Friday, October 29, 2010
Also significant in smashing mercantalism was Hume's work with the quantity theory of money (although Hume's formulation was inferior to that of Cantillon's) and his insight that money was a "lubricant" of prosperity, not a "fuel", as well as his insights regarding the importance of commerce in general.
Sunday, October 24, 2010
It doesn't take an economist to see the social benefit of such an arrangement. And once everybody is already using money, each individual in accepting money would expect to benefit, confident that others too will accept the money. But how did it start? This is a question I asked myself even as a child. At the beginning of it all, it would seem that the first person who accepted money would have no such confidence in its future purchasing power. So why would he do it? It would seem to necessarily involve a private sacrifice for the sake of public gain.
To a certain stripe of thinker, compelling such sacrifices is the raison d'etre of the state. So to them, it is natural to think that the state must have first instituted money. Thus, the "etatist" theory of the origin of money was dominant through most of the history of economic thought.
The etatists were wrong. But that was just one of the many problems with the sorry state of monetary theory up through the mid-19th century. The whole field was a hodge-podge of disjointed insights. Nobody knew how to inegrate those insights into a system, much less how to integrate monetary theory with the rest of economics.
Carl Menger, founder of the Austrian School of Economics, started to unravel the mystery of money in the late 19th century. In the early 20th century, Ludwig von Mises finally unloosed the Gordian knot with The Theory of Money and Credit (1912), arguably the most important single advance in monetary theory in the history of economic thought. In that treatise, Mises erected a theory of money of astounding originality that was complete and internally integrated: as well as externally integrated with modern, subjectivist economics in general. With this book, Mises completed the victory of the "marginal revolution" by extending its conquest to the monetary realm. In doing so, Mises finally made economics whole. The following is a guide to chapter 1 of this epochal work.
Money is defined by Mises later in chapter 1 as a "universally employed" medium of exchange. This differs from how Mises would define money in his 1949 treatise Human Action: as a "commonly used" medium of exchange.
Mises delimits the realm of money by indicating in which economic situations money would have a function, and in which economic situations money would not have a function.
Mises notes that there is no need for money in autarky. In autarky there is no division of labor among household units. Each household consumes only what it produces and only produces for its own consumption. In such conditions there is no exchange, and therefore no use for money.
Secondly, there is no need for money in socialism. In socialism there is a division of labor (however chaotic that division may be). However, since there is no private property, that also precludes the possibility of exchange, thereby eliminating any use for any medium of exchange. In his 1922 book, Socialism, Mises changes his mind on this matter. He states that, in socialism while money would have no role with regard to the means of production, it could still have a function with regard to consumers' goods.1
Thus money, according to Mises in 1912, is only useful under capitalism: the state of affairs in which means of production are privately owned. In capitalism, the function of money is to facilitate exchange by making indirect exchange possible.
In Section 2, Mises explains how money comes to be. The development occurs through three steps.
Step 1: From Commodity to Medium of Exchange
Mises explains how a commodity becomes a medium of exchange on the market. Mises explains this process through hypothetical examples, using letter names (A, B, m, n, etc) for market participants and goods. Since these kinds of the examples can be hard to follow, I've created the following a 14-page comic-style illustration of the passage. Click below to to enlarge and view.
In sum, direct exchange (barter) requires a "double-coincidence of wants". For the shoemaker to get the dozen eggs that he wants in exchange for a pair of shoes, it is not enough that he prefers the eggs to the shoes. The chicken farmer must also happen to prefer the shoes to the eggs. A big problem is that such a "double-coincidence of wants" is rare; it would be quite a stroke of luck for the egg-craving shoemaker to come across a barefoot chicken-farmer. However, the individual can solve that problem by resorting to indirect exchange. For example, the shoemaker may notice that the chicken-farmer needs candlesticks, and the candlestick-maker needs shoes. He can then trade his pair of shoes for some candlesticks, and then trade those candlesticks for the dozen eggs.
But the solution of ad hoc indirect exchange is a very limited one. It would still take a huge amount of luck and alertness to be able to find someone offering something the chicken-farmer wants and who also wants shoes. Chances are that the best series of exchanges that would get the shoemaker his eggs would be a lot longer. Perhaps he would need to trade shoes for rope, and then rope for timber, and then timber for fish, and then fish for candlesticks, and then candlesticks for eggs. And what about all the other goods the shoemaker wants? Many of those very well may each involve the same logistical nightmare.
Mises notes that, "[i]ndirect exchange becomes more necessary as division of labor increases and wants become more refined." The more people specialize, the less likely it is that any individual can acquire the various things he wants in exchange for the niche product that he brings to market.
Step 2: From Medium of Exchange to Common Medium of Exchange
After thus explaining how a commodity becomes a medium of exchange, Mises then explains how a medium of exchange becomes a common medium of exchange.
Whether a good arises as a common medium of exchange hinges on its marketability. For "marketability" Menger used the term "saleability", which he defined as the "facility with which [a good] can be disposed of at a market at any convenient time at current purchasing prices, or with less or more diminution of the same". Menger uses the example of grain as a good with high marketability and an astronomical instrument as a good with low marketability. In his article "The Origin of Money and Its Value", Austrian economist Robert Murphy explains the example very clearly:
For example, someone selling wheat is in a much stronger position than someone selling astronomical instruments. The former commodity is more saleable than the latter.
