People are justifiably cheering David Friedman for defending his father against Lew Rockwell (Rockwell himself is responding to the Lee/Wilkinson posts from a couple days ago about how unfortunate it is not to have Milton Friedman around at a time like this).
My favorite point from David actually came up in the comment section:
"Rothbard had a problem. He thought he was a great economist, but practically nobody within the profession agreed and most of them had never heard of him.
Rothbard had a solution. He was ignored because he held extreme pro-market views, which were ideologically unpopular in the academy.
Rothbard had a problem. Milton Friedman held extreme pro-market views--not as extreme as Rothbard's, but far enough from academic orthodoxy so that the same effect should have existed. But Milton Friedman not only wasn't ignored, he was viewed within the profession as a leading figure--despite his unpopular political views.
Rothbard had a solution--to persuade himself and his followers that Milton Friedman was really one of them instead of one of us, hence his acceptance by the profession didn't contradict Rothbard's view of the reason for Rothbard's non-acceptance.
Maintaining that claim was difficult--at one point I remember being told by a Rothbard supporter, explaining why he was not going to publish a letter of mine in his journal that contained quotes from my father inconsistent with Rothbard's account of my father's views, that if Rothbard and Friedman disagreed about what Friedman's views were, Rothbard was right."
There's really not much to say here. Friedman was one of the best economists of the twentieth century. Rothbard wasn't. The idea of comparing the two is laughable. If we never had Friedman the discipline would be very different. If we never had Rothbard nobody would notice. Even the Austrians would have found someone else to play the anarcho-capitalist re-invigorator and re-stater of Mises in the last half of the century.
My favorite point from David actually came up in the comment section:
"Rothbard had a problem. He thought he was a great economist, but practically nobody within the profession agreed and most of them had never heard of him.
Rothbard had a solution. He was ignored because he held extreme pro-market views, which were ideologically unpopular in the academy.
Rothbard had a problem. Milton Friedman held extreme pro-market views--not as extreme as Rothbard's, but far enough from academic orthodoxy so that the same effect should have existed. But Milton Friedman not only wasn't ignored, he was viewed within the profession as a leading figure--despite his unpopular political views.
Rothbard had a solution--to persuade himself and his followers that Milton Friedman was really one of them instead of one of us, hence his acceptance by the profession didn't contradict Rothbard's view of the reason for Rothbard's non-acceptance.
Maintaining that claim was difficult--at one point I remember being told by a Rothbard supporter, explaining why he was not going to publish a letter of mine in his journal that contained quotes from my father inconsistent with Rothbard's account of my father's views, that if Rothbard and Friedman disagreed about what Friedman's views were, Rothbard was right."
There's really not much to say here. Friedman was one of the best economists of the twentieth century. Rothbard wasn't. The idea of comparing the two is laughable. If we never had Friedman the discipline would be very different. If we never had Rothbard nobody would notice. Even the Austrians would have found someone else to play the anarcho-capitalist re-invigorator and re-stater of Mises in the last half of the century.
This isn't to say I think Rothbard is terrible (although like clockwork someone is going to accuse me of saying that). I don't honestly have any strong opinions about Rothbard. I'm sure I would strongly disagree with him on lots of stuff, but what I mean is I don't feel strongly about him as an economist nor do I spend much time thinking about him. Read him if you want - I don't particularly care. Don't tell me he eclipses Milton Friedman.
Murray Rothbard
Posts
Man, Economy, and State is one of the most elucidating economics texts I've ever read.
ReplyDeleteBut I'm just a kid trolling on the internet, what do I know?
Oh, and with regard to Milton, I don't think his economics was particularly good (just like I don't think Adam Smith's economics was particularly good) but I celebrate their profession and their achievements because they were so very important in spreading free market ideas and making enormous ideological footprints.
Mises once made a comment (I think in Human Action) about how there are only a dozen or so economists who have added anything of significance to the body of economic theory at any given time - but the writers, publishers, teachers, polemicists are what make up the rest of the profession.
I don't exactly agree with everything Rothbard says on Smith or Friedman (statist inflationista, ok right). But I'm damn happy they did what they did.
I can't comment authoritatively, as I haven't read half the literature I would need to read in order to have any authority, but I sort of agree with the sentiment that Rothbard was not a great economist. In regards to Man, Economy, and State, how much of it is his own? Even "his" theory of distribution is based mostly on that of Frank Fetter and some on the work of John Bates Clark. Rothbard was just a "good" economist.
ReplyDeleteBut, I don't think comparing Rothbard and M. Friedman is "laughable". You can make the case that M. Friedman made more original contributions, but you don't have to say that these contributions were particularly good contributions, or even "great" contributions. M. Friedman popularized monetary disequilibrium as a reason for the Great Depression, but how much in M. Friedman's analysis already existed in the work of Clark Warburton?
There is probably some bias involved. Someone rating the two from the Austrian framework will probably be in favor of Rothbard. For example, in my opinion, M. Friedman's work in positivism is highly erroneous. Otherwise, you will probably prefer M. Friedman.
