In December of 2021 I had an online debate with Walter Block comparing the approaches to economics associated with the Chicago and Austrian schools. When I asked him what version of Austrian economics he wanted to defend he pointed me at Man, Economy and State
I like thinking of the monopsony example as the theorist being wrong about the relevant marginal costs, as I explain in this newsletter (which happens to start off with your JPE paper on heating) https://pricetheory.substack.com/p/be-careful-about-costs
It seems like in all of your disputes with libertarians, you are very obviously right, much more so than in your disputes with other people. The Austians just seem to be engaging in motivated reasoning, attempting to justify libertarianism, but in doing so, they commit elementary errors, and makes leaps of reasoning that no sane person would make.
Not "they." He. My article is specifically a critique of Rothbard's version of Austrian economics. I point out one error in Mises, but aside from that I am saying nothing about Austrian economics more generally.
I don't know as much as I would like to about it, but I think it is clear that many Austrians reject parts of Rothbard's version.
I am not very familiar with what current Austrian economics looks like, but from what I can tell looking at lots of "popular libertarians" who think highly of it, I'm not at all impressed, the general pattern of replacing economics with moral arguments seems to limit their understanding of the world, although at the benefit of making them more popular/accessible. The most concerning part of the whole thing has always been the kind of intellectual dogmatism that surrounds these people, Rand, Hoppe and Moldbug might be other interesting examples of this.
Well, they would still be appropriate given that this group includes both Block and Rothbard. But, while I have not examined every Austrian source in detail, this is overwhelmingly the sense I get reading them.
There is a cluster of Rothbardians who are also active libertarians, such as Walter Block, although he is willing to disagree with Rothbard on details. But there are also people who are or used to be considered Austrians, such as George Selgin and Larry White, who quite clearly are not Rothbardians.
There seems to be a division between Austrians who think of themselves as Misesians, Rothbard among them, and those who think of themselves as Hayekians. I don't adequately understand either what essential features, if any, distinguish Austrians from Marshallians, or the divisions among Austrians.
My general complaint about Rothbard is that he thinks of political disagreement as war rather than argument, so is willing to use bad arguments if they lead to the right conclusion, all being fair in war.
I've just finished watching the debate. Block is painful to watch, he addresses none of the issues.
I also watched the earlier debate with Murphy and I think it was much more balanced. I think Murphy is more serious, and is willing to confront the issues.
I've heard him before talk against time preference for example.
I don't think Murphy will defend Rothbard on any of the points, because the mistakes are so obvious.
Ultimately, I think the defining characteristic of an honest Austrian (say Murphy) is simply a more confident prior.
An understandable position in the current climate.
¨How do we know that this hypothetical envious one loses in utility because of the exchanges of others?¨
Like it or not social status is a major human concern, which is proven by the fact that so many luxury brands make fortunes by selling the same thing as generic brands but at many times a higher price, so that their customers can signal social status.
There's also a case for someone buying a property purely to exclude someone else from it. Or many lawsuits where the goal is to prevent a person from doing something that doesn't directly have any effect on the person suing - for instance code violations in proposed construction projects. Nobody gets money from that, but a person can hire a lawyer to stop another person from moving forward.
An additional point on the “income tax” argument: it seems to me that if a person’s demand for money were highly inelastic (say, dominated by fixed costs for housing), raising the person’s income tax might cause the person to work more, not less.
I had the same thought, also with housing. Or, in reverse, if everyone pays more income tax, they may have less money to spend on housing, which would lower the price of housing. Everything remains in equilibrium (if taxable income is the measure of how much people spend on housing).
That was a fun read! Do you also have/know of any (similarly elementary) writeup comparing Chicago school to the current mainstream economics? What are the main points of disagreement/most controversial claims that cause economists not to identify with the Chicago school?
In Rothbard, I like the ordinal value theory approach, which I see like a subset of the neoclassical function with fewer unrealistic assumptions. But even in this case, any representation of an agent's preferences remains a model, to be tested. I don't understand the "synthetic a priori truth" kantian goobledygook or the "apodictic truth" stuff and I believe that the Austrian's neglect of empirical economics disserves them.
