Hayek and Hurwicz (once more)

Co-Nobel Prize winner Roger Myerson sees the connection between Hayek and Hurwicz very clearly in this 2006 Lecture in Honor of Hurwicz.

Download hurwicz.pdf

In addition, it should be pointed out how big an influence mechanism design theory has been on Vernon Smith's work in experimental economics and understanding of the price system and the theory of the market economy.  The quest to design incentive compatible systems led to another field that Vernon contributed greatly to captured by the label 'economic system design'.

Comments

[Ludwig van den Hauwe]

Pete
Why all at once you no longer mention Mises? Myerson also sees a connection with Mises in his lecture. This is a perfect illustration of what I said only a few days ago on this forum, namely that contemporary mathematical economists can claim to be the true heirs not only of Hayek but also of Mises. Perhaps Mises - who was known for his gift of prophecy after all - simply forefelt that he and his times were on the eve of major mathematical turn in economics and therefore made these ambiguous statements in Human Action...

[Bogdan Enache]

I'm halfway through the above text and I don't know what other readers think about it but I - despite the simple math there, bu which succeeds in giving the air of much complexity - have never read such a strange text before.

For example, what is this phrase suppose to mean ?

"Under socialism, there is no problem getting the manager to reveal type honestly, because
he is willing to report his type honestly when we just pay him a flat wage no matter what he
reports."

And by making incentives the big issue of feasible socialism (plus a very narrow understanding of information constrains coming in in second position) I humbly think that the author completely misunderstood both Hayek and Mises's critique. All liberal economists before them pointed out, even if usually not in such a detailed and rigours manner, incentive problems; Mises and Hayek's main critique was beyond this, it was exactly about "modeling resource constraints", though they've noted the very real and separate - incentive problem.

*He also believes that Mises's argument required a competitive market equilibrium :

"Mises (1920) argued that prices
from a competitive market equilibrium are necessary for efficient allocation of resources."

[Jonathan Bathgate]

It is a big error to talk with such contempt and disdain about these brilliant Nobel Prize winning economists. Compared to their work Kirzner´s trivialities about entrepreneurship are peanuts... And even if their understanding of Mises and Hayek is perhaps not perfect, surely they understand much more about Mises´ and Hayek´s ideas than the average Austrian understands about the work of these Nobel Prize winning economists - the average Austrian who is typically not even capable of solving a simple mathematical equation... I would like to interpret the fact that these economists refer to Hayek and Mises as an important sign, namely of the fact that we are on the eve of the emergence of a new kind of economics, that will combine the great ideas of Menger, Mises and Hayek with the sophisticated tools of modern economic analysis.

[Peter Boettke]

Jonathan,

I think you need to be a little more careful in your assessments. First, who do you define as the relevant community of Austrian economists? If you mean those practicing within the academic economics profession, then your claim about mathematical skills and aptitude would need to be adjusted since these individuals all passed through PhD programs in economics which require an ability to do such basic maths. Second, one can be critical of mechanism design theory while also being respectful of the contribution these guys made. Third, it is not really a subject for dispute that mechanism design theory was inspired by Mises-Hayek. But it is not clear that they have passed Mises-Hayek by in terms of dealing with dynamism of the market economy. I would recommend here the Ostroy paper in the JEL on creativity if you want to explore this question. Finally, I think your judgement of Kirzner is way off base (see my remarks on why Kirzner should win the prize).

Pete

[John]

Jonathan,

Not that Dr. Boettke needs my agreement but I think it's preposterous to suggest that "Austrians" lack skills in mathematical economics.

Even if it wasn't obvious that they have this skill set in spades as is easily known in that they have doctorates in economics (there are no PhD's in Austrian Econ), if you read much of their work and watch videos of the likes Salerno, Murphy and Klein at Mises.org, it's quite clear that they have as much ability in mainstream and mathematical economics in their lectures.

I see "Austrians" as economists like any other BUT with a preference and conviction in this alternate methodology which they carry in addition to mainstream expertise.

[PrestoPundit]

In some of Hurwicz's early papers he is directly citing Hayek and Hayek's work on "information". It's also clear in those papers -- and in Hurwicz's later exchanges with Kirzner -- that he really doesn't "get it" when it comes to Hayek's work & Hayek's challenge to central planning.

Maybe this award will give further justification to a Kirzner Nobel Prize next year. It should.

[John]

Presto,

I agree. I was just reading thru that speech. I find it amazing that he acknowledge Hayek' point about knowledge about markets and the limits of modeling incentives...not to mention giving props to Mises for price determination and the impossibility for socialism that it creates....and then say that Hayek's point is informal and not based on sound theory (by this, I assume he means models). He then says we need to ignore the paradigm that Hayek's work created and find another way. On mises, he said that the fact that Mises appears right about socialism doesn't mean he was because there's no model for it.

