Dan Klein on Austrian Vices

Peter Leeson's post 10 Austrian Vices and How to Avoid Them has revived an old debate that exists at GMU. Professor Dan Klein (guest blogger) offers below further reflections on Austrian vices:

“Pete Leeson’s post on Austrian vices was interesting and provocative. Here are some I would add:

1) Never use the terms “equilibrium,” “equilibrating,” “disequilibrating,” etc. Except in reference to a reasonably clearly defined model.  Realize that whether certain actions are equilibrating depends on the model we are using to interpret the events.  Virtually any behavior can be modeled as equilibrium/equilibrating.

2) Realize that important terms in the lexicon are contextual. Illustration: Was Adam Smith tall?  Well, in his day he would be considered medium, in our day he would be considered short.  That context dependence of the discourse does not undo the idea of “tallness.”  Likewise, entrepreneurship and error are contextual not only in the sense that they depend on the context of the individual action, but also on the context of the discussion we are having about those actions.  Some interlocutors would consider a discovery to be entrepreneurial, some not.  That does not undo the idea of entrepreneurial discovery.  This insight goes against the essentialist urge within Austrianism (Menger, Mises, Rothbard, Kirzner), which wants to tag certain actions as “error” or “entrepreneurial discovery” in an absolute way.

3) Be more candid about Mises, Hayek, and Kirzner not having a well specified characterization of coordination. Be more candid about when you are really just leaning on the idea that voluntary exchanges imply better coordination, and coercion implies worse coordination (which I think is a faulty and otherwise inadequate characterization of coordination).  Be franker about the disharmonies of interests that exist in purely voluntary processes.

4) Ask yourself whether the insights about knowledge’s richness, from such figures as  Smith, Polanyi, Hayek, Lachmann, Schelling, Kirzner, and a thousand philosophers and poets,—notably the dimensions of interpretation and judgment—can really delimit a viable “field” of economics.  (That is Pete Boettke’s defense of retaining “Austrian economics,” that it does work on the topic of knowledge’s richness like transportation economics does work on transportation.)

Regarding Leeson’s call to get over “subjectivism,” I would say yes, but don’t throw the baby out with the bathwater.  The “subjectivism” stuff in Austrian discourse has often represented the attempt to get at knowledge’s richness, that knowledge is not merely a matter of asymmetric information, but also asymmetric interpretation.  I say avoid “subjectivism,” but knowledge’s richness remains important.

5) Bear in mind and be more upfront about the fact that the vision of an “Austrian” identity was never that of anyone from Austria.  It is the vision of Rothbard, Kirzner, and their followers.

6) Ask yourself whether the larger purpose is to erect a scientific foundation for laissez-faire economics, or to criticize the scientific pretensions of interventionist economics.”

Pete Boettke and I will offer another view.

Comments

[amv]

@leeson & klein:

are you really suggesting that 'Austrians' would have a better standing, if they cut off both of their legs (capital theory and subjectivism) and both of their arms (market as a process - i.e. the concept of disequlibrium - and spontaneous orders). Oh, I am sure: mainstream economics will embrace all those "Austrians" who act according to their standards. but those of us, who do not want to win the current 'modl'-contest, may keep the austrian heritage alive until the next scientific hype (or 'paradigm' if you want) has washed up all those you compromised their principles to false axioms and poor measurement for majorities sake.

[Adam]

I'm surprised how much I agree with Klein. Nonetheless, I can't refrain from commenting:

1. Right on. The most valid criticism against saltwater Austrianism is the (as yet) uninformative debate over whether the market attains to an equilibrium.

2. Klein's conclusion here stems from the confusion of a universal and its historically contingent manifestation, the identification of which is thymological (contextual, subject to error, etc.) rather than praxeological. What constitutes discovery is certainly relative to the knowledge of the agent in question, but that in no way impugns the universality of the theory, it merely makes its application contextual. Essentialism is the heart of Austrian economics, in that it treats those categories as really present in action, but the fact of subjectivism renders their manifestation relative to context. What we want to avoid is a naive application of such universal categories to history.

