Sloppy Interpretations

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.

Notes

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.

72 thoughts on “Sloppy Interpretations

  1. Bob Roddis

    “Sloppy” suggests laziness. LK’s distortions of the Austrian School are either purposeful or the result of a mental block that prevents relatively uncomplicated concepts such as economic calculation from being comprehended.

    Reply
  2. rob

    The ERE is indeed an imaginary construct used by Mises to help him frame and describe the economic processes that exists and that bring an economy closer to equilibrium. In this theoretical framework all economic data is frozen and he shows the processes that allow the the ERE to emerge. Of course he did not believe that economic data ever could be frozen in that way so we will never be at the ERE. However he clearly believed very strongly in the processes he used the ERE to illuminate – and that these processes would have an equilibrating effect even in the real economy. In the real economy there would be many non-equilibrating factors (changes in consumer preference, technology etc) that would counterbalance the equilibrating ones.

    I’m not sure whether that makes him an “equilibrium economist” or not – but in contrast to most post-Keynesians (and perhaps Lachman) he clearly did believe in market forces as a stabilizing influences on the economy .

    Reply
  3. Gene Callahan

    “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.”

    Wow! Kirzner is far and away Mises’s greatest from the second half of his career. The fact that Rothbard and Salerno disagree with him on Mises is evidence that *somebody* got Mises wrong. Why is it automatic that it was Kirzner? (I believe it is pretty clear that it is instead Salerno and Rothbard who have distorted Mises to fit their ideology.)

    “some of the Hayekian strands in his work have been highlighted by others”

    Yeah, and in those “Hayekian strands” he illustrates how there is no conflict between Mises and Hayek on calculation.

    Don’t buy into the Mises Institute propaganda here, Jonathan!

    Reply
    1. Mattheus von Guttenberg

      My daily dose of head-shaking courtesy of Gene Callahan.

      Kirzner did not systematically advance Misesian economics the way Rothbard did. This should be indisputable. The Economic Point of View is a historical and sociological thesis on the viewpoint of the economist. Market Theory and the Price System is so heavily Stiglerian and therefore anti-Austrian that it hardly warrants bringing up.

      http://archive.mises.org/18553/salerno-varieties-of-austrian-price-theory-rothbard-reviews-kirzner/

      Rothbard clearly gives substantial reasons why this work is NOT in the Misesian tradition (although he brings little Austrian morsels to from time to time.) For one looking for a truly Austrian theory of price, you can skip this. It’s reminiscent of Chapter 20 in Keynes GT where he rights “Those who (rightly) dislike algebra will lose little by omitting the first section of this chapter.”

      Rather, the proper Misesian formulation of price can be found in Human Action, Man, Economy, and State, and other notable works such as Prices and Production among others. It’s strange to think that Rothbard “distorted” Mises since he largely had no other intellectual pedigree other than that of Mises himself. Kirzner, on the other hand, borrowed from the Neoclassicals just as Hayek borrowed from Wieser and early neoclassicals.

      It’s “automatic” that it’s Kirzner because HA and MES are almost identical books in terms of content. Aside from correcting Mises on flawed public goods and monopoly theory and more fully fleshing out theory of production, there’s no fundamental disagreement on interest rates, equilibrium constructs, price theory, entrepreneurship theory, competition, monetary theory, praxeological implications, credit expansion, etc. etc. The only minor change Rothbard offers from Mises is in philosophy and the role of the state (where it could be argued Mises had been approaching Rothbard since the publication of Liberalism). What a distortion!!!

      Reply
  4. Gene Callahan

    And:

    “In fact, Kirzner admits on occasion that he misinterpreted Mises, showing that in many ways Kirzner is his own economist…”

    So the fact that he spent 30 years carefully thinking about Mises’s ideas and gradually refining his understanding of them is evidence that he doesn’t have “much to do with Mises”!

    Reply
    1. Jonathan Finegold Catalán Post author

      Why is it automatic that it was Kirzner?

      In the case of equilibrium, because it’s evident in the reading of Human Action. Mises might not be a Lachmann, but he wasn’t a Kirzner either.

      Yeah, and in those “Hayekian strands” he illustrates how there is no conflict between Mises and Hayek on calculation.

      I actually agree with you here. I particularly like Yeager’s contribution in “Mises and Hayek on Calculation and Knowledge,”

      “I cannot believe Mises was merely saying that if the socialist planners possessed in some remarkable way all the information normally conveyed by genuine market prices, they still would be stymied by inability to perform calculations in the narrow arithmetical sense, an inability that advances in supercomputers might conceivably overcome. Such a reading of Mises’s arguments would caricature and trivialize them.”

      Reply
  5. Lord Keynes

    This post is attacking nothing but a straw man version of my arguments. This is easily demonstrated.

    (1) You say:
    “blogger “Lord Keynes” unconvincingly continues the argument that Mises was predominately an equilibrium economist. “

    I say no such thing. I do not deny that Mises was different from neoclassical economists.