Furthermore, M. Friedman's contributions were done within an accepted paradigm -- i.e. general equilibrium theory and the post-Keynes macroeconomic framework (and M. Friedman admits this). One of the most respectable things about M. Friedman is that he oftentimes thought outside of this paradigm, but his work was presented within it. So, that Rothbard was not accepted by the mainstream, but Friedman was, does not necessarily suggest Friedman was the better economist. M. Friedman just communicated in the mainstream language.
For what it's worth, I do think M. Friedman may have been a better economist. I'm just saying that a comparison isn't "laughable", and that M. Friedman may not be the deity some regard him to be.
All of this being said, I consider Ludwig von Mises to be the greatest economist of the 21st Century (I would say of "all time", but something makes me think Menger might deserve that title). A minority will agree with me. The majority would probably opt for J.M. Keynes. But, I think we can say that Mises was at least a "great" economist. Yet, Mises was never accepted in the mainstream after the 1930s (and I don't think Mises would want to be considered part of the mainstream when he realized just how far apart he and the mainstream were during the late '30s).
re: "I can't comment authoritatively, as I haven't read half the literature I would need to read in order to have any authority"
ReplyDeleteYa - and to clarify for people... I'm always happy to comment, but don't think I'm claiming any authority!
"HAHAH MY DAD IS BETTER THAN YOUR DAD HE CAN LIKE LIFT A BAJILLION POUNDS MORE, OH AND JAPANESE CARS SUX LOL BECAUSE MY DAD DRIVES 100% American."
ReplyDeleteLew Rockwell's post reads as if it was written while he drunk.
Rothbard's main role in libertarianism was in helping to create institutions (or in trying to create them); I see him as much more of a political activist in other words. From what I can tell of his career he was always trying to create or forge some sort of political alliance or political party even that would bring about the changes (or stop changes) he wanted to see. Whether he was a good economist is thus kind of beside the point; that's not going to be what he is remembered for - he's going to be remembered for being one of the founders of the Cato Institute, etc.
ReplyDeleteSo what exactly constitutes a "great" economist in your mind Daniel?
ReplyDeletehe's going to be remembered for being one of the founders of the Cato Institute, etc.
ReplyDeleteReally? I never knew that.
Yeah, I think Rothbard was on the founding board of the Cato Institute.
ReplyDeleteIn regard to my question for Daniel though, he seems to equivocating mainstream influence with being a great economist. Last time I checked, most of the mainstream Keynesians (with the exception of Nouriel Roubini and Krugman) and Monetarists missed the crisis while a number of Austrian economists predicted it.
That kind of disparity is what drove me to discover the Austrian school, like it did so many others. Needless to say I don't have nearly as much respect for it is considered the mainstream school of economics anymore.
I was reminded of one Rothbard's contributions, which is his theory on monopoly price. How could Rothbard ever be recognized for that in the mainstream? Not even Arrow's criticisms of neoclassical price theory has led to real improvement. Economists like Mises and Rothbard were looking for a revolutionary change in economics.
ReplyDelete@Jonathan
ReplyDeleteEverything original is really a synthesis. For Rothbard to develop an entire production/distribution theory over 5 chapters synthesizing Fetter/Clark and Mises was highly original and, I think, was an outstanding advance for Austrian Economics.
@Daniel
Have you read Man, Economy, and State?
Personally I think Rothbard's monopoly theory was a step back from Mises.
ReplyDeleteDespite being an Austrian I don't really have a strong opinion on Rothbard.
ReplyDeleteI think that Milton Friedman's main contribution was resurrecting ideas that had been forgotten. Nearly none of his ideas were new. The profession had been taken over by a new orthodoxy, he acted as the spokesperson for previous orthodoxies (several of them).
Rothbard was similar in that way, he worked to resurrect the views of Mises, Fetter and Benjamin Anderson. He was less successful professionally, but he was also less reasonable and less original.
Regarding Rothbard's production theory... It is a mixture of Fetter & Mises interest rate theory with Hayek's capital theory from "The Pure Theory of Capital". It isn't all that original, nor does it really fit together well. Mises agreed with the time-preference theory of interest only in situations with something close to even rotation.
Mattheus,
ReplyDeleteRothbard suggested the name of the Cato Institute - from _Cato's Letters_. That alone makes him fairly awesome; the Cato Institute has done a great deal to steer the political discourse concerning American adventurism, the drug war, choice in education, the vague litany of criminal laws the U.S. has, etc.
James -
ReplyDeletere: "So what exactly constitutes a "great" economist in your mind Daniel?"
Someone who substantially improves our understanding of the way the economy works. Even if I were to concede all of Rothbards achievements, did he make any contributions besides refining Mises?
re: "In regard to my question for Daniel though, he seems to equivocating mainstream influence with being a great economist."