HA!

I guess this is why Austrians hate math and models....it makes people blind about limits of them...even in the face of info that says why they are limited in use. And why so blind?

BECAUSE THERE'S NO MODEL TO SHOW WHY!!

Amazing.

[PrestoPundit]

Hurwicz' comments on a paper by Kirzner dealing with knowledge, competition and welfare economics can be read here:

http://www.cato.org/pubs/journal/cj4n2/cj4n2-4.pdf

Among other things, Hurwicz says:

"The ideas of Hayek (whose classes at the London School of Economics I attended during the academic year 1938—39) have played a major role In Influencing my thinking and have been so
acknowledged. But my ideas have also been influenced by Oskar Lange (University of Chicago, 1940—42), as well as by Ludwig von Mises in whose Geneva seminar I took part during 1938—49.
By now there is a considerable literature in this area.’ A careful perusal of this literature,I believe, would show that Professor Kirzner’s
opening statement (that "the Hayekian lesson was simply not grasped by subsequent welfare economists") does not apply to present-
day mainstream welfare economics .. "

[Jonathan Bathgate]

In fact I sincerely hope that Kirzner will get the Prize one day because this would be important for the Austrian movement, but I am afraid it won´t happen.
The tendency towards formalization in economics seems to be irreversible, at least for the time being. Merely verbal, literary economics is considered to belong to the past, to the field of "history of economic thought". The possible exception seems to occur when an individual launched an extensive research program with many followers... (See e.g. Coase who didn´t use math either but founded a school and had many followers... Besides that Coase remained a mainstream price theorist in my opinion.) I am not sure this really applies to Kirzner. But I can be mistaken.

[Jonathan Bathgate]

To Pete:
I did not mean to say that Austrians do not master basic mathematical skills. This is irrelevant and PhD programs differ widely as to the level of math skills they require. Besides that some of the greatest mathematicians were amateurs... But all this is irrelevant.
Only Austrians do not use it in writing and this has many consequences. How many Austrians get positions in research departments? Most of them are undergraduate teachers; in the best case they are in business schools. Your own case is an exception.

[Ludwig van den Hauwe]

As regards the math skills one supposedly has to take up during graduate study in economics, note that Hurwicz has no degree in Economics. At his arrival in the US in 1940 he only had a Law degree from the University of Warsaw! It´s also true he later became Samuelson´s assistant. Well, that´s what I read in the media this morning.

[zac]

How come crazy Republican anti-Hayekian right-winger Prestopundit has taken down the stuff on his blog about being: "Among other things I'm a world- respected authority on the work of Friedrich Hayek."

Amazing for someone who has never published in a peer-reviewed journal.

I wonder if Prof Boettke or Dr Caldwell have similar stuff on their webpages?

[Peter Boettke]

Jonathan,

The list of contemporary Austrians, and Austrian fellow travellers, who have had appointments at PhD granting research universities would include:

James Buchanan
Leland Yeager
Israel Kirzner
Mario Rizzo
Lawrence White
Roger Garrison
Gerald O'Driscoll
Bruce Caldwell
George Selgin
Don Lavoie
Jack High
Richard Wagner
Randy Holcombe
Bruce Benson
Stephan Boehm
Stefan Voigt
Viktor Vanberg
Ulrich Witt
Manfred Streit
Don Boudreaux
Dan Klein
Tyler Cowen
Alex Tabarrok
Andy Young
Ben Powell
Chris Coyne
Pete Leeson
David Harper
Guido Huelsmann
myself

That list is not trivial. So while the vast majority of Austrians are in liberal arts colleges there is a significant number in PhD programs. In fact, 3 of my recent students have secured appointments in PhD programs --- Ben, Chris and Pete. And I am hoping that most will follow --- the conspicious production process of academics and all that.

However, you have an important point about the sociology of the profession --- what you should ask is what Austrians have obtained positions in top 25 PhD programs? The older generation had several --- Hayek (at LSE), but also Morgenstern and Machlup (Princeton) and Habeler (Harvard). And if you include Schumpeter (Harvard). So what gives? Outside of the NYU faculty (Kirzner, Rizzo (both tenured), O'Driscoll, White and myself (assistant professors), the other PhD appointed faculty are at middle to lower ranked programs.

But once you get to that point in the analysis of the contemporary state of Austrian economics, then you are half way there with me to the analysis about what it would take to succeed --- we would be agreeing on the terms of the competition.

