Quotes – The Criterion of Truth

The criterion of truth is that it works even if nobody is prepared to acknowledge it.

~Ludwig von Mises

Advertisements

Why I Value Logic Over Data

Some people think the most rigorous way of thinking about the world is “empiricism”, their word for looking at the “facts” (accumulated statistical data) and making up their minds on that basis.

There are at least two glaring issues with that approach:

  1. The decision about which facts to research and include have a strong influence on your conclusion; this is a problem with forming theory from history, which Mises discussed at length in his works
  2. The facts may not be disinterested; they may be purposeful fabrications or distortions of the public record, produced by propagandists and other agenda-driven entities, or they may be erroneous outcome of an act of unintentional negligence

Number one is always a risk because the hardest person not to fool is yourself, and most people won’t even realize they’re selectively picking data points until they’ve already been happily surprised to realize the facts agree with them and their mind is made up.

Number two is far more sinister because it corrupts the entire empirical enterprise. You can’t reason about the facts when they have no connection to reality.

Few people, if any, take the time to sniff through their sources. They see some number, they assume it was compiled accurately or honestly (or both!) and get on with reasoning from the data. The questions of methodology, competency and partisanship are not part of the equation, and if they were considered, one might be taken aback at just how long it takes to conduct a verified empirical study.

Using logic is more efficient. I don’t have to worry about whether someone is trying to mislead me with bad data. I can think about the logical structure of the argument in question and make up my own mind about its soundness.

Review – The Secret Of Childhood

The Secret of Childhood

by Maria Montessori, published 1936, 1982

If you’re looking for a “how-to” on the Montessori Method, this isn’t it. What this book is is an exploration of the philosophical foundations of Maria Montessori’s view of the child in society, based upon some of her historical experiences and study of related social research.

Although this book was published long ago, Montessori’s revelation appears to be, by and large, still a secret. Sadly, it is not just a cultural secret. Even in the West, and particularly the United States, where her ideas seem to have the strongest following, the parenting and educational mainstreams seem to have done little to absorb Montessori’s insights into both theory and practice. If Montessori was correct in her discovery, then it says something both appalling and demoralizing about the failure of society to integrate such important truths. So, what is this “secret”?

The secret of childhood is that it is a period of time during which the child works, not to assimilate himself into society, but to assimilate himself into himself. We hear echoes of Max Stirner (1806-1856, Germany) in Maria Montessori (1870-1952, Italy), for example, compare Stirner,

school is to be life and there, as outside of it, the self-revelation of the individual is to be the task… only freedom is equality… we need from now on a personal education (not the impressing of convictions)… knowledge must die and rise again as will and create itself anew each day as a free person.

to Montessori,

Adults look upon a child as something empty that is to be filled through their own efforts, as something inert and helpless for which they must do everything, as something lacking an inner guide and in constant need of direction… the adult makes himself the touchstone of what is good and evil in the child. He is infallible, the model upon which the child must be molded… An adult who acts this way… unconsciously suppresses the development of the child’s own personality.

or to Montessori’s son, Mario, from the preface,

Man has discovered flight, he has discovered atomic energy, but he has failed to discover himself.

or to Margaret Stephenson, a Montessori instructor, from the foreword,

How can one learn through group play what it means to be a mother, father, space pilot, dog, when one does not yet know what it mean’s to be one’s self?

This psychic development of the child, a “universal” as Montessori puts it, into an individuated person, the man, unfolds along a predetermined path dictated by nature.

Childhood constitutes the most important element in an adult’s life, for it is in his early years that a man is made.

That is not to say that man’s childhood development is deterministic, but that there is a logic and a succession of predictable stages and events to it, much like a caterpillar becomes a cocoon and then a butterfly.

The place an animal will have in the universe can be seen at birth. We know that one animal will be peaceful since it is a lamb, that another will be fierce because it is a lion cub, that one insect will toil without ceasing since it is an ant, and that another will do nothing but sing in solitude since it is a locust. And just as the lower animals, so the newly born child has latent psychic drives characteristic of its species… A child develops not simply as a member of the human species, but as a person.

And the implication of this fact is that the child, in his childhood, has special needs during this period of development which will allow this process of psychic development to occur without obstruction or injury, ranging from the suitability of his environment, to the tools and instruments he has at his use, to the way he is interacted with and communicated with by adults, who he sees as omnipotent, almost magical, beings of power and authority. (Isn’t it funny to stop for a moment and consider how sure of ourselves and the nature and limits of the adults around us we are, and how truly mysterious any of this was when we first made our way into the world as small children? Just ponder that for a moment if you’re having trouble grasping the significance of Montessori’s “secret”.)

What are some of these differences and needs between children and adults? The first is understanding the significance of work to each. For adults, work is a means to obtain a fixed and known goal, and the general idea is to work efficiently, that is, to get the highest yield in terms of outcome for the smallest amount of resources and energy expended. But for children, the purpose of work is to learn about the self– work is not performed to obtain an income, or to be fed, or to avoid a threat, but rather work is performed to experience the psychic benefit of knowing how to perform the work.

An adult walks to reach some external goal and he consequently heads straight for it… An infant, one the other hand, walks to perfect his own proper functions, and consequently his goal is something creative within himself.