This is tricky. I'm certainly not equating the two, but they often go hand in hand in scientific discovery.
re: "Last time I checked, most of the mainstream Keynesians (with the exception of Nouriel Roubini and Krugman) and Monetarists missed the crisis while a number of Austrian economists predicted it."
Mainstream economics, particularly Keynesianism, has performed exceptionally well at explaining the crisis. Forecasting the financial events that set off the crisis is a hard thing to do. Austrians have predicted disaster consistently since the beginning. Fiat money is always setting up a bust. A broken clock is right twice a day. When you dig a little deeper there are a lot of problems (and this is coming from someone who does think Austrian ideas about capital structure and a few other things could have a place in mainstream economics).
Daniel Sanchez -
No, I haven't.
How can you know he contributed less sound economics than Friedman, or whether he was a mere re-stater of Mises if you don't know what he contributed?
ReplyDelete@Daniel
ReplyDeleteI specifically said "predict" the crisis, not "explain." Prediction is tough, like you said, but that doesn't excuse the other schools of thought who failed to see what certain monetary policies would do.
Can't say I am a big fan of your definition of a great economist being one who contributes to "our" understanding. I have read a few passages of Human Action and am currently halfway through Man, Economy, and State. I think Rothbard is a great economist cause his writing has helped me better understand the science. The fact that he is basically building off the works of others doesn't really matter, I read Rothbard first.
By applying your definition to myself, than yes, Rothbard is a great economist. From what I have read of Mises, I found Rothbard to have a more lucid writing style which has been a fairly large factor in aiding my comprehension.
"If we never had Friedman the discipline would be very different. If we never had Rothbard nobody would notice."
That statement alone is why I think you equated a "great" economist being one who receives mainstream attention. Perhaps I took it the wrong way.
Daniel Sanchez -
ReplyDeleteWhat have a missed that has revolutionized our undersanding of the economy? Survey material is available. How many people have read Newton's Principia? Do they question Newton's contributions? Of course not. Survey material is available.
I'm not Rothbard scholar. I would never claim to be able to evaluate his contributions in any detail. But I am familiar with economic science, and scientists simply don't make contributions that fail for several decades to make a dent. Could he be ahead of his time? Perhaps, but it's unlikely. It's not that Rothbard has been found to be inscrutible by his scientific peers, after all. He's just been found to have made a contribution of relatively little consequence.
Even if I had read Man, Economy, and State it wouldn't qualify me to make that evaluation. Scientific advances are social judgements - they aren't things that we can deduce sitting in an armchair. I could potentially speak intelligently on Rothbard if I read him, but I couldn't evaluate a claim like that. The community evaluates those sorts of claims.
I've read Keynes reasonably extensively. I can comment fairly intelligently on him I think - certainly quite intelligently considering my relatively amateurish position in the science right now. But again, it's not on my evaluation that I consider him (or Friedman) great economists.
re: "I specifically said "predict" the crisis, not "explain." Prediction is tough, like you said, but that doesn't excuse the other schools of thought who failed to see what certain monetary policies would do."
ReplyDeletePerhaps I was unclear - I'm not convinced the Austrians "predicted" the crisis in any meaningful way.
So the infamous Peter Schiff youtube video (http://www.youtube.com/watch?v=2I0QN-FYkpw), this Ron Paul video (http://www.youtube.com/watch?v=mnuoHx9BINc)doesn't show at least a few Austrian minded people who predicted the crisis?
ReplyDeleteAnd of course here is the Walter Block compiled list of economists who predicted the crisis:
http://www.lewrockwell.com/block/block168.html
I have heard some of the people Block listed didn't really predict the crisis though, but there were still plenty of Austrian minded people calling for the housing bubble to burst.
Perhaps you could explain what more proof you need.
"Mainstream economics, particularly Keynesianism, has performed exceptionally well at explaining the crisis."
ReplyDeleteYou really think that? It is hard to find that claim to be creditable. It seems to me that most of the predictors that are identifiable (there are twelve in the paper I link to below) were people outside of the mainstream (indeed, many of them weren't even working economists); and that ought not be terribly surprising. Orthodoxy in any discipline rarely spots new trends.
http://mpra.ub.uni-muenchen.de/15892/1/MPRA_paper_15892.pdf
In the list you have at least one Austrian, a post-Keynesian, etc.
So the only one that commented on Rockwell's original post chose to stay anonymous.
ReplyDeleteWhat do all you valiant defenders of Rothbard think of what Rockwell said initially?
How the hell did this devolve into a "who called the crisis" comment thread?
ReplyDeleteYes everyone has their lists. Austrians always call for disaster - certainly Schiff and Paul of all Austrians. My employer doesn't even do macroeconomics and our housing policy people were talking about a housing crash as a result of subprime foreclosure in 2006 and 2007. A senior policy fellow with us was warning Greenspan (the New York Times listed him and several others who appear to be left off the lists provided by James and Gary). Lots of people knew there was a credit bubble and a housing bubble. This game isn't even worth playing.
