I’ve long promised a post on Austrian economics. To organise my thoughts and minimise the risk of attacking a straw man, I’ve taken as my starting point this encylopedia article by Peter Boettke. Boettke sets out ten claims and derives some claimed conclusions. I’ve responded point by point, and then given my own summary.
As I’ve had trouble with various fringe adherents of Austrianism, I’m setting out some strict ground rules for discussion here. Comment should stick strictly to discussion of economics. Anyone making personal attacks of any kind will have their comments deleted and be barred from this thread. Avoid anything that might be seen as insulting other participants in the discussion
Boettke’s points follow, with my responses in itals
The Science of Economics
Proposition 1: Only individuals choose.
Man, with his purposes and plans, is the beginning of all economic analysis. Only individuals make choices; collective entities do not choose.
The primary task of economic analysis is to make economic phenomena intelligible by basing it on individual purposes and plans; the secondary task of economic analysis is to trace out the unintended consequences of individual choices.
So far so good. Methodological individualism seems like a good starting point. But it’s important to remember that individual choices are very much affected (sometimes, effectively determined) by the collective entities of which they are a part.
Proposition 2: The study of the market order is fundamentally about exchange behavior and the institutions within which exchanges take place.
The price system and the market economy are best understood as a “catallaxy,” and thus the science that studies the market order falls under the domain of “catallactics.” These terms derive from the original Greek meanings of the word “katallaxy”—exchange and bringing a stranger into friendship through exchange. Catallactics focuses analytical attention on the exchange relationships that emerge in the market, the bargaining that characterizes the exchange process, and the institutions within which exchange takes place.
Markets are places where exchange takes place, so this is more or less self-evident. But there is more to economics than markets. The extensive attention given to Robinson Crusoe in economic textbooks is evidence of this, as is the huge amount of activity that takes place within firms, households, governments and so on. The absence of any real theory of the firm, or of the household, is a major weakness of Austrian economics, partly reflecting the very limited work done in this framework in recent decades, a period which has seen huge developments in mainstream analysis of contracts, asymmetric information and so on
Proposition 3: The “facts” of the social sciences are what people believe and think.
Unlike the physical sciences, the human sciences begin with the purposes and plans of individuals. Where the purging of purposes and plans in the physical sciences led to advances by overcoming the problem of anthropomorphism, in the human sciences, the elimination of purposes and plans results in purging the science of human action of its subject matter. In the human sciences, the “facts” of the world are what the actors think and believe.
The meaning that individuals place on things, practices, places, and people determines how they will orient themselves in making decisions. The goal of the sciences of human action is intelligibility, not prediction. The human sciences can achieve this goal because we are what we study, or because we possess knowledge from within, whereas the natural sciences cannot pursue a goal of intelligibility because they rely on knowledge from without. We can understand purposes and plans of other human actors because we ourselves are human actors.
The classic thought experiment invoked to convey this essential difference between the sciences of human action and the physical sciences is a Martian observing the “data” at Grand Central Station in New York. Our Martian could observe that when the little hand on the clock points to eight, there is a bustle of movement as bodies leave these boxes, and that when the little hand hits five, there is a bustle of movement as bodies reenter the boxes and leave. The Martian may even develop a prediction about the little hand and the movement of bodies and boxes. But unless the Martian comes to understand the purposes and plans (the commuting to and from work), his “scientific” understanding of the data from Grand Central Station would be limited. The sciences of human action are different from the natural sciences, and we impoverish the human sciences when we try to force them into the philosophical/scientific mold of the natural sciences.
As an objection to naïve behaviorism this is fine. If you want to understand what people do, it’s important to understand what they think. But the facts economists try to explain are what people do.
Microeconomics
Proposition 4: Utility and costs are subjective.
All economic phenomena are filtered through the human mind. Since the 1870s, economists have agreed that value is subjective, but, following alfred marshall, many argued that the cost side of the equation is determined by objective conditions. Marshall insisted that just as both blades of a scissors cut a piece of paper, so subjective value and objective costs determine price (see microeconomics). But Marshall failed to appreciate that costs are also subjective because they are themselves determined by the value of alternative uses of scarce resources. Both blades of the scissors do indeed cut the paper, but the blade of supply is determined by individuals’ subjective valuations.
In deciding courses of action, one must choose; that is, one must pursue one path and not others. The focus on alternatives in choices leads to one of the defining concepts of the economic way of thinking: opportunity costs. The cost of any action is the value of the highest-valued alternative forgone in taking that action. Since the forgone action is, by definition, never taken, when one decides, one weighs the expected benefits of an activity against the expected benefits of alternative activities.
