State of Innovation

Patents and Innovation Economics

Philosophical Foundations of Carl Menger

There has been a lot of interest in the philosophical foundations of Carl Menger.  Many Objectivist writers have emphasized Menger’s Aristotelian training, while other have suggested that Menger’s ideas align with Kant and Popper.  Most scholars agree that Franz Brentano, who was an Austrian Philosopher, had a big influence on Menger.

Carl Menger was an Aristotelian although not a pure one. He read Aristotle and studied the works of Franz Brentano (1838-1917), a contemporary of Menger at the University of Vienna, who taught Aristotelian philosophy there. Brentano has been considered to be the leading Austrian philosopher of the late nineteenth century.

In order to obtain a better understanding of Menger’s philosophy, it is important to understand Franz Brentano’s philosophical ideas.  Brentano’s work focused mainly on the philosophy of psychology.  Sigmund Freud was his student and highly influenced by Brentano.[1]

Brentano argued that philosophy should be scientifically rigorous, as rigorous as the natural sciences.[2]  However, Marx and many others Mengerhave said they were doing science.

He emphasized that all our knowledge should be based on direct experience. He did not hold, however, that this experience needs to be made from a third-person point of view, and thus opposes what has become a standard of empirical science nowadays. Brentano rather argued a form of introspectionism: doing psychology from an empirical standpoint means for him to describe what one directly experiences in inner perception, from a first-person point of view.[3]

This passage starts strong with knowledge based on direct experience, but then shifts making the observer part of the experiment and then it redefines empirical to mean “inner perception”.  This inner perception is the means to absolute truths according to Brentano.

Brentano argues, “that they (mental phenomena) are only perceived in inner consciousness, while in the case of physical phenomena only external perception is possible” (Psychology, 91).  According to Brentano, the former of these two forms of perception provides an unmistakable evidence for what is true.

Brentano says that it (inner perception) is the only kind of perception in a strict sense.[4]

According to Webster’s Dictionary, science is “knowledge about or study of the natural world based on facts learned through experiments and observation.”  By observation, Webster’s does not mean inner perception.  While Einstein was famous for his “thought experiments”, they were a way of conceptualizing a problem in physics.  They were not actual experiments nor did they substitute for actual experiments.  Brentano is not doing or proposing to do science, despite his statement.

Brentano is widely regarded as Aristotelian and studied Aristotle extensively.  He also was fascinated with the Scholastics and Descartes, but disliked Kant and the German idealists.[5]  Brentano and Aristotle appear to agree on Universals, which Peikoff explained as:

Universals, he (Aristotle) holds, are merely aspects of existing entities, isolated in thought by a process of selective attention; they have no existence apart from particulars. Reality is comprised, not of Platonic abstractions, but of concrete, individual entities, each with a definite nature, each obeying the laws inherent in its nature. Aristotle’s universe is the universe of science. The physical world, in his view, is not a shadowy projection controlled by a divine dimension, but an autonomous, self-sufficient realm. It is an orderly, intelligible, natural realm, open to the mind of man.[6]

Brentano’s rejection of Platonic abstractions may have accounted for his distaste for Kant.

Despite the appearance of agreement with Aristotle on metaphysics, Brentano’s position in epistemology significantly differs from Aristotle.  Brentano rejects that our senses are how we initially obtain knowledge about the world.

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. However, we can be absolutely sure of our internal perception. When I hear a tone, I cannot be completely sure that there is a tone in the real world, but I am absolutely certain that I do hear. This awareness, of the fact that I hear, is called internal perception.

External perception, sensory perception, can only yield hypotheses about the perceived world, but not truth. Hence he and many of his pupils (in particular Carl Stumpf and Edmund Husserl) thought that the natural sciences could only yield hypotheses and never universal, absolute truths as in pure logic or mathematics.

Franz Brentano maintained that our senses were invalid and could not tell us anything about the world. [7]

This is the exact opposite of Aristotle.

[H]e (Aristotle) thinks that we can and do have knowledge, so that somehow we begin in sense perception and build up to an understanding of the necessary and invariant features of the world. This is the knowledge featured in genuine science (epistêmê).

Brentano and Aristotle are completely opposite on one of the most fundamental points of epistemology.  Because this issue is foundational, it will affect everything else the two men have to say on science and philosophy.  I think it is a mistake to argue that Brentano was Aristotelian.

With this background this paper will examine Menger’s epistemological positions.  Menger lays out his epistemology in a book entitled Investigations into the Method of Social Sciences.[8]  Lawrence H. White in the introduction to the book, explains.

Fortunately, Menger draws and even emphasizes a suitable distinction between the “realist-empirical orientation of theoretical research” and the “exact” orientation (p. 59). The search for so-called, ”exact laws” alone is more appropriately considered the task of purely theoretical research in economics. We can make sense of “exact laws” as theoretical propositions which (necessarily) take an “if-then” form: if conditions A and B hold, then condition C must also obtain. Menger rightly insists (pp. 70, 215) that realist-empirical generalizations (e.g., A and B are usually accompanied by C) can by their nature never attain the strictness that necessarily characterizes logical implications. The two sorts of “laws” are on different epistemological planes. So without too much dissent from Menger’s thought we may divide economic theory from economic history where he divided strict theory from what he considered an empirical sort of theory. What is empirical is really historical, and this accounts for its different status from what is deductive.[9]

Lawrence H. White goes on to explain:

But this is not because, like some economists, he (Menger) sees empiricism or positivism or falsificationism as the only proper method for both social science and natural science. Instead he argues (p. 59 n. 18) that both the search for empirical regularities and the formulation of non-empirical, non-falsifiable (“exact”) theories are methods common to both economics and such natural science fields as chemistry. In viewing theoretical research in every field as having a non-empirical proposition at its core, Menger’s position bears some resemblance to that of modern philosophers of science. [10]

Menger is arguing that science involves a theoretical side that is impervious to empirical data.  This sounds a lot like Brentano’s idea of “inner perception”, which “provides an unmistakable evidence for what is true.”  Menger says there is a second side of economics (science) which is empirical and never provides “exact” true theories in economics or science generally.  This is very similar to the explanation of Brentano’s ideas on empirical evidence: “External perception, sensory perception, can only yield hypotheses about the perceived world, but not truth.”[11]

Brentano’s and Menger’s ideas match up fairly well.  Neither of their positions fit Aristotle’s epistemological ideas.  Both of them have misappropriated the word science.  In science reality is always the final judge.  There is nothing that man knows that did not start with our perceptions and nothing in science that is “exactly true”, i.e., independent of empirical observation.

While Bentano and Menger appear to be opposed to Kant, their epistemological positions are a lot closer to Kant than Aristotle.  Menger’s theoretical-empirical split fits Kant’s noumenal and phenomenal realm when translated to epistemology, which results in the analytic-synthetic distinction.  “Analytic propositions are true by virtue of their meaning, while synthetic propositions are true by how their meaning relates to the world.”[12]

Menger and Brentano’s empirical side is a precursor to Karl Popper’s mistaken ideas on science.  Popper appeared to accept David Hume’s skepticism of induction and his response is the same as Menger’s and Brentano’s, which is that empirical evidence never gives us the truth, just closer approximations.  This is not the philosophy of science and is based in-part on an incorrect understanding of what knowledge is.  Knowledge does not mean being omniscient or having “perfect knowledge”.  It is impossible to gain knowledge by just thinking about things (Without reference to the reality).

