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These internet wars are disgusting.

"These internet wars are disgusting."

Me too. I don't know what David Kramer believed he would accomplish by posting that hot-headed diatribe.

The Daily Bail picked up on Kramer's hissy fit and had some fun with it (includes a plug of Coordination Problem and a reference to "crazy juice.")

http://dailybail.com/

"http://dailybail.com/"

That hayek (he doesn't a deserve to have his H capitalized) is a poopy head. They should have given that prize to Mises, the bestest economists in the history of the world, for being so sewper kewl!

Now If Gene Callahan blitzkriegs Dilorenzo for his follow-up post on LRC, then I will sleep a happier cat.

What a great post, Pete.

Even if publications are more important don't underestimate the effect these blog entries (and subsequent comments) have on lurking students. I, for one, am pretty sure loosely following discussions on this blog, Cafe Hayek and others has helped me understand some core issues and maybe perceive some of the tacit economic culture when I was an undergrad. And it still does. It won't replace a book, but on the long run it can equal attending short seminars I guess. I am very grateful that you guys do spend the time necessary for this whole process, and make it available to everyone.

Good post. It's been fun the last couple of days defending you from all sorts of smears. (People have a hard time distinguishing between you and an article about you, apparently.)

What Mario said.

Yes, the rich irony of Pete being portrayed as a defender of the Fed after the abuse he's heaped on me the last two years. :)

This was just the right kind of follow up Pete.

Why can't the warring factions within the "Austrian movement" just kiss and make up? By all means vigorously debate with each other but in a spirit of friendship rather than hostility.

What Roger said.

What Roger and Mario said. Great post.

I also hate these internet wars. I find it rather naive to constantly divide up like-minded scholars into two groups and keep this cat-fight going. I think the LRCers should stop calling you guys "Fed-apologists" and you guys should stop calling them "conspiracy theorists" or "neo-confederates." Such labels ignore the true economic, political, historical research that the people in both camps have done. But all in all, BOTH sides are at fault for the lack of unity in this movement.

I'm the editor/founder of The Daily Bail. I was drawn here from the dozen or so referrals we have gotten this morning from this site. And I was only moved to comment by Peter's mention of both Virginia and Bloomington.

I was born in, raised in, and just moved back to Bloomington, and I did my undergrad at the University of Virginia. So my heart thawed a bit at the surprising double mention.

Peter, you have the right approach. Academic politics are such supreme, inter-galactic bull shit.

I have written a few hundred stories on ron paul for the Bail, which is what led me to the Austrian School. I was a newcomer. My background is in trading/hedge funds and my last classes in Econ were Micro and Macro at UVa in 1984-85...so I had much to absorb and learn.

My only official contributor Dr. Pitchfork is a big fan and wrote the story this morning...

http://dailybail.com/home/austrian-school-cat-fight.html

IF you Peter, or anyone else reading would ever like me to publish something, please send it my way (my email addy is on the site)...we reach about 5,000 uniques per day with about 20,000 pageviews so our audience isn't big but it's not small...I know that the bastard Brad Delong reads us. Long story.

Also, if you or someone else could mention some names of faculty at IU and UVa so that I could perhaps reach out to them, that would be great.

Thank you,

Steven Megremis

Institutions matter!

These "cat-fights" seem not to go away. The incentives of the competing institutions are producing a steady supply of bad feelings, mean words, and misunderstanding. Blaming it on individual personality traits is like blaming the recession on greed. People are always spiteful, intolerent, and self-aggrandising, so such facts can no more explain the "cat-fights" than greed can explain the recession.

I propose institutional reforms as the way forward. Do you not agree Dr. Boettke?

With all the hand-wringing over "internet wars" here, I'm wondering if people here are failing to see the difference between over-the-top blog posts like Kramer's at LRC, and thoughtful commentary by scholars like Salerno. I just can't understand this "not-in-front-of-the-children" attitude towards debate within AE.

You obviously know your program better than I do, but I had the impression that you were very much in sympathy with Lachmann. He was, after all, one of the major inspirations for those interested in hermeneutics. What are your differences from him?

David,

Lachmann was indeed an inspiration for the interest in hermeneutics. But that interest was 20 years ago. The last paper I wrote (other than a fetscrhift piece for G. B. Madison in 2004) that had anything to do with hermeneutics was in 1992. I just spent a bunch of time at GMU last year and never heard the word mentioned.

If you're implying that you think the current GMU program is Lachmannian because there is some major concern with hermeneutics, you need to do some updating. Since Pete has returned to GMU, his students have been producing applied economics and I don't think the "h" word has appeared in any of their work, nor, probably that of Pete's. It hasn't been in mine, with the one exception noted.

To the extent that Lachmann's work has become, in the hands of some, so focused on disequilibrating forces that it prevents us from ever doing price-theoretic market process analysis, or monetary equilibrium theoretic macro, then I, for one, have rejected it.

Lachmann's description of the problem situation of the actor, however, remains vitally relevant, as does his work on institutions. Yes, uncertainty and subjectivism, especially of expectations, matter a lot, but the research agenda of the work Pete is talking about is how social and economic institutions evolve and function to enable us to overcome the subjective to produce economic and social coordination. The fact that coordination happens despite the kaleidic nature of the individual's problem situation is the fascinating question that is motivating much of the work by those associated with this blog.

The enduring influence of Lachmann is subjectivism and the importance of institutions, even as we (or at least I) would reject the most radical and discoordinative reading of his work.

IMHO Lachmann's best work is his stuff on the differences between backward-looking Ricardian economic categories-- and forward looking marginalist economic categories.

This helps us understand many of the muddles which still exist in "marginalist" economics -- places where neo-classicals and Austrians muddle together the old backward looking Ricardian categories with the forward looking categories of marginalist valuation.

You can find this muddle in Bohm-Bawerk and in Mises' "Evenly Rotating Economy", and you can find it all over the place in "neoclassical" economics, in Marshall and in neoclassical capital theory, and in macroeconomics.

I'd also suggest that Lachmann's work on capital theory is over rated.

If you know the Austrian approach, it's mostly an articulation of stuff you already get.

And as compared with Hayek's discussions in _The Pure Theory of Capital_, it's a real step back in terms of conceptual sophistication.

IMHO.

I wish to challenge one of Pete's statements in his post: that it is all about the students at GMU.

There would not be as many interested, hardworking, and successful students in the GMU program pursuing Austrian Economic themes if not for the individuals who inspire, challenge and mentor them.

Everything that I have heard and seen convinces me that a great deal of that interest, hardwork, and success is due to the inspiration, support, encouragement, and challenge given to thosse students by Peter Boettke.

There are no "laws" of history; there is, ultimately, only "human action" -- individual human action.

And Peter Boettke has made an incalculable difference in the lives of, now, dozens and dozens of graduate students who have studied, learned, graduated, and gone on to pursue their own successful profession and academic careers.

So I apologize for disagreeing with you, Pete. But a central character in the story of Austrian Economics at George Mason University is -- YOU.

So just live with it. You're important and valuable. And no vacations for you at Martha's Vineyard. Get back to work.

Richard Ebeling

Ransom: Mises's ERE appears to me to be perfectly forward looking, it is just completely stationary. Because of this, it was meant as an imaginary construction, not an economic model. However, it wasn't backward looking, but under its assumptions there was no difference between looking forward or backward. Whenever there is change, the forward approach wins, and I remember nothing in Mises against this idea.

Richard is, of course, completely right about Pete's role @ GMU and in AE more generally.

Steve said, "uncertainty and subjectivism, especially of expectations, matter a lot." I agree. The problem of building a radically subjectivist theory of expectations is "the Lachmann problem.” If I am right to think that the hegemony of rational expectations is likely over, then the Lachmann problem might be worth thinking about, especially for younger Austrians. IMHO the hardest part is linking a radically subjectivist view of human action to some sort of testable claims about expectations. Without such a link, you are just sort of reflecting an ruminating. Getting that empirical anchor is a pretty big challenge, I think, but one we should not shrink from.

Steve,

Thanks for your very helpful and informative post. When you say that Pete's students have been producing applied economics, this confirms what had been my impression also. But this point leads to my question: in what way is the GMU program more in the Mises-Kirzner tradition than in that of Lachmann? Detailed work on economic institutions seems to me more characteristic of Lachmann than of Mises and Kirzner. Perhaps your point about coordination is the Kirznerian ingredient in the GMU program.

If I recall correctly, Mises uses the Ricardian categories of capital, land and labor, carved on grounds which are not economically motivated from forward looking marginalist valuation theory.

The issue isn't whether or not the model is stationary or imaginary, the issue is whether the catergories are categories of economic choice / marginalist valuation which is inherently forward looking.