This can be read in two forms. The weak form, which Peter Boettke adopts in comments relies on the opening claim that “all economic phenomena are filtered through the human mind” and are in that sense subjective. This is true of the standard neoclassical theory as presented by Marshall, and it was equally true of the older labor theory of value. The strong form is the implication that a theory of value (different in some substantive sense from the Marshallian) can be developed without reference to objective conditions of production. The strong form is important, but wrong. The weak form consists of claims that are true, as Boettke says, “by definition”, and are therefore tautological. The problem I have with this kind of thing is twofold. First, you commonly get a rhetorical two-step where the strong form of the claim is put forward, then replaced by the weak form when it is challenged. Second, it seems to be supposed that purely tautological claims of this kind justify the kind of a priorist metholodogy favored by Mises and some (but not all) other Austrians, in which economics is supposed to consist of logically self-evident truths.
Proposition 5: The price system economizes on the information that people need to process in making their decisions.
Prices summarize the terms of exchange on the market. The price system signals to market participants the relevant information, helping them realize mutual gains from exchange. In Hayek’s famous example, when people notice that the price of tin has risen, they do not need to know whether the cause was an increase in demand for tin or a decrease in supply. Either way, the increase in the price of tin leads them to economize on its use. Market prices change quickly when underlying conditions change, which leads people to adjust quickly.
True and important, but not the whole truth, as witness the fact that people (including the managers of enterprises) so frequently choose to dispense with prices and rely on direct control to get things done.
Proposition 6: Private property in the means of production is a necessary condition for rational economic calculation.
Economists and social thinkers had long recognized that private ownership provides powerful incentives for the efficient allocation of scarce resources. But those sympathetic to socialism believed that socialism could transcend these incentive problems by changing human nature. Ludwig von Mises demonstrated that even if the assumed change in human nature took place, socialism would fail because of economic planners’ inability to rationally calculate the alternative use of resources. Without private ownership in the means of production, Mises reasoned, there would be no market for the means of production, and therefore no money prices for the means of production. And without money prices reflecting the relative scarcities of the means of production, economic planners would be unable to rationally calculate the alternative use of the means of production.
As with P4, this has a strong and a weak form. The strong form suggests that rational economic calculation is impossible in enterprises where the means of production are publicly owned. This is false, unless the term ‘rational’ is stretched so as to make the claim meaningless. Publicly owned enterprises have operated successfully for decades, sometimes in competition with private firms and sometimes as monopoly providers. There’s a case to be made that, on balance, private ownership yields better performance, but even if you accept this case, this does not sustain the claim above. The weaker view, defended by Boettke in comments, is that an economy needs at least some private ownership to produce informative money prices. This obviously leaves open the question of how large the publicly-owned sector can be without inducing economic collapse. Experience here and elsewhere suggests that substantial public ownership is compatible with continued economic growth. Determining the optimal balance is a matter of empirical assessment not abstract arguments of the kind put forward by Mises.
Proposition 7: The competitive market is a process of entrepreneurial discovery.
Many economists see competition as a state of affairs. But the term “competition” invokes an activity. If competition were a state of affairs, the entrepreneur would have no role. But because competition is an activity, the entrepreneur has a huge role as the agent of change who prods and pulls markets in new directions.
The entrepreneur is alert to unrecognized opportunities for mutual gain. By recognizing opportunities, the entrepreneur earns a profit. The mutual learning from the discovery of gains from exchange moves the market system to a more efficient allocation of resources. Entrepreneurial discovery ensures that a free market moves toward the most efficient use of resources. In addition, the lure of profit continually prods entrepreneurs to seek innovations that increase productive capacity. For the entrepreneur who recognizes the opportunity, today’s imperfections represent tomorrow’s profit.1 The price system and the market economy are learning devices that guide individuals to discover mutual gains and use scarce resources efficiently.
This is probably the most distinctive and valuable point of the Austrian school. But it’s important to remember that discovery is ultimately a public good, and that markets only reward some kinds of discovery
Macroeconomics
Proposition 8: Money is nonneutral.
Money is defined as the commonly accepted medium of exchange. If government policy distorts the monetary unit, exchange is distorted as well. The goal of monetary policy should be to minimize these distortions. Any increase in the money supply not offset by an increase in money demand will lead to an increase in prices. But prices do not adjust instantaneously throughout the economy. Some price adjustments occur faster than others, which means that relative prices change. Each of these changes exerts its influence on the pattern of exchange and production. Money, by its nature, thus cannot be neutral.
This proposition’s importance becomes evident in discussing the costs of inflation. The quantity theory of money stated, correctly, that printing money does not increase wealth. Thus, if the government doubles the money supply, money holders’ apparent gain in ability to buy goods is prevented by the doubling of prices. But while the quantity theory of money represented an important advance in economic thinking, a mechanical interpretation of the quantity theory underestimated the costs of inflationary policy. If prices simply doubled when the government doubled the money supply, then economic actors would anticipate this price adjustment by closely following money supply figures and would adjust their behavior accordingly. The cost of inflation would thus be minimal.