    (2) You say:
    “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 h”

    I have never asserted that Mises thinks that ERE is a real world phenomenon. You’re just making this up.
    In fact, nearly a year ago I wrote a post on Mises’s concepts of equilibrium, explicitly recognising that, for Mises, the ERE is a fiction:

    http://socialdemocracy21stcentury.blogspot.com/2011/06/misess-three-concepts-of-equilibrium.html

    (3) What I assert is that Mises believed in a “strong tendency towards general equilibrium as a real phenomenon of the market economy”.
    This is completely compatible with the view that he also believed that an actual equilibrium state is never reached. I take it you can understand the difference between (1) a tendency towards general equilibrium and (2) actual equilibrium as a real world state??

    Your post here refutes nothing, and you are simply evading the issue.

    Reply
    1. Bob Roddis

      Why isn’t this ideal of approaching “equilibrium” similar to the concept of a natural rate of interest/natural rates of interest? I found LK’s pronouncement that the ABCT was destroyed by the concept of MULTIPLE natural RATES of interest to be a purposeful distortion derived from his refusal to understand the concept of economic calculation.

      http://socialdemocracy21stcentury.blogspot.com/2011/07/robert-p-murphy-on-sraffa-hayek-debate.html

      It seems to me that whatever the mysterious truth might actually be out there in the real world, the only way to approach finding it is through economic calculation, free exchange and a free market pricing process.

      Reply
      1. kenderes

        Please forgive me for butting into the discussion…
        I think that understanding the concept of economic calculation (as used by Austrians) is difficult because this school uses it in some very abstract sense. To compare, I’d use such examples as neoclassical and Post-Keynesian theories of price. The usual neoclassical view (MR=MC) is presented in a mathematical form, and you could critique it on either technical or empirical grounds. Likewise, the view that price equals cost plus markup, while not so precise, could be tested empirically.
        Economic calculation, on the other hand, is kind of vague and difficult to handle.

        Reply
        1. Jonathan Finegold Catalán Post author

          I don’t think it’s vague. Difficult to handle maybe, but only because it’s a dynamic and complex theory that encompasses the Austrian vision of the market process.

          Reply
    2. Jonathan Finegold Catalán Post author

      I say no such thing. I do not deny that Mises was different from neoclassical economists.

      Talk about a strawman!

      I have never asserted that Mises thinks that ERE is a real world phenomenon. You’re just making this up.

      Yet, then you claim that Mises thought there is a tendency towards equilibrium; but now, you recognize that this tendency merely exists in a fictitious world! You understand that’s what you achieve by quoting Mises were he is talking about an ideal type, right?

      Reply
      1. Lord Keynes

        “Yet, then you claim that Mises thought there is a tendency towards equilibrium; but now, you recognize that this tendency merely exists in a fictitious world!”

        This is the point where you are being deliberately obtuse.

        Belief in a “tendency to equilibrium” in the real world is completely compatible with the view that Mises believed that an actual equilibrium state is never reached.

        Are you really telling us you can’t understand the difference between (1) a *tendency* towards general equilibrium (i.e., it moves in that direction), and (2) actual equilibrium as a real world state?

        E..g, even Leon Walras did not think that general equilibrium exists in the real world. Does this mean he never in his life thought there is a real world tendency to equilibrium?

        Reply
        1. Jonathan Finegold Catalán Post author

          You missed what I wrote. The tendency exists within the realm of an ideal type. In a real world of changing data, as the Vaughn excerpt you quote below shows, there is no such tendency.

          Reply
  6. Gene Callahan

    ‘What I assert is that Mises believed in a “strong tendency towards general equilibrium as a real phenomenon of the market economy”. ‘

    There is no (reasonable) doubt that Mises believed this.

    Reply
      1. Beefcake the Mighty

        Neither of you two $%^^& understands what GE entails, or how it differs from Misesian economics. (Here’s a hint: the ERE is NOT an Austrian equivalent of GE, Bob Murphy is clueless on this point.)

        Reply
        1. Lord Keynes

          The fact that the ERE is not the same as GE is well known to me.

          You’re just throwing up a red herring: Mises thought a tendency to equilibrium (however he defined it in the details) was a real world phenomenon.

          Reply
      2. Jonathan Finegold Catalán Post author

        But, completely unsupported by any evidence.

        EDIT: And, a tendency towards general equilibrium is a much stronger and much more erroneous claim than saying he believed in a tendency towards partial equilibrium.

        It is clear that Mises did not incorporate divergence of expectations as much of Lachmann, but in a world where the data are constantly changing there is no tendency towards equilibrium.

        Reply
    1. Jonathan Finegold Catalán Post author

      Certainly close to the early, pre-1936 Hayek.

      Ugh, read footnote #3.

      Reply
  7. Pingback: Lachmann, Mises, and Equilibrium | The Radical Subjectivist

  8. Beefcake the Mighty

    It’s worth repeating again: much Austrian thought (specifically the monetary equilibrium free bankers) embraces, if only implicitly, the concept of money neutrality. In this sense, this aspect of Austrianism is indistinguishable from neoclassicism.