Menger’s ideas are inconsistent with Objectivism.  They undermine science and economics.

 

 

[1] http://plato.stanford.edu/entries/brentano/#method,  Stanford Encyclopedia of Philosophy, Franz Brentano (First published Wed Dec 4, 2002; substantive revision Tue Aug 26, 2014)

[2] http://plato.stanford.edu/entries/brentano/#method,  Stanford Encyclopedia of Philosophy, Franz Brentano (First published Wed Dec 4, 2002; substantive revision Tue Aug 26, 2014)

[3] http://plato.stanford.edu/entries/brentano/#method,  Stanford Encyclopedia of Philosophy, Franz Brentano (First published Wed Dec 4, 2002; substantive revision Tue Aug 26, 2014)

[4] http://plato.stanford.edu/entries/brentano/#method,  Stanford Encyclopedia of Philosophy Franz Brentano (First published Wed Dec 4, 2002; substantive revision Tue Aug 26, 2014)

[5] http://plato.stanford.edu/entries/brentano/#method,  Stanford Encyclopedia of Philosophy, Franz Brentano (First published Wed Dec 4, 2002; substantive revision Tue Aug 26, 2014)

[6] Leonard Peikoff, The Ominous Parallels, 29, http://aynrandlexicon.com/lexicon/aristotle.html.

[7] https://en.wikipedia.org/wiki/Franz_Brentano, accessed November 11, 2015, Wikipedia, Franz Brentano

[8]https://mises.org/sites/default/files/Investigations%20into%20the%20Method%20of%20the%20Social%20Sciences_5.pdf ,  INVESTIGATIONS INTO THE METHOD OF THE SOCIAL SCIENCES WITH SPECIAL REFERENCE TO ECONOMICS

[9]https://mises.org/sites/default/files/Investigations%20into%20the%20Method%20of%20the%20Social%20Sciences_5.pdf ,  INVESTIGATIONS INTO THE METHOD OF THE SOCIAL SCIENCES WITH SPECIAL REFERENCE TO ECONOMICS, Introduction, p. xi.

[10]https://mises.org/sites/default/files/Investigations%20into%20the%20Method%20of%20the%20Social%20Sciences_5.pdf ,  INVESTIGATIONS INTO THE METHOD OF THE SOCIAL SCIENCES WITH SPECIAL REFERENCE TO ECONOMICS, Introduction, p. xiii, Lawrence H. White.

[11] https://en.wikipedia.org/wiki/Franz_Brentano, accessed November 11, 2015, Wikipedia, Franz Brentano

[12] Wikipedia, Analytic–Synthetic Distinction, Accessed  October 21, 2016, https://en.wikipedia.org/wiki/Analytic%E2%80%93synthetic_distinction.

December 6, 2016 Posted by | -Economics, -History, philosophy | , , , , , , | Leave a comment

Austrian Economics and Aristotle

Austrian Economics is always claiming a strong connection to the Philosophy of Aristotle.  The Austrians main connection to Aristotle is the idea of apriorism.  In philosophy apriorism is defined as the philosophical doctrine that there may be genuine knowledge independent of experience.  This apriorism shows up particularly in Menger and Mises.  In Mises case it is clearly related to his ideas on praxeology.  In Menger’s case this comes from his epistemology in which he states there is an exact theoretical side of science and an inexact empirical side of science.  The question is whether the Austrians’ claim to following Aristotle’s ideas or being neo-Aristotelian has any validity.

One of the most defining points of Aristotle’s philosophy was his disagreement with Plato’s “Theory of Forms.”  Plato argued that we cannot trust our senses and the world they perceive is at best a vague, shadowy version of the real world.  For more see Plato’s Allegory of the Cave.  According to Plato if you see a red ball there is a perfect version of red and a perfect version of a ball in the “real world” and we are seeing some sort of distorted versions of these.  Plato’s real world is often represented as being up in the sky, sort of a heaven.  Since we cannot trust our senses, Plato’s answer is that we must just think about what has to be true and that will lead us to the truth.  This is known as rationalism.

Aristotle rejected Plato’s ideas and said we could trust our senses.  In order to verify (and integrate) that our conclusions from our senses are valid Aristotle created rules of thought or logic.  It is important to remember that to Aristotle these conclusions were always based on (tested against) the real world evidence.  In other words, logic was useful in reasoning about the world, but the ultimate proof was reality.  This makes him diametrically opposed to Plato’s rationalism.

There is a famous painting entitled The School of Athens by Raphael in which Plato is pointing to the sky and Aristotle has his hand out pointing to the world before us that illustrates the differences between Aristotle and Plato.  Aristotle’s epistemology is based in this world, where Plato thinks that the real world is somewhere else.

How did Austrians ever get the idea that apriorism is consistent with Aristotle?  A search of Aristotle on the Internet Encyclopedia of Philosophy of Philosophy and the Stanford Encyclopedia of Philosophy does not show any mentions of apriorism or apriori.  An informal search of academic papers and books finds only a couple of mentions of Aristotle and apriorism, except by Austrians (Austrian/Objectivists).  Both argue that apriorism is inconsistent with Aristotle’s philosophy.  One book says that Aristotle the empiricist exposes the vanity of armchair natural scientists and it is clear that Aristotle lies on the side of empiricism not apriorism.[1]

This idea that apriorism is consistent with Aristotle appears to come from Aristotle’s concept of axioms.  Aristotle had one axiom, the principle of non-contradiction according the Stanford Encyclopedia of Philosophy.  The explanation (justification) of this axiom sounds similar to the Austrians apriorism.

“Before embarking on this study of substance, however, Aristotle goes on in Book Γ to argue that first philosophy, the most general of the sciences, must also address the most fundamental principles—the common axioms—that are used in all reasoning. Thus, first philosophy must also concern itself with the principle of non-contradiction (PNC): the principle that “the same attribute cannot at the same time belong and not belong to the same subject and in the same respect” (1005b19). This, Aristotle says, is the most certain of all principles, and it is not just a hypothesis. It cannot, however, be proved, since it is employed, implicitly, in all proofs, no matter what the subject matter. It is a first principle, and hence is not derived from anything more basic.

What, then, can the science of first philosophy say about the PNC? It cannot offer a proof of the PNC, since the PNC is presupposed by any proof one might offer—any purported proof of the PNC would therefore be circular.”[2]

 

This axiom was expanded to three axioms, the law of identity, the law of the non-contradiction, and the law of the excluded middle.  It seems to me that the other two laws follow from the law of identity.

This sounds similar to how Austrians justify their apriorism, however the Austrians extend the idea to state:

(a) that the fundamental axioms and premises of economics are absolutely true;

(b) that the theorems and conclusions deduced by the laws of logic from these postulates are therefore absolutely true;

(c) that there is consequently no need for empirical “testing,” either of the premises or the conclusions; and

(d) that the deduced theorems could not be tested even if it were desirable.[3]

While this was written by Murray Rothbard it is the logical conclusion of Menger’s “theoretical science.”  These ideas are diametrically opposed to those of Aristotle.  Austrian Economics is not Aristotelian, not science and not consistent with Objectivism.

econgrowth.smallI have pointed to an economic theory that is consistent with Aristotle, science, and Objectivism.  Part of my insight came from  “New Growth Economics”, whose  central point is that wealth is created by the human mind.  This should be exciting to Objectivists, because that sounds very much like Ayn Rand.  It also points to an objective basis for economics.  Every human needs to acquire and consume a minimum number of calories or they die.  This provides an objective standard that is very similar to Rand’s standard for her ethics.  It also ties economics to biology, particularly human biology, just like Rand tied her ethics to biology.