It's been some time since I've looked at all that, and I'm going on memory.

Pietro,

"Ransom: Mises's ERE appears to me to be perfectly forward looking, it is just completely stationary."

Pietro,

Certainly, a Walrasian General Equilibrium is forward-looking. But, I think some of Mises discussion around his ERE models is backward-looking, though I'm not completely sure.

David,

I think the answer, and it really should be Pete but I'll take my best shot at what I understand him and his students to be up to, is that it's not just that the emphasis on coordination is Kirznerian, but that the ways in which institutions facilitate the expansion of social cooperation and the Law of Association make the project, ultimately, a Misesian one.

I think one can find an intersection among Mises, Hayek, Lachmann, and Kirzner (as well as Rothbard's vision of the free society and elements of his theoretical work) in which one looks at the ways in which institutions make possible the use of knowledge in ways that enhance economic and social coordination (via entrepreneurship), which has the result of expanding social cooperation under the division of labor and ultimately leading to economic growth and the possibilities for human flourishing it brings.

That's mouthful, but I think that's a pretty good summary of the GMU research program and the ways in which the ideas of the whole Austrian school are part of the foundation of its approach, along with, as Pete indicated, public choice, the Ostroms, property rights econ, and parts of Coase. I also think it's a good way to view an integrated Austrian approach that draws from the whole tradition, and realizes that the similarities among Mises, Hayek, Lachmann, and Kirzner are far, far greater than their differences.

Now if only more of them were doing macro...

I agree with Roger on Lachmann and subjectivism. And I share Steve's lament that there aren't more Austrians working on macro(I prefer calling it money). Talk about a target-rich environment for applied economists.

I just read a very nice macro paper by two surprising "austrians" :-)

Douglas Diamond & Raghuram Rajan has a working paper on NBER ("illiquidity and interest rate policy", 2009). They quote Mises, Hayek and Rothbard.

The basic idea is that monetary policy fosters illiquidity, and illiquidity begets crises, in which consumption is too high for production to be continued without problems.

The "tools" are those of the Dybvig/Diamond model of banking crises, i.e., a 3-period GE model. That's surely not my favorite microfoundation, but it's a very good news for ABCT that mainline economists of such high stature start to think in these terms.

To me, a fruitful avenue of research is to mix up ABCT with the research on credit channels (Diamond, Dybvig, Rajan, Bernanke, Gertler, Stiglitz, Kyiotaki, Mishkin... Irving Fisher, of course). And also free ride on their empirics, it's less expensive than investigating the capital structure. :-)

If I may add to Steve's point about the workings, history and analysis of institutions.

Surely, this is a very "Mengerian"-type research program, considering Menger's discussion of the evolution and significance of institutions in society that are not of prior human design, but often improve the human condition (language, law, custom and tradition, the rules of commerce and enterprise, money, etc.)

And careful reading of Mises makes clear that he wholeheartedly accepted this aspect of Menger's analysis, and in "Human Action" even has a subsection in a chapter 17 on 'The Epistemological Import of Carl Menger's Theory of the Origin of Money." And in many places in his earlier and later works Mises emphasized the relevence and significance of the evolutionary character of social institutions -- built upon a methodological individualism and subjectivism of the Mengerian type.

And, surely, no one can question that much of Hayek's "research agenda" became the development and elaboration of the Mengerian (and earlier Scottish) conception of institutional evolution for understanding much of the social order.

Lachmann, too, saw the relevence of institutions for human interaction and coordination -- in "The Legacy of Max Weber he calls institutions the "nodel points" of social order.

However. . . though I greatly admire and have learned much from Ludwig Lachmann, including having had the privilege of many valuable conversations with him, I believe that he was under the "spell" of two other influences other than the Austrian tradition (which he first learned when he was a student at the University of Berlin and had Emil Kauder as a tutor in the history of economics).

The first was the influence of his teacher, and to some degree mentor, at the University of Berlin, Werner Sombart. Sombart was an historicist who was first an adherent of the German Historical School, then pro-Marxist, and later after 1933 an apologist for Hitler and the Nazi regime.

Lachmann had to leave Germany in 1933 because of Nazi antisemitism, which made it impossible for him, as a Jew, to remain there. That is how it came about that he ended up at the London School of Economics, doing a master's degree under Hayek on the Austrian theory of the trade cycle.

I always felt, in conversation with him, that Lachmann's views on order, change, adjustment, and evolution in society and the market retained the Sombartian influence against the idea of the internal rationality and self-adaptability of the interdependent market.

The other influence was that of G.L.S. Shackle. If you compare Lachmann's writings before and after Schackle began focusing in his own writings on an anti-equilibrium approach in his very often insightful and devastating critique of Neo-Classical general equilibrium theory, you see a shift in Lachmann's thinking towards growing doubts and criticisms of interdependent market coordination.

I would say that even his analysis of institutions, and in spite of his constant references to Max Weber and Menger, still carries a "hint" of his older historicist influences.

Richard Ebeling

What work is the word "theory" doing here?

Roger writes,

"The problem of building a radically subjectivist theory of expectations is "the Lachmann problem.”

I've never been clear why we need a "theory" here.

For example, what explanatory work would a "theory" do here, beyond our understanding of expectations and expectation formation, which we have merely as experienced actors in the world.

Here's an old plea.

My suggestion is that progress would be made if people put aside the rubber stamp substitute for thinking rote terms like "subjective" provide, and instead articulated in fresh terms what they mean by such labels _in each different context_ where they use the unthinking label.

I suggest you will find that people are using is univocal rote label to do very different jobs in different cases.

In other words, my suggestion is that progress would be made if folks would come up with individual, alternative words for all of the different things which are meant by the various uses of the word "subjective" and "subjectivism".

People exploit the pun / muddle factor here, as if they were talking about a single thing, when people are actually talking about different things, different concepts, doing different sorts of work.

E.g. the logic of marginal valuation is an objective, interpersonally shared logic, operating over relations whose significance are related only to the orderings of a single person, and whose understanding of the qualities and significance of objects within that ordering are partly shared across individuals, but not fully so.

Within all that there are all sorts of "subjective" elements -- but the work of that word "subjective" does a variety of different jobs as applied to these different elements.

Similarly, when we talk of "subjective" expectations, the word "subjective" is doing more than one job, e.g. (1) characterizing how the objects of the expectations are uniquely perceived by the expector; (2) characterizing how expectations about those objects are relationally defined within the thinking of a single individual; (3) how these expectations differ between individuals based on different interrelated understandings and judgments.

Roger, what would these textable claims about expectations look like?

Testable expectations about changes in prices or macroeconomic variables, or some such. Or something else yet again?

Roger wrote:

"the hardest part is linking a radically subjectivist view of human action to some sort of testable claims about expectations."

Greg,

For my money, the issue is when expectations are more prescient and when less so. Some models of asset markets just assume some form of informational efficiency. Others assume you have herding. I think there is -- or at least was as of a few years back -- a bit of a tendency to either accept or reject "bubbles," accept or reject "efficiency." I think the issue, rather, is when are bubbles more likely and when less; when are bubbles likely to be bigger and when smaller. You need a theory of expectations for that. The theory relates some idea of how "good" expectations are to some description of the institutional environment. That's what my Big Players book was about. In today's environment, I like to think of Big Players theory as "regime uncertainty with analytical bite." Here's a url of the first chapter, which is also a precis:
http://www.palgrave.com/PDFs/0333678265.Pdf

Big Players and the Economic Theory of Expectations, Palgrave Macmillan, 2002.

Roger, got it. That helps.

I'll read that first chapter.

This sounds like a topic were something like "field research" or "applied economics" would add to our understanding.

Roger writes,

"I think the issue, rather, is when are bubbles more likely and when less; when are bubbles likely to be bigger and when smaller. You need a theory of expectations for that. The theory relates some idea of how "good" expectations are to some description of the institutional environment."

This is a great post. I also benefited much from Steve's answers to David.

But, here there is someone that is missing: MENGER. Among some other contributions, he set the stage for an analysis of institutions as key elements of social orders, based on subjectivism.

Oops, I didn't see the great comment by Richard on Menger!

Greg,

FWIW, I found myself going from methodology, to theory, to test. I mean I felt i had to lay out the book that way. The tests were necessarily "applied economics" to be sure. But I the thing my co-workers and I were testing was always a theory, or at least a set of fairly general propositions that seems "theoretical" to me. It's pretty much all in the book, really. BTW and FWIW, I was sometimes driven to use weird techniques that did not exist in standard software packages. This practice turns out to be the very one recommended by Buzz Brock who says we need to taylor our statistical methods to the particular problem at hand AND we can now do so because computing is "dirt cheap."

