|Peter Boettke|
Israel Kirzner has often repeated the story that after studying for a while under Mises, Mises arranged for him to receive a PhD fellowship to continue his studies at Johns Hopkins under the mentorship of Fritz Machlup. As Mises explained to Kirzner, Machlup would be a better mentor for a young economist who had talents to advance their career. When Kirzner tells the story, he stresses how impressed he was by Mises's generiosity in working out this arrangement for him and in his assessment of Kirzner's promise as an economist. Kirzner, however, stayed on at NYU to complete his dissertation under Mises's direction, and then was hired by NYU as a faculty member (another fact that has important signals about Kirzner's widely recognized skills by those at NYU given this break from normal academic protocol). Over the years, Kirzner would climb the academic ranks -- both at NYU moving from Assistant Professor to Full Professor to Professor Emeritus, and throughout the economics profession world-wide as he became the leading scholarly representative of the modern Austrian School of Economics.
It would be an interesting exercise in counter-factual intellectual history to consider what if Kirzner had taken up Mises on his offer and pursued his PhD not at NYU, but at Johns Hopkins under the mentorship of Fritz Machlup. Kirzner's work from the start would have been tied closer to the industrial organzation literature of that time, rather than more general theory and history of doctrine. No doubt, his work would have been process oriented, but perhaps more of an evolutionary bent. And, his own development of praxeology, including his entrepreneurial theory of the market process might only have been evident to those who are so emersed in Mises's system to know the difference between that Austrian version of early neoclassical economics from the later versions of neoclassicla economics as it evolved in the post-WWII era. In many ways, Kirzner's fate might be similar to Machlup's with respect to modern Austrian economics.
Not enough attention is paid to Machlup within the contemporary Austrian school -- save Roger Koppl and Richard Langlois.* But perhaps this will change with some recent work by Gabriel Zanotti and Nicholas Cachanovsky, folks will start to understand the important place that Machlup holds in the history of the Austrian school of economics -- analytically and methodologically. Machlup was Mises's student from Vienna and he went on to a stellar career in the US -- teaching not only at Hopkins but eventually at Princeton. He worked tirelessly throughout his US career to aid his fellow Viennese academics to negotiate the turbulent seas of post WWII academics in the US. He was close with Mises's other students, such as Alfred Schutz and of course F. A. Hayek.
What I have become intrigued about recently is the concept of path dependency in intellectual history work. Certain readings of authors become cannonical, and then that can alter our understanding of what that author had to say about critical issues. Consider the most recent battle over the intellectual legacy of Adam Smith, with readings such as Emma Rothschild or Sam Fleischacker in contrast with the work of James Otteson or Ryan Hanley. A similar sort of issue could emerge over the legacy of MIses with respect to economics, political economy and social philosophy. As Zanotti and Cachanovsky argue, in the immediate aftermath of Mises's Human Action, two readings emerged of Mises's methodological pronouncements: a Rothbardian defense of extreme apriorism, and Machlup's more subtle reading of Mises's position which anticipated many of the arguments that would later be understood as implications of both Duhem-Quine and Lakatos.** Machlup's argument has the advantage of linking Mises more closely with folks such as Schutz and Hayek. But Rothbard's reading prevailed -- as both young friends of the libertarian message thought they found a bedrock foundation for their views, and foes who thought they caught the old man in an obvious trap of dogmatic nonsense embraced the Rothbardian reading of Mises. It thus became the way everyone came to understand Mises's praxeological system, and as a result the earlier connection between Mises's rational actor centered approach to the sciences of man that was attractive to scholars from Buchanan and Tullock to several others who championed methodogical individualism such as Vincent Ostrom and James Coleman (and even John Rawls) became less and less obvious. And even the invisible hand style of reasoning that follows that is so closely associated with Hayek, but actually was taught to Hayek by Menger and Mises, gets lost in the evolution of understanding the Misesian project. Rothbard's reading has consequences, and it is important we start to acknowledge these.
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 would be the current counter-factual that we might need to contemplate in methodological discourse. Zanotti and Cachanovsky are giving us good reasons to consider that altenative reading and understanding about Mises's position and the way forward in the sciences of man methodologically.
____________
*Richard Ebeling, of course, always has acknowledged Machlup's central importance in the history of the Austrian School of Economics. And there is also a nice paper in the QJAE by Carol Connell.
**I must confess my complete sympathy with Zanotti and Cachanovsky here given my own effort to present Mises's methodology in his light in my chapter for The Handbook of Economic Methodology. My reading of MIses, also fits with Mario Rizzo's effort at Lakatosian reconstruction. A careful reading of my paper with Pete Leeson, "Was Mises Right?" will reveal that we make this argument again, though we work with the tripartite division of the realms of knowledge between pure theory, institutionally contingent theory (or applied theory) and historical economics.
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
Posted by: Richard Langlois | March 24, 2014 at 12:48 PM
Indeed, this is an excellent piece they wrote. It will be exciting to see where this interpretation takes us.
Posted by: Troy Camplin | March 24, 2014 at 02:01 PM
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.:)
Posted by: Joseph T. Salerno | March 26, 2014 at 10:55 AM
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.
Posted by: Nicolas Cachanosky | March 26, 2014 at 01:22 PM
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.
Posted by: Thinkmarkets.wordpress.com | March 26, 2014 at 03:53 PM
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?
Posted by: Joseph T. Salerno | March 26, 2014 at 05:48 PM
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...
Posted by: Barkley Rosser | March 27, 2014 at 11:16 AM
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
Posted by: Roger Koppl | March 27, 2014 at 01:36 PM
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.
Posted by: Roger Koppl | March 27, 2014 at 01:46 PM
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
Posted by: Peter Boettke | March 27, 2014 at 11:17 PM
Vaht in Auburn is known as a Koppl-Yeager Big Player in New York is known as a Supercalifragilisticexpialidocious Machluppian Viener.
Posted by: Barkley Rosser | April 01, 2014 at 03:03 PM