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Yes, people mistake rational for infallible.

But people also mistake economic non-zero-sum competition for the zero-sum competition of games.

And I recently ran across the issue of people thinking that economic consumption is equivalent to the consumption of food -- that consumption means that the consumer takes it in in such a way that it is no longer of value.

There are a variety of these terms that economists use one way, and the rest of the world uses another. Worse, I suspect many economists' ideas on these issues are clouded by the non-economic definitions.

This is a rhetoric problem. What to do?

This is one of the frustrations and ambiguities when "Austrians" interact with their mainstream, or textbook, microeconomic "cousins."

We use concepts, terms, and ideas that have parallel and sometimes overlapping similarities, but which often have significant different meanings. And from which different understandings and analyses of the market order and its processes result and emerge.

Hayek once wrote an insightful essay on "The Confusion of Language in Political Thought." We need an accompanying piece on "The Confusion of Language in Economic Thought."

"Rational" and "Rationality"
"The Margin"
"Action" and "Agent" and "Agency"
"Cost" and "Choice"
"The Firm" and "Enterprise"
"Entrepreneur" and "Entrepreneurship"
"Knowledge" and "Information"
"Capital," "Production" "Periods"
"Market" and "Market Economy" and "Market Order"

Well, the list can be added to.

It would be a useful task for someone to do such a critical essay and argumentation.

Richard Ebeling

Brilliant suggestion Richard.

Pete: "The market economy never settles, and thus it never exhibits the first-best efficient state of affairs as defined in a model of general competitive equilibrium."

I'd put "first-best" in quotes. Because there's nothing intrinsically desirable about reaching equilibrium. Equilibrium is stagnation. Equilibrium might as well be socialism. When the gale of creative destruction passes through, there's no reason to expect (or even desire) the subsequent mopping up and fine tuning to progress all the way to some steady state prior the next wave.

I also had to point out that Keynesianism wasn't at all about redistribution. And try to explain that the broken windows fallacy is indeed a fallacy. The state of economic knowledge and understanding is abysmal.

I have a post on rationality and behavioral economics that should interest people reading this post.

In reading this post, one sentence in particular jumped out at me:

"Within the context of the market economy, we also find ourselves existing within a context where the feedback on our decisions is constant."

If this statement is accepted as true, it seems to me, then everything else that Professor Boettke wrote makes perfect sense.

But a more interesting question, at least to me, is what happens if we don't accept this as true?

We can go in two directions.

(1) Uncertainty - see on this G.L.S. Shackle
(2) Social Complexity -- see on this Jeffrey Friedman at Critical Review.

Unfortunately, all of this is anathema to the conventional Austrian.

austrian away,

You could also look to Hayek as he is always quoting Hume: the rules of morality are not the conclusions of our reason. Society contains many processes of feedback (of which the market contains one - profit and loss) that shape the actions (and beliefs) of people. All existing institutions, including the price system and different systems of morality and belief are the result of feedback processes that encouraged those institutions to persist.

The different methods people use to make choices are the result of this evolutionary (in a non-biological sense) process. The market process via the price system works to coordinate people who already exist in a variety of social contexts. If I read Boettke right, the market's signal is simply a profit/loss signal. The language of the signal remains always constant - either it's a + or a -, but the content need not remain constant.

A lot of conceptual confusion is swept away if you operate with critical rationalism and conjectural knowledge. And learning as quicly as possible from mistakes. However the philosophers are still obsessed with justified beliefs and so they add no value to issues that should be their bread and butter.

Uncertainty and Social Complexity don't disappear if you accept that quote.

I don't have any words to appreciate this post.....I am really impressed ....the person who created this post surely knew the subject well. Thanks for sharing this with us.

It seems to me that in his work on semantics Machlup tried to do something along the lines of what Richard Ebeling is suggesting. For instance, I think he examined the different ways in which static and dynamic were used. I wonder where you could publish such work now.

Niko is correct. Feedback does not imply certainty, and complexity is in fact driven by nonlinear feedback. Uncertainty and social complexity are central to Hayekian economics, so I don't see the necessary disconnect.

Paris gets fed (one of Pete's favorite lines).
Amidst the uncertainty and complexity there are underlying propensities or tendencies, the essences that Menger wanted to capture with exact laws, like the natural sciences.
If we have a grip on some of these we can make "pattern predictions", if...then expectations that certain things will tend to happen.
One of these tendencies is the rationality principle, that a lot of the time people will try to do the best they can in the situation as they see it.
If you mean something different by the rationality principle, that is fine, just be clear because words like rationality carry too much baggage in the form of conflicting theories and connotations, often it helps to use different terms to minimise confusion. Someone wrote a book on Weber's use of the term and found about 12 different senses of rationality and reason.

in Economic Harmonies, Bastiat recognized the economic regularity that daily permits Paris to be fed.

Remarkably, that regularity is not designed or maintained by any grand master. It results from the acts of countless individuals looking after their own interests.