I'm once again grateful to Steve for his post and also to Richard for his characteristically erudite remarks. Institutional analysis seems to me certainly in accord with Mises, Hayek, and Kirzner, not to say Menger. But I do not think this entirely valid point suffices to separate a Mises-Kirzner from a Lachmann tradition. Does the difference amount to anything other than Lachmann's doubts about coordination? Is this what Pete had in mind, or did he intend something else?

Although Sombart studied with Schmoller and Wagner, he was in his early career a Marxist. He became a leading light of the German Historical School after this.

@David,

Kirzner thought that markets necessarily coordinate. Lachmann thought there are coordinating and discoordinating forces, and we can't know the outcome apriori.

In writing Economics of Time and Ignorance, Mario Rizzo and I tried to steer a course between the two positions. That led us into unchartered waters. We dedicated the book to Lachmann because he challenged us to think beyond Austrian orthodoxy.

Congrats.
You are most deserving.

David:

The way Lachmann would express it was to say that the coordination of plans within the acting individual was logically reasonable, since it is a single mind selecting among and coordinating his choices and actions.

It was conceivable to imagine the coordination of the plans between the particular suppliers and demanders within a specific market, as they reached agreed-upon terms of trade and proceeded to exchange.

But, Lachmann would argue, it seems more difficult to imagine inter-market coordination of plans and actions ("equilibrium"), since the plan agreements and actions among some in a particular market would most likely (inevitably?) have various spill-over effects on other markets with which they were interrelated through patterns of substitution and complementarity.

And these spill-over effects always carried the likelihood (inevitability?) of disrupting the coordinated or coordinating plans of others in those interrelated markets.

Hence, in Lachmann's eyes, every "equilibrating" pattern of actions in one or more corners of the market economy had the tendency to generate ripple effects discoordinating other markets with which they are interdependently related.

Thus, he concluded, one could never know whether, on balance, the coordinating actions would be more powerful than the discoordinating side-effects.

This lead Lachmann to that agnosticism (doubt, suspicion?) that one could not say for sure that there was an overall, successful coordinating tendency for the market economy as a whole at a moment in time or over time.

Creating that uncertainty about the markets general equilibrating tendency, Lachmann argued, was reinforced by the fact that all such changes and attempts at readjustment occurred through time in a world of uncertainty.

Thus, by the time those disrupted related markets had brought about or were moving back to equilibrium, the re-coordinating activities of the actors in those markets will, in turn, have resulted in their own spill-over effects, and partly on the markets whose own activities had originally disrupted those related markets.

Thus, there is a never-ending process through time of adjustment, readjustment, spill-over effects on interrelated markets, etc., etc.

There,clearly, is a theoretical and an "empirical" aspect to Lachmann's "challenge." Is it "true," likely, inescapable that interrelated markets are unable to be tending toward successful plan coordination in a world in which all actions occur in time and through time, and, therefore, "causes" proceed "effects"; and in which actors have imperfect and potentially ever-changing knowledge in a general social environment of uncertainty?

The theoretical aspect concerns whether or not a persuasive, logically demonstrable explanation can be given to the argument for a general and successful inter-market coordination process.

And the "empirical" aspect concerns whether or not markets do, in fact, with a "reasonable" degree of on-going success see to it that, to use a phrase, "Paris gets fed."

It seems to me that except for the peculiar circumstances related to the business cycle (which both Austrians and Monetarists, in general, argue is not necessarily "indigenous" to the market), markets do demonstrate "empirically" a relatively high degree of successful and on-going inter-market coordination in competitive processes through time, and in an environment in which actors choose and act with imperfect and decentralized knowledge.

Hence, the dispute, I think, for most within the Austrian camp concerns the theoretical aspects to the question in the face of the "empirical" coordinating effectiveness of competitive markets with functioning property rights and a price system.

Richard Ebeling

Richard,

I have never read Lachmann, but my interest has suddenly been piqued. You've presented a very provocative and interesting argument about the coordinating "tendency" of markets. I believe I need some time to figure out what it means.

Thanks for sharing!

Can you suggest any further reading on the matter?

The FACT of global design-like coordination is the problem which gives rise to economic science.

This is Hayek's critical point about the primacy of problem and the patterns that give rise to those problems.

"The way Lachmann would express it was to say that the coordination of plans within the acting individual was logically reasonable, since it is a single mind selecting among and coordinating his choices and actions.

It was conceivable to imagine the coordination of the plans between the particular suppliers and demanders within a specific market, as they reached agreed-upon terms of trade and proceeded to exchange.

But, Lachmann would argue, it seems more difficult to imagine inter-market coordination of plans and actions ("equilibrium"), since the plan agreements and actions among some in a particular market would most likely (inevitably?) have various spill-over effects on other markets with which they were interrelated through patterns of substitution and complementarity.

And these spill-over effects always carried the likelihood (inevitability?) of disrupting the coordinated or coordinating plans of others in those interrelated markets.

Hence, in Lachmann's eyes, every "equilibrating" pattern of actions in one or more corners of the market economy had the tendency to generate ripple effects discoordinating other markets with which they are interdependently related."

This is why the explanatory strategy -- the nexus between empirical problems, logical constructs, and empirical causal mechanisms -- is so vital in getting economic science right.

The mistake is to think that we begin from individual action and then deduce necessary consequences.

This sort of starting point -- from a "methodology" and not from an empirical problem situation "focused" by puzzle solving and logical constructs -- is the pathology introduced to economics by the philosophical tradition, which encouraged economists to think in terms of demonstrative procudures which produce demonstrative, justified beliefs or "science".

But in fact science starts with empirical puzzles, as Hayek and Popper suggest.

Intellectual inquiry may begin with "empirical puzzles," as you say, Greg.

But then it becomes a matter of the best method to proceed with, to find an answer to that puzzle.

For the Austrians it is a form of what Menger called the "compositive" method. The task is to reduce the "complex phenomema" to their most elementary components; determine that nature, qualities and characteristics of those elementary components (their "essence" to use Menger's term); and then, from understanding their nature and "law," explaining how the interaction of such elementary components generate the complex phenomena that was the original puzzle.

The elementary components of the social (and economic) world are the individual human actors who comprise the society or community. It is from their "laws" (the logic of individual action and choice) and the effects that emerge from their interactions that we derive our insight to the nature and workings of the social and market orders.

This is Menger's, Boehm-Bawerk's, Mises, Hayek's (See, "The Counter-Revolution of Science"), Rothbard's, and Kirzner's approach.

So I am not seeing what you are getting at, Greg.

Richard Ebeling

Ransom: I share the same doubts as prof. Ebeling. It looks like you are referring to Mises, and interpreting the whole of Misesian epistemology as consisting exclusively in "radical apriorism". That's a mistake that many people do, especially rothbardians.

All: I'm quite, sure, although I never found the quotation again, that Mises in some of his books (maybe "epistemological problems") claimed that the existence of economic order is not derived apriori, it is an empirical observation. I.e., the extent of consistency between ex ante intentions and ex post outcomes is to be determined empirically.

In fact it is possible to logically construct the image of a society without any order, or that of a society with perfect coordination (general equilibrium). In the former case, praxeology would be valid, but would have been wholly useless. Some level of order is required for economic theory to be relevant in understanding reality.

Anyway, I have no idea about how to prove whether we are close or far away from coordination.

I think Mises is generally somewhat mischaracterized on apriorism. His was a way more moderate position than generally recognized. His position, indeed, anticipates Lakatos's idea of the "hard core," so I think we should see it as pretty advanced. OTOH, I think he was kind of weak on the empirics of coordination, at least by today's standards. We need to be quite disciplined about translating our ideas on coordination into empirically testable claims and then doing solid tests. We need to do better. So does most of the rest of the profession and lots of econometrics is still pretty much a con. But that's just all the more reason to be rigorous and disciplined ourselves. Anyway, even by today's still somewhat loose standards, I think Mises was a bit weak on the empirics.

I agree that we start from observed order, and then try to explain how the order could come about. To paraphrase Hayek, the problem is not explaining why things go wrong, but why they should ever go right.

It seems to me Austrians strike a balance between, on the one hand, equilibrium always, and, on the other hand, inherent instability. Markets work when price signals transmit reliable information on relative scarcities and demand. When monetary policy distorts price signals, we get disequilibrium.

In a modern economy, there are many other economizing institutions besides prices. Investors must rely on third-party information, including credit ratings. They need to rely on the evaluations of opaque financial institutions by accountants and regulators. (Lee Hoskins and I wrote an article for the Cato Jounrnal in 2006 on this issue.)