The question is who had a solid explanation of the behavior of inflation, interest rates, output, and prices after the bubble popped. You all aren't distinguishing between the financial crisis and the depression. They're two very different things. 1929 wasn't 1931 and 2007-2008 wasn't 2009-2011. How have people stacked up on that one.
The bubble popping was widely predicted. Some where more sanguine than others but nobody "won" that. It was a bubble. Some denied it, but it was a bubble and lots of people noted that. You don't need a macroeconomic theory to see a bubble. What caught a lot of people by surprise was the contagion. I haven't heard many Austrians successfully discuss ahead of time the nature of the contagion that turned a housing crash into a financial crisis. And after the housing crash that lots of people saw and the broader financial crisis that few saw, the depression itself has by far and away been most completely explained by the Keynesians and various assorted monetary disequilibrium theorists.
Then have you read survey literature concerning his production theory? Because that was his biggest contribution.
ReplyDelete"Social judgments" are nothing but a birds-eye view of innumerable "armchair judgments". When you use terms like "one of the best" it makes it sound like you are speaking as your own man. If you are speaking as a spokesperson for "posterity" then you should say so.
@Daniel
ReplyDeleteThis wasn't meant to devolve into a "who was right" argument. I mentioned that I came to the Austrian school because I thought it provided a reasonable macro-explanation of why the crisis occurred. You claimed that other schools of thought "explained" the crisis better.
You changed the paradigm by separating "predicting the crisis" and "explaining the economic slump." I didn't distinguish one from the other because I was only address the prediction part to begin with.
There have been plenty of Austrian economists who have used the ABCT theory to explain why the housing bubble caused misallocations of resources and why further government intervention is preventing a recovery. You not regarding their explanations as "correct" is kind of beside the point. At this point, no Austrian is probably going to convince you, just as no Keynesian will probably convince me.
I would really like to see the NYT list though.
"How the hell did this devolve into a "who called the crisis" comment thread?"
ReplyDeleteMore like evolve. Casual conversations are generally like that.
Keynesians (and all the other economic schools of thought) lack a credible narrative regarding the financial crisis (well, beyond some very simplistic broad strokes). This shit is going to be argued until the cows come home in other words - until it doesn't really matter anymore (just like people continue to argue over the Great Depression as if it provides some grand insight for our current lives*).
*Not that we can't learn some stuff - who wants to do 90% of the stuff that Hoover and FDR did exactly? - but live in the current context people!
The more I examine the Austrian Business Cycle theory, the less impressed I become. Partly because of lackluster answers to relevant questions, and partly because of a very blinkered attitude toward other schools of thought by some austrians and austrian sympathizers. The deciding factor though is the cult like behavior of internet blog commenters.
ReplyDeleteWhat "relevant questions"? What "lackluster answers"? What do internet blog comments have to do with theory developed my professional economists?
ReplyDeleteargosyjones,
ReplyDeleteAs opposed to the cult like behavior of advocates of Keynesianism of blog commentators?
I've got no dog in this fight, but I'm not impressed with any economic school of thought. Each is equally shot through with imperfection. As that is the case better reason not to give economists a lot of decision-making power or to trust the state with such.
"The deciding factor though is the cult like behavior of internet blog commenters"
ReplyDeleteOh come on. That's like judging Keynesians by commenters on the Guardian website, or by MMTers.
The cognitive dissonance evident in Rothbard's explanation for his own marginalisation is startling. If the best "products" cannot gain currency in the marketplace of ideas, why would we trust markets to produce good results in the rest of the economy?
ReplyDeleteI've read many thoughtful (and thought-provoking) pieces from Austrian commentators and scholars. It's hard to recall a single one of these originate from the proverbial pen of Lew Rockwell... (To be sure, I have read some utter tripe from him.) He truly is the biggest blowhard on that side of the political spectrum.
ReplyDeleteA great comment in the David Friedman thread: "Then there are [Rothbard's] many billious rants against his ever rotating list of freedom allies. Lew Rockwell simply won the game of musical chairs."
stickman,
ReplyDeletePersonality wise Rothbard was definitely a giant douche.
Or a turd sandwich.
ReplyDeleteTake your pick.
Being an insufferable asshole does seem to be big part of the lives of a lot of academics though, so it isn't like Rothbard is alone or anything. Maybe some day I'll read Justin Raimondo's biography of Rothbard. Kind of way down on the list of what I am interested in reading though.
ReplyDeleteAnd like a lot of libertarians I find paleos rather puzzling.
Stickman,
Remember, in 1992 Rothbard went out of his way to praise Pat Buchanan (calling him "our leader" and such). IMO Rothbard was always looking for some leader/movement that would "smash the state" or some such.
Re: Cult like behavior. That was a bit of a joke. it's not really the deciding factor in my mind. But it's not really an attractive feature of the Austrian landscape, I hope you will admit. If you'd like an example of cult like behavior from a professional economist, please see Joe Salerno's presentation of his paper condemning a bunch of the GMU Austrians who didn't have sufficient respect for "The Masters" (Mises and Rothbard).
