Economics Questions

Re: Menger contra Mises on economics predicting the future and telling people what to do?

Neodoxy — Sat, 20 Apr 2013 01:47:33 GMT

Also, just adding Rothbard's opinion on the matter of the role of economics in society, from section "Power & Market", "Economics: Its Nature and Its Uses"

ECONOMICS PROVIDES US WITH TRUE laws, of the type if A, then
B, then C, etc. Some of these laws are true all the time, i.e., A
always holds (the law of diminishing marginal utility, time preference, etc.). Others require A to be established as true before
the consequents can be affirmed in practice. The person who
identifies economic laws in practice and uses them to explain
complex economic fact is, then, acting as an economic historian
rather than as an economic theorist. He is an historian when he
seeks the casual explanation of past facts; he is a forecaster when
he attempts to predict future facts. In either case, he uses
absolutely true laws, but must determine when any particular
law applies to a given situation.1 Furthermore, the laws are necessarily qualitativerather than quantitative, and hence, when the
forecaster attempts to make quantitative predictions, he is going
beyond the knowledge provided by economic science.2
It has not often been realized that the functions of the
economist on the free market differ sharply from those of the

economist on the hampered market. What can the economist
do on the purely free market? He can explain the workings of the
market economy (a vital task, especially since the untutored person tends to regard the market economy as sheer chaos), but he
can do little else. Contrary to the pretensions of many economists, he is of little aid to the businessman. He cannot forecast
future consumer demands and future costs as well as the businessman; if he could, then he would be the businessman. The
entrepreneur is where he is precisely because of his superior
forecasting ability on the market. The pretensions of econometricians and other “model-builders” that they can precisely forecast the economy will always founder on the simple but devastating query: “If you can forecast so well, why are you not doing
so on the stock market, where accurate forecasting reaps such
rich rewards?”3 It is beside the point to dismiss such a query—
as many have done—by calling it “anti-intellectual”; for this is
precisely the acid test of the would-be economic oracle.
In recent years, new mathematico-statistical disciplines have
developed—such as “operations research” and “linear programming”—which have professed to help the businessman make his
concrete decisions. If these claims are valid, then such disciplines are not economics at all, but a sort of management technology. Fortunately, operations research has developed into a

frankly separate discipline with its own professional society and
journal; we hope that all other such movements will do the
same. The economist is not a business technologist.4
The economist’s role in a free society, then, is purely educational. But when government—or any other agency using violence—intervenes in the market, the “usefulness” of the economist expands. The reason is that no one knows, for example,
what future consumer demands in some line will be. Here, in the
realm of the free market, the economist must give way to the
entrepreneurial forecaster. But government actions are very different, because the problem now is precisely what the consequences of governmental acts will be. In short, the economist
may be able to tell what the effects of an increased demand for
butter will be; but this is of little practical use, since the businessman is primarily interested, not in this chain of consequences—which he knows well enough for his purposes—but in
whether or not such an increase will take place. For a governmental decision, on the other hand, the “whether” is precisely
what the citizenry must decide. So here the economist, with his
knowledge of the various alternative consequences, comes into
his own. Furthermore, the consequences of a governmental act,
being indirect, are much more difficult to analyze than the consequences of an increase in consumer demand for a product.
Longer chains of praxeological reasoning are required, particularly for the needs of the decision-makers. The consumer’s decision to purchase butter and the entrepreneur’s decision about
entering into the butter business do not require praxeological
reasoning, but rather insight into the concrete data. The judging and evaluation of a governmental act (e.g., an income tax),
however, require long chains of praxeological reasoning.
Hence, for two reasons—because the initial data are here supplied to him and because the consequences must be analytically

explored—the economist is far more “useful” as a political
economist than as a business adviser or technologist. In a hampered market economy, indeed, the economist often becomes
useful to the businessman—where chains of economic reasoning become important, e.g., in analyzing the effects of credit
expansion or an income tax and, in many cases, in spreading this
knowledge to the outside world.
The political economist, in fact, is indispensable to any citizen who frames ethical judgments in politics. Economics can
never by itself supply ethical dicta, but it does furnish existential laws that cannot be ignored by anyone framing ethical conclusions—just as no one can rationally decide whether product
X is a good or a bad food until its consequences on the human
body are ascertained and taken into account.