For example, Tullock has a model of the minimum wage (HT Tyler Cowen) in which it doesn't necessarily increase unemployment by much but can instead reduce the in-kind benefits for workers, increase managerial pressure, and more generally degrade their working conditions(*). This model is perfectly compatible with Austrian economics and ordinal value theory, but does it reflect adequatly the complexity of the labor market? How does the trade-off between wage, employement and working conditions work in practise? What is the equilbrium? These are empirical questions, so an a priori reasoning cannot say whether the minimum wage raises unemployement in such a model. There are lots of similar examples.
(*) Source: The minimum wage: A new perspective on an old policy, in The best of the new world of economics-and then some (5th ed) by Gordon Tullock
“. It becomes impossible to answer important questions economists are asked, such as whether minimum wage laws or tariffs are a good or bad thing.”
I think Mises would say there is no scientific answer to the question, as you have worded it; that economic science should be able to say what effects followed from such policies, and so whether or not they would live up to their advocates' rhetoric. But whether we think of those effects as good or bad is up to us.
I speculate that Mises' answer would be: "we cannot say, but it suffices to show that the effects of these changes are such that their own proponents would find disagreeable." It's classic Mises.
That's close to my own approach to defending libertarianism. I can't show someone that my normative views are correct but I may be able to show someone that the outcome of what I argue for is more attractive in terms of his normative views than the alternative.
Indeed, but do you think that a workable alternative to utility calculations? Mises thought so and always wrote on that basis, a basis which Rothbard famously dispensed with. Not sure if any modern economists (Austrian or otherwise) works on that basis either, as it feels as a method "relegated" to polemical duty, not rigorous econ analysis.
Incidentally, there is a longer version of the article at:
http://www.daviddfriedman.com/Ideas%20I/Economics/Critique%20of%20a%20Version%20of%20Austrian%20Economics.pdf
I like thinking of the monopsony example as the theorist being wrong about the relevant marginal costs, as I explain in this newsletter (which happens to start off with your JPE paper on heating) https://pricetheory.substack.com/p/be-careful-about-costs
It seems like in all of your disputes with libertarians, you are very obviously right, much more so than in your disputes with other people. The Austians just seem to be engaging in motivated reasoning, attempting to justify libertarianism, but in doing so, they commit elementary errors, and makes leaps of reasoning that no sane person would make.
Not "they." He. My article is specifically a critique of Rothbard's version of Austrian economics. I point out one error in Mises, but aside from that I am saying nothing about Austrian economics more generally.
I don't know as much as I would like to about it, but I think it is clear that many Austrians reject parts of Rothbard's version.
I am not very familiar with what current Austrian economics looks like, but from what I can tell looking at lots of "popular libertarians" who think highly of it, I'm not at all impressed, the general pattern of replacing economics with moral arguments seems to limit their understanding of the world, although at the benefit of making them more popular/accessible. The most concerning part of the whole thing has always been the kind of intellectual dogmatism that surrounds these people, Rand, Hoppe and Moldbug might be other interesting examples of this.
Well, they would still be appropriate given that this group includes both Block and Rothbard. But, while I have not examined every Austrian source in detail, this is overwhelmingly the sense I get reading them.
There is a cluster of Rothbardians who are also active libertarians, such as Walter Block, although he is willing to disagree with Rothbard on details. But there are also people who are or used to be considered Austrians, such as George Selgin and Larry White, who quite clearly are not Rothbardians.
There seems to be a division between Austrians who think of themselves as Misesians, Rothbard among them, and those who think of themselves as Hayekians. I don't adequately understand either what essential features, if any, distinguish Austrians from Marshallians, or the divisions among Austrians.
My general complaint about Rothbard is that he thinks of political disagreement as war rather than argument, so is willing to use bad arguments if they lead to the right conclusion, all being fair in war.
http://www.daviddfriedman.com/Ideas%20I/Libertarianism/Rothbard.pdf
I've just finished watching the debate. Block is painful to watch, he addresses none of the issues.
