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I was recently in a discussion about economics on a message board and was basically making some general statements about Austrian economics being superior to Keynesianism etc. A poster got involved with the discussion and brought up some criticism of Rothbard and Mises that involves some concepts I’m not familiar with yet and I was hoping members of this board could offer a rebuttal not just so I have something to say to the poster but to also help further my understanding. Below are the posters claims:
“To subscribe accept a large portion of Mises and Rothbard’s writings one has to reject mathematically substantiated key elements of neoclassical economics.”
“In Rothbard's rejection of utility functions in favor “value scales”, he uses the argument of ordinality over cardinality. This demonstrates an incomplete understanding of utility functions. The same ordinality that Rothbard claims with “value scales” exists within utility function. Unfortunately, insufficiencies exist with “value scales” in regards to backward bending supply curves. This forces Rothbard to make concessions in his writings concerning labor and land or economics of taxation.”
“Mises and Rothbard both considered the concept of indifference incoherent thus, rejecting the use of indifference curves in their economics. Their assumption is that if no preference exists, then no choice can be revealed in action. This is clearly preposterous.”
“Mises and Rothbard also take objection to continuity… Supply and demand curves cannot be continuous. Since a function that is not continuous cannot be differentiated, the use of calculus cannot be used to support Mises and Rothbard’s formulae. Not much of problem for Mises since he uses very little mathematics in his support. A big one though for Rothbard, as his works are filled with simple algebraic constructs as even Rothbard’s simple algebra fails without the underlying support of calculus.”
“Rothbard’s statement “Every market transaction benefits all participants, while every government intervention benefits some at the expense of others” is naïve. This is the “free market” mantra and needs to be examined closely. While a majority would agree with the second half of the statement, the first half is clearly questionable.
While the Austrian school of thought (using economics as it’s application) have provided interesting theoretical insight into the study of human behavior and as a by product provided some ideas into economic impact of that behavior, the foundation upon which it is built is not sound soil.
While these opinions may be mine, it seems that they are shared by all but a handful of educational institutions.”
Any thoughts?thx in advance to those that reply.
Lyceum:“To subscribe accept a large portion of Mises and Rothbard’s writings one has to reject mathematically substantiated key elements of neoclassical economics.”
Lyceum:“In Rothbard's rejection of utility functions in favor “value scales”, he uses the argument of ordinality over cardinality. This demonstrates an incomplete understanding of utility functions. The same ordinality that Rothbard claims with “value scales” exists within utility function. Unfortunately, insufficiencies exist with “value scales” in regards to backward bending supply curves. This forces Rothbard to make concessions in his writings concerning labor and land or economics of taxation.”
Rothbards ordinal value scales are sound. neoclassicals often claim that they are using ordinal functions but they arent. they are implicitly using cardinals, the cheats.
William Barnett kicks their ass. http://mises.org/journals/qjae/pdf/qjae6_1_3.pdf
Lyceum:“Mises and Rothbard both considered the concept of indifference incoherent thus, rejecting the use of indifference curves in their economics. Their assumption is that if no preference exists, then no choice can be revealed in action. This is clearly preposterous.”
the first two sentances dont hang together. M and R reject the neoclassical indifference curve analysis. however the whole basis of praxeology and economics is based on subjective preference. he is misunderstanding their object. its indifference that can not be expressed in action. as every human action reveals s a preference (for the chosen over the unchosen)
oh noes, we cant use calculus to do a social science. what a nightmare. if only we could model people. then we would hardly need them. bring in the robots.
I'm going to go to Barnett again for reference to how neoclassicals cant even do basic math right, let alone understand that physics envy is not cool.
Dimensions and Economics: Some Problems http://mises.org/journals/qjae/pdf/qjae6_3_2.pdf
Lyceum:Every market transaction benefits all participants
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
thank you very much for the reply. I will read those links as well. thanks for taking the time to help.
Just a note this is at the time of the transaction. In a free market both participants are making the transaction out of free will believing at that time that it benefits them. These arguments are usually based on say the sucker who gets sold snakeoil. The sucker at the time of the transaction believes that the snakeoil is of benefit to him. Progressives try to exploit this by blaming the snakeoil sailsman who coerced no one instead of the real blame, the ignorance of the sucker. The same can be said of paying utility bills which is a market transaction. People "feel" like they are being taken advantage of when paying bills but they freely pay the bill as they benefit from the electricity that is provided.
