State of Innovation

Patents and Innovation Economics

Source of Economic Growth Reviews

Here a couple of amazon reviews of my Book Source of Economic Growth, which examines the two most important questions in economics: 1) What is the source of real per capita economic growth, and 2) What caused the industrial revolution? The industrial revolution is important, because it is the econgrowth.smallfirst time any large group of people escape subsistence living (Malthusian Trap) and their incomes start to grow. By examining these questions, the book devises a science of economics that is consistent with natural rights, the founding of the United States, and is tied to the biological reality of life.


The Importance of Invention

Dale Halling has authored a well-written and clearly-argued treatise on the importance of “invention” in economic growth. He begins with an accurate summary of ideas from Adam Smith, John Stuart Mill, Ludwig von Mises, Joseph Schumpeter, and John Locke who are viewed as having had good ideas that were not exactly correct, and an accurate summary of ideas of Karl Marx, Thomas Malthus, and John Maynard Keyes as having had bad ideas that were completely incorrect. Then he continues with arguments that recognition and proper valuation and protection of intellectual property has been essential to economic development in various countries. The final chapter is a fictional interview with a patent lawyer from the Midwest (which he is himself) talking about the prosperous future that would occur if government behaves wisely. In that future, laws are based on reason and Wall Street and Washington power are a thing of the past. I highly recommend this book to everyone interested in the subject matter.

John Christmas, author of “Democracy Society”



A Great Place to Start.

The first book on economics that is based on sound reasoning. Economist want be viewed as scientists, but until they incorporate the sound principles of human reason like those found in this book it will forever be a “dismal science” This is a great start in the right direction. It is exciting to think of the human potential once we grasp the proper formulas and processes.

by Tony Stonecypher

November 23, 2015 Posted by | Press Release | , | Leave a comment

Carl Menger: Principles of Economics

This is a review of Carl Menger’s book Principles of Economics published in 1871[1].  I will be judging this book on three criteria: 1) Is it adhering to the philosophy of science? 2) Does it address the question of what is the cause of real per capita increases in wealth? and 3) Does it address the Mengerquestion of what was the cause of the industrial revolution?  These last two questions are the most important in all of economics and it is impossible to write something that is profound if it does not address a profound question.  I will also be analyzing Menger’s “subjective” theory of value and prices.


Philosophy of Science

Menger addresses this issue in the Preface.  He discusses the remarkable advances of the hard sciences and the high regard in which they are held.  He also laments that economics is held in very low regard.

This method of research, attaining universal acceptance in the natural sciences, led to very great results, and on this account came mistakenly to be called the natural-scientific method. It is, in reality, a method common to all fields of empirical knowledge, and should properly be called the empirical method. The distinction is important because every method of investigation acquires its own specific character from the nature of the field of knowledge to which it is applied. It would be improper, accordingly, to attempt a natural-scientific orientation of our science.  (P.47)

Menger however never states why it would be improper to use the philosophy of natural sciences.  He implies that he is using the “empirical method” however he never explains what he means by that.  The rest of the book has almost no empirical evidence in support of Menger’s positions.  Menger’s lack of clarity on this point is consistent with much of the rest of the book.  This means that it is often possible to argue that Menger held two contrary positions and find support for both in this book.  This in and of itself is support that Menger did not follow the philosophy of science, however it is a useful rhetorical tool.  In addition, his major protégé, Ludwig Von Mises, explicitly rejects the philosophy of science, in favor of philosophical rationalism.

Menger’s major intellectual influence was Franz Brentano, an Austrian philosopher best known for his works related to psychology.[2]  Brentano wrote a book entitled Perception is Misception, in which he claims that perception is erroneous.  “In fact he maintained that external, sensory perception could not tell us anything about the de facto existence of the perceived world, which could simply be illusion.”[3]  Since Menger considered Brentano a friend and intellectual influence and Menger did not refute this position, it is reasonable to assume that Menger was sympathetic to Brentano’s anti-perception idea.  This anti-perception point of view is very reminiscent of Plato.  Plato’s ideas are not consistent with science.

The overwhelming evidence is that Menger did not follow the philosophy of science.  This means that none of the major Austrian economists, Menger, Von Mises, or Hayek based economics on the philosophy science.  Austrian economics is not a science.