Here I take a long term view --- perhaps not my students (though I am betting on Pete Leeson), but my students students will grab the brass ring. Think of it this way, Scott Beaulier develops a great student at Beloit, he sends them to NYU to study with Rizzo, the student finds the right language to communicate and publish in the top journals, and thus coming out of NYU can get an appointment at Penn. It is through that process that I see our ideas spreading more and more into the mainstream.

We must remember that Buchanan's students at UVA all got great appointments --- Cornell, Penn, as well as the best schools in the South. That is how intellectual movements follow a path of development in terms of the academic professions.

I am sure I am missing some important people

[Jonathan Bathgate]

I think in general you are talking too much about people and careers and not enough about substance but I agree that is already an impressive list! I suggest Austrians should set up a project similar to the "Mathematics Genealogy Project" to keep track of who´s a student of who etc...

[Peter Boettke]

Jonathan,

I knew this would happen, but I forgot two important people on my list at PhD schools: Peter Klein and Nikolai Foss.

On too much about people --- YOU raised the empirical challenge, I provided the response that is all. It is not about people and careers, it was a response to a claim being made.

Where we go from here, I don't know. I certainly don't want to get into a discussion about so and so and who and whom. I want to (a) track truth as a scholar, (b) do a high quality job in the classroom, and (c) promote what I consider great ideas in the academia, in the general public, and in the public policy discourse.

Part of (c) is responding to claims such as the one you made.

Pete

[Bogdan Enache]

There are also several notable Austrian economists in Europe, other than Guido Jorg Hulsmann, for example Pascal Salin (France), Jesus Huerta de Soto (Spain), Enrico Colombatto (Italy)...to name just some that are quite well known internationally.

[Ludwig van den Hauwe]

OK, but I think Jonathan´s question was really a different one.
How many of these individuals are accepted as research economists by their mainstream peers?
How many of these people would be eligible for, say, receiving funding or research grants from government agencies on their research projects?
I contend that if you go with a project on a subject on which Hülsmann, Huerta de Soto and others are working, to, say, the European Research Council for funding, you can forget about it. I know less about the situation in the US.
I agree that all of these economists probably think of themselves as research economists in their own perception.

[Jonathan Bathgate]

You still forgot _Hans-Hermann Hoppe_ who is working both at undergraduate and graduate levels. Auburn University on the other hand no longer has a PhD program.
I was looking at it from an Austrian perspective and then it looks as if quite a lot has been attained and the list is already fairly long.
Rectifying what I said earlier, if you look at it from a mainstream perspective, the list is EXTREMELY SHORT.
Following up on the intervention of Ludwig van den Hauwe, there is no doubt that it is still easier for an Austrian to envisage a teaching career, while trying to publish in combination with that, than to envisage a fully-funded, full-time research position.

[Ludwig]

Considered on a world-wide basis, the list is indeed EXTREMELY SHORT. I know of no Austrians in a fully-funded, full-time research position.

[Peter Boettke]

Ludwig,

What are you talking about? The mainstream of the economics profession are all tied to universities and teach PhD students. Check out Andrei Shleifer. The individuals on the list I gave have had similar arrangements and get similiar grants (though not of the same magnitude).

The only reason I am writing this is because I believe there are a lot of false impressions being promoted in the blogosphere about the status of Austrian economists within the profession. Yes we hold a minority position, but several of us have had minor degrees of success in communicating with the wider profession. Andy Yates, e.g., had a full blown model on the Austrian theory of entrepreneurship and the market process published in JET, Larry White has published in both the AER and JMCB, George Selgin was in the Econ Journal and JMCB, Gerry O'Driscoll was in the JPE, Mario Rizzo in the J of Legal Studies, and Israel Kirzner in the JPE as a youngster and the JEL as a senior spokesman.

The argument that Austrians are completely closed out of the profession is just empirically false. The argument that it is really tough to be an Austrian and grasp the brass ring of academics (tenure in a top 25 PhD program) is undoubtedly true. But it is also true for EVERY type of economist. This is just a very tough business to compete in.

So again, what are you talking about "no Austrians in a fully-funded full-time research position"? Look even in Germany --- Stefan Voigt, Urlich Witt, and Viktor Vanberg. We don't have to look just at US academics to see that something is wrong with your argument.

BTW, as far as I know Hoppe never taught PhD students (I might be wrong). Enrico Colombatto was a huge omission on my part, as was Pascal Salin, and I would also add Pierre Garrouste.

[Peter Boettke]

Name me 1 major economist who have a "fully funded research position"? Unless you are at the Institute for Advanced Study, ALL the top appointments carry with it teaching responsibilities. However, some of those teaching responsibilities are at the PhD level.

