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"Why I am Not an Austrian Economist"

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earlgrey Posted: Thu, Nov 8 2007 6:47 PM

 I found this essay about 6 months ago after having read Man, Economy & State. I've been hesitant to read it because All I knew, and most of what I know, was Austran Economics. I'm in cllege learning mainstream now, but I still am wary about giving it a deep reading. Has anyone here read it? Comments on it?

 

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 Haven't read it yet. I can't stand Caplan, not so much because of his arguments but because he comes off as an arrogant know-it-all shmuck. That said, Block has responded to his article, and the debate exists in the Mises.org archives.

 

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Its garbage.

Its not possible to study someone's indifference through their actions , whether indifference exist or not is not at all relevant.

 

2.2. Indifference

The utility function approach has a final implication that Rothbard rejected. Recall that using standard neoclassical definitions, U(a)>U(b) simply means that given the choice of a and b, a will be chosen, while U(a)<U(b) means that b would be selected. But what if U(a)=U(b); i.e., what if an agent is indifferent between two alternatives? Rothbard elaborated upon Mises by rejecting the very possibility as incoherent - and by implication rejecting the very use of indifference curves, a key building block of modern neoclassical theory.[16]

The essential objection to indifference curve analysis is that it is impossible for action to demonstrate indifference. Action demonstrates preference, not indifference. Rothbard puts it thusly "The crucial fallacy is that indifference cannot be a basis for action. If a man were really indifferent between two alternatives, he could not make any choice between them, and therefore the choice could not be revealed in action."[17]

The crucial assumption - shared by both Mises and Rothbard - is that no preference can exist which cannot be revealed in action. But why assume this? Is this not a peculiar importation of behaviorism into a body of economic thought which purports to be militantly anti-behavioral? Thus, in his introduction to Mises' Theory and History, Rothbard tells us that:

One example that Mises liked to use in his class to demonstrate the difference between two fundamental ways of approaching human behavior was looking at Grand Central Station behavior during rush hour. The "objective" or "truly scientific" behaviorist, he pointed out, would observe the empirical events: e.g., people rushing back and forth, aimlessly at certain predictable times of day. And that is all he would know. But the true student of human action would start from the fact that all human behavior is purposive, and he would see the purpose is to get from home to the train to work in the morning, the opposite at night, etc. It is obvious which one would discover and know more about human behavior, and therefore which one would be the genuine 'scientist.'[18]

Just as there is more to my action than my behavior, there is more to my preferences than my action. I can have all sorts of preferences that are not - and could not be - revealed in action. For example, my preference for ice cream yesterday can no longer be revealed, since I had no ice cream yesterday and any present action regarding ice cream would merely reveal a present preference for it, not a past one. And yet, I have introspective knowledge of my ice cream preferences from yesterday. Similarly, I can never reveal my preference for products at prices other than the market price, but by introspection I can know them.

In precisely the same way, I can know some cases in which I am indifferent. I am often indifferent between the colors of clothes; though I pick one color, I know that I would have picked the other if the prices were not equal. The behaviorist might deny the reality of my mental states, but clearly that is not the route Mises or Rothbard would want to take. Indeed, Mises and Rothbard themselves use hypothetical preferences in other contexts. The interaction of supply and demand let us observe but a single point - the equilibrium price and quantity - but nevertheless Rothbard draws demand curves showing the quantity desired at all possible prices. Similarly, one can only observe that I choose a green sweater; but this does not rule out the possibility that I was actually indifferent between the green sweater and the blue sweater.

 


 

 

Peace

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earlgrey:
I'm in cllege learning mainstream now,

I'm very sorry that you're having to learn mainstream economics now. Whenever they teach you a new concept, particularly if it has to do with macroeconomics, please look at it with a jaundiced eye. Then when you leave college, promptly forget everything you've learnt there.

 

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Unfortunately, I have to agree with Leonidia. Microeconomics in particular is horrific. It is as if studying an applied branch of Mathematics. If you want to learn neoclassical economics (as I do) I recommend you do so privately, alongside Austrian economics. If you are doing Economics for professional reasons, though, then there is no reason to stop.

 

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earlgrey replied on Fri, Nov 9 2007 10:16 AM

I took Macro my last year of highschool (06-07). I'm in Micro right now. First level micro isn't as mathematical as it could be, but it's still an incoherent mess.

But I can do the motions and get good grades. And then I can leave here with a major in Econ. And, as suggested, promptly forget all of it. 

I'm still reading my Austrian works. I just read the three Garrett works, I'm half way through Theory and History. After that I'm either reading The Theory of Money and Credit or The Failure of the New Economics. I'll read Economic Controversies once the Shop publishes it.

My micro teacher knew that an Austrian School existed, but knows nothing about it.

"Why don't you go stand under a stalactite, and bellow the resonate room frequency and wait for it to impale your brain!" -The Brain

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I brought up the Austrian Business Cycle to my former monetarist macro teacher (my other one is a Hayekian.) He had no clue what I was talking about, but he eventually asked if I meant Hayek's explanation. He then admitted he had only a passing familiarity with it. It amuses me, in part.