Inventions are the result of applying man’s reasoning power to the objective problems of life.  The way we become wealthier is by increasing our level of technology.  I explain this in more detail in my book, Source of Economic Growth; in my Savvy Street article, entitled ‘Inventing at the Intersection of Biology and Economics’; and in my 2015 & 2016 talks at Atlas Summit.

All species are biologically designed to spend most of their existence on the edge of starvation.  The fact that human beings, starting around 1800, were the first species to permanently escape this condition, needs a profound answer based on man’s unique nature, his ability to reason.

 

[1] Walter E. Wehrle, The Myth of Aristotle’s Development and the Betrayal of Metaphysics

[2] Aristotle’s Metaphysics http://plato.stanford.edu/entries/aristotle-metaphysics/#FundPrinAxio

[3] Murray N. Rothbard,” In Defense of “Extreme Apriorism”, https://bastiat.mises.org/sites/default/files/Defense%20of%20Extreme%20Apriorism,%20In_6.pdf, accessed November 25, 2016.

November 26, 2016 Posted by | -Economics, bioeconomics, Blog, philosophy | , , , , , | 1 Comment

What Your Position on Patents Reveals About You

It is surprising how much your position on patents reveals about your philosophical premises.  We need to first understand five fundamental facts about patents.

 

  1. The wealthiest countries in the world have the strongest patent systems.

This fact should be readily apparent to anyone who has looked into this subject.  There have been a number of studies on point and the correlation is at least as strong as the economic freedom index.

 

  1. Almost all new technologies are developed by the countries with the strongest patent systems.

This fact should be readily apparent to anyone who has looked into this subject.  This obvious fact has been verified by studies.

 

  1. The Industrial Revolution started in the countries (Great Britain and the US) that had the first functioning patent systems.[1]

Again this fact should apparent to anyone who has looked into this subject.

 

  1. Ayn Rand called patents (and copyrights) the most fundamental of all property rights.aynrandstamp

 

  1. Patents are enshrined in the US Constitution, Article 1, Section 8, Clause 8.

Patents and copyrights are the only rights mentioned in the original Constitution.  Note the Bill of Rights was not part of the original Constitution.[2]

 

Conclusions

Here are some straight forward conclusions we can draw from these facts.

 

  1. When a person is against patent rights for inventors, they are not an Objectivist, they are a poser.

 

  1. When someone argues that patents inhibit economic growth, they have an almost insurmountable burden of proof to overcome.

 

  1. When someone argues that patents retard the growth of new technologies, their position is not just wrong, it shows the person is irrational.

 

  1. When a person is against patents they are not pro-Constitution (a supporter of the Constitution), they are a poser.

Many libertarians and Austrians want to act like they support the US Constitution, but attack the property rights of inventors (patents).  You cannot have it both ways.

 

Here are some other conclusions that we can draw that are not quite as straight forward.

 

  1. People who attack patents have rejected Natural Rights.

Patents are built on Natural Rights (as is the founding of the US).  Under Natural Rights theory anyone who creates something has a property right in their creation.  Note that the libertarians and Austrians (economics) who argue against patents have all rejected Natural Rights and adopted Utilitarianism as their political ethics.  The socialists who argue against patents have adopted Altruism as their political ethics.

 

  1. People who attack patents believe reason is limited.

The Libertarians that attack patents are all enthralled with the philosophers of the Scottish Enlightenment, like Hume, Mill, Burke[3], and Hayek[4].  David Hume was an extreme skeptic that said humans could not even show we existed.  Hume argued that cause and effect did not exist.  He also argued induction and therefore science were nonsense.  He attacked Natural Rights and argued that a rational ethics was impossible.  (Hume supporters will argue he was just skeptical of these things, but the ferocity with which he attacks them shows that this was not just an interesting academic exercise on the part of Hume).  All of these philosophers undermine reason.  Many like Kant say they are for reason, but reason is limited.  That is a contradiction, but beyond this post.  Of course it is clear that the socialists also have rejected reason.

 

 

 

[1] The first patent system was Venice in the 1400s and Venice was one of the wealthiest and most technologically advanced cities in the world at the time.

[2] The Writ of Habeas Corpus is not a Right, it is a procedural guarantee.

[3] Burke is sometime considered part of the Scottish Enlightenment and sometimes not.  In this case he should be included.

[4] Intellectually Hayek fits the Scottish Enlightenment to a tee even though he is not normally included in this group.

September 16, 2016 Posted by | -Economics, News, Patents | , , , , | 3 Comments

Austrian Economics: Not Just Wrong

Numerous Objectivists and well-meaning advocates of freedom are surprised when I show them that Austrian Economics is not a pro-reason, pro-freedom, intellectual movement.  When I show them what the Austrians are saying, they make all sorts of excuses for the Austrians, including that the Austrians do not mean what they are saying, that these errors do not affect the excellent economic work the Austrians have done, and that these problems are limited to a small minority group of Austrians.  It is time that we take a good look at what Austrian Economics says and examine whether we want to lend our good name to this movement.  Below I discuss some of the common talking points.

 

1) Patents

The Austrians have been at the center of the anti-patent movement.  They argue that patents hurt the economy and slow down technological progress.  The wealthiest countries in the world have the strongest patent systems; almost all new technologies are developed by the countries with the strongest patent systems, the Industrial Revolution started in countries with the first and strongest patent systems and those countries with the strongest patents systems correlate well with their economic freedom index.  If a socialist ignored this amount of overwhelming macroeconomic evidence, we would vilify them.

humeHowever it is worse than just ignoring the evidence  Matt Ridley, author of the Rational Optimist and darling of the Austrians, is an example of how the Austrians are willing to lie to win their points on patents.  Ridley makes the claim that technological progress does not require patents and then cites a number of technologies that were never patented.  The book (Rational Optimist) states that a number of inventions were never patented, p. 264, such as automatic transmission, Bakelite, ballpoint pens, cellophane, cyclotrons, gyrocompasses, jet engines, magnetic recording, power steering, safety razors and zippers.  Five minutes of competent research shows that all these technologies are subject to numerous patents.  The case of Bakelite shows that Ridley is not just incompetent, but a liar.  A simple internet search shows that chemist Leo Hendrik Baekeland (1863-1944) invented and first patented the synthetic resin that we know as Bakelite in 1907.[1]  I have made this point publicly and I have heard no apologies or retractions from Ridley or the Austrians.  The Austrians do not even appear bothered by this blatant lie, they continue to repeat the essence of the lie whenever they get a chance.

If Al Gore did this we would ridicule him.  But when it comes to the Austrians, we stand aside and make excuses for them.  It is worse than that, because the Austrians are part of a machine to manufacture lies about patents faster than they can be refuted.  See Adam Mossoff’s paper on point http://www.ipwatchdog.com/2015/11/19/repetition-of-make-them-true/id=63302/.  Note, that this is exactly the technique AGW environmental Nazis use.

