I appreciate this post because it distills and connects the elements of Austrianism which I would most wish to have essayed. Perhaps if I proceed with clarity and civility, a few of you will be good enough to respond in that spirit at my Discord server, “Rogue Neoclassist”.
First, I note that the author extols written communication as a path to enlightenment. That was, of course and for the longest time, enlightenment’s only approach – one which resulted in Scholasticism, Talmudism, etc. Then Galileo asserted that “Demonstration is the essence of science”, and the specifically Western scientific tradition was born.
Second, I note that the author takes the Socialist Calculation Problem’s categorical indissolubility as the primal Austrian inference. This would seem to take Austrian Economics out of the Western paradigm: assertions of economic non-computability, being a general negatives, cannot be instantiated; that which cannot exist cannot be demonstrated.
I do not assert this to be ipso facto wrong; only a fact. We are all aware that Mises himself took economics out of the realm of observational and empirical science by basing his economics on Praxeology, “[Whose] cognition is purely formal and general without reference to the material content and the particular features of the actual case.” Hold that thought.
If I understand my Hayek, the distilled reasoning behind our inability to perform economic calculation is that 1) any such performance must reference efficient prices; but 2) efficient prices are only revealed after market operations (i.e. economic calculation) has guided the economy to its general optimum. Hold that thought as well.
Demonstration is essential to Western science because demonstrated causality is the only basis on which the West’s essential principle of contradiction can operate. “Contradiction” simply means that if you say something cannot be done, and somebody does it, you change your mind.
This of course brings up the many operative prototypes of economic calculus that have been presented over the last half century. So far as I am aware, none of these functioning emulations of successful, direct approaches to general optimality has been rejected other than on a priori grounds: Milton Friedman’s “SFEcon is fraud as a mathematical possibility” being one of the more pungent.
The SFEcon demonstration referred-to here was presented in a seminar at Hoover for Friedman, and others including myself. It is linked-to in a monograph posted by EcoMod:
The VBasic code in this workbook is open sourced. It will needlessly alert your anti-virus software.
If you personally take the time to run this emulator (all you need to do is click three buttons and watch) please ask yourself if you could create such a demonstration; and, if you think you can, could you do so other than by performing economic calculation?
Once an instance of economic calculation is demonstrated, we can compare the premises enabling that demonstration to the corresponding premises of Austrianism. These are the matters upon which I hope to receive some comment.
1) The meta-premise of economic non-computability appears problematic in that we observe the real, ‘out there in world’ economy continuously re-orienting itself around general optimality. Thus, if there were no realizable solution to the calculation problem, the subject matter of economics would not exist. (And a science nominating itself as ‘economics’ should, in any case, be presenting a solution, rather than a catalog of reasons why the problem cannot be solved.)
2) According to Gary North, “Austrian School economics teaches that we should begin to study macroeconomics by studying microeconomics. Macroeconomics can be explained only as the outcome of microeconomics.” Such assertions admittedly compel creation of a science like Praxeology. But, while Praxeology stands as a logical structure in its own right, its putatively indispensability to macroeconomic causality is falsified by SFEcon.
SFEcon does not build upon a foundation in microeconomics; they, rather, directly presume that macroeconomic sectors project a spontaneous tendency to align marginal revenues with marginal costs.
Their theory, being mathematically determinant, can be run ‘in reverse’ to empirically verify this premise; whereas assertions that micro actors operate toward optimality have been empirically falsified by behaviorists. Danny Kahneman won the Nobel Prize in 2002 for his empirical demonstrations to that effect.
3) Economic calculation must indisputably reference efficient prices; and the inscrutability of such prices in disequilibrated states is also undeniable. Together, these two facts do indeed make artificial economic calculation unthinkable.
But economic calculation does occur, both in reality and in at least one abstract representation. So the ‘facts’ must be re-examined. SFEcon faults economics’ definition of efficient prices as computable only in steady states upheld by general optimality: if a mere definition prevents emulation some exterior reality, then the science must change its definition.
SFEcon redefines efficient prices as those guiding the economy toward the general optimum implicit in its production and utility tradeoffs; and they show how these might be computed without reference to the optimum. In their definition, efficient prices are a consensus of the sectors’ current values of marginal product for a given commodity. Such prices validate economics’ current definition of efficiency if and when optimality arrives.
Without wishing to assail the author of this post, I offer that I have a lot of success teaching the unique efficiency and fairness of unrestrained capitalism by allowing students to have fun tinkering with desktop emulators of economic calculation.
In closing, let us recall Lew Rockwell’s observation that . . .
“Ludwig von Mises didn’t like references to the ‘miracle’ of the marketplace or the ‘magic’ of production or other terms that suggest that economic systems depend on some force that is beyond human comprehension. In his view, we are better off coming to a rational understanding of why markets are responsible for astounding levels of productivity that can support exponential increases in population and ever higher living standards.”
Rockwell, however, ultimately contradicts Mises with “Mises forgive me: this is a miracle.” So it is Rockwell and his acolytes, not Mises, who have rejected mundane scientific praxis in imparting the wisdom of free markets.
If it walks like economic calculation, and quacks like economic
calculation, then it IS economic calculation.
