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It is a strange sociological phenomenon that most of the leading economists of the 1930s wrote highly critical and sometimes devastating reviews of Keynes' "The General Theory" when it was first published. And, yet, Keynesianism "triumphed" anyway.

Henry Hazlitt collected some of the leading ones in his edited volume, "The Critics of Keynesian Economics." But there were many, may others, such as Henry Simon's sharp review.

Joseph Schumpeter was no less hard-hitting. He ended his review in the "Journal of American Statistical Association" (Dec. 1936), with the words:

"The less said about [Keynes' "The General Theory"] the better. Let him who accepts the message there expounded rewrite the history of the French ancien regime in some such terms as these: Louis XV was a most enlightened monarch. Feeling the necessity of stimulating expenditure he secured the services of such expert spenders as Madame de Pompadour and Madame de Barry. They went to work with unsurpassed efficiency. Full employment, a maximum of resulting output, and a general well-being ought to have been the consequence. It is true that instead we find misery, shame and, at the end of it all, a stream of blood. But that was a chance coincidence."

Dennis Robertson, Arthur Pigou, Bertil Ohlin, Gottfried Haberler, Clark Warburton, were devastating in some of their essays and reviews of Keynes' ideas in "The General Theory." Even Alvin Hanson, who became the American "guru" of Keynesianism, said in his first review of the book in 1936 that is was not the basis for a "new economics."

Carl Landauer, a noted socialist who taught at Berkley, wrote a critical analysis of Keynes' theory of interest in the AER in 1937, basically challenging it from a Bohm-Bawerkian perspective on capital and interest!

Swedish economist, Erik Lindahl, wrote a two-part piece on "Keynes' Economic System" that appeared in the Australian "Economic Journal" in 1954 that focused on Keynes' confusions and inconsistency in dealing with the long-run and the short-run, and "statics" and "dynamics" in "The General Theory."

And in 1952, Austrian Economist, Hans Mayer, wrote a fairly detailed critique of Keynes' "New Foundations" for economic theory that bring out the fundamental problems with Keynes' "macro," aggregated approach from an "Austrian" micro, process perspective (alas, the piece is only in German).

In spite of the large number of critics of Keynes before and after the Second World War -- and their impressive dissections of Keynes' assumptions, theorizing, and conclusions -- the Keynesians still "won the day" for decades. And they still continue to linger on in the current economic situation.

This requires an investigation into the sociology of economic ideas.

Richard Ebeling

Oh, by the way, if you read the PDF of Henry Simons' review of Keynes' "The General Theory," which Pete links, above, the underlining is mine.

I came across Simons' review years ago, and recently sent along copies of it a some people, including Don and Cafe Hayek.

Richard Ebeling

If I may, I don't think we need a study in the sociology of economic ideas.

It is amazing that almost all the economists professor Egeling lists got around their initial judgement and accepted and even promoted keynesian ideas. I think Haberler reprimanded Mises for failing to see how brilliant Keynes was.

It is just that some people had this great impression that they can plan the life for a few billion people using some strange formulas which made not head or tails. So millions of people died, some starved, huge loses in productivity and so on. In the end they concluded that the world failed them, but they keep on trying so one day, THEIR utopia will be realized.

Here is a quote from Haberler, "The Place of the General Theory of Employment, Interest, and Money in the History of Economic Thought":

"Only a dullard or narrow-minded fanatic could fail to be moved to admiration by Keynes' genius. But the novelty and validity of the propositions which constitute his system are a different matter altogether - quite independent of the challenging way in which he pronounced them, of the sychological stimulus afforded by his bold attack on widely accepted modes of thought, of much needed change in emphasis which we owe to his book, and of the wisdom (or unwisdom) of his policy recommendations."

So Keynes was a genius, but in what? Obfuscation? Nonsense? Would a physicist call a person a genius if that person would restate that the Earth is flat in an versatil, flexibil, incredible quick, fecund, multi-sided intellectual interesting way? Or just call him a crank get back to his life? Just asking.

Austrians, I am sad to say, are some of the least charitable readers of Keynes' work. This is largely due, I think, to the political preferences of many Austrians, which leads them to see Keynes as an enemy of libertarian ideals.