Liars should not be trusted at all and it turns out the Matt Ridley has doubled down on his lies.  In an article in the Wall Street Journal he states:

                “Simultaneous discovery and invention mean that both patents and Nobel Prizes are fundamentally unfair things. And indeed, it is rare for a Nobel Prize not to leave in its wake a train of bitterly disappointed individuals with very good cause to be bitterly disappointed.” http://www.wsj.com/articles/the-myth-of-basic-science-1445613954

What Ridley is saying is that Nobel Prize winners and inventors are frauds.  He states that “technological evolution has a momentum of its own.”  Ridley is saying that scientists and inventors do not create anything, society does.  Ridley is not just a liar- he is EVIL.  Where did Ridley get these ideas?  They are straight from F.A. Hayek’s “Cultural Evolution.”  Ridley is not alone or anomalous among the Austrians.  Reason Magazine, the Cato Institute, Foundation fo Economic Education, and the Wall Street Journal have all joined in to propagate the Austrian lies to promote their anti-patent agenda.

Diedre McCloskey is another Austrian Economist that denigrates the work of inventors, engineers and scientists, suggesting that technological progress is on auto-pilot.  These attacks are exactly the same anti-achievement, anti-reason attacks you get from the left.  They sound like James Taggart from Atlas Shrugged:

’He didn’t invent smelting and chemistry and air compression.  He couldn’t have invented HIS metal but for thousands and thousands of other people. HIS Metal! Why does he think it’s his? Why does he think it’s his invention?  Everybody uses the work of everybody else.  Nobody ever invents anything.’ (Jim Taggart) She (Cheryl) said, puzzled, ‘But the iron ore and all those other things were there all the time.  Why didn’t anybody else make that Metal, but Mr. Rearden did?’”

This Austrian position is a repackaging of Hayek’s Cultural Evolution.  This vicious attack on human greatness is not a minor flaw or error.

 

2) The Austrians use reason and evidence to support their positions?

Mises: The Austrians are clear that praxeology and their economic theories are not based on empirical evidence.

                “[Praxeology’s] cognition is purely formal and general without reference to the material content and particular features of the actual case. Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, a priori.”  Mises, Human Action, p. 32

“All theorems of economics are necessarily valid in every instance in which all the assumptions presupposed are given.” Mises, Human Action, p. 66

“Apart from the fact that these conclusions cannot be “tested” by historical or statistical means, there is no need to test them since their truth has already been established. Historical fact enters into these conclusions only by determining which branch of the theory is applicable in any particular case.”  Murray N. Rothbard https://mises.org/library/praxeology-methodology-austrian-economics.

You can find Austrians (Mises) saying this all over and supporting it.  If the Austrians (Mises branch) are using evidence to reach their conclusions, then they have to admit praxeology is wrong.  If praxeology is right, then you have to admit that they are not using empirical evidence.  There is no middle ground here.

 

Hayek: These Austrians are clear that reason is impotent.

                “According to this theory, rules, norms and practices evolve in a process of natural selection operating at the level of the group. Thus, groups that happen to have more efficient rules and practices tend to grow, multiply, and ultimately displace other groups. The theory, of which Hayek himself was proud, is on all accounts central to his economic, social, and political project.” (Emphasis Added) http://institutoamagi.org/download/Angner-Erik-The-history-of-Hayeks-Theory-of-cultural-Evolution.pdf

“Burke and Hayek, then, shared a common enemy as well as a common understanding: Enlightenment rationalism. Perhaps the most characteristic attribute of Enlightenment thought was its cavalier dismissal of ‘irrational’ tradition as mere superstition and prejudice.” (Emphasis added) http://www.nhinet.org/raeder.htm

According to Hayek, reason was not the driving force behind cultural evolution, but rather co-evolved in the course of this process.  (Emphasis Added)  http://www.bath.ac.uk/economics/staff/horst-feldmann/feldmann-2005-hayek-theory-of-cultural-evolution.pdf

“Hayek tells us that that rationality (he does not explicitly distinguish between either “”reason”” and “”rationality”” or “”reasonable”” and “”rational””) is “”no more than some degree of coherence and consistency in a person’s actions, some lasting influence of knowledge or insight which, once acquired, will affect his action at a later date and in different circumstances.”” Hayek also maintains that behavior guided by habit, custom, and tradition is rational in the sense that such behavior is not contrary to intelligent action.”  https://home.isi.org/hayek-role-reason-human-affairs#sthash.1zV4WFR9.dpuf

“Hayek’s argument is primarily directed against certain epistemological views that he associates with the philosophy of Rene Descartes and the Enlightenment, views he labels “”constructivist rationalism.”” For Hayek, the constructivist mentality is characterized by 1) belief in a socially autonomous human reason capable of designing civilization and culture; 2) a radical rejection of tradition and conventional behavior; 3) a tendency toward animistic or anthropomorphic thinking; and 4) the demand for rational justification of values.”  https://home.isi.org/hayek-role-reason-human-affairs#sthash.1zV4WFR9.dpuf

“This tradition is characterized, moreover, by an evolutionary perspective that conceives social institutions and practices—law, morals, money, the market mechanism, habits, language—not as products of conscious construction or enlightened invention but of a suprarational trial-and-error process of cultural evolution.”  https://home.isi.org/hayek-role-reason-human-affairs#sthash.1zV4WFR9.dpuf

“However, Hayek seemingly came to doubt there could be any such thing as properly constructed rule of law.” http://plato.stanford.edu/entries/friedrich-hayek/#LawEcoNic

“In his philosophy, Hayek relegates reason to a minor role. He argues for a modest perspective of people’s reasoning capabilities. He contends that reason is passive and that it is a social product.” http://www.rationalargumentator.com/index/blog/2015/08/rand-hayek-comparison/

Hayek’s writings on cultural evolution are long winded and therefore do not make for clear quotes.  This is not surprising when people are arguing against reason they are often long winded, such as Kant. When the Supreme Court writes a long opinion you can be sure that they are not using reason and attempting to bury the irrationalism of their argument in lots of words.

It is clear from the quotes above and related papers (most by Hayek supporters) that Hayek thinks that reason cannot be used (is impotent) to understand any social institutions.  At best Hayek is saying that reason is useful in the limited sphere of hard sciences.  If so this is just a variation on Kant.

If the Austrians (Hayek) are using reason as the Austrian apologists argue, then they have to abandon the whole idea of cultural evolution.  If CE is right, then the Austrians are rejecting reason.  Hayek was clear that Cultural Evolution (CE) underlies all his ideas in economics.  If CE is wrong then Hayek’s whole case for freedom falls as does his ideas on spontaneous order.  His ideas on spontaneous order require Natural Rights, which Hayek rejects.

We have to take people’s ideas seriously.  The Austrian fans are always making excuses for why Hayek, Mises, Menger, etc. don’t mean what they are saying.  When we are reviewing socialist ideas, such as Keynes, we hold Keynes not only responsible for what he said, but the logical conclusions of what he said.

It is a logical contradiction to use words to be against reason and therefore most people are polite or generous and assume that the Austrians do not mean what they are saying.  This is fine in casual conversation, but when people are writing about their ideas you have to take them at their word.