Rothbard, like myself, seems to agree that the role of economics within the business world is relatively limited. In the free market Rothbard claims that the roll of the economist is practically nothing. However, in the hampered market the economics is useful in understanding the implications of things like price controls and credit expansion. Even these are not thoroughly extensive roles.

He also helps to dispel another notion put forward on this thread about the attempts of mainstream economics. As I have said before the efforts of mainstream economics are not flawed because they don't aim at understanding the real world, as opposed to an imaginary world of their own construction, rather they are greatly (although not entirely) aimed at using models that are more aimed at real world conditions (and are less interested in the praxeological aim of universality in return for a better description of specifically present conditions). They are trying to construct econometric laws of consumer behavior so as to perfect (and thereby remove) entrepreneurship. It doesn't work, but it's much more focused on helping businesses in the real world than Austrianism is.

Re: Menger contra Mises on economics predicting the future and telling people what to do?

gotlucky — Wed, 10 Apr 2013 07:19:03 GMT

Well that's probably a better way of putting it, but nerd has such a nice ring to it.

Re: Menger contra Mises on economics predicting the future and telling people what to do?

Neodoxy — Wed, 10 Apr 2013 06:43:53 GMT

I've long been of the opinion that these forums generally attract the highest level of discussion of any public conversation area on the internet.

Re: Menger contra Mises on economics predicting the future and telling people what to do?

gotlucky — Wed, 10 Apr 2013 06:20:13 GMT

Haha, even if it weren't memes, a lot of people struggle connecting sentences with any kind of logical chain of thought. Right now I'm just picturing Cracked forums or even FreeRepublic. FLL would be amusing too.

Re: Menger contra Mises on economics predicting the future and telling people what to do?

vive la insurrection — Wed, 10 Apr 2013 06:17:33 GMT

1. Inaccurate data

2. Constant changes in economic variables and conditions

3. Determining cause and effect based off of economic data is extremely difficult

oh wow, this would have been a fun class, cool he mentioned "Black Swan"

Re: Menger contra Mises on economics predicting the future and telling people what to do?

vive la insurrection — Wed, 10 Apr 2013 05:50:31 GMT

I agree that behavioral economics cannot be the "base" for economic research. Attempting to make psychology the center of economic inquiry would be foolish, although I think that this is something we can look forward to in the future. Rather I think that if properly utilized behavioral economics can magnify our actual knowledge and predictive power. It is not a replacement to praxeology, but something to be used in conjunction with it.

OH I see what you've been trying to say now - that makes sense in a way...or at least I understand why one would entertain the thought of behvaioral econ and think it may yield good results

Re: Menger contra Mises on economics predicting the future and telling people what to do?

Neodoxy — Wed, 10 Apr 2013 05:50:26 GMT

Is this what you're getting at:

"He doesn't say anything about how the common man needs to know economics for knowledge of his own wages and investments, no, he says that it is the citizens primary civic duty to understand economics. That is where the primary use of economics is. Not with businesses. What is primarily at stake for the common citizen, what he sacrifices when he does not understand economics, is not his personal economic wellbeing in the market economy, but rather he submits his rights to a group of political elite.

If this is not convincing to you then you are a fool."

vs.

Re: Menger contra Mises on economics predicting the future and telling people what to do?

gotlucky — Wed, 10 Apr 2013 05:21:24 GMT

Reread what you wrote, and then contrast it with most forums throughout the internet.

Re: Menger contra Mises on economics predicting the future and telling people what to do?