 

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 If you fear taking up a critic, that means your beliefs are not founded upon what you know to be true but what you wish to be true.

 Take on Caplan without fear and know why he is wrong.

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In grad school (for philosophy ) I decided to do some grad classes in some other areas because, well, why not?  My management class (at a top 20 business school) was a complete joke - we watched movies, got points for saying something - anything - during discussions, and did god awful group presentations (what am I supposed to learn from watching a bunch of new college grads talking about the weaknesses in the business plan of a top, successful company?) my accounting class was shocking even to me to see the cavalier way horrific things are talked about, and my economics class - game theory - was dropped on the first day.  We were told that we'd have to write a term paper, but that it could be on any topic in economics, not just game theory.  Our topics had to be approved, so I went to the professor after the first class with a list of Austrian topics, most focused in some way on criticizing some aspect of game theory.  The professor looked and said "Austrian economics?  You could write about that stuff, but you won't get a good grade." 

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jamesyohe replied on Sat, Nov 10 2007 12:32 AM

First off, I don't know why Caplan wrote this article. If i were a neo-classical, I would hope that I could find something better to write about, especially a topic I know little about. In the second place Caplan shows a serious lack of attention to the fundamentals of mathematics and neo-classical theory in relation to the subject matter of his rant. The very first issue he brings up is the lack of real difference between subjective utility theory and what passes for it in neo-classical economics. I think that this issue can be clearly exemplified by the neo-classical utility function where direct mathematical relationships are posited between real things (goods) and utility. U= f(good X1, X2, X3,. . . . ) In this function, there is a clear use of cardinal values for utility. One unit of good X results in some quantity of utility. When one use the equation for neo-classical efficiency MU(good X1)/ Price (X1) = MU(good X2)/ Price (X2) . . . etc, it clearly assigns cardinal values to utility, otherwiise, we could not perform mathematical operations on marginal Utility in relation to goods. End of dicussion. If utility were a set of ordinal ranking rather than cardinal (snuck in though the back door), we could not estabish ratios between MU and price. That would be like establishing a ratio between a sports teams position within their league and the pitching staffs ERA. In the same manner Rothbard and Mises point out that indifference is not a praxeological category, and in fact not possible in the absence of cardinal utility. For something to be equal, it must be the same, or quantifiable. For the utility of a 2nd apple to be equal to the utility of a 3rd orange,, then the two things would have to be the same (and apples and oranges are not considered by the actor to be the same), or the satisfaction gained by acquiring them (their maginal utlity) must be quantifiable. This fact destroys Caplans idea that neo=classical economists somehow consider utitlty in their treatment to be ordinal rankings, rather than cardinal quantities. No way around it. These operations are not valid if utility is ordinal. In addition, Austrian economists in the Misesian/Rothbardian/Hoppean/Huelsmannian tradition beleives that utility is acheived though the accomplishment of goals. Neo-classical theory teats it as being inherent in, ot eminating from things themselves. Utility is a mental expeience, not a physical one. Things have no utility, utility does not exist outside of an individual mind. Utility is derived from the accomplishment of goals. In section 2.3, Caplan criticizes Mises and Rothbad for their attack on continuity regarding utility. In the absence of continuity, it is clearly true that some markets could not acheive neo-classical equilibrium. In the Austrian paradigm equilibrium is not an important concept. It is in the long-run unacheivable. If you read Mises, I have never seen a supply and demand graph. Equilibrium is not a practicle concept. Market may or may not tend toward some equilibrium, but they never reach it. The end point continually changes as we make moves. Thus Caplan's critique is invalid. That would be like sayiing we shouldn't exclude the existence of pink elephants, since if we do, then we invalidate the reality of a drunkard's visions. To say it must be that A is true since A is necessary to theory X is not a proof, but rather a condition of theory X being true. I think to some degree that this invalidates most of the rest of Caplan's paper, however, I think that the paper is completely unimportant and there are better writings both for and against the Austrian School. Also if one were to spend his lieisure time in reading something so unimportant, I would also recommend reading Dr. Salerno's and Professor Huelsmann's rebuttals. I also believe that Professor Block has published something on Caplan's article.
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There has been a whole exchange of articles between Caplan and Block. As for utility, neoclassicals at least like to claim that it is ordinal. 

 

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rflores replied on Tue, Nov 13 2007 9:20 PM
You can find the answers given to Caplan on this site: http://blog.mises.org/blog/archives/000841.asp
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jamesyohe:
First off, I don't know why Caplan wrote this article. If i were a neo-classical, I would hope that I could find something better to write about, especially a topic I know little about. In the second place Caplan shows a serious lack of attention to the fundamentals of mathematics and neo-classical theory in relation to the subject matter of his rant.

 

Caplan often rants, in fact, I've read few things of his that aren't just that - it's what makes him a good blogger, but not a good writer.

 

 

I don't understand why he and Cowen are so hostile towards anything that even graces the background of Ludwig von Mises or Murray N. Rothbard. It honestly just seems unnecessary to me.

 

 

I bumped this article after reading a few of his blog posts on econlog about central banking and its relative efficiency.

The Origins of Capitalism

And for more periodic bloggings by moi,

Leftlibertarian.org

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