Spurred by discussion in the comment sections to Unlearningecon’s post on the (in my opinion, extremely superficial) similarities between Neoclassical and Austrian economics, blogger “Lord Keynes” unconvincingly continues the argument that Mises was predominately an equilibrium economist. But, as usual, he relies on false equivocation and bad interpretation, in turn stemming from his lack of familiarity with the texts he is quoting and their context.
As I originally told him, in response to my first reply on Unlearningecon’s post, neither Selgin nor Kirzner have much to do with Mises. This is embodied, for example, in the deep debates between Kirzner, Rothbard, Salerno, and others.1 In fact, Kirzner admits on occasion that he misinterpreted Mises, showing that in many ways Kirzner is his own economist (and, I think like most, Kirzner would prefer it this way).2 He is, no less, an economist influenced by a variety of influences: some of the Hayekian strands in his work have been highlighted by others3 and his early work on price theory borrowed heavily from George Stigler and the Neoclassical strand.4 The same is true of George Selgin. The point is, quoting these authors is not evidence of Mises’ alleged adherence to equilibrium economics — you have to go to the original source material.
“Lord Keynes” attempts this, but settles for a superficial analysis (despite the fact that I provide page numbers to excerpts in Human Action where Mises repeatedly argues that equilibrium is nothing more than a mental construct). He quotes a single passage from Human Action, where Mises argues that given the tendency for entrepreneurs to invest in areas of high profit, this leads to the elimination of profits (the principle of uniformity of profit5) and towards an evenly rotating economy.6 But, “Lord Keynes” is either being lazy or intentionally misleading, because nowhere in Human Action does Mises claim that this reflects reality.
The world of equilibrium is a world without change; it is purely imaginative.7 “Lord Keynes” fails to recognize that the evenly rotating economy, as used by Mises, is merely an explicitly fictitious mental construct meant to derive the origins of certain economic relationships.8 It is nothing more than an ideal type. In the real world, replete with constant change, this fictitious relationship obviously fails to hold.
The excerpt “Lord Keynes” quotes is part of a larger section that composes a criticism of Mises’ interpretation of mathematical economics.9 Unsurprisingly, he fails to consider what Mises wrote just one paragraph above, “What the logical economist sets forth in words when defining the- imaginary constructions of the final state of rest and the evenly rotating economy and what the mathematical economist himself must describe in words before he embarks upon his mathematical work, is translated into algebraic symbols.” He goes on to call these constructs “superficial analogies.” Even before that, on the very same page, Mises makes clear that these “superficial analogies” are meant to abstract from the real forces of change in order to make certain distinctions and observations.10 These are the purpose of ideal types, which Lachmann, by the way, endorses (ideal types in general, not Mises’ specifically). Ideal types are abstractions from reality, meant to better make out some real processes; but, they should never be confused as real types.11 But, “Lord Keynes” does not bother understanding the context and meaning of Mises’ words — again, an obvious lack of familiarity with the literature he is using.
There is no doubt that Lachmann may have gone beyond Mises in terms of radicalism. Lachmann, like Kirzner, was his own economist. Lachmann carried the subjectivist program forward, better integrating the concept of expectations into the Misesian framework. He also diverged, under the influence of other great economists such as George L.S. Shackle, John R. Hicks, and Victoria Chick.12 But, any claim that Mises was an equilibrium economist, contra Lachmann, is deeply erroneous. Mises was firmly in the disequilibrium camp — this becoming clearest in his mature writing of the post-1930s —, much like his successors Murray N. Rothbard and the notoriously “inflexible” Austrians13 who follow in the Mises/Rothbard tradition.
1. See, for but one example, Joseph T. Salerno, “Varieties of Austrian Price Theory: Rothbard Reviews Kirzner,” Libertarian Papers 3, 25 (2011).
2. Joseph T. Salerno, “Mises and Hayek Dehomogenized,” Review of Austrian Economics 6, 2 (1993), pp. 116–117.
3. Ibid., pp. 121, 126–132. On Hayek’s influences, his equilibrium economics, and his divergence with Mises I suggest reading the Salerno–Caldwell debate on this topic: Joseph T. Salerno, “The Place of Mises’s Human Action in the Development of Modern Economic Thought,” The Quarterly Journal of Austrian Economics 2, 1 (1999), pp. 35–65; Bruce J. Caldwell, “Weiser, Hayek, and Equilibrium Theory,” Journal des Economistes et des Etudes Humaines 12, 1 (2002), pp. 47–66; Joseph T. Salerno, “Friedrich von Weiser and Friedrich A. Hayek: The General Equilibrium Tradition in Austrian Economics,” Journal des Economistes et des Etudes Humains 12, 2 (2002).
4. Salerno (2011), p. 2–3.
5. It is on the topic of the uniformity of profit where Lachmann is convincingly more “radical” than Mises. But, this has nothing to do with whether profits truly tend towards uniformity on the broadest plane. Lachmann, rather, argues that the divergence in expectations means that entrepreneurs will not necessarily work to eliminate profits. It could be that an entrepreneur rather invest elsewhere, expecting too much incoming competition where profits are currently highest. Thus, there is no clear tendency towards the elimination of profits. But, both Lachmann and Mises agree (and this is what the latter is basically invoking in the excerpt quoted by blogger “Lord Keynes”), like all other economists, that entrepreneurs seek to take advantage of opportunities to profit. And, actually, Mises would agree with Lachmann that profits are never actually eliminated, although he may not have emphasized the expectations-side of the argument as heavily as Lachmann. Ludwig von Mises, Human Action (Auburn, Alabama: Mises Institute, 1998), pp. 295, 358: “There is nothing “normal” in profits and there can never be an ‘equilibrium’ with regard to them.”
6. Ibid., pp. 352–353.
7. Ibid., p. 251; “They do not notice the individual speculator who aims not at the establishment of the evenly rotating economy hut at profiting from an action which adjusts the conduct of affairs better to the attainment of the ends sought by acting, the best possible removal of uneasiness. They stress exclusively the imaginary state of equilibrium which the whole complex of all such actions would attain in the absence of any further change in the data. They describe this imaginary equilibrium by sets of simultaneous differential equations. They fail to recognize that the state of affairs they are dealing with is a state in which there is no longer any action but only a succession of events provoked by a mystical prime mover. They devote all their efforts to describing, in mathematical symbols, various “equilibria,” that is, states of rest and the absence of action. They deal with equilibrium as if it were a real entity and not a limiting notion, a mere mental tool.”
8. Ibid., pp. 245–251; one specific example, p. 248: “The evenly rotating economy is a fictitious system in which the market prices of all goods and services coincide with the final prices. There are in its frame no price changes whatever; there is perfect price stability.” Anybody remotely familiar with Mises’ Human Action knows that this is exactly the opposite of how Mises describes the phenomena of catallactic exchange and real world economics.
9. Ibid., pp. 347–354; it is very possible that Mises was wrong in his criticism, but this is irrelevant to whether he was an equilibrium economist or not.
10. Ibid., p. 352.
11. Ludwig M. Lachmann, The Market as an Economic Process (United Kingdom: Basil Blackwell Ltd., 1986). This is the essence of section four, chapter two (my notes here); also, see my review of this book.
12. For a comment on the limitations of his divergence see “Keen, Minsky, and Endogenous Money.”
13. I, by no means, intend to imply that this characterization is true, of course.