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Mises and Economic Science 1936–50

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Jonathan M. F. Catalán Posted: Thu, Dec 23 2010 7:55 PM

Is there evidence that Mises had kept up with the economics profession between 1936–1950?  I ask because most of his criticism in Human Action is directed towards older theories, and apart from a few references to Keynes (he does deal more with Keynes towards the end of the book, admittedly) his criticisms of Keynesian economics seem more like elementary characterictures (is there evidence that he read The General Theory?—Keynes was not very kind in his review of The Theory of Credit and Money, so that Mises avoided Keynes would make sense).

Apart from Keynes, though, who published The General Theory in 1936, Mises does not really reference any later Keynesian work.  He doesn't comment, as far as I've read, John R. Hicks, for example.  Hicks, after all, spearheaded the Neoclassical/Keynesian synthesis in the late 1930s and early 1940s (Value and Capital was published in 1939).  He also doesn't comment on a number of academic articles that came out during this time.  For example, it was around this time that Don Patinkin was formulating his theories on value and prices.  Did Mises keep up with the mainstream profession after the early 1930s?

I understand that Mises's purpose, at the time, was not to give an overview on the state of modern economic science.  Rather, he trying to provide a unified Austrian theory of economic science, based largely on his earlier work.  I also remember reading that while writing Nationalökonomie Mises for the most part isolated himself from academic economic writing (he published very little academically, if I recall correctly).  I wonder if all of this caused him to "fall behind", so to speak (in conjunction with his adversity to mathematical economics).

Slightly related, is there any information on Mises' proficiency in mathematics?  I remember reading that neither Mises nor Hayek had a good handle on mathematics, but Hayek at least shows some proficiency in The Pure Theory of Capital (Hayek's opinion on mathematics was more towards the notion that precision came at a cost of comprehensibility).  Mises does show understand of statistics, but what about other types of analytical math? 

Thanks.

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DD5 replied on Thu, Dec 23 2010 9:10 PM

Jonathan M. F. Catalán:
I ask because most of his criticism in Human Action is directed towards older theories

I don't think you will be able to find a single fallacy in the General Theory that Mises did not refute in Human Action, one way or the other.  I think It is obvious that Mises recognized that the General Theory is nothing but a compilation of old fallacies that in one way or another, have already been refuted by others before him.  Kenyes simply masked them in "fancy" abstractions and nonsensical arguments.

Regarding Mathematics, I personally tend to think that Mises was actually very proficient in mathematics.  I'm not sure why.  He does address the use of differential equations in economics in the chapter on the socialist calculation problem.

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Vitor replied on Thu, Dec 23 2010 9:31 PM

Wasn't his brother Richard a mathematician? I guess they would discuss math and such. 

According to wiki, Richard was very well received in the USA, unlike Ludwig. 

 

"In 1939 he accepted a position in the United States, where he was appointed 1944 Gordon-McKay Professor of Aerodynamics and Applied Mathematics at Harvard University."

 

Richard was a specialist in hydro and aerodynamics, so he certainly was a very, very smart fellow.

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Vitor,

Richard was a statistician, and deeply influenced Mises' opinion of statistics.  Mises does show knowledge of statistics in Human Action (there is an entire section dedicated to the topic, in fact).  But statistics is sometimes not considered mathematics, or at least is not in the same domain as analytical mathematics such as calculus.  That is, at least, what I understand from my own experience with statistics (as part of my undergraduate studies).

Dan,

That is largely why I wanted to read Human Action and Man, Economy, and State before reading The General Theory.  My intention when reading the latter is to extensively annotate what was refuted, either directly or indirectly, either by Mises or Rothbard.  I also wanted to see where exactly Keynes goes wrong (although, I think that his ideas were just as ad hoc as his writing, as there is evidence that what we wrote in The General Theory was largely influenced by fellow professors at Cabridge [rather than conclusions he came at his own]).  Also, I have been slightly let down by other attempts to refute some aspects of Keynesian economics.  However, one has to acknowledge that the economics of Keynes is not necessarily the same thing as the economics if Hicks, Patinkin, Klein, et cetera.  That's another reason why I wonder if Mises was well read in alternative economic writing of the 1940s.

Regarding Mises' and Hayek's mathematical proficiency, I think it was Bruce Caldwell who had commented on a lack of proficiency.  I don't recall where he wrote this, though, otherwise I would check.

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mwalsh replied on Thu, Dec 23 2010 11:38 PM

I know that Richard von Mises's book on aerospace engineering, although not used as a textbook for the Intro to Aerospace Engineering at my school (probably because you can get it for about 20USD through Dover, all you need is a suplement on compressible flow) if still citied, and used. 