"Anarchism misunderstands the real nature of man. It would be practicable only in a world of angels and saints" - Ludwig von Mises
Poptech: Lyceum:Every market transaction benefits all participants Just a note this is at the time of the transaction. In a free market both participants are making the transaction out of free will believing at that time that it benefits them. These arguments are usually based on say the sucker who gets sold snakeoil. The sucker at the time of the transaction believes that the snakeoil is of benefit to him. Progressives try to exploit this by blaming the snakeoil sailsman who coerced no one instead of the real blame, the ignorance of the sucker. The same can be said of paying utility bills which is a market transaction. People "feel" like they are being taken advantage of when paying bills but they freely pay the bill as they benefit from the electricity that is provided.
The real issue here is that socialists claim that, even that there is free-will, and each individual may be better off from the transaction, it's still non-sense speaking of free-will of a starving child who is being offered an exploitative job. This is the way to solve the problem according to private-property supporters, but socialists reject it and advocate wealth redistribution, not based on marginal productivity or anything objective, but based on arbitrary assumptions.
Lyceum: “To subscribe accept a large portion of Mises and Rothbard’s writings one has to reject mathematically substantiated key elements of neoclassical economics.”
This one is always a favorite of Austrian critics. Austrians have no problem with mathematics. They simply have a problem with equations that cannot be proved scientifically, therefore, they cannot be used to predict anything. I believe that most economist have a serious identity crisis. They would like the nature of economics to be that of the physical sciences but they do not care that it is impossible to conduct controlled experiments as required by the scientific method. They are an embarrassment to the field of economics and to the scientific community.
They don't understand that the method that the Austrians use is the only valid method for the study of economics.
Lyceum's villian:... the Austrian school of thought ... the foundation upon which it is built is not sound soil.
Correct, it's built on a rock of logic!
We are the soldiers for righteousnessAnd we are not sent here by the politicians you drink with - L. Dube, rip
ivanfoofoo:The real issue here is that socialists claim that, even that there is free-will, and each individual may be better off from the transaction, it's still non-sense speaking of free-will of a starving child who is being offered an exploitative job. This is the way to solve the problem according to private-property supporters, but socialists reject it and advocate wealth redistribution, not based on marginal productivity or anything objective, but based on arbitrary assumptions.
What is interesting is the ones who consider the job "exploitative" are not those working the job but the naive idealists.
DD5:I believe that most economist have a serious identity crisis. They would like the nature of economics to be that of the physical sciences but they do not care that it is impossible to conduct controlled experiments as required by the scientific method. They are an embarrassment to the field of economics and to the scientific community.
They are also control freaks. They cannot accept that there is no way to control the economy from their ivory tower. This is why they build worthless economic models where they can control everything in their virtual world. I keep asking for the economic model that can predict all human action of every idividual on the planet in real time, still no response. What I am asking for is very logical yet these supposedly logical thinkers claim simplistic models which miss 99% of everything are still useful. For what other than being wrong I have no idea.
Being directly in the field of computer information systems I see the mystique applied to complex math and computers in general. All you have to do to convince the average computer illiterate of anything is back up your claims by saying that they were "done on a computer".
"Today's scientists have substituted mathematics for experiments, and they wander off through equation after equation, and eventually build a structure which has no relation to reality." - Nikola Tesla, 1934
Thanks again to everyone who has responded to my post. If anyone is interested in his response here it is below. I'm not really interested in going back and forth with the guy much longer but i am interested in anyone's thoughts about what he said if anyone cares to respond. Either way thanks for everyone's time.
