political action"
... All this from the section "The place of economics in society". A whole lot of talk about politics, very little talk of, well, not politics.
Are you satisified, Mr. Dave?
Also, and I should have clarified this:
I probably agree with Jargon, Neo, and maybe Dave in this case of prediction - I said something, rather awkwardly, about it without refering to it as prediciton.
There is a form of "prediction" due to the casual-genetic nature of AE for example,
If govt is at the same time, with the same plan, trying to reduce the cost of living and create a surplus - it will fail
I think Horowitz called this a "negative predicition", so that's fine: and would be an / the important function of an economist in the public life.
If that is all that was meant, no problem I eagerly misread something. I think I wanted to go in a different direction, and I was fishing for something else.
Wrote a long reply, got erased. So this is short version.
http://www.newworldencyclopedia.org/entry/Ideology
http://dictionary.reference.com/browse/ideology
From there it is very clear that Mises did not consider his life's work an "ideology". All my quotes show that. Maybe you meant some other word.
About your quotes. I refer to sections you bolded.
1. Talks about specific bit of economic info, that there will be a bust in the future. Is not talking about all of economics in general.
2. Talks not about Austrian E. and praxeology [which uses no formulas], but about mainstream econ. When he says "the idea that future is predictable" [implying it's not], is talking about the precision a phony formula would pretend to give. Quntitative. But qualitattive predictions are certainly possible, and are the whole point of studying econ, as he says in many places.
3. Let's make sure we do not conflate neccessary, sufficient, and helpful. He is saying it is not suff., not that it is not helpful. Many businessmen have said that knowledge of AE helped them in their business pursuits.
4. and 5. Talks not about Austrian E. and praxeology [which are not about interpretation of statistical data referring to the past], but about mainstream econ.
Now you may have meant that AE has more application to politics than business, because politicians have the ability to destroy a whole economy for decades, and would profit by learning how not to do it, with which I take no issue.
Well stated neo, I'll varify that answer: even though this thread is virtually about nothing. I was kind of hoping to critique what I thought may have been a strange view of subjectivism (which you may have critiqued in your shrimp example while speaking of things like expectations), and maybe - if I was lucky -even take a small dig at ABCT. This is what I thought the whole "predictions" thing may have meant.
Anyway,
yes what you say about Mises and ideology I would think is uncontroversial - but I was willing to give Dave all the intrepretive rights on him in this thread.
Though could you elaborate why you brought up psychology in particular, and behavioral psych in particular in the shrimp post?
Vive,
"Though could you elaborate why you brought up psychology in particular, and behavioral psych in particular in the shrimp post?"
The more we know about individual actions the more we can make predictions and understand how the world will actually work. For instance if I know that the older one is generally shorter one's time preference will be, I can make better general predictions about the future (so long as I am careful about doing so). For instance, there is nothing praxeologically that says peoples' expectations are extremely realistic and therefore prices will adjust exceedingly rapidly, often taking only a few days and a month would be considered a long adjustment period. This could be true, and an understanding of how individuals generally make decisions helps us to know whether this, or something else will occur.
Through behavioral economics we can get a better grasp on how individuals in general will act under certain situations. This means, if it is done appropriately, we know more about the actors in our economy and we gain a greater understanding and predictive power. This is not outside the praxeological method. Mises claimed that an understanding of the world and how people work would aid one in actually understanding things. Remember that praxeology is what is always true. By knowing what is generally true, or more true in a specific case, we know more. If I know that a country has a very low time preference then I can make more accurate predictions than if I did not know their time preference at all.
I rambled a little bit, but does this make sense?
Yes it makes sense - I'm short on time, but I may want to talk about this more later.
No one mentioned it so far, but Neodoxy's non-cheap shrimp sounds something like a Veblen good: http://en.wikipedia.org/wiki/Veblen_good
>Through behavioral economics we can get a better grasp on how individuals in general will act under certain situations
I am not too familiar with behavioral economics. Is there a "bible" on behavioral economics, like say Human Action might be for AE?
I'm guessing it would be a mistake to make predictions solely based on behavioral science, or based solely on AE. Empirical evidence shows that forecasts that combine different methods work best:
"Compared with errors of the typical individual forecast, combining reduces errors. In 30 empirical comparisons, the reduction in ex ante errors for equally weighted combined forecasts averaged about 12.5% and ranged from 3 to 24 percent. Under ideal conditions, combined forecasts were sometimes more accurate than their most accurate components." - http://repository.upenn.edu/cgi/viewcontent.cgi?article=1005&context=marketing_papers
Baxter,
While that would be a case where the law of demand is trumped and where ceteris paribus conditions wouldn't hold, what I'm talking about is uncertainty where consumers are ignorant as to the quality of a good. I'm sure that there's a name in behavioral economics for this, but it's not coming to mind right now. I'm saying that because consumers are in some cases ignorant of the quality of a good that they will base predictions of quality off of price. This means that in some cases an increase in price will increase the perceived cost of the good, but also the perceived quality of a good. A single shift causes a double shift in demand (that is to say that demand moves to the right and we move along the demand curve at the same time). Ceteris paribus doesn't hold.
"I am not too familiar with behavioral economics. Is there a "bible" on behavioral economics, like say Human Action might be for AE?"
Definitely not. I can reccommend some popular books on the subject, but "mainstream" econ tends to be pretty decentralized anyway and since behavioral economics is pretty new there's nothing I know of that comes close to filling that role. This is part of why Austrians get in trouble many times when approaching academia. Austrian econ has a few normal tomes: HA, Prices and Production, MES. Marxism has the same: Capital and the Manifesto. Early Keynesianism had the General Theory and Samuelson's work, but many branches of economics (and that's really what behavioral econ is more than a "school") have no "bibles". A few central works perhaps, but nothing that summarizes the whole or event the brundt of the conclusions of the branch, field, or school. Economics has become more decentralized as a science. The opposite of what Mises wanted.
"I'm guessing it would be a mistake to make predictions solely based on behavioral science, or based solely on AE."
I agree with behavioral it would be impossible to make many predictions without bringing in information from other sources, be it AE or anywhere else. Austrian I do feel that one could make accurate predictions with it, but my whole thesis here is that one will be much more accurate if one brings in informations from other sources, especially behavioral econ.