Friday, January 21, 2011

Me and Murray Sittin' in a Tree

...reading about e-con-o-meee.

Over the past few months, I've come to understand that Murray Rothbard is quite a controversial fellow within the Austrian school. Nevertheless, Peter Boettke, whose work I greatly respect, suggests anyone wanting to grasp the fundamentals of the Austrian school of economics should read Human Action and Man, Economy, and State. The former written by Ludwig von Mises (O Captain! My Captain! of the Austrian school) and the latter written by Rothbard. Mises thought Rothbard's work was very good, it seems. Anyway, the way I read Boettke's recommendation is that he thinks MES is a more accessible version of Human Action. So, I started with MES. I still have a day job, after all.

As I'm trained in the neoclassical version of economics, the first thing I should note about MES, and the Austrian school generally, is their unique (in the post-Marshallian/Hicksian/Walrasian world of economics) methodology. Known as "praxeology," the Austrian approach is characterized by verbal logic. Most economic theory nowadays is characterized by symbolic logic (math).

I'm not fully comfortable with the verbal approach, because of two things. First, obfuscation is easier, including confusing yourself. It takes an especially clear mind and lucid writing to do pure theory using words only. Plus, it's harder for the reader, since each word matters a great deal, and there's plenty of room for misunderstanding. Second, it makes the Austrian school more dismissable (made up a word!) because they haven't bought the membership into the club by having really difficult mathematics.

Now there is a lot to cover in Rothbard, so I'm going to begin and end this post by giving the foundational idea of Austrian economics, that shouldn't be the least bit controversial. The foundation of any social science is and must be: humans act. All events that occur in the world are due to individual actions. No government, no country, no society, no group, acts. Only individuals. That is critical, but like I said, uncontroversial from an economist's point of view.

The next point that is critical: humans act according to subjective value scales. If I buy a rake that costs $15, that means that to me the rake is worth at least $15, plus the irritation of having to go to the store to buy it, and the gas I use up. A rake is a capital good, so actually the value of the rake is the present value of the future usefulness of the rake to me. But it still is a subjective value: how important is it for me to clean the leaves off my lawn? (Not really at all, but my wife thinks it's a huge deal.)

So that's it for now: humans act according to subjective value scales.


  1. So, my question to you is this: which school accepts micro-economic theory? Micro is largely based on mathematics, and so I suspect Austrians might take issue with micro. On the other hand, you didn't have a problem teaching us micro, which implies you subscribe to its teachings (and you claim to be Austrian or Canadian).

    Nevertheless, don't you think that at a minimum, there is a lasting benefit to thinking (and verbalizing) logically? I can memorize formulae all day long without fully grasping the underlying principle (which I had to do in micro, albeit not very well if I correctly remember my grade).

    With the praxelogical approach, I have to think logically, which can benefit me in many other ways. I would argue that many of my liberal friends (I don't have that many) cannot think logically, or at least critically; hence their natural disposition to progressive thought. I think there is a real benefit to the Austrian methodology, but perhaps I have an aversion to calculus.

  2. The funny thing is that the conclusions in micro don't seem to be systematically different across the different schools. The micro I taught was straight up neoclassical, but you find a lot of the same analysis in Austrian econ, like demand and supply curves. But it's built up differently. Based on human action, we can logically create different demand and supply curves. Standard neoclassical micro does it from the basis of "utility curves."

    When I taught micro, I was just learning the Austrian school, but I knew neoclassical really well. So, I defaulted. At least in the macro class I tried to give more than one point of view.

  3. If this;

    "The foundation of any social science is and must be: humans act. All events that occur in the world are due to individual actions. No government, no country, no society, no group, acts. Only individuals. That is critical, but like I said, uncontroversial from an economist's point of view."

    is the foundation of Austrian thinking then it will never amount to much. That statement is pure sophistry. This is elevating individuals to the levels of gods. We are, by all sane analysis of our human history, social creatures. We have always, naturally, formed groups that got larger and larger and made decisions based on this group identity. Certainly we have had better and poorer ways of organizing and multiple organizational ethos' but its the worst kind of glossing over of reality to say that "no group acts". This is where the verbal logic goes awry because it assumes that an individual is all there is, that our identity is lone and we are not a result of our social surroundings.......... which is absurd.

    Why are libertarians so afraid of admitting they need other people in order to be truly human? Why must they seek to separate or elevate the self above all else?

    If you were the last guy left on earth would you think " Yeah... I won!!!!" or "Damn.... I lost!" ?

  4. Greg,

    I think you are missing the point of the statement. It is not sophistry, but tautology. Only humans can decide to act. If a group of people acts, then each person is deciding to act is a similar way to others. This isn't to deny "group think" or something like that. It is to deny that nations can act, or that a company can act. Certain individuals that represent those organizations act. But to say "society says you should get a college degree" is nonsense in a logical way. It is correct if we realize "society" is shorthand for "a large number of people in X-ican society think this."

  5. Also, libertarians don't think they can be self sufficient. In fact, libertarians in general love people. We realize that only through relationships with others can we have harmony and peace in the world. The main thing we want, though, is voluntary relationships.

    The self has primacy because it is immoral for anyone to live at another's involunatry expense.

  6. Its not sufficient to say "only humans decide to act". We must also look at what determines those actions. Yes individuals make choices but we are not as in charge of our decisions as we think we are. We are all in ways we dont even detect consciously, products of everything around us. Our culture, our religions our, families and acquaintances all act to make us who we are. Its the highest form of conceit and mythology to see us as captains of our own ship. We didnt build our ship or put its circuitry into place. We just absorb and react.

    Now dont think I take "just" lightly. Absorbing and reacting are all of our human experience and it is significant but we have a bad habit of making ourselves into gods.

    By what moral code is it immoral to live at someone elses involuntary expense? How far does this go? Is this credo only applied to foment hatred of a state which "gives" subsistence level living conditions to some while others cry out, "I didnt approve of this expenditure of MY tax money!!"

    In a very real sense we are all living off many people who havent volunteered their services to us.

    I'm not for legislating or encouraging or protecting per se parasitic behavior, I just dont see that simplistic bumper sticker phrase;

    "it is immoral for anyone to live at another's involunatry expense."

    as answering more questions than it leads to. It sounds nice but its kind of hollow when you really look at it.

  7. Jeff

    I'm working on a post at my site about morality so this comment was very interesting. I see many people espousing their arguments in moral terms, and I do too, but I want to get at the heart of these moral objections. Where morality figures into our views on economics is interesting. Markets are supposedly amoral but of course they are the product of transactions between entirely moral creatures. Whats that about?

    So bear with me as I might be even more cantankerous and oppositional than usual

  8. Greg,

    That sounds very interesting.

    Note that I agree that people are "products" of their experiences, if you will. That means that the set of actions one can possibly take (including doing nothing) at any given time is necessarily limited by the environment in an all-encompassing sense.

    You ask very interesting questions that don't have easy answers, but that are worth working on. I hope to carry on the conversation some more.