I'll admit that it is hard, but once you manage to pull of the blindfold, Keynes' General Theory is really a remarkable book. It says so much, and it is written so elegantly. Now many readers have seized on the first part of Keynes' book, such as the multiplier and increased consumption, but the real message of the book, in my opinion, is the middle part, which discusses the extremely tenuous character of capital investment. One need not accept the message of active government spending in order to appreciate the highly unstable character of capitalist investment. His work in this area, in addition to the commentary by other people like G.L.S. Shackle and Paul Davidson, has for me been most exciting.

Austrian economics is "neat" because of its dynamic view of plan coordination and diffuse knowledge, but it was Keynes that really pierced into something fundamental: just how investment in financial markets work, and how that affects real (capital goods) industries. I need not remind the erudite Mr. Ebeling that this idea seized the attention of many great Austrians, including Ludwig Lachmann.

I agree with Richard Ebeling that the combination of strong criticisms by leading economists of the day and yet the "triumph" of Keynesianism is a puzzlement.

Does anyone know why such a review of Keynes by Simons would appear in a journal called "The Christian Century"?

Austrian away,

Honest question --- was Henry Simons an Austrian?; was Frank Knight?

How about the tons of individuals who understood that Keynes was confused and that his framework of analysis was built on faulty intellectual foundations?

How would you deal with the criticism (and the intellectual background behind it) of Henry Simons or Frank Knight on Keynes? It isn't an "Austrian" thing, it is actually a logic of economic reasoning thing.

I think I’m more in the spirit of austrian away on this topic. Shackle and Lachmann had good things to say about the “epistemic Keynes” of the General Theory. I think we can criticize all the other Keynes’s in that work, and we can criticize the fact that The General Theory supports so many interpretations. But I also think we can learn from the Keynes of Chapter 12, which was restated in the 1937 QJE article “The General Theory of Employment.”

In Chapter 12 Keynes laid out a theory of the state of confidence. Current references to that theory usually use the phrase "animal spirits," though Keynes's use was a bit different. It was a flawed theory IMHO, but some of the elements were really quite good. He missed the "time structure of production," so he didn't get why structural readjustment is necessary and difficult. He didn't get why "Keynesian" interventionist policies could increase uncertainty and dampen the animal spirits, so that was a pretty big omission. And he neglected to apply marginal reasoning to our planning horizons, so it was just Right Now vs. The Vast Unknowable Future. These are pretty big flaws. And yet he really clarified how each individual's state of confidence has an autonomous part and a self-referencing part, with the latter growing in importance as our ignorance of the future grows.

Keynes exaggerated when he divided all future time into Right Now and The Vasty Future and said of The Vasty Future, “we simply do not know.” And yet, it is true that, to the extent that we are ignorant of the future we are less inclined to rely on our autonomous judgment and more inclined to follow the herd. This “Keynesian” insight was crucial to me and my co-authors as we worked out the theory of Big Players. I like to think of the theory as “regime uncertainty with analytical bite.” In other words, I think it brought out some of the analytical dimensions to Higgs’s idea regime uncertainty. I think the analytical bite helped us to at least attempt some econometric tests of the theory. So if we have Higgsian regime uncertainty, then “we simply do not know” as much about the future as we would otherwise and we are correspondingly more inclined to follow the herd or, perhaps, turn contrarian. Either way, judgments about the future grow less autonomous and more crowd-dependent. The wisdom of crowds turns into the madness of crowds. I think that theory of the state of confidence complements the sort of Austrian macro we get from Steve Horwitz and others.

I think Dr. Koppl is absolutely right in everything that he says (see above). That is how Austrians should approach the work of Keynes, namely, with an appreciation of his emphasis on uncertainty, while also noting that this insight undermines their advocacy of government intervention (in addition, of course, to other technical flaws, such as its omission of "time-related" considerations). Just consider Lachmann's work in this area. He accepted wholeheartedly Keynes' emphasis on subjectivism and uncertainty, but he also challenged Keynes' theory of the diminishing marginal utility of capital investment.

I still believe the same thing that I did back in 2008 --- the only thing stopping the Post Keynesians and the Austrians from really embracing each other's work, is not any real theoretical dissonance, but instead political (ideological) differences. And that is a silly reason (IMHO). If austrians weren't radical libertarians, and if Post Keynesians weren't radical liberals, then the differences between them (and their interests) would be hard to identify.

The real difference between Keynes and Austrian econ is capital theory, which has enormous consequences. I don't see how the two can come together on that issue.

I tend to agree with whoever wrote that what was new in Keynes was wrong and what wasn't wrong wasn't new. The US and UK had implemented Keynesian policies for decades before Keynes and had advocates for even more decades.