    Reply
  9. Gene Callahan

    “The ERE is a general equilibrium construct.” — Peter Lewin

    “In fact, the appropriateness of mathematics for describing an economy in general equilibrium or for describing the evenly rotating economy, to use Mises’s own construction,” — Roger Garrison

    “Mises argued that general equilibrium— which he called the stationary economy… In Human Action, he called it the “evenly rotating economy,” — Guido Hulsmann

     “To Mises (of Human Action), the so-called “Evenly Rotating Economy” (Mises’ way of talking about general equilibrium)” — Nicolai Foss

    “balances would exist in “general equilibrium,” or as Mises calls it, within the imaginary construction of an evenly rotating economy” — Hans Hermann-Hoppe

    Apparently, almost every Austrian economist in the world, except for you, Beefcake, has no idea what they are talking about. (There were literally hundreds of more quotes like this, but I am pasting these in from a phone, and it is becoming tedious.)

    Reply
    1. Jonathan Finegold Catalán Post author

      I’m not sure, but what Beefcake might be saying is that the Misesian concept of an ERE is not the same as the Walrasian concept as general equilibrium. Mises, in Human Action, calls ERE an equilibrium construct himself (p. 250: “When the equilibrium of the evenly rotating economy is finally reached..”). But, Misesian equilibrium is not the same as Walrasian general equilibrium or Marshallian partial equilibrium in the details.

      Reply
      1. Beefcake the Mighty

        JFC is exactly right here.

        Yeah, Gene, most Austrians don’t understand this point. A bit shocking, but it’s largely true.

        Reply
          1. Lord Keynes

            Analogous:

            1. Comparable in certain respects, typically in a way that makes clearer the nature of the things compared.
            2. (of structures) Performing a similar function but having a different evolutionary origin, such as the wings of insects and birds.

            Yes, it is certainly analogous (“comparable in certain respects”), and no obstinate and ignorant Austrian fool will change plain facts.

            And in point of fact Mises’ “final state of rest” equilibrium construct is closer to GE, as Vaughn notes:

            “The second equilibrium notion Mises employs is the “final state of rest,” the state toward which the market tends if there is no change in the data. This apparently is Mises’ analogue to general equilibrium. Whereas the plan state of rest is a phenomenon that is routinely found in markets, the final state of rest is an “imaginary construction” in that it can never be achieved in reality, although it is a necessary analytic tool for understanding the direction of price changes.”

            (Vaughn, K. I. 1994. Austrian Economics in America: The Migration of a Tradition, Cambridge University Press, Cambridge and New York. pp. 81-82)

          2. Jonathan Finegold Catalán Post author

            In what ways is it analogous? The details are important.

            In any case, related to the main discussion, emphasis on one part of the Vaughn quote you provide,

            The second equilibrium notion Mises employs is the “final state of rest,” the state toward which the market tends if there is no change in the data.

      2. Beefcake the Mighty

        GE as the neoclassicists mean it entails a host of technical aspects, the flaws of which are serious but have very little to do with what many Austrians and post-Keynesians think those flaws are (or want those flaws to be). Hand waving appeals to Hayekian “knowledge problems” (a la Pete Boettke) are no substitute for actual understanding of the neoclassicist position.

        Reply
        1. Lord Keynes

          The issue here was Mises’s belief in a tendency to equilibrium (however he defined it). You’re the one committing hand waving red herrings.

          Reply
    1. Jonathan Finegold Catalán Post author

      You need to read what you quote more closely: “…if there are no change in the data. Mises saw the market as dynamic, and so if there are changes in the data (as Mises recognized) then there is no tendency towards that final state of rest.

      Reply
      1. Lord Keynes

        Let Mises speak for himself:

        This final state of rest is an imaginary construction, not a description of reality. For the final state of rest will never be attained. New disturbing factors will emerge before it will be realized. What makes it necessary to take recourse to this imaginary construction is the fact that the market at every instant is moving toward a final state of rest. Every later new instant can create new facts altering this final state of rest. But the market is always disquieted by a striving after a definite final state of rest.” (Mises, L. 1998. Human Action: A Treatise on Economics. The Scholar’s Edition, Mises Institute, Auburn, Ala. p. 246).

        Get it?

        (1) the market AT VERY INSTANT is moving toward a final state of rest.

        (2) although new events prevent it from reaching that equilibrium state, nevertheless

        (3) the market is ALWAYS disquieted by a striving after a definite final state of rest.

        I take it this settles the point for any reasonable person.

        See my post here:

        http://socialdemocracy21stcentury.blogspot.com/2012/06/mises-on-tendency-to-equilibrium-in.html

        Reply
        1. Jonathan Finegold Catalán Post author

          It doesn’t settle the point, because you’re failing to acknowledge the very dynamic conception of the market that Mises holds. You are further unable to recognize that Mises is trying to explain economic relationships. Yes, entrepreneurs attempt to take advantage of profits, which theoretically should mean a reduction of profits (and thus uniformity of profits). “Tendency” here refers to a relationship. But, it is not a tendency in the sense that this tendency exists in a real world market over time. This is for the exact reasons you state: the real world is dynamic, with the data constantly changing.

          When you use the word “tendency” you are implying something that Mises was not. That is, if you are still trying to defend Lachmann, since the his use of the word “tendency” is different from Mises’. Lachmann was entirely wrong he wrote, “It is this view of the market process as at least potentially terminating in a state of long-run general equilibrium that now appears to require revision.”