But inflation is socially destructive on several levels. First, even anticipated inflation breaches a basic trust between the government and its citizens because government is using inflation to confiscate people’s wealth. Second, unanticipated inflation is redistributive as debtors gain at the expense of creditors. Third, because people cannot perfectly anticipate inflation and because the money is added somewhere in the system—say, through government purchase of bonds—some prices (the price of bonds, for example) adjust before other prices, which means that inflation distorts the pattern of exchange and production.
Since money is the link for almost all transactions in a modern economy, monetary distortions affect those transactions. The goal of monetary policy, therefore, should be to minimize these monetary distortions, precisely because money is nonneutral.
With a handful of dogmatic new classicals, all economists agree that money is non-neutral. And with a similar handful of exceptions, all economists agree that inflation is undesirable (if sometimes unavoidable)
Proposition 9: The capital structure consists of heterogeneous goods that have multispecific uses that must be aligned.
Right now, people in Detroit, Stuttgart, and Tokyo City are designing cars that will not be purchased for a decade. How do they know how to allocate resources to meet that goal? Production is always for an uncertain future demand, and the production process requires different stages of investment ranging from the most remote (mining iron ore) to the most immediate (the car dealership). The values of all producer goods at every stage of production derive from the value consumers place on the product being produced. The production plan aligns various goods into a capital structure that produces the final goods in, ideally, the most efficient manner. If capital goods were homogeneous, they could be used in producing all the final products consumers desired. If mistakes were made, the resources would be reallocated quickly, and with minimal cost, toward producing the more desired final product. But capital goods are heterogeneous and multispecific; an auto plant can make cars, but not computer chips. The intricate alignment of capital to produce various consumer goods is governed by price signals and the careful economic calculations of investors. If the price system is distorted, investors will make mistakes in aligning their capital goods. Once the error is revealed, economic actors will reshuffle their investments, but in the meantime resources will be lost.3
Again, no one disagrees with this. I was waiting for a claim that capital markets always do a better job of allocating capital than any alternative, or that they would do better in the absence of government regulation, but it hasn’t been made, so I won’t impute it. I will note that the price system may be distorted by all sorts of factors, including systemic biases in capital markets. The dotcom bubble/bust is a prime example of capital market failure in the leadup to the GFC.
Proposition 10: Social institutions often are the result of human action, but not of human design.
Many of the most important institutions and practices are not the result of direct design but are the by-product of actions taken to achieve other goals. A student in the Midwest in January trying to get to class quickly while avoiding the cold may cut across the quad rather than walk the long way around. Cutting across the quad in the snow leaves footprints; as other students follow these, they make the path bigger. Although their goal is merely to get to class quickly and avoid the cold weather, in the process they create a path in the snow that actually helps students who come later to achieve this goal more easily. The “path in the snow” story is a simple example of a “product of human action, but not of human design” (Hayek 1948, p. 7).
The market economy and its price system are examples of a similar process. People do not intend to create the complex array of exchanges and price signals that constitute a market economy. Their intention is simply to improve their own lot in life, but their behavior results in the market system. Money, law, language, science, and so on are all social phenomena that can trace their origins not to human design, but rather to people striving to achieve their own betterment, and in the process producing an outcome that benefits the public.
This is true, but so is the converse: social institutions are often the result of human design.
The implications of these ten propositions are rather radical. If they hold true, economic theory would be grounded in verbal logic and empirical work focused on historical narratives.
This is a gigantic non-sequitur, which reflects the cultural predilections of the Austrian tribe. If anything, the outline above supports an axiomatic and mathematical approach of the type favored by the neoclassical school. Prices are numbers after all, and information is a mathematically precise concept. Why would you throw all that away and stick to verbal methods, except for lack of capacity to do it right? And the claimed focus on empirical work seems to be the exact opposite of the a priori methodology espoused by Mises and supported above.
With regard to public policy, severe doubt would be raised about the ability of government officials to intervene optimally within the economic system, let alone to rationally manage the economy.
Not many people these days would claim optimality for government intervention. But there’s nothing so far to show that government intervention can’t improve outcomes in the standard cases of microeconomic market failure and macroeconomic co-ordination failures.
Perhaps economists should adopt the doctors’ creed: “First do no harm.” The market economy develops out of people’s natural inclination to better their situation and, in so doing, to discover the mutually beneficial exchanges that will accomplish that goal. Adam Smith first systematized this message in The Wealth of Nations.
The first sentence seems entirely inconsistent with the general policy stance of the Austrian school, which involves a wide range of radical policy measures, based on untested hypotheses. “First do no harm” would suggest cautious incremental changes to the existing mixed economy. It’s true that markets develop out of natural inclinations to better our situation, but then so do governments.
In the twentieth century, economists of the Austrian school of economics were the most uncompromising proponents of this message, not because of a prior ideological commitment, but because of the logic of their arguments.