Keynes merely gave people what they wanted and the economists lined up behind him. It wasn't much different from today in which the state demands and pays for economists to rubber stamp their policies and economists line up to do so.

Perhaps Austrians tend to be radical libertarians because of their economics, and post-(and other)-Keynesians are radical liberals because of their economics. Which does point to deep differences.

When someone is talking about "Keynesianism" or "Marxism," one is talking about their entire system of thought. Criticizing this does not mean that neither Marx nor Keynes ever came up with a good idea that can be used -- even beyond the stopped clock being right twice fact. I'm no Hegelian/Marxist, but I think there's something to dialectics -- including the material kind. I see complexity emerging out of the interactions of complementary contraries -- paradox. I don't agree with the End of History or Marx's utopia because, with Nietzsche, I don't think the process ends. When reading and commenting (on my blog Interdisciplinary World) on Keynes' General Theory (which I had to put on hold due to my having to finish several projects), I did note the any stupidities, of course, but also noted when he said something that actually made sense. While it is true that we all use shorthand (I'm a Aristotlean, a Nietzschean, a J.T. Fraserian, a Frederick Turnerian, an Austrian in my economics -- which hardly means I agree with everything they ever wrote!) any scholar worth anything knows that a person's ideas are not monolithically wrong or right, but a mixture. Some mixtures are better than others.

@austrian away:

You sound a lot like a young guy who published a paper in RAE (says more about the quality of RAE than about the qualities of the young lad). Maybe you two should get together and establish a new school: autro-keynesians or something. Catalan, a young lad also, would also help probably.

Anyway, I fail to see anything correct in what you wrote.

FWIW one of my co-authors, Barkley Rosser, is generally considered "Post Keynesian." OTOH McKinney is right to suggest that capital theory is a big issue between the two groups. So even if we set aside our our ideological commitments, we'd still have that issue. In our 1997 HOPE article, Bill Butos and I noted another big divide, at least between Keynes and Hayek. Keynes was a rationalist and Hayek an anti-rationalist (aka "critical rationalist" not irrationalist). And Troy is right, I think, to suggest that we do not just pick our ideology first and our economics second. Well, at least we *should* not.

Liberalism (in the "classical" tradition of Hume and Smith) is first and foremost a scientific theory of society. It is an "ideology" only second. If you add the value of beneficence to the value-free economics in the tradition of Smith, Menger, Mises, and Hayek, political liberalism pops out as an implication. There are some qualifications to this statement, especially regarding issues of equality. But that's the basic idea, I'd say.

Anyway, I do wish we would acknowledge austrian away's point that there are some good bits in Keynes even from an "Austrian" perspective. Lachmann used to lament that we'd missed an opportunity with Keyens, who put subjectivism on the table. We should have grabbed the opportunity "with both hands," he would say. ("We should ha-- Weeee should have . . . Weee should have grrrrrrrrasped the oooportuuuunity with both hands. Ya!)

Roger, the problem with making Lachmann's grasp is that the assumed interpretive certainties (of cost-price differentials on the part of capital using entrepreneurs) in Hayekian capital theory pretty much have to be thrown out the window, at least in my reading of Hayek and Keynes. I think Shackle reached the same conclusion. 'Course we hashed this out before to no agreement....

Wow! Ted Burczak is here. For those not in the know, Dr. Burczak is one of those thinkers that have "critically" confronted many important themes and topics in Austrian economics. His book on Hayek & Socialism is really good (not, of course, for its socialist leanings, but for its criticisms of Hayek and Kirzner). I will never be able to consider Hayek a *real* subjectivist after reading his book.

And on the subject of Austrian capital theory. I would agree that this is an important feature of Austrian economics. Unfortunately, no Austrian has *really* picked up where Lachmann left off, partly because his theory of capital is so terribly radical. Here are some of my thoughts on Lachmannian capital theory:

http://austrianomnibus.blogspot.com/2011/03/economics-of-ludwig-lachmann.html

Ted,

I think the "horizon principle" matters a lot. IMHO we need to recognize degrees of ignorance and uncertainty, which Keynes does not do. I'm not so unsure about tomorrow, but more unsure about next week, and clueless about the year 3535. We adjust our plans and our planning horizons to that structure of uncertainty. In equilibrium (!) we plan for the future we can predict and don't plan for the future we cannot predict, if I may be allowed to simplify. Keynes just had the dichotomy Now and Then. So the question really becomes, I think, one of degree. When are our expectations more prescient and when less. In Chapter 12 Keynes says that we cannot say much about the state of confidence a priori, but must rely on "observation." That's what my co-authors and I have tried to do with our statistical tests of Big Player theory. You can always say, "Yeah, but you never really know for sure. The state of confidence might collapse for no reason." Okay, but I don't see how that gets you very far. And I really don't see the value of that if we have evidence of more systematic influences on the state of confidence.