Notice that Menger is not claiming that the owner of a telescope will be unable to sell it. If the seller sets his asking price (in terms of other goods) low enough, someone will buy it. The point is that the seller of a telescope will only be able to receive its true "economic price" if he devotes a long time to searching for buyers. The seller of wheat, in contrast, would not have to look very hard to find the best deal that he is likely to get for his wares.
(...) we might find that one telescope trades against 1,000 units of wheat. But Menger's insight is that this fact does not really mean that someone going to market with a telescope can instantly walk away with 1,000 units of wheat.
Moreover, it is simply not the case that the owner of a telescope is in the same position as the owner of 1,000 units of wheat when each enters the market. Because the telescope is much less saleable, its owner will be at a disadvantage when trying to acquire his desired goods from other sellers.Because of a recognition of this disadvantage, vendors of less marketable (saleable) goods will generally trade for more marketable goods before they enter the market for the things they want to use themselves. Since marketability, according to Mises, is a function of how "general and constant" the demand for the good is, this sets off an upward spiral of marketability for some goods: their high marketability draws more demand, which increases their marketability, which draws forth still more demand, and so on. This continues until a few goods are selected as "common media of exchange".
Step 3: From Common Medium of Exchange to Money
Yet the selection process does not stop there. Naturally, individuals will want to trade their goods for the most marketable of these common media of exchange. As consensus grows as to which common medium is the most marketable, the upward spiral of marketability will tend to benefit only that medium, at the expense of others. Thus do inferior common media of exchange tend to drop out of the market entirely, and a single medium becomes universally used: in other words, becomes money.
Mises then explains how through the process of what is now called "globalization", moneys tend to die out as markets merge and competition begins anew among the moneys of the various markets. This process leads toward the establishment of a single money for the whole world.
In an interesting incidental passage, Mises seems to endorse state-enforced "monometallism".
In section 3, Mises explains how the alleged "secondary functions" of money, which many theorists write about, are really just instances of its primary and sole function: to facilitate exchange by making indirect exchange possible.
The facilitation of credit transactions is not a separate function, as is often supposed, because credit transactions are simply exchanges of present goods for future goods. Let us say a would-be lender who has produced present goods and services would like to acquire a claim to a greater amount of future goods and services. However borrowers on the market are not likely to be interested in the specific goods and services he has produced. So the lender facilitates future exchange by exchanging his goods and services for present money, which borrowers on the market will likely desire.
The transmission of value across space is not a separate function either. Exchanging "a good here" for money, in order to exchange money for "a good there" is, again, simply another instance of acquiring a good via indirect exchange, which would have been impossible to acquire via direct exchange.
A common misconception is that the Mengerian market process theory of the origin of money praxeologically disproved the etatist theory. But, as Mises stated in Human Action, chapter 17, it is for history, not economics, to disprove the etatist theory. However unlikely it is that once upon a time a king or parliament invented money, it is not praxeologically impossible.
The unlikelihood is indeed staggering however. Murphy sums up the problems with the notion that a wise ruler foresaw the benefits of a money economy and imposed it by law upon his subjects:
First, as Menger pointed out, we have no historical record of such an important event, even though money was used in all ancient civilizations. Second, there's the unlikelihood that someone could have invented the idea of money without ever experiencing it. And third, even if we did stipulate that a ruler could have discovered the idea of money while living in a state of barter, it would not be sufficient for him to simply designate the money good. He would also have to specify the precise exchange ratios between the newly defined money and all other goods. Otherwise, the people under his rule could evade his order to use the newfangled "money" by charging ridiculously high prices in terms of that good.Money did in fact arise. So if the extremely unlikely etatist story did not occur, money must have arisen in some other way. And the market process of the Mengerian theory is the only other candidate. Moreover, that market process is the necessary outcome of certain assumed conditions (i.e. scarce double-coincidences of wants, varied marketability of goods, etc) that conspicuously match the real world. So while the economist qua economist must remain dutifully silent on the question, the economic historian must conclude that that is indeed how money originated in the real world.
No state enforcement is required to institute money by compelling private sacrifice for a public gain. The emergence of money need not involve such selflessness in the first place. As Mises tells the story of the origin of money, the economic actor benefits at each step of the way: when he first resorts to indirect exchange, when he first uses a common medium of exchange, and when he first accepts money for his wares.
The market process origin of money is often characterized as a "spontaneous order", as against the "deliberate order" of the etatist theory. But that should never obscure the fact that each step of the way in the market process origin of money is, as in all economic phenomena, a deliberate action undertaken by an individual to improve his state of affairs.
1"...in the socialist commonwealth, exchange itself has a much narrower significance, since it is confined to consumers' goods only."; Ludwig von Mises; Socialism: An Economic and Sociological Analysis, Part 2, Chapter 7.
Introducting Story V: The Rise and Reign of the Res Publica Christiana, From Gregory the Great to Boniface VIII
The first great sundering of the historic partnership of Altar and Throne began with the fall of Rome in the west. The Papacy managed to survive in Rome even after the Empire had died out in the west, and managed to hold sway over the hearts of many converted barbarians, largely through the efforts of men like Gregory the Great. The Papacy used this sway to play off ruler against ruler and to thus maintain a great deal of independence in spite of its diminutive temporal power.