Mises and Hayek are both rejecting reason from different points of view.  This is not surprising because the intellectual tradition of Austrians is David Hume.  Hume is perhaps the worst anti-reason philosopher in the last 300 years.  Hume and Adam Smith were great friends.  Hayek is a straightforward extension of the Hume- Smith line of irrationalism.  Menger and Mises follow a slightly different path of Hume to Franz Brentano, who elevates emotions to the level of epistemological absolutes.  Hume and Smith did the same thing.

Apologists for the Austrians always suggest that I am making huge leaps without evidence.  If I said that Keynes is the product of the Kant-Marx line no one would suggest that I am making outrageous leaps.  Intellectuals are responsible for not only exactly what they say, but also the logical conclusions of what they say.  Just because Austrians spout that they were for free markets does not mean that we can hold them to a different standard than the socialists.

 

3) Are the Austrians Really for Free Markets?

Menger pushed the following ideas: (1) public works constructed by the state such as roads, railways and canals. (2) government established agricultural and vocational training institutions (Menger 1994: 123). (3) government subsidies to certain sectors. (4) state intervention to stop clearing of forests on private property in the mountains of Austria when this clearing had serious and bad effects on agriculture. (5) government intervention to stop child labour (Menger 1994: 129), according to this article http://socialdemocracy21stcentury.blogspot.mx/2012/08/rescuing-menger-from-austrians.html.

Hayek was willing to make all sorts of compromises with the idea of free markets, because he was committed to Cultural Evolution, not reason and not Natural Rights.  For instance, he was for the government providing everyone with a “Basic Income” according to this article http://www.libertarianism.org/columns/why-did-hayek-support-basic-income.

In this quote Hayek argues for mandatory insurance.  “Once it becomes the recognized duty of the public to provide for the extreme needs of old age, unemployment, sickness, etc., irrespective of whether the individuals could and ought to have made provision themselves, and particularly once health is assured to such an extent that it is apt to reduce individuals efforts, it seems an obvious corollary to compel them to ensure or otherwise provide against those common hazards of life.”  The Constitution of Liberty (1960)

Mises supports fire regulations according to this article http://socialdemocracy21stcentury.blogspot.mx/2010/10/was-mises-socialist-why-mises-refutes.html.

The claim of Austrians that their founders are for a pure free market is absolute nonsense.

 

4) What Are the Supposed Great Achievements of the Austrians?

I am constantly told that the Austrian Economists made great contributions to economics, whatever their other faults.  Other than Menger’s Marginal Utility, Hayek’s flawed ideas on Spontaneous Order, and perhaps Mises’ insight that War does not create prosperity, I am unaware of any other great economic contributions by the Austrians to economics.  I have asked numerous Austrians to name the great economic contributions of the Austrians and they are never able to actually name any.

What the Austrians were good at was criticizing socialism and Marxism.  The ability to criticize is not the same thing as the ability to put forward good economic theories.

Here are a number of errors that Austrians make in economics.  They claim that fractional reserve banking creates money out of thin air.  This position is absurd and makes Austrians look like flat Earthers.  Here is an article on point https://hallingblog.com/2012/11/13/understanding-the-coming-financial-collapse-central-banking-fraction-reserve-banking-and-legal-tender-laws/.  The Austrian Business Cycle Theory does not fit the empirical facts and even some Austrians have admitted so in academic papers.  Of course this does not matter because empirical evidence is irrelevant (Mises) or we cannot use reason to analyze our own world (Hayek).  The Austrians obsession with the Fed (Central Banks) as the cause of all recessions results in them ignoring other important facts in the economy and creates a mystical obsession with Central Banks.  The Austrians position on Property Rights is not only wrong, it undermines capitalism and the law.

 

5) Ayn Rand on the Austrians.

Rothbard: Rothbard is the father of the anarcho-capitalism movement.  Rand described it as “a naive floating abstraction”.

Hayek: Ayn Rand in her marginalia launched a nasty attack on Friedrich von Hayek calling him, among other things, a “God damn fool” and a “vicious bastard.” (Mayhew, ed., Ayn Rand’s Marginalia, pp. 149 and 151.)

 Mises:  Rand called him the greatest living economist.  However, Branden appeared to speak for himself and Ayn Rand says:

“We must take the gravest exception, for example, to the general doctrine of praxeology; to the assertion that all value-judgments are outside the province of reason, that a scientific ethics is impossible; to the disavowal of the concept of inalienable rights; and to many of the psychological view expressed.”  (Branden 1963b, 34) The Journal of Ayn Rand Sutidies Vol. 6 No. 2.

According to Branden, Rand’s comments in the margin of Human Action were highly critical of Mises works.  Branden, The Passion of Ayn Rand.

What Rand admired about Mises were his criticisms of socialism and Marxism.

Rand’s overall evaluation of the Austrians is damning.  Rand was initially attracted to some of the Austrians.  This only proves she was human.  Thus, it is not surprising that many Objectivists are initially attracted to the Austrians, as was I.   .

What is interesting is that most Austrians understand that Objectivism is incompatible with Austrian Economics, but many Objectivists have not figured this out.

 

 

6) Conclusion

 

Austrian Economics is not just wrong, it is actively working against Freedom, Capitalism, Science, and Reason.  The case against Austrian Economics is overwhelming.

  • -Austrian Economics rejects and denigrates the intellectual achievements of inventors, engineers, and scientist.
  • -Austrian Economics rejects and actively undermines reason and science.  (The modern Austrians are happy to lie to promote their positions.)
  • -Austrians are not defenders of the United States Constitution.
  • -Austrians undermine property rights, the law, and Natural Rights.
  • -Austrian Economics actively undermines the idea of a rational Ethics.
  • -The great Austrian Economists were not defenders of free markets and capitalism.  They were quite willing to allow government interference in the market, if it fit their goals.
  • -Austrian Economics pushes a number of economics theories that are laughably wrong.

 

If we hold the Austrians to the same standards we do for the socialists, we see that they are essentially the same.

[1] http://bakelitecollector.com/bakelite-history

September 12, 2016 Posted by | -Economics, Patents | , , | 1 Comment

Milton Friedman: Advocate for Freedom?

I have been criticized for pointing out that Austrian Economics, particularly Menger, Mises, and Hayek, is not consistent with reason, science, or Natural Rights and therefore not consistent with Capitalism.  In this article I am going to apply the same standards to Milton Friedman, who is also often cited as a great advocate of freedom and capitalism.

Milton Friedman won the Nobel Prize in economics and is not part of the Austrian School of Economics.  He is often classified as a monetarist or part of the Chicago School of Economics, I think the latter is more accurate.  Ayn Rand was no fan of Friedman.  She criticized his belief that economics must be morally neutral.   In this video, Rand states that Friedman is not an advocate for Capitalism and an enemy of Objectivism.Friedman

 

Epistemology

Milton Friedman laid out his ideas on epistemology in the essay “The Methodology of Positive Economics” (1953).  Some experts claim that the essay was a big influence on the Chicago School of Economics.  In this article he essentially argues for a pragmatic approach to epistemology, which boils down to if a model (theory) is predictive it is correct.

Friedman’s methodology, which appears to justify the eclectic and pragmatic view that economists should use any model that appears to “work” regardless of how absurd or unreasonable its assumptions might appear, has been deployed in service of a rigid theoretical orthodoxy.

Philosophy of Economics

Friedman argues that economic models are generally judged by the reasonableness of the underlying assumptions/propositions, however he thinks this is incorrect.