I think the proponent of radical uncertainty would say, Every prediction into the future, no matter how far-reaching, is just a "convetion," and conventions stand or fall on the basis of our confidence in them. Now predictions into the distant future will likely have less confidence than predictions into the near future, but that does not change the fact that both are equally unknowable. (It also does not change the fact that the strength of a prediction about tomorrow will be destroyed entirely if confidence disappears.)

"both are equally unknowable" That is precisely what I deny, austrian away. If it were true, wouldn't our career plans for twenty year out be just as detailed as our work plan for tomorrow?

"the strength of a prediction about tomorrow will be destroyed entirely if confidence disappears" I'm not so sure about that one either, actually, since many commitments are hard to back out of at the last minute. Anyway, I repeat that the logic possibility of a collapse of confidence is indeed always there, but the more interesting question is What makes a sudden collapse more likely and what makes it less likely? That's a question that observation can address. The logical possibility of collapse is knowable a priori, but I really don't see why it is all that interesting when we can use observation to get at the likelihood question.

Dr. Koppl,

Yes, I agree that the questions you are asking are interesting ones. I would, however, disagree with your objections to my two conclusions. The fact that people are more confident about their predictions for tomorrow does not make them any more true in a metaphysical sense. To suggest otherwise would be solipsism! And, to the second point, not being able (or willing) to back out of a commitment is different than losing faith in the initial prediction. In fact, if you read Paul Davidson's work, this is his theory of Contracts (an underappreciated feature of his work). He suggests that contracts exist only because they "lock-in" our predictions about the future, which has the effect of mitigating the consequences of disruptions in future predictions.

For what it's worth, I second austrian away's take on the significance of Keynes's ideas. In fact I don't see how anyone who takes expectations seriously (like Austrians) could dismiss Keynes outright as just some liberal crank. It isn't necessary to accept Keynes's policy prescriptions to appreciate his insights on expectations, however flawed they are.

Yes, exactly, Brad W. But, let me just say, if you think the Austrians are hard-nosed on this point, the Post Keynesians are even more stubborn. I was basically run out of their summer conference when I suggested to everyone during a Q & A that the Post Keyesian emphasis on *radical* uncertainty undermines their belief in salutary government intervention. XOXO

Roger,
When he was still writing as an "Austrian" economist, Paul Rosenstein-Rodan, published a piece on "The Role of Time in Economic Theory," ("Economica," 1934), in which he discussed the degree of detail of our plans as individuals based on the nearness or distance of the time horizon we are focusing on.

The closer the time horizon, the more detailed our specific plans and certainties of what we want or might be specifically planning to do. The more distant the time horizon that we contemplating, the more our plans become hazy, with general "blocks" of wants.

For example, I am hungry this morning and I plan to go to McDonald's for one of their breakfasts on the way to work. But when thinking of next month or next year, all I know is that I'm likely to be hungry with no specification of what I may want or the way I may decide to satisfy it, say, one morning three months from now.

Thus, I make plans that incorporates my wants of the future, but the further away they are in the future, the more many of them will be generalized rather than specific.

This, of course, (though Rosenstein-Rodan does not focus on this) creates degrees of uncertainty on the production planning side, as well.

If I am undertaking a long-term investment of some sort, I may know that, say, three or five years from now consumers will want "food," or "clothing" or "housing," or . . .

But I must anticipate something that is not, yet, clear even in the consumers' minds in many cases, and which may, in fact, turn out to be wrong, therefore. On the other hand, what I decide to investment in and concretely produce may, itself, influence what consumers decide to buy when, since among the goods they find and confront in the market place two years from now is the one I had decided to produce.

This is part of the entrepreneurial role: To anticipate what consumers may want when they are not sure what they specifically want and may not think about until they find the choice set of actual alternatives when they enter the market and see what is for sale.