It eventually was able to become dominant in Europe. The moment that perhaps inaugurated its dominance was when Holy Roman Emperor Henry IV trekked barefoot to the Castle of Canossa in Italy in a hair-shirt to beg Pope Gregory VII to lift his excommunication. In humbling the emperor, the Pope instituted the Papal Monarchy and heralded the Res Pulica Christiana of the High Middle Ages.
But this Papal Monarchy did not go on to become an empire. The Church was powerful and independent enough to counter and limit the power of European monarchs, but not enough to become a full Europe-wide state itself. The fragmentation of power that the church imposed upon Catholic Europe emboldened nobles and clerics against kings, lesser nobles against greater nobles, and peasants and burghers against lords.
This unprecedented breakdown of Caesaro-Papism set Catholic Europe on a course widely divergent from the rest of the world. Caesaro-Papism and the despotism it made possible persisted in medieval and early modern times throughout the east, even including Orthodox Russia and Byzantium. It is the history of political fragmentation shared by all of Catholic and post-Catholic Europe and its colonies that most distinctly sets "the west" apart from the rest of the world. The Magna Carta, signed in 1215 in Runnymede was a check on royal power that was most characteristic of this relatively free age.
The relative freedom made possible by political decentralization led to the industrial and commercial revolution of the high middle ages which is egregiously ignored by contemporary popular history. During the middle ages, water and wind mills peppered Europe like never before. The increased energy thus harnessed and its automaticity had an explosive effect on productivity. Cereals grains were processed with unprecedented efficiency. The greater heat of medieval furnace technology initiated the true iron age, during which quality iron was available for widespread use for the first time. There were huge improvements in agricultural technique, including in field rotation. The medieval harness unleashed the motive power of the horse in agriculture, which dramatically increased productivity. Scientific husbandry at monastery sheep farms led to an explosion in wool productivity. All this happened, and much much more.
Unfortunately, 70 years after Runnymede, European saw the coronation of a monarch who would prove to be the herald of an age of absolute monarchy. Philip IV of France (known as "the Fair" for his good looks) committed a wide number of atrocities (bringing on the Hundred Years War, expropriating and expelling the French Jews, expropriating and murdering the Knights Templar, imposing crippling taxes on the vitally important fairs of Champagne). But the most significant of these was his arrest of Pope Boniface VIII in 1303.
As the culmination of an intense power struggle between the King and the Pope (particularly over the king's desire to tax the clergy), Boniface excommunicated Philip. Philip responded by sending two thousand mercenaries to the Papal palace at Anagni. The mercenaries plundered the palace, and captured the Pope, nearly murdering him. Although rescued by locals, the Pope developed a fever shortly after this incident, and died. Within a few years, the Papacy was relocated to Avignon, a French-dominated territory, and was relegated to slavishly generating moral authority for the French crown by rubber stamping its atrocities. Just as the humiliation of a monarch at the hands of a Pope at Canossa signaled the beginning of an age of relative freedom and prosperity, so did the humiliation of a Pope at the hands of a monarch at Anagni ring that age's death knell.
1The Historical Setting of the Austrian School of Economics
2Money, Method, and the Market Process, Chapter 5
Saturday, October 23, 2010
Friday, October 22, 2010
Introducting: Story IV, The Decline and Dissolution of Classical Civilization, From Commodus to the Execution of Boethius
The showdown came when in the political troubles of the third and fourth centuries the emperors resorted to currency debasement. With the system of maximum prices the practice of debasement completely paralyzed both the production and the marketing of the vital foodstuffs and disintegrated society's economic organization. The more eagerness the authorities displayed in enforcing the maximum prices, the more desperate became the conditions of the urban masses dependent on the purchase of food. Commerce in grain and other necessities vanished altogether. To avoid starving, people deserted the cities, settled on the countryside, and tried to grow grain, oil, wine, and other necessities for themselves. On the other hand, the owners of the big estates restricted their excess production of cereals and began to produce in their farmhouses--the villae--the products of handicraft which they needed. For their big-scale farming, which was already seriously jeopardized because of the inefficiency of slave labor, lost its rationality completely when the opportunity to sell at remunerative prices disappeared. As the owner of the estate could no longer sell in the cities, he could no longer patronize the urban artisans either. He was forced to look for a substitute to meet his needs by employing handicraftsmen on his own account in his villa. He discontinued big-scale farming and became a landlord receiving rents from tenants or sharecroppers. These coloni were either freed slaves or urban proletarians who settled in the villages and turned to tilling the soil. A tendency toward the establishment of autarky of each landlord's estate emerged. The economic function of the cities, of commerce, trade, and urban handicrafts, shrank. Italy and the provinces of the empire returned to a less advanced state of the social [p. 769] division of labor. The highly developed economic structure of ancient civilization retrograded to what is now known as the manorial organization of the Middle Ages.
The emperors were alarmed with that outcome which undermined the financial and military power of their government. But their counteraction was futile as it did not affect the root of the evil. The compulsion and coercion to which they resorted could not reverse the trend toward social disintegration which, on the contrary, was caused precisely by too much compulsion and coercion. No Roman was aware of the fact that the process was induced by the government's interference with prices and by currency debasement. It was vain for the emperors to promulgate laws against the city-dweller who "relicta civitate rus habitare maluerit."  The system of the leiturgia, the public services to be rendered by the wealthy citizens, only accelerated the retrogression of the division of labor. The laws concerning the special obligations of the shipowners, the navicularii, were no more successful in checking the decline of navigation than the laws concerning grain dealing in checking the shrinkage in the cities' supply of agricultural products.
