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Patents and Innovation Economics

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

Slide1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide16

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide28

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide29

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide32

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide33

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide34

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide35

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide36

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

end

 

 

 

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

Praxeology: An Intellectual Train Wreck

One of the foremost economists in Austrian Economics is Ludwig Von Mises.  One of his major contributions was praxeology, which is  is the deductive study of human action.  I have been trying to better understand praxeology.  I have consulted numerous websites, papers, and videos on point.  Most of them either ramble on saying nothing or they spend all their time attacking logical positivists or others.  I decided to review a paper from the Mises website and a video on point.  Together I thought these were the best sources on slightly different points of praxeology.  The video was a lecture by Dr. Walter Block who is the Harold E. Wirth Eminent Scholar Chair in Economics and Professor of Economics at Loyola University New Orleans and Senior Fellow with the Ludwig von Mises Institute.  Below are statements from the paper (1-4) and the video (5-12), with  my comments below.  Note that my criticism of praxeology and Austrian Economics is not an endorsement of any other school of economics including classical, neo-classical, Keynesian, monetarists, etc.  The fact that I am critical of praxeology does not make me or mean I am a logical positivist.   Also my critique is not to suggest that there are no valid points made by Austrian Economics.

 

econgrowth.small1) “Praxeology rests on the fundamental axiom that individual human beings act, that is, on the primordial fact that individuals engage in conscious actions toward chosen goals.”[1]  “Let us note that praxeology does not assume that a person’s choice of values or goals is wise or proper . . . “[2]

How can you tell the difference between non-goal directed action and goal directed action, if you cannot say what goals should be pursued or will be pursued?  If the goals are random or allowed to be random, how can you be sure the actions are not random?  The answer is that there is no difference between non-goal directed action and goal directed action where the goals are random.  This is part of the value subjectivism of Austrian Economics.

What is the goal directed action of a person committing suicide?  Or a vandal?  Or a teenager on a joy ride?

The human action axiom is meaningless when it is impossible to judge the goal.

 

2) “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.”[3]

This means that praxeology is a branch of Philosophical Rationalism.  Descartes created a system of physics just by thinking about the world.  It was internally consistent.  In other words it was just like praxeology and it did not describe the world and could not be used to predict or understand how something would work.

3) “Mathematical logic is appropriate to physics.”  But not to economics.  “In physics the axioms and therefore the deductions are in themselves purely formal and only acquire meaning “operationally” insofar as they can explain and predict given facts.”[4]

There are no axioms in physics.  Physics is a science and science starts with observations, not axioms.

 

4) “That Austrian School economics rests firmly from the beginning on an analysis of the fact of individual subjective values and choices.”[5]

Note that the paper says “individual subjective choices”, which means that the word subjective here is not that each person makes their own choices.  It means that there is no rational way to evaluate people’s choices.  This subjectivism is why all major figures in Austrian Economics do not think that natural rights exist.  They do not believe that ethics can be based on reason.

 

5) Economics is pure logic – no need to verify in the real world.

That would make economics a branch of mathematics (logic), not a science.  (Also see the video https://www.youtube.com/watch?v=aTXxvWa11Lg).

 

6) While economics is based on pure logic, the lecturer argues it is science.

Dr. Block does not know what the definition of a science is.  Actually, I do not think Mises made this mistake of confusing math/logic with science.

 

7) Total profits equal zero in the economy is an axiomatic (theorem) tendency according to the professor.

If this were true we would still be living in the Malthusian Trap.  The definition of zero profit in the economy would mean that on average people are living on the edge of starvation.  Profit means that you produce enough to have a surplus.  But this does not have to bother Dr. Brock, because economics is not an empirical science, which is an oxymoron.

It appears the professor was attempting to summarize the zero profit theorem, which is based on perfect competition.  Perfect competition is a flawed concept that denies property rights, something it has in common with Austrian Economics.  I discuss the many flaws of perfect competition in my book Source of Economic Growth and also in my lecture at the Atlas Summit 2015.

If what the Austrians are trying to say is “in a technologically stagnant economy the total profits tend to zero.”  Then that is true and I discuss this in my book Source of Economic Growth.  The reason for this is the second law of thermodynamics (entropy).  It is also probably true in a technologically stagnant market, profits tend to zero for firms in the market.

 

8) The Zero Profit theorem cannot be falsified.

That is the meaning of non-empirical, but what is amazing is that he says this straight up and I showed above that in fact the theorem as he states it is in fact incorrect.

 

9) You don’t test that a triangle has 180 degrees?

Yes you do.  Obviously Block is not familiar with the book flatland.  In fact there is an experiment in astronomy that is doing exactly this.  See http://www.mathaware.org/mam/05/shape.of.universe.html.

 

10) Block is using econometric modeling.  Econometrics assumes that economics is empirical.  Block is correct to criticize logical positivism, but logical positivism is not a correct philosophy of science.  (Also see the video https://www.youtube.com/watch?v=aTXxvWa11Lg)

 

11) Trade – both parties expect to profit by a trade is an axiom/theorem of praxeology according to Block.

While this is true, it violates the zero profit tendency.

 

12) Inputs to the economy are land, labor, capital, and entrepreneurs.

How are entrepreneurs a separate input?  Are not entrepreneurs just a combination of people and capital, at least in Austrian Economics?

The additional input and the only input of importance is human knowledge and when we are talking about economics that means inventions.

 

Conclusion

I only commented on the first 15 minutes or so of the video.  There were other errors, but explaining them would take too long.  Of course there were many valid points.

The bottom line is that praxeology is not a science and to the extent that Austrian Economics is based on praxeology it is not a science.  Block points out that there are sort of two schools of Austrian Economics and the other one is based on Hayek’s ideas.  Hayek rejected praxeology and his somewhat equivalent theory is his theory of Cultural Evolution, for more see the video Hayek: Friend or Foe of Reason, Liberty and Capitalism?  Cultural Evolution is an inherently collectivist that is based on the idea that reason is limited or totally ineffectual.  It is not a science either, since it rejects the use of reason.  No matter which branch of Austrian Economics that you investigate it is not a science.  The result is that it makes numerous errors, which I have detailed elsewhere, but include an improper definition of property rights, an improper definition of capitalism, the false model of the Austrian Business Cycle, and others.

Austrian Economics is not the only school of economics that is not a science.   However, if economics is to ever advance it has to be a science based on the nature of man and understanding that  his unique tool of survival is his ability to reason.  In my book the Source of Economic Growth I lay out the principles for a school of economics that is a science, that is consistent with Objectivism, and is consistent with Natural Rights.

 

 

 

[1] https://mises.org/library/praxeology-methodology-austrian-economics

[2] https://mises.org/library/praxeology-methodology-austrian-economics

[3] https://mises.org/library/praxeology-methodology-austrian-economics

[4] https://mises.org/library/praxeology-methodology-austrian-economics

[5] https://mises.org/library/praxeology-methodology-austrian-economics

September 8, 2015 Posted by | -Economics, philosophy | , , , | 14 Comments