What is clear, to me, is that given these complexities and the multi-layered aspects to these problems, there is little reason to think that the politicians and bureaucrats who man the government can ever figure out the "answers" better than the interactions of the market participants, themselves.

Richard Ebeling

Richard,
Great! I did not have the RR reference. Thanks for that.

To Brad and Austrian Away,

Just to be clear, nobody is dismissing the focus on expectations, the question is whether Keynes is the best representative of those issues that must be taken seriously. Please remember the consensus opinion by the older economists at the time Keyens wrote: "what is true isn't new, and what is new isn't true."

There are alternative thinkers that got their first and actually were better on the issues that you both care about. Time to read them.

Pete

On Keynes, Now, and Then:
"in the case of additions to capital equipment...these short-term expectations [of sale-proceeds] will largely depend on the long-term (or medium-term) expectations of other parties" (General Theory, p. 47, ch. 5).
The point of including the quote is that it indicates Keynes had a more complex notion of the impact of time on behavior than the supposition of a knowable "now" and an unknowable "later." I think sympathetic readers of Keynes can accept the notion of a "horizon principle" and also accept Keynes's idea that liquidity preference creates an interpretive problem for capital using entrepreneurs.

austrian away,

May I ask where this summer conference was?

Ted,

I guess it's sort of obvious that I think it is entirely fair to say that Keynes slights the horizon principle, your quote notwithstanding. When you say liquidity preference creates "an interpretive problem," you are surely right. But put that way the point is too vague, I think, to get at the differences between our views on these matters. Again, it's a coherent, sensible scientific question to ask about more and less. What institutional arrangements tend to give us relatively more prescient expectations? What makes a collapse of confidence more likely? What makes it less likely? That sort of thing. Those are questions "observation" (as Keynes put it) can address. To point out "a priori" (as Keynes put it) that we can never be rock certain that there is no chance of a collapse of confidence . . . Well, I just don't see how that gets you anywhere. How does that help me decide whether discretionary monetary policy beats rules? Or central banking vs. free banking? Or fiscal vs. monetary policy?

Let's keep this discussion alive! It is so interesting.

To Brad,

The University of Missouri-Kansas City has a Post Keynesian Summer School program (classes and lectures on research) every summer. That is where I first met Paul Davidson and, basically, prostrated at his feet. The other students thought this was odd, but I comforted myself with the knowledge that they don't know Dr. Davidson like I do!

Mr. Ebeling,

Yes, the Rosenstein-Rodan article you cite is very, very interesting. I have posted some thoughts about it here:

http://austrianomnibus.blogspot.com/2011/03/paul-rosenstein-rodan-appreciation.html

I would, however, take issue with some of your other comments. First of all, and this seems to be my impression generally of Austrian economics, you guys don't seem to adequately appreciate the difference between investment in real (capital) goods and investment in financial (speculative) markets. If savings was directly correlated with investment in real capital goods industries, then there would be no problem in captialist economies. But this is not the case. We have a whole world of financial markets, and when genuine investments in capital goods are made, the speculative efforts of people in financial markets typically tends to overwhelm any effect new savings will have on actual or real investment. Post Keynesians understand this point; Austrians, for the most part, do not. That is why, incidentally, Hyman Minsky referred to his theory as "The Wall Street Paradigm," while he labeled neo-classical economics, "The Village Fair Paradigm."

And also, another mistake that is commonly made by Austrians is this: Indeed, government intervention will not work because of Hayekian knowledge problems. But that does *not* mean that decentralized (and free) decisions will perform better or approximate efficiency standards. That is naive, because individual decisionmakers face the same sort of knowledge problems as government bureaucrats. Rather, the problem with government regulation is that it homogenizes and standardizes what would otherwise be divergent and heterogeneous activity and decisions (most of which will turn out to be wildly incorrect). That is the fundamental insight, and so far, the only person to put the argument explicitly in these terms has been the wonderfully insightful Dr. Jeffrey Friedman of Critical Review.


Dr. Boettke,

Who, specifically, do you have in mind when it comes to theoretical work on expectations? For my money, I would bet on people like Shackle and Paul Davidson every time. Their work is so very compelling.