Source of Economic Growth

This section, The Causes of Progress in Human Welfare p. 71, is the part of Menger’s book I consider most important.  It also appears to be the payoff for pages of description of first, second, third, etc. order goods.  Even Menger admits that his definition of these is a bit vague, however first order goods appear to be consumables or consumer goods.  Menger argues that economic growth is the result of creating more second or high order goods.  This is just a long winded way of saying increasing capital goods causes economic growth, which had already been said by many other economists.  Not only has this already been said by other economists, but it is wrong.  He also has one throw-away line about human knowledge.

“Nothing is more certain than that the degree of economic progress of mankind will still, in future epochs, be commensurate with the degree of progress of human knowledge.”

He never builds on this, he does not explore how human knowledge is created, how it results in increases in economic wealth, or what knowledge is important to economic growth.  His followers, such as Mises also do not build on this, they all focus on increases in savings and capital as the cause of growth in the economy.

In a technologically stagnant economy adding more capital at best can lead to some sort of optimum output, but can never exceed this level.  (I describe and provide evidence for this in much more detail in my book Source of Economic Growth).  As a simple example, imagine Robinson Crusoe fishing with a spear.  The spear is a second order good or higher under Menger’s approach.  Now if Crusoe creates more spears will he have more fish?  No, since he can only use one spear at a time.  At best having more spears will allow him to replace his spear more quickly if he breaks or loses a spear.  Another example is that if every farmer that can use a tractor has one, then giving them more tractors will not increase the production of first order goods.  This has been shown empirically and Robert Solow’s paper (Solow, Robert M, Technical Change and the Aggregate Production Function, The Review of Economics and Statistics, Vol. 39, No. 3 (Aug., 1957), pp. 312-320) is just one of many that prove this.

Menger fails to answer the question of what causes real per capita increases in wealth.


Industrial Revolution

Menger never mentions the industrial revolution in this book.  The Industrial Revolution is the first time that people escape subsistence living (the Malthusian Trap) in large numbers.  It is the most significant event in the economic history of the world and Menger shows no interest in it.  By the time Menger wrote Principle of Economics the Industrial Revolution was at least seventy years old and had exploded in the United States.  This shows a profound disinterest in the empirical side of economics.  It would be like an astronomer ignoring and eschewing the telescope or biologist who refuses to do or even explore the results of dissections.

Menger does not compare the economies of different countries or the economy of a country at different times, despite the profound differences in the economies of countries around the world.  This is not how a scientist thinks or works.  Instead Menger examines propositions in his own head, like the monks of the middle ages arguing over how many angels can dance on a pin head.  Menger’s style is completely consistent with Mises praxeology – philosophical rationalism.

The cause of real per capita increases in wealth is increasing levels of technology (new inventions) and the cause of the Industrial Revolution is legally enforceable property rights for inventions (patents) as William Rosen, shows in his excellent book The Most Powerful Idea in the World and I show in my book Source of Economic Growth.

Menger does not discuss inventions, technology, knowledge, patents or their importance in economics.  Menger fails to add anything useful to the two most important questions in all of economics.


Subjective Value

Menger is generally credited with the idea of subjective value in economics.  This is described as a reaction to the labor theory of value described in classical economics, which is an intrinsic theory of value.  Despite this many people have argued that Menger was not advocating a subjective theory of value.  Note that when modern Austrians use the term subjective value they mean that values are disconnected from reality – they are peoples’ arbitrary decisions.  The interesting thing is that in his Principles of Economics you can find support for both positions.  For instance, if you want to argue that Menger was advocating an objective theory of valuation you can provide the following quotes:

Value is thus the importance that individual goods or quantities of goods attain for us because we are conscious of being dependent on command of them for the satisfaction of our needs. p. 115

Value is therefore nothing inherent in goods, no property of them, but merely the importance that we first attribute to the satisfaction of our needs, that is, to our lives and well-being, and in consequence carry over to economic goods as the exclusive causes of the satisfaction of our needs. p 116

Menger also makes this distinction between real and imaginary goods.  He appears to be making a point about objective values, however he never does anything with these concepts once he introduces them.

Note that Menger never defines what he means by needs.  Are needs anything someone wants?  Menger never says.  Then he talks about the satisfaction of needs.  Is this a personally, subjective decision?  Menger never says.

On the other hand if you want to say Menger was advocating the modern value subjectivism of Austrians, then you can find these quotes.

