Economics Questions

Re: Mises, Hayek, and market theory: A Priori or Empirical?

Adam Knott — Thu, 26 Aug 2010 18:32:55 GMT

HurplePazed:

Thank you for your comments.

Here is a brief passage that appears before the one you quote, on page 72 of Hayek on Hayek:

"Capitalism presumes that apart from our rational insight we possess a traditional endowment of moral, which has been tested by evolution but not designed by our intelligence. We have never invented private property because we understood these consequences, nor have we ever invented the family." (bold and italics added)

So here, the two social objects mentioned by Hayek as he levels his critique of Mises are private property and the family.

Hayek has already clearly established that with respect to social objects, we cannot define them in terms of their physical properties or attributes, but must define them in terms of the intentions, opinions, or attitudes of the people concerned:

"If we wish, we could say that all these objects are defined not in terms of their "real" properties but in terms of the opinions people hold about them. In short, in the social sciences the things are what people think they are. Money is money, a word is a word, a cosmetic is a cosmetic, if and because somebody thinks they are."

"What I am arguing is that no physical properties can enter into the explicit definition of any of these classes..."

"The common attributes which the elements of any of these classes possess are not physical attributes but must be something else."

"...we have to define both the objects of human activity and the different kinds of actions themselves, not in physical terms but in terms of the opinions or intentions of the acting persons." (all quotes from "The Facts of the Social Sciences")

Hayek's point is straightforward. We must define social objects in terms of the intentions of the acting persons. And without an articulated principle that distinguishes between those social objects to which this principle applies, and those social objects to which this principle does not apply, we must interpret Hayek to mean that this principle applies to all social objects, not merely an arbitrarily limited number of social objects. And thus we must assume that this principle applies to the social objects which are "private property" and "the family."

Then, according to Hayek:

"From the fact that whenever we interpret human action as in any sense purposive or meaningful....we have to define both the objects of human activity and the different kinds of actions themselves, not in physical terms but in terms of the opinions or intentions of the acting persons, there follow some very important consequences; namely, nothing less than that we can, from the concepts of the objects analytically conclude something about what the actions will be. If we define an object in terms of a person's attitude toward it, it follows, of course, that the definition of the object implies a statement about the attitude of the person toward the thing. When we say that a person possesses food, or money, or that he utters a word, we imply that he knows that the first can be eaten, that the second can be used to buy something with, and that the third can be understood---and perhaps many other things." ("The Facts of the Social Sciences")

Here, Hayek is elaborating his conception of the Pure Logic of Choice (what Mises calls praxeology, and Menger calls theoretical exact science).

The Pure Logic of Choice is "the system of tautologies---those series of propositions which are necessarily true because they are merely transformations of the assumptions from which we start" ("Economics and Knowledge")

In the Pure Logic of Choice, we take as our data "those facts, and only those facts, which [are] present in the mind of the acting person, and only this subjective interpretation of the term "datum" [makes] those propositions necessary truths." These data (the intentions, opinions, or attitudes of the acting persons) "[form] the starting point for the tautological transformations of the Pure Logic of Choice." ("Economics and Knowledge)

Thus, we can see clearly Hayek's conception of the Pure Logic of Choice. Social objects cannot be defined with respect to their physical attributes, but are to be defined in terms of the intentions of the acting persons. From the concept of the object thus defined, we can analytically conclude something else. The concept of the object (A), taken together with that which it implies and which we deduce by tautological transformation (B), constitutes the "necessary truth" (Hayek), "a priori proposition" (Mises), and "exact law" (Menger).

By the terms of what Hayek has established, we must assume that this view of things applies to the social objects which are "private property" and "the family," and not only to the social objects which are "food," "money," or "a word." (we must assume this until or unless we have a principle for distinguishing those social objects to which Hayek's principles do not apply)

As Hayek levels his critique of Mises, implying that Mises holds a quaint and antiquated conception of social theory, he fails to realize that the social objects he refers to as proof that Mises is wrong, are themselves objects subject to the principles he clearly enunciates in "The Facts of the Social Sciences." Moreover, these principles will apply to the social objects which are "prices" and "markets," two objects of study that Hayek claims are only accessible to empirical study.