Neodoxy — Tue, 09 Apr 2013 21:52:29 GMT

On a note that diverges from the present line of discussion but which is more true to the original purpose of the thread and hits on some areas that have been previously discussed.

Yesterday in my managerial econ course we talked about why economic predictions tend to be so volatile. In particular my professor mentioned Nate Silver's book, although I was also happy to note that he mentioned a work that you recommended to me Vive, "Black Swan", although most of the information that he cited was drawn from the former work. In particular he argued that the inaccuracy of economic forecasting was because of

1. Inaccurate data

2. Constant changes in economic variables and conditions

3. Determining cause and effect based off of economic data is extremely difficult

All in all I thought that these were generally fair reasons. Number 2 in particular is especially Austrian in its understanding of the economy. While 1 goes under the assumption that there are quantitative laws of economics, no one denies that the extent of certain variables is important. For instance he cited the fact that it is now evidence that in the early days of calculating American GDP that its growth was off by an average of slightly more than 1 percent per year. Similarly initial data is often highly flawed because of the speed at which it is collected, a result of the level of "demand" for these statistics.

Third point isn't how I would phrase the issue, but it's certainly a prevalent problem. What is going on and what is actually causing what? What is the impetus for a change that we are currently seeing? This is, of course, the primary problem with praxeological prediction. If you always knew what the true impetus of an economic condition was then you would have an infinitely easier time predicting future outcomes. Nonetheless, I do not think it's fair to say that mainstream econ is unconcerned with making predictions. I think that mainstream econ is very concerned with making predictions, but it lacks a true understanding of the epistemological problems in making these predictions, regardless of what their theories actually state.

Regardless of how Mises felt about praxeologies' ability to make predictions, I don't think that anyone more thoroughly appreciated the chaos inherent in human society that make extensive future predictions very practical.

Baxter,

I also thought you would be happy to know that my professor actually mentioned the fact that a large number of different methods of forecasting tend to be correct over singular methods, although I thought the explanation have gave for this was a weak one.

Re: Menger contra Mises on economics predicting the future and telling people what to do?

Neodoxy — Tue, 09 Apr 2013 20:41:41 GMT

Et pourquoi est-ce?

Re: Menger contra Mises on economics predicting the future and telling people what to do?

gotlucky — Tue, 09 Apr 2013 20:31:12 GMT

Neodoxy:

He doesn't say anything about how the common man needs to know economics for knowledge of his own wages and investments, no, he says that it is the citizens primary civic duty to understand economics. That is where the primary use of economics is. Not with businesses. What is primarily at stake for the common citizen, what he sacrifices when he does not understand economics, is not his personal economic wellbeing in the market economy, but rather he submits his rights to a group of political elite.

If this is not convincing to you then you are a fool.

This section reminded me that everyone on this forum is a nerd.

Re: Menger contra Mises on economics predicting the future and telling people what to do?

Neodoxy — Tue, 09 Apr 2013 20:19:21 GMT

"2. Neo, I won't enjoy replying to you if you keep up that tone.

So don't consider my silence an admission of anything.

You are still wrong, and I stand by what I wrote earlier."

I really don't care about what you have to say Dave. Your ability to misread very straightforward pieces of information already makes for a bad understanding of actual economic relationships, so dogmatism and a misunderstanding of the purpose of economics itself, as well as a straw-manning of the economist whose words you hold so dear are traits which I am not at all surprised to see from you.

As for the quote you included, it doesn't contradict what I've been saying which is not that economics is useless to businesspeople, merely that it is not very useful and that there are many more useful skills to have. Mises agreed with this notion and he said so. For whatever reason you are just too dim to acknowledge this. As someone who adheres to a school of economic thought that is heavily against over-aggregation and homogenizing economic data it should be clear that a knowledge of specific investment is a lot more valuable than knowledge of what the economy as a whole is doing, and furthermore a knowledge of how two different variable shifts will play out, how intense or which one will rule one another out is an infinetely more useful skill for the entrepreneur than merely a wide view of economics. Economics aids him, but it's only the beginning of the battle, and in many cases it is wholly irrelevant to him because he is dealing with his own industry, not the economy as the whole or the sum of all markets and firm that relate to his own firm.

