On the Austrian School

13 07 2011

Three very different essays from very different sources:

Israel Kirzner’s explanation of the Austrian approach to crisis.

A Marxist critique of the Austrian School.

And finally, an article from Slate on libertarianism in general. The money quotes:

To my critique of the Chamberlain example, a libertarian might respond: Given frictionless markets, rational self-maximizers, and perfect information, the market price for Wilt’s services could not stay separable from the market price to see Wilt play. (Visionary entrepreneurs would create start-up leagues, competing leagues would bid up prices for the best players.) In a free-market paradise, capital will flow to talent, until rewards commensurate perfectly with utility. Maybe; and maybe in a socialist paradise, no one will catch the common cold. The essence of any utopianism is: Conjure an ideal that makes an impossible demand on reality, then announce that, until the demand is met in full, your ideal can’t be fairly evaluated. Attribute any incidental successes to the halfway meeting of the demand, any failure to the halfway still to go…

Buccaneering entrepreneurs, boom-and-bust markets, risk capital—these conveniently disappeared from Nozick’s argument because they’d all but disappeared from capitalism. In a world in which J.P. Morgan and Cornelius Vanderbilt have been rendered obsolete, reduced to historical curios, to a funny old-style man, imprisoned in gilt frames, the professionals—the scientists, engineers, professors, lawyers and doctors—correspondingly rise in both power and esteem. And in a world in which the professions are gatekept by universities, which in turn select students based on their measured intelligence, the idea that talent is mental talent, and mental talent is, not only capital, but the only capital, becomes easier and easier for a humanities professor to put across. Hence the terminal irony of Anarchy: Its author’s audible smugness in favor of libertarianism was underwritten by a most un-libertarian arrangement—i.e., the postwar social compact of high marginal taxation and massive transfers of private wealth in the name of the very “public good” Nozick decried as nonexistent.

And the screw takes one last turn: By allowing for the enormous rise in (relative) income and prestige of the upper white collar professions, Keynesianism created the very blind spot by which professionals turned against Keynesianism. Charging high fees as defended by their cartels, cartels defended in turn by universities, universities in turn made powerful by the military state, many upper-white-collar professionals convinced themselves their pre-eminence was not an accident of history or the product of negotiated protections from the marketplace but the result of their own unique mental talents fetching high prices in a free market for labor. Just this cocktail of vanity and delusion helped Nozick edge out Rawls in the marketplace of ideas, making Anarchy a surprise best-seller, it helped make Ronald Reagan president five years later. So it was the public good that killed off the public good.

Credit for the first link is given to the Ius Honorarium blog.


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26 responses

27 08 2012
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18 07 2011
Stinsky

Plato’s ideal republic begins with censorship.

18 07 2011
owen white

I guess with the Kirzner piece I kept noticing throughout his attack the usual suspect Austrian terms based on Austrian assumptions that I find rote assertion the referencing back to the usual Austrian perfect rhetorical circle.

With “justice” and “fairness” I think that is fine so long as we agree that the arguments for the “unfairness” of state funded entitlement programs are as dumb as the arguments for them.

I sympathize with your views regarding the complexities involved in wealth redistribution.

I can think of programs here in Memphis that perpetuate systemic poverty, but also bring about other “social goods” – such as a reduction in crime or certain types of crime. Here in Memphis a couple of studies were done a few years back which showed a strong correlation between the cyclical changes in the population of males age 12-17 enrolled in the Memphis City Schools. When that population increases, certain types of crime increase proportionately. When that population is (mostly) in school, those sorts of crime are down proportionately, and when school is out, those types of crime increase at the predictable proportions. Or so the study said.

Around the same years of these studies there was a massive federal program to keep Memphis urban youth in school longer (trying to prevent them from dropping out) and all sorts of money was pumped out toward this end – including financial incentives for students and their families if they stayed in school. When the progress was studied all the education specialists more or less praised the results but then some big wig criminologist studied the results and pointed out some interesting details. The fed funded effort did keep more kids in school. It was more effective on girls than on boys but it did increase boy “in school” numbers as well. But what was also seen was an increase in crime statistics for males in school. And the types of crime perpetrated altered slightly – the young males in school were more likely than before to commit crimes against each other and less likely to commit crimes against the community at large. With an increased school retention rate for young males, more crimes, and a higher percentage of crimes occurred at city schools and in close proximity to city schools than before . It seems that when you keep thugs in school, the males who would have otherwise stayed in school anyway are more likely to be converted to criminal activity. But by keeping thugs in school you concentrate the criminal activity such that thugs start spending more of their criminal efforts on each other and less on the community.

Obviously, the increased number of boys getting involved in crime increases the number who are almost certainly not going to rise above systemic poverty and various sorts of concentrated state dependency. But, when this program was going on – the people of the broader community were safer because the thugs were busier committing crime against other young thugs.