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Hey Jonathan,

Not a big deal, but this is how rumors and unfounded mass opinions start.  You say you remember reading somewhere, sometime, somebody saying Mises didn't have a good handle on math.  Mises has so many ideological foes, that it very well may have been an unfounded, petty swipe that someone wrote on the internet that you read.  But now an outstanding Austrian writer with a growing reputation like yourself repeats it, and just like that, it can become "according to Catalan, Mises was crap in maths."  As you know, Mises argued that mathematical formulations of economic problems were vicious, so obviously he's not going to take up much space at all in his works using it.  So, just as much as a swipe someone wrote somewhere is no evidence of him being poor at maths, neither is absence of maths in his writings.  The only kind of positive evidence we could have about any lack of proficiency would be if he made some error in a mathematical demonstration in his works (which you're not going to find, because, again he thought such exercises were futile) or someone recalling from school days some botched equation.  Absent that, we can only be decently generous and assume, based on the facts that he attended math lectures 3 hours a week at gymnasium, he graduated near the top of his class, he was a diligent student who voluntarily took on the most difficult program he could, and that he was a polymath, a polyglot, and a genius with regard to several other forms of ratiocination, that his handle on maths was at least fine.

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Daniel,

Point taken.  Do we know what kind of classes Mises took while at university?  I am sure Hülsmann mentions something, but I haven't yet had time to read his biography.

Regarding where I read it, I found it, and it does not imply that Mises lacked proficiency in mathematics.  I read it wrong (he suggests that it may have been a factor, but gives no evidence) why Mises and Hayek refused "formalism", but obviously the reasons Mises gives in Human Action for his rejection of mathematical modeling say otherwise.  It is from: Caldwell, Bruce (1988), "Hayek's Transformation." History of Political Economy, 20(4), p. 519;

An easy answer is that Hayek and other Austrians lacked the mathematical skills to do so. There is certainly some evidence for such a claim. Hayek admits in the preface of The pure theory of capital that writing the book taxed his mathematical skills, yet his analysis is almost exclusively graphical. Could it be that lack of mathematical sophistication is the basis for the Austrian disdain for formalism?

Such an answer might explain why men like Hayek and Mises rejected formalism. But it does not explain why their verbal models were not formalized by later generations of theorists. We will see that Hayek’s major complaint against the models existing in the 1930s was that they failed to capture the notion of dispersed, subjectively-held information. Significantly, that problem has yet to receive adequate mathematical representation.

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My friend, please call me Danny.  :)

In September 1892, shortly before his eleventh birthday, Mises entered the Akademische Gymnasium where he would be schooled for the next eight years. The gymnasium schools were very particular institutions, more demanding and quite dissimilar from their present-day successors. A product of the nineteenth-century Continental system of education, they can best be described as “a combination of high school and college.” 23 The children of ambitious and well-to-do parents began attending around the age of ten, after four years of elementary training. Three gymnasium models were available: a classical model featuring eight years of Latin and six of Greek; a semi-classical with Latin and one or two modern languages; and a thoroughly modern option with only modern languages. Erik von Kuehnelt-Leddihn states that the classical model had more prestige than the others, but they were all demanding. Often these very hard school years hung like a black cloud over families. Failure in just one subject required repetition of a whole year. This was the fate of Nietzsche, of Albert Einstein, and also of Friedrich August von Hayek! Young Mises, of course, got a classical education: the modern languages he learned privately. 24 While at the Akademischen Gymnasium, Mises read Caesar, Livy, Ovid, Sallust Jugurtha, Cicero, Virgil, and Tacitus in Latin. In Greek, he studied Xenophon, Homer, Herodotus, Demosthenes, Plato, and Sophocles. (...)

The Akademische Gymnasium was the most thoroughly secularized secondary school in Vienna. It was therefore the favorite place of education for the sons of the liberal bourgeoisie, and in particular of Vienna’s better Jewish families. 31 In Ludwig’s terminal class, nineteen out of thirty-five pupils were Jewish, thirteen Catholic, and two Protestant. The school had been established in 1453. Today it is located on Beethovenplatz, near the eastern Ringstrasse. The tall neo-gothic building was constructed in the 1860s with romantic towers and high windows on ivied brick walls. This is where Ludwig spent the next eight years. His weekly schedule in the first year: religion (2 hours), Latin (8 hours), German (4 hours), geography (3 hours), mathematics (3 hours), natural history (2 hours), calligraphy (1 hour). By and large, the same subjects were taught throughout the entire eight-year program; the only major exception was Greek, which was taught starting in the third year.

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abskebabs replied on Fri, Dec 24 2010 8:55 AM

My impression of Mises from his own writings, though he doesn't use Maths explicitly, is that he actually had quite a good handle on it, especially regarding its applicabillity in economics, especially including the use of calculus and differential equations aside of his excellent understanding of the limitations of probabillity and statistics.