In working, a child applies their intellect to the world, they come to understand their power and ability as a person to influence and change the world more to their liking, a fact that mature adults take for granted.

His hands under the guidance of his intellect transform this environment and thus enable him to fulfill his mission in the world.

Because of this, a child may be seen to work “aimlessly”, or “inefficiently”, or “incompetently”, but this observation is made from the point of view of an adult which is not applicable to the child and their psychic purpose in working. Montessori relates how adults who are finished working are typically tired and in need of rest or recreational stimulation, whereas children who are finished working are exhilarated and self-satisfied at accomplishing whatever it was inside of their psyche that compelled them to perform their work.

Another need is the need for separate property. Children exist in a world created by adults, for the benefit of adults and adults can be capricious with their property and arrangements in ways that are befuddling and intimidating to children. Everything in the child’s world (for example, in the home) belongs to the adults– the furniture, which is sized for the adults; the dishware and glassware and silverware, which is sized for the adults; the books, the clothes, the walls, the art, even the pets!

[An adult is tempted to overvalue his material possessions when they’re being handled by a child, such as with a glass of water being carried by his child.] The adult who does this may even be very wealthy and intent upon increasing his fortunes many times over in order to make his son still more wealthy than himself. But for the moment he esteems a glass as something of greater value than the child’s activity and seeks to prevent its being broken [and so interferes needlessly with the child’s development in stopping him from his activity with the glass].

Montessori describes the adults as “kings”, who may of occasion grant the child a right to temporary use of the king’s property, but never the right to possess the property themselves.

An adult, however high or low he may be, is always a powerful being in comparison with a child.

The child can feel as if it lives only at the mercy and privilege of the king. The child is constantly being instructed and informed how to use something, what to touch and what not to touch, to keep away from this or to go be near that. The child needs some of its own things, in sizes and qualities specific to its uses, so that it may explore and understand and “work” in the world around itself without constantly being in conflict with the adults.

An adult is constantly interrupting the child and breaking into his environment. This powerful being directs the child’s life without ever consulting the child himself. And this lack of consideration makes the child think that his own activities are of no value.

A final need is for adults to appreciate the differences in perceptive faculties of children, who, as Montessori describes, pay attention to details not just different in magnitude, but in kind.

A child’s psychic personality is far different from our own, and it is different in kind and not simply degree.

Adults are accustomed to looking at the world and paying attention to details in a particular way based upon their individual goals, ambitions, professional outlook, educational level, etc. etc. But children often pay attention to details quite differently, and in ways that conflict with adult perceptions or treat them as non-sensical or unimportant.

Children an adults are in possession of two different mental outlooks… Adults frequently attempt to point out ordinary objects to three- or four-year-old children as if they had never seen anything before. But this must have the same effect on a child as one shouting at another whom he thinks to be deaf [who is not so].

An adult may wish to draw a child’s attention to the beach and the ocean, but the child is fascinated by a tiny bug crawling across the sand. Adults are often quick to pass judgment on the child in these moments, as if they are “wrong” for not being interested in what the adult wants them to be interested in, or even questioning their intelligence or development when they seem incapable of taking such an interest. But as with work, observation serves a different purpose for the child than for the adult– it is not to satisfy his desire for recreation, or to attend to a productive goal, but to stimulate his psyche according to these innate, natural needs of his development.

Here are some other interesting quotes I collected:

  • The child is a universal… There is, in reality, only the child of all times, of all races, heir to tradition, hander-on of history, crucible of culture, pathway to peace.
  • The absorption of culture, of customs, of ideas, ideals, of sentiments, feelings, emotions, religion, take place during the period of the absorbent mind, in the child from zero to six.
  • We should try to understand that there is an intelligible reason behind a child’s activities. He does nothing without some reason, some motive… A child does not simply run, jump and handle things without purpose and thus create havoc about the house… Knowledge always precedes movement. When a child wishes to do something, he knows beforehand what it is. [A very Misesian idea!]
  • An adult’s avarice, which makes him jealously defend whatever he owns, is concealed under “the duty of properly educating one’s child.” [What Stirner would refer to as a “spook”, or a mental hobgoblin an adult uses to frighten his own psyche and thus prevent himself for taking ownership over his actions.]
  • When a child moves slowly, an adult feels compelled to intervene by substituting his own activity for that of the child. But in acting thus an adult, instead of assisting a child in his psychic needs, substitutes himself in all the actions which the child would like to carry out by himself.
  • What an adult tells a child remains engraved on his mind as if it had been cut in marble.
  • When a child is disobedient or has a tantrum an adult should always call to mind the conflict and try to interpret it as a defense of some unknown vital activity necessary for the child’s development.
  • Toys furnish a child with an environment that has no particular goal and, as a consequence, they cannot provide it with any real mental concentration but only illusions.
  • Before anyone can assume a responsibility, he must be convinced that he is the master of his own actions and have confidence in himself.

I enjoyed reading this book, it stimulated MY psyche and made an impression upon me in terms of how much more there is to think and know about this subject than what I possess currently. I also enjoyed the archaicness of it, Montessori writes like a civilized person of years gone by, speaking articulately and frankly about the world around her without apology and with much conviction and passion for her subject, something which doesn’t seem to exist anymore in our world of sterile, clinical academics reluctant to take a position on anything of import. But it was not always an easy read and it was fairly repetitious. I will likely come back to the book at some point to re-read certain passages that I found hard to appreciate without an experience of raising a child myself. Yet, I wouldn’t recommend this as an “essential” title for someone looking to up their parenting game unless I already knew they were more philosophical in their approach.