Sorry, but I can’t agree. Maybe this was true at the beginning of the 20th century, but in recent decades, the Austrian school of economics has been a dogmatic sect, characterised by extreme ideological views on all subjects. About the only thing I agree with in this point is that the Austrian message is based primarily on a priori logic and not on openness to empirical evidence.
Summary. The main thing I find useful in Austrian economics is captured by Proposition 7, which encapsulates the limitations of neoclassical general equilibrium theory, where all possible states of nature are assumed known, so that discovery is not really possible. Unfortunately, this is wrapped up with both some misconceived methodological views (for example, the commitment to verbal logic) and a set of ideological blinkers which guarantee in advance that the policy conclusions will be those of laissez-faire.
Final point. Boettke doesn’t talk explicitly about Austrian Business Cycle Theory, which is obviously of some interest. I’ll treat this topic in a later post.
Update I advertised this in comments over at the Austrian Economics Blog. I got a couple of comments from Greg Ransom (thanks!), but I was hoping for a bit more of a response from serious Austrian economists, while avoiding the lunatic fringe. Is there anywhere else I should be looking?
Further update I’ve edited this a bit in response to comments from Peter Boettke. In particular, I’ve changed my treatment of Props 4 and 6. As clarified Prop 4 doesn’t reveal any substantive difference between Austrian and mainstream economics, and Prop 6 is much weaker than it appears.
John Quiggin 
Smith was, as all good Scotsman are, a skeptic.
He was scathing about businessmen. His idea, was that, unless carefully controlled they will become rentiers. And do anything it takes to get that .. which includes killing.
Long after Smith life insurance was finally regulated, because it was profitable to insure a strangers life .. and then kill them .. bit like CDS’s, or hedge funds. Yes, they took ‘ ‘insurance’ on the risk that a company would go down. Then made it happen by shorts. Win-win from their point of view.
For the simple here (Sj). Bet a company will collapse, then make it happen.
Economic Terrorists I call them. Makes Bin Ladin look like an amateur.
Digression: Never understood why the UK Govt didn’t set the SAS on Soros, since he damaged the UK far more than the IRA. Frankly I would have.
Oldskeptic, if you want to use an example of mob behaviour, why don’t you use one that actually happened, rather than one that didn’t? It couldn’t be that hard to find one.
Ernestine Gross Said:
March 19th, 2009 at 9:40 pm
“Again, another nail in the coffin of any ‘economic’ theory that depends on ‘rational’ people.”
Surely the validity of the above statement depends on the concept of rationality.
To illustrate, is a mathematical economist who is entrepreneurial in the sense of making new discoveries (new theoretical knowledge) irrational because he or she is not motivated by making accounting profits?
Is this a new definition of a non sequitur?
Do you here actually understand economics?
Oldskeptic Says:
What’s this supposed to mean? It’s not possible to disprove Black-Scholes. Black-Scholes is true given its assumptions.
It’s trivial to show that the assumptions don’t hold. That’s been known since the original publication in 1973.
JQ, I would like to reply to #53 with two references.
http://www.lhcrazyworld.blogspot.com/
http://geoplasma.spaces.live.com/
SJ,
Next thing you will know “oldskeptic” will disprove the labour theory of value. Wow. Maybe during that process he will also learn that the theory he is referring to is almost universally known as Black-Scholes. I would think Myron might be a little upset about the mis-spelling of his name. Odd for someone who knows enough about it to disprove it to get that wrong.
.
Louis,
I have always found it odd that those who are most active in attempting to prove that a lack of rationality on the part of economic actors is a good excuse for government action are also those who are most reliant on a theory that the government is not similarly so hobbled.
News flash: Humans do act irrationally from time to time! – or at least what may appear as irrationally to the rest of us. This includes all members of the government. The difference is that the government has the legal capacity to force us to play along and the only comeback we have is a vote every few years or a hope that another arm of the government is capable of doing something to reduce the harm done.
I’m pretty sure John is already acquainted with Louis Hissink, Ernestine.
The point is obvious, though, and should be explained for those readers unacquainted with the facts.
Climate change denying geologists do not have standing to question whether Phd qualified economics lecturers understand economics.
I’m a sceptic about free markets and the comments of Alice and Oldskeptic resonate with me. I’m certainly a sceptic about extreme free market theory like the Austrian school. My opinion of the Austrian school is that it is extreme to the point of absurdity. We are all entitled to our opinions. 🙂
However, I do think markets have a role to play in creating the “best of all possible worlds” with the emphasis on “possible”. I use this phrase in a worldly socio-economic sense and not in the sense of Leibniz.
A Social-Democratic approach to government coupled with a well-regulated mixed economy and a committment to excellent free public education, primary to teriary and in all fields, is about as good as it is going to get.