In so far as a theory can be said to have “assumptions” at all, and in so far as their “realism” can be judged independently of the validity of predictions, the relation between the significance of a theory and the “realism” of its “assumptions” is almost the opposite of that suggested by the view under criticism. Truly important and significant hypotheses will be found to have “assumptions” that are wildly inaccurate descriptive representations of reality, and, in general, the more significant the theory, the more unrealistic the assumptions (in this sense).

The Methodology of Positive Economics (1953)

It is easy to show Friedman’s pragmatism is mistaken.  Copernican Heliocentrism with its epicycles of the planets was highly predictive, but it was not science.  In science/engineering this is known as a heuristic model.  Heuristic models are often created by curve fitting the observed data.  They predict how a system will work within very narrow circumstance, but do not explain the underlying physics (causes).  As a result, heuristic models cannot be extended or built upon, when people attempt to do so they lead to false conclusions.

Friedman’s epistemology boils down to pragmatic “pure empiricism”, which means he accepts the evidence of his senses, but denies logic and concepts.  Friedman disconnects assumptions/propositions from the results of the model, which is an attack on logic.  An analogy would be that it might make no sense that doing a rain dance causes it to rain, but our empirical evidence says that it is predictive of whether it rains in the next couple of days so it is a good theory.  As a result, we are supposed to ignore that there is no causal relationship between the rain and the rain dance.

Friedman’s epistemology is anti-reason.  In one case Friedman argued that we need freedom because of this epistemological uncertainty.  “I have no right to coerce someone else, because I cannot be sure that I am right and he is wrong.”[1]  This is common position of libertarians and Austrians – lack of knowledge requires freedom.  This position not only undercuts all of science, it removes reason as the foundation of ethics, political philosophy, and law.  It is also unadulterated nonsense.

 

Science

Friedman is not proposing to do science, he is proposing to collect data that never leads to knowledge.  Science is based both on reality and reason/logic.  Friedman wants to ignore the reason/logic side of science.  While Friedman has different reasons for not proposing to do science, he is otherwise consistent with the Menger, Mises, and Hayek in rejecting science in economics.  Ultimately, Friedman’s ideas on science are just a rehash of Karl Popper’s misguided concept of science.

 

Ethics

Friedman is consistent with the Austrians in suggesting that economics must be value free – that is devoid of ethics.  Friedman argues in his paper The Methodology of Positive Economics, that for a discipline to be a science it must be free of moral judgments.  However, Friedman appears to making a finer distinction of where ethics fits in science and particularly in economics.

Positive economics is in principle independent of any particular ethical position or normative judgments. As Keynes says, it deals with “what is,” not with “what ought to be.”

The Methodology of Positive Economics

First, science requires a profound set of ethics that are unique in history.  This ethics requires reporting the data accurately,[2] follow the data to its logical conclusion, and never ascribing non-natural causes to the observations.

Second, imagine taking Friedman’s point of view in the science of medicine.  Medical doctors are not there to deal with ought to be, just to observe what is.  Are doctors biased in their observations, because they bring ethics into their science?

The question of ethics in economics disappears if the correct fundamental questions of economics iare defined and therefore the definition of economics is properly defined.  The most fundamental question of economics is: What is the source of real per capita increase in wealth?  This leads to the correct definition of economics which is the study of how man obtains the things he needs to live.  This puts the focus on human well-being, just like medicine.

Economists who pretend that they are not injecting ethics into economics are really pushing utilitarianism, often summed up as ‘the greatest good for the greatest number’.  This always leads to disaster.  In the short term the greatest good for the greatest number always weighs in favor of taking the property of those who create and giving it to those who do not, for instance.  In fact, many philosophers who push utilitarianism also push socialism.  The counter is usually that stealing people’s property is not good in the long run, but this argument rarely wins over most people.

I searched if Friedman ever mentions Natural Rights or Locke and never found anything.  This is not surprising as he explicitly rejects ethics, at least in economics, and implicitly accepts utilitarianism.

Friedman is inconsistent with the founding principles of the United States, inconsistent with Objectivism, and not an advocate of Capitalism, which is the economic system that occurs when a country protects people’s Natural Rights.

Friedman, in my opinion, is highly influence by the philosophers of the Scottish Enlightenment, which would not be surprising as Adam Smith is in this group and also Jeremy Bentham, one of the big proponents of utilitarianism. [3] The Scottish Enlightenment philosophers were also highly skeptical of the efficacy of reason.

 

Source of Economic Growth

Friedman did not write much about what causes real per capita increases in wealth.  I assume he accepted the standard neo-classical idea that increases in capital were the cause of economic growth.  This does not fit the empirical evidence.  Friedman’s lack of interest in the question is damning.  Although, he did focus his attention on what inhibits economic growth.

Friedman spends almost no time discussing inventions or inventors.  Inventions are the only way to increase real per capita incomes and define the upper bound on the standard of living in any given period of time.  The fact that Friedman ignores them shows incredibly poor judgment.

 

Industrial Revolution

The Industrial Revolution was the first time in history that real per capita incomes started to grow consistently.  Friedman’s only comments about the most important event in the history of economics was that the idea of robber barons was a myth.  This is not what I would expect of a scientist, however Friedman was clear that he was not doing science.

 

Conclusion

Milton Friedman hardly fares any better than the Austrian Economists.  Personally, I think his writing is much better than the Austrians and he is more likeable, which seemed to be part of his success in spreading his ideas.

Friedman’s ideas are inconsistent with reason, science, or Natural Rights and therefore not consistent with Capitalism.  He is not proposing to do science and undermines reason with his pragmatism.  However, unlike the Austrians, Milton Friedman’s supporters are not actively undermining property rights in his name.

 

 

 

[1] https://mises.org/library/friedman-intolerance-critique

[2] Something the so-called scientists studying Anthropomorphic Global Warming ignore.

[3] http://www.forbes.com/sites/realspin/2014/07/31/milton-friedmans-property-rights-legacy/#264b72e06663

August 27, 2016 Posted by | -Economics, Innovation | , , , | 1 Comment

NYT How Did We End Up in a Low Growth World?: $#^@!

The New York Times published one of their standard obscure, rambling articles entitled “We’re in a Low-Growth World. How Did We Get Here?” by Neil Irwin.  The author rings his hands over the slow growth of the last 15 years and concludes that we (he) has no idea why we are in this situation, but if it does not change we are in for a gloomy 21st century.

The article is a perfect illustration of the economic professions’ ignorance of what causes economic growth.  What is interesting is that most economists do not really consider this an important question of economics.  They waste an almost infinite number of bits on price theory with its supply and demand curves, while ignoring the most important question in economics.

The article meanders from the statement that like most things in economics it all boils down to supply and demand, ignoring that supply and demand curves are about equilibrium, not growth.  Then it jumps to into a discussion that blames technology as being less effective than in the past and vaguely ties this to a slowdown in the supply side of the equation.  Next it jumps to the favorite crutch of Keynesian-socialists, a lack of demand.  It provides the standard Keynesian/socialists’ answers of loose money policies and fiscal stimulus that have worked in the past ,according to the article, but just do not seem to be working now, all the while ignoring the fact that neither of these have worked in the past.  In the end, the article admits it has no idea why we have slow growth now.