          How can there be a long-run state of equilibrium if the data is constantly changing? Mises never held the view that a long-run state of equilibrium exists in the market process. He held changes in the data non-existent in a fictitious model to illustrate the consequences of entrepreneurial action (i.e. the tendency as a relationship).

          Reply
          1. Lord Keynes

            A quick review:

            (1) First, you attacked me with a set of straw man arguments, views I don’t even hold. I repeat for the nth time: of course, Mises never thought the final state of rest equilibrium was attained in the real world.

            (2) Mises:

            What makes it necessary to take recourse to this imaginary construction is the fact that the market at every instant is moving toward a final state of rest. Every later new instant can create new facts altering this final state of rest. But the market is always disquieted by a striving after a definite final state of rest.” (Mises, L. 1998. Human Action: A Treatise on Economics. The Scholar’s Edition, Mises Institute, Auburn, Ala. p. 246).

            It is a plainly obvious that, despite your quite bizarre assertion (“it is not a tendency in the sense that this tendency exists in a real world market over time “), Mises says “the market at every instant is moving toward a final state of rest….. the market is always disquieted by a striving after a definite final state of rest”.

            This is just another phrasing of the statement: the market has a tendency to equilibrium, but that state is never reached, because change happens, but the market nevertheless adjusts and continues a new “tendency to equilibrium”.

            (3) “How can there be a long-run state of equilibrium if the data is constantly changing?”

            For the fifty million time: Mises (and even Walras) never thought that GE (however defined) was ever attained in the real world. It is only the tendency to move in that direction.

          2. Jonathan Finegold Catalán Post author

            1. You claim I attacked a strawman. I did not attack a strawman if you: (a) purpose to claim that Lachmann was write and (b) that Mises believed there was a tendency towards equilibrium in the real world economy, in that there is a tendency over time for uniformity of profits to be achieved. If you always meant that the word “tendency,” in this case, means to highlight a relationship which illustrates that entrepreneurs act to reduce profits through competition, then you have to agree that Lachmann is wrong (even though, in your post, you hold that he was right).

            2. At “every instant,” but the market process does not occur over an instance. The market process is a process over time, and therefore within the context of the market process there is no tendency. There is a subtle difference that you are not understanding.

            3. You didn’t address what you quoted.

  10. Lord Keynes

    “In what ways is it analogous? The details are important.”

    A stationary state Walrasian general equilibrium is obviously similar to the ERE as a stationary equilibrium for one.

    Reply
    1. Jonathan Finegold Catalán Post author

      I’m sorry, but this doesn’t say anything useful. Why? We should be beyond assertions.

      EDIT: Although, I agree more with the criticism of how Walrasians use their models, rather than focus on the differences between models. For example, Austrian price theory is not one of equilibrium, whereas Walrasian price theory is (although Walras sort of assumed prices to be exogenously set and already existent).

      Reply
  11. Gene Callahan

    Jonathan, I’m sorry to say it really looks like you are just being stubborn here because a Keynes fan is saying this. Just like we might say, “Caterpillar populations have a tendency to expand until they denude the forest, but are held in check by bird predation,” so we could say, “Mises thought the economy had a tendency towards equilibrium, but changes in the data counteracted that tendency.” I can’t even believe that statement is generating an argument!

    Reply
    1. Jonathan Finegold Catalán Post author

      With regards to the first sentence, I don’t think this is the case at all (although, maybe I’m blind to it since I have a stake in this). What I see is a misunderstanding of Mises.ally read Human Action). The debate is really over the meaning of “tendency.” Changes in the data are constant, and as such entrepreneurs cannot denude the forest. Where the data is constant, entrepreneurs would — this is the only meaning of “tendency” for Mises. But, Mises obviously did not believe that there is a long-run tendency towards equilibrium (like Lachmann seems to contend) and neither did he think that there is a tendency over any amount of time towards equilibrium in the real world, since with time comes change. The entire reason this debate exists, I think, is because an unfortunate use of the word “tendency” by Mises, who did not mean it in the way that Lachmann, and now “Lord Keynes,” did/do.

      Reply
  12. Gene Callahan

    Jonathan, now I conclude you don’t understand the word “tendency.” It’s as though you responded to the biologist who talked about the caterpillars by saying, “There is no such tendency: see, the forest still has leaves, and the same number as last summer!”

    Reply
    1. Jonathan Finegold Catalán Post author

      This is not an analogous example. A better example would be a world where caterpillars only eat leaves from trees where there are the most leaves (or, at least, they chase these trees). But, in this world the quantity of leaves on each tree is constantly changing, so the direction of moving catepillars always constantly change. In this world, there is no tendency for anything.

      Reply
  13. Gene Callahan

    Physicist: Objects with mass in this vicinity, such as people or birds or cars, have a tendency to move toward the center of the earth.

    Jonathan: Oh no they don’t! Look, people and cars stay on the earths surface, and birds even soar up into the sky on occasion!

    Reply
  14. Lord Keynes

    So it appears you are saying that

    (1) Mises was almost (or actually) a radical subjectivist
    (2) Mises denied even the tendency towards equilibrium (which is never reached) in market economies.