There is such a thing as human nature. It is modifiable but not able to be changed fundamentally. There is plenty about human nature that is ugly unless it is well regulated too. IMO, the above system has been demonstrated empirically (in all the trials in the “laboratory” of human history) to be the best that we have come up with so far.
Ikonoclast,
Your’s is a very sound and noble position to take: Healthy skepticism should be applauded.
What do you think about the free market as an agent to turn the seemingly negative aspects of human nature; self interest and striving for personal gain, into a positive. The free market encourages people to act in the interest of others because they are acting in the interest of themselves.
Whereas regulation and protectionism seems to encourage an accumulation of power at the top which only encourages the negative aspects of humanity to flourish in order to gain.
If you don’t see it this way can you give some examples of where you see regulation being of benefit and where you see Austrians as being “extreme to the point of absurdity”?
Cheers
Ben S: could you please give some examples of free markets so I can investigate them. I’m never that sure what people mean by a free market or how they work in practice.
thanks, nanks
yeah,
and while someone searches for nanks chimera,
can someone find me a rational actor and a system that tends toward equilibrium
ha ha
Ernestine#55
They are everywhere…. They mass attack genuine blogs..they do not have a brain cell to share between them. They use no real facts or research and they quote the same thing like a broken down record, over and over again. Ignore the troll. It is more than clear with the two links you posted the nature of what is behind them. Link to Marohasy? Say no more…
Ikonoclast – I second
“A Social-Democratic approach to government coupled with a well-regulated mixed economy and a committment to excellent free public education, primary to teriary and in all fields, is about as good as it is going to get.
There is such a thing as human nature. It is modifiable but not able to be changed fundamentally. There is plenty about human nature that is ugly unless it is well regulated too.”
On your last comment, we are still seeing in the newspapers everyday as bail out recipients in the US keep handing out million dollar bonuses (oh but they couldnt possibly risk an exodus or a contractual breach could they?).
An exodus of the self righteous leeches is an essential first step to recovery.
nanks:
I think the wiki definition sums it up fairly well: A free market is a market in which property rights are voluntarily exchanged at a price arranged completely by the mutual consent of sellers and buyers.
There is an excellent example outlined in Reason. It shows that the lifting of regulation in homebrewing beer in the United states lead to a renaissance of beer and eventually a microbrewery revolution.
“Drinkers began to envision a new role for home-brew: Instead of functioning as a cheap do-it-yourself alternative to well-made commercial beers, why couldn’t it function as a well-made do-it-yourself alternative to cheap commercial beers?”
The lifting of the homebrew ban as shown in this article illustrates that the market in beer went from 44 breweries nationwide in 1979 to the situation now where “the U.S. boasts 1,463 breweries, including 975 brewpubs”.
The example here has a clear message: Restriction and regulation leads to stagnation whereas when you remove restrictions it leads to innovation and choice.
I see this as a universal experience and would be happy to talk about any examples where you see the reverse as true.
Check out the article here: http://www.reason.com/news/show/131411.html
Hi Ben – thanks for the link. I can’t see the strong connection between homebrewing and boutique breweries – which would be regulated I imagine (though don’t know).
By the way I am not in principle opposed to free markets at all – I don’t really understand them enough – but I am certainly in favour of diversity and limitations on power – whether public or private. Free markets seem to be one way of sharing power.
nanks,
I think the point was made that the homebrewers ended up starting the microbrews. There is a quote in the article from the president of the Brewers Association “I’d say over 90 percent of small brewers I talk to today have roots in home brewing,”
Diversity and limits on power are all awesome ideals in my book!
Ikonoclast @24. I’m slow to respond, but great post!
Proposition 1 more or less sums up the AE world view. It’s certainly not an empirical claim because it is trivially wrong. Sure, individuals make choices. But do groups and organisations make choices? Yes, by more or less the same kind of observation we can see that they do.
Moving down the scale, do brain subsystems make choices? Yes. The neuropschological picture is particularly interesting to me (at least) because it turns out the subjective individual is not as involved in most of our “choosing” as we might presume. We tend to be presented with the results of choices made by unconscious parts of the brain and typically go along with them. Any good analysis of human activity should take this into account. (There’s a good accessible piece on the neurology of subjectivity http://www.dericbownds.net/I_illusion_web/I_illusion_web.html if anyone’s interested. The choosing entity is an illusion, but not a trivial one.)
“Only individuals choose” is already an ideology. It sets the whole flavour for Austrian Economics and discloses it’s appeal to people who are interested in, or often obsessed with, individual choice. I like your word “fetish”. (In my experience, they tend to be intelligent males with a good capacity for abstract thought who were subjected to some dominating parenting at the time when they should have been growing out of rule-based social thinking. There’s a mass of psychological research that indicates happy people tend to see themselves existing in relationships rather than as an individuals.)