The marvelous civilization of antiquity perished because it did not adjust its moral code and its legal system to the requirements of the market economy. A social order is doomed if the actions which its normal functioning requires are rejected by the standards of morality, are declared illegal by the laws of the country, and are prosecuted as criminal by the courts and the police. The Roman Empire crumbled to dust because it lacked the spirit of liberalism and free enterprise. The policy of interventionism and its political corollary, the Fuhrer principle, decomposed the mighty empire as they will by necessity always disintegrate and destroy any social entity.1Along with the classical civilization's economic dissolution came its cultural dissolution. The primitive economy of the Dark Ages could not support scholars and artists. Greek culture had pervaded Roman civilization, because Roman intellectuals learned Greek. So, almost none of the Greek classics had been translated into Latin before Rome's fall. And while many of the barbarians who supplanted the Roman elite learned Latin, they did not learn Greek. So the untranslated Greek classics were eventually lost to the west. The Roman philosopher and statesman Boethius foresaw this fate, and tried to avert it by embarking on a project to translate the complete works of Plato and Aristotle into Latin. He only managed to get through the Timaeus of Plato and Aristotle's works on logic before being executed in 524 AD by Theodoric, the barbarian ruler of Italy.
1Human Action, Chapter 30, Section 2
Liberal ideas are already to be found in the works of many of the earlier writers. The great English and Scotch thinkers of the eighteenth and the beginning of the nineteenth century were the first to formulate these ideas into a system.When fragmentary insights are integrated and systemetized, that is the mark of a science. Mises then offers a list of these "scientific liberals", and the works by them which one should read. The earliest work on his list is: David Hume, Essays Moral, Political, and Literary (1741 and 1742).
Introducing Story III: The Formation and Rise of Classical Civilization, From Homer to Marcus Aurelius
The view that substantive causal connections exist in reality
analyzes causation in terms of nothing but regular sequence
Thursday, October 21, 2010
Notice that the Mises Academy has lowered its prices by about 40% !!
Murphy on the Fed
8 weeks, January 10, 2011 - February 28, 2011Anatomy of the Fed with Robert Murphy will cover both the theory and history behind the Federal Reserve, the central bank of the United States. Instructor Robert Murphy will first detail the theory of free-market banking, and contrast it with the distorted banking sector resulting from special government privileges. Murphy will relay the sordid tale of how the Federal Reserve Act was designed on Jekyll Island in a secret meeting of government officials and international bankers. He will also cover the mechanics of modern Fed operations and the commercial banking sector. The course will also apply Austrian business cycle theory to the stock market crash of 1929 and the recent housing bubble.
Gordon on Logic
7 weeks, January 13, 2011 - February 24, 2011How to Think: An Introduction to Logic with David Gordon will present some of the essentials of logic—the science of correct reasoning. Deductive reasoning transmits truth from premises to conclusion. If one starts with true premises, and reasons correctly, the conclusion will be true also. We will identify common fallacies and give examples of these from discussions in politics and economics. The course will emphasize ordinary language reasoning rather than mathematical logic.Although we will stress practical applications, some of the philosophical issues that logic raises will also be covered. Whatever your field of study, you will find a grasp of logic of great help in your work.
Dilorenzo on Lincoln
6 weeks, January 18, 2011 - February 22, 2011In Omnipotent Government (p. 268) Ludwig von Mises wrote that “the adversaries of the trend toward more government control describe their opposition as a . . . contest of states’ rights versus the central power.” To Mises, centralized governmental power was the greatest threat to liberty. And as Edmund Wilson once noted, no one is more responsible for the birth of the centralized, bureaucratic state that Americans slave under than Abraham Lincoln, the “Great Centralizer.” This course, The Great Centralizer: Lincoln and the Growth of Statism with Thomas DiLorenzo, will apply Austrian economics and Austrian social theory to understand the economic and political legacies of the real Lincoln, the man who waged total war on his own citizens, killing some 350,000 of them; who shredded the Constitution and essentially declared himself dictator; who suspended Habeas Corpus and imprisoned political opponents by the thousands; who shut down opposition newspapers by the hundreds; who intimidated federal judges and deported an opposition member of Congress; who ignored how most of the rest of the world ended slavery peacefully; who destroyed the voluntary union of the founding fathers that was based on states’ rights and federalism; and whose regime introduced America to income taxation, military conscription, decades of protectionism, corrupt corporate welfare, the internal revenue bureaucracy, and transformed the country from a republic to an empire.
Klein on the Networked Economy
5 weeks, January 19, 2011 - February 16, 2011What is the new, networked economy all about? What are “information goods” and how do they differ from traditional goods? How are online businesses different from brick-and-mortar establishments? Is the large firm with its centralized managerial hierarchy obsolete, to be replaced by decentralized, disaggregated, peer-to-peer communities? Is government regulation needed to keep digital markets free, fair, and open? More generally, does the new economy call for a new kind of economics, or is traditional economics still useful? This course, Networks and the Digital Revolution: Economic Myths and Realities with Peter Klein, suggests answers to these and related questions, focusing on recent examples, applications, and illustrations, while grounding the discussion on basic economic principles. We begin by studying the growth of the Internet, wireless communication networks, and related technologies, trying to assess just how widely information technology has diffused throughout the economy. We then explore how these changes in technology, along with changes in regulation and global competition, have affected firm boundaries, competition, human resource management, regulation, sources of financing, and the assignment of property rights.
