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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

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

Source of Economic Growth: The talk and the Book

Dale B. Halling’s new book Source of Economic Growth is now available.  This book 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 first time any large group of people escape subsistence living (Malthusian Trap) and their incomes start to grow. By examining these econgrowth.smallquestions, 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.

Mr. Halling gave a related talk at Atlas Summit 2015 entitled The Source of Economic Growth.  No school of economic thought is consistent with Objectivism, which is why Ayn Rand, in the very first sentences of “Capitalism: The Unknown Ideal”, said “This book is not a treatise on economics. It is a collection of essays on the moral aspects of capitalism.” Patent attorney and novelist Dale Halling proposes a science of economics that is consistent with Rand’s philosophy. The path to that understanding of economics results from examining the source of real per capita increases in wealth, which puts man’s mind at the center of economics. No other school of economics puts emphasis on man’s mind, which is one reason why Rand had a tenuous relationship with even free market economists.

September 1, 2015 Posted by | -Economics, -Philosophy, News | , , , , | Leave a comment

Perfect Competition is Economic Equivalent of Altruism Morally & Why it Matters to Patents

Perfect competition is when no one producer or consumer has the ability to affect the market price and all producers and consumers compete for a homogenous product, driving down the cost of the product.  Under perfect competition, a producer’s profit is eliminated or at least reduced to a trivial return.  Why this matters to patents is that the theory of perfect competition is often used to attack the patents.  It is argued that patents allow producers a differentiating feature or product and therefore they have a greater margin than their competitors.  Economists argue this means that the patent holder is getting monopoly profits according to the “perfect competition” theory and they call this profit a “deadweight” loss.  This supposedly shows that resources are not being allocated efficiently.

So why do I say Perfect Competition is the equivalent of Altruism morally?  Altruism is the idea of self sacrifice as a moral value and perfect competition is the economic idea of sacrificing a producer profits and a consumer’s right to choice.  The goal of perfect competition is that no one, producer or consumer, is treated as an individual and everyone needs to be sacrificed to the altar of perfect competition collective.  There is never any discussion of property rights with respect to “perfect competition” or individual rights.

Ayn Rand often stated that so called defenders of capitalism are often worse than its detractors.  Perfect competition is another example of this.  The Chicago School of economics, which included Milton Friedman, pushed the idea of “perfect competition.”  The book of A Random Walk Down Wall Street was the application of perfect competition to Wall Street by a Chicago School of Economics professor.  Perfect competition is the enemy of capitalism, individual rights, and economic growth.

Real per capita growth is the result of increases in one’s level of technology.  Under perfect competition, there is no reason to invest in creating new technologies and in fact there is no reason to invest at all.  Under perfect competition every investment yields the same low rate of return or no rate of return.  Perfect competition is used to justify antitrust laws that destroy property rights and most importantly property rights in inventions.  Perfect competition results in the same sort of idea of self sacrifice as altruism and is totally incompatible with capitalism, property rights, natural rights, and human happiness.

 

October 19, 2011 Posted by | -Economics, Blog, Patents | , , , , , | 2 Comments