This seems to me to be a fundamental problem with any ideology whether it’s dressed up as a rational analysis or not. All the propositions contain approximations, slants, ambiguities, assumptions parading as definitions, and so on. Of course they all feel right to the adherents – that’s why they were chosen – but string a few together and you can no longer tell if you’re in fairyland. AEs don’t need to justify – or even nuance their belief system – with empirical evidence, it’s all in the book. The crash isn’t a failure of markets – ie Failure of Markets – that just isn’t logically possible. There is actually no evidence that could reasonably appear in the real world that would break the system.
This isn’t just a problem with AE it’s a more fundamental problem with the limits of human rationality and representation of the world in language. For me that’s the advantage of using science to determine what’s going on; you’re still prone to these problems but at least you have a clear indicator of when you’ve gone off the rails.
A free market is a market in which property rights are voluntarily exchanged at a price arranged completely by the mutual consent of sellers and buyers.
whats the starting point?
what if you have no property rights?
what if 1% of the buyers and sellers own 90% of the property rights?
is that still a free-market?
smiths,
It’s a free market as long as people are allowed to exchange freely. The initial allocation is beside the point. If you are concerned about initial allocations consider this: there is not a fixed amount of wealth in the world. People create property simply by engaging in productive activities. Also consider that the alternative to a free market is people not being able to exchange freely, even when they find it mutually beneficial to do so.
There appears to be a religious-like belief by some that markets are best in all conditions where, in reality, markets only deliver optimal outcomes where there is genuine competition.
sdfc,
I’m not sure about that. I can think of lots of cases where an authoritarian solution is better. I just think the presumption should always be in favour of freedom.
Take social policy as a neutral example. There are lots of ways that the government might be able to help people by forcing them to engage in certian socially desirable ways. However most people would agree that this is a dangerous path and there should be a pretty good reason to start dictating how people live their lives. I just think the same logic should apply to peoples economic choices as their social choices.
I’m not trying to convince you, just to explain why people like me think the way we do.
People create property simply by engaging in productive activities
this is infantile,
what about if i buy something and it turns out to be a lemon?
Sdfc 70
You seem to think that there may be a rational way to break into the Austrian mindset. They argue, with some plausibility, that markets promote competition; monopolies are transitory — technological artificacts– unless governments protect them from new entrants and technologies.
“Optimal” suggests “efficient”, but they reject static neoclassical “efficiency” based on perfect competition in favour of the dynamic efficiency resulting from creative destruction.
I don’t see a way in.
smiths @ 68:
whats the starting point?
Finders keepers. If you found it first it’s yours. Lot’s of people will complain about this way because the way we got to the current ownership of property involved wars, persecution and genocide etc. Because of this it’s never going to be 100% perfect from day 1. However the free market works in a way that benefits the entire world. We may not have started out equally but implementing voluntary action is the best way for us to get as equitable as possible.
what if you have no property rights?
Then you’re probably dead! Everyone at the very least has rights to their own body, time, talents and labour.
what if 1% of the buyers and sellers own 90% of the property rights?
If this is a suitable situation for everyone then awesome! Nothing gets done in a voluntary society unless it is mutually beneficial. If it’s beneficial for most people to not bother to own property like land and simply rent it from 1% of the population because they do a good job of maintaining it then why not?
the system you advocate is not a free market ben,
it is anarchy, followed by a mafia-like system,
i wouldnt want to be part of the world system you advocate and i feel saddened to think that people actually think this is a good way to organize life on earth
Don’t be too sad smiths; lot’s of people have all sorts of crazy ideas and it doesn’t look like people are all that keen to stop telling other people what to do any time soon.
76# Well join the club Ben. You know, all that talk about a society where no one can tell anyone else what to do because individual freedom reigns supreme…I keep trying to remember where Ive heard it all before….It was in the 1970s…and Woodstock had a lot to do with it.
Why is it that people who like to denigrate the free market are conversely passionate and idealistic believers in government action?
Without property rights then we are on the slippery-slope to totalitarianism. Property rights are fundamental to the free markets operation. It provides a level of security and reduces risk of expropriation.
Setting prices takes in multiple inputs and is usually determined based on different factors for different firms. Yet government manipulation via price controls undermines the supply-demand equilibrium and can lead to long term shortages and a lack of investment in R&D. Do the government-action ideologues believe that government should set prices for goods and services? I would not be surprised if there are a good number who would like government interference in this sphere.
I’m not such a big fan of government as it is implemented at the moment because I don’t think the people at the highest level show any particular aptitude for much other than the acquisition of power without much in the way of proper scrutiny or checks. However how does a ‘very’ free market deal with fraud unless through the threat of forceful retribution which seems to necessitate some sort of government scrutiny and apparatus.
nanks,
I think most libertarian types are quite happy to have a government that enforces contracts and not much else.
