"I remember getting chills reading how a single price can communicate the mileage; the age of the tractor; the condition both overall and any particular attributes; the need for tractors in the location in which it is being sold; the value of the tractor to the owner and the buyer, simultaneously; and so on."
Chilling indeed if it is true, but is it? I don't think so. Let's assume that humans do have the calculating abilities to form a reservation price that is some sort of linear combination of all of these attributes (I don't think they do). The parameters on this price determination function would be different for every person. Some people will value aesthetics over utility, etc. How does the one price that results from the coordination of all these reservation prices communicate anything about any of the attributes? I don't think it does. Sure sounds poetic, though, doesn't it? I'm sure there's some version of Arrow's impossibility theorem that applies here too. A very good post all in all - worth a read.
- At Economic Thought Mattheus von Guttenberg has a post up on empiricism and logic. In the past I've been frustrated by Economic Thought's posting on this issue, but this one is actually quite good. I posted two responses - I'll repost them here:
- Coordination Problem keeps coming up with good posts on great sociologists. Peter Boettke talks about Mark Granovetter here. I studied Granovetter's work with Dierdre Royster, who wrote a great book on black youth in the labor market based on this idea of the strength of weak ties, called Race and the Invisible Hand. I recommend it."You say that empiricism provides “no certain knowledge”, but what you’ve really explained in your paragraph on empiricism is that the certainty of the knowledge it provides is contingent on assumptions which may or may not be true. Couldn’t the same be said of a priori knowledge? Deductions are tautological with certainty, but we can only be certain of the deductions themselves, contingent on the truth of their axioms – precisely as empiricism is contingent on its attending assumptions. I find it strange that you feel the need to question something like gravity but not Mises’s axioms, when both bodies of knowledge are contingent on each of these sets of respective assumptions (because what is an axiom if not an assumption?).
At least we can agree that gravity operates today, so I can say “contingent on the continued operation of gravity, the sun will rise”. Can we even agree on all of praxeologies axioms right now (obviously not everyone can or more people would be Austrian economists)?
The other problem I always come back to with rationalism is a practical one. If an axiom sounds reasonable, it is easy to convince a lot of people of it. If a deductive step seems reasonable, it is easy to convince a lot of people it is valid. It’s a lot harder to coordinate mass deception when it comes to observational evidence. People all over the world are collecting and comparing and corroborating economic data. That’s a very robust process for generating knowledge. I don’t see this sort of robustness in rationality. You mention nothing in your post about the possibility that (1.) Mises chose inaccurate axioms, or even more likely (2.) Mises took an invalid deductive step. If Austrian economics had the rigor of mathematical formalism, their deductions might be easier to swallow – but they don’t, and the practical prospect of mistakes in this chain of logic is something that deserves to be center stage when arbitrating between epistemologies."
A single price cannot communicate the age, mileage, condition, etc. of a tractor. The price commicates a sort of average of all these factors.
ReplyDeleteSupposing only two factors--age and condition--are relevent, one cannot derive from a price how old the tractor is nor its overall condition. But, should we be given one of these factors, something about the other can be derived. For example, if the price of a very old tractor is high relative to other tractors of a similar price, then we can infer that its condition must be better relative to other tractors of a similar age.
I think that's even stretching it, Lee. Some people like vintage tractors. Others would downgrade a tractor for its age. Some people like red tractors, others don't. At best you have a single price as a function of a number of SUBJECTIVE valuations of qualities of the product. If you have enough products on sale with enough variation in their qualities and price, you MIGHT be able to isolate these subjective valuations. But you'll never be able to make any claim about any qualities of the tractor itself.
ReplyDeleteAnd I doubt you'll be able to say anything about the subjective valuations either. Our rationality in coming up with these reservation prices is too weak, and there's going to be too little variance across too many factors to be able to say anything with any confidence.
And even then, you're really only getting an average assessment of the subjective evaluations.
Daniel,
ReplyDeleteWhat you say is true, of course. I didn't mean to imply otherwise. Clearly people have different preferences, but I talking about the abstract "market price." Of course, different markets may value the trade-off between age and condition differently.
In my opinion, von Guttenburg doesn't understand what a tautology is. That said, in this he is no different than most educated people, especially Austrians.
ReplyDeleteAustrians seem to think that "axioms" are self-evident or necessary truths, but they're not. They are necessarily true relative to a formal language. Whether that formal language corresponds to the real world in some fashion is not established by it having tautologies. For that matter, why self-evidence should be exempt from scepticism any more than ordinary evidence is never explained.