ReplyDeleteAs for my disappointment with ABCT:
1. The claim that the Austrians got it right is not particularly true. For one thing, a stopped clock is right twice a day.
2. I think it's an inadequate description of the causes of the recent crisis.
3. There's a tendency among Austrians to consider every bubble only according to the ABCT. This is definitely not the only way speculative bubbles can occur. This leaves Austrians somewhat blinded to other possibilities, and thus unable to put events in proper perspective.
4. I'm not persuaded by the argument that Houses are a capital good.
Stickman writes,
ReplyDelete"If the best "products" cannot gain currency in the marketplace of ideas, why would we trust markets to produce good results in the rest of the economy?"
This question doesn't make sense. "Best" according to who? What is best is subjective. If Rothbard thinks himself to be the best, it doesn't matter if he's popular or not.
ArgosyJones,
1. The "stopped clock" analogy is tiring. The prediction is straightforward: an oversupply of fiduciary media will disrupt the intertemporal coordination process, leading to the creation of malinvestment. There is absolutely no way of saying when exactly this will occur, because it depends on factors which are based on the subjectivity of certain agents (such as the Federal Resereve).
But, interesting, that most recessions have been marked by an increase in fiduciary media (mostly continuous) and then a sudden credit contraction.
2. That's great. All we care about is why you think that.
3. Because there hasn't been a persuasive theory developed that can provide an alternative explanation to business cycles.
4. Why not? Most of the times durable goods like houses are considered as such because they have some intertemporal relationship (you have to defer consumption to buy them).
re: "This question doesn't make sense. "Best" according to who? What is best is subjective. If Rothbard thinks himself to be the best, it doesn't matter if he's popular or not."
ReplyDeleteThis doesn't quite make sense Jonathan. If we're talking about the marketplace of ideas and a science specifically, it's not something that's subjective. Objective "truth" may be tough to pin down exactly - I'd be the first to admit that. But that's very different from saying it's "subjective".
re: "The "stopped clock" analogy is tiring."
This is probably true, but it is less tiring than being repeatedly told that Austrians called the crash with links to Lew Rockwell and Peter Schiff. I'm happy to listen to ABCT, and I've raised lots of substantive questions about how well it really describes things - and I've agreed it's useful in a lot of ways too. But I don't think Argosy Jones is any more guilty of failing to go into depth on this than James initially.
re: "But I don't think Argosy Jones is any more guilty of failing to go into depth on this than James initially."
ReplyDeleteHow much further into depth would you like me to go? My initial response to this post was that I consider Rothbard to be a great economist because I read him first before I read the others whom he derived his ideas from.
I provided the links because you said you don't think the ABCT provides a good description of the crisis. I thought the links would speak for themselves.
What Argosy Jones and I may lack in going into depth, you have too as well by stating that Keynesianism provides a better explanation of the crisis without going into detail.
Perhaps I should have explained, like Jonathan did, how the ABCT explains the crisis, but I didn't. My bad.
As I see it, you claim that Austrians haven't done a substantial job explaining the crisis and that Keynesians have. You then don't go into any detail on why.
As an aside question: what should have been the proper Keynesian response to the crisis? More stimulus? More liquidity-inducing measurements?
If Keynesians do such a great job explaining the crisis, certainly this question is answerable.
Sorry, Jonathan, I don't have the energy for one of these (endless arguments over ABCT) today, or probably ever again. I should make it clear that I don't regard you as one of the cultists.
ReplyDeleteBut will argue one point. You, and lots of Austrians are using an unconventional definition of "Capital Goods". Which are usually considered to be things like factories, drill presses, and other things that are used to produce other capital goods or final consumer goods. Using the same term to refer to consumer durables like houses and dishwashers really clouds the whole discussion, and I don't understand why Austrians have done this.
I appreciate that you're effectively proffering a potentially coherent definition here when you say "they have some intertemporal relationship (you have to defer consumption to buy them)". But I don't understand what distinction is being drawn here. let's say that instead of spending my lunch money at McDonald's each day, I save up all month and splurge at the best place in town on steak, lobster and champagne. Would you say that steak, lobster and champagne (at the best place in town) are capital goods? After all, I deferred consumption. Or are you saying that these goods are more capital intensive than my daily burgers and fries? Or that their production is more "roundabout"?
I feel like I'm going to come off as really assholish and sarcastic with this example, but I really don't get that definition.
re: "How much further into depth would you like me to go?"
ReplyDeleteThat's a question for Jonathan - he's the one that raised the concern over depth of analysis, not me.
re: "you have too as well by stating that Keynesianism provides a better explanation of the crisis without going into detail."
Right - I had no interest at all in doing that here. You're welcome to browse other posts where we certainly do get into these things.
re: "Perhaps I should have explained, like Jonathan did, how the ABCT explains the crisis, but I didn't. My bad."
