Theme: Externalities

WHAT ARE THE SHORTCOMINGS OF THE AUSTRIAN SCHOOL OF ECONOMICS?

I’ve written extensively on this and I’ll make a few (possibly unpleasant) but clarifying points to explain why Today’s “Austrian School” is to the original “Mengerianism”, what Today’s “Liberalism” is to the original “Classical Liberalism”: an ‘appropriated term’. And Misesianism has little if anything to do with Mengerianism other than the most trivial inclusion of marginalism.

THE SHORT VERSION

If we are talking about the Mengerian revolution, there are no shortcomings, and those insights as of 2008 appear to have been fully incorporated into mainstream economics.

If we are talking about how mainstream Austrians practice economics today, by the successors to both the Mengerian and Misesian ‘branches’ of the Mengerian revolution, we have one insight that is not incorporated into mainstream economics: the test of the ethics and morality of economic statements by construction a ‘proof of possibility’: that any such proposition can be demonstrated by a series of both rational choices and tests of reciprocity. Mainstream Economists rely on Rawlsian (left) ethics and Pareto optimums, where Austrian Economists would rely on Classical Liberal ethics, and each solve for solutions under those ethical constraints.

If we are talking about the propaganda put out by the Rothbardians then that’s something altogether different, and has nothing to do with either of the above.

But let’s go into some detail.

THE SCHOOLS

The Mengerian school applied the insights of calculus to economics, producing marginalism, and as a consequence, subjective value, and as a consequence overthrew the historical error of the labor theory of value.

The mengerian school attempted to construct a DESCRIPTIVE social and political science from economic evidence. In contrast to the Chicago school which attempts to produce policy under rule of law – meaning ‘without human discretion’; and in contrast with the Saltwater School (new york), attempting to maximize consumption by policy – meaning ‘arbitrary rule’.

So the Austrian, Chicago, and New York schools of economics pursued very different ‘limits’ and ‘methods of decidability’ (categories and values) in their investigation of economic phenomenon, and for very different reasons. Instead of all of these schools pursuing ‘economic science’ it is more accurate to say that they each practice the application of economics to politics in three different ways.

Austrian (Virginia):

The production of institutions that eliminate frictions, allowing the greatest cooperation among peoples in a market economy. This, under the assumption that interferences in the economy were unwise, and would merely increase the severity of future corrections. (The Conservative Position)

Freshwater (Chicago):

The use of monetary policy to insure the economy and the polity against the unavoidable corrections that occur whenever certain combinations of opportunities, organizations, talents, and resources are disrupted either incrementally or by shocks, by the discovery of formulae that allowed rule of law to persist, yet insure people against harm. This, under the assumption that while interference in the economy was a moral hazard, a violation of rule of law, and would spiral into increasingly worse forms of harm, that the value of limiting shortages, insuring against shocks, was better than the consequences of not doing so. (The Classical Liberal Position)

Saltwater (New York):

The use of fiscal (spending) policy (debt) for the purpose of maximizing consumption and therefore overall wealth – under the assumption that any harms caused by the misallocation of organizations, talents, and resources to exhausted opportunities, would provide greater interim benefit that would compensate for any future harms. (The Leftist Position) (Krugman, Delong et al)

This spectrum: Austrian (Social Science/conservative), Chicago (Rule of Law/classical), New York (Arbitrary Rule/progressive) also reflects Time Preference: Long, Medium, and Short term. Which in turn reflects class and gender moral biases (Mature Male, Maturing Male, and Female). Which in turn reflects institutional emphasis: i) Austrian: Demographics, educational policy, formal and informal institutional policy. ii) Industrial policy, Trade Policy, Monetary Policy, iii) Monetary, fiscal policy, and redistributive policy.

At this point in time, Mengerian insights are fully incorporated into mainstream economics – although until 2008, the mainstream resisted the hypothesis that all attempts to correct the economy through monetary policy produced cumulative distortions of increasing duration. At this point that matter is settled, and the Mengerian insights have been incorporated into Mainstream thought.