What Hayek has failed to realize is that if social objects cannot be defined in physical terms, and can only be defined in terms of the intentions or opinions of the acting persons, that this principle applies to all acting beings, including the observing scientist himself. The social scientist is not privy to secret information about the "real" or "physical properties" of the social objects in question. The social objects in question, by Hayek's principle, are to be defined in terms of the intentions, opinions, or attitudes of the actor or the social scientist. Hayek provides no method for ascertaining the "real properties" or "physical attributes" of social objects, which the social scientist is privy to, and which other actors are not.

From the concept of the social object thus defined (the concept of the object held by the social scientist, or any other actor), we can analytically conclude something else. By Hayek's own principles then, there must be analytical implications "present" to any and all social objects "intended," "conceived," or "defined" by the actor. And this applies to actors that are social scientists. That is, for any given social object present to an actor, there will be analytical co-presences also "present" (at least by implication). There must be, by Hayek's own principles, an implied "B" to any conceived social object "A".

And thus, there must be a certain "order" to any and all social objects present to the actor, whether the actor is a scientist or not.

The "order" derives from the fact, as explained and demonstrated by Hayek, that social objects, defined in terms of the intentions or opinions of the actor, have analytical co-presences. Thus, all social objects conform to "spontaneous order" in the sense that all social objects appear with "spontaneous analytical co-presences" that we can learn about by analysis.

****

When Hayek criticizes Mises's views as antiquated, and refers to spontaneous social phenomenon such as the market, the family, and private property, he seems to imply that those objects are somehow "empirically given" to us as physically obvious objects. He implies that we can recognize or define these things objectively, and apparently in terms of their "real" properties.

He seems to overlook the principle he previously established that "Money is money, a word is a word, a cosmetic is a cosmetic, if and because somebody thinks they are." And thus, when he turns to critique Mises, he does so from a point of view in which the conception of the social objects he refers to (markets, family, private property, etc.) has been subtly changed----from something that is a function of the intentions or opinions of the acting persons, to something that is physically and objectively given for our empirical study.

He overlooks the implications of his own ideas; that the spontaneous order which he conceives to arise in such social objects as the family, the market, and private property, may not be a real property or physical attribute of these things, but instead may be a function of the analytical implications of the intentions, opinions, or attitudes of the actors concerned.

He overlooks the possibility that what he considers spontaneous order may be more consistently conceived as the conformance to praxeological law of all social phenomena appearing to or for the individual actor.

******

"He was arguing that habit had a large effect on peoples actions, their choices and decisions. This habit could not be understood a priori. For example, in Japan, there is a specific method of exchanging business cards. This custom cannot be explained a priori, but instead must involve empiricism."

Assuming what I'm arguing above, any habit, to the extent this is a social object, phenomenon, or process, is to be defined (per Hayek), not in terms of its "real" or physical properties or attributes, but in terms of the intentions, opinions, or attitudes of the acting persons.

It will follow then, by Hayek's reasoning, that from the concept of the object (habit) we can analytically conclude something. This will constitute an a priori understanding of the object in question.

Paraphrasing Hayek in "The Facts of the Social Sciences":

When we say that a person performs a habit, we imply that he has done this activity before, or that he will do it again, etc...

This is the point I'm trying to get across. Hayek's principles apply to all social objects, not just the circumscribed and limited number of social objects that Hayek uses as examples in his essay (food, money, words, etc.). His principle applies to all social objects qua social objects. This means his priniciples apply to social objects such as prices, markets, habits, families, and private property. These are all objects of the social sciences.

If a habit is an object of the social sciences, which we are saying it is, then Hayek's principles apply.

If we're saying that there are some social objects to which Hayek's principles do not apply, then we have to provide a method of distinguishing between two classes of social objects: those to which Hayek's principles apply, and those to which Hayek's principles do not apply.

Re: Mises, Hayek, and market theory: A Priori or Empirical?

HurplePazed — Thu, 26 Aug 2010 04:46:35 GMT

"Mises never could free himself from that fundamental philosophy, in which we have all grown up, that reason can do everything better than mere habits. From this he could never loose himself."

I am not as well read in Hayeks methodological philosophy as most of the participants, but allow me my two cents. It seems that this little sentence is much overlooked. I believe Hayeks point can be considered partially behavioral, though not in the explicitly modern sense. He was arguing that habit had a large effect on peoples actions, their choices and decisions. This habit could not be understood a priori. For example, in Japan, there is a specific method of exchanging business cards. This custom cannot be explained a priori, but instead must involve empricisim.