So, as someone who lives a relatively “safe” 7-8 blocks from a city high school (one with a history of violent gang activity), what is best for me? Selfishly, I’d rather have the local thugs at high school selling dope and raping girls and knifing each other there than on my street. That is, so long as my kids don’t end up ever having to go to that school.

It is scenarios like these that make me cringe when I hear about how horrible gov’t is at dealing with social ills. With many social ills in Memphis, the gov’t is damned if it does and damned if it doesn’t. There are Christian Ron Paul loving conservatives who would completely shut down the Memphis City Schools (with its over 1 billion a year budget) if ever given the chance, but if that ever happens, I am packing up my wife, books, and kids and getting the hell back up to my mother-in-law’s old farmhouse in rural WI, because this place will be an utter warzone in that event.

18 07 2011
Venuleius

Owen,

I only recommended the Kirzner piece because it pointed out some of the shortcomings of neoclassical economics, not because it was the greatest defense of the Austrian School available. It appeared in a (fairly) popular journal and it’s not the sort of thing I would point to if people wanted to spend their time reading theory (which I suspect few people do). I thought it was a helpful piece for showing where neoclassicism falls short; that’s it.

As for “justice,” let’s be serious: Most policy passed in the U.S. today is predicated on very vaguely defined social ends. I’m not denying that there is a robust defense out there somewhere, but most of the policy prescriptions offered up by this-or-that camp aren’t accompanied with much in the way of a rigorous defense, a theory, or even a moral postulate beyond, say, what certain people happen to “feel” is the right/wrong answer to something. Again, I think you are over-reading my skepticism here. Just because I take a rather low view of most popular invocations of terms like “justice” and “fairness” doesn’t mean I believe those concepts are devoid of content. But taking a step further, I don’t believe the social welfare system — which I think can and ought to be defended on more substantive grounds than it currently is — is in any sense optimal, humanizing, or productive in a lot of instances. Whether this is due to the fact that the normative arguments which underpin it are weak, non-descript, without base, etc. is another matter. I sometimes think there is a link, though I’m not entirely sure. But I could go even further afield and say that concepts like “human rights,” as they are common asserted, are empty, vague, and deeply problematic even though there are certain so-called “human rights” which I think are entirely defensible on other grounds (say, prohibitions against genocide).

As for arguments against wealth redistribution, they come in many shapes and sizes. The three most powerful ones (in my mind) can be summarized as follows: 1) Institutional limitations; 2) Creation of a culture of dependency; and 3) Shrinking the social pie. For a lot of reasons I won’t get into here, I reject all three as sufficient grounds for not having such a system, though I think there are important lessons which can be distilled from these criticisms. To mention just one, since a welfare system can create distortions, including perverse incentives, it’s probably wise to have other mechanisms in place to make sure these distortions/incentives are minimized (e.g., usury laws). That’s just commonsense policymaking. But ultimately the social welfare system is going to have to be justified (and indeed is typically justified) on grounds which are not “purely economic” or, I should say, “purely materialist.”

18 07 2011
Arturo Vasquez

Some general points:

On the labor theory of value, it seems like people on both sides of the argument seem to talk past each other. Maybe that has a lot to do with theoretical presuppositions, but I wouldn’t call them “moral biases”. I think the operative term in Marxist economics is “socially necessary labor time”. That “socially necessary” part seems to be omitted when opponents of the theory discuss it. Of course, if you spend 50 hours making mud pies or DVD rewinders, it avails the producer and society nothing. But use values have little to do with the question of general commodity production, or the question of profit, really. If that were the case, I would ask all of those manfacturers to bring back all of those jobs they shipped to China, Vietnam, Honduras, etc. If labor was so not in the picture when it comes to value, then why not have a union in every workplace, a living wage, great benefits, and so on? Perhaps the only theoretical suspicion I have here is treating labor as just another input in the cost of production; that sort of theoretical sleight of hand seems to hide more than it reveals.