Notes – The 2014 Rothbard Graduate Seminar

In 2014 I attended the Rothbard Graduate Seminar at the Ludwig von Mises Institute in Auburn, AL as an observer. The following are notes I typed while listening to lectures and discussions between faculty and graduate students. They have been edited for clarity, organization and in some cases privacy.

Lecture 1, Praxeology, David Gordon
  • Praxeology is the science of human action, uses deductive methodology, begins with axiom of man acting, deduced with supplementary postulates (Rothbard uses action axiom, Mises never refers to “Man acts”, he refers to the concept of action)
  • Supplementary postulates: leisure is desired over work, there are a variety of economic resources
  • Economics is the best-developed branch of praxeology: Crusoe economics (isolated human action), catallactics (economics of exchange) including barter and money
  • The study of violent intervention in the market, socialism and interventionism, are also part of praxeological analysis, as well as “games”, but these have not been well-developed (no systematic treatises?)
  • Examples of praxeological reasoning— every action uses means to achieve an end; every action is a choice between alternatives; the actor always chooses his highest valued alternative
  • Methodological individualism— only individuals act, not groups or societies or nations or classes, however this doesn’t imply that nations and classes don’t exist
  • On Austrian Methodology” by Robert Nozick, an interesting article
  • Methodological Individualism has been used to deflate various ideologies such as nationalism, statism, etc.
  • Why should we do economics this way (praxeology)?
    • Popular objection: principles of praxeology are supposed to be synthetic (truth about the world) and a priori (knowable by simply thinking about them), but you can’t learn about the world just by thinking about it, the meaning of concepts is conventional, people just decide to use words a certain way, you can’t make something true about the world just by defining words, other a priori truths are logical and tautological that say nothing new about the world
    • Rothbard’s answer: concepts come from experience, action isn’t an arbitrary construction but rather an abstraction from experience, if we get the concept from experience we know action exists, then anything we deduce from that applies to the world, deduction transmits truth from premises to the conclusion, if the premises are true the conclusion is true
    • Tautology objection: rests on an equivocation
    • Rothbard’s objections to the mainstream: they construct mathematical models and then test predictions derived from the models; math substitutes functional relations for causation, also introduces the false assumption of continuity but human action occurs in discrete steps, he objects to the testing because there is no way to perform controlled experiments as all phenomena are occurring simultaneously, and there are no quantitative laws of human action, human action is the product of choice

Questions:

  1. In property rights theory, how can joint ownership (or government ownership) of a resource be explained if “only individuals act”?
  2. How do we know the experience of action is true? Don’t we need a prior theory to interpret the empirical experience of action as action?
  3. Can Austrian economics be translated into math? If not, does this suggest it is not rigorous or coherent?
  4. Why is the Austrian ERE a useful abstract tool for studying elements of reality in isolation, but the “equilibrium” economy of mainstream thought is not?

Discussion session:

Rothbard’s book (Economic Controversies) had great depth, not just covering epistemology and economic theory but historical commentary, etc., this book is also digestible, repetitive so you get the same concept dissected from different angles, straight to the point, challenges the mainstream orthodoxy, accessible to the layperson, Rothbard starts with realistic premises and deduces from there which makes this approach even more empirical (econometric models falsify the real world), his criticisms are very thorough and you want to smile after you read them which is unique in reading academic papers. Rothbard isn’t ashamed to say there is meaning and truth.

Methodological individualism applies only to the concept of action, it does not exclude the idea of something like a “cosmic consciousness”, there is a difference between ontological and methodological claims; praxeology is not a metaphysical system, it simply takes the world as we find it

Mathematical annotation is more precise than verbal logic, but one problem is how do you convert initial premises into mathematical annotation (and back when a conclusion is reached)?

“Academic choice”, public choice analysis applied to the incentive structure of academia and how this influences their search for truth

Lecture 2, Methodological Debates, Jeff Herbner
  • Every academic discipline is defined by its method and scope (boundaries).
  • Rothbard— Each subject matter has a proper method; neoclassical approach— there is only one scientific method.
  • Praxeology’s divisions:
    • Theory of Isolated Person (autistic exchange)
    • Theory of Voluntary Exchange
      •  barter
      • medium of exchange (catallactics)
        • unhampered market
        • violent intervention
        • violent abolition of market
    • Theory of Games
    • Theory of War
    • Unknown
  • Neoclassical divisions:
    • Rational choice model
      • Market participants
      • Political participants
      • Social participants
    • Behavioral economics
  • Categories of the social sciences
    • Economics— voluntary associations w/ economic calculation (UME, HME)
    • Sociology— voluntary associations w/o economic calculation (family, church)
    • History— contingent, concrete conditions of action blended w/ theory
    • Ethics— personal action, interpersonal action, voluntary and involuntary
    • Politics— involuntary associations (gangs, states)
  • Praxeology— logic of action, economizing, underneath all 5
  • Praxeology and Ethics— public policy (economic science is value free, but economic policy is value laden and requires assumptions or principles about ethics and what is desirable to make conclusions), critique of ethics, political philosophy, welfare economics
  • Misesian Economics— a.) economic theory b.) economic history (understanding economic action in the past) c.) applied economics (predicting economic effect in the future based on proposed economic cause, i.e., policy)
  • Neoclassical Economics— economic model and empirical testing

Questions:

  1. Is the division in economics between calculating and non-calculating, or financial calculation and non-financial calculation? How are non-calculating actors choosing if not by some form of calculus?
  2. Who has best developed Games and War theories of praxeology?
  3. Why aren’t Austrians trying to develop comprehensive treatises in these fields
  4. What is the application of game theory?
  5. How do you know when a circumstance is new and requires an extension of the existing theory, or when it is “unoriginal” and can be explained by the previous body of theory? How do we know when existing theory can’t explain a new phenomenon or historical incident? How is this explanation different from the pragmatist argument about a lack of common principles?
  6. Who, if anyone, is worth reading right now outside of the Austrian tradition, and why?
  7. How can “proportionality” be administered in a judicial punishment setting without treading into utilitarianism or other non-subjectivist value systems?
Lecture 3, Austrian Microeconomics, Peter Klein
  • Price theory, production theory, the theory of the firm, some parts of capital theory, etc., constitute “Austrian micro”
  • It is not mainstream micro minus calculus and some graphs plus “spontaneous order” and “radical subjectivism”, etc.; this is a misconception of the contribution of Austrian econ
  • Mengerian economics— focused on mundane topics, not esoterica; shares subjective utility and marginal analysis of Walras and Jevons; not simply verbal version of neoclassicism, emphasized cause and effect real market behaviors and thus “causal-realist”
  • Fundamentals of Austrian micro— economics as the analysis of action (praxeology); teleology, means and ends; economic goods which are concrete (real prices of real goods, not abstract prices of conceptual entities) and are limited and desirable, split into consumer and producer goods (direct and indirect serving of human needs); time, implied by action, itself a scare means and the notion of time preference; production is rearrangement, not creation ex nihilo, takes time and uses stages
  • General insights on valuation include emphasis on discrete, marginal units, not abstract categories, as well as attention to demonstrated preference
  • Menger’s utility theory— the value of particular means, marginal utility being the value of the highest-ranked end that cannot be achieved if a unit is lost, law of diminishing marginal utility (not a psychological concept, a logical concept focused on individual use of each unit not the benefit)
  • Contrasts with neoclassical utility theory— consumers in NCM are choosing among heterogeneous bundles, choosing between total utility of each bundle; marginal rate of substitution is rate at which consumer substitutes unit of good X for unit of good Y (slope of indifference curve) vs. causal-realist where substitution occurs at the margin and demonstrates that the marginal utility of X is greater than the marginal utility of Y w/ no separate income or substitution effects; indifference can not be demonstrated in action and is therefore not a scientific concept (focus is on explaining actions, not states of being)
  • Price determination— analysis of the marginal pairs (see Greaves, paper by Egger) states that prices are set by pairs of buyers and sellers; characteristics of the equilibrium price, determined exclusively by individuals’ subjective valuations, subjective valuations of buyers and sellers matter, not set unilaterally by sellers, the real prices actually paid in market transactions
  • Prices and knowledge— buyer and seller valuations can include speculative demands (they don’t need to know in advance what equilibrium price will be), prices as signals (Hayek)
  • Factor pricing— Austrian theory of imputation, rental prices imputed backwards to the ???
  • Applications and extensions— no distinction between production and “distribution” (Piketty), wealth is “distributed” in the act of production, it is not produced and then arbitrarily distributed by capitalists, government, etc.; rent = unit price of services of any good (Fetter); production functions, but no cost curves; firm as an organization, not a productive unit

Discussion section:

Kirzner and Schumpeter restrict entrepreneur to nothing but alertness, the Misesian approach is more expansive and includes everyone in some capacity acting as an entrepreneur

Mises in Human Action talks about the entrepreneur as a leader, who is far-seeing, comes from Weiser, who also mentored Schumpeter; Mises was uncharacteristically fuzzy and unclear on his writings on the entrepreneur, occasionally he refers to the “promoter” (ideal type) involving leadership, having a quicker eye than the crowd, etc., but typically he refers to the function of entrepreneurship

Kirzner is talking about alertness to opportunities for profit, but entrepreneurs create goods, capital, companies, etc., not “opportunities for profit”, opportunity implies objective configurations of resources that allow for a decision or action or take place, but is this analogous in the business world? Or is “opportunity” a metaphor? Do we need the construct of “opportunity” to explain what entrepreneurs do?

Salerno, “The Entrepreneur, Real and Imagined” [PDF]

Kirzner’s equilibrium is the condition under which no unfound profit opportunities exist

Mises vs. Knight on judgement— Mises never refers to Knight in this context, judgement is more of a black box for Mises than for Knight

Klein, “The Capitalist and The Entrepreneur” [PDF]

Questions:

  1. If Austrian econ is not distinct, why do mainstream thinkers argue so violently with Austrians?
  2. Did the anglo-American Austrians, etc., self-consciously identify with the “Austrian school” or did we lump them in post hoc? If so, what did they refer to themselves as?
  3. When challenging Keynesianians and other mainstream opponents, Austrian critics often accuse them of “not understanding economic calculation”. Is this criticism accurate? Why or why not?
  4. Would it be better to distinguish between “offers” and “prices”, where “offers” are ratios of exchange advertised but not consummated, hypothetical, whereas “prices” represent historical data of consummated exchanges between buyers and sellers?
  5. Is Kirzner’s “capital-less entrepreneur” really a description of professional managers, and if it is, is it a legitimate analysis or does it still lack connection to reality?
  6. Is “public choice” an analysis of entrepreneurship in socialism, or in privatization within socialism?
Lecture 4, Taxation and Public Finance, Mark Thornton
  • Rothbard’s approach: nature of taxation; technical corrections to mainstream analysis; theories of “just” taxation; neutrality of taxation; approaches to tax reform
  • Interventionism: autistic (ruler tells the ruled what to do); binary (e.g., taxation, transfer of property from owner to intervener); triangular (ruler tells two ruled how they can interact with each other, e.g., prohibitions and regulations)
  • Impoverishment caused by taxation is in proportion to the amount of taxation, not the form the taxes take
  • Taxes can not be passed on to consumers because of competitive pricing of supply and demand
  • Taxation distorts market outcomes in two ways: the withdrawing of resources from the economy, and the redistribution of those resources across the economy
  • “Benefit principle”— pay taxes in accord with the benefits you receive
  • “Ability to pay principle”— pay taxes in accord with your relative wealth
  • There are no scientifically valid principles of taxation, there is no conceptually possible neutral tax

Discussion section:

How to explain countries where majority of taxes are paid by a minority of people, as Calhoun’s analysis suggests the majority bear the costs for a small minority to benefit from? The answer could be additional implicit subsidies such as protections from the State in terms of liability or regulation that they see taxation as payment for

Can the State make investments? Rothbard is writing against the idea of “social investment” such as infrastructure spending, and he is writing in terms of capital structure— they’re not integrated into economic calculation, they’re not part of the capital structure; counter-example, State-owned oil production

Questions:

  1. Why doesn’t taxation create business cycles due to mass misallocation of resources
  2. When taxes are “shifted backward” to suppliers through lowered net revenue, aren’t consumers STILL paying the tax due to lower supply and lower quality of remaining supply versus free market outcome?
  3. Why can employers shift taxes to employees if businesses can’t shift taxes to consumers?
  4. In the marketplace, how is price discrimination explained in reference to the benefit principle?
  5. Does the lack of scientificness of taxation principles imply the irrationality and injustice of government in general?
  6. “Over” and “under” exploitation of a government owned resource… relative to what? How do we know how much the free market would exploit it?
Lecture 5, Monetary Theory, Joe Salerno 
  • Money as a medium of exchange— trade requires barter in the absence of money, creating high search costs due to the double coincidence of wants
  • Money as unit of account— used to express prices and record debts, simplifies relative price comparisons
  • The value of money— measured as the inverse of the price level measured against an arbitrary basket of goods (i.e., 1/P), what does one unit of money buy?
  • The (neo-)classical dichotomy— the theoretical separation of nominal and real variables; Hume and classical economists suggested monetary developments affect nominal variables but not real variables; if money supply doubles, for example, all nominal variables, such as prices, will double; in the short run, supply and demand determine the value of money, in the long run cost of production determines the value of money
  • The neutrality of money— proposition that changes in the money supply do not affect real variables
  • Purchasing Power Parity (PPP)— relies on the “law of one price” which establishes that arbitrage opportunities eliminate differences in value of common goods in different markets; exchange rates are supposed to be ratios of price levels between two economies

Discussion section:

What Has Government Done To Our Money?” is Rothbard’s explanation of how an economy “progresses” from commodity to fiat money, because Mises said that a true fiat money is a historical question given that every episode in the past has been a form of “credit money” based on expectations about an eventual return to a commodity money that predated it

Questions:

  1. For a relative price to be a useful data, wouldn’t it have to be collected from a real exchange (i.e., barter exchange)?
  2. Do mainstream models explaining fiat money violate Occam’s Razor?
  3. If velocity of money is increasing, isn’t the “velocity of hoarding” increasing at the same rate because all money balances must be held by somebody at some time?
  4. If IEOR policy is causing banks to “hoard” bank balances and this is non-expansive, is this money “neutral” to the economy or what effect is it having? What role does it serve? (Compare to Jingjing’s question on corrupt Chinese official cash balances)

Lecture 6, Professional Strategies, Career Advice and Current Research Topics, Peter Klein

[I did not take any notes during this discussion.]

Discussion section:

[I did not take any notes during this discussion.]

Questions:

  1. What about pursuing a career as a “private lecturer” by establishing yourself as an authority on Austrian economics with a crisp website?
  2. How can Austrian economist career hopefuls improve their career by thinking in terms of their “personal brand”?
Lecture 7, Monetary Policy, Jeff Herbener
  • Monetarists— micro efficiency, but macro instability caused by monetary regime; optimal monetary regime would create stability in the price level; requires an elastic money supply to offset forces causing price inflation or deflation to keep price level roughly stable; avoid trade imbalances w/ flexible exchange rates
  • Monetary Disequilibrium Theory (MDT)— micro efficiency, macro inefficiency; means of payment must accommodate changes in money demand; avoid price deflation from excess demand for money; separate unit of account from general medium of exchange, supplant general medium of exchange with means of payment; competitive issue of means of payment adjust to accommodate changes in money demand;
  • Banking school FB— micro efficiency, macro inefficiency; money stock and credit supply must accommodate the needs of trade; avoid price deflation from excess demand for money; competitive issue of fiduciary media adjust to accommodate changes in money demand
  • Currency school FB— micro efficiency, macro efficiency; production of money and money substitutes should be integrated into the social economizing process of economic calculation by entrepreneurs
  • “Free banking” in Scotland— Rothbard suggests using Vera Smith’s schema of 4 groups (free vs. central banking Banking School, free vs. central banking Currency School) rather than Larry White’s 3 groups; there was no Banking School free banking in Scotland, and the system didn’t work well, numerous bailouts, pyramiding credit on top of Bank of England notes;
  • Free Market Monetary reform— separate money from the State; abolish fFed, dollar redeemable in gold, legal enforcement of 100 percent reserve on money substitutes;
  • Ancillary roles for the State— Hayek (Sennholz), abolish all legal disabilities on private enterprise production of money and money substitutes; Yeagar (Timberlake), state defines the unit of account in terms of market-basket of goods, the general medium of exchange is eliminated, private enterprise provides means of payment
  • Central role for the State— Fisher, state defines a market-basket of goods for the unit of base money, currency is redemption claim for base money, supply of currency managed to keep price level stable; Friedman, Fed conducts non-discretionary monetary policy to keep the price level stable

Discussion section:

[I did not take any notes during this discussion.]

Questions:

  1. What “problem” did the MDT respond to? Similarly, did the Monetarist framework develop in response to existing statist monetary regimes or was it to address perceived problems with a theoretical free market monetary regime?
  2. Does the existence of taxation in general complicate or prevent the possibility of private production of the money supply?
  3. Is “balance of payments” thinking by mainstream economists an anachronistic way of thinking in a non-commodity standard money world?
  4. Why do socialist countries have money? How does money function in these economies?
  5. How can the crash and then explosion in the price of gold since ~2000 be explained in Austrian monetary theory?
Lecture 8, Mark Thornton, Comparative Economic Systems
  • Hoppe’s A Theory of Socialism and Capitalism (1988)— systematic, offers a theory of comparative economic systems, based on the concept of private party
  • Capitalism— based on property rights; property is the result of scarcity; provides non-violent mechanism for resource allocation; Garden of Eden, property right to your body; original appropriation; contractual exchanges; wealth; absence of systematic aggression; no unemployment (idle resources) problems
  • Russian-style socialism— socialism par excellence; State owns the means of production; equality vs. anarchy of production; aggression and democracy; less investment, appropriation (black market); calculate the structure of production = waste; Mises (1920) complete vs. relative; East vs. West Germany
  • Social democratic socialism— “reform”, taking steps at the ballot box; “commanding heights” (the sectors deemed essential by socialist planners for control such as education, utilities, transportation networks, etc.); owners remain caretakers with partial ownership; property owners taxes for redistribution; dominant form in Europe; Sweden
  • SDS vs. Russian-Style and Capitalism— solves the calculation problem; compared to Russian, less impoverishment, less over utilization of resources, more leisure, more incentive to work, save and invest; but it’s still poor compared to capitalism; both reduce production of talent and skills, increase the production of aggressive and political skills, both increase barter and black market activities
  • Conservative-style socialism— supports status quo, old order; private property, commanding heights; sin taxes, not income taxes; price controls, unions, prohibitions, not redistribution; regulations and cartels; Nazi Germany, Fascist Italy, Imperial Japan (Prussian social monarchy?)
  • Similarities between conservative and social-democratic socialism— both have private property and commanding heights; both infringe on private property; both have negative effects on labor, savings, investment, innovation; SDS stresses egalitarianism, CS stresses nationalism; both underperform capitalism
  • Socialism of social engineering— American pragmatism, technocracy; positivism and empiricism; reality must be verifiable or falsifiable by experience, “socialism might work”; however, empiricists must implicitly assume the existence of non-empirical as knowledge of reality, i.e., logic, math, geometry
  • Empiricism— must assume some sort of existence of cause and effect; must presume the constancy principle in order to proceed in its investigation, but the constancy principle (there are relationships to be found empirically) is not established, confirmed or falsified empirically, it is a given a priori; life proceeds on the basis of cause and effect; social engineering via empiricism is a giant contradiction

Discussion section:

Crony capitalism is the modern day equivalent of mercantilism

Old wine in new bottles, people can intellectually reject an idea like mercantilism as an historical phenomenon but if it is repackaged in a new brand they might adopt it as sensible

Are many of the distinctions of totalitarian regimes explained by the path to power? IE, Hitler came to power through the ballot box, Mao led a peasant rebellion, Lenin was elected by the army

Democracy is one of the most stable forms of the State; democracy involves participation of the population, and has a process for slowly implementing policies vs. unitary or limited participation and the ability to make drastic, sudden changes via emperor or dictatorship; democracy tends to hand out favors to large groups of people so it is hard to create an opposition coalition to overturn it

Mises’s three pre-conditions of the division of labor and economic specialization: private property in the means of production, free exchange (for price formation) and ???

Questions:

  1. There seem to be an endless variety of “socialisms” reflecting the unique cultural and historical factors of each society that has suffered them; what are some UNIVERSAL elements of socialism that must be or always are present to be declared a socialist system?
  2. Does technological innovation and economic “evolution” allow for political change or does it work in the opposite order?
Lecture 9, Property Rights and the Public Sector, David Gordon
  • Ethics and economists— one of Rothbard’s most original contributions is his criticism of the way mainstream economists deal with normative issues; economists want economics to be value free, economics is a science, normative judgments are mere subjective preferences; Rothbard agrees that economics is value free, but he doesn’t think that ethical judgments are mere subjective preferences; mainstream economists are caught in a dilemma, they want to make normative judgments that do more than express their preferences, how can they do so?
  • Concealed value judgments— some economists think that they can escape the dilemma by endorsing a value-free statement that still leads to normative recommendations; if everybody prefers something, then it should be done (strong Pareto criterion), if at least one person favors something and it makes no one worse off, it should be done (weak Pareto criterion), these principles still involve value judgments; what if everyone has wrong views about what is desirable, or the starting point involves violating someone’s rights?
  • Unanimity principle— Rothbard thinks that the unanimity principle has had bad results in practice; because unanimous agreement can’t in practice be reached, Buchanan and Tullock settle for less than full unanimity
  • Rothbard on the State— it is a fundamental mistake to view the state as a voluntary organization; it is a parasitic, predatory gang that seizes resources from the productive; Rothbard follows Oppenheimer and Nock
  • Public sector— if the State is predatory, then the productivity of the public sector is problematic; the State takes resources by force, thus, its activities cannot be considered productive; government expenditures should be subtracted from, not added to, production statistics; Rothbard’s definition of productivity is intertwined with an understanding of demonstrated consumer preference on the market
  • Statistics— Rothbard is suspicious of statistics collection; they are not value neutral but are essential to government control
  • Utilitarianism and property rights— many economists take some version of utilitarianism for granted; it’s argued that recognition of property rights makes nearly everybody better off; this isn’t a value-free claim, but it’s defended as non-controversial; Rothbard objects that this position doesn’t consider the justice of property rights, any stable system of property rights is accepted;
  • Escape from the dilemma— Rothbard believes the dilemma of the economists can be escaped by developing an objective ethics based on natural law; self-ownership, Rothbard defends the concept by rejecting alternatives, slavery and a system where everyone owns part of everyone else; if you own yourself, then by mixing your labor with unowned resources you own them as well; once you own something you can exchange it and give it to anyone you want, including the right of bequest;
  • Externalities

Discussion section:

[I did not take any notes during this section.]

Questions:

  1. Can any philosophical principle be established simply by rejecting alternatives? (Last man standing philosophy?)
  2. What criteria are sufficient for “mixing labor” and taking ownership? If mixing labor with factors of production, why doesn’t this mean workers own them? What makes “mixing labor” effective in one circumstance and not effective in another?
  3. Walter Block claims that it’s okay for libertarians to take from the State, but no one else. Is there any logic to this?
  4. Maybe there is a Coaseian solution for the dismantling of the State— it doesn’t really matter HOW it is privatized, it just matters that it IS privatized?
  5. When your money is taxed, it is stolen, and your money is fungible and spent, so what legitimate claim do you have to fungible, disposed assets that can not be traced?
  6. What about when government functionaries in “marketable” positions are part of unions or agitate for State privilege?

Lecture 10, Current Debates and Critiques, Joe Salerno

[I did not take any notes during this section.]

Discussion section:

Is the term “Austrian” valuable as a marketing concept? “Capital Based Macro”, “Causal Realism”

You don’t want to be the kid at camp who picked their own nickname, names come from the outside

Is there rhetorical value in labeling opponents in sensational ways (“Friedman is a socialist”) or does that hurt your cause more than it communicates information?

Questions:

  1. What might have happened to the Austrian school’s influence if WW2 had never occurred?
  2. What critical lessons have we learned (as a “movement”) from the Salerno/Hulsmann theory of the decline and rebirth of Austrian economics?
  3. Why aren’t there more applied economic works in the Austrian tradition? What would be some priority applications?
  4. What is “Austrian economics in a nutshell” or the Austrian elevator pitch? Why Austrian?

Ideas Matter: Why Everyone Should Find Time To Argue About Things

The contents of this post are adapted from e-mail correspondence with an acquaintance.

To give some context, this e-mail was prompted by a friend who made the point that our (by then) lengthy discussion on theoretical economic and political concepts was not a productive use of time and was little more than mental masturbation. In replying to this insistence (and attempting to refute more of what I saw as fallacious arguments), I tried to plead the case for caring about stuff like economic or political theory, esoteric or otherwise.