By the way, I don't think empirical evidence is more robust at avoiding mistakes. Experience (both reflective and empirical) is interpreted in the light of theories. No proposition follows from any parituclar sense experience, because such a proposition is deduced from innumerable auxiliary theories about what sense experience is and how the world works. In a sense, empirical observation is deductive, since otherwise sense experience doesn't mean anything.
ReplyDeleteRegarding your most recent point - I'm having a tough time connecting your first sentence (which I'm not sure I agree with) two all the sentences that follow (which I'm quite sure I agree with).
ReplyDeleteCertainly experiences is interpreted in light of theories, but the justification I provided for the robustness of empiricism is that experience repeatedly provides corroboration in all different contexts of some claim that you're making. No such corroboration is available for a strict rational deduction from axioms. Our confidence in empirical evidence is certainly tempered by the understanding that the process of empirical research has deductive elements. Certainly. But that doesn't speak to the claim to robustness I put forward.
Austrians seem to think that "axioms" are self-evident or necessary truths, but they're not. They are necessarily true relative to a formal language."
ReplyDeleteIf I gave you a simple tautology - all bachelors are unmarried - is the truth of that statement changed even if there are no bachelors? Certainly, then, there is no ontological question of bachelors being unmarried because bachelors don't exist. But the mere existence or nonexistence of an item doesn't preclude the truth of it.
Furthermore, the truth of a tautology is in its definition. 2+2=4 is true precisely because we define 4 in terms of 2, and we define 2 in terms of 4. The phrase 2+2=4 is not only true, but supremely redundant. It is a tautology, but my point in the post was to say that we haven't learned anything "new" by it.
- Mattheus
Mattheus - you're missing the point. Maybe I diverted you by raising my concerns about bad deductive leaps when language isn't sufficiently formal (ie - mathematical).
ReplyDeleteAs I said on your blog, it's fine to say that praxeology is a science of an axiom that Mises chose to label "human action". Nobody is challenging you from the "married bachelor" angle here. The problem is you end up claiming that because Mises labeled his axiom "human action" you assume that what you have is a science of actual human action.
Daniel - That may be the case, but I'll be damned if I can figure out how to study human action without your most basic axiom being "we make purposeful choices."
ReplyDelete- Mattheus
Mattheus -
ReplyDeleteYou're missing the point?
How do you study ape society? Remember that humans are highly evolved apes and proceed from there. Don't worry too much about a "most basic axiom" which even though it is basic and foundational, probably isn't sufficient to get you any more knowledge than a few (as you phrase it) tautological implications of "we make purposeful choices".
In other words, if you're interested in a word game based on that phrase, by all means read Mises. If you're interested in understanding human action you might start elsewhere, with different strategies, different data, and where you do use deductive logic, perhaps more axioms.
Daniel - I've said it before, and I'll say it again.
ReplyDeleteThe astounding accuracy of the claims and predictions made from using the Austrian methodology are what give praxeology its importance. If praxeology were insufficient - and could only give a few tautological implications - we would be in no shape to describe the entire dynamic market process.
The fact that we continue to argue economics can be understood solely via praxeology perhaps sheds a little bit of light on how much more it actually answers than a few tautologies.
By all means, read Human Action. As soon as you find an error that can be explained by the methodology of the natural sciences, please point it out to us.
- Mattheus
I'm not exactly sure what response I'm going to get from this, but here it goes -
ReplyDeleteI'm a little surprised to hear you call the accuracy of Austrian claims "astounding". I guess my question would be - why doesn't anyone else think so?
That are mountains of empirical economics journals out there. Why haven't they noted this? Why are there almost no empirical articles in Austrian journals? Who ascertains this astounding accuracy? If there really is such astounding accuracy, why don't you guys make a big deal out of it in your own journals? Why don't you highlight this to non-Austrian empirical economists?
Many people haven't endorsed Austrian ideas on economics because of the education mountain they have to overcome. Austrian capital theory is simply not taught in schools. Students who major in economics learn Keynesian, or post-Keynesian, models and techniques - they are not even taught there is anything else. How many years after you started studying economics did you learn there was an Austrian school - and how many more years did it take for you to study it?
ReplyDeleteOf course we've noted the mountains of empirical journals out there. We understand all the implications of the Monetarist and Keynesian studies - and we conclude they are all wrong. It's very simple. If (as we say) empiricism is useless in analyzing market phenomena, like logic, then the size of the empirical mountain is irrelevant.
Also, there is considerable political sway to stick to mainstream economic theory, which encourages runaway government spending and inflation. Accepting or even acknowledging Austrian claims is political suicide, even for professional economists. Is it really so surprising that there are no free market economists, austrian or not, working for the government?