Robert Murphy on the Principles of Economics
10 weeks, January 26, 2011 - March 30, 2011Robert Murphy will again teach Principles of Economics in the Winter of 2011 , an online class for all ages that will use his book Lessons for the Young Economist. (Professor Murphy discusses his plans for the course in his article Learn Principles of Economics Online.) The class will run from January 26 until March 30, ten weeks of fantastic economics instruction from the ground up. His book, which is sure to become a standard text in the future, will be used in this class. Enrollment in the class is $150 and covers all materials, weekly lectures, office hours, quizzes, grading, and final exam. The class is designed for high school students, but it is the ideal class for gaining a solid foundation in economic science at any age. The focus is on the Austrian understanding. The knowledge gained will establish a rock-solid basis for all future studies in economics. The goal is to present economics in the same way that it was given to Mises, Hayek, and Rothbard early in their schooling, a paradigm to inspire a lifetime of understanding and scholarship.No prior exposure to economic logic is required.
From the New York Times, "Europe Is Turning Its Back on Keynes’s Cure for Recession":
The British economist John Maynard Keynes may live on in popular legend as the world’s most influential economist. But in much of Europe, and most acutely here in the land of his birth, his view that deficit spending by governments is crucial to avoiding a long recession has lately been willfully ignored. (...) “Everything Keynes established about the primacy of maintaining demand at a steady pace is gone,” Brad DeLong, a liberal economist and blogger at the University of California, Berkeley, said mournfully. “Europe obviously thinks it can focus on sound finances while the U.S. manages world demand,” he said in a telephone interview, “but unfortunately we are not doing that.” Joseph E. Stiglitz argued that the British government’s plan was “a gamble with almost no potential upside” and that it would lead to lower growth, lower demand, lower tax revenues, a deterioration of skills among the unemployed and an even higher national debt. “We cannot afford austerity,” he wrote in The Guardian.
Wednesday, October 20, 2010
Introducing Story II: The Rise and Fall of the Early Great States, From Eridu to the Bronze Age Collapse and the Ancient Dark Ages
In Story II, I will tell of the rise of Eridu in ancient Sumer, which may have been the first state. I will relate the nature of the Sumerian state, and how a chain of influence extends from it to the Akkadians, the Babylonians, the Assyrians, the Persians, and even the Macedonian Greeks. I will also write about the histories of the early states of Egypt, Phoenicia, Palestine, Asia Minor, and Syria. And I will consider how it all came crashing down in what is known as "the Bronze Age collapse".
Shall we then rest contented with these two relations of contiguity and succession, as affording a complete idea of causation? By, no means. An object may be contiguous and prior to another, without being considered as its cause. There is a NECESSARY CONNEXION to be taken into consideration; and that relation is of much greater importance, than any of the other two above-mention'd.Here again I turn the object on all sides, in order to discover the nature of this necessary connexion, and find the impression, or impressions, from which its idea may be deriv'd. When I cast my eye on the known Qualities of objects, I immediately discover that the relation of cause and effect depends not in the least on them. When I consider their relations, I can find none but those of contiguity and succession; which I have already regarded as imperfect and unsatisfactory.1 (...)John Locke said "there is nothing in the intellect which was not previously in the senses", to which Leibniz appended, "except the intellect itself". Mises would have agreed with Locke on that account. Where Leibniz said "the intellect", Mises would have said, "the logical structure of the human mind".
What is our idea of necessity, when we say that two objects are necessarily connected together. Upon this head I repeat what I have often had occasion to observe, that as we have no idea, that is not deriv'd from an impression, we must find some impression, that gives rise to this idea of necessity, if we assert we have really such an idea. In order to this I consider, in what objects necessity is commonly suppos'd to lie; and finding that it is always ascrib'd to causes and effects, I turn my eye to two objects suppos'd to be plac'd in that relation; and examine them in all the situations, of which they are susceptible. I immediately perceive, that they are contiguous in time and place, and that the object we -call cause precedes the other we call effect. In no one instance can I go any farther, nor is it possible for me to discover any third relation betwixt these objects. I therefore enlarge my view to comprehend several instances; where I find like objects always existing in like relations of contiguity and succession. At first sight this seems to serve but little to my purpose. The reflection on several instances only repeats the same objects; and therefore can never give rise to a new idea. But upon farther enquiry I find, that the repetition is not in every particular the same, but produces a new impression, and by that means the idea, which I at present examine. For after a frequent repetition, I find, that upon the appearance of one of the objects, the mind is determin'd by custom to consider its usual attendant, and to consider it in a stronger light upon account of its relation to the first object. 'Tis this impression, then, or determination, which affords me the idea of necessity.(...)
I begin with observing that the terms of efficacy, agency, power, force, energy, necessity, connexion, and productive quality, are all nearly synonymous; and therefore 'tis an absurdity to employ any of them in defining the rest. (...)
The idea of necessity arises from some impression. There is no impression convey'd by our senses, which can give rise to that idea. It must, therefore, be deriv'd from some internal impression, or impression of reflection. (...)