I've got no problem with that - it's not really the heart of my post. It just seemed to be something Jonathan was getting concerned about.
We needed much stronger monetary policy for one thing - no IOR and QE sooner. We also needed perhaps twice as big of a stimulus (I'm relying on other people's estimates), and it would have been nice not to have balanced budget amendments at the state level. We certainly should not have spent the last year signaling to markets that we're going to go into a period of fiscal tightening.
If the Eurozone hadn't been so tightfisted that would be nice too.
Thank you for the explanation Daniel. I am not persuaded by it, I don't think the market would continue to offer low interest rates for more spending less more Fed intervention, but to each his own.
ReplyDeleteI am a bit confused on the Eurozone tightfisting. Would you advocate, like Krugman does, that Greece and the rest of PIIGS drop the Euro?
Using the same term to refer to consumer durables like houses and dishwashers really clouds the whole discussion, and I don't understand why Austrians have done this.
ReplyDeleteI think you are right that "consumer durables" is a better term, I used that term on a discussion here recently. The important thing though is that consumer durables are similar to capital goods.
For example, I own an apartment that I rent out. I originally bought it to live in it, as a consumer durable. Now it's part of a rental business, a capital good.
This isn't really very unconventional. GDP calculations include an "imputed rent" portion for property. That means that those people who own houses are considered to be renting from themselves. The value of this rent is imputed and added to GDP. If it were not then those countries with high home-ownership rates would have much lower GDPs.
let's say that instead of spending my lunch money at McDonald's each day, I save up all month and splurge at the best place in town on steak, lobster and champagne. Would you say that steak, lobster and champagne (at the best place in town) are capital goods? After all, I deferred consumption. Or are you saying that these goods are more capital intensive than my daily burgers and fries? Or that their production is more "roundabout"?
What you give is an example of saving for consumption later. I don't think that's what Jonathan meant.
Looking back on the boom we believe that monetary expansion by the Fed caused the money rate of interest to fall. It also eventually set in motion unexpected price inflation in both GDP output and other goods (such as houses). The low rates of interest encouraged the purchase of houses and mortgages, which became uneconomic later.
Current:
ReplyDelete"For example, I own an apartment that I rent out. I originally bought it to live in it, as a consumer durable. Now it's part of a rental business, a capital good."
You're using the conventional definition here, and making distinctions that I think make sense. Many Austrians use a different definition when they say that housing was a capital good: they are not speaking of it in the context of a rental business.
"I don't think that's what Jonathan meant."
I formulated the example to be absurd, yet consistent with what Jonathan said.
GDP is beside the point. This is just the calculation of one index used to approximate economic activity, not the generally adhered to definition.
Fair enough.
ReplyDelete"So the only one that commented on Rockwell's original post chose to stay anonymous."
ReplyDeleteWould you rather have me post my dox so that Lew Rockwell and his band of merry anarchists can egg my house and email me death threats?
"If we never had Rothbard nobody would notice."
ReplyDeletePlease do not embarrass yourself Mr. Kuehn.
And this thing people are doing: the game where individuals fight over who economist is best,like we are watching Raw is War (american wrestling) is ridiculous. What Lew meant (I guess is this): that nowadays people more often use Rothbards' theory to advance the case for free-markets than they use Milton's theory (by X's theory I do not mean that it is entirely and only "his"). These days there have been a lot of articles where Rothbard is discussed as a model used by today's free market defenders.
Mr. Catalan, Rothbard was an original thinker in economics. Obviously you still have to read him more.
And finally "argosyjones" - austrians do not claim that "capital is factories". A) capital is what one uses to produce what he consumes directly. capital is not an objective property of a material thing from the nature, things from the nature are not separated in two categories by Austrians, depending on have and have-nots of certain characteristics. capital good can be ANY thing from the nature, and this thing "becomes" capital for the individual when he subjectively identifies it for some production purpose.
B) malinvestments of capital produce a consumer good, which in the case of the housing bubble is the housing itself.
Mr. Catalan, in order not to appear myself as wordless regarding the originality of Rothbard, I will point you to the fact that he spent 8 or more years in studying and developing praxeology when he was writing MES. this is ONE of the many things he improved and build on Mises' legacy.
ReplyDeleteDaniel writes,
ReplyDelete"This doesn't quite make sense Jonathan. If we're talking about the marketplace of ideas and a science specifically, it's not something that's subjective. Objective "truth" may be tough to pin down exactly - I'd be the first to admit that. But that's very different from saying it's "subjective"."
Err, but a scientist isn't always popular because what he says is objective truth, so I'm not sure how your comment is even relevant.
"This is probably true, but it is less tiring than being repeatedly told that Austrians called the crash with links to Lew Rockwell and Peter Schiff."
