Neoclassical, it’s not that Austrians shun indifference curves for the sake of it, it’s that most macro-economic policy advice based on it commits the fallacy of interpreting utility cardinally (as it shouldn’t) while it is defined ordinally (as it should).
How do you overcome that problem?
Regarding the Marschall vs Hicks etcetera, could you summarize the differences for me? I’m not aware of that. Thanks.
Many Austrians outright deny these ideas.
Through arguments. They don’t just deny them.
This Caplan guy is like a hermit who has read some Austrian economics simply for the sake of criticizing it. He hasn’t made any serious mental effort to understand it in depth. It’s not enough just to read! You have to reflect on it, discuss it, and even debate it. He struggles with an argument or a proposition and he just assumes it’s false, then goes on to naively criticize it as a hundred others before him have already done so.
DD5, are you serious? Caplan was an Objectivist in highschool, but became a Rothbardian in college (both in economics and political philosophy). During graduate school at Princeton, he came to adopt mainstream neoclassical economics and intuitionism in ethics (although he is still an anarcho-capitalist). I assure you, he knows more Mises and Rothbard than 99% of the people on these forums. Granted his knowledge of Hayek isn’t that impressive, but the same thing could be said of most of the people that post here.
Granted his knowledge of Hayek isn’t that impressive, but the same thing could be said of most of the people that post here.
We’re on Caplan levels? Wow!
And what fraternity did he belong to? Maybe that somehow can discredit my opinion also.
I’ve read much of his stuff in the past. It’s mostly philosophical nonsense; like some fancy lawyer who gets paid to come up with some sophisticated arguments to acquit his guilty client in the presence of some ignorant jurors.
I am not a member of the Austrian school of economics.
Is there a branch of the Chicago School that does defend the Federal Reserve? My father argued that it was largely responsible for the Great Depression.
hehe. Hi David. I recently watched your talk on market vs political failures, and it brought up some things I hadn’t been thinking about before. Thank you.
I recently created a thread on the free rider problem, recommending some solutions, but no one here seems to have bitten. Could you have a look at it and offer some thoughts/critique?
a whole mess of the Mises U lectures address differences between Austrian and Neoclassical and why.
I don’t think that the OP meant defending the ACTIONS of the FED, I think he meant the existence of it, and probably not just in its current format, but a central bank in general. So in those terms, I don’t think many Monetarists would not ‘defend’ the FED or the idea of central banking.
And I am still new and haven’t read America’s Great Depression yet, and I only sort of know about MF’s explanation for the Great Depression, but I am pretty sure the Austrian story and the Chicago story are quite different in terms of the role that the FED played. I believe the Austrian story is that the FED caused the boom (starting roughly in 27) that led to the 29 crash, but the reason why there was a decade long depression and not a recession was more down to the actions of Hoover and FDR. Whereas I think the Chicago story has something to do with the FED not expanding the money supply enough, no?
Friedmanites, such as myself, (quoting Richard H. Timberlake) are especially critical of the Fed’s “ineptness” during the Great Contraction, 1929-1933, when, as [Friedman and Schwartz] reported, Fed policy allowed the commercial banking system to disintegrate, the common money stock to decline at the rate of eight per cent per year for four years, and the economy to suffer a catastrophic contraction.
In an interview with Russ Roberts at EconTalk, Milton Friedman admits he was always committed to abolishing the Fed.
Quoting Friedman from the interview, The difficulty of having people understand monetary theory is very simple—the central banks are good at press relations. The central banks hire people and the central banks employ a large fraction of all economists so there is a bias to tell the case—the story—in a way that is favorable to the central banks.
But the Great Depression was such a major event and such a disaster that there was no way in which you could talk it away, although they tried to do so. If you read the annual reports of the Federal Reserve Board or its testimony before Congress, you will find that as late as 1933, at the very depths of the depression, it’s talking about how much worse things would have been if the Fed hadn’t behaved so well.
But the evidence was so clear. You had a decline in the quantity of money by a third from 1929 to 1933 and that coincided with the decline in the economy by half or so. When you have 25 percent of the working force unemployed, you can’t just talk it away.
"Neoclassical, it’s not that Austrians shun indifference curves for the sake of it, it’s that most macro-economic policy advice based on it commits the fallacy of interpreting utility cardinally (as it shouldn’t) while it is defined ordinally (as it should).
How do you overcome that problem?"
One way is by using cardinal utility, something that has been possible since Von Neumann demonstrated how the utility function could incorporate choices under uncertainty.
"Caplan’s criticism is one of the few well-reasoned critiques, but it has received a number of responses. Most of these are actually responses to a paper he wrote in the Southern Economic Journal, “The Austrian Search for Realistic Foundations”, which is very similar, so you should have no problem applying them to this particular critique. I’ll list the responses in chronological order, and I’ll include Caplan’s own rebuttals:
“Economic Science and Neoclassicism”, by Jörg Guido Hülsmann
“Austrian Theorizing: Recalling the Foundations”, and the errata, by Walter Block
“Kaldor-Hicks Efficiency and the Problem of Central Planning”, by Edward Stringham
“Probability, Common Sense, and Realism: A Reply to Hülsmann and Block”, by Bryan Caplan
“Realism: Austrian vs. Neoclassical Economics, Reply to Caplan”, by Walter Block
“Probability and the Synthetic A Priori: A Reply to Block”, by Bryan Caplan
“Rejoinder to Caplan on Bayesian Economics”, by Walter Block
Those are the direct responses, which directly quote and criticise Caplan. Caplan’s criticisms are, however, recycled from years past, so if you really want a good understanding of Austrian Economics, I suggest you also read books and papers that deal with the specific issues (e.g. indifference) brought up. You can find a reading list here." - https://forum.freecapitalists.org/t/any-rebuttals-to-critiques-of-austrian-economics/2653/10
I’ve read several of those papers; I find them ridiculous.
Essentially, I steadfastly subscribe to the opposite side: Bayesian reasoning is good, empiricism is good, law and economics is good.
One way is by using cardinal utility, something that has been possible since Von Neumann demonstrated how the utility function could incorporate choices under uncertainty.
Thank you for your answer, Professor Friedman. I will look into Von Neumann’s cardinal utility.
If possible to list exhaustively, could you please point out the other approaches possible to overcome the problem?
On a sort of related note, David Friedman’s Private Creation and Enforcement of Law seems to be on Bob Murphy’s syllabus for his upcoming Mises Academy course, The Economics of Private Legal and Defense Services.
(Response to Consultant)
I’m not sure I know which problem you are thinking of. The big one isn’t, I think, ordinal vs cardinal, it’s the problem of interpersonal comparisons. I discuss that at some length in the context of the definition of economic efficiency in both Price Theory and Law’s Order, which are webbed on my site, as well as in Hidden Order, which isn’t. The short answer is that one can do better than nothing, although not as well as one would like to.
Nice to see you here again Professor Friedman!
I thought your son Patri made an excellent presentation at Mises Brasil, where he showed the evolution of approach by 3 generations of Friedman thinkers on the subject of human liberty.
I just noticed your presentation is available, now I have something to watch tonight. 
“a whole mess of the Mises U lectures address differences between Austrian and Neoclassical and why.”
I would have said that Austrians are neoclassical economists–as are Keynesians. Did you mean differences between Austrians and other sorts of neoclassicals?
Are any of those lectures given by supporters of the Chicago school?