Economists Do It With Models

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I Think I’ve Figured Out Why Austrians Don’t Do It With Models…

December 2nd, 2012 · 11 Comments
Just For Fun

If you don’t get the headline, here is a great article by Bryan Caplan that, in its critique of the Austrian School, does a good job of outlining what the fundamental Austrian principles actually are.

Tags: Just For Fun

11 responses so far ↓

  • 1 Ryan Murphy // Dec 2, 2012 at 2:20 pm

    This came out since then and aspects of it can be read as a response to Caplan:

    http://www.e-elgar.com/bookentry_main.lasso?id=12822

  • 2 BoZimmerman // Dec 2, 2012 at 3:07 pm

    Hmm.. just as Rothbard misreads some neoclassical points, it’s clear Caplan did not re-read his own paper to realize the same criticism in reverse. For example, on indifference, Caplan quotes Rothbard as essentially saying “Preference is a requirement for Action. (since he says Indifference can not be a basis of Action — all that’s left is non-indifference)”. However, further down, he attacks Rothbard by saying “Action does not reveal all preference.”. In other words, that not All Preference leads to Action. Those are clearly very different ideas.

    I’m pretty close to buying Caplan’s point about Ordinal vs Cardinalness, except that it was my impression that the neoclassicals actually do functions based on those numbers, which would immediately turn a “harmless distinction” into a rather meaningful one in a heartbeat. As long as Utils appear in no mathematical functions whatever, I’m ready to admit he’s right on that point, personally.

  • 3 econgirl // Dec 2, 2012 at 3:20 pm

    @ Ryan: Thanks! I think that, regardless of whether people agree with Caplan’s arguments, they can get a better idea of what the Austrian School is all about (on both a micro and macro level) from his article than they can from most other sources.

  • 4 BoZimmerman // Dec 2, 2012 at 3:24 pm

    Good Lord! “Granted, the socialist economy would suffer due to the impossibility of economic calculation; but how, on his own theory, could Mises know that this difficulty to so severe that society would collapse? ”

    Again, did he read his own paper first? One can’t help but also notice that Caplan never bothered to give the definition of “Socialism” that Mises operated under, lest it show how silly his objections are, to wit:
    1. WTF is “Social Collapse”? Mises point was Socialism, The Ideal, was impossible. Not that human beings would vanish or stop breathing. I imagine Mises would have been quite unsurprised to find that, in socialist countries, not only was his calculation problem bourne out where it was tried, but in every nook and cranny, black market capitalism helped keep people alive. In other words: Socialism *was* Impossible, and society did not collapse (though the retarded USSR – a governmental institution that never represented any recognizable society, did).
    2. The Crusoe discussion appears to be “If Crusoe can operate as a socialist economy of One, then 100 Crusoes can each operate as a socialist economy of One, and therefore socialist complex exchange is possible.” It could be worse though, perhaps what he was saying that “Complex exchange under socialist crusoe is possible, Plus one more person with Crusoe still in charge is possible, therefore 100 million is possible”. Aside from ignoring the possibility of incremental impossibility, it ignores the mechanics that cause that incremental problem: Local Knowledge problems.

    OK, I’m going to stop now .. I see someone else posted a response to this.. I’ll stop littering this wonderful comment area..

  • 5 Byron // Dec 2, 2012 at 5:35 pm

    Throughout the article, I couldn’t help but think “Both parties are on the ‘same side.’” It is almost as if economists were a body and the brain disliked the hands because they kept fidgeting and the hands disliking the brain for it’s ivory tower rhetoric. In this case each classification of economist taking up one role or the other depending on the subject.

    However it should be noted that similar types arguments between schools of thought come up in circles throughout any academic field. Most notably those that make use of stochastic mathematics and typical calculus.

  • 6 tyba // Dec 3, 2012 at 12:12 am

    can you please post videos on price and cost curves for intermediate macro since I tend to understand you better. Thanks.

  • 7 Patriot // Dec 4, 2012 at 2:30 am

    Oh gosh. There’s nothing quite like the feeling you get when your favored econ/stats bloggers favorably cite your favorite professors out of the blue. I guess it’s easier in (rare?) cases like these where Caplan takes a “less controversial” stance.

    Caplan provides a fairly sound argument against ABCT; I agree with everything he wrote. but the kicker is fairly obvious — depressing interest rates doesn’t induce malinvestment. At least to any statistically-verifiable degree.

    As an aside: it also grinds my gears when some people write off GMU because we have an Austrian presence. Everyone knows the party is with the Public Choice and Experimental (ICES) guys.

  • 8 Patriot // Dec 4, 2012 at 2:45 am

    @Bo (first post)
    I don’t think the ideas are necessarily mutually exclusive, or that the ideas are particularly different.

    He’s taking as an axiom that preferences are a necessary condition for an actor to take action.

    It’s also fairly well-established that revealed preferences (or preferences observed from actions) can only attempt to identify preferences that are contained in elicited reactions. It can NOT account for preferences that are held, but passed over for a more optimal choice.
    http://emlab.berkeley.edu/~botond/mistakeschicago.pdf

  • 9 Patriot // Dec 4, 2012 at 2:48 am

    I might have misconstrued what you meant, though.

  • 10 econgirl // Dec 4, 2012 at 12:14 pm

    @ Patriot: I know of Bryan Caplan, obviously, but I will fully admit that I am not entirely familiar with his work. That said, I am very impressed by the piece I linked to above, and I think you have a good point regarding the view of GMU economics.

  • 11 Amanski // Dec 18, 2012 at 2:57 am

    Caplan has a very crude understanding of austrian economics in my opinion.

    Replies to Caplan

    “Economic Science and Neoclassicism”, by Jörg Guido Hülsmann

    “Austrian Theorizing: Recalling the Foundations”, and the errata, by Walter Block

    “Kaldor-Hicks Efficiency and the Problem of Central Planning”, by Edward Stringham

    “Probability, Common Sense, and Realism: A Reply to Hülsmann and Block”, by Bryan Caplan

    “Realism: Austrian vs. Neoclassical Economics, Reply to Caplan”, by Walter Block

    “Probability and the Synthetic A Priori: A Reply to Block”, by Bryan Caplan

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