Austrian's don't bother with empirical journals because they're irrelevant. Empiricism is economic history which requires a theory to interpret. We have the theory and the data, you only have the data.
And finally, we do our damned best to highlight Austrian economics to anyone who will listen. I've encouraged professors of mine to study Hayek's theory of capital, the Hayek-Mises trade cycle theory, etc. I've written and spoken to dozens of people urging to consider another idea. There is a great deal of trying to get the word out. Such as it is, embracing what is considered "fringe economics" is not enticing for many people.
Thankfully, with the crash of '08, many people are coming to understand the Austrian theory that credit expansion causes depressions. It's getting a lot more publicity. But it speaks out, perhaps, more to the unwillingness of many people to consider alternatives, than it does the craziness of Austrian economics.
- Mattheus
RE: "Many people haven't endorsed Austrian ideas on economics because of the education mountain they have to overcome. Austrian capital theory is simply not taught in schools."
ReplyDeleteTo be honest, the basics of Austrian capital theory aren't that complicated at all. It would be easy to explain them sufficiently in a one page introduction to an empirical article testing the claim. I don't think this is a very plausible excuse. Of course, like any theory, there is a more complicated version of it that takes more time to appreciate. But this is not an obstacle to publishing empirical Austrian papers. You know as well as I do that Austrians simply don't do this work. Look at the list of sessions at Austrian conferences - they don't even talk about empirical work amongst themselves, where presumably nobody needs to overcome a capital theory learning curve.
" If (as we say) empiricism is useless in analyzing market phenomena, like logic, then the size of the empirical mountain is irrelevant."
ReplyDeleteBINGO. This is precisely why. So don't go around claiming that the accuracy of Austrian predictions is "astounding" if you won't test the theory against the data for epistemological reasons.
RE: "Also, there is considerable political sway to stick to mainstream economic theory, which encourages runaway government spending and inflation."
I am aware of know mainstream theory that advocates either runaway government spending or inflation (at least excessive inflation... certainly you'll see people say we should target a small positive inflation rate).
*no mainstream theory that advocates
ReplyDeletelol... that's aye weird won two mix up
The basics of capital theory are truly not very complicated at all. A small session was taught in a class of mine by an Austrian-thinking teacher who explained Garrison's rendition of the Hayekian structure of production, intertemporal theory, and all that. It's really not terribly complicated. But again - I never claimed it was. The difficulty is not explaining Austrian economics, it is getting people to give us a fair hearing.
ReplyDelete"It would be easy to explain them sufficiently in a one page introduction to an empirical article testing the claim."
No it wouldn't. In a scientific journal, you aren't teaching undergrads. The rigor would be multiples harder. But it's irrelevant anyway. We don't do empirical testing. Not only is it not preferable, it's an entire waste of time. I don't think you understand. If there were a community of physicists hosting scientific meetings, and a group of mathematicians came in to dispute their empirical claims, there are NO empirical studies to be done to "disprove the math." It's straight logic. We couldn't even publish an empirical article if we wanted to - the entire medium is wrong.
"they don't even talk about empirical work amongst themselves, where presumably nobody needs to overcome a capital theory learning curve."
Because they understand empirical work is not useful for their study. There is not the same type of regularity in human action as there is in chemistry. You cannot model and experiment. You will always fail. The correct approach is the application of logic.
"So don't go around claiming that the accuracy of Austrian predictions is "astounding" if you won't test the theory against the data for epistemological reasons."
Of course we test it. We add and correct data all the time. We don't test is according to the scientific method, but we do test our data. You need to understand the strict adherence we hold to apriorism. Of course, all true a priori claims are also grounded in reality, so if you were to go back and check the data in history, you would see that our predictions still came true. Hayek and Mises predicted the Great Depression, Peter Schiff predicted this downturn. The history is there, but it's just data. Only in the natural sciences can you use the data to arrive at a theory. That approach is entirely backward for economics.
No mainstream theory? Good lord, and you call yourself a Keynesian. What is Keynesianism if not inflation and deficit financing to ensure full employment?
- Mattheus
"The difficulty is not explaining Austrian economics, it is getting people to give us a fair hearing."
ReplyDeleteI think you confuse people not being convinced with people not giving you a fair hearing. What is preventing you from explaining the theory in one page, and then spending fifteen pages or so empirically testing the version you've laid out, and submitting that to the Review of Economics and Statistics? There is one thing holding you back from that, and it's not people who "won't give you a fair hearing" - it's your own epistemology.
RE: "If there were a community of physicists hosting scientific meetings, and a group of mathematicians came in to dispute their empirical claims, there are NO empirical studies to be done to "disprove the math." It's straight logic. We couldn't even publish an empirical article if we wanted to - the entire medium is wrong."
