I'll start: All costs are opportunity costs.
PS: Feel free to disagree with stated insights if you disagree with them being Austrian or core Austrian. Would be nice if this thread ends in a lively debate.
Well, if we can attribute the discovery of marginal valuation to Menger, then this is probably the greatest insight to date.
Read until you have something to write...Write until you have nothing to write...when you have nothing to write, read...read until you have something to write...Jeremiah
Marginal value would be my close second; I would however still place all costs being opportunity costs above it, since this concept in my opinion signifies the relation between costs, prices and value, completely exploding the fallacy of the labour theory of value (of course the marginal value theory does its fair share here too).
Mises' theory of economic calculation. Many people don't realize that it was what Hulsmann calls a "Keplerian shift" in the fundamentals of economics, and not just a handy argument against socialism.
I do not have a favorite Austrian insight, but I found one that I find interesting.
I read John Stossel’s column today. He cited the Peltzman Effect “(named after retired University of Chicago economist Sam Peltzman): People tend to behave more recklessly when their sense of safety is increased. By removing signs, lights and barriers, drivers feel less safe, so they drive more carefully. They pay more attention.”
The Peltzman effect is seemingly derivable from time preference. People prefer to be satisfied sooner rather than later. Applied to road usage, people want to reach their destination faster rather than slower and will do so if the risk of injury is reduced.
The Peltzman effect, which I absolutely adore, is really just cost-benefit analysis: the government, in that case, has reduced the costs of risk, so we perform riskier behavior.
"I'm not a fan of Murray Rothbard." -- David D. Friedman
What is Austrian about the Peltzman effect? Its psychological mambo jambo.
It's incentive based though, and it's logically necessary for behavior not to go the opposite of whatever is incentivized in a cost-free way to the individual. I'd argue that's pretty Austrian.
The cause/effect relationship between policy and incentives is psychological. I mean you could imagine that people might say "Oh the rule is for our own good better be careful" or "those douchebag statists don't know anything I'm going to act the same". Without testing, you don't know. The fact that the Peltzman effect is verified in real life does not make it a priori.
Well, it's not Austrian. Peltzman is a Chicago school economist. But Austrians shouldn't disagree with it.
And, the Peltzman effect is one of the best arguments against government regulation.
I strongly recommend everyone read his article, "Regulation and the Wealth of Nations": http://pcpe.libinst.cz/nppe/3_2/nppe3_2_3.pdf. You'll be a smarter anti-Statist if you do.
Sieben:The cause/effect relationship between policy and incentives is psychological. I mean you could imagine that people might say "Oh the rule is for our own good better be careful" or "those douchebag statists don't know anything I'm going to act the same". Without testing, you don't know. The fact that the Peltzman effect is verified in real life does not make it a priori.
First, the Peltzman effect has been redeemed by the data, so that's good. But only empiricists like me care, right?
But, I think your point is wrong, Sieben. This is a simple supply and demand situation. If you believe the minimum wage will increase unemployment (as Rothbard and others allege), then you should believe more safety regulations will increase risky driving. If you reduce the costs of risky driving, quantity demanded will rise.
Sieben you are right, but we Austrians could point out that either the policy fails to deliver the incentives or if it does, behavior changes in an unintended way (Peltzman) which is obvious if you think about it praxeologically. So in either case the policy fails.
Neoclassical:First, the Peltzman effect has been redeemed by the data, so that's good. But only empiricists like me care, right?
Neoclassical:If you believe the minimum wage will increase unemployment (as Rothbard and others allege), then you should believe more safety regulations will increase risky driving. If you reduce the costs of risky driving, quantity demanded will rise.
Again, I think there is a great empirical reason to believe that increasing monetary costs increase subjective costs... but its not apodictically true.
What would be a priori is if you somehow increased the subjective costs of hiring new workers, as opposed to nominal monetary costs. Even then the increase in unemployment is not certain because all you're saying is that it is now more difficult to hire workers.
So what I'm saying might sound like a cop out, but it tells us what we can test for. Namely the relationship between the nominal monetary price of labor and unemployment. Empirically, we get a great correlation. (If you want my personal opinion on Rothbard, I think he is an excellent advocate of the Austrian school and anarcho capitalism, but I think he could be about 30-40% more academic in his writings...)