I have taught a 1-1 and my permanent teaching job is 1-2 ... with 2 of those courses being PhD courses. And I supervise PhD students. Tell me what you consider these "fully-funded" research jobs and where are they? Harvard -- nope, Shleifer teaches; Stanford -- nope, Arrow taught; Chicago -- nope, Friedman, Stigler and Becker taught/teach.

[Ludwig]

Pete,
OK, thanks for all this interesting information. Really, my aim was only to get some information. It´s more encouraging than I thought after all. I had started turning away from Austrian economics but probably I will go on now.

[Rafe]

It would be illuminating to take up Jonathan Bathgate's point about content and not just numbers. In my view that is the real strong point of the Austrian and quasi-Austrian challenge, and if these ideas can get some real traction then the practical results will be very desirable. Ideas matter, just remember the time when Marxism was confined to a tiny circle of malcontents and then see how it changed the world over the next hundred years or so. It is a shame that during that hundred years Marxists did not invite their critics to publish in their own literature so there could have been a civil and wide-ranging consideration of the content of the program.

Thirty years ago the Austrians were practically extinct and it is a rich irony that Mises died in the very year that the revival started. If you want to talk about content then look at the mix of scholarship, policy analysis and empirical work that is being done by Austrians, quasi-Austrians and fellow-travellers like the public choice school and the economics/law people.

[D.G. Lesvic]

I am just an amateur economist, but can see that you academic "experts" don't know the first thing about economics, that it is a logical and not a mathematical science. What difference does it make whether an economist is a mathematician or not when mathematics has nothing to do with economics?

[Ludwig]

I believe it makes little sense to say once and for all that "mathematics has nothing to do with economics", since you cannot know in advance which new variants/kinds of mathematics may still be invented and appear applicable in economics. Mathematics is a language after all. The only thing one can say is that certain historical applications of mathematics seem less fortunate to us than to those who actually engaged in them. Contrary to most Mises interpreters I also believe that Mises was somewhat ambiguous on this point, since he suggests praxeology should be a deductive science like mathematics. But how is this possible without turning it into some kind of mathematics? If it is only a metaphor it is a rather unfortunate one.

[Rafe]

Chains of deductive logic and mathematical calculations (based on various theoretical assumptions or premises) can help us to unpack the contents of our theories for testing and for practical (technological) application. Formalisation in models can have an important function as well but formalism, logic and maths are essentially tools or instruments which do not by themselves add value. Sadly, formalism and mathematization can be made into ends in themselves by people who don't get the logic of the situation in order. Then they are like the man with a hammer who treats everything like a nail.

The thing is to understand the uses and abuses of maths so it can be used when it makes sense and not used when does not. Maybe I need to try harder but I cannot see what the maths is adding to the argument in Myerson's paper and I can't see what they have added (that really helps) to Mises (1920) on socialism. Bearing in mind that if the Mises arguments had been taken on board then the premature deaths and suffering of tens or hundreds of millions of people might have been averted.

[D.G. Lesvic]

If you think that mathematics has anything to contribute to economics, show me. Give me just one example of a constant numerical relation between magnitudes in economics.

[Ludwig]

You have a point in the sense that whereas, as Galileo said, the book of nature is written in the language of mathematics, it is indeed far less obvious that the book of human action is written in the language of mathematics, for the reason you indicate. It does not yet follow that any and every kind of mathematics need be useless.
It seems most of mathematical economics is now no longer inspired by the idea of finding constant quantitative relations. The Debreu program for instance has nothing to do with this in my opinion. It is more a logical exercise of finding out which kind of conclusions are logically conditioned by which kind of assumptions, comparable to Mises´s plea for the use of imaginary constructions, and Hayek´s argument in favor of a Pure Logic of Choice, be it only as a preliminary but necessary exercise. One could say it lacks realism, but Mises´s concept of the evenly rotating economy lacks realism too. Besides that there are many practical applications of variants of mathematics such as game theory, stochastic calculus etc. in finance and elsewhere... But you are probably right that one should always be aware of the limitations in every case.

[D.G. Lesvic]

There are either numbers or no numbers. If there are no numbers, there is no mathematics, unless you mean to rewrite the dictionary.

What do you mean, one could say that "Mises's concept of the evenly rotating economy lacks realism too"? Mises himself said so.

Though not a description of reality, it was an essential tool of analyzing it. For the only way to analyze change was to contrast it with non-change. But there was nothing arbitrary about it. One didn't simply make it up out of whole cloth. It was the way a static economy, if there were such a thing, would actually work.

But where would the numbers of mathematical analysis come from? Even in a description of an imaginary, unchanging economy, there is no more reason to pick one set of numbers than any other. And if one set is no better than any other, none of them mean anything, under any conceivable circumstances.

Just talking about quantities in a general way is not mathemtics. You can say that a lesser quantity of a commodity offered for sale will command a higher price than a greater quantity offered for sale. But that's logic, not mathematics. Without specific quanitites, there can be no mathematics, just logic, or more precisely, praxeology.

[Ludwig]

Yes, there exists qualitative mathematics. Mathematical logic for instance is not necessarily quantitative, in the sense of being about numbers. It can be useful even in physics, see quantum logics. Besides that, economic history is at least partly about numbers. One can consider econometrics as a sophisticated method of (tool for) historical description... Mises would see no problem with that in my opinion.
Also what would be the problem with introducing certain conventions involving numbers if it serves a practical purpose? From a "purist" theoretical viewpoint this seems "arbitrary", but it is not, scientists are often more practical...

[Ludwig]

In order to convince everybody that your statement about quantity and price is "logic" you should state it more precisely. By saying it is logic you supposedly mean that it involves certain assumptions and a conclusion and that it is inconceivable that when the assumptions are true the conclusion is false. That would then indeed be deductive logic. But as it stands, it looks like an empirical economic law-like statement rather than logic.
What I mean by Mises´ ERE lacking realism: I mean the same as Mises. However, I am not sure mathematical economists ascribe more realism to their models than Mises to his ERE.

[D.G. Lesvic]

If something isn't about numbers, why call it mathematics? To blur the distinction between things is to eliminate their meaning, and that is to admit that you don't have any.

The subject is not economic history. It is not econometrics. It is economics. Mises would have no problem with blurring the distinction between them? Which Mises are you talking about?

You ask, in effect, what would be the problem of translating economics from plain English into the foreign language of mathematics. The same problem as translating it into Greek or Latin, and converting economics from science to priestcraft.

[D.G. Lesvic]

As to whether or not my proposition about prices and quantities was empirical or logical, I give you Mises:

"The insight that, ceteris paribus, an increase in demand must result in an increase in prices is not derived from experience. Nobody ever was or ever will be in a position to observe a change in one of the market data ceteris paribus," that is, all other conditions remaining constant.

[Ludwig]

It´s naïve to think mathematics is primarily about numbers (_very_ naïve actually). Hayek recognizes this point somewhere in his writings but I cannot now remember exactly where (it´s also cited by Philippe Nemo in his book on Hayek...). Mathematics is about abstract patterns, abstract structures... It also allows to draw exact implications, conclusions from assumptions. Mises apparently wants to conceive of his praxeology according to the model of a perfect deductive science like mathematics... Re-read some other passages of Mises and you will see it: the mathematics envy is there!!!

[Ludwig]

As to the quote from Mises, as I said before, the actual reasoning that permits you to draw this inference is not given by Mises and remains implicit. And it´s almost all the time like that with Mises. Rothbard is better in this respect.

[D.G. Lesvic]

How come you're not out working?

How come I'm not?

Here we are, a couple of bums, deciding the fate of the world.

Your second comment first: I don't know how Rothbart differs from Mises in this respect, but I can't imagine any difference being in Rothbard or anyone else's favor. I think Mises said it all, and just right. You cannot prove the existence of reason and its categories. They are ultimate givens, inelucatable conditions of the human mind. You could not explain them to anyone without it, and wouldn't have to anyone with it. They are implicit within all human minds, as near as we can tell, and can only be exposed, but not explained, by one human mind to another.

You either have a human mind or you don't, and can see what is apparent to every human mind or you can't. Arbitrary? No, for the assumption that others are human like ourselves is essential to human interaction. The very fact that we can interact is proof enough that there are mental criteria that are valid for us all. It is these that we call reason. To deny them is to deny that we are even having this conversation.

To define mathematics as everything is to define it as nothing. It either delineates something or it doesn't. If it doesn't, it is meaningless.

And that is really what is at the bottom of all socialist and professionalized, academic economics. Clarity exposes you to criticism that you cannot meet. You must obfuscate to survive.

And that by the way is what this "mechanical design" is all about. However vague the presentation of it, it is clear enough that it is just another attempt to rehabilitate socialism, to rescue it from the devastating criticism that it has no means of economic calculation.

Look, the socialists say, we can calculate too, even without market prices. We can create substitutes for them through a make believe market, and can produce just as well for society but without entrepreneurial overhead.

Mises exposed all of these makeshifts in plain and simple language, and I have yet to see anything like that on the other side.