"because individual decisionmakers face the same sort of knowledge problems as government bureaucrats" This is a central question, a basic point, austrian away. I think your claim is mistaken, which seems to matter quite a bit to this conversation. Here is a snippet from my Dec. 2010 JEBO paper:

-------
[M]arkets may be able to reach non-computable equilibria, as noted by da Costa and Doria (2005). The “determination of equilibrium prices in a competitive market” is “formally equivalent” to “determining equilibrium in finite non-cooperative Nash games,” and will sometimes be, therefore, formally impossible. “So, the main argument in favor of a planned economy clearly breaks down.” (Thus, they defend the “Austrian” side of the socialist calculation debate.5) Yet they report, “the equilibrium point of the market is eventually reached while we cannot in general compute it beforehand” (pp. 38–39). Persons and goal-seeking organizations generally need to know what they are doing to achieve their goals. Central planners must compute the future they would create. Markets are not persons or goal-seeking organizations. They are the space in which such purposeful entities interact. The order they produce is defined in the process of its emergence (Buchanan, 1982). Because markets do not have to know what they are doing, they can reach equilibria that cannot be computed ahead of time.
-------------

The cite is: da Costa, N.C.A., Doria, F.A., 2005. Computing the future. In: Velupillai, K.V. (Ed.), Computability, Complexity and Constructivity in Economic Analysis. Blackwell Publishing, Oxford, pp. 15–50.

See also: Tsuji, M., daCosta, N.C.A., Doria, F.A., 1998. The incompleteness of theories of games. Journal of Philosophical Logic 27, 553–564.

It sounds obviously wrong to say finite games may not be computable, but Tsuji et al. show why that's actually right. The point is that the game may be described in formal language rather than in a fully explicit manner. And computability, as they point out, is really about formal languages.

I know this is all a bit technical, but I think that in this case the technical stuff really exposes the logic of why the bureaucrat's epistemic problem is qualitatively different than the entrepreneur's epistemic problem.

Oh, and BTW this stuff also shows why Davidson erred fundamentally when he said Austrians think the market is a Turing machine.

austrian away,

The reason why I was wondering was because I'm an undergrad in economics at UMKC, which is, as you know, the lion's den of Post Keynesian economics. The conference was just where I suspected.

Brad,

Wow, that's good to hear. I am from St. Louis and am now in graduate school at Mizzou, in Columbia. If I could do it over again, I would have gone to UMKC for my undergraduate economics, and would have really applied myself in learning all of the radical work that is going on there --- such as zero interest rate theory (with the work of Wray and Forstater) radical Marxian price theory work being done by Fred Lee, and other theories such as an endogenous money supple and its solid foundation in Institutional Economics. Jan Kregel is also the best source on the History of Post Keynesian economics. A lot of great resources there for someone interested in radical political economy.

Feel free to email me at mgmb79@mail.missouri.edu if you would like to talk about some of your classes, professors, or current classroom assignments. I would love to hear about it!

Thanks austrian away.

I'll definitely keep you in mind when I need a different perspective on Post Keynesianism. I guess I'm the opposite, as I wish I could go to MU. Its economics department seems more accomodating, not to mention Peter Klein wanders the campus.

Perhaps I would think differently if I considered myself a student of Post Keynesianism, which I don't -- although I am sympathetic to some of their ideas, moreso than your average bear.

austrian away,
I feel like you are ignoring my last comment. Maybe I should restate my point in less techy terms. The bureaucrat needs a theory of the economy, the entrepreneur does not. That is a radical epistemic asymmetry.

Dr. Koppl,

I understood your point, and it is a good one, especially considering the sweeping generalization I made in my comment. But, at least in the Austrian context, it ultimately boils down to your understanding of the market process. I would side with Karen Vaughn on this one and call myself a disequilibrating theorist (in the tradition of Ludwig Lachmann). And I dont think there is some mystical "spirit" or "voice" in capitalism that speaks to entrepreneurs in ways that bureaucracts can never hope to ascertain. Entrepreneurs and bureacurats are both just basically shooting in the dark, hoping that their predictions will turn out to be correct. The problem is that bureacurats force everyone else to comply with certain standards (regulations) while entrepreneurs compete with one another in their predictions. But this does not change the fact that most entrepreneurs will be wildly mistaken in their predictions, *or* that some entrepreneurs will somehow put the economy back in the direction toward *equilibration.* Again, it has been some time since I read Karen Vaughn's book, but I remember her general attitude in that book to be spot-on. (The fact that most Austrians TOTALLY ignore it is no accident.)