Sieben, your point is technically true, but it's market competition that allows Austrians to assume that increasing monetary costs increases subjective costs. The market disciplines crazy behavior.
I know I'm technically right. Thats why I said my disagreement with rothbard was a boring technical point ;)
I would argue that the Peltzman effect is praxeological: There are many possible risks one can take that. If several are taken at the same time, acting man's logic (at least my logic) tells him he needs to multiply the risk-increases with each other for a correct risk-accessment. For example: If you don't wear a seatbelt, the chance that you get hurt badly in an accident if one occurs is increased. If you drive recklessly, the chance that you get into an accident is increased. However, if you do both at the time, to correctly analyze the risk you will not only add them together, but you will have to multiply: When you, in addition to driving recklessly, also don't wear a seatbelt, not only do you risk getting hurt badly to the same chance as when you would only drive recklessly but still wear a seatbelt, there is also additional risk in the form of getting hurt badly in the additional chance for accidents that results from driving recklessly. (I hope my usage of language doesn't make this too complicated)
So, while to a person that doesn't wear seatbelts voluntarily the additional risk of driving recklessly might not be worth it; when you force him to wear a seatbelt, he might start driving more recklessly, because due to the lower chance of getting hurt badly in an accident, driving recklessly becomes relatively more attractive to him (assuming he has at least a certain amount of interest in his safety).
Psychology might of course, as you described, also play a role, but if we disregard that role and only focus on the praxeological effect on the rational reasoning of the acting man, it becomes clear that by being forced to decrease the risk to himself in a certain area he would tend to engage in more risky behavior in another area if he had previously not engaged in said more risky behavior because it would have had to be multiplied with the risk-taking that is now forbidden to him.
PS: @Neoclassical: Examples like the above one are part of the reason why I belief in methodological dualism; to human action it is entirely relevant what the actual studies show or what the statistics are : What matters for economics and praxeology in general is the reasoning behind the chosing of means by the acting man. Because the objective is not to find out whether more or less accidents will happen introducing legislation like forcing people to wear seatbelts - those prove nothing as an increased or decreased rate of accidents could very well be determined by other factors so that for example the rate of accidents might decrease DESPITE the legislation simply because as an example cars in general are safer to drive due to some upgrade in technology - but to discover the influence that the legislation has on the chosing of means by acting man. Lastly, even IF human logic is wrong and it the logical reasoning of the acting man would not correspond to the laws of nature simply due to a failure of human logic, I would still endorse methodological dualism, simply because the objective of the praxeologist is figuring out the process of rational decision making of the acting man, even if it has flaws and is faulty. Therefore the way to prove my assertion above wrong is not to give me statistics or anything like that, but to point of my logical inconsistency in my above reasoning (which may very well exist, I wrote it rather hastily) within the bounds of the human mind.
This Peltzman topic deserves it's own thread. It's highjacking this one, which would be more useful as a concise survey of members' favorite Austrian insights.
Calculation
Capital theory.
"Man thinks not only for the sake of thinking, but also in order to act."-Ludwig von Mises
Hm, Grayson, I actually intended for this to be a discussion about which principles are to be considered Austrian (or core Austrian) as I stated in my OP, so I'm glad the Peltzman example was brought up because there is clearly room for discussion whether you can classify it as "Austrian" or not.
LibertarianfromGermany:For example: If you don't wear a seatbelt, the chance that you get hurt badly in an accident if one occurs is increased. If you drive recklessly, the chance that you get into an accident is increased. However, if you do both at the time, to correctly analyze the risk you will not only add them together, but you will have to multiply: When you, in addition to driving recklessly, also don't wear a seatbelt, not only do you risk getting hurt badly to the same chance as when you would only drive recklessly but still wear a seatbelt, there is also additional risk in the form of getting hurt badly in the additional chance for accidents that results from driving recklessly. (I hope my usage of language doesn't make this too complicated)
Like I said on minimum wage, you can increase nominal monetary costs but whether that increases subjective costs is an empirical matter. Similarly, passing a seatbelt law may or may not change the subjective risk analysis of the individual.