I agree that Hayek contradicts himself in his attempt to differentiate his empiricism and a priorism, and I would agree that there is not a fine line distinguishing where to apply each, for example, Rothbard uses general empirical evidence to give credence to ACBT. He argues that what characterizes recessions are sudden high unemployment, and capital prices falling quicker than other prices, and puts forward these two criterion that any recession theory must satisfy. However, given Hayeks philosophy on spontaneous order and customery law, I believe my interpretation is more in line with his general philosophy.

Re: Mises, Hayek, and market theory: A Priori or Empirical?

Adam Knott — Wed, 25 Aug 2010 23:53:21 GMT

For those interested in the issue of Mises versus Hayek on a priorism and the market, here is a one page summary of the argument I've been making since Spring.

***

Hayek argues that all social objects: "are defined not in terms of their "real" properties but in terms of opinions people hold about them. In short, in the social sciences the things are what people think they are. Money is money, a word is a word, a cosmetic is a cosmetic, if and because somebody thinks they are."

And he argues that: "no physical properties can enter into the explicit definition of any of these classes."

From this it follows that: "...we have to define both the objects of human activity and the different kinds of actions themselves, not in physical terms but in terms of the opinions and intentions of the acting persons."

And from this, according to Hayek: "...there follow some very important consequences; namely, nothing less than we can, from the concepts of the objects analytically conclude something about what the actions will be. If we define an object in terms of a person's attitude toward it, it follows, of course, that the definition of the object implies a statement about the attitude of the person toward the thing. When we say that a person possesses food, or money, or that he utters a word, we imply that he knows that the first can be eaten, that the second can be used to buy something with, and that the third can be understood---and perhaps many other things."

All these passages are from "The Facts of the Social Sciences."

*****

But if money is money not because of its "real" properties (physical attributes) but only because of the opinions of the people concerned, then why isn't a price a price not because of its "real" properties (physical attributes), but only because of the opinions of the people concerned ?

It seems obvious that Hayek simply overlooked the implications of his own ideas.

Similarly with a "market." What makes an assemblage of people a "market" and not a sports team?

By Hayek's argument, it cannot be due to the physical characteristics or physical attributes of the assemblage of people. Rather, it is due to the opinion of the person or people concerned that a given assemblage of people is a market and not a sports team.

But then, per Hayek: "...we can, from the concepts of the objects, analytically conclude something about what the actions will be."

Paraphrasing Hayek: "when we say that a person is at a market, we imply that he knows he may conduct exchanges there, and perhaps many other things...."

Thus, Hayek simply overlooked the fact that the principles he enunciates in "The Facts of the Social Sciences" apply not only to the social object which is "money," but also to the social object which is a "price" or a "market."

Markets and prices constitute the bulk of the phenomena that Hayek held can only be approached by empirical methods. And yet he himself has provided the method or procedure for comprehending markets and prices praxeologically: by considering these objects not with respect to their "objective" or "real" properties, but instead by considering them with respect to the opinions and attitudes individuals hold about them.

Hayek failed to realize that the principles he clearly elaborates apply not only to some social objects, but to all social objects, including prices and markets.

Hayek failed to consistently apply his own principles, thus failing to see how the Pure Logic of Choice could arrive at necessary truths regarding markets and prices.

Re: Mises, Hayek, and market theory: A Priori or Empirical?

Adam Knott — Sat, 15 May 2010 16:41:15 GMT

A few more important points about the implications of Hayek’s essay “The Facts of the Social Sciences.”

For the benefit of those who may not have read Hayek's essay, I will first highlight some important passages.

Hayek writes:

"Take such things as tools, food, medicine, weapons, words, sentences, communications, and acts of production---or any one particular instance of any of these.....It is easily seen that all these concepts (and the same is true of more concrete instances) refer not to some objective properties possessed by the things, or which the observer can find out about them, but to views which some other person holds about the things. These objects cannot even be defined in physical terms, because there is no single physical property which any one member of a class must possess. These concepts are also not merely abstractions of the kind we use in all physical sciences; they abstract from all the physical properties of the things themselves. They are all instances of what are sometimes called "teleological concepts," that is, they can be defined only by indicating relations between three terms: a purpose, somebody who holds that purpose, and an object which that person thinks to be a suitable means for that purpose. If we wish, we could say that all these objects are defined not in terms of their "real" properties but in terms of opinions people hold about them. In short, in the social sciences the things are what people think they are. Money is money, a word is a word, a cosmetic is a cosmetic, if and because somebody thinks they are."