UNSOLVED QUESTIONS IN ECONOMICS AND POLITICS

-Economics (Money)-

There is clear benefit to recording, analyzing and publishing economic information that prevents malinvestment (or misuse of investment funds). There is clear benefit to managing the money supply as long as it does not create malinvestment. It is not clear that savings should be conducted with the same currency as the commercial currency. It is not clear that savers have a right to appreciation of a commercial currency at the expense of others any more than they have an obligation to absorb losses. And given that the value of insuring the money supply against shortages that might minimize consumption and investment, How do we manage the money supply? What basket of targets do we use? Is it moral (or wise) to allow interest on consumer credit issued from the Treasury when it is not any longer de facto insured by banks? (My answer is ‘no’ – it’s predatory on a scale that the most extractive of despots could not dream of). Is any of our policy or economics meaningful in an era where liquidity can be provided directly to consumers via debit cards from the treasury and the consequences immediately measured regardless of financial sector and entrepreneurial sector estimates of the future ending the zero interest rate problem, and ending the problem of cheaper money reinforcing and expanding patterns of malinvestment.

-Government (Production of Commons)-

It is increasingly clear that the silicon valley model of investment is indistinguishable from the christian monarchies under the combination of local rule of law and federal church sanction, in the same way the chinese model of government is indistinguishable from the management of a fortune 50 conglomerate. And it is increasingly clear that both of these models are superior to the results of 20th century democracy. The difference is that the Han are a single sub-race (extended family), as Europeans were until the present. While the silicon valley model is closer to the Cosmopolitan, for the same reason: silicon valley does not have to insure itself, it’s territory, or its currency So we can see three future political models: the homogenous kin-corporate (chinese), the homogenous kin-private, and the ‘borderland’ diverse non-kin private (silicon valley).

THE MISESIAN INSIGHT – AND DOWNFALL

Mises was creative, and had read a great deal of the work of contemporaries – which is why his ideas are not his but others (Weber, Simmel). He had a very clear if not the clearest – understanding of money. But had a very poor understanding of mathematics and science. And was not very clear on the broader intellectual movements that had preceded him, or were current.

So while Mises discovered and articulated “economic operationalism”, he conflated mathematics (axiomatic declarations, and proofs of possibility) with science (theoretical observations, and survival from criticism) into a pseudoscience of Praxeology – in which he claimed all economic research should be performed operationally.

He confused the Moral and Legal (justificationary), with the True and Scientific (survival from criticism).

Praxeology – Economic Operationalism – is a method of testing rational choice and moral reciprocity in economic propositions when people are possessed of information heavily weighted by prices, and when they are rational actors, working from simple stacks of priorities. Just as is Intuitionistic Mathematics, Operational Language in the Sciences, and Operationism (the newest application of operationalism) in Psychology.

But this is logically and empirically false.

People act irrationally because of a set of cognitive biases and fragmentary information;

People decide preferences on networks not stacks – meaning Mises did NOT – like Menger – rely on the calculus, and worse, he used a very narrow interpretation of marginal utility – that humans decided by a stack of values, rather than the sum of the weights of a set of values.

Prices are but one factor of economics and prices decline rapidly in interest after commodities. People purchase heavily on signal value, not investment or commodity value.

Empirical measurements can in fact identify economic phenomenon not rationally identifiable by rational construction (ie: sticky prices).

What appear to be cumulatively immoral actions by the state can (in some circumstances) produce superior returns that do not violate the material interests of risk takers dependent upon intertemporal calculation.

So it’s somewhat tragic, that in the science in which Operationalism is most important, and Mises’ discovery of Economic Operationalism, approximately coincided with Popper’s invention of Falsification, Poincare’s Criticism of Cantor, Brouwer’s Intuitionism (mathematics), Bridgman’s Operationalism (physics), and Hayek’s later discovery that the empirical common law is both the origin of the empirical method, and the only scientific means of governance: Nomocracy – Rule of Law.

And that because all these thinkers failed to grasp that they had formed a movement, and that this movement’s value culminated, not in mathematics – but in economics. Because Science is but a moral discipline by which together we seek to remove ignorance, error, bias, and deceit. And that economics is the discipline in which pseudoscience is most harmful to us and mankind, if for no other reason than the consequences of our folly and deceit are both profound, and distant.