It is a judgment economizing men make about the importance of the goods at their disposal for the maintenance of their lives and well-being. Hence value does not exist outside the consciousness of men. It is, therefore, also quite erroneous to call a good that has value to economizing individuals a “value,” or for economists to speak of “values” as of independent real things, and to objectify value in this way. P. 121

The measure of value is entirely subjective in nature, and for this reason a good can have great value to one economizing individual, little value to another, and no value at all to a third, depending upon the differences in their requirements and available amounts. What one person disdains or values lightly is appreciated by another, and what one person abandons is often picked up by another. P. 146

Hence not only the nature but also the measure of value is subjective. Goods always have value to certain economizing individuals and this value is also determined only by these individuals. P.146

Another factor favoring the subjective theory of values is that Menger is clear that ethics and morality are outside the study of economics.

But it seems to me that the question of the legal or moral character of these facts is beyond the sphere of our science. P. 173

Here he is talking about the morality of charging interest, however it is clear that this statement is a more general statement about economics.  This suggests that Menger’s ethics, like most Austrians, is some version of Utilitarianism, which means he rejects Locke’s and Rand’s Natural Rights.  Another quote that supports this point of view is Menger’s ideas of property.

The entire sum of goods at an economizing individual’s command for the satisfaction of his needs, we call his property. His property is not, however, an arbitrarily combined quantity of goods, but a direct reflection of his needs, an integrated whole, no essential part of which can be diminished or increased without affecting realization of the end it serves. P.76

Property, therefore, like human economy, is not an arbitrary invention but rather the only practically possible solution of the problem that is, in the nature of things, imposed upon us by the disparity between requirements for, and available quantities of, all economic goods.  P. 97

The first quote is really Menger’s definition of property.  Note that this over 200 years after Locke.  It is a clear rejection of Locke and Natural Rights.

The second quote is a forerunner of the inane idea that property “rights” are socially useful tools for allocating scarce resources adhered to by Austrians.

Menger’s position on subjective value is confused.  Note that this is not the work of scientist, which shows once again that Menger’s ideas are not based on the philosophy of science.  Despite this Menger’s rejection Natural Rights, rejection of ethics in economics, and the direction his students took suggests that on balance Menger was an advocate of the radical subjective theory of value.



I undertook this task because a number of people I have respect for argued that Menger was not the same as Hayek or Von Mises.  In addition, a number of well-known Objectivists have tried to reconcile Austrian Economics with Objectivism.  I have analyzed in depth the irrational roots of the two main branches of Austrian Economics: 1) Hayek and 2) Von Mises.  I have shown that the positions of Austrians on a number of positions are absolutely flawed including their position on property “rights”, the Austrian Business Cycle, their position on fractional reserve banking, and their position on intellectual property.  Carl Menger has not proven to be the savior of this fall from grace.  This is not to say that other schools of economics are better or that there is nothing useful in Austrian economics.  For instance, Menger’s marginal utility is a useful concept, but hardly profound.

I found Principle of Economics boring, repetitive, and written in the pseudo-scientific style of many pop management books or psychological self-help books.  This is consistent with other books I have read by Austrians.  The best writer among the major Austrians is Hayek.

I did not force myself to read every word of Principle of Economics because it is boring, repetitive, and non-scientific.  I will not apologize for not reading all of a book that is clearly not based on science.  I also will not waste my time reading anymore books by Austrians.  I know more about the underlying tenants of Austrian economics than many of its proponents, just as I know more about the underlying tenants of christianity than many of its proponents.

Objectivism and Austrian economics are incompatible.  I think many Objectivists are fooled into supporting Austrian economics because they talk about free markets.  Austrian economics is not the product of reason, the Enlightenment, and the philosophy of science.  It is best described as a branch of the Scottish “Enlightenment”, which really was a counter enlightenment movement.  If Objectivism wants to make progress in economic science it needs to wall itself off from Austrian economics.



[2], The Philosophical Origins of Austrian Economics, Mises Institute, by David Gordon, June 17, 2006.

[3], accessed November 11, 2015, Wikipedia, Franz Brentano

November 16, 2015 Posted by | -Economics, -Philosophy, Innovation, Patents, philosophy | , , | 1 Comment

Pendulum of Justice (1st Hank Rangar Thriller) on Sale 99¢

Hank Rangar

This weekend the ebook version of Pendulum of Justice, the first Hank Rangar Thriller, is on sale for $0.99.  The sale starts Thursday, November 12 and lasts through Sunday, November 15, 2015, just in time for your Thanksgiving weekend reading.