To put it briefly, and with apologies to Mises,
you cannot get away from the fact of a constantly changing world and uncertain future, and the necessity of adjusting to it. There can be no "mechanism" of adjustment. There can only be the judgment of human beings, the ones we call entrepreneurs, to lead us in these adjustments, and they are at the heart of the free market system.

[Jonathan]

Rothbard wrote _Man, Economy, and State_ precisely with that aim, to fill the little gaps in Mises, to fill in things Mises had left implicit etc. I am not saying Rothbard did a perfect job, but the result is not bad at all.
Personally I consider _Human Action_ a failure, for several reasons, but I know few people on this forum will agree with that. I do not define mathematics as "everything"; you seem to be totally uneducated in that respect. Take any mathematics book, say, about Hilbert Spaces, Groups etc. All this has little to do with numbers, it´s about structures... I consider this exchange closed.

[D.G. Lesvic]

Thank God!

[D.G. Lesvic]

Thank God!

[D.G. Lesvic]

Just because Ludwig considers this exchange closed doesn't mean that the rest of you have to.

Here's where he left us.

All he could do was define logic as mathematics, which was to admit that there was nothing but logic in economics.

Also, where I had said that the entrepreneur was at the heart of the free market system, what I should have said was that there was no substitute for him.

[Jonathan]

OK, I give you a last reflection. There simply is little or no deductive logic in Mises´s Human Action. This is just one of those philosophically confused claims praxeologists typically make. It explains (only partly) why Human Action is indeed a failure. It remained a cult book of marginal significance. It did not and will not replace Samuelson´s Handbook as the most widely read introductory book on economics ever. But take out all this philosophically confused garbage and you may have something respectable. Reisman´s Capitalism is of much more recent date and already has a better success record. I do not confuse economics with mathematics, Mises does; only the gap between what he pretends and what he actually delivers remains too big...

[D.G. Lesvic]

Jonathon:

You say that there is "little or no deductive logic in Mises's Human Action."

I'm afraid that you wouldn't recognize deductive logic if it hit you over the head, which, apparently, something has.

You say that you "do not confuse economics with mathematics, Mises does."

Where?

[Jonathan]

First of all, I was not talking about Number Theory (also very interesting).

In previous exchanges I have already given several times the scientific definition of a deductive reasoning pattern. In my exchange with David Heinrich (who in the meantime mysteriously disappeared from the list) I have also very specifically pointed out where exactly he mistook a merely plausible reasoning pattern for a deductive one.

Note also that if there was rigorous deductive reasoning, everybody who agrees with the premiss would also agree with the conclusions, just as in mathematics or logics. Unfortunately this is not the case. While many individuals would probably agree with the premiss (namely that "individuals act") very few also agree with all the rest. So along the road something apparently did not exactly go according to the canons of correct deductive reasoning.

If you are talking all the time about "logic" but it is obvious from what you say that you cannot distinguish between such things as "deductive reasoning", "plausible reasoning", "description" etc. then you are making yourself ridiculous before the whole world...

Some rather well-known philosophers have made such errors, however. So it is still possible you are not in too bad company.

[Jonathan]

Well, there is of course some deduction in Human Action, such as when you say that action entails uncertainty. Proof: suppose there is no uncertainty but only certainty, then there would be no action since there would be no point in acting; we know, however, that individuals do act, therefore it cannot be true that there is only certainty; therefore there must be uncertainty. This is a reduction-to-absurdity argument in mini-form... However these kind of deductions do not get you very far; one could also say that one has thus simply stated a fact, namely that there is an essential connection between action and uncertainty...
My critique is similar to Hayek´s; he pointed out that there is indeed logical deduction but only at the level of the pure logic of choice, that is at the individual level; once you move to market interaction, it becomes empirical science. I am more and more convinced that Hayek got it right in this discussion...

[D.G. Lesvic]

Jonathon:

Yes, the term logic is not exactly correct.
The more precise term is praxeology.

But this is just one of the compromises with absolute linguistic precision that we all make all of the time. Liberals aren't really liberal and progresives aren't really progressive, but we skip past those anomalies in order to get right to a more urgent point.

While the term logic is an oversimplification, dragging all of these fine points of philosophy into economics is an overcomplication.

Here was Mises' simple proposition:

Nobody ever was or ever will be in a position to observe a change in one of the market data, ceteris paribus, that is, all other conditions remaining constant.

What difference does it make whether that was "deductive reasoning," "plausible reasoning," or "description?"

It's simply a self-evident truth, however you slice it, and you either see it or you don't.

If you don't, I'm afraid that I cannot give sight to the blind.

The fact remains that none of you "mathematical economists" could come up with a single example of a constant numerical relation in economics, that all any of you could do, to keep mathematics in the picture, was to define logic as mathematics.

If you want to rewrite the dictionary, that's alright with me. But then by what words do we differentiate between the science of numbers and the sciences of things other than numbers? What is your word then for the science of numbers? If I may suggest one, Numberology. I think it is clear enough by now that there is no place in economics for Numberology, that it is a logical and not a numberological science, and whether you call it logic or mathematics, or even Numberology, and deductive or plausible reasoning.

[Ludwig]

If "you either see it or you don´t", then praxeology is indeed a religion rather than a science based on hard deductions... But then praxeologists shouldn´t have claimed it is a science based on hard deductions... The mathematical economists do not come up with quantitative constants, but they do not claim they do either... By the way, I am a (mainly Austrian) economist; I obtained a Ph.D. at the University of Paris under a dissertation committee that comprised the best of Austrian economists.

[John]

The science of numbers is called number theory, but number theory is only a sub-discipline of mathematics as a whole. Mathematics comprises much more and much else than number theory, for instance, it also comprises topology which provided some inspiration for mathematical economics.

[D.G. Lesvic]

Welcome back Ludwig. I didn't really think you could stay away.

Congratulations on your accreditation by a committe of the University of Paris. But I'm not sure that it comprised the best of Austrian economists. It certainly didn't include Mises, and it didn't include me.

And you might gather as well from my little book, Intellectually Incorrect, the Amateur Science of Economics, and the Professional War Against It, that it doesn't impress me.

Let's go back to Mises' proposition:

No one ever was or ever will be in a position to observe a change in one of the market data, ceteris paribus.

Do you deny that?

The fact that you choose to close your eyes to praxeology doesn't make it a religion. It just makes you blind.

You can say the same of me. But, it doesn't matter, because I'm not trying to convert you, and you're not trying to convert me. We're both trying to convert the neutral third parties out there who will either see it your way or my way.

And it is to you third parties that I direct the question:

How could you observe an imaginary construction?

How could you observe the Invisible Hand, and, if you couldn't observe it, measure, count, or calculate it?

John:

The dictionary is very clear, that mathematics is the science of numbers, and nothing else.

Isn't it useful to differentiate between a science of numbers and the sciences of things other than numbers?

What purpose is served by blurring the distinction between them?

Such distinctions are the essence of logical thinking, and blurring them of sophistry.

It appears to me that you are all operating on the principle that if you can't impress them with logic, you can always dazzle them with bullshit.

(And, Ludwig, pardon my French.)

Your only answer to my logic is that you can't see it, and that therefore it is a religion.

Well, if so, thank God for it!

[John]

I didn´t say I didn´t see it. I see it very well but I also see the limitations of it.
I didn´t obtain all those degrees to impress people like you, but to see it better...
Dictionaries are often wrong. I agree with you that a dictionary or encyclopedia that didn´t mention Mises would be a bad dictionary or a bad encyclopedia. (Just try to see how many mention Mises...)
Clearly you are an amateur and you have all the arrogance of an ignorant amateur.
This time I really close the "conversation", the opportunity cost is too high...

[Ludwig]

John is right. The opportunity cost is too high.

[D.G. Lesvic]

John:

Why would a dictionary that distinguishes between different things be a bad dictionary? Would you really rather have one that blurs the distinctions?

If you can see the limitations of my logic, why are you keeping it a secret? Why not share your superior wisdom with the rest of us, if you really have any?

And, both John and Ludwig:

I'm glad that you didn't obtain all those degrees to impress people like me, but sorry that you can't afford a real education.

But please, boys, don't close the conversation yet. It's so much fun.

[D.G. Lesvic]

And one more thing.

Please, boys, don't think of me as arrogant.

Just smarter than everybody else.

[D.G. Lesvic]

And one more thing.

Please, boys, don't think of me as arrogant, just smarter than everybody else.

[D.G. Lesvic]

And one more thing.

Please, boys, don't think of me as arrogant, just smarter than everybody else.

[D.G. Lesvic]

Sorry for those multiple postings.

I'm very new to this, and to everything else really. I just took up economics about 40 years ago.

[D.G. Lesvic]

I must confess to one very serious mistake that I have been making throughout this discussion. I have been referring to numbers per se, without any distinction between cardinal numbers (1,2,3) and ordinal numbers (lst, 2nd, 3rd).

There are indeed ordinal numbers in economics, and if they are what you mean by mathematics, I wouldn't agree with you, but wouldn't make a big thing of it either. I would just want to be sure that you weren't going to drag cardinal numbers in on their coattails.

It appears to me that we have already agreed on that. And, if so, we could proceed to "mechanism design."