    How bizarre it is that I can find no other Austrian who thinks this.

    Take this statement by Charles W. Baird in his review of Economics of Time and Ignorance:

    “In chapter 5, “Uncertainty in Equilibrium,’ [Rizzo and O’Driscoll] … demonstrate that
    equilibrium in the standard neoclassical sense … is logically flawed and totally irrelevant to any real world economy. For that theydeserve applause. However, from time to time–although it is hard to be sure–the authors also seem to suggest that any concept of equilibrium must be logically flawed. They seem to flirt with the adoption of the extreme view of Shackle on equilibrium–namely there is no reason to think that there exist any systematic tendencies toward coordination or equilibrium in real world economies.

    They do not adopt that view wholeheartedly for, as they correctly say, “some idea of equilibrium is important. Indeed it would be difficult to imagine a viable economics without one” (p. 71). Von Mises would replace “difficult” with “impossible” because, as he points out in Human Action, if there are no systematic tendencies toward coordination in an economy, an economist can derive no general principles of economics at all. Economists would be reduced to writing ex post descriptions of actual events on a one-by-one basis and methodological essays proclaiming that economic theory is impossible.”
    Baird, Charles W. 1987. “The Economics of Time and Ignorance: A Review,” The Review of Austrian Economics 1.1: p. 196.

    I could give you plenty of other sources.

    So tell me: can you cite even ONE other Austrian economist in support of your view?

    If not, then it is obvious something has gone wrong in your interpretation of Mises.

    Reply
    1. Jonathan Finegold Catalán Post author

      Actually, you have: Karen Vaughn. I haven’t read the context of the excerpt that you quote, but in that excerpt she seemingly supports me (something you haven’t acknowledged — instead, you moved on as if nothing happened). If you haven’t found anybody else, you haven’t looked very far: I cite Salerno in this post. I would add Rothbard, as well as anybody else (Hülsmann? Hoppe?) who supports the distinction in this area between Hayek and Mises.

      Quoting Charles Baird doesn’t help you, I’m sorry. Let me re-quote the relevant sentence(s),

      Von Mises would replace “difficult” with “impossible” because, as he points out in Human Action, if there are no systematic tendencies toward coordination in an economy, an economist can derive no general principles of economics at all.

      Interpret this in the context of Human Action. Mises derives the principles Baird alludes to by constructing fictitious models. He does not say that there are systemic tendencies towards equilibrium in the real world; this is impossible, since time involves change, and in a world of change there is always disequilibrium (if there is always disequilibrium of different magnitudes, then there is no tendency towards equilibrium over time — this must naturally follow from this analysis).

      Reply
      1. Lord Keynes

        And regarding Vaughn: she doesn’t support you either, for the simple reason that her brief paraphrase of Mises is misleading unless you go and read the Mises passage in question:

        “What makes it necessary to take recourse to this imaginary construction is the fact that the market at every instant is moving toward a final state of rest. Every later new instant can create new facts altering this final state of rest. But the market is always disquieted by a striving after a definite final state of rest.” (Mises, L. 1998. Human Action: A Treatise on Economics. The Scholar’s Edition, Mises Institute, Auburn, Ala. p. 246).

        Reply
        1. Jonathan Finegold Catalán Post author

          We’ve already been over this, Lord Keynes. Is the only recourse you have left to repeat the same discredited points?

          Reply
    1. Jonathan Finegold Catalán Post author

      … okay Gene, maybe when you provide more suitable analogies I can begin to see the merit in your assertions!

      Reply
    2. Jonathan Finegold Catalán Post author

      If we use dictionary.com, you are right,

      a natural or prevailing disposition to move, proceed, or act in some direction or toward some point, end, or result…

      But, this isn’t what Lachmann meant when he wrote “long-run tendency.” Using the term “long run” implies time. In the above definition of “tendency” there is no time, since it only involves a disposition. So then, I can only conclude that Lachmann et. al. don’t know what the word tendency means.

      Reply
  15. Lord Keynes

    (1) Give me a chapter and verse citation of Salerno, Hoppe or Hulsman, saying clearly that Mises did not even believe in a tendency to equilibrium.

    (2) As for Rothbard, he held the same view as Mises:

    “Rothbard presumed that in individual markets, the law of one price dominated, and that market clearing happened rapidly and smoothly (124). Just as in conventional neoclassical economics, general equilibrium, the evenly rotating economy (ERE), was the direction in which the economy was headed. The pervasiveness of change made it unlikely that an economy would ever achieve the ERE, but nevertheless, like a dog chasing a mechanical rabbit, it at least could explain the direction of change (274). Although Rothbard warned against taking equilibrium too seriously given the world of constant change in which we live (277), it was nevertheless his underlying assumption that markets adjust quickly to new equilibrium positions. Indeed, his justification for the basic efficiency of markets was that ‘entrepreneurs will be very quick to leave the losing industry’ (466) when mistakes are made.” (Vaughn, K. I. 1994. Austrian Economics in America: The Migration of a Tradition, Cambridge University Press, Cambridge and New York. p. 97).