Here is what people are saying about Pendulum of Justice:

“Convert this to a movie script and sell it to Hollywood. Excellent theme and plot.”

The Magnolia Blossom

WOW! I feel like I just watched a movie in my head.

Hines and Bigham’s Literary Tryst

Absolutely brilliant – that was my first thought after I finished reading this compelling novel.

Lit Amri for Readers’ Favorite

Click here to get your copy of Pendulum of Justice.

Don’t miss Hank in Trails of Justice, the second Hank Rangar Thriller.  A global conspiracy to eliminate the 2nd Amendment results in the deaths of 1000s and Hank Rangar knows too much.

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November 12, 2015 Posted by | Uncategorized | Leave a comment

Economics and Evolution: How We Think and Grow Rich

I was visiting the Neanderthal Museum in Mettmann, Germany, when I was confronted by a display of a homo sapien sapiens, or a modern man. The display explained that homo sapien sapiens have a brain that is only 2% of their mass, but consumes 20-25% of all the calories they take in. That makes modern man an incredibly risky evolutionary experiment, one that almost failed.[1] Those calories and that brain do not provide any immediate evolutionary advantage, they do not allow humans to run faster, or give them stronger jaws to tear flesh, or a hard shell to protect them from predators. However, the ability to reason allows humans to create all these things and more.

econgrowth.smallIt turns out for all those dieters out there that it does not matter whether we think hard with our brains or just leave them in idle. This means the brain has very high fixed costs, but very low marginal costs. It seems like something that a venture capitalist might invest in. This reminded me of the following connection between economics and evolution:

If humans did not invent, then the study of economics would just be the study of human evolution.

Now this might strike you as odd, however if I can convince you it is true or even plausible, you would have to admit that it would have profound consequences. Some of the most important discoveries are those that connect two areas of knowledge that were thought to be separate, such as electricity and magnetism, or geometry and algebra, or physics and chemistry.

Plants and animals adapt to their environment, while humans adapt their environment to them. In evolution when a plant or animal mutates (changes) so that it is better adapted to the environment, then their population increases (as does their range) until they again reach an ‘equilibrium’ between their food supply or resources and the size of their population. This idea was first proposed by Thomas Malthus with respect to man and Charles Darwin was the one that applied it to evolution.

Once the organism has reached this equilibrium, it either has to change again, or some other organism does so. Less successful organisms go extinct or evolve into other more successful life forms. Evolution is a process for producing those life forms that are best adapted at converting energy into life.

Most free market people have rejected Malthus’ ideas in the realm of economics, however it is important to point out that Malthus was correct for all of human history until the Industrial Revolution. Humans do not evolve biologically to become more successful, instead they create things, i.e., they invent.[2] In many ways a man with a spear or bow and arrow is not the same thing from an evolutionary point of view as a man whose only technology is a stone hand axe, who is not the same organism from an evolutionary point of view as a man whose technology includes agriculture. Our inventions allow us to create a great diversity of beings that can survive in dry hot deserts, wet tropical forests, and frigid antic conditions. We can do this despite the fact that homo sapien sapiens are genetically very non-diverse. The point I am making is that:

Inventions are the equivalent of genetic changes from an evolutionary point of view.

Like other organisms when we changed to become more successful at converting energy into life our population grew. For instance, when man invented agriculture, the population of humans increased exponentially as did the territory over which man spread. This is exactly what would happen with a species that had a positive genetic change.

The sad point is that the humans who were part of the initial agricultural revolution were probably somewhat wealthier than previous generations, however that wealth went into increasing the population until the average person was no wealthier than before the agricultural revolution. This is known as the Malthusian Trap and it is where the average person’s (organism) income is just sufficient to keep them from starving to death or what people call a subsistence income.

This is a depressing perspective. How did humans ever escape the Malthusian Trap? Extrapolating from what we have learned, it is clear that humans had to increase their technology (new inventions) faster than their population grew. In other words, we had to do more thinking (inventing) and less procreating. Modern economic research has confirmed this. Robert Solow won the Nobel Prize in Economics for a paper that showed exactly this. He studied the sources of economic growth in the U.S. economy and found that it was not increases in land, labor, or capital, but increases in the level of technology that increased real per capita incomes.

