But why choose the unrealistic version of the 2 ‘models’? