Currently Reading: Nation, State, and Economy by Mises on my e-reader

 http://mises.org/nsande.asp

After this, I just need to read Omnipotent Government and Bureaucracy, and I'll have read all his major works.

A Critique of Pure Nonsense

Cross-posted on the Mises Economics Blog.


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.

The ABCT Shadowed Forth

Cross-posted on the Mises Economics Blog.

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.

The possibility of obtaining means of subsistence free of agio would be certain to tempt undertakers into immoderate extension of the production period. If this were to occur only partially and in a few branches of production, naturally the limited stocks of subsistence would leave so much less for the other branches of production; these latter would have to curtail their processes unnaturally; and there would ensue a deficiency in the social provision which would outweigh the increased return got from the favoured branches through the immoderate extension of their processes. But if the excessive extension were to be introduced all over, the community's stock of subsistence would come to an end sooner than the fruits of processes thus unduly extended could mature; there would be deficiency in provision, want, and distress; famine prices would recall the misdirected natural powers, and put them, with difficulty, to supply provision for the moment. All this could not happen without serious disturbance, expense, and loss.

Now the constant presence of the agio on present goods is like a self-acting drag on the tendency to extend the production period; without checking it all at once it makes it more difficult, and more difficult in proportion to the projected length of the process. Extensions which would be harmful as regards social provision are thus made economically impossible. Moderate extensions over the average process, however, are not absolutely prevented, but are limited to those branches where, from peculiar economic or technical circumstances, the productiveness that goes with the extension of the period is so great that they can bear the progressive burden of the agio. Branches, again, where longer processes are somewhat, but only a little, more productive, are tempted to escape the burden of agio by recurring to periods under the average. Thus, finally, under the influence of the agio, the total fund of subsistence is divided out automatically among the individual branches of production, in such amounts that each branch adopts that length of process which—in the given condition of the fund—is most favourable to the total provision.

Eugen von Bohm-Bawerk, The Positive Theory of Capital, Book VI, Chapter VI, (from The Library of Economics and Liberty)

The theory is almost all here: the immoderate extension of the production period (lengthening of the chain of production), the long-term necessity for savings, investment, and consumption to be in balance, and the role of the interest rate in keeping that balance.  All Bohm-Bawerk needed do was to extend this analysis of a situation with a complete lack of agio/interest to situations with artificially low agio/interest, and the Austrian Business Cycle Theory might have come rushing forth from his pen.

My question to Austrian economists: is my characterization of this passage as a prelude to the ABCT sound?  My question to historians of Austrian thought: has this passage been noticed/discussed before as a foretoken of the ABCT?

Simon Rippon on Sam Harris and the Naturalistic Fallacy

 Sam Harris, the Naturalistic Fallacy, and the Slipperiness of "Well-Being"

by Simon Rippon

Supply and Demand Curves in Econ101

Cross-post from the Mises Academy Blog.

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."

Mises and Liberal Nationalism

 Many might be surprised when they read Nation, State, and Economy to learn that Mises was a nationalist.  But he carefully distinguished "liberal nationalism" (which might be considered the nationalism of the Revolutions of 1848) as against "imperial nationalism" of Bismarck's Prussia and Czarist Russia.  He wrote in Nation, State and Economy:

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.

A New Class on Intellectual Property with Stephan Kinsella at the Mises Academy

Starting November 1 at the Mises Academy: Rethinking Intellectual Property: History, Theory, and Economics, a 6-week course, with Monday evening lecture/question-and-answer sessions.