 

I see this now especially in the statements he makes about the lack of constants relating variables in the social sciences. When I first read these comments, I don't think I fully grasped them, but in a recent lecture I took in the economics course I'm now doing, the lecturer showed us how one could expand from simple pricing models to include how goods are substitutes to one another by finding cross-price elasticities. Admittedly, price connexity of substitution is only one out of 3, not including connexity of demand and production, but you could argue it's a start.(Cf Mises HA, p.388-389 for what I think is a brief but key section of the book)

 

I asked my lecturer if one could attempt a kind of mathematical "process" analysis in such a framework tracking how the change in one variable produces subsequent changes in others, before finally producing a change in the initial variable. He seemed puzzled, and said he'd never seen anything like that before(He even asked me why someone would want to do this). Yet this is precisely the kind of analysis we constantly make applying praxeology causally to analyse market processes, as a rise in demand in one sector causes shifts in others, with changes in supply and production producing consequent changes in the initial "trigger" variable(the price of the initil good). Such an analysis is very difficult to do with calculus because there are no independent variables(economists call these "exogeneous") or parameters and all are actually functions of one another. In fact, in such a system to my mind, mathematical treatment would be impossible, without fudging independent variables where they don't exist.

 

One could argue, that the methods of calculus used in mathematical price theory are only used infinitesimally to approximate changes in the short term, yet this admission itself would be a huge admission of defeat in the sense, admitting that the tools of analysis of most of neoclassical micro cannot even hope to handle the scope of its original subject matter.

 

On the other hand, I've not yet fully thought this out... I intend to try to do so soon.

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abskebabs replied on Fri, Dec 24 2010 9:23 AM

Interestingly, reading the Wikipedia on Mathematical Economics, I have to give Keynes credit for being prescient enough to realise the same objection I have(based on my reading of Mises) in the General Theory(p.297):

"It is a great fault of symbolic pseudo-mathematical methods of formalising a system of economic analysis … that they expressly assume strict independence between the factors involved and lose their cogency and authority if this hypothesis is disallowed; whereas, in ordinary discourse, where we are not blindly manipulating and know all the time what we are doing and what the words mean, we can keep ‘at the back of our heads’ the necessary reserves and qualifications and the adjustments which we shall have to make later on, in a way in which we cannot keep complicated partial differentials ‘at the back’ of several pages of algebra which assume they all vanish. Too large a proportion of recent ‘mathematical’ economics are merely concoctions, as imprecise as the initial assumptions they rest on, which allow the author to lose sight of the complexities and interdependencies of the real world in a maze of pretentious and unhelpful symbols."

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One could argue, that the methods of calculus used in mathematical price theory are only used infinitesimally to approximate changes in the short term, yet this admission itself would be a huge admission of defeat in the sense, admitting that the tools of analysis of most of neoclassical micro cannot even hope to handle the scope of its original subject matter.

Have you read Don Patinkin's Money, Interest, and Prices?

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abskebabs replied on Fri, Dec 24 2010 10:20 AM

There was actually an Austrian paper I read a little while back that began with the above quote and a subsequent quotation of a similar form from Mises, and proceeded to analyse both men's critiques of mathematical economics.

 

I would greatly appreciate if someone could provide a link to the paper, I tried searching for it myself through my own documents and the internet, though unfortunately, have been unable to find it.

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abskebabs replied on Fri, Dec 24 2010 10:23 AM

Have you read Don Patinkin's Money, Interest, and Prices?

No, but I guess I ought to. Is there a pdf available on the internet?

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That Keynes quote is reproduced in Rothbard's "Praxeology: The Methodology of Austrian Economics."  Also, I think Keynes' objection is different from yours.  Keynes is saying that mathematics relies on the verbal premises established, and if the verbal premises are wrong then the math is wrong.  Samuelson, I think, makes a similar argument (although he compares math and verbal logic to taking a bus and walking on foot, respectively) and suggests everything you can do mathematically you can do through rigorous verbal logic.  But, these arguments are fundamentally different from the one you and Mises make.  You argue that there are no independent variables that may be affected unpridictably (I couldn't  comment, because I haven't gone far enough into my studies on mathematics).  Mises argued that at a certain point economics is not quantifiable, and so mathematics is completely illusory because it does not reflect reality.

Regarding Patinkin's book, I can't find a PDF.  I actually haven't read it (it's still being shipped to my house), but Patinkin does dabble a lot in mathematical logic.  I looked up a few papers of his to get an idea of how he wrote, and this is an example (I'm just not well enough versed in econometrics models yet),

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abskebabs replied on Fri, Dec 24 2010 11:54 AM

Thanks Jonathan, unfortunately the Rothbard paper is not the one I was referring to. The article I read places both quotes by Keynes and Mises respectively at the frontpage. I'm not even sure if I accessed it on mises.org or elsewhere.

