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Pete:

Your 2009 post about Machlup (linked to my name) says that the paper Roger and I wrote is not available online. It is -- though I discovered it has moved and that my own link to it was wrong. Here it is:

http://inemsite.files.wordpress.com/2013/06/v3n2p86.pdf

Indeed, this is an excellent piece they wrote. It will be exciting to see where this interpretation takes us.

Pete’s post raises some provocative questions, most of which go unanswered. I will restrict myself to comments on the following passage:

“Let me be clear about something, Rothbard's reading is a plausible one. If it wasn't at all plausible, it could not have been a contender and it could not have persisted as long as it has in the contestation of ideas. But that contestation isn't a smooth a process of intellectual progress as we might like to believe due to institutional impediments and intellectual path dependencies, etc. Still, the market for ideas is not wildly inefficient either -- it is just a process that has a lot of slack in the system. But being a plausible reading doesn't mean it is a correct reading, let alone the most productive reading for contemporary scholars. Machlup's reading of Mises might actually be more correct, it also might be more productive.”

This is a very strong claim yet Pete does not provide any argument in support of it. I raise two points in challenging his claim.

First, the sole purpose of reasoning about method is to employ the protocol deduced in actually formulating a system of economic theory that is applicable to analyzing real-world phenomena. Methodological discussions are empty rhetoric unless they refer to the fruits of scientific investigation achieved by using the prescribed method. In short, the proof of the pudding is in the eating—and Pete does not supply the pudding

Now, as far as I know, no one has thought to develop a system of economic theory based on a Machlupian reading of Mises’s method. If I am wrong and someone—perhaps Pete himself—has done so, then I would ask Pete to point to an application of this system to interpreting some significant real-world event such as the recent monetary chaos in Euroland, the housing bubble, the financial crisis, the Great Recession, the recent Argentine currency “devaluation,” etc. There are plenty of explanations of these events based on the Rothbardian reading of Mises. In the absence of an existing Mises-Machlupian theoretical system and a record of its analytical results, comparing Machlup’s reading of Mises with Rothbard’s is pointless or at least irrelevant to scientific discourse.

Second, in claiming “the market for ideas is not wildly inefficient either -- it is just a process that has a lot of slack in the system,“ it behooves Pete to give us some idea of how long it takes for his metaphorical “market for ideas” to equilibrate. For example, it has been over 50 years since Rothbard unveiled the theoretical system based on his reading of Mises in Man, Economy, and State. Since that time, the Misesian-Rothbardian system has been “productive” of hundreds of applications--both by Rothbard and his followers--of its theorems to analyzing and interpreting historical reality. So the question then becomes: When does Pete anticipate that the market for ideas will begin to correct this massive disequilibrium and the analyses and interpretations of economic reality begin to pour forth from the yet to be developed Misesian-Machlupian system.

It is true that Machlup did very interesting and important work in competition and monopoly theory and in economic semantics and some brilliant work in business cycle theory and international monetary economics. And, indeed, some of this work did mark a significant departure from mainstream economics. But at the end of the day, Machlup was very comfortable with neoclassical price theory, the core of theoretical economics. In fact, Machlup wrote the famous appendix to C. E. Ferguson’s Microeconomic Theory, a leading graduate-advanced undergraduate micro textbook in the 1960s and early 1970s. Machlup’s 29-page appendix was “A Comprehensive Examination in Microeconomic Theory for Graduate Students.” So Pete needs to answer the questions why Machlup never developed his own reading of Mises into a distinct theoretical system and when he expects Machlup’s followers to do so as part of the corrective process in the market for ideas.

The ball is in your court, Coach.:)

I think it would be useful a short clarification of my paper with Gabriel Zanotti.

Our paper is not about Machlup's own position (for instance, whether himself is closer to Friedman or Mises), but about the implications of Machlup's *interpretation* of Mises's epistemology as we stress in our introduction. Even if it were the case (which is possible) that Rothbard's *interpretation* of Mises is the correct one, Machlup's work still provides a so much needed bridge between Mises and Lakatos.

It follows, then, that our paper neither presents nor suggest the need of a "Machlup's version of Mises's theory" that challenges Rothbard's work. We don't question, let alone demerit, Rotbhard's analysis of economic policy.

Our paper discusses epistemological problems, not theoretical problems. It is no accident that we use the word "epistemology" twice in the title of our paper. I'm confident that a careful reading of our paper does not leave the impression that we are proposing a Mises-Machlup economic theory, but that we use Machlup's work to clarify and bring up to date Mises's epistemology (which, I want to stress, it is silent about other contributions by Rotbhard.) This is something that, we are afraid, is not possible to be done through Rothbard's work.

I believe that had Kirzner gone to study with Machlup, Kirzner's influence among mainstream economists would have been far greater. What Kirzner's ideas would have been like is another question -- impossible to answer.