Meanwhile the matter of society and its organization relies massively on economics. If you're actually interested in knowing what Mises had to say about the place of economics within society I would start with the "Crisis of Interventionism" onwards into "The Place of Economics in Society". It's not long, only about 30 pages. I'll give you a little spoiler alert though, by my count there's 15 sections that deal with the matter of how economics applies to society and political systems, while only 1 even mentions the importance of economics in business, and even then he says directly that economics doesn't alleviate the fundamental function of the entrepreneur. In the section "Economics and the Citizen", what does Mises say?

There is no means by which anyone can evade his personal responsibility.
Whoever neglects to examine to the best of his abilities all the problems involved
voluntarily surrenders his birthright to a self-appointed elite of supermen. In
such vital matters blind reliance upon “experts” and uncritical acceptance of
popular catchwords and prejudices is tantamount to the abandonment of selfdetermination and to yielding to other people’s domination. As conditions are
today, nothing can be more important to every intelligent man than economics.
His own fate and that of his progeny is at stake.
Very few are capable of contributing any consequential idea to the body
of economic thought. But all reasonable men are called upon to familiarize
themselves with the teachings of economics. This is, in our age, the primary
civic duty

He doesn't say anything about how the common man needs to know economics for knowledge of his own wages and investments, no, he says that it is the citizens primary civic duty to understand economics. That is where the primary use of economics is. Not with businesses. What is primarily at stake for the common citizen, what he sacrifices when he does not understand economics, is not his personal economic wellbeing in the market economy, but rather he submits his rights to a group of political elite.

If this is not convincing to you then you are a fool.

Re: Menger contra Mises on economics predicting the future and telling people what to do?

Smiling Dave — Tue, 09 Apr 2013 18:53:02 GMT

1. Here's a little quote from Roger Garrison in Time and Money about usefulness of economic knowledge to businessmen.

Oddly enough, he gives the exact example I did.

All [=stuff like this] is mine. Also, emphases are mine.

Undoubtedly, the extent to which policy-makers and market participants
make use of both kinds of knowledge [=business knowledge and knowledge of economic theory]

is dependent on the institutional
setting and the policy regime. A change in the direction of increased policy
activism on the part of the central bank, for instance, will increase the
beneﬁts to entrepreneurs and other market participants of their under-
standing the short- and long-run relationships linking money growth
to interest rates, prices, and wages.

Stated negatively, entrepreneurs who
experience a sequence of episodes in which the central bank is implementing
stabilization policy or attempting to “grow the economy” may face a high
cost of not understanding how money-supply decisions affect the market
process.

Thank you, Mr Garrison.

2. Neo, I won't enjoy replying to you if you keep up that tone.

So don't consider my silence an admission of anything.

You are still wrong, and I stand by what I wrote earlier.

I hope the reader will have no problem seeing where you err.

Re: Menger contra Mises on economics predicting the future and telling people what to do?

Neodoxy — Tue, 09 Apr 2013 17:52:58 GMT

When I say "political" I mean relating to social issues and how society should be organized as well as governed. This includes direct economic organization. There's a reason why Mises starts ranting about liberalism and anarchism out of the blue earlier within the book, it's because he sees them incredibly relevant to the matter of securing the economic system, which they are. Mises argues against economics for high-brow theorizing and specifically for what is useful: understanding how economics affects society. I can understand if this could be misinterpreted as talking about "elections" per se. Nonetheless this one's obvious misunderstanding:

"He was interested in how the theories of quantum mechanics will influence the 1948 presidential election?"