LibertarianfromGermany:Psychology might of course, as you described, also play a role, but if we disregard that role and only focus on the praxeological effect on the rational reasoning of the acting man, it becomes clear that by being forced to decrease the risk to himself in a certain area he would tend to engage in more risky behavior in another area if he had previously not engaged in said more risky behavior because it would have had to be multiplied with the risk-taking that is now forbidden to him.
And sorry if people think this thread is being hijacked... I would have posted elsewhere but the OP said I wasn't hijacking it and... neurotic. I'll stop.
Capital theory really does it for me :)
@Sieben: If you assume that the acting man is not making any reasoning calculations, you can basically discard any economic theory: For example, it is asserted by Böhm-Bawerk and others that the price for labour tends to equal its discounted marginal revenue product (notice, I didn't say that all acting men would act that way, but I said they would tend to). Now you can dismiss Böhm-Bawerks assertion on the same grounds: Who says that the Entrepreneurs bidding for the workers are not all too stupid to calculate in their interest and instead offer the workers wages based on, let's say, what they think their godness is telling them through telepathy they should pay them? But doing so would miss the point.
"So if he acts rationally (according to some optimality model), and if he really does have continous control over his perceived risk (that is, he can make changes that will restore his risk to whatever he preferred), then you can make predictions. Okay, but neither of these assumptions are praxeologic. They may be good in real life, but you gotta do empirical studies."
I said that is he has a certain interest in his safety and if he sees at least some utility in both driving recklessly and not wearing a seatbelt, the course of action I described would best suit the pursuit of his ends. Note also that this was a hypothetical example, which I used as a tool to illustrate how acting man would, assuming he acts in his best interest, adjust his means in a situation of risks that he perceives to have a multiplying factor if one risk that he wants to take would be outlawed.
LibertarianfromGermany:PS: @Neoclassical: Examples like the above one are part of the reason why I belief in methodological dualism
Not to beat a dead horse, but drawing logical conclusions from evidence does not rely upon methodological dualism.
For instance, if I consider numerous, varied replicators competing in a closed environment for scarce resources, I can logically deduce that the most adaptive ones will outcompete others. Right there is natural selection. Of course, I don't need methodological dualism or a priori abilities to do this.
Logic is part of the natural sciences; mathematics is indispensable. None of this requires odd philosophies about a dualistic world.
The others already mentioned are very fundamental. I also find the regression theorem to be particularly dear since it helps cut through so many fallacies of mush-headed, modern thinking about money. Calculation is pretty important, too. It makes you realize just how central money is to the industrialized world... without the ability to abstract away from heterogeneous goods and services and calculate in terms of a single unit of account which is universally accepted in the settlement of any debt and as final payment for any good or service, there is no way to go beyond "dead reckoning" to decide whether your efforts are improving your state of affairs or merely treading water or even falling behind. The nomad bartering pelts for some goats has to go by his gut instinct to decide whether he's better off with the goats or the pelts. Money permits a simple numerical comparison to assist in making this evaluation ($50 worth of pelts is a fair trade for $60 worth of goats).
Clayton -
@Neoclassical: In the example you gave you already assume a priori. You assume causality as an example. And you assume all the other rules and boundries of the human mind. For example, as an empiricist concerning the natural sciences, I am of the opinion (as I think you have said previously you are too) that causality is not a given and that maybe something other law is in place, etc. The point is, to make any assertion and not contradict ourselves in our limited human reasoning, we have to assert that the law of causality is in place, otherwise we could not make an assertion like you did about the replicators competing in a closed environment for scarce resources. For that assertion we also use no empirical data, simply other prediction than the more adaptive ones outcompeting the less adaptive ones would make no sense to us, we could not make that statement without contradiction. We have it easier with praxeology.
Yes, we do have to make a few certain empirical observations (for example that other humans act rationally and have the same logical boundaries as we as individuals do), but besides those very basic ones that at least I consider to be acceptable (since if other humans didn't act rational and other truths that I simply have to accept to, well, live my life but can't know 100%ly for certain since I can know nothing with 100% certainty, basically all knowledge that I've acquired is useless to me anyways), I know a priori knowledge and praxeology implications to be true (again, Mises wasn't talking about absolute truths, which he repeadetly states in HA, but as close to that as a human notion can be).