I first heard Kirzner use this term

rafe, also I find the writings of vernon smith and armen alchian to be most instructive on the meaning of rationality.

both stress the social context of rationality and choice subject to scarcity, and how impersonal exchange in the conext of markets converges through repeated interaction to equilibrium under information conditions that are far weaker than specified in neoclassical theory.

Indeed, Vernon Smith notes that markets operate better in low information environments than they do in high information environments.

rafe, also I find the writings of vernon smith and armen alchian to be most instructive on the meaning of rationality.

both stress the social context of rationality and choice subject to scarcity, and how impersonal exchange in the conext of markets converges through repeated interaction to equilibrium under information conditions that are far weaker than specified in neoclassical theory.

Indeed, Vernon Smith notes that markets operate better in low information environments than they do in high information environments.

Yes, everything you said just now is well and good, Mr. Champion, but I would urge you to *always* caution yourself against committing the fatal conceit. That, my friend, is Hayek's much larger message.

But in the end, I'll admit, it basically comes down to this: I just find myself much more comfortable arguing the negative (we just don't know) than arguing for the positive (this is why it is).

I can see why you guys would like the more positive works of Hayek, but let us not forget that he is also somewhat a prophet of the negative too.

Hayek was very keen on pattern predictions.

What a bunch of empty words ...

"austrian away" says uncertainty and complexity are "anathema to the conventional Austrian." In this remark, the word "conventional" is a weasel word that can be defined to make the statement come out true by definition. We might say with equal justice that collectivism is "anathema to the conventional Marxists." In other words, uncertainty and complexity are central characteristics of modern Austrian economics. I guess "austrian away just wants to goad us or get attention or something.

The Ludwig Lachmann is no longer considered a black sheep will be the day I take back my "conventional" Austrian statement.

The difference here is fundamental. Kirznerian uncertainty and ignorance is very different from what Lachmann was on about. I subscribe to the latter. Most (conventional) Austrians, however, subscribe to the former.

I am not prepared now to say that one is right and the other wrong. But I *would* say that it is important for Austrian eocnomics that it continue to observe the distinction. It would make for all kinds of interesting research projects (IMHO).

But, alas, I can hear Dr. Horwitz now --- We have already talked about all this, Matt!

Of course, he may be right, but me, and others like me, missed it! Let's revive the discussion......

I find the claim that Austrian-school economists don't take Lachmann seriously:

Peter Lewin's book on capital is definitely Lachmannian. And I believe there's a certain book on time and ignorance out there that more than takes Lachmann seriously. I bet those guys are pretty important in the Austrian school, too. And for what it's worth, you can find some positive Lachmann references in my upcoming Advances in Austrian Economics paper on "The Far-From-Equilibrium City".

the word that was left out before the colon was "odd".

Troy Camplin,

Yes, it seems like every Austrian scholar form Boettke to Caldwell has published a tribute paper to Lachmann. But those papers are interesting for their anecdotes, and not really for their substantive contributions.

Here is a post I created back in 2008 on Lachmann:

As you can see, Lachmann's work on capital theory raises all kinds of interesting attacks on the Austrian business cycle theory and its concept of malinvestment. And let us not forget that Lachmann always considered Keynes to be a more complete subjectivist than Hayek! That, I think, speaks volumes. No "conventional" Austrian will ever tell you that -- but I am telling you now!

Muller: " No "conventional" Austrian will ever tell you that -- but I am telling you now"

Those guys at GMU had been working on and talking about this for about 30 years (dead end after dead end I'm afraid, IMHO), but thank you for your irrelevant contribution.

Niko, well it is nice to know that GMU Austrians have completely exhausted the topic of radical uncertainty!


Bring something new to the table and prove it was not exhausted. Don't just brag about being unconventional with nothing to show for.

Write an article, send it to RAE (you said you have a Phd or something?) I am pretty sure the people at RAE would be delighted to encourage someone to build on their work.


I linked that piece because it argues that Lachmann was central to the Austrian Revival -- which is not too shabby. Perhaps you would prefer this on Lachmann by an Austrian-school economist, David Andersson:

Besides Peter Lewin, whom I already mentioned, he also lists "Other economists who have extended Lachmannian ideas include Mario Rizzo, Don Lavoie, Brian Loasby, Nicolai Foss, Paul Lewis, and Jochen Runde."

Lachmann is pretty important to my own upcoming paper "The Far-From-Equilibrium City." Lachmann is very important, to say the least, and should be taken seriously -- but that does not mean one should accept everything he says uncritically, either. Discoordination is a very important idea -- as is the radical subjectivism behind it -- but the fact of the matter is that discoordination is only half of the equation. Coordination is the other half. With both at work simultaneously, you have the conditions necessary for spontaneous orders to emerge. Just because people don't buy his ideas hook, line, and sinker doesn't mean he hasn't been influential or that his ideas haven't been taken seriously.

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