    Reply
    1. Jonathan Finegold Catalán Post author

      I have cited Salerno. Why don’t you do the research yourself? I already did my homework If you haven’t done the research, then how are you equipped to even be in this debate? I’m not going to do the work for you.

      You quote Vaughn writing,

      Just as in conventional neoclassical economics, general equilibrium, the evenly rotating economy (ERE), was the direction in which the economy was headed.

      This is absurd. I thought you agreed with me! It’s apparent you don’t. If the real economy is characterized by change, then the economy is not headed in that direction. Neither does it “explain the direction of change.” Vaughn is wrong, and it’s clear if you read Mises’ Human Action (as I’ve said over and over, and you’ve said you agreed). Mises and Rothbard were looking to explain the relationships which guide entrepreneurial action. This doesn’t mean the economy, which is a process over time, moves in any one direction. Neither does this have to do with the change that Mises and Rothbard wrote of, which is a change caused by changes in the data — these changes are not predictable (the idea of economic uncertainty).

      If Rothbard believed that real market prices were equilibrium prices or market clearing prices he was wrong, but I don’t think this was his position (someone else can comment). Rothbard was a clear supporter of Austrian price formation theory along the lines of Mises, Menger, and Böhm-Bawerk. These are prices of disequilibrium. In market clearing prices there is no profits; it seems extremely unlikely that Rothbard believed in equilibrium prices in the real world.

      But, again, you prefer to go through a secondary source, instead of looking at the writings of the economists we are actually talking about.

      Reply
      1. Lord Keynes

        (1) “I have cited Salerno. Why don’t you do the research yourself?”….

        In other words, you can’t even give a citation for Salerno, Hoppe or Hulsman, where they say clearly that Mises did not even believe in a tendency to equilibrium.

        And I bet when I go and read your half a dozen articles cited above I’ll find no evidence at all that they ever said Mises rejected the tendency to equilibrium.

        (2) Vaugn has not misquoted Rothbard. Rothbard held that it was the evenly rotating economy (ERE) that was the equilibrium state towards which the economy moves but never reaches, and says so plainly on p. 322 of Man, Economy, and State: A Treatise on Economic Principles. Scholar’s Edition (2nd edn., Ludwig von Mises Institute, Auburn, Ala).

        In this, he probably, simply misunderstood Mises and forgot it was the “final state of rest” that was the equilibrium position Mises held the market moved towards but never reached.

        Reply
        1. Jonathan Finegold Catalán Post author

          Please, let’s reason through this. You write,

          Rothbard held that it was the evenly rotating economy (ERE) that was the equilibrium state towards which the economy moves but never reaches…

          Why is this? Because the underlying data changes. If this is true, then the “position” of this end state must differ, as well. If this end state differs in “position” on a constant basis, then how can we say that the economy “moves” towards equilibrium?

          Again, you are misunderstanding Rothbard,* just like you misunderstood Mises. The economy does not “move” towards an equilibrium, because “movement” implies change, which implies a shifting of this teleological concept of equilibrium. Entrepreneurs seek to take advantage of profitable opportunities, which without further changes in the data would lead the economy towards an equilibrium position. This, however, is undone by the change that comes with time. The “tendency” towards equilibrium is one that occurs in a specific, transitory instant, not in a market process over time.

          * By the way, Man, Economy, and State was originally meant as a Human Action for a broad audience. That was Rothbard’s original job. He corrected (or tried to) Mises where he saw fit, such as monopoly theory, the integration of others’ theories of distributions, and a greater synthesis of the work of Mises and Hayek on capital theory.

          Reply
          1. Lord Keynes

            “If this is true, then the “position” of this end state must differ, as well.

            Correct,

            If this end state differs in “position” on a constant basis, then how can we say that the economy “moves” towards equilibrium?”

            Easy. It is actually as Mises says here:

            “his final state of rest is an imaginary construction, not a description of reality. For the final state of rest will never be attained. New disturbing factors will emerge before it will be realized. What makes it necessary to take recourse to this imaginary construction is the fact that the market at every instant is moving toward a final state of rest. Every later new instant can create new facts altering this final state of rest. But the market is always disquieted by a striving after a definite final state of rest.” (Mises, L. 1998. Human Action: A Treatise on Economics. The Scholar’s Edition, Mises Institute, Auburn, Ala. p. 246).

            (1) the market at every instant is moving toward a final state of rest.

            (2) although new events prevent it from reaching that equilibrium state, and a new one arises, nevertheless the market will adjust and then move towards this new final state of rest, and when change happens again, it will adjust and move towards yet another final state of rest , and so on

            (3) As Mises says, the market is ALWAYS disquieted by a striving after a definite final state of rest.

            This is exactly what Rothbard writes but in different terms.

            It is clear this argument will get nowhere and your clearly incapable of recognising what is plain for all to see.

            Unless you’re capable of, say, supporting your absurd characterisation of Mises as a radical subjectivist with a chapter and verse quote from Salerno, Hoppe or Hulsman, your position is also unsupported by any other Austrian economist I am aware of.

            Provide just one citation from Salerno, Hoppe or Hulsman, where they say: Mises rejected even a tedency to equilibrium.