Ben S
The next issue then is what about children who are neglected – or more generally, how do you ensure equal access to resources for children – who are obviously not in a position to guarantee that for themselves.
Similarly for people with profound disabilities – how do you ensure decent opportunity for people with disabilities? Similarly, how do you ensure decent medical treatment for children born with correctable disabling conditions but whose parents lack the resources to have the problem corrected.
There is an obvious history here with hip dysplasia which is simply corrected in most cases where resourcing is available.
Sean G #78
You probably werent even alive when there was, what I considered a half way decent public service in this country. You (I gather young) people are apt to criticise the government’s role these days (and I am to criticise it myself but not for the same reasons as you).
It is not a case of being pro government. It is case of having lived long enough to see it one way, and then see the inferior funblings of an eroded public sector befuddled with private sector ideals and corrupted by private sector ideals and firms as it is now.
Two different objectives between private profit and public ideals (but an individual can choose where they sepnd your life’s work – but apparently can no longer choose to devote tehmselves to public service?) but I doubt whether you would even understand those that, in Australia’s history, dedicated their careers to providing a service to the public and for the greater public good.
I have met them, talked to them and there are still some wonderful individuals at senior level in the public service who know the true meaning of the word “public service”, and who epitomise its lofty ideals, that is to dedicate your career to helping the produce the higher ideal of a common good, service to others, your actions subservient to the greater good that benefits all in society, not just your own self interest (or your immediate families).
It falls short of the mark for me to attempt to praise these type of people here, surrounded as I am by people that have no notion of a collective benefit or a collective action, and if I tried I would greatly underestimate their true worth or risk having them held up to ridicule (by so many inferior persons). Those who would riduicule government and public sector employees, see themselves and the world around them as a world where all that matters is individual entrepreneurial ability and aspiration and a claw like hold survival to get ahead, even and especially where it means sacrificing your rival. Isnt that the spirit of free competition?
Its quite sad Sean G or at least I find it so. You do not need to feel sorry for me, for I feel quite sorry for you, that you do not know the difference between public service and private interest and would sacrifice the greater common good for the latter in a heartbeat.
Alanna
Alice,
Let us start with “good public service”. I am sitting in London where the Government for the last 12 years have been “investing” in public services. Massive amounts of expenditure have gone into education, health, transport, welfare etc etc. This massive increase in spending has resulted in an additional 500,000 public service employees and in some parts of the United Kingdom government expenditure is above 50%.
Despite massive increases in spending, the only real progress in public services have come from reforms to the public service. Money does not equate to quality and despite huge expenditure on public services independent and Grammar schools (equivalent to independent and selective high schools) still get top league placings. Along with these selective schools are the City Academies which are private-public funded schools and run independently of the local authorities over here.
I have seen the waste, the multiple levels of government creating work for themselves and the stiffling regulations that come from this.
Good public services are not a by-product of the size of government or the level of spending. You need a more nuanced view than that. The sheer size of Government is mind-boggling but the sheer waste and inefficiency destroy’s the publics view of Government.
The Government is an autonomous organisation to society (the public). There are undoubtedly good people in the Government – doctors, nurses, police etc but that is the front-line staff. What about the administrators? Are they there for the public good or for the generous pension scheme and secure job? Do you extrapolate from your conversations with a few public servants and apply that across the entire public service.
Government is notoriously ham-fisted and lacking in flexibility to deal with society, individual communities and individuals. It is a by-product of an era from the industrial revolution that had massive, clunking organisations in both public and private sectors responding like automatons. Very much like the old factories these organisations are dying off because society is not homogenous while the public sector is.
I am disappointed that you think that just because I am a free marketeer that somehow I am a selfish being, entirely devoted to myself and not the community surrounding me. That is your opinion based on no facts but full of fluff. I am a free marketeer because the free market is the more efficient allocation of resources.
I am a believer in helping my community and by extension society. But I would not ask for a salary like a public servant. People’s priorities tend to rank as: family, community, society. Irrespective of public or private sector employment that is most people’s view.
Can you explain to me what the “common good” is? Does this not presuppose that I am exactly the same in needs and wants and requirements as everyone else? Or that the community that I am in is exactly the same as every other community? It puts together a construct of society as a single unit; very mechanistic and that pulling a lever will get a certain reaction. This is a wrnog approach.
Finally I would like to add that in Australia the government is very large. Fed, State and Local. Do you honestly think that public services are getting value for money? Or are achieving their social purpose?
Back on topic though.
The Austrian School of Economics does raise interesting points regarding social psychology – why people act certain ways. I think that the current crisis will provide a boost to behavioural economics especially the behaviours as shown in trading rooms in banks across the globe!
83# Sean,
I have no interest whatsoever in the behaviour of tradings rooms and bank boards across the globe. I am more interested in what the government is doing to close the loopholes. It is clear the private sector is inept at reigning in its corporate excess.