We know know that some of these third-parties were not doing their job, and were perhaps corrupted. They sent false signals about the credit-worthiness of financial instruments and financial firms. False quality signals can distort resource allocation as effectively as false price signals. I wrote about this for the Wall Street Journal in "An Economy of Liars."

For those who aren't aware of the literature,

I offered a detailed critique of Lachmann's hermeneutics: "Ludwig Lachmann and the Interpretive Turn in Economics: A Critical Inquiry into the Hermeneutics of the Plan," Advances in Austrian Economics V. 1 (1994), pp. 303-320.

And I was engaged in a debate with Lavoie over his hermeneutical effort and his call for an "economics of meaning." See Prychitko, "Lachmann's Plan, and its Lesson: Comment on Lavoie," Don Lavoie's "On Regrouping the Intellectual Capital Structure of Lachmann's Economics," and my "The Dangers that Court Hermeneutics: Rejoinder to Lavoie," all in Advances in Austrian Economics v. 4 (1997), pp. 209-229.

It's a shame that some Austrians, while critics of us at GMU in the 1980s exploring hermeneutics, did not seem to be aware, or bother to read, our later work.

Jerry has captured the essence of the answer to that "challenge" made by Lachmann to which I referred in an earlier comment.

The Austrian approach is precisely that "middle ground" between assuming perfect coordination at all times, and constant and non-adaptable discoordination frequently or most of the time.

The key to the "puzzle" that Austrians have attempted to provide (once we don't hide behind a curtain of perfect knowledge and "auctioneers") is the price system, profit and loss signals, entrepreneur incentives, and competitive discovery processes, in a wider social setting of shared meanings concerning actions in the division of labor and the institutional points of orientation for degrees of predictability and expectations formation.

It is, as Jerry points out, the disruption and distortion of this system and network of signals by government manipulation and intervention that injects waves of mis-information and wrong incentive signals about what and how to do things in the economy that sends the market order into temporary paths of significant and often economy-wide discoordination.

Richard Ebeling

Jerry,

Couldn't non-monetary disequilibriating forces also just be part of the economics of violent intervention in the market?

Richard, the explanatory problem and the causal mechanism explanation come first -- we then reify this into a "method" .. and then we usually forget the empirical problem and causal mechanism that gave any motivation to the "method".

We end up with "explanation by elimination" ... the empirical problem disappears and is completely misunderstood, and the causal mechanism gets lost.

The "method" becomes an object that people attempt to fit to the demands of what the philosophical tradition tell us "knowledge" or "science" must look like -- i.e. we attempt to transform the elements of the "method" into demonstrative truths, or statistically tested truths, or into a nomological deductive system, or into mathematical "models" subject to mathematical proof, etc.

If you look at the literature on "methodological individualism" you find a dozen different interpretations of this, all transformed by different understandings of what "science" or "knowledge" demand.

Find some examples listed here:

http://www.hayekcenter.org/friedrichhayek/hayekmyth.htm

In other words, I agree with you about Menger and the "compositive method" -- but without the context of the particular empirical problems which Menger addressed (e.g. the problem of the origin of money, etc.) the causal / explanatory core of that "method" can be completely lost (e.g. the causal / empirical element of learning can end up completely absent from the explanans).

So what I am getting at is that an explanation is an explanatory complex -- non-optionally dependent on its empiricalpattern for a central part of its significance -- indeed the causal / explanatory mechanism making sense of the empirical problem can be completely lost when the focus turns to "method" in the absence of the empirical problem -- as demonstrably has happened in much of economic science.

Richard writes,

"Intellectual inquiry may begin with "empirical puzzles," as you say, Greg.

But then it becomes a matter of the best method to proceed with, to find an answer to that puzzle.

For the Austrians it is a form of what Menger called the "compositive" method. The task is to reduce the "complex phenomema" to their most elementary components; determine that nature, qualities and characteristics of those elementary components (their "essence" to use Menger's term); and then, from understanding their nature and "law," explaining how the interaction of such elementary components generate the complex phenomena that was the original puzzle.

The elementary components of the social (and economic) world are the individual human actors who comprise the society or community. It is from their "laws" (the logic of individual action and choice) and the effects that emerge from their interactions that we derive our insight to the nature and workings of the social and market orders.

This is Menger's, Boehm-Bawerk's, Mises, Hayek's (See, "The Counter-Revolution of Science"), Rothbard's, and Kirzner's approach.

So I am not seeing what you are getting at, Greg.

Richard Ebeling"

Let's look at some examples.

Schumpeter took Menger's scientific problem / explanation complex, dropped the empirical problem motivating it, reified the "method" as "methodological individualism", and attempted to make that "method" fit the demands of "science" and "knowledge" by interpreting it as a Machian / mathematical system.

Friedman took the mixed marginalist / classical "method" of Marshallian economics, and worked out how to make that method fit the demands of "science" and "knowledge" by interpreting it as an instrumentally "tested" and justified body predictive tools.

Mises took Menger's scientific problem / explanation complex, dropped the empirical problem motivating it, reified that "method" as "praxeology", and attempted to make that "method" fit the demands of "science" and "justified knowledge" derived from Kant by interpreting it as a system of Kantian truths about individual human action.

Hayek in his 1937 essay "Economics and Knowledge" and in his 1941 book _The Pure Theory of Capital_ gently reminded Mises and Schumpeter and the Marshallian & Walsarian economists that the whole thing starts with an empirical problem and empirical patterns, which are explained most fundamentally by a causal empirical mechanism of entrepreneurial learning in the context of changing relative prices and local conditions.

What Jerry said.

Pietro writes,

"Ransom: .. It looks like you are referring to Mises, and interpreting the whole of Misesian epistemology as consisting exclusively in "radical apriorism"."

Pietro, I'm well aware of the full complexity of Mises work -- and I'm aware that Mises does present the empirical problem of economics and the causal / empirical mechanism of learning. The big problem is that he doesn't understand the central signficicance of these elements in making sense of economics as a science -- and he obscures and confuses the nature of this scientific domain by his focus on Kantian claims about a "science of human action".

@The_Orlonater,

In principle, yes to non-monetary or real factors. Some of the instiutions I mentioned are real factors.

Standard "real" shocks are problematic. It is not clear why technological innovation or productivity shocks should lead to disequilibrium. They should not cause "false" signals in the absence of an elastic supply of credit.

The methodological/epistemological considerations raised earlier in this thread prompt me to pose this:

From the point of view alluded to below,...
- It's not that economics cannot be an empirical science.
- And Austrian "a priorism" & subjectivism, properly construed, do not mean non-empirical, ratiocination, untested speculation, etc.
- It's just that Austrian economics empirically tests its postulates, not its theorems (implications of its hypotheses), the reverse procedure of that practiced by the physical & biological sciences.
- It's not, as Rothbard characterized, that economics has no constants; rather, it's that economic theory possesses no conservation laws (as in physics), which is saying something somewhat different. (I think that Rothbard might have been the first to agree with this refinement of his misleading terminology.)
- Austrian methodology thus involves a "Copernican Revolution" with respect to the physical & biological sciences, and better understanding & promulgation of this difference (by Austrian economists themselves, frankly, as well as by other schools of economics) would foster great reduction of confusion & misunderstanding, and consequently possibly would foster greater openness to and acceptance of the Austrian school.

This point of view in scientific methodology is that of F. S. C. Northrop, whom I've never seen acknowledged by Austrian economists, except the following. I would be interested in comments on Northrop by others here, especially by Richard Ebeling. I also more generally would like to take this opportunity to strongly recommend Northrop's _The Logic of the Sciences and the Humanities_, which has been the single most useful aid to me of better placing the procedures of inquiry by Austrian economics within the context of philosophy of science.

--
footnote 30
7: Economics as a Science of Human Action - Israel M. Kirzner, The Economic Point of View [1960]:

"...it is of interest to notice that the position of economic science in the face of changing hierarchies of chosen programs has been set forth with exceptional clarity by F. S. C. Northrop in his article “The Impossibility of a Theoretical Science of Economic Dynamics,” Quarterly Journal of Economics, November, 1941, reprinted as ch. XIII in his The Logic of the Sciences and the Humanities (New York: Macmillan & Co., 1947). Northrop demonstrates the impossibility of theoretical economic dynamics (on the assumptions and with the method of contemporary economic theory) by pointing out the lack, in economic affairs, of the conditions for such a theory. The data of economics (human wants) are, for its theorems, purely formal entities, whose specific properties are necessarily not to be considered. Moreover, there is no way of deducing the structure of future wants from present wants because wants obey no “conservation law.” Nor, Northrop adds, is there any a priori reason why the subject matter of economics should be conceived in terms of concepts obeying such a law. The quest for an economic dynamics may well “have its basis in a dogmatic assumption, with respect to which our empirical knowledge already gives the lie.” Northrop takes two groups of critics to task: those who mistakenly demand of economics that it take account of changes in the basic data—the relevant chosen ends; and those who, despairing of such an achievement, conclude that economics is of no use whatsoever. Both extremes err in their assessment of the nature of the scientific contribution that it is in the power of economic theory to make."

http://oll.libertyfund.org/?option=com_staticxt&staticfile=show.php%3Ftitle=304&chapter=5959&layout=html&Itemid=27#lf0723_endnote_nt359

Lachaman was a great economist, scholar and intellectual; he was not much of a systemizor but in the fields he pursued he opened new or fascinating directions and asked new or fascinating questions in a way that Rothbard, as economist, didn't even immagine.