If I just threw in the word "economic" into the passage you quoted then I assume you'd be satisfied and be that much closer to actually understanding someone else's position.

"Nice try, but nothing you quoted contradicts anything I wrote."

Correct. It doesn't because you have awful reading comprehension and you'll interpret most anything in the way you want to. You're a fascist reading the Communist Manifesto and thinking that Marx agreed with him. What I've been saying here is the simple interpretation of what Mises wrote. You are aware of where those quotes came from, right? They came from the section "The Role of Economics in Society". The single instance where Mises mentions business he shows how economics isn't that useful to them and could even be misleading. This is the ONLY explicit time in the entire book Mises fully deals with the connection between business and economics (although he does mention it in passing elsewhere). In the same section he keeps talking about politics, society, and the economy as a whole and the importance of economics to these areas. There were several more quotes I could have pulled, just short of quoting the entire damn section. This is where Mises explains "The Role of Economics in Society", and he applies it almost soley to the matters of society re

"You have everything backwards. Even if there was no political movement called socialism, Mises would be interested in it as an economic system, meaning a possible way of running an economy. It has nothing to do with politics, and everything to with economics. His interest in politics was a subset of his interest in economics per se, not the other way around. You notice he didn't write about political issues that were not rooted in economics. But he did write about economic topics that have nothing to do with politics."

There's a reason that Mises wrote a book on socialism and devoted decently large sections of all his other books, (besides his first) to the matter of socialism; it's because he saw it as the largest threat to society. Meannwhile Syndicalism got merely a section of HA and a few mentions in socialism, it is because it is much less of a threat. At any rate, the fact that Mises... And you... talk against abstract theorizing and Mises wrote again and again about social and economic affairs IN HIS SECTION OF HOW ECONOMICS ACTUALLY APPLIES TO SOCIETY AND IS USEFUL. This is how economists help their fellow men and why economics is worthwhile.

"a system of ideas and ideals, especially one which forms the basis of economic or political theory and policy"

If I am right about why Mises wrote about economics then this certainly applies... Particularly the part about economics

"I am guessing you haven't read Theory and History, which should set you right about these matters."

I read T&H twice. You won't be able to find where it contradicts me because it doesn't. Mises says very specifically that economics is value free, but he says that in all his work. Yet he takes up a huge portion of Human Action arguing against doctrine after preexisting doctrine, that is almost always political with political ramifications, and explaining why it is fallacious. If Mises wasn't interesting in how things applied to society and how should organized HA would have looked hella different, and Mises wouldn't have kept talking about the importance of economics in political affairs when he talked about how economics applies itself to society.

Re: Menger contra Mises on economics predicting the future and telling people what to do?

Smiling Dave — Tue, 09 Apr 2013 14:36:17 GMT

However, you're free to interpret Mises however you'd like to in the face of direct contradiction.

Nice try, but nothing you quoted contradicts anything I wrote.

And it's either meaningless due to vagueness, or else just false, to say "Mises was interested in ideas and how they impacted the political realm." He was interested in how the theories of quantum mechanics will influence the 1948 presidential election?

You have everything backwards. Even if there was no political movement called socialism, Mises would be interested in it as an economic system, meaning a possible way of running an economy. It has nothing to do with politics, and everything to with economics. His interest in politics was a subset of his interest in economics per se, not the other way around. You notice he didn't write about political issues that were not rooted in economics. But he did write about economic topics that have nothing to do with politics.

In any case, let's not conflate "what Mises was interested in" with "economics".

If that's what you meant by ideology, you are way off base thinking AE is an ideology. Would you say geometry is an ideology? That chemistry is an ideology? They have ideas and methods, right? A science [meaning a body of knowledge] is not an ideology. Economics is a science.

and it has to do specifically with political ideologies and belief systems.

So totally wrong. It has to do with economics. I am guessing you haven't read Theory and History, which should set you right about these matters.

But I tire of this discussion. Think what you like, that's fine.