Comment by dmichulke | Hacker News Reader

Comment by dmichulke | Hacker News Reader

The five reasons given are IMO attributes of Rothbard and Mises but in my view neither of them is substantial to Austrian economic theory. They deal with modelling preferences (point 1-3), the influence of third parties (point 4) and a kind of ridiculous "you use 'subjectivism' so often, it sounds like you're implying we don't care about subjectivism" discussion (point 5).

Since none of the are integral to Austrian economic theory but a few of them are against opinions of Mises and Rothbard (and I wouldn't even disagree with the author's view points here), it's comparable to saying "Darwin said you should always explore distant nature in a naval vessel and he believed in God, therefore his theories are wrong".

To substantiate:

1. Utility Functions vs. Value Scales

Everyone can use the representation of utility he wants, it just has to be decided whether it's appropriate in the case he applies it to or not. I assume small quantities of every day items (say potatoes) are easier modeled in continuous well-defined functions while preferences for the quantity of shopping malls is much harder to model that way. Neither means the other is necessarily wrong but as always modelling is not the same as reality.

2. Indifference

I can personally see how I am indifferent to a few things but it's unlikely you see it in my actions (other than watching me flip a coin). Now how is that again related to Austrian Economics?

3. Continuity

Basically Mises and Rothbard are arguing against modelling various dimensions as continuous functions. I see how their claim can be true under some circumstances and how it can be useful under others.

So again how is that relevant to being (or not) an Austrian Economist?

4. Welfare Economics

> Rothbard could only claim the welfare effects of government intervention upon "social utility" are indeterminate

Agreed. Government is not necessarily bad.

The rest of the discussion there is about "assumptions": Whether and how a third party affects a voluntary exchange.

Again, this is not at all necessary for Austrian economics, and attacking it is an exercise in futility.

5. Subjectivism

This argument is not an argument, it's about word usage frequencies and how they imply things. WTF

Whilst you're right that this is focused on Mises/Rothbard as Caplan acknowledges in his opening paragraph, it's fair to say that the economics of Mises/Rothbard is the strand of Austrianism that gets all the attention and funding; not many people describing themselves as Austrian economists are followers of Lachmann. So it's more akin to a criticism of Keynesianism which focuses on arguing most things Keynes, Hicks and the New Consensus macroeconomists said were wrong.

As for your points:

1. The position that ordinal and cardinal representations of utility are both valid in certain circumstances and in practice identical economic models can often be derived from them is the mainstream economics one which the Mises strand of Austrianism rejected. If you believe that "neither means the other is necessarily wrong" you're rejecting one of their core assumptions.

2. Indifference is pretty easily reflected in actions. Obvious example of a revealed preference of indifference between two items: "Which one?" "Either one" (sure, I'll accept that in some cases a person might delegate a decision because they have a specific preference to give the delegate responsibility or to be surprised by the choice which is greater than their preference for one item over the other, but a lot of the time it's clearly genuine indifference between items. I'm not trying to impress the store clerk when I don't care which no-name manufacturer my $1 widget comes from). If Austrian economists insist on (re)defining economics as a set of immutable laws of human action, it helps not to have such obvious counterexamples to one of their claims...

3. Austrian Economists following the approach of Mises insist that modelling dimensions as continuous functions is never acceptable. ergo if you believe continuous dimensions are sometimes a useful modelling assumption, that's a pretty good reason not to be an Austrian economist (even if you think their objections to the representation of some dimensions as continuous differentiable functions are valid; it's not like Austrian economists are the only people offering such critiques)

4. Considering that the thrust of Mises/Rothbard's arguments is that government is [almost always] bad for allocation of resources, it's a pretty major shortcoming that based on their own foundational assumptions they can't actually argue that even the most egregious examples of government misallocation of resources actually are misallocation of resources.[1] (Many mainstream economists also argue against the validity of interpersonal comparisons of utility, but could at least have some grounds for argument that lesser quantities of output under a price-fixing regime are suboptimal on the grounds of Kaldor/Hicks inefficiency since they're willing to consider non-revealed preferences.)

5. Caplan doesn't elaborate on this particularly well, but it's a standard claim by Austrian economists that mainstream approaches involving quantitative analysis aren't compatible with the concept that value is subjective. It's also pretty well established that many classes of quantitative mainstream model work pretty well with Austrian-style subjective preferences (viz. based on ordinal preferences within a budget constraint).

[1]obviously Austrians have lodged other objections like claiming that allocation of resources for production in the absence of a price system is "impossible" (clearly incorrect) rather than merely less efficient, and generally subscribe to ethical arguments that government intervention is "coercive" except when used to prevent people from using resources other people claim ownership over. But not being able to say "West Germany produced better economic outcomes for its citizens than East Germany, or even than medieval Prussia" is a pretty major disadvantage in an economic theory.

look at all of his arguments as a framing of neoclassical (math/calculus-based econ) vs. austrian (non-continuous/messy/favoring nature/functions too complex to be described and calculated econ)

1. author argues that Rothbard's austrian "value scale" approach is unable to derive the key income and substitution effects used in neoclassical modeling, but that Rothbard adds them into his framework ad hoc without properly deriving them

this has nothing to do with the reality of modeling the utility of potatoes for individuals vs. shopping malls for society, rather deriving key properties that are used in logical predictive modeling (eg my wages increase ∴ consumption curve shifts right BY income effect)

2. yeah, not related to any precepts of austrian or neoclassical economics, more of a philosophical discussion of how preferences must be revealed by action in econ rather than introspection, freezing time, or flipping a coin every time you're indifferent. he's rejecting both of their rejections of an implication of neoclassical theory, but it's not practically important, just a reflection of caplan's beliefs

3. rothbard and mises reject the notion that preferences are continuous, which means they can't be neatly drawn on 2D graphs and used in calculus. Rothbard continues to use diagrams and calculus somewhat hypocritically, while Mises doesn't use diagrams. author thinks (as do most economists) that graphing utility and preference functions as continuous and therefore being able to do useful things such as find their intersections, take their derivatives, etc. far outweighs the utility of describing them in non-continuous terms

author thinks all austrian economists reject continuous micro functions, which is untrue (just Rothbard and Mises) but supports his larger theory that austrian economics is not as useful/actionable as neoclassical

4. author is defending the principle of pareto efficiency, another fundamental neoclassical principle which allows economists to measure how free market distortions such as communism and rent control effect different groups within the economy. author is criticizing rothbard's framework which only allows one to call acts of government welfare "indeterminate" and thus be unable to measure their effect and get things done

5. defending the technical definition of "efficiency" again because the technical definition is needed to construct proofs and get things done

basically author is saying neoclassical is much more useful for getting things done with economics, and that rothbard and mises (who he takes to represent the whole school of austrian econ) didn't provide many useful tools from which others could predict/model/build off

Reply on news.ycombinator.com