The article illustrates that the economics profession has no idea what causes economic growth.  The Keynesians argue that increasing demand creates economic growth (or at least lack of demand causes recessions), while the rest of the economics profession argues that it is increasing levels of capital.  So called free market economists know what kills economic growth and their economic freedom surveys provide overwhelming evidence in this case.  The US has fallen from 6th in the world to 11th in the world in economic freedom under President Obama (The downward trend started under Bush, showing this is bipartisan effort) according to this article.  Correcting this is a great place to start, however this does not explain what causes economic growth.

Our level of technology is what defines (i.e., provides the upper bound on) our level of wealth.  As a result, the only way to increase real per capita econgrowth.smallwealth over the long term is to invent (i.e., increase our level of technology).  The book the Source of Economic Growth provides overwhelming evidence for this.  Since 2000, when the slow-down started according to the New York Times, we have undermined our inventors, by undermining their property rights in their inventions.  The US has also undermined the three foundations on which technology startups are built: 1) Intellectual Capital, 2) Financial Capital, and 3) Human Capital.  The US has undermined the intellectual capital pillar by weakening the patent system, which leftists and libertarians continue today (see the Venue Act).  The financial capital side has been undermined by Sarbanes Oxley and other financial regulation.  The human capital leg has been frontcoverundermined by accounting changes to stock options.  I discuss how these little known changes in US law and regulations resulted in economic stagnation starting in 2000, while the US had real economic growth in the 1990’s, in my book The Decline and Fall of the American Entrepreneur.

If the US is serious about increasing its long range economic growth it needs to:

Protect the rights of inventors by significantly strengthening our patent system’

Repeal all financial regulation;

Repeal regulatory rules that lock-in specific technologies, such as the FDA, the EPA, and building codes.

These changes would increase the US’s economic freedom score.  We do not have to accept the low growth new normal, however nature to be commanded must first be obeyed.

 

 

 

We’re in a Low-Growth World. How Did We Get Here?” by Neil Irwin

August 11, 2016 Posted by | -Economics, Innovation, News, Patents | , , , , | 2 Comments

Economics as it Should Be

I gave a talk at Atlas Summit on ‘Economics, Evolution, and Rand’s Meta-Ethics’ and one person asked me how my ideas would alter economics.  In my talks and in my book Source of Economic Growth, I suggest that economics needs to be rethought from the ground up based on my findings.  Here are some of the ways economics needs to be changed in order to make it a science.econgrowth.small

 

1) Fundamental Questions of Economics

No school of economics is even asking the right questions.  I have written another post on point (Intellectual Capitalism: Part 1), so I will not repeat all of it here.

Every science is defined by the questions it asks.  According to a sampling of websites three of the major questions economics asks are:

1) What goods will be produced?

2) How will the goods be produced?

3) For whom are the goods produced?

All of these questions are inherently collectivist and in a truly capitalist country (i.e., one that protects Natural Rights) all of these questions lead to very boring answers.  In addition, none of these questions are scientific questions (Just another example of how economics is not a science).

The single most important question in economics is:

What is the source of real per capita increases in wealth?

This immediately leads to the second most important question in economics today which is: What caused the Industrial Revolution?  Both of these questions have empirical and objective answers.

The answer to the first question is inventions and this leads to a number of other important questions, such as how do we measure the rate of technological change?, what things influence the rate of technological change?, why does Singapore appear to have a faster growth rate than Hong Kong despite a lower economic freedom index?, are inventions subject to diminishing returns?, etc.

 

2) Definition of Economics

Since economics is asking the wrong questions, the definition of economics is incorrect.  Here is my suggested definition of economics vs. standard definitions.  Note that I have a whole chapter on this subject in my book Source of Economic Growth.

Standard Definitions

Economics is a science which studies human behavior as a relationship between ends and scarce means which have alternative uses.

The science that deals with the production, distribution, and consumption of goods and services, or the material welfare of humankind.

 

My Definition

Economics is the study of how man obtains those things he needs to live.

 

3) Cause and Effect in Economics

Classical, Neo-Classical, and Austrian economics emphasize manufacturing and trade, while Keynesian economics emphasizes consumption as the driver of economics and all of them are wrong.  The chain of cause and effect in economics is shown in the chart below.

EconomicCauseEffect

When man applies his reason to the problems of survival he invents.  Production, which is really about reproduction or replication, is not the driver in economics as the questions from mainstream economics imply.  Trade is also not the driver and in fact the Manufacturing and Trade steps are not absolutely necessary.  Keynesian economics focuses on consumption, so it is on the far wrong side of the cause and effect chain.

Because Classical, Neo-Classical, and Austrian economics emphasizes the effects instead of the causes in economics they waste an huge amount of time on supply and demand curves.  Every supply and demand curve should come with two caveats: 1) demand does not create supply and 2) this chart assumes a technologically stagnant world.  If demand could create supply then Keynesians would be right.  What a supply and demand chart shows is how much people would be willing to sell of their present stock at various prices, it does not show that anyone will produce anything.

 

4) Economics is not a Social Science its Foundations are in Biology and Evolution

Economics is not a social science, it is a real science based on the biological facts of human existence.  Specifically that humans have to obtain a certain number of calories (calories here substitute well for all our needs, including oxygen, water, etc.) per day or we die.  This gives us a physical definition of profit and loss.  Modern economics treats the whole subject as if it was merely a game.  Venezuela, North Korea, China, and the USSR prove that it is not.

For more information see Economics, Evolution, and Rand’s Meta-Ethics (Intellectual Capitalism: Fundamentals Part 2)

The fact that profit and loss have real physical definitions means that economics is a real empirical science.  Neoclassical economics pretends to be an empirical science but too often they create mathematical models in which none of the variables are measurable.  That is not science.

 

5) Perfect Competition

Perfect competition is an inherently flawed concept that has no place in economics.  All conclusions based on perfect competition are wrong, including the whole monopoly power and anti-trust analysis.  Perfect competition should be laid to rest and only discussed as a historical example of how absurd economics once was.  I have a large section analyzing perfect competition in my book Source of Economic Growth.

Competition is not the source of our wealth.  One of the narratives of economics is that competition drives down profit margins and that is how we become wealthy.  This is left over from the nonsense of perfect competition.  While it is true that we do not want the government to setup rules that provide an advantage for one market participate over another and that these rules hurt the economy, it does not follow that competition creates wealth.  The wealthiest countries in the world are those in which a larger percentage of people create unique products and services that have little or no direct competition.  The goal is for everyone to be producing unique high value items, not 300 million or even 100 million people all producing me too products.

 

6) Property Rights/Ethics

There has been a movement to eliminate ethics from economics and this runs through all schools of economics.  The justification for this is that science is devoid of ethical considerations.  This is not true and the best example of what happens when scientists divorce themselves of ethics is Anthropomorphic Global Warming.  All science has an ethics that at least includes the rules of: 1) you must report the data accurately, and 2) you must follow the data to its logical conclusions.  Some sciences such as medicine have additional ethical constraints.  In medicine it is not ethical for the doctor to give the patient poison or prescribe poison just to see what happens or undertake surgery just to see how the human body reacts.  Similarly, economics must not prescribe economic poison.  Economics is ethically constrained to policies that promote life.