3. It's fair to say most Austrians don't have a non-normative standard for coordination, but I don't think that's fair to Hayek. His basic point that voluntarism preserves and aggregates local knowledge while coercion destroys it seems like a perfectly reasonable basis for a theory of coordination. Klein is correct, however, that this doesn't imply the existence of no disharmonies, but the point that (I believe) the Austrians have made is about what sorts of processes contribute to or alleviate those disharmonies.

4. Though I disagree with this point in principle, in practice I don't think I can counsel differently. I think I would put it this way: practice subjectivism, but try to avoid preaching it (too much). Ardent subjectivism makes us good economic historians, balancing thin methods with thick.

5. Fair enough as a generality. But some of us still think of Menger as the head of the school, and we're not budging on the name.

6. I think this is actually closely related to my response to point 5: "truth-seeking" is conspicuously absent from Klein's list of potential motivations. I think that is problematic.

In general, it is difficult not to sense the palpable disappointment of older Austrians that the Uncle Milty/Mises paradigm has not yet paid off--that paradigm being that men share the same basic values but disagree on positive science, and so economics can win the battle for liberty. I think they're just being impatient. I also believe that the truth is worth having for its own sake. But I'm a strange one.

[xyz]

Pete Leeson should add never use the words thymology and praxeology to his list of suggestions!

If the market does not attain an equilibrium what can we say about the welfare properties of markets?

[Pedro]

I agree with the points mentioned by Leeson and Klein. A very minor comment for the blog-readers. Do not mistake mathematics (an a priori method) with econometrics.
'Ask yourself': why did Hayek answer in an interview in the late 70s he wanted to have again the chance of talking to Keynes and Schumpeter if they were alive?. Why he did not say Mises or Wieser?

[xyz]

#12 - never ever use the words thymology or praxeology. Shleifer & co would have no clue as to what the hell you mean. & they are the folk you should be hoping to influence rather than folk at the ASC.

A quick caveat - only talk about Aristotle if you want to take part in the Nussbaum-Sen capabilities conversation - but nobody cares about Menger's essentialism (or Menger full-stop to be honest).

All young Austrians should heed the advice of Prof Leeson & Prof Klein.

I am rather taken aback at the candidness with which Prof. Klein rightly admits that the Austrian plan coordination stuff is more a leap of faith than well-reasoned position.

[Pearl]

I can live with this post.

[Charles N. Steele]

Klein's Point 6 is something like "do you still beat your wife?"

The purpose of economics, including the Austrian variant, is to better understand the world. It's positive science. Klein's first proffered purpose, building a scientific edifice for LF econ, is an impossible and illegitimate enterprise. His second simply requires some philosophical analysis of others' equally impossible and illegitimate enterprise. Economics is positive science.

Re Klein's point 1: it's quite unclear what he means, but it's also quite clear that equilibrium and disequilibrium are meaningful & important terms -- enough so that Stigler, Friedman, Becker, and Lucas all insist that economics must be about individual maximizing AND equilibrium. For reasons I do not understand they also insist any discussion of disequilibrium is unscientific. But given what one must assume to be happening for the various equilibrium constructs to hold, it's obvious to me that to understand the world we also have to understand disequilibrium. Hence my interest in Austrian economics.

[Charles N. Steele]

Re Klein's vice 5: Lewis Haney's ancient (1920s) History of Thought text has whole chapter on the Austrian school that makes it clear there was a subjectivist, equilibrationist, capital heterogeneitist school long before Rothbard & Kirzner. I've heard elsewhere this idea that some students of Mises invented the Austrian school -- the idea is simply wrong.

[query]

Is Charles Steele related to Remington Steele? That hot blonde from Last Picture Show was in that show right? Or am I confusing Charles Steele with Bruce Willis?

[Daniel Klein]

I've posted a reply to Adam and Charles Steele:

http://www.gmu.edu/departments/economics/klein/PdfPapers/Reply_to_Adam_and_Charles_Steele_for_web.pdf

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