BTW, there historicisms and historicisms (or historisms); the Austrian economists were primarely against the idea of a philosohpy of history, either in its contingent form or in its deterministic form. This is very different than forgetting history all together.

Note well.

The greatness of Adam Smith and his _The Wealth of Nations_ consists the empirical problem with which he begins his book, and with his causal / empirical mechanisms which provides a non-magical explanatory solution to that problem. (e.g. the empirical pattern of the growth of wealth tied to the extension of the division of labor -- explained by the productivity of specialization and coordination of specialization driven by those seeking entrepreneurial gain.)

Similarly with Darwin -- his greatness came in his casting of the empirical problem and his his causal / empirical mechanisms which provides a non-magical solution to that problem. (Ernst Mayr lays this out in his _One Long Argument_).

The whole "testing" and "postulates" picture of "science" and "knowledge" is the problem.

Darwin gave us the most earth-shattering and systematically powerful explanatory nexus science has ever known -- and "testing" and "postulates" had nothing to do with it.

The philosophers demand that all knowledge be justified demonstrative knowledge is the ultimate source of this problem -- i.e. the Euclid model of what science and knowledge must be.

This model has been a disaster for understanding what science is, what knowledge is, and what the social phenomena of language is. And you can map out the pernicious effects of this philosophical tradition as the source of many of the deep pathologies behind the various pseudo-scientific approaches to economics, across the history of the discipline.

George Machen writes,

"It's just that Austrian economics empirically tests its postulates .."

Note well that "entrepreneurial learning" is open-ended in the sense that it cannot be limned as a "natural kind" with physically defined necessary and sufficient conditions, operating according to a set of nomological covering laws.

And "entrepreneurial learning" doesn't really fit any of the Kantian categories -- it's both a universal structure shared among man and at the same time it is an empirical causal fact in the world.

Synthetic, analytic, a prior, a posteriori .. I don't think any of these categories fit very well with the phenomena or help us understand entrepreneurial learning .. we understand it as fellow human beings, and within an explanatory nexus which includes the explanatory problem of global economic coordination.

If I'm wrong, someone explain how.

I wrote,

"entrepreneurial learning in the context of changing relative prices and local conditions."

A question to Richard and others about the middle-ground feature of Austrian economics: to what extent is the neoclassical mainstream TODAY (I mean, the most recent invetsigations and lines of research) in the ground of perfect information/coordination/equilibrium all the time? Haven't they moved towards more realistic grounds? -though most likely in a manner Austrian do not feel comfortable with.

Thanks

Greg:

What Mises interpreted as Kant’s insight for the grounding of a universally valid science of human action was Kant’s idea in his "Critique of Pure Reason" (1781) that the mind operates in terms of certain categories outside of which thought and reasoning is impossible, for those categories are the context in which the mind can reflect on anything, including itself.

Or in the words of Ernst Cassirer, "The Philosophy of the Enlightenment" (Princeton, NJ: Princeton University Press [1932] 1951) p. 94: “The nature of human knowledge can only be explained in terms of the ideas which the mind finds within itself.”

These a priori categories, for Mises, are the ones in which both human reasoning and human action occur, and are the only ones in the context of which can man reflect upon, through introspection, to understand the logic of his own conscious conduct. Since man’s reasoning and ability to act are both conditioned by these same categories of thought, they are “prior to” experience and, yet, explain the reality of how men must and do act. Hence, they are both logically valid and empirically true.

This serves as a basis for the distinction that Mises, then, made between theory ("conception")and history ("understanding," the interpretation of the empirical manifestations of human action).

"Conception” refers to those general or universal propositions in economic theory that are logically correct and valid within the context in which they are formulated. Thus, in so far as individuals have goals or ends that they desire to attain, and in so far as they discover that the means available to achieve them are scarce, they will, by necessity, have to rank the ends in order of importance and assign the means to achieve those ends ranked more highly before others ranked less highly; and in this process they will have to weigh the “costs” and “benefits” of pursuing one goal rather than another, and decide on the trade-offs (at the margin) that they consider the relatively more “profitable” ones in the context of the given circumstances. This would be universally and “objectively” true of any man, and therefore of all men, in which the means are found to be insufficient in relation to the ends that can serve.

“Understanding” refers to those unique and individual historical events that may be interpreted with the assistance of the logic of human action and the theorems of economics, but which are open to different “subjective” (“intuitive”) interpretations as to their meaning and the relative importance of the factors that have brought about the observed outcome. Thus, historians may study the same historical event, say, the Battle of Waterloo, but they may differ concerning the “weight” or relevance of the various factors that brought about the historically unique outcome, the defeat of Napoleon.

"Entrepreneurship" emerges out of this framework by the fact that Mises asks, what is the "empirical" reality in the context of which men choose and act?

Choice means selection among alternatives that the mind has concluded may be possible. If the mind believes that it has the capacity to select one (or some) of these alternatives over others, the individual must believe that the future is not predetermined in the sense that any attempted action cannot influence the "inevitable" outcome.

Hence, there is an element of uncertainty about the future, and what the "shape-of-things-to-come" may be, because the individual's actions have the potential to influence that future.

Being a good Mengerian, Mises emphasizes that any action is dependent upon the individual's believed discovery that there are causalities that can bring about certain results. Or, as Menger put it (and Mises emphasizes), to speak of causalities is to speak of a "cause" and and "effect." Which implies a before and an after, a becoming and became.

Thus, every action is inseparable from causality, temporality and uncertainty. And, as a result, every action contains the element of "speculation" since its outcome cannot be certain.

Thus, all human action by necessity contains an entrepreneurial (a speculative) aspect to it. The specific activities of the more narrowly conceived "entrepreneur" as a "specialization" in the social system of division of labor is an outgrowth of these wider notion of entrepreneurship that is an integral element in the concept of action.

Richard Ebeling

Richard, I'm well familiar with all of what you explicate just above.

My point stands.

The scientific character of economics comes out of the empirical problem / causal - empirical mechanism nexus. Just like Darwinian biology.

You could also attempt to go "Kantian" with the directly perceived teleological / functional elements that constitute both part of the explanandum and the explanans in so much of Darwinian biology -- you could say that the whole thing had its demonstrative or apodicitic foundation / justification in universal categories outside of which thought and reasoning is impossible,

But if you restrict your gaze - and your definition of "science" -- to that, you're really missing the core of the scientific phenomena. The powerful thing that is going on is the specification of the empirical problem and the solution to it represented by the identification of a powerful non-magical causal / empirical mechanism.

Beyond that, there are all sorts of problems with the Kantian project, strictly understood, not to mention problems with squaring Mises' "Kant" with the real Kant.

I'm not saying there aren't advances in our understanding to be gained from studying Mises in this area.

But I am saying is that it IS destructive to our understanding to fail to acknowledge how Mises attempt to attain "scientific" status for economics was a false detour that lead people way from the thing which _does_ make it a science -- simply the ability to provide a powerful explanatory nexus (just the way Darwinian biology does), by casting an empirical problem and they solving that problem via the identification of a non-magical causal / empirical mechanism.

(Mises' failed detour: the attempt to attain "scientific" status for economics via the appropriation of Kant's failed scheme for satisfying the bogus (and ancient) demand for demonstrative, certain, justified "knowledge", esp. in the case of empirical knowledge and empirical science (e.g. Kant's attempt to answer Hume).

Wittgenstein and Popper and Bartley are right. The mistake here is to accept the ancient model of "knowledge" and "science" as demonstrative knowledge or justified true belief, a model derived from Euclid and ancient geometric proof.