Nobody is proposing that you use empiricism to test your logic. As I said earlier to you, NOBODY is criticizing you from the "married bachelor" angle. No one. What we're questioning is the extent to which your theory explains the reality of the economy, human exchange, and human action. If that is not your purpose, then that's fine - but don't come around telling me about the astounding accuracy of your claims and predictions.
RE: "No mainstream theory? Good lord, and you call yourself a Keynesian. What is Keynesianism if not inflation and deficit financing to ensure full employment?"
Deficit financing to ensure full employment, yes. "Runaway government spending" and inflationism, no.
"What is preventing you from explaining the theory in one page, and then spending fifteen pages or so empirically testing the version you've laid out, and submitting that to the Review of Economics and Statistics?"
ReplyDeleteThere's nothing necessarily preventing us, but to the extent we choose not to submit it, it is because we acknowledge the futility of attempting what you propose.
"What we're questioning is the extent to which your theory explains the reality of the economy, human exchange, and human action."
The proof is out there. We claim that the expansion of fiduciary media leads to intertemporal capital discoordination and - distorts the structure of production, creates malinvestment, and engenders capital consumption - creates the boom that must inevitably end in a bust. That is one of our theories. And if you were to take the time to investigate it empirically, you will find that before every depression there was always expansion of credit, followed by the characteristics I laid out. The history is there!
I'm a little ignorant on the extent to which Austian professionals have engaged the mainstream with this information, but reality aligns very nearly with our theory.
"Deficit financing to ensure full employment, yes. "Runaway government spending" and inflationism, no. "
Anytime you increase the supply of money faster than the supply of goods, you have inflation. It is always and everywhere a monetary phenomenon. Keynes explicitly endorses inflationism as a way to correct price and wage rigidity.
- Mattheus
Mattheus -
ReplyDeleteHumor me and explain how you reconcile this:
"The proof is out there. We claim that the expansion of fiduciary media leads to intertemporal capital discoordination and - distorts the structure of production, creates malinvestment, and engenders capital consumption - creates the boom that must inevitably end in a bust. That is one of our theories. And if you were to take the time to investigate it empirically, you will find that before every depression there was always expansion of credit, followed by the characteristics I laid out. The history is there!"
and this:
"There's nothing necessarily preventing us, but to the extent we choose not to submit it, it is because we acknowledge the futility of attempting what you propose."
In one instance you tell me it's all there and to dive in, and in the next you tell me such an endeavor is futile.
What am I to make of that, Mattheus?
The data and history corresponds our story, but that doesn't necessarily mean people will agree with it.
ReplyDeleteAs scientists, economists are supposed to be value-free in their study. Is that really the case? Is it really true that economists, and scientists all over who have devoted their lives to a particular branch, will abandon years of study and toil once they read Austrian theories?
If only we were truth seeking machines.
I encourage you, since you seem honestly curious, to study and learn what we say instead of arguing second-hand. Chances are you'll find some things you agree with.
- Mattheus
Wait, so your claim is that the empirical evidence is there and its overwhelming, but that it's futile to even publish it because no one will accept it because they have some animus towards accepting Austrian theory?
ReplyDeleteI'm sorry, but that's laughable Mattheus.
First, Hayek has a Nobel prize. Lots of very well known economists in the mainstream positively cite the Austrian school. And they idea that credit booms can cause business cycles is hardly a controversial claim. You don't have to even be an Austrian to buy large swaths of the Austrian theory.
You don't refraing from doing empirical analysis because it's "futile" - you refrain from it because:
1. You don't know how - you generally speaking aren't trained in statistics or econometrics
2. It doesn't jive with your epistemology, and/or
3. You're not willing to potentially falsify your theories. Generally speaking you guys don't go through the re-evaluation of your founders the way Keynesians or New Classicals do.
So its a mix of reasons why empirical Austrian economics gets done, but don't give me this sob story that nobody would accept you.
* And I want to emphasize "generally speaking". Some Austrians do know econometrics. Even more question your founders. Many also aren't hamstrung by epistemological hang-ups. But as a whole, this sort of stuff is what holds you back - not mean reviewers and editors.
ReplyDeleteI'm not presenting a sob story - again, this isn't your first straw man.
ReplyDeleteThe phrase "mean reviewers and editors" trivializes the obstacle that the Austrian school has to overcome. There's no disputing that many mainstream economists (Krugman, Caplan, Stiglitz, Bernanke) either consider Austrian economics intellectually defunct or they've never heard of it. Austrian economics as a serious study is simply not found in schools. Only George Mason, to my knowledge, has anything remotely like a program.