          2. Jonathan Finegold Catalán Post author

            We’ve already been over these same quotes. You aren’t taking away what is of value.

            You write,

            (1) the market at every instant is moving toward a final state of rest.

            This is non-sensical. “Movement” implies action, and action takes place over time. But time also implies change, and thus there can be no movement towards equilibrium when the point of equilibrium is constantly changing. You are still confusing what Mises meant with “movement.” Where Mises uses “tendency” he does not mean movement; he means that there is a disposition for entrepreneurs to seek to take advantage of profitable opportunities. This, in a changeless world, would ultimately create an equilibrium.

            Your interpretation is absolutely horrendous. Adjust to what? What does “adjust” mean in this case? How can something over time tend towards equilibrium when time itself means disequilibrium? These are questions you are still unable to answer, and you’ve only tried to skip over these difficulties by repeating the same thing over and over again.

            But, how can anybody expect you to be able to interpret Mises and Rothbard correctly when you know their own work only extremely superficially or through the words of other authors that you read only superficially (quoting them only when you think it suits you).

            Regarding citations: I have cited Salerno. Please, take a look at these sources yourself. Taking excerpts is not the end all be all of intellectual debates; in fact, as you have shown, they oftentimes lead people to create muddles of historical interpretations (as you have).

            I think it’s time to just agree to disagree.

  16. Beefcake the Mighty

    This discussion is a good example of what happens when superficial similarities are transformed into core themes. It’s highly amusing to see LK critique Austrianism in defense of a theory (Keynesianism) that he clearly doesn’t understand. (Keynesianism is fundamentally a theory of money, or rather demand for money. Money is central to the difference between GE and the ERE, and anyone who says they’re “analogous” clearly understands neither.)

    Reply
    1. Lord Keynes

      (1) I’m not even defending Keynesianism here or anywhere on this thread, Mr Straw Man

      (2) we are discussing whether Mises believed in a tendency to equilibrium in a market economy, which is clearly did, as did Rothbard.

      Reply
  17. Lord Keynes

    And the fact that Rothbard believed in a tendency to equilibrium is easily demonstrated:

    http://socialdemocracy21stcentury.blogspot.com/2012/06/rothbard-on-tendency-to-equilibrium-in.html

    “The final equilibrium state is one which the economy is always tending to approach. If our data—values, technology, and resources—remained constant, the economy would move toward the final equilibrium position and remain there. In actual life, however, the data are always changing, and therefore, before arriving at a final equilibrium point, the economy must shift direction, towards some other final equilibrium position. Hence, the final equilibrium position is always changing, and consequently no one such position is ever reached in practice. But even though it is never reached in practice, it has a very real importance. In the first place, it is like the mechanical rabbit being chased by the dog. It is never reached in practice and it is always changing, but it explains the direction in which the dog is moving.” (Rothbard. M. 2009. Man, Economy, and State: A Treatise on Economic Principles. Scholar’s Edition (2nd edn.), Ludwig von Mises Institute, Auburn, Ala. p. 322).

    Reply
    1. Jonathan Finegold Catalán Post author

      Jesus, do you actually read any of the comments or do you just post the same drivel over and over again?

      If by tendency you mean a disposition for entrepreneurs to chase profits, that’s one thing. But this is different from arguing that Rothbard believed in a “long-run tendency,” as Lachmann puts it, since Rothbard clearly believes that the real world is characterized by constant change. You have to learn how to interpret what you quote, before using it in defense of your erroneous argument (in defense of Lachmann).

      EDIT: To clarify, entrepreneurs chase profits. This means that in a world without change the market would approach equilibrium. If by tendency you mean “entrepreneurs chase profits,” as Mises then, then there’s no argument. But, you entered to defend Lachmann, who accuses Mises of believing in a “long-run tendency towards equilibrium.” The use of the word “long run,” as I said one of my replies to Gene, implies time. But, this is clearly wrong, because Mises recognized that with time (the next instance) comes change, and therefore there is again a divergence of a different magnitude than the last (a disequilibrium different in data from the last). What this means is that where entrepreneurs were chasing profits before may no longer be where the highest divergences exist any longer, suggesting that entrepreneurs need to re-orient investment. Therefore, there should be no argument that Lachmann is wrong.

      (Also, ironically, you say Vaughn is misleading without quoting the original source, but when it suited your purposes you did not need the original source.)

      Reply
  18. Gene Callahan

    “HA and MES are almost identical books in terms of content.”
    This is largely true. In fact, when I started reading MES, with no idea who Rothbard was except that Amazon said if I liked Mises I would like Rothbard too, I got about 100 pages in, and said to myself “Wow, this is just a second-rate knock-off oh Human Action!”

    And in every instance where Rothbard did vary a little from Mises, Rothbard was wrong!

    Reply
    1. Mattheus von Guttenberg

      And in every instance where Rothbard did vary a little from Mises, Rothbard was wrong!