From what I understand regarding chsotic and biotic systems and the fact that they create far-from-equilibrium states that are maximally creative and self-organizing, then it seems to me, from what Richard said about Lachmann's ideas on disequilibrium, that Lachmann is likely to be right on equilibrium. I haven't read Lachmann, but I certainly will considering these insights. If there is anything where, based onthis discussion, Lachmann may be wrong is that the far-from-equilibrium state cannot create order/coordination. The work on far-from-equilibrium processes certainly suggests otherwise. But it makes it even more clear that only a free market can work to create such complex order as emerges from such processes.

Greg;

And my "problem" still remains. How do we know what it means to "choose," to "act," to "understand" ourselves and others, if not through the introspective turn that is the only ultimate source of knowledge about what makes us "tick," i.e., to choose and act they way we do in terms of formal logical principles.

How would we even know what the difference is and the ability to distinguish between "animate" and "inanimate"?

Even Popper, when he turns to "human action" in his analysis of situational "rationality," implicitly must take recourse to these "a priori" categories. How else would he be able to give any logical structure to the idea of individual's choice, decisions, and actions in the conditions postulated?

I find it strange how resistant many people find it to accept that in the realm of man much of what we can know about ourselves and others is -- as they used to say in the 1960s -- "It's all in your head, man."

Overcoming this resistance is why not only Mises' work on methodology remains relevant, but Hayek's writings on this theme, which luckily Bruce Caldwell has given new life to with the reappearance of "The Counter-Revolution of Science" as volume 13 of Hayek's collected works under the title, "Studies in the Abuse and Decline of Reason."

We are different from rocks. So we need to stop attempting to apply the methods of studying rocks to the study of the reality of man.

Richard Ebeling

There is a class of propositions that are synthetic, informative, and yet entirely untestable by any experiment or observation. Why? Because there are some propositions that must be true for rational and scientific investigation and criticism to begin. Among such propositions are included all the "axioms" of Mises's praxeology, I think. Insofar that we can deduce useful insights from these propositions, useful knowledge may be gained. I object strongly, however, to the notion that such a "method" is exhaustive. I believe Mises did too. Unfortunately, many of his followers appear to think otherwise.

The class of propositions I mention have a character something *like* apriori sythetic knowledge. However, I believe Mises's psychologism muddied the waters on such matters. Our certainties, beliefs, doubts, inspirations, motivations, and sequences of thoughts are al psychological relations. The logical relations of consistency, entailment, contradiction, etc. are what should concern us in understanding the body of scientific knowledge.

Richard, this is off point.

You are gazing away again from the explanatory power I turned your attention toward.

And I don't challenge that we know this stuff.

Indeed, you are sucking us right back to the "how do you know" question -- the demand for justification, the ancient philopshers bogus and misplaced challenge.

I would suggest that Wittgenstein and the post 1954 Hayek are a better approach to this kind of "knowledge" than are Kant or even Mises.

The "introspection" metaphor and the literaryinterpretation metaphor and the Euclid metaphor are a mistake for making sense of the domain of the universally shared structures of mind that make us human -- the bottom line here is that we have ways of going on together in common that ground our evolved social institutions of language -- and there is no bedrock beyond that. Explanations end somewhere, every door needs a hindge to turn on -- and at some point the "how do you know" demand for justification becomes obsurd, a 5th wheel.

So I reject your "how do we know" problem. We share a biology. We are human. We do know this. And we can't imagine an alternative -- we wouldn't recognize someone as human who didn't go on together with us. As Hayek and Wittgenstein explain, we get into this language game first by doing and imitating others -- there is nomother "ground" and no spectator model that cashes out the shared doing.

Just like there isn't an outside math construct of "given data" that gives us a spectators image of the doings of market actors creating an order in the market, there is no set of entities that we can "introspect" as a model of the shared structure of mind we attempt to capture in language -- which is yet another shared domain of going on together (e.g. using the language of "rules" to talk avout rules).

We can lay out the logic of great parts of it, but there is nomultimate ground in a set of private entities or introspectivle structures, and the language is open-end and has room for more distinctions and understandings than have yet been achieved or imagined.

An explanatory nexus with massive explanatory power is its own justification.

Powerful explanations unify and advance our understanding.

And attempted explanations of that phenomena end somewhere -- attempts to cash them out have not proved to have advanced our understanding very far.

There is a difference between seeing a sheep and interpreting a cloud as a sheep.

The "literary" model of understanding tells us to conceive of the universal structure of mind we live within as if we were attempting to interpret a cloud as one thing or another.

We don't have an A - B interpretive relationship to this universal shared structure.

We live within it.

@Greg,

You would make your case far more effectively if you wrote up your ideas systematically in a paper that we could all access. They appear in tidbits in comments and do not come across as a coherent whole.

Accordingly, for now at least, I side with Richard.

If I may offer some words on Lachmann and the Austrian tradition.

Whatever the historical roots shaping his thinking, it is clear that Lachmann regarded himself as working within the "Austrian school." He was passionate about it, though he had strong opinions about what was authentically Austrian and what was not.

Lachmann probably invited controversy and misunderstanding by the way he sometimes expressed himself - "prediction is impossible" - leading to the perception of him as a theoretical nihilist.

His focus on uncompromising (epistemological) subjectivism is an outgrowth of his work on capital and the role of the entrepreneur in forming capital-combinations, whose value is determined by the subjective appraisal (expectation) of their prospective earnings, though he regarded Shackle as accurately expressing his views on this. [Recent consideration has led me to conclude that, in this respect, and maybe in others, Lachmann was not that far from Mises. I may be wrong but I think that much of Mises is implicit disequilibrium economics].

Different entrepreneurs have different expectations about the future - different appraisals. Hence, at most one of them can be right. If we understand equilibrium to mean a situation of compatibility and correctness of expectations, then we are, most of the time, in disequilibrium; and, given that the arrival of new data (knowledge) in the market will produce new incompatible plans, we cannot say a priori that the process is equilibrating.

This raises the question of how action is possible is a disequilibrium world - if plans are more likely to be wrong than right, how can effective future-oriented action occur?

Well of course people do act - and they can do so because than CAN predict most things accurately in their everyday lives and because they are acting within social institutions that serve to anchor and channel expectations. Lachmann clearly understood this. I have tried to make this clear in my own work on action in a world with both equilibrating and dis-equilibrating tendencies, suggesting that the latter is responsible for the dynamism of the economy while the former is responsible for the economy being able to absorb the rapid change that this implies without disintegrating into chaos. Briefly, knowledge of the world is multifaceted. We have knowledge of nature, of social laws and we form expectations. Expectations of some things may be disequilibrating, but the former two categories of knowledge are the result of convergent processes that allow us to act in the knowledge that certain things can be relied on. [Others, like Brian Loasby, have also worked on this.]

Finally, it should be noted that Lachmann's "radical subjectivism" has recently caught fire in the field of entrepreneurial studies (in the management literature). The application of his ideas to real world cases is providing the kind of empirical "tests" alluded to above. Kirzner has for a long time now been a focus of this literature and Hayek and Lachmann are seen as interesting developments of the Kirznerian story of entrepreneurship as the discovery of opportunities. Mises is also routinely cited, on entrepreneurial appraisal. Many of the people working in this field are economist.

Jerry, it's too late.

Just above you already took a stand for the problem - explanation nexus as primary position.

And you do the same in your book on Hayek.

Here is how it goes.

We work out the problem and the explanation first.

Then we attempt to demark stipulations from that nexus which we label as "method" or "methodology".

But the stipulations follow from and depend for their force on the success of the problem identification and solution identification. It works the same in other sciences.

Lee Kelley,

Mises never argued that "all" knowledge about man, the human condition, or his concrete actions can be acquired by the method introspective "a priori" axiomatic deduction.

This merely serves as the analytical schema, the conceptual "grid," so to speak in which to have logical understanding and give ordering intelligibility to actions of men. And it possesses "truth value" since it is difficult to imagine men who think and act in any other way, because this is how their minds work, and therefore the framework within which they choose and act.

But the physical conditions in which men live; many of their own physical qualities and characteristics; the cultures and institutional orders in which they live and act; their actual desires, wishes, and belief systems; the types and degrees of specific knowledge they possess . . . these, and a wide variety of other things are not and cannot be known "a priori."

This is why when Hayek published his 1937 article on "Economics and Knowledge" Mises liked the article, though Hayek thought he was taking a "zing" at Mises' "a priori" approach to economic theorizing.

It is useful to recall that, as Ludwig Lachmann wrote in his review of "Human Action," it needs to be remembered that it is Max Weber's work that was being continued by Mises.

Mises conception of "action" as intentional conduct to which the actor assigns a subjective meaning, is taken directly from Weber. Weber's conception of "social action" as human action in which each actor takes into consideration the existence and actions of others, and orients himself accordingly, is the basis of Mises' use of the, again, Weberian idea of "ideal types."