I wanted to make the case that these ideas had real, practical validity in our everyday lives, not just in the narrow halls of academia or someplace equally arbitrary and detached from the real world of everyday issues:

On the contrary, I believe these discussions can always be a constructive use of time if they lead one or both parties closer to an understanding of the truth on a given issue. I don’t know if Mises was the first to say it, and certainly he wasn’t the only one because Ayn Rand articulated a similar philosophy, but he had a slogan, “Ideas move society.” Over time, the structure of production and the political system overarching any society will come to be informed by the prevalent ideas held by its individual members.

In a grand and very real sense, every erroneous idea we hold takes us a little bit further from a harmonious, progressing, civilized society, while every truthful idea we hold takes us a little bit closer. This is not a matter of elegant armchair theory but of cold, hard, factual reality and it is all a consequence of Mises’s famous dictim, “Man acts.”

Every man acts, this is an inescapable fact of life. But what every man acts upon, well, that is informed by the ideas he holds and the values he determines to be worth pursuing.

We live in a time of gross ignorance of many simple truths, among the bitterest of which happen to be economic laws of cause and effect. Unfortunately, we also live with the consequences of this ignorance. It is not our duty in a universal, cosmic sense, but it is our obligation in a means-end sense, that if we wish to push back this tide of ignorance and live our lives on the dry-land of reason, we must fight it with sea walls of truth, not attempt to gather it up in fishermen’s nets of half-truth, pseudo-reason and arbitrary preference. Only consistent, logically-sound ideas can replace the fallacious if hope of progress is to be made, else you simply replace one flawed system with another.

I take a personal interest in the ideas of people who fascinate me because I think it is a natural implication to be curious about the beliefs and reasons of those I respect, and because in my own quest for truth and understanding I try to be ever vigilant that I may not have all the facts and perhaps someone can respectfully cross me on something I thought was true and show me why it is not. I am not content to simply say “My mind is made up” and carry on merrily when someone claims the truth is not my own.

This is why I have made an honest and sincere attempt to engage you on this subject and others in the past. I feel if you are to be my acquaintance and in some ways my friend, and if I am to respect your judgment in things, I must test you on these matters for the good of us both.

We all act, all day, every day. The actions we choose are based upon our values and our values are informed by our understanding of truth. Our understanding of truth, by shaping our values which inform which actions we take and when, has a direct, tangible bearing on the practical manner in which we live our lives.

The Economics of Consumer Behavior

The following is an essay written for a monthly company newsletter in 2015:

While business books are helpful, I find reading books from a variety of intellectual disciplines helps me gain new perspectives on our industry and business. One of my favorite reads is called “Human Action” by a social philosopher named Ludwig von Mises. Recently, I was struck by the following passage as von Mises commented on what drives consumer behavior:

The consumers patronize those shops in which they can buy what they want at the cheapest price. Their buying and their abstention from buying decides who should own and run [businesses]. They make poor people rich and rich people poor. They determine precisely what should be produced, in what quality, and in what quantities. They are merciless bosses, full of whims and fancies, changeable and unpredictable. For them nothing counts other than their own satisfaction. They do not care a whit for past merit and vested interests. If something is offered to them that they like better or that is cheaper, they desert their old purveyors.

Does this sound like our customers? Cheapest price? Changeable and unpredictable? Values their own satisfaction above all else? No loyalty? Keeping an eye on their pocketbook and not yours?

Of course it does! In fact, this well describes all customers, ours, those of our competition and even me and you as buyers of goods and services ourselves.

There’s a simple truth about customer service in a competitive market environment buried underneath this description of consumer behavior. That truth is that our customers have CHOICES. Not one of them has to do business with us. Not one of them has to be impressed by our prices, our commitment to their satisfaction, the quality of our effort or the consistency of our desire to please. If any one of these things does not manage to live up to their expectations, you can bet that our competitors will take notice and provide it to them instead.

But there is more to the story than consumer behavior and competition affecting our customer service, according to Ludwig von Mises:

The consumers determine ultimately not only the prices of the consumers’ goods, but no less the prices of all factors of production. They determine the income of every member of the market economy. The consumers, not the entrepreneurs, pay ultimately the wages earned by every worker… With every penny spent the consumers determine the direction of all production processes and the details of the organization of all business activities.

What this means is quite simple. When we adopt innovations or change aspects of how our businesses are organized, they are never changes made arbitrarily. Every change must in some way lead to improved customer satisfaction to enhance the desirability of our offering in the market or the effort is wasted.

When we change computer systems, or business processes, or pay plans, or job descriptions or prices, or anything, these new arrangements must meet the market test. If the changes don’t help us serve our customers better in some way they will not be sustainable. If they don’t help us to provide something better than what our competition can provide, we will find our customers going elsewhere.

It also means we have a responsibility to stay on our feet and try to improve our service offering every chance we get. As a team, we can come up with new processes, new cost structures, new service offerings, new conveniences, new methods of communication and new attitudes toward service that can keep our customers surprised and smiling. In other words, embracing the nature of change and competition in the marketplace can help us “to keep our customers, our customers” (and to help us gain new customers, too!)

Knowing all of this, what are some things you could do to improve the quality of service you and your team provide to our customers every day? And how will you react the next time someone tells you that we’ve got to make changes to better accommodate our customers’ needs? Taking care of our customers how they expect to be taken care of has to be at the center of why we do what we do. You can embrace it or you can resist it– but you can’t avoid it. Which will you choose?