"In regards to the ordinal v. cardinal argument:
Neoclassical theorists will say that bundle 1 has a utility of 8, bundle 2 has a utility of 7… bundle 8 has a utility of 1.Austrian theorist will say bundle 1 is first choice, bundle 2 is second choice … bundle 8 is 8th choice.On the surface it would seem that the Neoclassical assigns weighted values to its bundles. If that were true bundle 1 would be preferred eight times as much as bundle 8. That would demonstrate cardinality. That is not how the values are treated by the neoclassical theorist. They are treated in the same manner as Rothbard treats his “value scales”. The value assign is used on to show relative preference (i.e. 8 before 7, 7 before 6…). This would lead one to believe that the difference between Rothbard’s writings and neoclassical theory is just a matter of semantics. A small difference that exists is in Rothbard’s use of discrete units. Because the neoclassical approach is less restrictive they are able to exhibit that price changes have both income and substitution effects. Value scales are unable to explain this"
"In regards to the indifference curve,Rothbard contends that there is no indifference, that the act of choosing demonstrates a preference. This sounds good but I believe that we have all experienced moments of indifference. I think Rothbard’s approach over plays the importance of me having a ham sandwich at lunch today instead of a turkey sandwich. Neoclassical theory takes this in consideration."
"In regards to the calculusWhat I was specifically referring to were supply/demand curves not human behavior. Supply and demand can be measured and expressed by functions (Rothbard himself attempts to do this). As far as modeling human behaviorThis is the area I was referring to in my previous posts where I mention Austrian theories contributions to the study of human action (paxeology). I would agree in a statement that states that I cannot set up a model that will simulate Jack’s actions accurately. But, I can set up a model that will accurately simulate the actions of 10,000 people. Let’s say I give you $1000 and you can save it, spend it, pay of debt. I can only predict with an accuracy of 33% what you will do. I can however predict that giving $1000 to 10,000 people that 7000 will spend it, 1000 will save it and 2000 will pay off debt within a small margin of error. Calculus (or probability and statistics) is used extensively in the social sciences in this manner. There has been recent news of a particular game theorist who oversteps by attempting the former. While it is an over simplification to state this, It would seem that Austrian theory proposes that since Jack will act in a particular manner, eagle will act the same way, and the other 9998 people also. Since we cannot predict the action of Jack as an individual, we cannot predict the action of them as a group. Which theory truly creates humans as robots?"
"I briefly scanned the “Dimensions and Economics” document. I am sure you have discovered in your readings that some of the mathematics can be quite rigorous and without spending more time on the document than I am willing to this evening (I am already getting dirty looks from my girlfriend so I need to close soon), I can only give a couple of cursory comments. The argument concerning dimensions may not have validity. It is an understandable that someone who has not been exposed to higher mathematics would believe that it automatically does. The explanation they give uses an example of units of measure and not dimensions. The two are not the same. But, before I officially dismiss the concerns presented in it I need quite a bit of time to examine the equations. Typically, a dismissal of a formula provides a much more rigorous explanation of the proof. I never liked “economist” math. It’s always full of short cuts (sometimes invalid)."
ordinal v cardinal. your friend has not engaged with the argument in Barnett's article. yes barnett understands, as we all do, that neoclassicals, claim they are being consitently ordinal; that their 'mapping' by its artbitrary nature does not commit them to a cardinal analysis. yet barnett clearly explains how they are deluding themselves in this regard, by sophistry.
Lyceum:This sounds good but I believe that we have all experienced moments of indifference.
the psychological expereince of what is claimed to be 'indifference' is irrelevant to economics. it can not be demonstrated in action. it is absurd to believe that indifference could be demonstrated in action. why is your friend so committed to absurdity?
Lyceum:What I was specifically referring to were supply/demand curves not human behavior. Supply and demand can be measured and expressed by functions (Rothbard himself attempts to do this).
supply and demand has no meaning outside of human behaviour. whats his point? and of course measuring how much is supplied. (i.e. what is brought to market and offered for sale at any price) and measuring how much is demanded, how much in a span of time, buyers bid to purchase some portion of the supply) can be measured. but that is historical information. and so now you have a supply and demand chart with a single point in it. this is hardly a supply and demand curve that is meaningfully differentiable.
go to this http://mises.org/story/931
Lyceum:Let’s say I give you $1000 and you can save it, spend it, pay of debt. I can only predict with an accuracy of 33% what you will do.
absurd! lost at the start. to make such a statement he must presuppose that the odds of my doing either of the 3 actions is equal. why should this be so?
Lyceum: can however predict that giving $1000 to 10,000 people that 7000 will spend it, 1000 will save it and 2000 will pay off debt within a small margin of error.
he can't do this. its absurd on its face. let him try do this. i will be impressed. i dont mind if he spends the rest of his life trying. if anything i would prefer that.