Heh heh. No, grasshopper, you do not understand my point. Forgive me, austrian away, but you can't say that you get my point and then speak of "some mystical 'spirit' or 'voice' in capitalism" and how both bureaucrats and entrepreneurs are "just basically shooting in the dark." I am saying that bureaucrats and entrepreneurs have to know different things if their actions in the economy are to succeed. That point counters your explicit statement that " individual decisionmakers face the same sort of knowledge problems as government bureaucrats." Nnooo, they face radically different knowledge problems.

Now, I've tried to make the point verrrry carefully with cites to a technical literature in game theory and computabilty theory. I thought that my comment had no effect on you because it was too technical. But when I restate the problem in more humdrum language, it still has no effect. It's not that you disagree or raise some counterpoint or something. It's that you don't seem to see what the claim is. Really, austrian away, it doesn't seem like you even tried to understand what I meant. I guess I just don't see how to constructively engage at this point.

Oh, and it does not pass the giggle test to say that Austrians have ignored Karen's book, especially not Austrians such as Boettke and Horwitz.

All right, let's try to keep this friendly. I suppose I could respond as Rothbard would, and say that all this "game theory" stuff doesn't really "smell" Austrian. I was just trying to put the discussion in a more Austrian context, that is all. I am sure that your references to "technical" stuff is very well informed.

I will admit that perhaps my characterization was a bit sweeping, and that entrepreneurs, in relying on prices, have certain information they can use that is not available to bureaucrats (because their regulations necessarily distort these price signals). But if that is your point (technical literature aside), then it really comes down to the Kirzer-Lachmann market process debate, no?

Where do Horwitz and Boettke talk about Karen Vaughn's Austrian in Economics book? I really would like to know because Horwitz and Boettke are giants, and I would like to see how they address another giant (well, at least in my opinion [viz Karen Vaughn]). Thanks

No, aa, not everything can be reduced to Kirzner vs. Lachmann. My point is much closer to issues about socialist calculation. One can plainly see this fact from my techy comment above that, ahem, explicitly refers to the calculation debate. Anyway, I don't know how to be more plain spoken with you, so I think I'll withdraw from the discussion at this point. I'll just leave you with some reading. First, FWIW, my 2002 Big Players book gives my response to the Kirzner-Lachmann debate. Second, for the technical point I have not succeeded in conveying to you, see the following article, which tries to lay out some of the issues in a user-friendly way:

“Computable Entrepreneurship,” Entrepreneurship Theory and Practice, 2008, 32(5): 919-926.

Matt,

Indeed it doesn't pass the giggle test. One reason I don't write about Karen's book in great detail a lot is because I *agree* with much of it, so there's no need to subject it to major critical scrutiny. I challenge you to find anywhere in my work that would suggest otherwise.

Second, as Roger says, it's not all K vs. L. Roger is right on target in his replies to you and you are indeed avoiding his central point. Karen's book lays out the terms of the debate and points us in one direction to address them, but it's up to us to make the arguments and that's what folks have been doing in the 15-20 years since her book. You need to catch up on your reading. (Boy does this feel like a TV rerun).

Dr. Horwitz,

Yes, I understand. I referenced Karen Vaughn's book, not because I think it definitively settles important issues, but, as I said earlier, because I believe her "general attitude in that book to be spot-on." Her work takes a very, very critical approach to Austrian economics, and that is what I really enjoyed. Most Austrians, in my experience, seem to just accept certain premises, such as the coordinating abilities of market prices, and the ability of entrepreneurs to facilitate this process (the market process). One example is the work of all the recent PhD grads of GMU (whose work I have only cursorily glanced at). Basically, it is just (1) Hayek knowledge problem applied to governmetn and (2) public choice perverse incentives. If that is the future of Austrian economics, then I am worried. That is all. That kind of work is a far cry from the sort of arguments (and suggestions) that are made in papers like Boettke, Horwitz, Prychitko (1986), no? Sure, you could say that these debates have been exhausted and recycled, but I don't believe these *thematic* issues ever really go away. For example, I don't think Dr. Koppl adequately addressed my radical uncertainty arguments, which is a really important question, in my opinion, in Austrian economics. (see above for that discussion in connection with Koppl's "horizon principle" theory.)

My love of Austrian economics has led many leaders of the movement (Horwitz and Boettke in particular) to conclude that, "Matt, we have been there before. You need to catch up." etc. etc. And there may be something to that. But then I look at the recent work being done in Austrian economics (GMU PhD grads, whose work all seem to be co-authored by Dr. Boettke) and I say to myself, maybe we need to go back to fundamentals, no?