This has the following implications for economics:

  1. The per capita wealth of a technologically stagnant people will be stagnant or declining.
  2. The only way to increase real per capita incomes sustainably is to increase our level of technology.
  3. The only way to increase our level technology in the long run is to create new inventions.

The first statement has a perfect analogue in evolution, if you replace technology with genetic changes and per capita wealth with increasing population: a species that does not evolve will have a stagnant or declining population. The reason I suggest that that income (population) will fall is because of ‘entropy.’[3]  In my book Source of Economic Growth, I make an analogy between entropy and the classical economics idea of diminishing returns, however that is beyond the scope of this article.

This area of economics is called bioeconomics or thermoeconomics. Most of the economics profession has ignored this area of study, probably because it usually devolves into successive proofs that we are doomed by the Malthusian Trap. Despite this I think there is much to be learned in this area. For instance, Edwin Schrodinger’s failed attempt to tie life to entropy is eye opening. An interesting economist in this area is Gregory Clark, who wrote Farewell to Alms. I do not agree with all his conclusions, but he asks the right questions,[4] which is more important that having the right answers to the wrong questions. Clark’s analysis of the results of economic policies in an economy stuck in the Malthusian Trap is unassailable.

Economies today are hamstrung by absurd regulations and there would be an immense, but one-off benefit in freeing up the economy. Then the question arises—once completely free, how does this economy continue to grow? Statement II follows from I and has an analogy in evolution: The only way for a species to increase its population (in the long run) is for it to evolve (change, mutate). Most economists want to place their emphasis on manufacturing and trade. Manufacturing and trade are about the dissemination of new technologies (or replacement of worn out equipment) they are more similar to increasing the population of a species and spreading out its territory once the species has had a successful mutation.

People can only increase their level of technology by creating new inventions, which means they can only become wealthier by inventing faster than their population increases. Now this is a confusing statement, because population can be counted easily, but what does it mean to say that inventions or technology are increasing and how does that compare to the population. We know that the increases in productivity due to the new technologies must be greater on a percentage level than the increases in the population for per capita incomes to grow. One of the interesting self-correcting outcomes of this proposition is that the more people there are, the more likely someone will come up with a new invention. This means that a declining population or even a stagnant population is not the driver of real per capita increases in wealth. Indeed, declining populations often also lead to a problem in the demographic pyramid—the ratio of the very old and infirm to the productive.

The key question in economics is how do we encourage people to create these positive mutations (inventions)? In the history of the world, the rate at which new inventions were created was roughly proportional to the size of the population and somewhat to population density until the Industrial Revolution. It is also clear that inhibiting peoples’ right to act freely will inhibit the creation of new technologies. It was not until around 1800 that England, and then, the United States, created an explosion in the rate of new inventions on a scale the world had never seen. This resulted in large numbers of people escaping the Malthusian Trap for the first time in history. What these countries had in common is that they created effective property rights for inventors for large numbers of people for the first time in history.

Inventing for humans is analogous to genetic adaptations in other organisms. Originally, human inventions resulted in population increases, just like successful adaptations in other species resulted in population and territory increase for them. A technologically stagnant human civilization is like a genetically static species and in both cases their population (or income) will be flat or declining.[5] The study of economics is about how we create, produce, and distribute these inventions (genetic adaptions). If humans did not invent then the only way for us to become more successful would be genetic adaptation, which would mean that the study of economics would be the same thing as the study of human evolution.


Mr. Halling discusses these ideas in more depth in his book, Source of Economic Growth.


[1] Other animals have brains with a similar or greater brain to body mass ratio, but humans consume the most energy as a percentage of total calories on maintaining their brains.

[2] The term invention is poorly defined in common usage and in economics and law. An invention is a human creation that has an objective result. A human creation that has a subjective result is art.

[3] The word entropy here is analogous to that used in physics and chemistry, but not exactly the same. In fact, the way entropy is defined in these areas is not perfectly consistent, but that is the subject of another article.

[4] The two most important questions in economics are: 1) What is the cause of increasing real per capita income, and 2) What was the cause of the industrial revolution (the first time people escaped the Malthusian Trap)? I believe I got both of these questions from Professor Clark.