THE CULTURAL ARTIFACTS OF THE COUNTER-ENLIGHTENMENTS

We all bring our culture’s methodologies to the intellectual table, and Mises brought conflationary jewish law to the table. All the enlightenment era thinkers have done so – and still do. We tend to use the names of philosophers rather than the Operational names of their methodologies but we can illustrate the drag of intellectual traditions on the enlightenment by stating the method: The anglo empirical-legal-protestant, the french moral-catholic, the german rationalist-prostestant, the russian literary-orthodox, and the jewish-conflationary-legal.

The only deflationary method was the original: the anglo empirical-legal. ‘Science’ in the ancient world, like science in the later medieval and early modern, evolved out of the practice of competitive, testimonial, evidentiary, empirical, common Law.

The problem for the anglos has been that contracts presume equality under the law, and this assumption led to the utopianism of ‘an Aristocracy of Everyone’. Just as the French a ‘Family of Everyone (dressed up in aristocratic clothing)’, Just as the German ‘An Army of Pious Duty of Everyone’, Just as the Jewish led to a ‘Wandering Separatism of Everyone’.

The ‘Vienna’ intellectual group – “Austrians” housed two very different sets of thinkers: The Christians who were German and Polish: the Mengerians, and the Misesian, who was Jewish and from L’viv Ukraine.

Both regions were in then ‘Galacia’ under the control of the Austrian Empire. At that point in time L’viv was one of the most populous jewish cities in europe as well as the ‘borderlands’ (where russians allowed jews to settle).

The categorization of Mises as a member of Menger’s Austrian school has been the subject of disagreement and still is – in the past, justifiably criticized as ‘jewish economics’.

Methodologically, Misesian thought relies upon jewish thought, just as much as Mengerian thought relies upon Germanic.

-Deflation vs Conflation-

Western Deflation (Competition:Institutions) vs Semitic Conflation (Monopoly:Religion)

While one of the hallmarks of western civilization is deflationary truth, and as a consequence, deflationary disciplines (mathematics, science, law, morality, literature, religion), deflationary institutions (divided govt), Mises, in the Jewish tradition, ( in the Abrahamic tradition in general) conflated morality, law, mathematics and science into ‘praxeology’ and his arrogance ( not unlike Marx) prevented him from acknowledging his failure until late in life, when he acquiesced to economics being a mixture of empirical and operational but he still did not draw the conclusion that had been made by Weber, Brower, Bridgman, if not Popper: that the ‘truth’ is discovered by the market competition between the scientific method’s attempt to deflate reality down into operations (laws), and the test of whether an intermediate theory survives construction from laws (axioms).

Given that we know the first principles of social science: rationality and reciprocity we can test all economic propositions even though due to categorical plasticity due to substitution effects.

Given that we do not know (yet) outside of perhaps chemistry, the first principles (operations) of the physical universe – because the universe cannot ‘choose’ it is fully deterministic (even if so casually dense it is not predictable through measurement) and we must be able to describe the physical universe in mathematics as proof of construction instead.

This is only possible because mathematics is correlatively descriptive of external phenomenon, even if it is internally fully operational (real).

So mathematics provides a good substitute for the operations of the universe – until we know the first principles of the universe.

Which is what our friend Mr Wolfram’s (ack) ‘new science’ (confusing a logic and a science again) is: the study of the consequences of operations, INSTEAD of the DESCRIPTION of the consequences of operations using mathematics.

CLOSING

So it is better to say that Mises created a ‘jewish heresy’ or branch of the Vienna school, and that followers have used the marxist strategy of a) ‘appropriating terms’ (austrian school), b) ‘heaping of undue praise’, c) ‘straw man criticism as a vehicle for pseudoscientific propaganda’, d) ‘pseudoscientific or pseudo-rational argument (justificationary apriorism, praxeology as a science exclusive of empirical science rather than that scientific propositions require survival of the tests of both empirical consistency and operational consistency), d) vociferous evangelism, and voluminous propagandizing (‘gossip’).

Curt Doolittle

The Propertarian Institute

Kiev, Ukraine.

*I know this might be heavy reading but it’s very important, and profound.*

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NOTE: This facebook Page contains a series of articles that cover his position in intellectual history in detail. (See Facebook Page for Scientific Praxeology-Economic Operationalism)