Supposedly it enables the director of a socialist commonwealth to replicate the efficiencies of the market economy without entrepreneurial overhead.
No more entrepreneurs and entrepreneurial profit.
The people keep the whole produce.

But the difference is not between the one central director of the socialist economy and one entrepreneur, but between the one central director and the division of the intellectual labors of entrepreneurship among countless entrepreneurs.

The central plan of the director would replace the "anarchy" of all the separate plans of all the different entrepreneurs.

But how can the intellectual labors of one man or even a committee of men replace those of millions of men?

There is no mechanism, design, or game by which he could so.

There are just the constantly changing valuations of the countless individuals in a vast economy, the market prices that reflect those valuations, and the entrepreneurs trying to anticipate them.

There are simply no mechanisms, designs, or games by which the one man directing the socialist economy could carry out the intellectual labors of all the men in the market economy.

No matter how great a sampling of the market he interrogates, it is not the market.

No matter how often he interrogates it, is not often enough.

No matter how cleverly he interrogates it, he can never get any useful information from it. He can get ordinal numbers, 1st, 2nd, 3rd, indicating the prererences of his respondents, but he cannot get the cardinal numbers of the price system ($1, $2, $3) that are essential to economic calculation.

Mechanism design is just another makeshift, like utility analysis, for rescuing socialism from the devastating criticism that it has no means of economic calculation, the calculation of profit and loss, success and failure, that there is no subsitute for the price system, the "compass" of the market, no means by which the socialist director can replicate it, and no escaping the conclusion that he is flying at night without a compass.

[D.G. Lesvic]

I need to take something back, the allowance to include non-quantitative analysis under the heading of mathematics, so long as you didn't carry it too far. That was asking for trouble, for giving a sophist an inch was inviting him to take a mile. So I'm taking back the inch before you take the mile.

If there is such a thing as non-quantitative mathematics, you must tell us at what point quantitative mathematics ends and non-quantitatve begins, and what there is about it that is still mathematical, as distinct from what is non-mathematical.

If you can do that, you get the cigar, and I will withdraw forever from economics, after over 40 years, and go back to cutting out paper dolls.

[Jonathan]

You are right, I think, that once you allow an inch (a little bit of mathematics) it is difficult to argue one can´t bring in some more mathematics (the mile). If I remember well, George Reisman, in his Capitalism, already uses some simple mathematical models, and to great effect. So...

You are wrong, however, to think that I am a sophist. If you needed 40 years to arrive at such poor conclusions, you cannot have a real talent for economics, so why not go back to cutting out paper dolls?

Since you insist, I will once more summarize the main issue. Whether the kind of economics you advocate is a science or something else (for instance a branch of art or literature), depends upon methodological issues.

Ludwig von Mises, who took himself to be the great Master Methodologist, the great Philosopher among the Economists, was actually not that good at it. His real strength was in monetary theory and in the theory of socialism.

For one thing, he was unable to distinguish the logical from the empirical, and he was unable to distinguish deductive reasoning from non-deductive reasoning. This does not mean he did not produce some good economics...

Some of his pupils continue the same errors, and wonder why they have not a greater following than they actually do...

Moreover I observe that his followers behave like the members of a fanatic religious sect, they ignore criticism, or react selectively only to those comments they already agree with etc.

For me this is really a waste of time. So please do not insist on further comments.

[D.G. Lesvic]

No cigar.

[Jonathan]

I do not smoke anyway.

[D.G. Lesvic]

For one who doesn't smoke, you sure blow a lot of it.

[D.G. Lesvic]

After all the contradictory disparagement of Mises -- without being able to "distinguish the logical from the empirical," he still managed to "produce some good economics" -- I feel obliged to say that after 40 years with him, along with the others, I still believe that he was not only the best, but the giant next to whom all of the others were but midgets, and that if any have seen beyond him, it was because they had his giant shoulders to stand upon.

There is nothing that anti-economists can do to diminish him. They can only diminish themselves.

I pity your students.

[Jonathan]

I do not disparage Mises. It´s easier to write a paper of 5 pages that is perfect than to write a book like Human Action that is perfect.
Even if there is a lot of truth in something it is never 100% truth.
It´s difficult to find a good balance between respect, conformism, reverence for the authorities etc. on the one hand, and constructive criticism on the other...
But if Austrians do not criticize their own masters, others will do it, so perhaps better do it oneself pre-emptively...
Just one further point. It´s indeed possible to be a great economist and still to have an inadequate philosophical self-conception... One finds this even in the natural sciences, among the greatest physicists... In fact an inadequate philosophical self-conception is only a relatively minor problem...

[D.G. Lesvic]

Okay, you win.

Are you happy now?

You not only get the cigar, but a lighter.