[5] It is hard to find great examples of this in human history but three are the Vikings on Greenland, the Anasazi around Chaco Canyon, and the European dark ages.

November 9, 2015 Posted by | -Economics, Innovation, Intellectual Capitalism | , , | Leave a comment

Intellectual Capitalism: Philosophy

In my book Source of Economic Growth I outlined a school of economics that I called Intellectual Capitalism.  This is the first of a series of posts I intend to write to expand upon that outline.  Most schools of economics do not explicitly state the philosophical foundations upon which they are based.  In this post I will layout the philosophical foundations of Intellectual Capitalism by comparing it to the philosophical foundations of the major schools of economics.


econgrowth.smallMost mainstream modern economics is based on the ideas of Adam Smith.  Smith is part of the Scottish Enlightenment and this is key to understanding the philosophical basis of Smith’s and modern economics philosophical underpinnings.  The father of the Scottish Enlightenment was Francis Hutcheson, who believed that we have moral senses (similar to vision, hearing, smell, taste, and touch).  This elevates emotions to valid epistemological tools.  Adam Smith picked up on Hutcheson’s ideas in his book The Theory of Moral Sentiments.

Smith was also a close friend of David Hume, one of the giants of the Scottish Enlightenment.  Hume argued that causation was an illusion and attacked induction as invalid.  He also picked up on Hutcheson’s ideas on moral philosophy.  Smith never explicitly states that he agrees with Hume, however they admired each other and Smith never rejects Hume’s ideas.  The result is that economics is not based on the same philosophy of science as were the hard sciences of physics, chemistry, and biology.  Furthermore it means that Smith and modern economics rejects Natural Rights, which are based on reason (the philosophy of the hard sciences).

This rejection of the philosophy of science by economics, at least implicitly, in my opinion is one of the reasons modern economics has been stuck in the equivalent of pre-Newtonian physics.


This is perhaps the second largest school of modern economics and is named for John Maynard Keynes.  Keynes was somewhat circumspect about his philosophical underpinnings, however it appears that Kant can be considered his most important philosophical influence.  In the paper “The Philosophy of John Maynard Keynes (A Reconsideration)” by Elke Muchlinski he shows that Keynes and Kant shared a common epistemological approach.

His method provides a background for his conception of convention which still encompasses the fragility and precariousness of knowledge. Keynes rejected formal logic as inadequate for his purposes to outline the process of acquiring knowledge.

This should hardly be surprising as Keynes confuses cause with effect, by making consumption the key to the economy.  It is clear that Keynes rejects the philosophy of science.  Note there is only one correct philosophy of science, so I will no longer qualify that this was the philosophy of the hard sciences.[1]  If logic (and evidence) is precarious then the only other potential epistemological tool is emotion.  The result is that Keynes also rejects Natural Rights as a valid moral theory.


It is probably incorrect to consider the ideas of Karl Marx a school of economics, as it is really more a school of sociology.  Marx greatest intellectual influence was Kant with a close runner up being Hegel.  As a result, Marxists reject the philosophy of science, reason, and Natural Rights.


The founder of Austrian Economics is Carl Menger who stated explicitly that the philosopher Franz Brentano was his biggest intellectual influence.[2]  Brentano is best known for his influence on psychology and Sigmund Freud.  Brentano like the Scottish Enlightenment argues that emotions are valid epistemological tools.  This appears to the basis for Menger’s subjective theory of values and prices in economics, which has been picked up by most of modern economics.  It is important to note that when Menger and the Austrians talk about subjective values, they do not mean that each individual chooses for himself, they mean the choices are disconnected from reality.

It is clear the foundation of Austrian economics is antithetical to the philosophy of science.  Their subjective theory of values is not limited to economic decisions but to all values, which means they also reject Natural Rights.

From Menger there are two slightly variations in modern Austrian Economics: Hayek and Mises


  1. A Hayek is a direct descendant of the Scottish Enlightenment and he set down his ideas on epistemology in his theory of cultural evolution. This theory explicitly rejects reason (logic and evidence – or the philosophy of science) as the source of knowledge.  Instead Hayek substitutes that knowledge is gained and held collectively and not necessarily consciously.  For more information see Hayek: Friend or Foe of Reason, Liberty and Capitalism?  As a result, Hayek also rejects the idea of Natural Rights.