So here, Hayek is revealing the subjective nature of social phenomena. He is arguing that social objects are not social objects because of their physical or "objective" qualities, but because of the view of an acting subject toward the object in question.

(Note: by the term “social object” is meant an object of the social sciences or the science of human action. This would include descriptive psychology. Hayek writes: “Take such things as tools, food, medicine, weapons, words, sentences, communications, and acts of production—or any one particular instance of any of these. I believe these to be fair samples of the kind of objects of human activity which constantly occur in the social sciences.”)

Next, Hayek makes another important point having to do with the Pure Logic of Choice:

"From the fact that whenever we interpret human action as in any sense purposive or meaningful, whether we do so in ordinary life or for the purposes of the social sciences, we have to define both the objects of human activity and the different kinds of actions themselves, not in physical terms but in terms of the opinions or intentions of the acting persons, there follow some very important consequences; namely, nothing less than that we can, from the concepts of the objects analytically conclude something about what the actions will be. If we define an object in terms of a person's attitude toward it, it follows, of course, that the definition of the object implies a statement about the attitude of the person toward the thing. When we say that a person possesses food or money, or that he utters a word, we imply that he knows that the first can be eaten, that the second can be used to buy something with, and that the third can be understood---and perhaps many other things."

It is important to realize that Hayek argues for the subjective nature of social objects. He does not provide a method for ascertaining whether a particular object "really is" a tool, money, a word, etc... He is arguing that it is impossible to define social objects in terms of their "real" or "objective" (i.e., physical) properties.

This means that social objects, as social objects, exist as the opinions, attitudes, or intentions of the acting person(s) concerned. That is, the social aspect of the object in question—that aspect of things we study in the social sciences—is the attitude of the actor toward the thing in question, not the thing as an independent object (the subject matter of natural science). Independent of the attitudes of actors there are no social objects. That is the implication of what Hayek argues.

The social object is a function of the opinion, attitude, or intention of the individual actor. This is just another way of saying that the social object is a function of the action of the individual actor. Terms such as "opinion," "attitude," "intention," etc., refer to aspects or categories of human action.

Having established the subjective nature of social objects, Hayek argues that once an actor (a subject) views the object present to him in a certain way, we can derive analytical conclusions from this fact.

The two important points are that:

1. The social object is a relation of an object to an individual subject.

2. From the concept an individual has of the object present to him, analysis can yield further conclusions by expounding the implications of the concept in question.

*****

If we apply Hayek’s argument to a common social object such as a written or communicated price, this has implications which Hayek and his followers may not have realized.

By Hayek's argument, a written or communicated price, as an "object of human activity which constantly occurs in the social sciences," cannot be defined in terms of its physical properties. A price exists, and is a function of, an individual actor's opinion or attitude toward the thing present to him (an uttered sound, a black figure on white paper, etc...) What is a "price" does not exist "objectively," but exists as the opinion of the actor(s) concerned.

Further, based on the concept of the object, analysis can yield further conclusions. For example, paraphrasing Hayek, "When we say that a person displays a price, we imply that he intends to make an exchange, that he believes another actor will be party to this exchange, that the exchange can be effected in terms of a numerical ratio—and perhaps many other things....

This is Hayek's Pure Logic of Choice applied to the object which is a written or communicated price, instead of the more mundane objects Hayek uses as illustrative examples. One assumes the same principles Hayek enunciates apply to a written or communicated price as apply to a tool, food, medicine, weapons, words, sentences, communications, and acts of production.

Thus, the first point is that the Pure Logic of Choice applies to a wider range of objects than Hayek seems to have realized, and a “price” is a social object subject to Hayek’s principles. We can, if Hayek’s argument is valid, from the concept “price,” draw further analytical conclusions.

The second point is this:

In the essay in question, Hayek employs descriptions both from the first person and the third person perspective. Sometimes he conceives of things from the point of view of a scientific observer studying the action of another person. And from this third person point of view he conceives, for example, that:

"When another person (an observed person) holds X concept about a thing, we, the observers, can analytically conclude Y from concept X which the observed person holds."