I also watched the earlier debate with Murphy and I think it was much more balanced. I think Murphy is more serious, and is willing to confront the issues.
I've heard him before talk against time preference for example.
I don't think Murphy will defend Rothbard on any of the points, because the mistakes are so obvious.
Ultimately, I think the defining characteristic of an honest Austrian (say Murphy) is simply a more confident prior.
An understandable position in the current climate.
I think this Caplan posts is relevant here:
https://www.econlib.org/archives/2016/12/they_doth_prote.html
Also contra Rothbard
¨How do we know that this hypothetical envious one loses in utility because of the exchanges of others?¨
Like it or not social status is a major human concern, which is proven by the fact that so many luxury brands make fortunes by selling the same thing as generic brands but at many times a higher price, so that their customers can signal social status.
There's also a case for someone buying a property purely to exclude someone else from it. Or many lawsuits where the goal is to prevent a person from doing something that doesn't directly have any effect on the person suing - for instance code violations in proposed construction projects. Nobody gets money from that, but a person can hire a lawyer to stop another person from moving forward.
An additional point on the “income tax” argument: it seems to me that if a person’s demand for money were highly inelastic (say, dominated by fixed costs for housing), raising the person’s income tax might cause the person to work more, not less.
I had the same thought, also with housing. Or, in reverse, if everyone pays more income tax, they may have less money to spend on housing, which would lower the price of housing. Everything remains in equilibrium (if taxable income is the measure of how much people spend on housing).
That was a fun read! Do you also have/know of any (similarly elementary) writeup comparing Chicago school to the current mainstream economics? What are the main points of disagreement/most controversial claims that cause economists not to identify with the Chicago school?
In Rothbard, I like the ordinal value theory approach, which I see like a subset of the neoclassical function with fewer unrealistic assumptions. But even in this case, any representation of an agent's preferences remains a model, to be tested. I don't understand the "synthetic a priori truth" kantian goobledygook or the "apodictic truth" stuff and I believe that the Austrian's neglect of empirical economics disserves them.
For example, Tullock has a model of the minimum wage (HT Tyler Cowen) in which it doesn't necessarily increase unemployment by much but can instead reduce the in-kind benefits for workers, increase managerial pressure, and more generally degrade their working conditions(*). This model is perfectly compatible with Austrian economics and ordinal value theory, but does it reflect adequatly the complexity of the labor market? How does the trade-off between wage, employement and working conditions work in practise? What is the equilbrium? These are empirical questions, so an a priori reasoning cannot say whether the minimum wage raises unemployement in such a model. There are lots of similar examples.
(*) Source: The minimum wage: A new perspective on an old policy, in The best of the new world of economics-and then some (5th ed) by Gordon Tullock
“. It becomes impossible to answer important questions economists are asked, such as whether minimum wage laws or tariffs are a good or bad thing.”
I think Mises would say there is no scientific answer to the question, as you have worded it; that economic science should be able to say what effects followed from such policies, and so whether or not they would live up to their advocates' rhetoric. But whether we think of those effects as good or bad is up to us.
That's certainly a defensible position. You might want to look at the beginning of Chapter 15 of my _Price Theory_ for my argument on the other side.
http://www.daviddfriedman.com/Academic/Price_Theory/PThy_Chapter_15/PThy_Chap_15.html
What is not defensible is Rothbard claiming to have answers to such questions, as he does, while adopting a methodology that does not produce them.
I speculate that Mises' answer would be: "we cannot say, but it suffices to show that the effects of these changes are such that their own proponents would find disagreeable." It's classic Mises.
That's close to my own approach to defending libertarianism. I can't show someone that my normative views are correct but I may be able to show someone that the outcome of what I argue for is more attractive in terms of his normative views than the alternative.
Indeed, but do you think that a workable alternative to utility calculations? Mises thought so and always wrote on that basis, a basis which Rothbard famously dispensed with. Not sure if any modern economists (Austrian or otherwise) works on that basis either, as it feels as a method "relegated" to polemical duty, not rigorous econ analysis.