It is through the mental images of "others" that we form in our minds (and on the basis of which we construct "typifications" of them and groups of them) that is the basis of "understanding" those others' actions in the past, and anticipating their possible actions in the future.

All of the "data" for the construction of these "ideal types" is empirically based. That is, based on the individual's own interactions with those others, or other courses of information about them.

Expectations, interpersonal plan coordination, "reading" pricing signals as a guide for future actions, entrepreneurial judgments and chosen courses of action, are all derived from this "empirical data" about others and their likely future activities.

The "a priori" categories and relationships, as I said, is the conceptual framework, the analytical grid into which all of this empirical data is placed, organized, and interpreted as part of the processes through which men design their "social actions" (in that Weberian sense) for mutually interactive relationships.

Thus, Mises praised Hayek's argument, precisely because he was making a case that was completely compatible with how Mises saw the "empirical" aspect to economic analysis.

Richard Ebeling

@Greg,

You'll never convince anyone arguing that way. You apparently just want to post statements. Post away.

"This is why when Hayek published his 1937 article on "Economics and Knowledge" Mises liked the article, though Hayek thought he was taking a "zing" at Mises' "a priori" approach to economic theorizing."

Hayek went into more detail in the first few chapters of his 1941 book _The Pure Theory of Capital_.

He re-emphasized that entrepreneurial learning is empirical, and a causal mechanism.

He re-emphasized that the logic of marginal valuation really applies only to relations within a single mind, and there are "givens" only in this model world known to a single mind, and no such "givens" in the economic world.

And empirical patterns in the world give rise to any sort of economic reflection.

No Kant was necessary to understand economics as a science.

Hayek developed these themes in later papers published in the 1950s.

I stand by my statement that Mises misplaces attempt to locate the "scientific" status of economics in Kant and "human action" was a major setback for economics, and took economics on a detour -- both by a small minority in attempting to redeem Mises, and more significantly in the bogus alternative images of "scientific economics" propagated by those who rightly rejected Mises picture of what made economics "science".

And the blow-back very erroneously backwashed on Hayek's very different conception of the scientific nature of economics -- with people like Samuelson and Friedman attributing Mises' non-empirical / Kantian conception of economic science to Hayek.

Hayek rejected the bogus view of science coming from Friedman, Mises, and Schumpeter/Samuelson (instrumentalism, Kantian foundationalism, and Machian positivism.)

Hayek's vision of science is more like Mayr's account of Darwinian science or the Kuhn account of hard science -- it's problem centered and focused on explanatory power.

Hayek's a Kantian to a certain degree as well -- in his The Sensory Order. Thus, he is a Kantian foundationalist as well.

Jerry, I have no idea what you are objecting to.

I know where you stand. You've staked out that ground above. What I don't understand is what you are objecting to. You haven't said.

Jerry writes,

"You'll never convince anyone arguing that way."

Note well. Writing papers and books doesn't work either.

Hayek has already written them.

Hayek wrote them and the profession ignored him.

(And so, it seems, have most Austrians.)

I've written a paper giving the outlines of Hayek's explanatory strategy, which I presented at a conference, and I've circulated. It's not hard to understand. People ignored it.

But this doesn't surprise me.

The profession ignores most of its deepest problems.

Tenure and profession advance lie elsewhere.

And top professionals in the discipline can lead the economy into such things as the current depression .. and there are no consequences for anyone.

When it comes to the hard stuff I'm deeply pessimistic that changing understandings is easy to do -- especially when profession advance rewards something else.

I do think that conversation is as likely to do it as anything.

Conversation lead Lawrence White to understand my point about the primacy of problems and explanations over "methodology", in conversation on my old Hayek-L list.

Sometimes conversation works.

As a student of Larry Wright and Ludwig Wittgenstein, I'm a big believer in the idea that conversation is helpful in setting up the background understanding and shared reminders necessary to make advance on hard problems, many of which are not solvable by the construction of formal systems, but only via conversations which reveal the limitations of formal systems (e.g the sort of thing Wittgenstein and Hayek attempt to do, e.g. Hayek in his "Economics and Knowledge" paper and Wittgenstein in his _Philosophical Investigations_ conversations.


Jerry writes,

"You'll never convince anyone arguing that way."

Troy, you can call it Kantian, but it's really not Kant.

You can call Wittgenstein's work Kantian in some sense as well.

But it's not Kant.

And the differences are as important as the similarities or overlap.

"Hayek's a Kantian to a certain degree as well -- in his The Sensory Order. Thus, he is a Kantian foundationalist as well."

Greg,

I don't understand what you mean, and I don't think other folks really do either. I'm sure it's obvious to you, but it isn't to the rest of us.

I certainly don't deny that Hayek develops his theory of mind well beyond anything Kant even could have done -- but founded on the Kantian concept of mind it most certainly is. This is different from his ideas on the social spontaneous orders, which are more Wittgensteinian. Certainly the langauge order is.

Richard said: 'Mises never argued that "all" knowledge about man, the human condition, or his concrete actions can be acquired by the method introspective "a priori" axiomatic deduction.'

I know and didn't mean to suggest that. Mises's concept of "understanding" and description of historical science are unintelligible otherwise.

However, Mises's does seem to suggest that such 'introspective "apriori" axiomatic deduction' is the only legitimate source of knowledge regarding economic *theory*. This may not have been his intent, but it is the impression I was left with after reading the opening of Human Action.

For my liking, Mises confuses epistemology and methodology, logic and psychology. His use of technical terms like "proof", "tautology", "formal", "valid", "axiom", etc. is inconsistent and misleading. His criticism of the experimental method as applied to economics is only half-right. Mises's Cartesian assumptions and prejudices trip him up, in my opinion, on many of these issues.

Having said that, the "axioms" of human action, and all they entail, are important. Like Descartes's first principle, they are not logically strong enough to answer every question we might have, but they are important critical benchmarks, i.e. a theory or explanation that contradicts them should be rejected. Mises recognised this situation, of course, but he seemed to imply that praxeological axioms really were exhaustive of legitimate *theoretical* knowledge of economic science. On that matter, I think I disagree.

It is just possible that this paper contains some of the thoughts that Greg is promoting, though I dissent from his positive view of Wittgenstein.

http://www.the-rathouse.com/WritingsonMises/FallibleApriorism.html

The argument of the paper is that theories need to be judged by their capacity to solve problems (to provide explanations and understanding) and to stand up to various forms of criticism, including the test of practice. It steers clear of arguments about origins and foundations.

It suggests that the efforts by von Mises and his followers to distance the methods of the social sciences from the methods of the natural sciences are based on false views of the methods of the natural sciences.

The argument is supported by the work of Barry Smith on fallible apriorism and by a re-reading of Popper as a fallible apriorist, along with various other "turns" that distance him from the pathetic strawman of "falsificationism" that is promulgated in the literature.

Despite Mises's characterisation of praxeology as a formal language like mathematics or pure logic, in practice it is no such thing. Mises develops no formal symbolism or deductive system for praxeology, nevermind establishes that such a system is truth-preserving (whatever that would mean for such a language). Most praxeologists just plug the "axioms" of human action (plus "postulates" and other assumptions) into the premises of run-of-the-mill deductive logic and go from there. Frequently it is just an analysis of what a term means, and noting other concepts that are prerequisite for its understanding. Sometimes this denegrates into a crude form of essentialism, and other times it seems terms are subtlely redefined so as to produce sought after conclusions. Ultimately, it seems to me that praxeology lacks the kind of rigour and precision which is often attributed to it.

This -- in part -- was Hayek's view.

Rafe writes,

"It suggests that the efforts by von Mises and his followers to distance the methods of the social sciences from the methods of the natural sciences are based on false views of the methods of the natural sciences."

Note well that Hayek defines "scientism" as the imitation of a _false_ understanding of the natural science, a false view held by Naurath and the Vienna Circle followers of Mach. In economics the paradigm followers of Mach and a false picture of science would be Schumpeter and Samuelson.

Friedman would also be an example, but a follower of a false instrumentalist understanding of science, rather than a false Machian. / positivist pictue.

I'd like to know how Richerd and Jerry would answer four very basic Mises related questions, which would clarify much.

Do they believe that Kant correctly secured the scientific and knowledge status of Newtonian mechanics?

Do they contend that Newtonian physics needed vindication to secure the status of knowledge and science?

Similarly, do they believe that Mises correctly secured the scientific and knowledge status of economics.

And do they contend that economics needed vindication to secure the status of knowledge and science.

Answers to these questions should be easy, and should do much to clarify what the claims for Mises and his Kantianism come to.