This therefore is the essence of necessity. Upon the whole, necessity is something, that exists in the mind, not in objects; nor -is it possible for us ever to form the most distant idea of it, considered as a quality in bodies. (...)
the necessity or power, which unites causes and effects, lies in the determination of the mind to pass from the one to the other.2
- inferring final causes
- the categories of deductive logic
- inferring causation from regular contiguity/succession
- inferring future regularity from past regularity (induction)
What is not understood however is that Hume would also agree with Leibniz's dictum. As can be seen in the above passages, he recognized that there must be some "determination of the mind" to make the leap from regular contiguity/succession to causation. This irreducible "determination of the mind" is basically what Mises was talking about when he wrote of "the logical structure of the human mind."
1David Hume, A Treatise of Human Nature, Book 1, Part 3, Section 2
2Ibid, Book 1, Part 3, Section 14
Tuesday, October 19, 2010
Nullification, the Jeffersonian mechanism of state resistance to unconstitutional acts of the U.S. government, has returned to the news in recent years, and is the subject of a new book by the instructor of this course. The course will cover the historical, constitutional, and moral arguments that have been raised for and against the idea of state nullification. Students will examine the major sources and documents that comprise this tradition of American political thought, and read and discuss the famous debates in American history over nullification and the nature of the American Union: Daniel Webster vs. Robert Hayne, Andrew Jackson vs. Littleton Waller Tazewell, and Joseph Story vs. Abel Upshur. To understand this topic is to gain an intimate knowledge and understanding of American history. (The book Nullification is the only required reading that is unavailable to read online.)
Civilization first arose in Mesopotamia, the “land between the rivers”.1 However, many societal advancements associated with “civilization” antedated the state in that region.2 Paleolithic families commerced with people as far away as Anatolia and Palestine many millenia before the rise of the Sumerian city-states. Village life arose in Mesolithic times. And the Neolithic agricultural revolution and introduction of pottery got underway quite nicely under stone age anarchy.
Three successive (though overlapping) proto-historical cultures arose in northern Mesopotamia: the Hassuna, Samarra, and Halaf cultures. All three made great strides in art, trade, and the technologies of agriculture, building, implements, pottery, and even irrigation.3 And not one of them showed any signs of having a central government. The Hassuna culture developed stamp seals, an important development in the protection of private property and in trade, as well as a precursor to the written language. The Samarra culture invented irrigation with which they produced amazingly abundant harvests, as evidenced by the remains of capacious granaries. The Halaf culture even had cobbled streets and specialized centers which mass produced a distinctive pottery (which has been called by the French antiquarian Georges Roux, “the most beautiful ever used in Mesopotamia”1) for peaceful exchange abroad. Pre-state Mesopotamian society was accomplishing wondrous things for itself.
Then something happened. Several Halafian towns were for some reason depopulated.4 And their exquisite pottery was replaced by a cruder style: a sure archaeological sign of cultural displacement. A very different people, the Ubaid culture, had come from the south and supplanted the Halafians. The Ubaid culture had shrines, altars, offering tables, and enormous temples: sure signs of a priestly elite. And their temples consistently grew in size and grandeur as the ages went by: a sure sign of consolidating priestly power. It is highly likely that the people of this culture are the famous Sumerians themselves in their proto-historical form. If so, then the cult which originated in the Ubaid temples is the very tradition which evolved into the monstrous temple-states of Sumer, Akkad, Babylon, and Assyria. The north Mesopotamian tradition of freedom that lasted for a millennium and a half was replaced by the yoke of the state.
This is the basic framework of Story I.
1History Begins at Sumer by Samuel Noah Kramer
2Ancient Iraq by Georges Roux
One of the topics that will be covered in this blog is wertfreiheit. This is German for "value freedom". Ludwig von Mises, following Max Weber, subscribed to the notion that science must be value-free to truly be a science, and not merely an expression of one's own desires. Liberals in the tradition of Murray Rothbard generally agree with Mises that economics is a value-free science. But Mises regarded all science, and not just economics, as necessarily wertfrei. This was rejected by Rothbard, who believed in a "value laden" science of ethics.
Rothbard believed there is an objective ethic, discoverable by man's reason. He believed there is a natural law which provides an absolute standard of right and wrong. One can infer from the nature of man that the homesteading-and-exchange-based propertarian ethic is the only correct ethic for man.
Furthermore, he thought economic science, by itself, is not enough to make a case for liberalism (or its fullest extention, anarchocapitalism). Economics, as a value-free science, can teach what social arrangement is an appropriate means for certain social ends. But the science of objective natural law ethics is necessary to determine what ends men should have.
In The Ethics of Liberty, Rothbard wrote:
"In order to advocate public policy, therefore, a system of social or political ethics must be constructed. In former centuries this was the crucial task of political philosophy. But in the contemporary world, political theory, in the name of a spurious “science,” has cast out ethical philosophy, and has itself become barren as a guide to the inquiring citizen. The same course has been taken in each of the disciplines of the social sciences and of philosophy by abandoning the procedures of natural law. Let us then cast out the hobgoblins of Wertfreiheit...1"Why did Mises subscribe to thoroughgoing wertfreiheit? He believed that science only has to do with "existential propositions": with the "is". It is only with regard to existential propositions that there can be any question of truth vs. falsity. Value judgments are not existential propositions, and thus are not subject to proof or disproof. Value judgments, moral or otherwise, cannot be judged as right or wrong without imposing one's own personal values upon them as the standard by which they are judged.