      Haha, you really are a funny guy. I get that you subscribe to Mises’ utilitarianism and other little antiquated ideas of a “limited” government. That’s neither here nor there (although I have written on both of these topics frequently as you know). What really troubles me is that you think Mises’ economics was superior to Rothbard’s. Please, for the sake of argument, illustrate how public goods is an economically coherent idea – or resuscitate Mises’ meandering and arbitrary theory of monopoly. Please explain to me how Mises’ reconciles the notion that the free voluntary interplay of consumers without force or fraud (the unhampered market) can result in a socially suboptimal situation called a monopoly.

      Reply
    2. Mattheus von Guttenberg

      And it’s not even the case that I dislike Kirzner. His dissertation is quite good and I enjoy history of thought.

      It’s just such a laughable assertion that Israel Kirzner was “far and away Mises’s greatest from the second half of his career” [after Hayek, presumably]. I mean, Hayek himself barely studied under Mises. He spent his entire intellectual career studying Wieser, Schumpeter, and he fought tooth and nail his whole economic life to reconcile Mengerianism with Walrasianism. Hayek had already received his doctorate before he really met Mises! Add to the fact that he didn’t really like him much. The only thing Hayek adopted and refined from Mises was his political economy and monetary theory (1912).

      Kirzner is in the same boat. After ten years of studying and getting his BA and MA from other professors and schools, he finishes his doctorate work with Mises in 1957. By that point, Rothbard was already halfway to finishing MES – a thorough reconstruction of Misesian economics, but without the heavy philosophical, sociological, and political arguments Mises made which (probably) made it more difficult to disseminate easily. Moreover, his other works in economics including his history of banking and the Great Depression are thoroughly Misesian. His chapters in MES on capital and production are explicitly Bohm-Bawerkian and Misesian. Fortunately, Rothbard corrects Mises on a few technical points and adds many more of his own. Mises even writes a glowing praise of MES! Some portions:

      In every chapter of his treatise, Dr. Rothbard, adopting the best of the teachings of his predecessors, and adding to them highly important observations, not only develops the correct theory but is no less anxious to refute all objections ever raised against these doctrines.

      Less successful than his investigations in the fields of general praxeology and economics are the author’s occasional observations concerning the philosophy of law and some problems of the penal code. But disagreement with his opinions concerning these matters cannot prevent me from qualifying Rothbard’s work as an epochal contribution to the general science of human action, praxeology, and its practically most important and up-to-now best elaborated part, economics. Henceforth all essential studies in these branches of knowledge will have to take full account of the theories and criticisms expounded by Dr. Rothbard.

      We’ve already discussed they had irreconcilable differences on ethics and politics. For this discussion, that won’t be settled.

      Now such a book as Man, Economy, and State offers to every intelligent man an opportunity to obtain reliable information concerning the great controversies and conflicts of our age. It is certainly not easy reading and asks for the utmost exertion of one’s attention. But there are no shortcuts to wisdom.

      Not only was Rothbard more methodologically consistent that Kirzner or Hayek, he was also much more prolific. He extended the classical liberal platform of Mises beyond what Mises himself – and certainly Kirzner – ever did. He influenced the entire generation of current libertarians and whatever reservations you might have about them (us?) being naive anarchists, you certainly cannot discount the tremendous revival of Austrian economics that Rothbard and Hayek as well initiated in the 1960s and 70s.

      It should be obvious at this point (and I really shouldn’t have to say) – but Rothbard is the only student out of those three (and including other students like Reisman) who fully and completely adheres to Mises’ praxeology. Goodness, if we’re going to have a disagreement about which student is greater or worse, shouldn’t the chief criterion be how closely one follows and advances the teacher? And what is Mises’ enormous achievement as a scholar if not the practice of praxeology where he discovers all his subsequent economic discoveries? Without praxeology, Mises is another Neoclassical with some specialty in socialism and monetary affairs.

      Reply
      1. Jonathan Finegold Catalán Post author

        Without praxeology, Mises is another Neoclassical with some specialty in socialism and monetary affairs.

        This seems extreme. How broadly do we define “praxeology.” Menger did not practice the praxeology that Mises did when he developed and wrote Human Action. Neither did Böhm-Bawerk nor very early Mises (including that of The Theory of Credit and Money). Yet, all of these economists can be distinguished from the Neoclassical school. It’s not just about specialty, but a completely different approach to the theory of price formation and the theory of capital. Arguably, we could attribute this to Menger’s “methodological individualism,” which may embody the broad tenets of the most advanced form of Misesian praxeology, but it is evidence enough that it is not just advanced praxeology which distinguishes the Austrian and Neoclassical schools.

        Reply
        1. Mattheus von Guttenberg

          They were praxeologists without realizing it. Mises says this about people like Say and Bastiat as well. They deduced principles from incontestable starting grounds and proceeded along causal-realist grounds to their conclusions. Of course they were imperfect praxeologists, but Mises hadn’t come around to demonstrate how to systematically use it yet.

          Reply
          1. Jonathan Finegold Catalán Post author

            Okay, so they used deductive logic, but so did Keynes.

    3. Jonathan Finegold Catalán Post author

      You might be right, at least when concerning some of Rothbard’s changes. For example, the now managing editor of the Mises Institute, Daniel Sanchez, told me he thinks Rothbard’s alleged “improvement” in monopoly theory actually is not.

      Reply
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