If I am interested in the “Austrian school” at all, it is more of the same reasons why I am interested in Catholic theology or history at this point. It is not that I take any of their presuppositions seriously, nor am I particularly convinced by any of their arguments. I’ve listened to hours of lectures now by Rothbard, Kirzner, Hayek, and lots of other dudes from lots of Austrian perspectives. For example, Rothbard’s history of banking and its relationship to society, while fascinating on some levels, is still shot full of holes from my perspective. While wanting to get to the “real interests” behind the events of history, he still is very much viewing events through the “myth of the great men”, the spontaneous emergence of genius, free choice by market actors, etc. In other words, you can try to wow people with facts, but with the wrong theoretical apparatus, all you are doing is spreading a thin layer of bullshit around to make it seem like something else. The masses have vanished from history, as has the very messy, very violent march of actual capitalist progress, which is bloody, imperialistic, and far from a “free market”. Real existing capitalism is absent, and a fairy tale version of entrepreneurial genius is enshrined in its place. It’s a nice tale, particularly when mainstream economics and the left have failed so badly on so many levels. But all they end up being is useful stooges, creating once again a world that echoes the Platonic world of ideas and Peripatetic categorical rigor, where one can be a good liberal and subject to the monarchist imperial order at the same time (the obsession with the “von” on the part of Hayek and Mises), where capitalism creates order, instead of creating a system where “everything solid melts into air”. This is very interesting to me as a social phenomenon, and only as a social phenomenon. Why does the bourgeoisie pull these people out of the woodwork every so often? Why did Hayek win the Nobel Prize in Economics in 1974, when the wave of capitalist expansion after the Second World War began to sputter? These are interesting questions to me. I could give a shit about praxeology, law and economics, etc.

And I do realize that one of the quotes above is damning to Marxists, and for that reason, I don’t agree with it. One must always demand the ideal, and it will always exceed the reality. That is the nature of human striving. When the revolution comes, perhaps it is people like me who will be lined up against the wall first. (Alas, this doesn’t keep me up at night.) That is the gamble of history, though I would never pursue such suicidal inclinations directly. The problem is that this sucker can, and probably will, go down. It is not an issue of whether I want this or not. If I am a utopian, I am a utopian with a gun to my head. It is not a question of capitalism being good and socialism being better; it is a question of capitalism producing its own gravediggers, and whether it will take humanity with it. For all of the talk about the inefficiency of planning and past socialisms, structural unemployment, exploitation, de-industrialization, ghettoization, environmental crisis, etc. do not give us the luxury of leaving all these things up to blind forces as a great idol to which we must bow. You wouldn’t trust your health to natural forces, so why trust your future, and the future of your children to them?

17 07 2011
owen white

Another thing – it’s all good to infer that entitlement programs or wealth redistribution is based on “some (vaguely defined) conceptions of justice” but this sort of statement itself has a rather overt ideological tinge to it. It may be that redistribution is often or even always based on vaguely defined conceptions of justice, but this begs the question of where we can find arguments against wealth redistribution based on a clear conception of justice. Setting aside utilitarian arguments against specific entitlement programs which attack those programs on the basis that this specific wealth distribution does more harm than good (here there is no problem in principle with wealth distribution, only the demand that the distribution would takes place should be proven to effect “positive” social changes, etc.), there aren’t any anti-wealth redistribution arguments which have a coherent and clear conception of justice.. Every single (non-micro-utilitarian) argument against wealth redistribution either rests on some form of anachronistic Lockean or Jeffersonian construction of property and wealth that is fanciful to the point of being nauseating (as if money I earned or secured on the stock market or earned or secured via contemporary late modern technocratic and bureaucratic institutions is an equivalent form of property to bushels of corn grown by my hand on land my family has owned for generations) or something even more perverse.

17 07 2011
owen white

Ven,

In all of the Austrian lit that you and Vis recommend reading, I have yet to find the raw economic theory which is ideologically free. It seems to me to all be jammed full of ideology. You go after Vis for his rote assertions time and again, but I see rote assertion after rote assertion throughout Austrian thought, including in the Kirzner piece linked to here. I see nothing which presents itself as scientifically objective, and I see nothing which could be used seriously as a universal analytical tool. There are all sorts of predispositions that refer back to the quite insular and circular Austrian paradigm. I suspect this is one reason why the economic academy has not embraced Austrian thought, and its popularity remains with intellectuals who are not economists and who have a desire to discredit “liberal” policies such as those having to do with entitlement programs, etc.

17 07 2011
Venuleius

Owen,

I don’t agree. I think sloppy thinking and preconceived ideological agendas intercept theory and run with it. I’ve never read a “psychology” of libertarianism (or Marxism, really), but I suspect that people who come to the camp are armed with predispositions which can be informed by theory and subsequently redirected. Whether those predispositions are culturally conditioned is a point I won’t dispute. Most people living today are materialists who take a (generally non-specific) consequentialist-welfarist view of social, legal, and economic policy. To the extent heterodox economics provides a roadmap of means to ends to increase welfare (“the pie”), people have a tendency to believe that those policies are, as a first principle, “good” and those which don’t aren’t. Now, few people that I’ve ever met are pure welfarists; they’re willing to concede that certain people need safety nets or some form of redistribution is necessary to solve some (vaguely defined) conceptions of justice or to pay for public goods. But after these side issues are taken care of, welfarism becomes the overarching end. You can argue that capitalism creates that worldview, and maybe it does. (I would probably claim that capitalism feeds into it, though it may not be a sufficient cause.)