I don't get the similarity. Did Schiff call the crash or not? I personally don't know. I personally don't care. I don't consider Schiff (or Rockwell, although it's hard to be familiar with what he knows since I haven't read anything really scientific of his) an Austrian economist. He's just some businessman with some background in Austrian theory.
argosyjones,
ReplyDeleteI don't know if your lobster example is relevant. You'd have to set it up in greater depth. What makes the housing market relevant is its relation to the various rate of interests which govern investment and that investment. The housing bust represents intertemporal discoordination. The people buying the houses didn't have the resources to afford them, even though under previous price signals they thought they were affordable.
re: "Err, but a scientist isn't always popular because what he says is objective truth."
ReplyDeleteRight. No one ever said a scientist is always popular because what he says is objective truth.
No, no one ever said that (global warming anybody? or, "the earth is flat"?). What's your point?
ReplyDeleteOr, are you saying that Friedman and Keynes are both popular because they're right, even though their popularity is sometimes based on the fact that they disagree with each other? (e.g. Friedman's critique of Keynes).
Something. not. computing.
re: re: ""In regard to my question for Daniel though, he seems to equivocating mainstream influence with being a great economist."
ReplyDeleteThis is tricky. I'm certainly not equating the two, but they often go hand in hand in scientific discovery."
Good you used the qualifier "often", I was going to remind you about vis viva (mv^2), ether theory, consensus in the late 19th century against atomic theory, possibly string theory and many other "scientific" dead ends.
So it's not always the case that consensus = scientific fact.
Oh yeah, climate change is also another possible candidate for failed a failed hypothesis with much consensus.
As a "hard" scientist, I can see why we call economics the dismal science.
btw, my own unbiased opinion..Schiff called the crash. I don't believe I need to know economic theory (as it currently stands a la the mainstream) to know that in his "Peter Schiff was right video", while he was being laughed at by all other pundits and even some "economists" (Laffer), he clearly had a better idea of what was coming around the political/economic corner than most.
ReplyDeleteEconomics still lacks a solid methodological foundation necessary for being considered a serious science, and it's players seem all to willing to bypass this very important question for the sake of _______(<-- fill in the blank).
I can't wait for the day when Economics really does mature, though I realize I might not live long enough to see it pass.
Economics still lacks a solid methodological foundation necessary for being considered a serious science, and it's players seem all to willing to bypass this very important question for the sake of _______(<-- fill in the blank).
ReplyDeleteThat's funny; Daniel always runs away when I want to talk about epistemological problems.
complexphenom -
ReplyDeleteYou don't seem to have a good grasp of the science, and since you seem to think it's not necessary to have a grasp of it to evaluate it it's probably not worth me going any further on this point.
As for scientific dead ends - I think we need to be careful about claims like this. Much of what we currently think is a "scientific fact" is going to eventually end up not being as well established as we thought. This isn't to say that these "facts" are meaningless, we just need to understand what they really are - imperfect approximations of what "really" goes on on in the world that we'll eventually replace with better explanations. In that sense, past "dead ends" generally don't deserve the ridicule you're heaping on them. Certainly they are inferior to what we know now, but they are only "wrong" in the same sense that much of what we think today is likely to be "wrong".
What kind of scientist are you? I find that physicists, chemists, etc. can get very confused when they think they can critique a science like economics because they expect human society to act the way their systems act and when it doesn't they just dismiss the whole scientific enterprise. Economists are really just specialized biologists: we study the social behavior of a specific species of highly evolved primate. For that reason, biology is the best analogy to use. We have a few broad driving processes. Just like natural selection provides the superstructure for understanding a lot of very case-specific processes in biology, things like the law of supply and demand, marginalism, the equation of exchange, etc. structure a lot of the more detailed, complicated, circumstance-specific processes and mechanisms that operate in human economies.
It all functions very different from, say, chemistry or physics which have elements of complexity but are not complex systems in quite the same way that human society is.
Mattheus -
ReplyDelete1. You're confusing "methodology" and "epistemology". They're quite different.
2. I don't really run away. I get bored. People rarely have anything good to say about epistemology (this is not true of methodology). People who are declarative on epistemology are usually wrong.
Daniel -
ReplyDeleteI think the fist paragraph in your response is rather unfair. I may not be a certified expert in your field but I wouldn't say my understanding of it is sufficiently lacking to consider further dialogue pointless. Besides, my point in mentioning my own limits was to make clear that a deep understanding isn't necessary for evaluating the results of the predictions made by the science, not to say that such a lack of understanding is sufficient for understanding it. Indeed that latter suggestion would have been ridiculous had I made it.
My background is in physics but I've long been aware of the differences between our two fields. Of course economics is closer to biology and for good reason. In my own experience too many economists seem to regard their work as being closer to physics and that would be a mistake for all of the good reasons you give above. Physics really is more concerned with simple systems, and if they get too complex there appears a sort of superdifferentiation that is difficult if not impossible to explain using the usual mathematical tools. Somehow most economists don't bother much in making this very important distinction between the two fields. They simply assume that they can apply non-linear multi-variable diff-e-q's onto society, but there simply would be too many assumptions of state, and the equations themselves would practically be unsolvable (even given today's modern computing capacities). So in that I believe we share similar views.
