Hello! I am new here. I had a general question posed to me on another forum from a guy that didnt take to well to the Austrian school of thought..to say the least. I thought maybe some of y’all would like to take a stab at it. Thanks for the help in advance.
His question:
As a graduate student in economics, I am interested in learning about the various schools of thought and the differing aspects of each. Being an advocate of the Austrian School, I was wondering if you could shed any light on the lack of mathematical models and econometrics within Austrian Economics. Of particular interest is justifying both the Austrian’s disregard and rejection of continuity (and thus differentiation) especially given their contributions regarding the economic concept of marginalism.
The rejection of continuity is relevant because ‘continuity’ is irrelevant for human action. People choose on the margin concerning a concrete amount of goods. We don’t choose between 1.2 refrigerator but if we are willing to sacrifice x amount of dollars for this refrigerator (an x amount of dollars which could be used for something else).
Austrians do not accept the concept of continuity. Austrians contributed nicely to the concept of marginalism. To calculate marginal effects, differentiation is used. You can’t differentiate a non-continuous function.
This is something I have been wondering about. No science has a continuous set of data. Human beings can only make a finite number of observations, which means any graph of their data will perforce be discontinuous. But it doesnt bother anyone, they just “connect the dots” to produce a continuous function, and differentiate it. So why should economics be different.
As for 1.2 refridgerators, there may not be 1.2 fridges, but there are such things as continuous curves that best fit a set of points, and they can be differentiated.
So I’m not sure why discontinuity is such a problem in economics more than any other science.
Not quite - in neoclassical models, the derivative is taken, and is then termed the marginal cost (or revenue, or whatever you started with.) This is a stipulative definition. It isn’t what marginal changes mean. So if you believe that Austrians contributed “nicely” to the concept of marginalism (better wording would be invented the notion and defended the entire practice of economic theory, making room for neoclassicalists to come into being) then you must believe that there are other ways to understand marginal changes than this neoclassical stipulation.
On top of that, utility is ordinal, and economic decisions and tradeoffs are demonstrations of preference and not “equalities”, but unequal valuations of what is being gained in trade and what is being forsaken. This defies proper expression in mathematical equations therefore, and this is contrary to what is assumed in much of General Equilibrium theory.
One interesting thing to add to Rothbard’s statement is that even physics itself has some practitioners who are moving away from the infinitely small step. Space itself is atomized in at least two theories that I am aware of: Lee Smolin’s Loop-Quantum Gravity and Burkhard Heim’s Heim Theory. Way back in the days of Zeno there were recognized problems with a continuous reality, or anything, and I suspect that the next breakthrough in theoretical physics is going to come about because continuity is disproven.