Also, as for the economic theories you disagree with, the way they’re usually discussed online doesn’t lend itself to the nuances, caveats, and aporias which often accompany them. I don’t believe I have ever defended a single economic theory as “perfect” and, as I noted, they remain susceptible to falsification (or, a point I have also stressed, they can be simplified down to a level where they’re not able to account for the margins). One of the banes of economic theory is that it can quickly become a tautology, but I guess that line hasn’t come up yet in all of this.

I have no stake in your ongoing quarrel against these libertarian/Austrian sorts because they’re no folks I’ve ever locked arms with. As I’ve stated ad nauseam, I think Austrian economics provides a good corrective to the hyper-mathematized models of contemporary neoclassical economics. I think the Austrian School does a good job showing the pitfalls of neoclassical reductionism and creates a much more modest account of what can be predicted within reason (and even then predictions are never perfect and can’t be perfect — people are too variable and diverse). I avoid Austrian macro-theory like the plague and I have never followed any Austrian or libertarian in their larger policy prescriptions. Not only do I find them amoral (when they aren’t immoral), but dangerous as well.

17 07 2011
owen white

One more thing –

I’d like to clarify the example of my shop as an instance of the complexity of human behavior.

Perhaps 18 months ago, after the shop’s workforce had been reduced by almost 3/4, without any “talk” or conspiracy, guys started producing less. It was not a dramatic decrease, but a gradual one. The peak of the company’s net profits was January of this year. The gradual decrease kept on and it is now to the point that the company is not making the level of monthly profit they were before, and this is supposed to be our “strong” time of year. Management is in a flurry because there is no clear target to go after. They could fire a few people to “make examples” but so many people have been let go, only to have half of them brought back part-time with no benefits (ending their unemployment checks) that those guys still full time and those back now in part time positions think that this may happen regardless and so the “threat” has little to do with their decision to work less. Only about 1/3 of the shop positions are no skill, the rest are in trades. Management decided to bring in some completely new people (instead of the usual rehiring old people who already knew what they were doing) on two occasions and so we (and we did talk about this) decided just to not train them well so that their work was shit. So management is in a quandary. Without any of the workers making any direct demands to management (because this is TN a hyper “right to work” state and the “Christian businessman” who owns in the company has shown in the past that any worker who makes any demands will be let go), they have put management in a position where they will make notably lower profits until wages/benefits are restored and some working conditions improved to former levels. Until then workers will not let management make out as well as they were in this current situation. The workers know that on some level this puts them at risk – but they also know that working hard puts them at risk, because it teaches management that they can get by making more net profits with lower overhead on fewer employees if those employees are among the better ones and working to their full potential. The anger between management and labor is palpable, and only one manager and one VP will come into our shop anymore – the rest are afraid to even walk in there, and justifiably so. I think that in some cultures notable increases in wage disparity during “hard times” result in these sorts of antagonisms and changes in behavior. I think even in America there are cultural differences – the bullshit that libertarians and neo-liberals can get by with in TN is greater than what they can get by with in Minnesota, where workers are better educated and have more fight in them. How does Austrian theory take this into account? If wage regulation changes piss a lot of workers off, and this changes worker behavior broadly speaking, then profit levels will be effected.

17 07 2011
owen white

Ven, there is no such thing as a theory of value which does not have a moral component, or at least a cultural component that operates as a perceived or shared morality or conflict between subcultures with conflicting moral rhetorics. The libertarian insistence to the contrary is simply false. Note that the vast, vast, vast majority of libertarians and those who embrace Austrianism end up espousing political economic policy positions that correspond to postures that cannot reasonably be said to have no moral component – this isn’t just an overstep – it is natural that they should base a morality on what they perceive to be “reality.”

Further, this idea that there are hard and fast economic laws which can be analyzed without reference to moral dynamics is part of the childishness of libertarian and austrian theory – the “if you do x policy decision with regard to wage regulations, y result will happen” sort of thing cannot be applied universally to all cultures, times, and places (even those within capitalist modern settings) because different cultures have different moral bearings with regard to economic ordos. Try and force a radical change in wage policy in some settings today and the results will not go as the Austrians suggest in their theory, because of a cultural pushback – a cultural pushback based on cultural moral bearings. The idea that you can have economic patterns in an amoral setting which can thus be analyzed amoral is based on a simplistic and trinketly materialist anthropology. Humans and cultures just don’t work like that – though I grant that capitalism is constantly pressing human cultures toward homogeneity – especially with regard to an embrace of economic “amoralism” which, of course, is not really amoral but of a perverse morality. When capitalism fully succeeds you will simply have a world of willing slaves and masters – in such a world “amoral” economic methods of analysis may prove more consistently correct, but that will only be because the slaves’ wills have been broken. In the meanwhile, anyway with a conscience or the will to fight will provide anomalies to the libertarian and austrian analytic paradigms.