If they were untrue, which, I admit, is a possibility, then either the few empirical observations that I have decided to accept as facts (that humans act rationally again as the example) are wrong or my human logic is wrong (a much safer bet than statistics for sure, because they too would be invalid if human logic would be faulty as for example in causality not applying) - in either case, it is the best option that exists for analyzing economics and praxeology, because, firstly, economic and praxeological assertions are not isolable (you cannot really empirically analyze certain aspects of the market empirically without knowledge of the rest like you can with experiments in the natural sciences which you can test in a laboratory independent of almost all other factors) and secondly, there are certain phenomena that play a role in the market that we cannot observe, like choice (I'm not saying free will exists, but, as Grayson already said: "so long as I don't know how specific external facts produce in a human mind definite thoughts and volitions resulting in specific, concrete acts, the mechanistic approach to studying human society doesn't do me any good.") or entrepreneurial profit (as distinct from implicit wages and interest in the income of the Entrepreneur).
Furthermore, even in collecting and analyzing imperical data you are accepting a priori knowledge as basis; as said above, without causality or things like "the same physical object cannot be at two places at once", etc, you could not make the assertion that the statistics of past happenings collected by humans with a limited logic are in any way relevant to future happenings.
Edit: Oh, looking back at my post it seems like I really have gone off-topic with this one :( - Well, I really like the methodological dualism as an Austrian insight, too :D
If you assume that the acting man is not making any reasoning calculations,
Who says that the Entrepreneurs bidding for the workers are not all too stupid to calculate in their interest and instead offer the workers wages based on, let's say, what they think their godness is telling them through telepathy they should pay them? But doing so would miss the point.
Knowledge Problem.
I think you are misunderstanding my point Sieben. I'm not saying that there is a certain number of people out there that act like this, I'm simply saying that for people who do have interests that are in the very general range that I defined my assertion would be by a priori the rational means to best satisfy the end (the end being of course empirical data that one can not simply deduce). As I said before, we do have to make general assumptions based on empirical data. Even Mises said so in HA when he argued against polylogism (which would make the market place essentially an unrealistic, useless model if every individual had a different kind of logical system, depending on the systems that individuals would have of course) that empirical data simply does not support Marx's claim of different sets of logics for different classes or the doctrine of racists.
The Paltzman effect also doesn't state that taking risk away always leads to 3rd parties getting hurt, but that possibility of that happening exists, and above I have shown that using Austrian praxeological theory how it would come together if the rationally acting man has a certain set of ends which is easily conceivable. Lastly, I never stated that it was a priori, but praxeological which is not the same (Rothbard calls for example conspiracy theories praxeological as well).
LibertarianfromGermany:I'm simply saying that for people who do have interests that are in the very general range that I defined my assertion would be by a priori the rational means to best satisfy the end
LibertarianfromGermany:Lastly, I never stated that it was a priori, but praxeological which is not the same (Rothbard calls for example conspiracy theories praxeological as well).
In short, praxeology is the study of humans employing means to achieve ends. Rothbard calls conspiracy theorists praxeologists, because they analyze and hypothesize about past happenings from the viewpoint of which and whose means employed for what ends could those happenings be the result of. And about the first part of your post; what I simply asserted was that I used some tools of Austrian Economics (not exclusively, but most other schools don't particularly view action as being the result of man employing means to achieve ends plus in my analysis I implied marginal value theory in that the valuation order in security of the individual concerned might change as a result of forcing him to use seatbelts) to develop that concept.
I would say my favorite insight is the constellation of ideas Hayek developed about spontaneous order, extended order, the pretence of knowledge, etc. You know, pretty much ideas co-opted from the Scottish Enlightenment.
(1) all costs are opportunity costs
(2) methodological individualism
(3) Mises' conception of economic calculation
...
(x) Carl Menger's On the Origins of Money.
Carl Menger is outstanding. Menger and Mises are uber giants, imo.
Neoclassical:I strongly recommend everyone read his article, "Regulation and the Wealth of Nations": http://pcpe.libinst.cz/nppe/3_2/nppe3_2_3.pdf. You'll be a smarter anti-Statist if you do.
Thanks for that one. There's a bit of continuing discussion on that paper going on here: http://mises.org/Community/forums/p/18709/354459.aspx#354459
Why anarchy fails