State of Innovation

Patents and Innovation Economics

The Irrational Foundations of Austrian Economics

The Austrians, such as those on the Von Mises website, like to tout that they are pro-freedom, capitalists, and arch enemies of the socialists and Keynesians.  Strangely enough this means that they have aligned themselves with socialists in opposing property rights for inventors and attacking Locke’s ideas on property.  Even more fundamentally the Austrians seem to share intellectual roots with the socialist or more broadly the post-modernist movement, which is a reactionary movement opposing the enlightenment, reason, and science.  I have written on Fredrick Hayek’s anti-reason, anti-natural rights, moral relativist positions in Hayek vs. Rand: Patents and Capitalism.

However, Hayek was not the only Austrian with post-modernists roots.  Von Mises was clear that values and prices are subjective.  By this the Austrians do not mean that they are personal or that each person puts a different value on things, they mean unconnected in anyway with reality.  Von Mises also said that economics is a value-free science.  This may sound high-minded, but science is not value free.  Science starts with an objective reality, demands logic and evidence, and morally requires that scientist report data accurately.  These positions of Von Mises place him firmly in agreement with the post-modernists (socialists, Keynesians).  Some people think I am misinterpreting the Austrian position so here is a video of a talk from the Mises University that demonstrates that the Mises people are serious about the subjective theory of value.  They are not saying it depends on your circumstances, they are saying there is no connection to reality between prices or values in economics.  The meat of the video starts at 7:35 in which the speaker states “value is just a state of mind.”  At 7:57 he is clear that value has no extensive property, which means it is not related to the real world.  8:16 the speaker states that all we have is a state of mind – that value exists only in the mind of the individual.  9:23 value is a state of mind.  9:54 there is no relation between the external world (reality) and the judgments of our minds – this is as clear as it will get that the Austrians are ignoring reality and believe economics is separate from reality.  11:14 The speaker describes profit as subjective.

Of course this position cannot logically be held to be true so you will find contradicting statements in the talk.  Just like people who deny reality, meaning they deny A is A, the position cannot be held without contradiction.  But since they deny reality matters in economics, they free themselves from the science of non-contradictory thinking – logic.  This makes the Austrians consistent with the post-modernist (socialist) movement.  I cannot say that every Austrian economist makes this mistake, but it is the accepted position of the modern Austrian school of economics and it got its start with Von Mises.

The speaker is trying to destroy the intrinsic theory of value.  Classical economists followed the labor theory of value which is an intrinsic theory of value.  According to this theory the value of an item is the sum total of the labor that went into the item.  The Austrians are correct that the classical economists’ position was incorrect, but their solution is no better.  They want to say value is determined without reference to the real world – that is it is all in the mind of the valuer, while the classical economists said value could be determined without reference to the valuer.  Both are nonsense.  Objective valuation has to take the position of the valuer and the item being valued into account.  Ayn Rand has a great explanation of this topic in Capitalism the Unknown Ideal starting on page 13 I believe.

Capitalism is based in reality, reason, and the ethics of natural rights.  Austrians are not capitalists.


February 12, 2015 - Posted by | -Economics, -Philosophy, Patents | , , ,

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