I think an analogy can be found in medicine. You can study certain procedures, such as abortion, in terms of “clinical” only models, but almost all the research of late suggests this is a dead end. Medical procedures are done in order to seek certain outcomes. We now know that there is a moral component to those outcome goals which include increased recovery rates and lower rates of infection and improved well being post procedure. If you have a client who believes it is wrong to have an abortion, or wrong to have a hysterectomy, or wrong to have x, y, or z, and you do that procedure on them, they will have, on average, increased rates of bad outcomes or delayed good outcomes, and this has to be taken into consideration before any procedure. Further, when comparing two or more procedures, say in an emergency situation, there is no such thing anymore in medical theory of just analyzing the physiological/surgical component of the procedure – the psychological and moral questions are now very much a part of the clinical decision making process, and taught to doctors and nurses throughout medical and nursing education today. Doctors are taught today that every medical decision involves a moral decision on some level, and that there is no moral vacuum in which you can sometimes practice medicine with no moral component, or, indeed, where moral components do not have the potential (at times high potential) of very much influencing clinical outcomes. You may save the life of a Jehovah’s Witness by forcing a drug transfusion on them, but that will usually effect the overall clinical outcome – right down to the rate their incision heals – a person who believes they have sinned by having a procedure done is not going to heal as quickly, most of the time.

This idea that you can objectively analyze economic behaviors on a macro level and on many mirco levels without taking into consideration things like morality and morale is absurd – it is decidedly not an objective or scientific approach to economics. Even a materialist (one with any sophistication) can accept as much – if a large number of people believe that they and their loved ones are being wronged, then their behaviors will potentially be different than what will be seen if they believe they are being treated justly. In my shop there has been a deliberate slow down on the part of workers for perhaps 18 months now. The bosses know that the workers can’t go elsewhere to get jobs, and have cut pay and benefits, and so the workers have responded in the way that they can to “get back” – it’s on levels like these that an Austrian approach to wage regulation is not going to provide as useful a tool and it presents itself to be. According to a simplistic form of materialist analysis, the workers in my shop will work just as hard as they did before, if not harder, because the jobs they have are the best they can get, and there is now more competition for those jobs than in the past. But they don’t do this. The company has made record net profits because they have so reduced overhead (in greater proportion than the reduction of overall income) and the workers are pissed that they get their pay and benefits cut while the VP just got a new yacht. They respond accordingly. How does austrian analysis take this sort of behavior into account?

17 07 2011
venuleius

Hector,

I don’t agree that every theory which is meant to model, explain, predict, etc. human behavior is inherently “moral.” The marginal theory of value, for instance, may serve as a building block to a moral theory/normative argument concerning the level of government regulation in the market, but you have to connect it up with a larger argument over the ends of a society. Those ends are not necessarily materialist, either. (Economists tend to be materialists, at least with respect to their economic work.) Consider a concept like “fairness.” Economics cannot give you a definition of “fairness.” Or, to take another example, economists can tell you, in theory, how to increase the size of the social pie, but it’s agnostic on the distribution of that pie (though economics will posit why/how forced redistribution will likely shrink that pie).

Some critics just don’t like economic theory. But my point is if you don’t like the theory, then critique the theory — don’t complain that it exists. When Law & Economics became all the rage in American legal studies in the 70s and 80s, the critical legal studies movement (which had a decidedly Marxist/critical theory bent) rose up to essentially do one thing: complain. The problem is that CLS couldn’t take down the neoclassical underpinnings of the L&E school, so instead it dealt in vague condemnations and quasi-mystical language which no one was buying. Now CLS is effectively dead and L&E lives on, though in a far more diverse form than what one saw in the 70s and 80s. L&E probably doesn’t have the stranglehold it once had on the legal academy and many of its more thoughtful critics have come from within the field itself. While I happen to believe that L&E made some valuable contributions in a number of legal disciplines, I think its application has been overtaxed and the field’s best work is long behind it. But few scholars take L&E as the sole normative indicator for law anymore, which has left something of a gap in legal studies as a whole which a few contending schools are desperate to fill.

Anyway, I’m getting a bit off point. In concluding, let me try and provide an example of how economic theory — neoclassical economic theory — can provide insights which would be useful to have if one was trying to develop a social welfare system which minimizes waste. Since the social welfare system provides “insurance” or a “level” to which no one should fall below, it may have the perverse effect of incentivizing people to take risky behavior to enhance their wealth, such as accepting high-interest loans which they may use on a longshot bet (be it an investment or something more informal). If you want to avoid that, create an usury law calibrated to the level necessary to dissuade lenders from providing high-risk loans. The economics doesn’t tell you whether or not to have a welfare mechanism, but if you do, it can say something meaningful about how you might want to adjust your legal system to limit waste.