Secondly, I'm claiming that empirical evidence exists for our deductions, but the reasons for the absence of empirical publications is not that we don't know how. Econometrics and statistics are not particularly difficult. The issue is one, futility, and two, irrelevance. That's all I said. It's a shame that there are intellectual biases preventing true scrutiny of the models, but ultimately there's a reason specific Austrian models and views are not taught in schools. That has to do with politicization, not with claims of truth.
Finally, my assertion of its irrelevance holds. We don't do empirical analysis because our axioms are unfalsifiable. I know that spooks the other economists, but until you get over your devotion to analyzing economics with algebra and aggregation, you will continue to miss my point.
- Mattheus
RE: "There's no disputing that many mainstream economists (Krugman, Caplan, Stiglitz, Bernanke) either consider Austrian economics intellectually defunct or they've never heard of it."
ReplyDeleteOne of the primary reasons that people have never heard of it is because so many people to consider it intellectually defunct. But assessing Austrian economics negatively is very different from what you describe above - namely, that people would reject you because they are not "value free" (your term, not mine). Don't accuse me of presenting a straw man, and then change your tune. Yes, I would agree that many either think you're intellectually defunct or they haven't heard of you. The first assessment is completely fair for someone to come to, the second is unfortunate, but it tends to happen with theories that a lot of people agree are intellectually defunct.
"Only George Mason, to my knowledge, has anything remotely like a program."
There are a few others - Auburn, NYU, St. Lawrence, Grove City, etc.
RE: "It's a shame that there are intellectual biases preventing true scrutiny of the models, but ultimately there's a reason specific Austrian models and views are not taught in schools. That has to do with politicization, not with claims of truth."
THIS is what I'm refering to as your sob story. This is BS. Don't even try to claim otherwise.
The most that can be said is that after generations of economists found the Austrian school wanting, they stopped engaging it so no one knows it any more. That may be the case in many places. But that's not "politicization". That's called "not being convinced". Econ departments don't teach Marxism any more either, not because of "politicization", but because it's considered defunct.
I have a somewhat more positive view of the Austrian school personally. I think it has some important contributions to make. But don't expect me to buy this sob story (that's exactly what it is) that the process is politicized. Two things are happening - people are finding your approach wanting, and to a large extent you're also isolating yourselves deliberately.
It is a convenient position, though... "if they don't agree with me, they must be politicized!"
ReplyDeleteI wish I could stomach appealing to that argument for why some people don't buy Keynesianism. That would be easy to claim. A little embarassing, though. I don't think I could do it.
Mattheus, people don't reject you because they're politicized. People reject you because they don't find you convincing. You're being condescending when you cover yourself by accusing others of those sorts of things. Spend more time learning about why they don't agree with you. My differences with the Austrian school certainly aren't because I'm "polticized" any more than my agreement with the Austrian school is.
"This is BS. Don't even try to claim otherwise."
ReplyDeleteIt's what I think is happening. And whether you think its a dishonest tactic for me to use or not is immaterial. Those that lambaste or belittle Austrian economics do so out of no intellectual footing. They don't even understand what it is they argue against. On the other hand, the Austrians that engage and make contributions to economic theory often spend their lives trying to refute what is popular.
"Econ departments don't teach Marxism any more either, not because of "politicization", but because it's considered defunct."
You're right, it is defunct. And it is because of people like Bohn-Bawerk, like Hayek and Mises that so thoroughly demolished Marxism that it is not taught. You got it. But nobody has done that to the Austrian school. Nobody has even successfully challenged either the axiom or the preliminary conclusions. They may disagree over a specific prediction, but they do not argue theory. It's cognitive dissonance.
"I wish I could stomach appealing to that argument for why some people don't buy Keynesianism. That would be easy to claim. A little embarassing, though. I don't think I could do it."
Really? When so much policy and study is done in the name of Keynesianism, you could really assert that it's politics that keeps people in the dark? Please. Mainstream economics is nothing BUT Keynesianism, and to the extent the Monetarist and Neo Classical schools make an appearance it is to clarify Keynesianism, not to refute basic pillars. People reject Keynesianism for the same reason they embrace laissez-faire, they understand the arguments behind both.
Listen, this original thread was on the topic of philosophy, not debating the reason behind why the Austrian school doesn't achieve recognition. You were right in arguing that there were lots of reasons. But I'm not really interested in trying again and again to argue the same points over and over. Ultimately, until I learn more about Keynesian theory, and until you learn more about Austrian theory, this conflict won't be resolved.
I hope you don't consider my responses hostile or defensive; again, this was just a typical debate.
- Mattheus