Primer on Austrian Economics
By Arnold Kling
Eamonn Butler, who wrote the much under-appreciated Best Book on the Market, has a new project, a primer on Austrian ecoomics. Once again, I think he has done an outstanding job.
In light of our discussion of Arrow, I note the following:
A society does not choose; a collective has no life or mind of its own;
That, according to Butler, is an Austrian methodological principle. Maybe that is why I am having such a hard time getting the point of Arrow’s impossibility theorem. If you take it as given that society has no collective mind, what is there to prove?
More excerpts below the fold.
Statistics, he [Menger] believed, simply smother what is actually going on. And what is going on in economics is that millions of individuals are constantly making choices. Those choices are the basis of economic phenomena such as demand, supply, price, and markets. They must be the basis of economic science too. Economics must start at the level of individuals – an approach known as methodological individualism – and seek to understand how they choose.
He (Wieser) showed that costs are not an objective measure but, once again, stem from the subjective values and preferences of those involved.
a natural scientist who looks at us as mere objects, pushed around by outside forces, misses everything inside us that gives us motivation and explains how we live.
We should not fall into the trap of supposing that because a pair of shoes (say) sells for a particular sum of money, that this price equals the value of the shoes. Value is personal. The person selling shoes values the cash more than the shoes; the buyer values the shoes more than the cash.
Austrians therefore regard macroeconomics as fundamentally misguided and misleading. First, it tries to add up chalk-and-cheese individual actions and make predictions on the results, which is simply impossible. It is pseudo-science. And the attempt to apply mathematics to identify supposed ‘constants’ between the economic aggregates is pseudo-science on stilts. It is to apply numbers to things that cannot properly be added together and to supposed effects that do not exist. For this reason, Austrians are generally suspicious of the use of mathematical and statistical techniques that is such a feature of mainstream economics.
The textbook idea of ‘perfect competition’ is fundamentally misleading: it is diversity and differences that makes markets work, not uniformity.