17 07 2011
Hector

Re: But are you surprised economists have about as much use for it as cooks do for theories of constitutional interpretation?

Questions about human beings (as opposed to, say, questions about quasars, about photosynthesis, about the structure of proteins) inherently have moral content, because they involve human persons. You can’t study human beings and societies- not through history, not through economics, not through anthropology- without making moral judgments, implicitly or explicitly. The virtue of the LTOV is it brings those questions right out in the open, instead of pretending they don’t exist.

17 07 2011
Hector

I don’t know enough about economics to know whether the marginal theory of value or the labour theory of value works better as an economic theory, and I suppose in general I think about things in marginal terms since I live in a capitalist country, but I certainly think the Labour Theory of Value works much better as a moral theory of what people deserve for what they do. The LTOV at least attempts to introduce questions of moral desert, which the marginal theory doesn’t even attempt to do.

I agree that there are big problems with central planning in practice, so big that I don’t really see how to solve them and still remained centrally planned. The socialist economist Alec Nove showed that pretty well in his survey of the Soviet econbomic system. That being said, central planning isn’t inherent to socialism, and I believe in some kind of marklet-based scoialism with worker-owned cooperatives and the like.

17 07 2011
venuleius

Oh, and before someone jumps all over this…

The marginal theory of value is not a moral theory. It is devoid of normative content and like any theory, it can be falsified. Moreover, it has not been used to exclusively explain phenomena of exchange in capitalist societies; it has been deployed to explain valuation and exchange generally. Whether it is tenable or not is another question entirely. I think one of the pervasive misunderstandings here (and the Austrians are guilty of it themselves) is assuming that economic theory is somehow loaded with moral/normative content. It is not (though a few people have tried their hand at it).

As I’ve said a dozen times before, economic theory can predict what is likely to happen in a system of fixed wages, but that’s not necessarily an argument against having a fixed wage system (unless, of course, you’re also trying to prevent the things a fixed wage system in theory will yield). That’s it. Case closed. Why people should get so riled up about it is beyond me.

17 07 2011
venuleius

I think this is an over-read. The general criticism of a lot of economists as it concerns planned economies centers on the difficulty of the planning absent the price system. This is why you wind up with scarcity, queuing, overproduction of goods/services people don’t want, etc. It’s not that it’s logically impossible that someone or some set of mechanisms could “plan” an economy. What neoclassical and Austrian economists (generally) argue is that society’s scarce resources won’t be employed in areas where their use is valued the most. But no economist that I know of argues that even in (relatively free) market economies you will attain “perfection.” What the Austrian School lacks, however, is an adequate theory of market failure that doesn’t include blaming intervention. In other words, they don’t believe the market can be a “failure” because there isn’t a better alternative available.

As for the LTOV, we’ve been over it 1,000 times already, but at least now there’s an admission that it isn’t a theory of value at all — it’s a theory of how wealth should be distributed. In other words, it’s a moral theory. Fine. But are you surprised economists have about as much use for it as cooks do for theories of constitutional interpretation?

17 07 2011
Arturo Vasquez

These two videos address this issue:

14 07 2011
turmarion

What you don’t mention but is even worse when coming from libertarian types is the assumption that I “choose” to work for Acme Widgets and if I don’t like it could “choose” to work elsewhere. Never mind that my skills may not be transferable to any other occupation anywhere nearby, that other jobs that I might get (e.g. Wal-Mart greeter) might have far less pay and benefits, that in order to support my family I may not be able to take such a job, that since I’ve lived in town fifteen years and have a mortgage on a house that I might not be able to sell if I did move, I can’t just up and move somewhere else for the possibility of a better job, anyway, that I may have non-economic reasons for not wanting to move, such as ill relatives, that I might not be able to afford “job retraining”, and on and on.

The libertarian answer to complaints that your job sucks is always, “Well, get another one!” Makes you want to say to them, “Marriage in trouble? Get another spouse! Kids a problem? Adopt ’em out and get new ones! Lost your arm in an accident? Get a prosthetic!” Not that I think it would get through, but still….

14 07 2011
owen white

It should be further noted, that whatever fancies one may have regarding how Catholic Social Doctrine and libertarianism may both be allowed to exist under the same roof of a soul, Catholic Social Doctrine explicitly rejects a market valuation of labor:

83. Labor, as Our Predecessor explained well in his Encyclical,[48] is not a mere commodity. On the contrary, the worker’s human dignity in it must be recognized. It therefore cannot be bought and sold like a commodity. Nevertheless, as the situation now stands, hiring and offering for hire in the so-called labor market separate men into two divisions, as into battle lines, and the contest between these divisions turns the labor market itself almost into a battlefield where, face to face, the opposing lines struggle bitterly….