As to Joe Salerno's comment: "But at the end of the day, Machlup was very comfortable with neoclassical price theory, the core of theoretical economics." This is true. However, his interpretation of it was different. Importantly, Machlup did not equate the equilibrium aspect of the theory as a description of reality but only as a tool (a kind of mental experiment). Furthermore, neither Mises nor anyone else at the time had a very good theory of process so an approach which was based on the standard stuff with due recognition of its limits doesn't seem so bad to me.

Mario Rizzo.

I agree with pretty much everything Mario says. My point is that neither Machlup nor his followers developed a system of substantive economic propositions that was fundamentally distinct from postwar neoclassical theory and based on Mises's theoretical system as presented, e.g., in Human Action. One more point: Pete claims that the current market for ideas is in disequilibrium because a reading of Mises that he considers inferior (Rothbard's) currently prevails over a reading that he considers superior (Machlup's). In order to sustain this argument he posits a "market for ideas" that takes over 50 years to equilibrate. But this seems to me an odd position for a pro-market economist to take. Why shout "zebras" when you hear hooves beating in the distance rather than "horses." Can't he at least entertain the possibility that the market is already in equilibrium despite the fact that it is not in accord with his own judgments and prefences?

Oh, I can't resist, particularly in light of the possibility that Tyler Cowen was attacked yesterday by a crazed restaurant owner... :-).

So, according to Roger Koppl, who knew Machlup personally, he once said something like the following:

"Vaht in America is called a hot dog in Frahnkfurt is called a viener, and in Vienna is called a frahnkfurter."

What this has to do with Mises, I have no idea...

Joe,

You say “[N]either Machlup nor his followers developed a system of substantive economic propositions that was fundamentally distinct from postwar neoclassical theory and based on Mises's theoretical system as presented, e.g., in Human Action.”

Huh?

If you just look up “Machlup” in the index to Human Action you find three references to Machlup’s The Stock Market, Credit and Capital Formation. Mises credits Machlup with showing that the stock market does not “absorb capital.” At one point Mises, citing Machlup, says, “The notion that it is possible to pursue a credit expansion without making stock prices rise and fixed investment expand is absurd.”

Machlup worked out the elasticities approach to the balance of payments and was thus an architect of the monetary approach to the balance of payments. Machlup’s theory was one of the main (maybe *the* main) rival to Alexander’s more or less “Keynesian” absorption approach to the balance of payments. By paying attention to who does what, Machlup was following Mises instead of reasoning with largely unanalyzed “Keynesian” aggregrates.

Through the Bellagio group, Machlup was a central figure in 1) showing that economists were largely agree on the advantages of flexible exchange rates and 2) the actual move away from Bretton Woods and toward more flexible exchange rates.

Machlup’s price theory text was deeply subjectivist as Richard Ebeling has pointed out in the past. It was, therefore, quite deeply Misesian. Sadly, Stigler’s text prevailed, but his microeconomic theory was quite Misesian and, I think, perfectly “substantive.” In particular I note his subjectivist analysis of competitive markets, which he called “polypolistic” markets.

Machlup’s interest in and attention to “the production and distribution of knowledge in society” descends straight from the “intellectual division of labor” Mises identified in his orginial 1920 article on socialist calculation. Machlup was probably the first economist to identify the knowledge economy and its importance.

And so on.

Oh, happy is the man who sits
Beside or at the feet of Fritz,
Whose thoughts, as charming as profound,
Travel beyond the speed of sound,
All passing as speeds them up,
Mach 1, Mach 2, Mach 3, Machlup.
With what astonishment one sees
A supersonic Viennese
Whose wit and vigor, it appears,
Are undiminished by the years
-- Kenneth Boulding

Sorry for the double post, but . . .

Joe, you also said, "Now, as far as I know, no one has thought to develop a system of economic theory based on a Machlupian reading of Mises’s method." Well, I guess "system" is a big word. But my theory of Big Players builds on a Machlupian reading of Mises's method, and it does so *explicitly*. Big Players theory was directly inspired by Machlup's "Why Bother with Methodology?" It is a lot like Bob Higgs's theory of "regime uncertainty." I think Bob's first published statement of regime uncertainty was in 1997 in The Independent Review. The first major statement of Big Player theory was published in 1996 in a piece co-authored with Leland Yeager and appearing in Explorations in Economic History. If the theory of Big Players is good, then it is an example of "substantive" economics that comes *straight* out of Machlup's methodology.

Joe,

Note I use the word "might" not "is" to discuss correctness and productiveness of Machlup's interpretation.

Mine is an invitation to inquiry, not a settled position. I am intrigued at the moment about path dependency in the market for ideas, and how those paths can be changed. Not necessarily a normative agenda as much as a pure intellectual curiosity.

Mario and Roger made my other points I'd like to make.

Pete

Vaht in Auburn is known as a Koppl-Yeager Big Player in New York is known as a Supercalifragilisticexpialidocious Machluppian Viener.

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