I think the results speak for themselves Matt. Those PhDs mostly have tenure-track teaching jobs and articles in quality refereed journals. Austrian economics is booming. Many of them are doing better at this stage of their careers than Pete and I did at a comparable stage. They are having more influence on the debates in economics and public policy than we did at their age.


I'd say they've made the right decision to get on with the doing of economics and explaining the world rather than worrying about the intricacies of theory, important though they too may be.

Dr. Horwitz,

Yes, these scholars are to be congratualted for their professional success, but I would caution you against equating their success with fidelity to the Austrian program. After all, that is what is really at issue. If David Skarbek, for example, won the Nobel Prize for his "contributions to the economics of prison gangs," would that make him more of an Austrian? Not necessarily.

And professional success is not necessarily indicative of the *quality* of one's research either. Take, for example, the blog of Robert Vieannau. He has some very interesting things to say about Austrian economics, even though he has been unsuccessful at getting published.

I remember debating this point with you guys a few years ago, and I put the question like this: Would you rather have a Skarbek-quality article (no offense intended) published in the AER or a Hayek-quality article published in the RAE? For me, the prestige of the publication is not as important as the quality of the argument that is being published. I think one of you guys conceded this point (or it might have been Dr. Rizzo, can't remember).

And also, 50 years from now, no one will be reading these public choice international aid papers, but they will, I hope, still be reading things like, for example, Boettke's paper on "Where Did Economics go Wrong?" or the great "Horwitz-Hill Debate" in Critical Review.

But ultimately, it comes down to preferences. If you really think being interviewed on CNN is more important than writing about "the intricacies of theory," then it is hard to continue the discussion. No one is really wrong here. It is just a matter of preferences.

The division of labor is a fundamental concept in economics, both its theory and the discipline thereof. The problem for Austrians has been that we've never had the numbers to actually have lots of people out there explaining the world and doing a better job of it than other economists. With small numbers, we circled the wagon around theory. Now we have numbers enough to have some folks continue to do theory while the vast majority go out and apply it and do what economists do - tell good stories about why things happened .

It's not an either/or, it's a both and what the GMU PhDs are doing is making up for lost time and exploiting the larger extent of the market with a more refined division of labor. Econ 101.

Yes, I would just urge you guys not to lose your way. That is all. Do you think Mises or Lachmann cared about placing their students in tenure-track positions when they lectured at NYU? I don't think so. But that, of course, didn't stop the influence they had.

But this new emphasis that seems to be the theme of this discussion -- an army of Hayekian Pubic Choice theorists, and maybe some day placing Pete Leeson on the faculty of Chicago or Harvard, seems to me to miss the point.

But I will conclude this conversartion by agreeing with you, Dr. Horwitz, that it doesn't have to be an either/or. It is always nice talking with you. In the meantime, I will keep my eyes open for *substantive* discussions on this great blog of yours.

Yes, Matt I think they did care about that. And they also cared about, especially in Mises's case, influencing the public discourse. THAT is what Pete's students have been doing - getting good jobs and making a name in the profession and also influencing the public discourse as public intellectuals. Debates over equilibrium are fine and they have their role, but they are at best only a means to various other ends.

It’s quite common for small business owners to rely on independent contractors, especially in lean times. And, from the perspective of the IRS, the difference can be huge in tax and legal terms. Why? An employer doesn’t have to withhold taxes or pay any benefits (instead, the worker pays a self-employment tax.). Unfortunately, some business owners intentionally classify workers inaccurately… and the IRS is working to prevent it in several ways.

Henry Simons:

"The fondness for a labor theory of value may be pardoned as mere intellectual dilettantism."

I have not read the entirety of the General Theory, but this supposed fondness for a labor theory of value seems unlikely to me, both because of Keynes's glowing appreciation of Jevons, and his dismissal of Marx as having based his entire theory on a misunderstanding of Ricardo.

Does anybody know the passage(s) he is referring to?

Only a dullard or narrow-minded fanatic could fail to be moved to admiration by Keynes' genius. But the novelty and validity of the propositions which constitute his system are a different matter altogether - quite independent of the challenging way in which he pronounced them, of the sychological stimulus afforded by his bold attack on widely accepted modes of thought, of much needed change in emphasis which we owe to his book, and of the wisdom (or unwisdom) of his policy recommendations.

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