In Theory and History, Mises wrote:
Propositions asserting existence (affirmative existential propositions) or nonexistence (negative existential propositions) are descriptive. They assert something about the state of the whole universe or of parts of the universe. With regard to them questions of truth and falsity are significant. They must not be confounded with judgments of value.This fact/value dichotomy, or "is/ought" divide, was greatly advanced by David Hume. In A Treatise of Human Nature, Hume wrote:
Judgments of value are voluntaristic. They express feelings, tastes, or preferences of the individual who utters them. With regard to them there cannot be any question of truth and falsity. They are ultimate and not subject to any proof or evidence.2
In every system of morality, which I have hitherto met with, I have always remark'd, that the author proceeds for some time in the ordinary ways of reasoning, and establishes the being of a God, or makes observations concerning human affairs; when all of a sudden I am surpriz'd to find, that instead of the usual copulations of propositions, is, and is not, I meet with no proposition that is not connected with an ought, or an ought not. This change is imperceptible; but is however, of the last consequence. For as this ought, or ought not, expresses some new relation or affirmation, 'tis necessary that it shou'd be observ'd and explain'd; and at the same time that a reason should be given; for what seems altogether inconceivable, how this new relation can be a deduction from others, which are entirely different from it.3Mises believed the "is/ought" divide posed no problem for liberalism. This is because he believed that there is a "harmony of interests". The overriding concern of humanity is secular well-being: greater abundance, health, security etc. Now, regardless of whether one only is concerned for the secular well-being of himself, for his immediate family, for his community, for his country, or for the world as a whole, economic science shows that the secular well-being of whichever portion of humanity is concerned with would be better promoted by a liberal social order than by any other order. This is Mises' conception of value-free, individualist utilitarianism.
Mises also believed that social orders are utilitarian devices that ultimately are always determined by the beliefs of the preponderance of society with regard to the relative efficacy of various social orders. So the only way that liberalism can be effected is if enough people either (a) understand sound economics well enough to realize the efficacy of liberalism, or (b) trust thought-leaders who understand economics to that extent.
However, Rothbard's position won the day among Misesians, to the point that today, thoroughgoing wertfreiheit has nearly died out in the Austrian tradition. Perhaps the only major Misesian proponent of it is the nonagenarian scholar Leland Yeager.
But, many of the young intellectuals who have just recently been introduced to Austro-libertarianism are unsatisfied with the arguments provided by Rothbardians against thoroughgoing value-freedom in science. Misesian/Humean wertfreiheit may yet have its day in the Austrian tradition once again.
1Murray N. Rothbard, The Ethics of Liberty, Chapter 5
2Ludwig von Mises, Theory and History, Chapter 1, Section 1
3David Hume, A Treatise of Human Nature, Book III, Part I, Section I
Monday, October 18, 2010
- Wertfreiheit and the is/ought, or fact/value, divide
- The irreduceability of logic, causality, and induction
- Recent Hume studies trending toward interpreting Hume as a causal-realist
- Hume's vital role, currently neglected in the liberal tradition, in the advent of scientific liberalism and modern economics.
- The resonance between the ethics of Hume (misleadingly called hedonism) and that of Mises (misleadingly called utilitarianism).
I. The Rise of Prehistoric Man: From the Dawn of Man to the Halaf Culture
I will not tell these stories in one long succession. Rather, I will cycle through these stories with every post. For example, I will have one post on Story I, and then a post on Story II. After I cycle through all the other stories, I will return to Story 1 and advance it, and so on.
Sunday, October 17, 2010
AUBURN, Ala. -- Cam Newton kept looking up at the scoreboard, amazed as anyone at the numbers he saw, climbing higher and higher with each possession.
He wondered how many points it would take to win.
Fifty? Sixty? Seventy?
"I'm sitting there on the sideline saying, 'Wow, we have this many points, and they have that many points,'" Auburn's do-it-all quarterback said. "At one point, we didn't want to score too fast because it was like a heavyweight boxing match."
When this offensive slugfest was done, the No. 7 Tigers had a mind-boggling 65-43 victory over 12th-ranked Arkansas on Saturday, the teams combining on a record for points in a Southeastern Conference game that didn't go to overtime.
Saturday, October 16, 2010
Friday, October 15, 2010
Hoppe's Democracy: The God That Failed (Can't wait to contrast it to Mises' pro-democracy arguments)
DiLorenzo's The Real Lincoln (I've had the sequel, Lincoln Unmasked, sitting unread on my bookshelf for about a year, because I wanted to read The Real Lincoln first; now I can!)
DiLorenzo's Hamilton's Curse: I know the Jefferson/Hamilton rivalry pretty well from reading Dumas Malone's Thomas Jefferson: His Life and Times. But now I can get all the nitty-gritty details from an Austrian perspective.
It seems there is not an economic fallacy so basic that it will not be espoused at some elite university.