88. … Just as the unity of human society cannot be founded on an opposition of classes, so also the right ordering of economic life cannot be left to a free competition of forces. For from this source, as from a poisoned spring, have originated and spread all the errors of individualist economic teaching. Destroying through forgetfulness or ignorance the social and moral character of economic life, it held that economic life must be considered and treated as altogether free from and independent of public authority, because in the market, i.e., in the free struggle of competitors, it would have a principle of self direction which governs it much more perfectly than would the intervention of any created intellect. But free competition, while justified and certainly useful provided it is kept within certain limits, clearly cannot direct economic life – a truth which the outcome of the application in practice of the tenets of this evil individualistic spirit has more than sufficiently demonstrated. Therefore, it is most necessary that economic life be again subjected to and governed by a true and effective directing principle….

– from QUADRAGESIMO ANNO

While QA most certainly does reject an economic ordo completely controlled by the state, it is clear enough with regard to the evil of allowing market forces to determine valuation of labor. It clearly accepts some form of the LTOV, and it advocates guilds and associations of workers to play a power wielding role in securing what is essentially wealth distribution which falls along lines that assume a LTOV.

14 07 2011
owen white

Venny,

Sure, the Ron Paul bit wasn’t a serious attack on Austrians.

The Kirzner essay linked to here is chock full of generalizations. Please.

Look, I’ve been LTOV arguments so many times and each time I encounter examples such as the one you give I can’t believe that intelligent persons such as yourself are willing to engage in such sophomoric analysis. Marx’s analysis of LTOV involved simplified examples relative to his own day, but nothing remotely close to such fantasy examples detractors of LTOV come up with, and Marx after using one of his examples then relates it to an actual (contemporary to his writing Capital Vol 1) microeconomic circumstance.

The current late capitalist economic order in the world has changed drastically in the last 30 years in part because of the advent of new technologies which make the movement of capital movable at speeds Marx nor early Austrians ever conceived of being possible. The Marxist LTOV is a tool, one tool for determining the distribution of wealth. This blanketly repeated insistence that it doesn’t work is always followed by examples that assume a psycho-economic posture that is formed by capitalism, assumes an anthropology formed by capitalism, assumes that capitalism is the de facto ordo and that anything other than capitalism is a forced/coerced deviation from, well, nature or something conceived to be like unto nature. Horseshit, horseshit, horseshit. Given the drastic changes in human economies seen in modernity it is entirely possible to conceive of a model that uses the LTOV as a means of determining wealth distribution over and above current models, particularly market valuations of labor. Kirzner, like all Austrians, generalizes in his essay especially with regard to conditions related to human freedom (his phrases like “dynamic competition” etc.) as it pertains to economies. In this and every other Austrian essay I have read I find ill defined or undefined assumptions about human freedom at use. I find an exaggeration of a supposed lack of freedom in so called controlled or planned economies, and I find a gross overestimation of supposed human freedoms in less controlled or planned economies. It’s as if these people really believe that if I choose to get McDonalds over Subway today, or choose to go to WalMart over Target, this constitutes free choice. They also seem to believe that human beings as economic agents have an homogenous anthropology which results in human’s action in controlled or planned economies versus less planned and less controlled economies being similar across cultures. They seem to assume that markets and market valuations will follow universal rules across times and cultures. Good fucking grief how childish. Look, there is a reason that outside of the U.S. there are 27 people who are both intellectually competent and assent to this shit. The Europeans who brought us the great Austrian school had enough sense to not take it seriously outside of a very few very small idiosyncratic and eccentric circles. Only in America….

14 07 2011
Venuleius

Owen,

We must read different people, or maybe I just don’t traverse as deeply as others into the Austrian camp. I will confess that I have never read Human Action straight through. With respect to Hayek, setting aside his work on law, “The Use of Knowledge in Society” is probably his “must read” essay and the one that probably has the most purchase outside of the realm of the Austrian School itself. I don’t think it’s very abstract at all. (You can find a copy of it here: http://www.indiapolicy.sabhlokcity.com/debate/Notes/hayek_low.pdf)

Kirzner’s Market Theory and the Price System, which is essentially a textbook, is probably the most useful (for my purposes at least) Austrian book I have encountered. Otherwise, I suppose I limit myself to a lot of “Austrian derived” or “quasi-Austrian” writings in the legal literature, such as stuff by Richard Epstein, Mario Rizzo, Roy Cordato, etc.