But we have to realize that the same principle applies to thefirst person description, and thus:

"When I hold X concept about a thing, this implies Y which can be analytically deduced from my holding concept X."

This distinction is important, because we can see that if a scientific observer intends to conduct a study of prices, every instance of his apprehending a price will, as a matter of principle, have the same kind of analytic or logical entailments described by Hayek. The scientific observer of any social object is subject to the same principles that Hayek describes. These principles do not apply only to observed actors. The scientific observer, as an actor, does not “transcend” the aspects of human action that he claims are valid for the actors he studies.

Thus, when the scientific observer conducts his study of prices, if Hayek’s argument is valid, we have to remember that the price the scientific observer refers to, is not only a subjective phenomenon for the observed actor, but also for the observing scientist. In short, a price is a price if and because the social scientist believes it is a price. Hayek makes this point clearly.

Second, when what is present to the social scientist is a price, then according to Hayek’s theory, analytical or logical entailments are involved in the concept of the object held by the social scientist. In this sense then, the study of prices could be conducted as part of an a priori discipline. The social scientist, as an actor, is privy to the logical entailments of all social concepts, and it is these logical entailments that are the subject matter of Menger’s theoretical exact science, Mises’ praxeology, and Hayek’s Pure Logic of Choice.

This is the meaning of what Mises writes regarding the procedure of economics:

“The scope of praxeology is the explication of the category of human action. All that is needed for the deduction of all praxeological theorems is knowledge of the essence of human action.”

(Human Action, 3^rd Rev. Ed. p.64)

Re: Mises, Hayek, and market theory: A Priori or Empirical?

hayekianxyz — Sat, 15 May 2010 00:36:40 GMT

The distinction between human action and design has always seemed specious to me. Individuals are purposeful actors and a market exists only at the point of voluntary exchange between those actors. It would seem therefore that it is designed by the consenting actors.

Money arose not because of any decree or edict, but because numerous entrepreneurial actors sought to better themselves by playing their part in the various parts of the story told by Carl Menger and economists since. The result is the institution of money, an institution that nobody designed or could have foreseen but was nonetheless the result of millions of dispersed actions coordinated by the price system.

Anybody who disagrees with Giles must take a class on economics.

Recently their was a post made by some moderator about snide comments. Pretty sure this post qualifies as just that.

No, this it not at all what Hayek is arguing. He is not talking about evolution or about the way another person's mind works. It would be more consistent with what Hayek argues to say that we are able to communicate and understand other human actors because anything we interpret as a communication from another actor we interpret through the categories of our own mind. Your alternative notion is totally foreign to what Hayek is arguing

In The Counterrevolution of Science Hayek explicitly ascribes our capacity to understand one another to a common evolutionary origin. As, I believe, Mises does in Socialism. I'm not sure how what we said was so different, except for the fact that I postulated some evolutionary reason for the fact that humans share a common structure of the mind. Indeed, according to Hayek an observer from another planet might just be able to write history that is in line with the positivist ideal.

OK I'm going to stop doing what I previously believed was social science, and begin doing what you believe is social science.

Snarky comments don't take us away from the fact that a set of tautologies are just that, tautologies that without some sort of empirical work really don't help us to understand the empirical world at all.

Re: Mises, Hayek, and market theory: A Priori or Empirical?

scineram — Sat, 15 May 2010 00:04:35 GMT

What is a business cycle?

Re: Mises, Hayek, and market theory: A Priori or Empirical?

Adam Knott — Fri, 14 May 2010 19:15:23 GMT

Faustus:

Hayek is arguing that what makes a hammer a hammer, a lever a lever, a pendulum a pendulum, in the social sciences, is not the physical properties of those items, but the opinion or attitude of the actor toward those things.

All of these social things---what Hayek refers to as common objects of the social sciences--- (hammers, levers, pendulums) have perceptual or physical referents. We can see or perceive the objects in question. But it is not these physical aspects that make them the social things they are. They are hammers, levers, and pendulums, as Hayek writes, if and because someone thinks they are.

Hayek then argues that when an actor holds a concept of what is before him, this concept entails implications that analysis can expound. I.e., one concept includes the idea of striking something, one concept includes the idea of lifting something, and one concept includes the idea of (let's say) regulating or timing something.

