I have read some works by Milton Friedman, Ludwig Von Mises, Adam Smith, and Ayn Rand; and they all seem to be correct!
What are the primary philosophical differences between these individuals, especially Milton Friedman and Ludwig Von Mises.
Furthermore, what distinguishes that Austrian School from classical-liberal economics, or free-market economics?
I am a thinker and a student of history, political science, trends, and international relations, but economics is my weakness. I intuitively know that free market economics is correct, and history demonstrates that. But within the very general "free-market economics," what are the different variants? What are the great debates between free market economic thinkers? What are the different schools of economics that consider themselves to be free-market oriented?
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I am seeking to start a private equity fund with the intent of "betting" against the commercial real estate and retail sectors in the United States. As the basis of our business plan will be rooted in economic theory to justify why betting against these sectors through short-selling etc will be feasible, I must fully understand why these sectors are doomed to collapse. I need some answers fast. I believe that economics, as with most mathematical problems, has one correct answer and many false answers. I do not view economics as matter of different opinions, but rather as a science in which there is one correct school of economics with all others being incorrect. I am a firm believer in the power of the free, deregulated market to sustain a high standard of living and elevate societies from poverty to wealth. I blame the actions of government for the current economic crisis (manipulation of interest rates, high taxes, federal reserve system, abolition of gold standard, inflationary spending etc.). What I am getting at here is this: I intuitively know that the answers to our current economic crisis can be found in the literature and philosophies that support free market economics. However, within free-market economics and/or libertarian economics are many different variants. In seeking to predict future trends one must adhere to the correct school of economics. Are there are free market economists or thinkers out there that can explain to me some of the different schools of economic thought within 'free-market economics' and give me the differences between them? Can anybody provide me with a compelling argument for a single school of economic thought within laissez-faire economics that is the most accurate school thus conceived of? Any help would be greatly appreciated. Feel free to respond to this post of just email me.
Any insight would be greatly appreciated.
Thanks,
Stephen Estes
University of Southern California
abskebabs:P.S. I hope you stick around.
Thanks! I was somewhat ready to leave today when a moderator claimed I was repeatedly being "intellectually dishonest" and censored some of my replies. But I'm still here.
I would claim the stock market, though, is not ergodic; it does not return to a state it has been in before. Rather, I consider it erratic and unpredictable (although I do believe it is rational, making use of all available information).
"I'm not a fan of Murray Rothbard." -- David D. Friedman
Edit; If you were replying to Neoclassical's "you can't beat the market!", you're right if he meant "at any point in time".
For any period of time that one looks at the market, a profitable business over the same period of time disproves the hypothesis that you can't beat the market. And I deny that there is any meaningful definition of "beating the market" except profitability. If I buy X, Y and Z stocks and later sell them at a profit, I have "beaten" the market. If the sum of my buying and selling activity over time is profitable, then I am "beating the market." Whether you look at it for a particular transaction or for many transactions over an arbitrarily large period of time, the fact remains that it is possible to earn a profit buying and selling stocks (or speculating in anything else), therefore, it is possible to "beat the market."
Clayton -
For a treatment of my thoughts, everyone please read: http://www.princeton.edu/~ceps/workingpapers/91malkiel.pdf.
Quoting Malkiel, The efficient market hypothesis is associated with the idea of a "random walk," which is a term loosely used in the finance literature to characterize a price series where all subsequent price changes represent random departures from previous prices. The logic of the random walk idea is that if the flow of information is unimpeded and information is immediately reflected in stock prices, then tomorrow’s price change will reflect only tomorrow’s news and will be independent of the price changes today. But news is by definition unpredictable and, thus, resulting price changes must be unpredictable and random. As a result, prices fully reflect all known information, and even uninformed investors buying a diversified portfolio at the tableau of prices given by the market will obtain a rate of return as generous as that achieved by the experts.
uninformed investors buying a diversified portfolio at the tableau of prices given by the market will obtain a rate of return as generous as that achieved by the experts.
This is a really bizarre claim and I think it's false right on its face. If we abstract the market at a sufficiently high level, stocks are not qualitatively different from any other good, that is, buying a stock is no different than buying a car or buying any other good. The implication of Malkiel is that random purchases of goods is as profitable as an informed purchase of specific goods with the planned intent of making a profit. That is, the "uninformed investor" in cars or wheat or office space or emus or shares of IBM or whatever will earn just as good a profit as specialist entrepreneurs will, over time. This seems to be an implicit denial of Misesian calculation and of the utility of profit & loss in improving entrepreneurial speculation.
Bizarre? Well, it is very counterintuitive! I bet you'll have fun reading about how he defends the idea.
Do you mean rational in the Misesian or neoclassical sense? The progression of the market, like the future and future knowledge, is uncertain otherwise we would already know it. A lack of long run equilibrium automatically rules out in that case an ergodic critique, since another necessary condition is removed since we can no longer imply equivalnece of time and bulk averages necessarily... Why however must we rule out the possibility of a market being beaten by an entrepreneur or several entrepreneurs in the long run (even keeping weary of the distinction, lest we talk past each other that profit must be distinguished from interest when analysing the Austrian treatment)? If the EMH rules this out using probability calculus, isn't it contradicting itself conceptually, since it would be assuming complete statistical knowledge about future entrepreneurial success, the kind of hindsight it explicitly denies to the individuals themselves?
I'm starting to feel there would be a lot to say in a full Misesian reply to the EMH, and the paper you linked. Would appreciate more links from both sides on this subject.
EDIT:
I made a mistake in my discussion of ergodicity...unpredictabillity of future macroscopic progression is a valid exclusion from use of ergodic hypothesis...
"When the King is far the people are happy." Chinese proverb
For Alexander Zinoviev and the free market there is a shared delight:
"Where there are problems there is life."
Let me quote Eugene Fama, "An 'efficient' market is defined as a market where there are large numbers of rational, profit-maximizers actively competing, with each trying to predict future market values of individual securities, and where important current information is almost freely available to all participants. In an efficient market, competition among the many intelligent participants leads to a situation where, at any point in time, actual prices of individual securities already reflect the effects of information based both on events that have already occurred and on events which, as of now, the market expects to take place in the future. In other words, in an efficient market at any point in time the actual price of a security will be a good estimate of its intrinsic value."
I hope that makes sense. You can make average returns, but you'll never make above-market returns. To put it more bluntly, if you get unusually rich from investments, then you just got lucky.
I agree with Fama for free markets, but I agree with the Austrians that markets are far from free.
Why can't we say the same thing about losses?
In what sense?
If you get "unusually" poor from investments are you just "unlucky?"
This is where neoclassical models get you
>>You can make average returns, but you'll never make above-market returns. To put it more bluntly, if you get unusually rich from investments, >>then you just got lucky.
you can never do X, but if you happen to do X then we call you Y !
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
Yes, abskebabs.
Don't many investors claim that they make their money by identifying government distortions in the market?
Why anarchy fails
AJ: Don't many investors claim that they make their money by identifying government distortions in the market?
impossible ! other investors would have already done that ...
(tee hee!)