I appreciate this post because it distills and connects the elements of Austrianism which I would most wish to have essayed. Perhaps if I proceed with clarity and civility, a few of you will be good enough to respond in that spirit at my Discord server, “Rogue Neoclassist”.
First, I note that the author extols written communication as a path to enlightenment. That was, of course and for the longest time, enlightenment’s only approach – one which resulted in Scholasticism, Talmudism, etc. Then Galileo asserted that “Demonstration is the essence of science”, and the specifically Western scientific tradition was born.
Second, I note that the author takes the Socialist Calculation Problem’s categorical indissolubility as the primal Austrian inference. This would seem to take Austrian Economics out of the Western paradigm: assertions of economic non-computability, being a general negatives, cannot be instantiated; that which cannot exist cannot be demonstrated.
I do not assert this to be ipso facto wrong; only a fact. We are all aware that Mises himself took economics out of the realm of observational and empirical science by basing his economics on Praxeology, “[Whose] cognition is purely formal and general without reference to the material content and the particular features of the actual case.” Hold that thought.
If I understand my Hayek, the distilled reasoning behind our inability to perform economic calculation is that 1) any such performance must reference efficient prices; but 2) efficient prices are only revealed after market operations (i.e. economic calculation) has guided the economy to its general optimum. Hold that thought as well.
Demonstration is essential to Western science because demonstrated causality is the only basis on which the West’s essential principle of contradiction can operate. “Contradiction” simply means that if you say something cannot be done, and somebody does it, you change your mind.
This of course brings up the many operative prototypes of economic calculus that have been presented over the last half century. So far as I am aware, none of these functioning emulations of successful, direct approaches to general optimality has been rejected other than on a priori grounds: Milton Friedman’s “SFEcon is fraud as a mathematical possibility” being one of the more pungent.
The SFEcon demonstration referred-to here was presented in a seminar at Hoover for Friedman, and others including myself. It is linked-to in a monograph posted by EcoMod:
http://ecomod.net/system/files/Roemer.Economic%20Calculation.pdf
A more easily managed desktop emulator is available in an ordinary Excel workbook available from SFEcon’s YouTube channel:
http://www.sfecon.com/YouTube%20Demo.xlsm
The VBasic code in this workbook is open sourced. It will needlessly alert your anti-virus software.
If you personally take the time to run this emulator (all you need to do is click three buttons and watch) please ask yourself if you could create such a demonstration; and, if you think you can, could you do so other than by performing economic calculation?
Once an instance of economic calculation is demonstrated, we can compare the premises enabling that demonstration to the corresponding premises of Austrianism. These are the matters upon which I hope to receive some comment.
1) The meta-premise of economic non-computability appears problematic in that we observe the real, ‘out there in world’ economy continuously re-orienting itself around general optimality. Thus, if there were no realizable solution to the calculation problem, the subject matter of economics would not exist. (And a science nominating itself as ‘economics’ should, in any case, be presenting a solution, rather than a catalog of reasons why the problem cannot be solved.)
2) According to Gary North, “Austrian School economics teaches that we should begin to study macroeconomics by studying microeconomics. Macroeconomics can be explained only as the outcome of microeconomics.” Such assertions admittedly compel creation of a science like Praxeology. But, while Praxeology stands as a logical structure in its own right, its putatively indispensability to macroeconomic causality is falsified by SFEcon.
SFEcon does not build upon a foundation in microeconomics; they, rather, directly presume that macroeconomic sectors project a spontaneous tendency to align marginal revenues with marginal costs.
Their theory, being mathematically determinant, can be run ‘in reverse’ to empirically verify this premise; whereas assertions that micro actors operate toward optimality have been empirically falsified by behaviorists. Danny Kahneman won the Nobel Prize in 2002 for his empirical demonstrations to that effect.
3) Economic calculation must indisputably reference efficient prices; and the inscrutability of such prices in disequilibrated states is also undeniable. Together, these two facts do indeed make artificial economic calculation unthinkable.
But economic calculation does occur, both in reality and in at least one abstract representation. So the ‘facts’ must be re-examined. SFEcon faults economics’ definition of efficient prices as computable only in steady states upheld by general optimality: if a mere definition prevents emulation some exterior reality, then the science must change its definition.
SFEcon redefines efficient prices as those guiding the economy toward the general optimum implicit in its production and utility tradeoffs; and they show how these might be computed without reference to the optimum. In their definition, efficient prices are a consensus of the sectors’ current values of marginal product for a given commodity. Such prices validate economics’ current definition of efficiency if and when optimality arrives.
Without wishing to assail the author of this post, I offer that I have a lot of success teaching the unique efficiency and fairness of unrestrained capitalism by allowing students to have fun tinkering with desktop emulators of economic calculation.
In closing, let us recall Lew Rockwell’s observation that . . .
“Ludwig von Mises didn’t like references to the ‘miracle’ of the marketplace or the ‘magic’ of production or other terms that suggest that economic systems depend on some force that is beyond human comprehension. In his view, we are better off coming to a rational understanding of why markets are responsible for astounding levels of productivity that can support exponential increases in population and ever higher living standards.”
Rockwell, however, ultimately contradicts Mises with “Mises forgive me: this is a miracle.” So it is Rockwell and his acolytes, not Mises, who have rejected mundane scientific praxis in imparting the wisdom of free markets.