This view of things is The Pure Logic of Choice, and is clearly outlined in "The Facts of the Social Sciences."

Based on the concept of the object as the actor views things, we can analytically conclude further things, and these further things are necessary truths, since they are simply tautological transformations from the original concept of the object.

This notion could possibly be applied to the concept of 'market' in something like the following way:

What makes a collection of people or an assemblage of people a 'market' is, as with the hammer, not the physical characteristics of this collection or assemblage. Rather, what makes a collection of assemblage of people a market is the attitude or opinion of the person toward this assemblage. Paraphrasing Hayek, just as with money, words, and cosmetics, a market is a market if and because someone thinks it is.

What makes a farmer's market, a supermarket, or E-bay,... markets, is not the physical characteristics of those things as I can perceive them or study them physically, but rather the attitude I take toward those things (the things being: an assemblage of people, a building with windows and signs, a computer screen in front of me, etc.). These things are markets to me because of the attitude I take toward them, not because of their physical characteristics.

This is Hayek's argument were it to be applied to markets, as opposed to hammers, levers, pendulums, words, money, etc....

From this then, it would follow, according to Hayek's argument, that when an actor takes an attitude toward a thing, the concept of this thing includes other things that analysis can uncover. To paraphase Hayek, when we say that a person is going to a market, or is selling something at a market, or is regulating a market, we imply that he knows that things can be exchanged there, that other actors will be there, that actors will be valuing things there, and perhaps many other things.....

This is The Pure Logic of Choice were it to be applied to the concept of 'market' as opposed to the concepts 'food,' or 'money,' or 'word,' (the one's Hayek specifically uses in his essay).

My argument is that Hayek didn't realize that the Pure Logic of Choice would apply to the social object which is the 'market' just as it applies to other social objects such as money, words, hammers, etc.

The Pure Logic of Choice is an a priori discipline, and thus if the Pure Logic of Choice can be applied to the market as indicated, and Hayek didn't realize this, then when he claimed that market theory is empirical and not a priori, this claim may have been based on his not realizing the full scope of the Pure Logic of Choice.

*****

What you seem to be arguing is that the 'market' has no perceptual or physical referent. Your argument seems to be that the view of things I've outlined above is invalid, because, unlike hammers, words, money, or food, 'markets' have no physical or perceptual referents.

You write:

"a market is purely formal in nature"

"we must treat [a market] from the abstract nature of a 'market'"

"A 'market' is purely formal or abstract in nature."

"a market can never be an object of human intention"

"confusing a concrete for an abstract order"

In that case, I would like to ask you about this passage from Hayek:

"...my 1937 article on the economics of knowledge, which was an attempt to persuade Mises himself that when he asserted that the market theory was a priori, he was wrong; that what was a apriori was only the logic of individual action, but the moment that you passed from this to the interaction of many people, you entered into the empirical field." (Hayek on Hayek, p.72, emphasis added)

How do you reconcile your concept of the market and of market order as purely abstract, with Hayek's claim that we can only study the market empirically ?

Re: Mises, Hayek, and market theory: A Priori or Empirical?

I. Ryan — Fri, 14 May 2010 19:10:09 GMT

I think that you are misunderstanding what Knott is saying. But I will leave it up to him to explain how.

Re: Mises, Hayek, and market theory: A Priori or Empirical?

Faustus — Fri, 14 May 2010 19:03:19 GMT

"Was he incorrect there?"

I do not think Mises was not wrong at all.

Mises is saying that cooperating with other people helps facilitate the attainment of their goals. And is not an end in itself. All fine and dandy.

Social cooperation however is not the same as the abstract concept of the market. Social cooperation is what creates this abstract order. The abstract order itself is not a means to any given end. Even though it is created out of specific examples of people pursuing their ends through cooperation.

Re: Mises, Hayek, and market theory: A Priori or Empirical?

Faustus — Fri, 14 May 2010 18:48:06 GMT

"Then how do we apply what we know from economics to "the real world"?"

All that is meant to mean is that the physical marketplace with its people and stalls and sign saying FARMERS MARKET is not as an entity the ‘market’.

I am not saying that market processes are not taking place within it.