Robots Are Stealing American Jobs, According to MIT Economist
Before any MIT econ dons start invading the labs of their funding-rivals in the engineering department to smash any robots or mechanized looms they find, I hope they will take a second to read this passage from Mises:
The confusion starts with the misinterpretation of the statement that machinery is "substituted" for labor. What happens is that labor is rendered more efficient by the aid of machinery. The same input of labor leads to a greater quantity or a better quality of products. The employment of machinery itself does not directly result in a reduction of the number of hands employed in the production of article A concerned. What brings about this secondary effect is the fact that--other things being equal--an increase in the available supply of A lowers the marginal utility of a unit of A as against that of the units of other articles and that therefore labor is withdrawn from the production of A and employed in the turning out of other articles. The technological improvement in the production of A makes it possible to realize certain projects which could not be executed before because the workers required were employed for the production of A for which consumers' demand was more urgent. The reduction of the number of workers in the A industry is caused by the increased demand of these other branches to which the opportunity to expand is offered. Incidentally, this insight explodes all talk about "technological unemployment."
Tools and machinery are primarily not labor-saving devices, but means to increase output per unit of input. They appear as labor-saving devices if looked upon exclusively from the point of view of the individual branch of business concerned. Seen from the point of view of the consumers and the whole of society, they appear as instruments that raise the productivity of human effort. They increase supply and make it possible to consume more material goods and to enjoy more leisure. Which goods will be consumed in greater quantity and to what extent people will prefer to enjoy more leisure depends on people's value judgments.
After this, I just need to read Omnipotent Government and Bureaucracy, and I'll have read all his major works.
There is a YouTube video entitled "A Critique of Austrian Economics", made by an anonymous YouTuber, which has had over twenty thousand views. The reader is dripping with insipid condescension; he reads the whole thing in this pedantic sing-song voice that is quite emetic in effect. So that you don't have to listen to that, and so as to thus spare whatever upholstery may be around you, I've transcribed the last half or so below and added comments.
The Austrian approach to philosophy is a very old one: rationalism. You have to go back to the 17th and 18th centuries to find when it was last considered a serious philosophical movement. It was widely abandoned after its inadequacies were laid bare by other schools of philosophy: empiricism, positivism, and most famously by Immanuel Kant's Critique of Pure Reason. Philosophy has progressed tremendously since rationalism. The Austrian approach is a relic of history.Here, he resorts to the fallacious Whig Theory of the History of Science. Secondly, the YouTuber's attempt to refute the epistemology of Ludwig von Mises by name-dropping Kant is highly ironic, given that Mises was hugely influenced by Kant. Kant tried to reform rationalism, he did not try to refute it. Kant is widely considered a rationalist himself, yet the YouTuber tries to make him out to be a standard-bearing anti-rationalist. I'll bet the YouTuber hasn't even read anything about the Critique of Pure Reason, let alone the book itself, and is basing his assumption that the book is anti-rationalist on the everyday-usage definition of the word "critique" (as in "fault-finding", which is the way he uses the word in the title of his video), as opposed to "detailed analysis and assessment", which is how Kant was using the word.
The problem with rationalism is that it makes the search for truth a game without rules. Rationalists are free to theorize anything they want, without such irritating constrictions as facts, statistics, data, history, or experimental confirmation.To say that a method that is based on what Mises refers to as "the logical structure of the human mind" is "without rules" is preposterous. Furthermore, if anything, it is positivism that is rule-free. Statisticians are free to conclude from data anything they want. Empiricism is effective in the natural sciences only insofar as (1) the scientist is able to control the experiment, (2) the elements of the experiment are simple and few, and (3) the correlations that result are enormous and cannot be easily explained in any other way. Statistical economics fails on all three counts. Statistical treatments of natural science in which these criteria are not met also fail (like climate modelling).
Their only guide is logic. But this is no different from what religions do when they assert the logical existence of God, or Buddha, or Mohammed, or Gaia.St. Anselm's "ontological proof of god" was refuted by his clerical contemporaries, using the tools of logic. One might ask the YouTuber if he considers geometry a religion.
Thursday, October 14, 2010
Ludwig von Mises first formulated the Austrian Business Cycle Theory (ABCT) in his groundbreaking treatise The Theory of Money and Credit (1912). But in the following much earlier passage (1888) by Eugen von Bohm-Bawerk (who, as his teacher, was a great influence on Mises) one can see the theory shadowed forth. Bohm-Bawerk considers below what would happen if, for some reason an absence of interest (agio) occured. [EDIT: thanks to Martin and Inquisitor for correcting a superfluous and erroneous additional element here] He shows how this situation would be unsustainable.
Wednesday, October 13, 2010
Professor Murphy covered supply and demand curves in his Econ 101 lecture today. He covered common misunderstandings. For one, even professional economists will from time to time mix up the idea of movement ALONG a curve, and a shift of the curve ITSELF. Another thing forgotten is that the curves represent various hypothetical price/quantity pairs. Here is Mises on supply/demand curves, from Human Action, Chapter 16, section 2:
"It is possible to visualize this interaction by drawing two curves, the demand curve and the supply curve, whose intersection shows the price. It is no less possible to express it in mathematical symbols. But it is necessary to comprehend that such pictorial or mathematical modes of representation do not affect the essence of our interpretation and that they do not add a whit to our insight. Furthermore it is important to realize that we do not have any knowledge or experience concerning the shape of such curves. Always, what we know is only market prices--that is, not the curves but only a point which we interpret as the intersection of two hypothetical curves. The drawing of such curves may prove expedient in visualizing the problems for undergraduates. For the real tasks of catallactics they are mere byplay."
The only true national autonomy is the freedom of the individual against the state and society.Professor DiLorenzo discussed nationalism and war in his lecture yesterday for his Mises Academy class, The Political Economy of War.