This attempt by economics to divorce itself from ethics not only means that economics defaults to a utilitarian based ethics, it also means that economists have no idea what property rights are.  Property rights cannot be justified on utilitarian grounds.  The utilitarian benefits of ‘property rights’ are the effect not the cause.  Because of this confusion economists will go around saying that taxing medallions are property rights or FCC licenses or slavery in the South.  It also means that when they combine their flawed ideas on ‘property rights’ with the nonsense of perfect competition they start talking about true property rights as giving monopoly power.  This leads to all sorts of nonsense including the idea that patents and copyrights are monopolies.

Property rights are based in ethics and cannot be divorced from ethics.  Property rights are the recognition that someone created something of value.  When economics attempts to redefine property rights, it commits both a scientific error and an ethical error.  The scientific error is the result of ignoring definitions and reality.  Words have meaning and when economists say property rights are any legally enforceable control over an object it is like a biologist saying a mammal is any warm blooded animal (birds are warm blooded).  The definition of a mammal is based in reality and is not arbitrary and the definition of property rights are based in reality.  Ignoring reality is not science.

Ethically when economists attempt to redefine property rights they are advocating fraud or theft, by advocating that a creator’s creation be taken from him and given to someone else without the creator’s consent.

It is a sad fact that most economists have no idea what property rights are, however they are in good company.  Lawyers, free market advocates, and even Objectivists do not have a firm grounding in what property rights are or how they come about.  Historically, the study of property rights peaked around the time of the Homestead Act of 1862 and was dead when Hoover said the airwaves belong to the public.

Adam Mossoff is one of the few academics trying to advance the theoretical foundations of property rights.  Studying the nature of property rights is part of economics and is completely neglected by all modern schools of economics.

 

7) Regulation and Opportunity Costs (An Application)

Regulation is usually analyzed on its effectiveness and based on its opportunity costs.  For instance, if we mandate that all cars have airbags, this means that the cost of all cars will increase but the cars will be safer.  This means that people will put off buying newer. safer cars and when they do buy a new car they will likely be forced to buy a smaller car that is less safe.

Another example is that if we force houses to meet building codes, builders will have to spend more time complying with these rules and will not be able to make certain tradeoffs.  The supposed advantage is safety, but the opportunity costs is that housing is more expensive which means consumers have to drive cars that are not as safe or eat food of lower quality or have fewer children or spend less on education.

This analysis is flawed, because the largest opportunity cost of regulation is the lost inventions.  The main justification for regulations is safety.  However, because regulations such building codes and the FDA lock us into a technological stagnant (or retarded) market, in the long run we are less safe and these regulated product cost more.  In the case of the FDA I am sure that what minor benefits we obtain in safety are wiped out within a year or two by the lost technological advances.  However there have been no empirical studies on point to my knowledge.  In fact, studies looking at this issue would be excellent research project in economics.

 

8) Immigration (An Application)

Does immigration lower wages or not?  Economists argue both side of this argument and point to differing empirical evidence to support their positions.  The reason for this confusion is that economists do not understand that inventions are the source of real per capita increases in wealth.  I will show how my system of economics resolves this debate and why there appears to be conflicting empirical data.

We will start with the simplest case first.  If we have a country where the overwhelming majority of people are living in the Malthusian Trap (i.e., the edge of starvation, subsistence living) then if more people move into that country people’s wages will not go down, but people will starve to death.[1]  With this information let’s examine the two extreme cases: a technologically stagnant country and a technologically dynamic country.  In a technologically stagnant country the total GDP is flat to declining slowly.  If immigrants increase the population of this country they will not and cannot increase its GDP, so real per capita incomes will decrease and therefore wages will decline.  This is similar to the country in the Malthusian Trap.

When a country is technologically dynamic then its real per capita GDP is increasing.  Immigrants in this case can contribute to the country’s increasing level of technology and therefore the wealth of the country.  In that case each new person that is open to using their mind is an asset and only makes the country wealthier.  A pretty good measure of how technologically dynamic a country is its economic freedom index.

No countries on Earth today are fully optimized to increase their level of technology and only a few are absolutely technologically stagnant.  Some of the more technologically dynamic  countries

include Singapore and Honk Kong.  As Peter Thiel has pointed out the rate that the U.S. creates new technologies outside the information technology area has slowed significantly.  Countries that are close to being technologically stagnant include Venezuela and North Korea and many African countries

Since economists do not control for how technologically dynamic the economy (or part of the economy) was that they used in their studies of whether immigrants increase or decrease wages, it is not surprising they got differing results even if they did everything else right in their studies.

 

Conclusion

My proposed school of economics, Intellectual Capitalism, is profoundly different than Neo-Classical, Austrian, Keynesian or any other school of economics.

 

For more on Intellectual Capitalism see:

My Book Source of Economic Growth

These Articles:

Intellectual Capitalism: Philosophy

Intellectual Capitalism: Fundamentals Part 1

Economics, Evolution, and Rand’s Meta-Ethics (Intellectual Capitalism: Fundamentals Part 2)

Talk:

The Source of Economic Growth

[1] Note this assumes that this country is technologically stagnant, which is likely if most people are living in the Malthusian Trap.  s

July 25, 2016 Posted by | -Economics, bioeconomics, Intellectual Capitalism, News | , | 1 Comment

Austrian Economics and Objectivism Panel Session

Will Thomas and I gave a talk at Atlas Summit 2016 on Austrian Economics.  The talk focused on epistemological and ethical positions of Carl Menger, Ludwig Von Mises, and F.A. Hayek.  A number of people asked for the slides and related materials.  Below I provide links to nine posts on blog that investigate some of the issues discussed in the talk in more detail.  Below that are the slides from the talk.

 

Articles

Is Carl Menger a Socialist?  https://hallingblog.com/2016/06/25/is-carl-menger-a-socialist/

 

Why Austrian Economics Subjectivity is Wrong and Condemns Economics to Being a Pseudo-Science   https://hallingblog.com/2016/06/13/why-austrian-economics-subjectivity-is-wrong-and-condemns-economics-to-being-a-pseudo-science/

 

Can “Dignity” Explain the Industrial Revolution: A Review of Deirdre McCloskey’s Economic Ideas  https://hallingblog.com/2016/05/22/can-dignity-explain-the-industrial-revolution-a-review-of-deirdre-mccloskeys-economic-ideas/

 

Carl Menger: Austrian Economics vs. Objectivism  https://hallingblog.com/2016/03/21/carl-menger-austrian-economics-vs-objectivism/

 

Carl Menger: Principles of Economics  https://hallingblog.com/2015/11/16/carl-menger-principles-of-economics/

 

Capital in Disequilibrium: The Austrians’ Answer to New Growth Theory  https://hallingblog.com/2015/09/09/capital-in-disequilibrium-the-austrians-answer-to-new-growth-theory/

 

Praxeology: An Intellectual Train Wreck  https://hallingblog.com/2015/09/08/praxeology-an-intellectual-train-wreck/

 

Hayek: Friend or Foe of Reason, Liberty and Capitalism?  https://hallingblog.com/2015/03/04/hayek-friend-or-foe-of-reason-liberty-and-capitalism/

 

The Austrian Business Cycle Debunked  https://hallingblog.com/2015/02/15/the-austrian-business-cycle-debunked/

 

The Irrational Foundations of Austrian Economics  https://hallingblog.com/2015/02/12/the-irrational-foundations-of-austrian-economics/

 

 

Slides

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Slide2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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July 21, 2016 Posted by | -Economics, philosophy, Uncategorized | , , , , , | Leave a comment