We find the roots of systems science in Kant (and Goethe, Hegel, and others in the German tradition, up through and including Nietzsche) -- ideas which were contrary to simple Netwonian mechanics. Newtonian physics is the simplest level of physics and of science in general. It is insufficient for understanding any sort of complex system. You can prove Newtonian physics and prove nothing about complex systems such as nonlinear dynamics, biological systems, dissipative systems, etc. Yet, if we are going to understand economies, we need to understand complex systems. Insofar as "scientism" was a false application of such simple science as Newtonian mechanics to complex systems, both Mises and Hayek were right to oppose it.

Peter Lewin and I said essentially the same thing about Lachmann.

Troy -- "scientism" as defined by Hayek is application of a _false_ understanding of science to economics. Hayek's paradigm here is Naurath and Schumpeter attempting to apply the false picture of science conceived by Mach and the positivists to economics and social science.

It's note a false application of real science, its a false application of a false understanding of real science.

The nature of simple science applied to non-linear phenomena may have been the inspiration for the false picture, but the picture remains false non the less.

And note well, the three body problem is a problem within Newtonian mechanics, and many non-linear systems can be specified within A Newtonian frame.

Make that:

"The nature of simple science applied to simple linear phenomena may have been the inspiration for the false picture"

Mises's use of technical terms like "proof" and "tautology" is inconsistent and misleading.

For example, the term "proof" has a precise meaning in the context of logic: a sequence of valid inferences from premises to conclusion. It is an abstract thing. A proof may exist that is never discovered, or a proof may be practically impossible to demonstrate. It is an objective thing. One may mistakenly identify an invalid sequence of inferences as a proof.

However, an informal use of the term "proof" is to describe an argument that convinces or compels someone to accept the conclusion. The command or challenge "prove it!" is usually meant in this socio-argumentative context. The failure of one to accept the conclusion of such proof is often seen as evidence of irrationality.

Sometimes it is harmless to confuse there meanings of "proof", and it is clear why the two concepts are historically and psychologically entangled. But there are important differences.

A logical proof offers no more reason to accept its conclusion than to reject its premises: A PROOF MERELY DESCRIBES LOGICAL RELATIONS. The matter of accepting or rejecting a conclusion or whether an argument that employs the proof is convincing or compelling have nothing to do with the proof itself. These are matters of psychology, or perhaps methodology, or even ethics.

A logical proof is truth-preserving only if it is entirely or partially circular, i.e. the conclusion is assumed, implicitly or explicitly in the premises. However, when trying to convince someone of a particular position, to assume the conclusion in the premises of an argument is usually considered an error (i.e. begging the question).

Mises appears to not make this distinction when discussing logic and praxeology.

For example, Mises claims that "fundamental logical relations are not subject to proof or disproof" because "every attempt to prove them must presuppose their validity." Yet elsewhere he states that "dedutive [reasoning] ... cannot produce anything else but tautologies and analytic judgments. ALL ITS IMPLICATIONS ARE LOGICALLY DERIVED FROM THE PREMISES AND WERE ALREADY CONTAINED IN THEM." (emphasis mine)

By "are not subject to proof", Mises presumably means that one cannot convince someone who objects to "fundamental logical relations" with logical argument, since such an argument that would have to presuppose the conclusion. The comment that follows certainly suggest that "proof" here means something like "capacity to convince". Mises states: it is "impossible to explain [fundamental logical relations] to a being who would not posses them on his own account."

However, according to Mises's own account of deductive reasoning, all proofs must pressuppose whatever they seek to prove. So it appears there can be no proof or disproof of anything.

Mises then cements the confusion: "efforts to define [fundamental logical relations] according to the rules of definition must fail. They are primary propositions antecedent to any nominal or real definition. They are ultimate unanalyzable categories." He seems not to understand that reflexive character of such such categories, i.e. the rules of definition, the categories or logic, can be used to analyse themselves without contradiction or other difficulty.

The validity of "fundamental logical relations" is provable, at least in the logical sense, precisely because the validity is already assumed in some premises -- that's just how logical proofs work! Mises appear to be mired in confusion by identifying these two concepts of "proof" as being one and the same.

What does one make of all this? Mises makes some exceptional claims about praxeology, and attempts to place it on par with pure logical and mathematical analysis. But he is also confusing and misleading, even sloppy, on such matters. The opening 100-150 pages of Human Action, while not devoid of insight, do not leave me with the impression that Mises is a particularly good thinker.

Correction to the end of my last post:

"The opening 100-150 pages of Human Action, while not devoid of insight, do not leave me with the impression that Mises is a particularly good thinker, but rather with the impression that he had lots of thoughts."

"it is easy to show the absurdity of most concrete attempts to make the social sciences "scientific"" -- Hayek, "The Facts of the Social Sciences" Individualism and Economic Order, pg. 58.

He does of course mention Mach and the logical positivists, but they are certainly not all that constitutes "most."

Troy,

The only point is that Hayek specifically identifies Neurath as the paradigm of "scientism", he indicates he thinks this view of "science" is bogus even for the hard sciences, and he tells us that Popper had convinced him what it was a false view of even natural science -- and he tells us that the Machian view was the dominant background conception of "science" in Vienna in the 1900-1940 period, and that Schumpeter's attempt to make marginalist economics "modern" and "scientific" with his Machian interpretation of "methodological individualism" and the Walsarian system was the 800 pound gorilla in the domain those considering the scientific status of economics.

Of course, in the 1919-1920 period Hayek himself was enmeshed in the Machian system -- which Hayek turned on its head and refuted as a picture of brain/mind/knowledge.

There may have been other traditions of "scientism" out and about, but the positivist strain of "scientism" was the 800 lb gorilla, the one that shaped the thinking of most of a generation, and dominated the imagination of the next generation including such dominant players as Samuelson and Friedman (Samuelson directly adopting some form of Mach via Schumpeter and others, Friedman influenced by the "testing" and"empiricism" legacy of the positivists, derived in part directly via Popper, among others, and yes, I count Popper as among those still holding on to deep vestiges of the Russell/ early Wittgenstein / Carnap nexus of post Mach ideas.)

Greg, that pitch could end up in the back row of the stands but today it can go through to the catcher:)

I certainly don't deny that scientism was dealing with the dominant ideology of the time, but that doesn't mean that the critique doesn't apply to the basic world view of the physical sciences as the most correct way of viewing the world. In any case, my more general point is that reductionist, simple Newtonian science being appled to complex dynamic systems results in absurdities, which was one of Hayek's more general points. Hayek's idea of economics as a science has more in common with Bertalanffy's general systems theory, and emerges out of German philosophy's general interest in systems. This can, again, be traced in no small part to Kant. There is probably more commonalities between Mises and Hayek than differences. Hayek was more explicit about the economy as a complex system in his spontaneous order theory -- but it seems that Mises took most of Hayek's criticism and corrections not as criticisms and corrections, but clarifications and further developments of his own ideas.

Agreed.

"I certainly don't deny that scientism was dealing with the dominant ideology of the time, but that doesn't mean that the critique doesn't apply to the basic world view of the physical sciences as the most correct way of viewing the world."

Note well. I worked under the last of the hard core -- "science and reality are nothing but physics" -- reductionists in grad school.

Try taking on the work of Alex Rosenberg, and you'll have some idea of the extent to which the scientistic world view still has some life to it -- and some intellectual fire power.

I'd suggest this has more to do with Hayek's background in biology (both brain science and botany) and in Menger than it does with Kant -- Hayek rejected the positivism of Mach he had been atracted to and which had been recommended by Schumpeter's landmark book because of his time spent staining brain cells. He was trying to put the two perspective together and figured out they were incompatible.

It is true that Hayek was also reading and citing some post-Kantian psychologist / philosophers at the time.

But it seems clear that Hayek rejected Mach via thinking about the connected structure of brain cells, and not because of the Kant influenced psychologist / philosophers.

The interesting thing about Menger is that he anticipated many of the anti-empiricist / positivist positions and arguments of Popper.

I've already granted that there is overlap between Hayek and Mises. Sometimes what interests is the sources of the differences, and their significance.

Sometimes it goes the other way.

Bill Bartley said that when he found someone working on Menger (Karl Milford?) it seemed that Menger produced next to nothing in the last decades of his life because he bogged down on the problems of demarcation and induction. Certainly he was sensitive to philosophical issues and big thinkers can be paralysed by issues that don't worry anyone else. Remember the time Russell was stopped in his tracks by a simple paradox. Mises wrote that Menger was dogged by depression about the impending disasters. Both could be correct. Barry Smith probably knows the answer. Maybe he just spent too much time fishing. How come Hayek is the only person who ever mentioned that Menger was a keen fisherman?

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