Of course not all "dead ends" failed to contribute something to our eventually finding a "righter path". But some contributed rather little, and still some others did much to actually retard progress. Ptolemy's model did the job for a good bit, and I'll concede that while we applied it it did little in itself to prevent us from achieving a deeper understanding eventually. But ether theory was just useless. It was basically a crutch and many physicists have been ashamed of it for a very long time. There are numerous examples of ideas that, not only failed to lead to better ideas, but actually retarded progress in a particular field. This kind of mental blind alley can take place in any field, especially those whose practitioners would fool themselves into believing that their fields are somehow immune from this possibility.
Lastly, methodology and epistemology may not be the same thing, but they are very closely linked. I would say that methodology is somewhat of a subset of epistemology.
complexphenom - if you don't think it's a serious science with a solid methodological foundation and if on top of that you accuse practitioners of not being interested in a solid methodological foundation, I don't think it's unfair at all to question your grasp of it. It's not a bad thing. I only have rudimentary grasp of physics. That's just a division of labor. My point is your post reads like Deepak Chopra reads to most physicists.
ReplyDeleteWhen you write things like this: "They simply assume that they can apply non-linear multi-variable diff-e-q's onto society, but there simply would be too many assumptions of state, and the equations themselves would practically be unsolvable (even given today's modern computing capacities). So in that I believe we share similar views" I'm not sure you understand how economists use math. Physicists develop their respective differential equations from physical laws. This is not how economists use math - it's simply modeling different processes to get a better sense of their behavior and their relevance to certain economic phenomena. There's nothing illegitimate about modeling, but it is quite different from what physicists do. You seem to understand physics and economics are quite different, but then you judge economists as if they were doing physics. It's not the right standard to apply.
What I was refering to was if you don't think you need to know economics to understand why so many people have a problem with Peter Schiff and the Austrians in general then I'm not sure what else to tell you. One has to know some physics to point out how Deepak Chopra is wrong, despite his charisma to some. One has to know some economics to point out how Peter Schiff is wrong, despite his charisma to some. What would you say if someone told you how brilliant Deepak Chopra was and they didn't need to know any mainstream physics to evaluate that!
ReplyDeleteI assure you, Mr. Schiff's "charisma" contributed null to my appreciation of his predicting abilities. To be more clear, I don't believe I need to be so well informed regarding economics to appreciate the predictive results that correspond very well with reality. I believe this observation holds for any field. Though I do want to make clear that if I were to look into how Mr. Schiff managed to make a correct prediction I would find that, he wasn't merely looking at tea leaves or his horoscope, in fact he applied the methodology of the Austrian theory to his tacit understanding of geopolitical events. It seems odd that those who don't share the views of this theory appear so intent on not even recognizing, or even minimizing, what is to an "outsider" clearly a workable, though qualitative, framework for arriving at useful predictions.
ReplyDeleteI get that economists don't rely on laws when applying math for modeling, but this I find to be a serious deficiency in your science. I'm not even going to speculate on whether economic laws are "out there" to be found someday, that's not my point. My point is that, since there are no differential or integral relations yet that can be applied to a finite (and preferably minimal) set of state variables, it is rather remarkable that anyone would consider taking seriously the applicability of models which must then necessarily depend on the almost arbitrary array of subjective assumptions. Not all assumptions will be merely subjective of course, and I'm sure an honest attempt will be made in finding an appropriate set of "objective" assumptions, but without a solid foundation (a la known laws), and relying on the judgement (and sometimes whims) of a particular social scientist, especially when dealing with phenomena having a socio-economic importance (unlike almost all purely physical phenomena affecting no real public policy decisions), I can see how and why most economic models usually fail to correspond to processes in the real world as well as models applied to the simpler sciences.
And so if economic models fail in this task (as empirically I'm sure we'd discover), why should the field continue with providing less-useful contributions. And by useful of course I mean, results corresponding to what is observable to a high degree of accuracy.
Have you ever asked a pure mathematician what he thinks of the way in which math is applied to economics?
Daniel-
ReplyDelete1. You're confusing "methodology" and "epistemology". They're quite different.
Nonsense. Methodology is the application of epistemological rules. It is a method of knowledge inquiry. But in order to have successful inquiry, you have to match the object you study with its place in reality.
I wouldn't study the psychological workings of zebras and lemurs according to axiomatic first principles. Deductive logic is an inappropriate methodology in that subject PRECISELY BECAUSE there is nothing necessary or universal in animal psychology. The use of deduction is only feasible when inquiring into disciplines that exhibit universal logical or causal relations. Methodology is inherently tied into epistemological concerns and epistemological advancements.
2. I don't really run away. I get bored. People rarely have anything good to say about epistemology (this is not true of methodology).
Your methodological squabbles are meaningless if you've already conceded to using a mistaken epistemological umbrella.
People who are declarative on epistemology are usually wrong.
Oh really? And which epistemologist did you have in mind?