Von Mises

Ludwig Von Mises’ equivalent of Hayek’s cultural evolution is praxeology which is the study of human action.  Praxeology starts with an a priori theory of economics.  From these fundamental axioms of human action all of economics can be derived without any reference to observation (empirical evidence).  This makes praxeology part of philosophical rationalism and a system of math or logic at best.  This means that praxeology explicitly rejects the philosophy of science.  Because they reject the philosophy of science and adhere to the subjectivity of values and prices, they reject the idea of Natural Rights.

It is interesting that this rejection of empirical evidence allows Austrians to continue to advocate ideas that have been shown by empirical evidence to be incorrect.  Among these are Australian Business Cycle Theory (ABCT) and their argument that intellectual property and patents in particular inhibit economic growth.

Despite praxeology’s rejection of empirical evidence, Mises and his follower vehemently reject mathematics in economics and also seem opposed to the use of formal logic in economics.  This obvious contradiction escapes them.  I will talk more about the role of mathematics in economics below.  The Austrians’ criticism of some of the mathematical approaches to economics is correct, but not for the reasons they state.

Note that Murray Rothbard is alone in Austrian economics in advocating for Natural Rights, however he also accepts praxeology and the subjective theory of values and prices.  These positions are completely contradictory.


Mathematics in Economics

There is a branch of mathematical economics that grew out of the Cowles Commission that attempts to use the mathematics of linear algebra to model the economy.  Paul Romer is part of this group.  The idea is that using linear algebra every variable (state) in the economy can be accounted for and therefore the whole economy can be modeled.  The Austrians critique this area is based on the limits of reason.  However, that is not the problem with this area of economics.  These mathematical models cannot take into account new technologies (inventions) and inventions are the most important thing that happens in the economy.

Unfortunately, neoclassical as well as classical economics seems better adapted to the analysis of replication than to that of technological change.  The vast economic changes since the Stone Age, or for that matter during recent centuries in the West, were possible only because of technological progress.

Jacob Schmookler

As the famous economist Jacob Schmookler points out above, this problem is not limited to mathematical economics.

Is mathematics appropriate in economics at all then?  Yes mathematics is appropriate, when it is used correctly.  Mathematics cannot just be used to make non-empirical hypothesis seem more scientific, and it is inappropriate to use mathematics to make heuristic models (think ptolemaic epicycles) at least without acknowledging it.  Mathematics is only appropriate when it is the reflection of the underlying economic principles and empirical observations, it can never be the driver.  This is a problem occurring in modern physics today also.

Econometrics is an attempt to make economics an objective empirical science and therefore when used appropriately is a valid tool of economics.


Intellectual Capitalism

It should be clear that Intellectual Capitalism is based on the philosophy of science.  If you are uncertain what the philosophy of science is, here is an overview that I wrote.  This means that Intellectual Capitalism is grounded in human biology, evolution, and to some extent the ideas of entropy.  I explain this in much more detail in my book Source of Economic Growth and in the article Inventing at the Intersection of Biology and Economics.  As a result, values and prices are objective (not to be confused with intrinsic).  They are based on the fact that humans have certain objective needs and natures.

This brings up another point, which is that economics is not just a social science.  It applies to a person on a deserted island.  Intellectual Capitalism defines economics as the study of how people obtain the things they need to survive.  There is no distinction between mere survival and thriving.  The idea that because you have enough food for a day, or a week or a year, that economics is not about survival is short sighted.  All the evidence shows that one’s standard of living is related to how long one will survive.  This is partly because almost no-one has everything they will need to live forever.  For instance, think of all the food, medical care, shelter etc., you will need for the rest of your life.  This amount of resources exceeds all but less than one percent of the people in the world.  Also one’s standard of living determines one’s chances of surviving natural disasters, illness, and other disruptions.

Intellectual Capitalism is the only school of economics that explicitly recognizes that man’s most important asset is his ability to reason (think) and this is true in economics also.  This also means that Intellectual Capitalism is explicitly based on Natural Rights and therefore is consistent with the ideas of John Locke, Ayn Rand, and the founding ideals of the United States.

[1] The Copenhagen interpretation of quantum mechanics also rejected the philosophy of science.  A number of people have begun pointing out the problems this has and is causing in modern physics.



November 3, 2015 Posted by | Intellectual Capitalism | , , , , | 2 Comments