Via Positive Liberty, I came upon this credo of Austrian Economics put up by Peter Boettke :
"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."
I'm not sure that I understand this. Can't a Union, say, the UAW, choose to ratify a contract? Also, I don't understand what it means to say "make economic phenomena intelligible", if all there is to describe are individual actions. In order to describe a person's choice, say, why he chose an apple instead of a pear, you simply ask him. His intentions make his decision intelligible. All economic choices are is really a subset of human choices and actions that have to do with things like buying and selling. In the same way, one can only have an unintended consequence of an action where one has an intention to be fulfilled by the action that goes sideways, or that one didn't foresee. However, an unintended consequence can't simply mean anything that flows from a particular action, otherwise it encompasses consequences that can't be humanly predicted, and, therefore, can't even be intended.
When you limit or delimit a range of human action as economic, you are already abstracting out a quality that rises over and above individual actions. It's the difference between the members of the set, and the set. To the extent that you attempt to standardize, regularize, or categorize, particular human actions, you are describing something over and above the individual, unless saying that individuals make choices and collective entities do not, simply means that collective entities are not physical. Yet, even that seems false, since a club can be a group of particular individuals. This seems a lot like Russell trying to define numbers with sets, and getting into a bit of jam by doing so, as I remember.
A point about methodology. It's no good telling me that something I can say meaningfully doesn't really mean anything. If I say, "The Chess Club is meeting on Tuesday", you can't reply that I really mean to say that " The members of the Chess Club are going to meet on Tuesday". Suppose I say, "The Chess Club is 100 years old". Do I mean to say that the members of the club are all 100 years old?
"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."
This sounds like barter. Here's Liddell:
katallagê 1 I.exchange, esp. of money: the profits of the money-changer, Dem.
II.a change from enmity to friendship, reconciliation, Aesch., etc.
2.reconciliation of sinners with God, NTest.
I like number three. None of them fit. Anyway, from Wikipedia, this is funny:
"According to Mises (Human Action, page 3) it was Richard Whately who coined the term "catallactics". In effect, in Whately's book Introductory Lectures on Political Economy, published in 1831, it can be read:
"It is with a view to put you on your guard against prejudices thus created, (and you will meet probably with many instances of persons influenced by them,) that I have stated my objections to the name of Political-Economy. It is now, I conceive, too late to think of changing it. A. Smith, indeed, has designated his work a treatise on the "Wealth of Nations;" but this supplies a name only for the subject-matter, not for the science itself. The name I should have preferred as the most descriptive, and on the whole least objectionable, is that of CATALLACTICS, or the "Science of Exchanges.""
Also, in a footnote to these sentences, he continues:
"It is perhaps hardly necessary to observe, that I do not pretend to have classical authority for this use of the word Catallactics; nor do I deem it necessary to make any apology for using it without such authority. It would be thought, I conceive, an absurd pedantry to find fault with such words as "thermometer," "telescope," "pneumatics," "hydraulics," "geology," &c. on the ground that classical Greek writers have not employed them, or have taken them in a different sense. In the present instance, however, I am not sure that, if Aristotle had had occasion to express my meaning, he would not have used the very same word. In fact I may say he has used another part of the same verb in the sense of "exchanging;" (for the Verbals in are, to all practical purposes, to be regarded as parts of the verbs they are formed from) in the third book of the Nicom. Ethics he speaks of men who hold their lives so cheap, that they risked them in exchange for the most trifling gain []. The employment of this and kindred words in the sense of "reconcilement," is evidently secondary, reconciliation being commonly effected by a compensation; something accepted as an equivalent for loss or injury."
It has also been cited that Whately first coined the term in commentary during his Oxford lectures. [3]
I love when he says," nor do I deem it necessary to make any apology for using it without such authority". No. But you need to spend a paragraph justifying it.
I think I said buying and selling earlier, without have to search through Liddell. What about the institutions? Fine. But this kind of defining the limits of a subject is messy.
"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.
I would say that Human Agency has Intentionality.
"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."
I agree.
"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."
The Martian would use the Martian version of the Principle of Charity. Read Quine.
"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."
Marshall is philosophically correct. Cost is not Subjective. Cost can be no more subjective than the meaning of a word. We can't have a Private Language, and we can't have a Private Cost.
As Wittgenstein says:
94. But I did not get my picture of the world by satisfying myself of its correctness; nor do I have it because I am satisfied of its correctness. No: it is the inherited background against which I distinguish between true and false.
Institutions and the meanings of words and the cost of a pear are objective, not subjective. What is subjective is my decision to buy the pear or not.
"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 is not how human beings act. This picture is an abstraction, an attempt to organize disparate intentions and actions. Nothing more. It might be useful, but it is not true.
As Yeats says:
"Man can embody truth but he cannot know it. W.B. Yeats"
"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."
The price system is useful to us. Nothing more. If something was or becomes more useful, we will use that. It has no special magic.
"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."
The only book by Von Mises that I really liked was "Socialism". It is the best book on the subject. I haven't read it for many years, but as I remember it, Von Mises said that if Socialism could do what is says it can, we would all be socialists. However, it cannot. That's my opinion, but my opinion is provisional. I don't like the human nature argument at all. It could be that the reason private property works has nothing to do with what we tell ourselves. What has come about has done so because it works, not because it was preordained. We merely perceive what works as preordained.
"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. The price system and the market economy are learning devices that guide individuals to discover mutual gains and use scarce resources efficiently."
The most efficient uses of resources for what? I actually helped start a business. It was formed really out of dissatisfaction by the two other people who started the business with me with the business we were working at. I simply went along for the ride. People starts businesses for many different reasons. They do it. That's what we need to know. Some incentives might work once, and not work later. That's life.
"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...
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."
I generally agree with this, but it strikes me as exaggerated. A little inflation might well work for reasons that are hard to define. Major discontinuities are generally destructive.
"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."
I don't know what's being distorted. It's like saying that if a planet does something different than expected, and varies from our models, it's a distortion. Rather, it's simply that our models are of limited use.
"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"
I don't understand the use of "distorted". People use the information available as best they can. If they make too many cars, why is that a "distortion"? If I throw a pitch and it's called a ball, is that a distortion?
"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 seems true. As Austin says:
"...our common stock of words embodies all the distinctions men have found worth drawing, and the connections they have found worth marking, in the lifetime of many generations: these surely are likely to be more numerous, more sound, since they have stood up to the long test of survival of the fittest, and more subtle, at least in all ordinary and reasonable practical matters, than any that you or I are likely to think up in our armchair of an afternoon – the most favorite alternative method"
"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. 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.
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. 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."
I don't see these propositions as that radical, and they seem true, by and large, as does this final statement. I also don't like the phrase "logic of their arguments". All this says is that the proposition follow from each other, not that they are true. Logic needs premises.
Am I an adherent of Austrian Economics? No. It seems to be a misnomer, for one thing. But do the economists mentioned in this group have a lot of important things to tell us? Yes.
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