Lyceum:It would seem that Austrian theory proposes that since Jack will act in a particular manner, eagle will act the same way, and the other 9998 people also. Since we cannot predict the action of Jack as an individual, we cannot predict the action of them as a group. Which theory truly creates humans as robots?"
this guy writes 'it would seem' as code for 'i have no idea what im saying but...' ?
Lyceum:the explanation they give uses an example of units of measure and not dimensions.
Lyceum: Typically, a dismissal of a formula provides a much more rigorous explanation of the proof. I never liked “economist” math. It’s always full of short cuts (sometimes invalid)."
yes, so your friend who defends economist math ends up by attacking economist math. ok.
thx once again for your reply. Just for the record he isn't my friend. He's jsut some guy on a message board i frequent.. I'm starting to get the impression he doens't know as much about Austrian theory as i originally thought. I noticed he made anotehr post to me with this gem.
"
My major objection to the above statement is that it implies that market manipulation can only occur by government intervention. It assumes that the "Market game" is cooperative with each participant pursuing their individual self-interest and that the players are equally balanced so that self-interest includes meeting the self-interest of the other players and to seek no advantage. This contradicts everything exhibited by human behavior. If this were true we would not be here, there would be no Cubs. Human behavior is competitive and that carries into economics, each player seeks an advantage to optimize his gain and will attempt to manipulate conditions to his benefit. An additional problem arises in that the participants or not equal, one player or group always has an advantage over the other. This allows that group to manipulate the "market" into their favor.
Again, we see an example where Rothbard attempts to strip humanity of its' humanity.
In order to state that such a system benefits all participants one has to support social Darwinism."
I don't know near as much as you but isn't he completely missing the point?
sorry, I misused the term friend. my bad.
George Reisman: Economic competition Whoever claims that economic competition represents "survival of the fittest" in the sense of the law of the jungle, provides the clearest possible evidence of his lack of knowledge of economics. Capitalism: A Treatise on Economics (1996) The truth is that economic competition is the very opposite of competition in the animal kingdom. It is not a competition in the grabbing off of scarce nature-given supplies, as it is in the animal kingdom. Rather, it is a competition in the positive creation of new and additional wealth. Capitalism: A Treatise on Economics (1996)
The chapter on economic competition that can be found in Reisman's capitalism is one of my personal favourites.
No worries, i just didn't want you thinking i was friends with an idiot! ;)
I have Resiman's book and will go over that part again.
I happen to follow that same message board that you referred to and have posted occasionally. I don't know if you follow him at all, but this poster that you quoted is thoroughly enamored with neo-classical economics and has nothing but disdain for Rothbard and the Austrian School in general. In a very recent post, his response to someone who mentioned going to Barnes and Nobel for a book on economics, this is what he said out of left field:
**Don't get anything written by Rothbard. It will just make you stupid**
He went on to amplify:
**I had the "pleasure" of attending a summer seminar during the 1980's at Stanford (a friend was doing his undergraduate work there) where Rothbard was one of the featured speakers. Because of his libertarian political views, he is quite popular with the political right. Unfortunately, his economic thoughts are not worthy of the level of respect they are given. He takes concepts and theories from greater minds, tears them apart with faulty argument and then presents them (almost verbatim) as his own. No one ever calls him on this.
A perfect example of this would be Rothbard’s paper on Kondratieff Waves. He takes a insignificant flaw in Kondratieff’s theory (by misstating Kondratieff’s theory as having to have exactly 60 year frequency) uses it to ridicule K-waves and then presents fundamentally the same theory as the “Austrian business cycle”.
I think it is amazingly funny that a group that are the leading proponents of the “free market” stole their most fundamentally sound concept from a communist.**
This poster knows enough about the existence of Austrian economics to misrepresent it. Most of the other people in that message board probably never even heard of Austrian economics, let alone Rothbard or Mises for that matter. You can tell that many participants on that message board have bought into the idea that the poster who said this stuff is some kind of economic guru.
I am curious to know where anyone would get the idea that "the leading proponents of the 'free market' stole their most fundamentally sound concept from a communist."