 

I also disagree with your interpretation of Keynes' quote. The issue is much more than simply the general fact of being careful about not checking verbal premises one translates into mathematics. Keynes is being very particular here, he recognises that to even carry out a mathematical treatment of the subject based on the methods of differential calculus, one needs to: "assume strict independence between the factors involved and lose their cogency and authority if this hypothesis is disallowed."

 

The second part of his statement, although he is not a praxeologist and does not see how far what must follow from his objection goes, is still very much along the same line:

"whereas, in ordinary discourse, where we are not blindly manipulating and know all the time what we are doing and what the words mean, we can keep ‘at the back of our heads’ the necessary reserves and qualifications and the adjustments which we shall have to make later on, in a way in which we cannot keep complicated partial differentials ‘at the back’ of several pages of algebra which assume they all vanish."

 

Hence, while in praxeological analysis, we can analyse in a full process how demand for A can affect its price, to subsequently demand/supply of B concurrently producing other effects...to producing feedbacks on the price of A, with no independent or isolated variables and parameters we can keep constant(and as Mises then realises, therefore denote exact quantitative relationships between economic data). When one tries to do analysis via a pricing model including several variables like the one Patinkin did above, one necessarily must make certain partial variables(and this is similar to the error of assuming that certain variables must hold constant or be independent because there is no other way in which to construct your analysis) vanish to demonstrate what economists like to call "Roy's identity" as he does above for instance. (Indeed, funnily enough, despite being appreciably rigorous, in the above treatment he still neglects to mention the necessary fact that the all other partial variables have to be zeroed to derive that identity at the bottom! I mean I know I'm a pedant, but man economists can be sloppy!)

 

The only thing I would add is that there simply is no other way to trace the relations between these variables without making the fallacious compromises mentioned above in a treatment relying on differential calculus.

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DD5 replied on Fri, Dec 24 2010 12:24 PM

Jonathan M. F. Catalán:
Also, I have been slightly let down by other attempts to refute some aspects of Keynesian economics.  However, one has to acknowledge that the economics of Keynes is not necessarily the same thing as the economics if Hicks, Patinkin, Klein, et cetera.

Keynes' General Theory is addressed directly to some extent by Rothbard in MES, and there is also  Garrison in "Time and Money",  however nobody has addressed the General Theory like Hazlitt did in "The Failure of The New Economics".  This is practically almost a line by line refutation of Keynes.  Highly recommended if you're going to actually read the General Theory.

 

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abskebabs:
When one tries to do analysis via a pricing model including several variables like the one Patinkin did above, one necessarily must make certain partial variables(and this is similar to the error of assuming that certain variables must hold constant or be independent because there is no other way in which to construct your analysis) vanish to demonstrate what economists like to call "Roy's identity" as he does above for instance. (Indeed, funnily enough, despite being appreciably rigorous, in the above treatment he still neglects to mention the necessary fact that the all other partial variables have to be zeroed to derive that identity at the bottom! I mean I know I'm a pedant, but man economists can be sloppy!)

 

I'm not following your comment exactly.  Where was Roy's Identity in the Patinkin page?  And what do you mean by saying the partials have to be zeroed for the identity at the bottom? 

In any case, if you take any graduate course in micro-econ, or a math econ course in undergrad, Patinkin's setup would look very familiar (well, at least in general).  Equation (1.2) is a Lagrangian function.  This is the function to be optimized.  Equation (1.3) describes the conditions necessary for each individual to have achieved their maximum utility.  You get that equation by taking derivatives of (1.2) with respect to each of the Z's, setting those derivatives equal to zero, and then dividing by the numeraired derivative (for which the price is 1).  This is a brief explanation; if you're familiar with the process it will make sense.  If not, then probably not.  If anyone is curious about what's going on with Patinkin's mathematics, I can explain it in much more detail; I am very familiar with various optimization methods in economics.  

As far as Mises and mathematics.  I have never gotten the impression that he was challenged.  In fact, in many ways, I find him to have a deeper understanding and grasp of the essence of how calculus relates to economics than those who had been developing and solving the problems.  Just because someone is good at solving a system of equations, constructing an optimization problem, or proving a theorem, doesn't mean they know anything about whether their efforts are at all relevant for economic understanding.  It so often seems that those not at all familiar with math are inclined to believe that the familiar have some mystical understanding with respect to the appropriateness of their craft.

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abskebabs replied on Sat, Dec 25 2010 4:09 AM

Actually that was a mistake. It's not Roy's identity at the bottom, I mistook it to be, since the form it was written looked so similar.

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