Regardless of economic schools, once you start to move beyond the “micro” level, hyper-abtraction begins to kick in and credulity suffers. As for the Marxist critique of the Austrian School, I agree with Cabbage that the example presented is superficial and unpersuasive (though it does point to possible problems, I’ll give it that). Basically it uses Ron Paul as somehow “emblematic” of Austrian thinking and then goes to town showing how Marxian economics differs from Austrian economics. Whoopdee doo. The labor theory of value (or, at least, the example used) is shoddy because it doesn’t account for what happens when I, a man who spent three days in the caves digging out diamonds, encounters a native tribe that has control of a giant waterway but (subjectively) believes that diamonds are turds from the gods and thus valueless (even gross), but that their waterway is blessed and shouldn’t be defiled by being ingested by the white man. The tribesman aren’t going to care one bit about how long it took me to get those diamonds or how easy it would be for them to fetch me a glass of water when determining whether or not to make a trade with me. The Marxist author never deals with this basic point; he just blows it off by saying, “Oh Marx dealt with this in a discussion of social substance . . .” Ok. And maybe there’s a Warner Brothers cartoon that demolishes the Austrian theory as well, but mentioning it is not particularly helpful for those who actually want to know what’s actually wrong with the theory.

I’ll stop there, though with the final note that the author goes too far to say that Austrians, as a whole, reject all neoclassical theory. Opportunity cost (which I think is what he’s getting at when he discusses subjective preferences) does play a role in Austrian thinking, though Austrians eschew the attempts of some economists to establish an objective ordering of goods which can be used to predict where people will divert their resources.

14 07 2011
owen white

This mantra from Austrians that “we describe reality, what works in practice” is absolute horseshit. Every time I suffer through some Austrian essay or article in order to keep up with this tediousness I encounter analysis just as abstract as any of the Austrian’s ideological competitors. Delusion, delusion, delusion.

14 07 2011
Cabbage

The “A Marxist critique of the Austrian School” was rhetorically underwhelming. The key issues between Marxism and any of these other economic schools are the competing theories of value. This critique, however, manages to blow off the whole point. The only real argument, as far as I can glean, basically boils down to “I have identified abstract contradictions, and therefore marxism=win.” Which just feels like another instance of “philosopher = one upset that what works in practice does not work in theory”.

14 07 2011
Manuel

co-sign

14 07 2011
venuleius

I’ll just repeat what I’ve said before and note that the Austrian School, stricto senso, is not utopian, which is why it casts aspersions on aspects of neoclassical economics which are heavily dependent upon unrealistic, over-simplifying models or theories which presuppose perfect information (which is practically impossible to generate ex ante). However, it does argue, as a theoretical matter, that markets generate information and that, over time, will lead to “spontaneous order” (the result of human action, not design). (This is really super simplified, so I apologize for cutting out a lot of the connectors.) Eventually the market order will generate a better (albeit imperfect) allocation of resources than, say, command planning. Different Austrian theorists are more or less extreme about the potential for the market and some have gone so far as to try and construct objective concepts of efficiency (similar to neoclassical theorists) by which to judge economic decisions. But others steadfastly reject this line of thinking.

Now, are there Austrian economists who are utopian? Absolutely. As I’ve lamented elsewhere, many fall into libertarian/anarcho-capitalistic ideologies which are not only unrealistic, but technically violate the “value neutral” wall that Austrians — at least consistent ones — claim to maintain. Some Austrians, like Rothbard, have attempted to build a separate system of political theory/philosophy to help bolster their normative claims for libertarianism, but a lot of this work is shallow and unpersuasive (even to other Austrians). The problem today is that there is a great conflation of these trends under the heading “Austrian Economics.” It’s little wonder that people looking from the outside in are confused and assume the economic theory is only there as a prop for what is, in the end, a rather reckless ideology.

The virtue of the Kirzner essay is that it distinguishes the Austrian School from orthodox neoclassical economics (the sort of economics most people are familiar with if they’re familiar with economics at all). Kirzner is more soberminded than some of his contemporaries, which has opened him up for attack from some of the more extreme fringes of his school. I would say the same thing about Hayek, though it’s hard at points disentangling Hayek the economists (who did his best work in the 30s and 40s) from Hayek the political theorist/ideologue who wasn’t particularly consistent at points (though I think his legal theory is worth reading). Mises, whatever his faults, is also something of a “must read” for understanding school, especially since so much post-Misean Austrian Economics are just a series of footnotes on Human Action.

13 07 2011
joelmartin

Liturgical posts > economic posts.

13 07 2011
turmarion

The first quoted paragraph is interesting in that it alludes to an idea elaborated over here on Libertarianism as the Marxism of the right, in that both, in their pure, Utopian forms, require both human nature and the world we live in to be other than they are. Given a choice, I’d take Marxism over Libertarianism, but the parallel is interesting.

My thesis is that the ultimate issue is industrial economies of scale themselves. They create problems of distribution, ecological degradation, etc., that neither capitalism nor socialism (at least in any forms that have been tried to date) seem to be able to solve. I honestly don’t know what the solution is, but someone better come up with one before things collapse completely.




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