I will not explain to you what a common good is. You have google and wikipedia for that.
Alice,
I want your definition of it. I understand what it is but what is your view of the common good – what does it mean? How does it come about? I am a believer that our own views and bias affect our arguments and opinions and this will help us form a better understanding of where you are coming from.
Alice,
How do you explain your apparent faith that the government is likely to be any better – any at all – at reigning in excess than the corporate sector is?
As part of your answer please incorporate excess and deaths due to war.
That high moral hobby horse you have built for yourself is quite amusing. Sad but amusing.
This thread has probably run its course and needs to be closed off.
Terje Says:
On the flipside, your sociopathic attitude is just, well, sad.
SJ – Yes, yes, yes. We all know that you’re morally superior also. Sorry I left you out. Can’t stay and chat. I have some small children in the oven that need basting.
So Joseph 71, running a health or a bus service is an authoritarian solution? That’s a bit over the top isn’t it, are you sure?
Bruce 73
First up, I don’t believe in neoclassical static efficiency either, economies are dynamic, and unstable.
As for some monopolies being transitory, well in my opinion that is simply not true. Certain markets (for want of a better word) lend themselves to monopoly, or oligopoly at best. When the government privatizes or sells infrastructure assets or social services it’s usually selling a monopoly. Many of these new markets require regulation or run on government handouts.
Certain markets (for want of a better word) lend themselves to monopoly, or oligopoly at best.
Such as?
Ben, I’ve already given you two, however jsut off the top of my head, we can also add roads, elecricity networks,telecommunications infrastructure, water distribution and airports.
Thanks for the examples sdfc,
Now that you’ve made the claim that some markets lend themselves to monopoly and provided examples please provide reasons why you seem to think they lend themselves to monopoly. The burden of proof lies with your claim.
If you’re a conservative then you think anybody that wants to change the status quo carries the burden of proof.
If your a liberal (a real liberal) then you think anybody that wants to reduce freedom carries the burden of proof.
If your a socialist then you think anybody that wants to be free must first prove themselves worthy. In practice they would just rather that every act requires prior permission.
I fall into the liberal category however I recognise that not everybody does so I’m resigned to the fact that if I want conservatives and socialists to change I need to offer evidence. Tiresome but that’s life.
There is also the academic burden of proof: necessitas probandi incumbit ei qui agit.
This is where the burden of proof lies with someone making a claim. Since sdfc has made the claim, the burden of proof lies with sdfc.
I think that monarchies also come from the ‘forbidden til approved’ background. That’s where I see the mainstream Australian tradition coming from – more postcolonial “the site of meaning is elsewhere”, which lends itself to passivity.
86 Andrew Reynolds says
“Alice,
How do you explain your apparent faith that the government is likely to be any better – any at all – at reigning in excess than the corporate sector is?”
I see no signs the corporate sector is reigning in their excess. If they dont do it, the market may do it for them, or the “mob” (same thing).
You may care to read that those who have lost their houses as a result of the credit crisis in the US are driving past the AIG executives houses on organised bus trips (past those very houses of the AIG bonus recipients from taxpayers money).
As a result quite a few have given their bonuses back.
In the face of this intrusion so close to his family and children and neighbours one disturbed executive complained that neighbours would be disturbed by this. Yet a neighbour stopped in front of his house to speak to the press to tell them how disgusting she found the bonuses paid. A number have resported to security guards around their houses because of the unwanted attention from media and demonstrators.
Would you rather have the government fix it or the market Andrew or the mob?
Take your pick. I like law and order myself and the corporate sector has chosen to thumb their noses at everyone else (shareholders, creditors, employees) whilst they essentially indulge in theft from what should be an insolvent organisation. If thats your idea of the market its a pretty inadequate response.
There are a lot of pretty angry people out there about CEO salaries. The government will not ignore this one, when so many people are suffering the direct effects of too many CEOs poor management and outright gluttony.
Silly question Andrew.
SJ at 88
You do make me laugh!
Everyone who has commented on this post may want to check out Peter Boettke’s (the economist who wrote the encyclopedia article JQ is responding to) rejoinder. I’ve quoted it below:
By the way, JQ thanks for taking the time to address Austrian economics, I appreciate it. I wasn’t expecting to agree with you, however merely engaging with ideas outside the mainstream framework puts you in a class above 95% of Australian economists, who are so intellectually shallow they probably think “Austrian economics” is about the economics of the country of Austria!
As to your last point about Austrian economists being ideological: if you read Epistemological Problems of Economics (by Mises), The Counter-Revolution of Science (by Hayek) and Man, Economy and State (by Rothbard), I think you would understand that many Austrian economists view the mainstream as being ideological – in the sense that they use numbers to conceal value judgments. Often, Keynesians don’t even understand the limitations of the aggregates that they deploy (as is obvious in the debate over whether World War II “got” America out of the Great Depression).