“The main reason is that such orders as

that of the market do not obtrude themselves on our senses but

have to be traced by our intellect. We cannot see, or otherwise

intuitively perceive, this order of meaningful actions, but are only

able mentally to reconstruct it by tracing the relations that exist

between the elements. We shall describe this feature by saying that

it is an abstract and not a concrete order”(Law Legislation and Liberty, vol-1 p38)

The market is an abstraction we should not equate with concrete things we can identify with.

Other than that I am not sure what you mean.

Re: Mises, Hayek, and market theory: A Priori or Empirical?

Faustus — Fri, 14 May 2010 18:21:58 GMT

I think it is just semantics about the word design. Hayek was keen to make the distinction between spontaneous and made orders. A made order is specifically created with a goal, end, or purpose. Hayek uses the word design for this. In opposition to a spontaneously generated organisation. If you want to call the market ‘designed’ by is many actors you can. But personally I would not. Design generally carries the connotation of a controlling mind which is not present in spontaneous generations and could cause unnecessarily confusion.

“How would the hammer be considered suitable for a certain purpose without being considered so prior to its classification?”

I am not quite sure what you are getting at. This is the section of text I took the example from. You might find your answer here

“But we not only know this. It would be impossible to explain or

understand human action without making use of this knowledge.

People do behave in the same manner towards things, not because

these things are identical in a physical sense, but because they have

learnt to classify them as belonging to the same group, because they

can put them to the same use or expect from them what to the people

concerned is an equivalent effect”

“This is best shown by an example for which we can choose almost

any object of human action. Take the concept of a "tool" or "instrument,"

or of any particular tool such as a hammer or a barometer.

It is easily seen that these concepts cannot be interpreted to refer to

"objective facts," i.e., to things irrespective of what people think

about them. Careful logical analysis of these concepts will show that

they all express relationships between several (at least three) terms,

of which one is the acting or thinking person, the other some desired

or imagined effect, and the third a thing in the ordinary sense. If the

reader will attempt a definition he will soon find that he cannot give

one without using some terms such as "suitable for" or "intended

for" or some other expression referring to the use for which it is designed

by somebody.20 And a definition which is to comprise all instances

of the class will not contain any reference to its substance, or

shape, or other physical attribute. An ordinary hammer and a steamhammer,

or an aneroid barometer and a mercury barometer, have

nothing in common except the purpose 21 for which men think they

can be used.” (The counter revolution of science p26-27)

Re: Mises, Hayek, and market theory: A Priori or Empirical?

Physiocrat — Fri, 14 May 2010 16:27:20 GMT

I. Ryan:

Yes, the only distinction is that between centralized design and decentralized design.

It depends what you mean. Supposing that one man legitimately owned the entire earth then his decisions would be centrailsed yet pareto optimal. Whereas you could have mini states where one man lords it over a village, there would be more decentralised design than previously yet thus would not be pareto optimal and suffer from the inherent problems of monopoly. Thus the most meaningful distinction is one of competitive versus monopolistic design.

Re: Mises, Hayek, and market theory: A Priori or Empirical?

I. Ryan — Fri, 14 May 2010 16:16:53 GMT

Physiocrat:

The distinction between human action and design has always seemed specious to me. Individuals are purposeful actors and a market exists only at the point of voluntary exchange between those actors. It would seem therefore that it is designed by the consenting actors.

Yes, the only distinction is that between centralized design and decentralized design.

Re: Mises, Hayek, and market theory: A Priori or Empirical?

Physiocrat — Fri, 14 May 2010 16:13:48 GMT

Faustus:

In Hayek’s example of the Hammer, Hayek states that what makes a hammer(p27 The Counter Revolution of Science) is that it fits into the class of a hammer, that is that it is the intention, or suitableness of an object for a particular purpose that puts it in that class in peoples minds. A market has no purpose. It is a spontaneous order. Spontaneous orders are the result of human action but not human design.

How would the hammer be considered suitable for a certain purpose without being considered so prior to its classification?

The distinction between human action and design has always seemed specious to me. Individuals are purposeful actors and a market exists only at the point of voluntary exchange between those actors. It would seem therefore that it is designed by the consenting actors.

Re: Mises, Hayek, and market theory: A Priori or Empirical?

I. Ryan — Fri, 14 May 2010 16:07:48 GMT

Faustus:

Farmers market?? No. A farmers market is not a market in the economic sense.

Then how do we apply what we know from economics to "the real world"?