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Menger contra Mises on economics predicting the future and telling people what to do?

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vive la insurrection posted on Thu, Apr 4 2013 1:20 PM

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

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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.

At last those coming came and they never looked back With blinding stars in their eyes but all they saw was black...
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gotlucky replied on Wed, Apr 10 2013 12:20 AM

Haha, even if it weren't memes, a lot of people struggle connecting sentences with any kind of logical chain of thought. Right now I'm just picturing Cracked forums or even FreeRepublic. FLL would be amusing too.

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Neodoxy replied on Wed, Apr 10 2013 12:43 AM

I've long been of the opinion that these forums generally attract the highest level of discussion of any public conversation area on the internet.

At last those coming came and they never looked back With blinding stars in their eyes but all they saw was black...
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Well that's probably a better way of putting it, but nerd has such a nice ring to it.

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Also, just adding Rothbard's opinion on the matter of the role of economics in society, from section "Power & Market", "Economics: Its Nature and Its Uses"

ECONOMICS PROVIDES US WITH TRUE laws, of the type if A, then
B, then C, etc. Some of these laws are true all the time, i.e., A
always holds (the law of diminishing marginal utility, time preference, etc.). Others require A to be established as true before
the consequents can be affirmed in practice. The person who
identifies economic laws in practice and uses them to explain
complex economic fact is, then, acting as an economic historian
rather than as an economic theorist. He is an historian when he
seeks the casual explanation of past facts; he is a forecaster when
he attempts to predict future facts. In either case, he uses
absolutely true laws, but must determine when any particular
law applies to a given situation.1 Furthermore, the laws are necessarily qualitativerather than quantitative, and hence, when the
forecaster attempts to make quantitative predictions, he is going
beyond the knowledge provided by economic science.2
It has not often been realized that the functions of the
economist on the free market differ sharply from those of the

economist on the hampered market. What can the economist
do on the purely free market? He can explain the workings of the
market economy (a vital task, especially since the untutored person tends to regard the market economy as sheer chaos), but he
can do little else. Contrary to the pretensions of many economists, he is of little aid to the businessman. He cannot forecast
future consumer demands and future costs as well as the businessman; if he could, then he would be the businessman
. The
entrepreneur is where he is precisely because of his superior
forecasting ability on the market. The pretensions of econometricians and other “model-builders” that they can precisely forecast the economy will always founder on the simple but devastating query: “If you can forecast so well, why are you not doing
so on the stock market, where accurate forecasting reaps such
rich rewards?
”3 It is beside the point to dismiss such a query—
as many have done—by calling it “anti-intellectual”; for this is
precisely the acid test of the would-be economic oracle.
In recent years, new mathematico-statistical disciplines have
developed—such as “operations research” and “linear programming”—which have professed to help the businessman make his
concrete decisions. If these claims are valid, then such disciplines are not economics at all, but a sort of management technology. Fortunately, operations research has developed into a

frankly separate discipline with its own professional society and
journal; we hope that all other such movements will do the
same. The economist is not a business technologist.4
The economist’s role in a free society, then, is purely educational. But when government—or any other agency using violence—intervenes in the market, the “usefulness” of the economist expands. The reason is that no one knows, for example,
what future consumer demands in some line will be. Here, in the
realm of the free market, the economist must give way to the
entrepreneurial forecaster.
But government actions are very different, because the problem now is precisely what the consequences of governmental acts will be. In short, the economist
may be able to tell what the effects of an increased demand for
butter will be; but this is of little practical use, since the businessman is primarily interested, not in this chain of consequences—which he knows well enough for his purposes—but in
whether or not such an increase will take place.
For a governmental decision, on the other hand, the “whether” is precisely
what the citizenry must decide. So here the economist, with his
knowledge of the various alternative consequences, comes into
his own. Furthermore, the consequences of a governmental act,
being indirect, are much more difficult to analyze than the consequences of an increase in consumer demand for a product.

Longer chains of praxeological reasoning are required, particularly for the needs of the decision-makers. The consumer’s decision to purchase butter and the entrepreneur’s decision about
entering into the butter business do not require praxeological
reasoning, but rather insight into the concrete data. The judging and evaluation of a governmental act (e.g., an income tax),
however, require long chains of praxeological reasoning.
Hence, for two reasons—because the initial data are here supplied to him and because the consequences must be analytically

explored—the economist is far more “useful” as a political
economist than as a business adviser or technologist. In a hampered market economy, indeed, the economist often becomes
useful to the businessman—where chains of economic reasoning become important, e.g., in analyzing the effects of credit
expansion or an income tax
and, in many cases, in spreading this
knowledge to the outside world.
The political economist, in fact, is indispensable to any citizen who frames ethical judgments in politics. Economics can
never by itself supply ethical dicta, but it does furnish existential laws that cannot be ignored by anyone framing ethical conclusions—just as no one can rationally decide whether product
X is a good or a bad food until its consequences on the human
body are ascertained and taken into account.

Rothbard, like myself, seems to agree that the role of economics within the business world is relatively limited. In the free market Rothbard claims that the roll of the economist is practically nothing. However, in the hampered market the economics is useful in understanding the implications of things like price controls and credit expansion. Even these are not thoroughly extensive roles.

He also helps to dispel another notion put forward on this thread about the attempts of mainstream economics. As I have said before the efforts of mainstream economics are not flawed because they don't aim at understanding the real world, as opposed to an imaginary world of their own construction, rather they are greatly (although not entirely) aimed at using models that are more aimed at real world conditions (and are less interested in the praxeological aim of universality in return for a better description of specifically present conditions). They are trying to construct econometric laws of consumer behavior so as to perfect (and thereby remove) entrepreneurship. It doesn't work, but it's much more focused on helping businesses in the real world than Austrianism is.

At last those coming came and they never looked back With blinding stars in their eyes but all they saw was black...
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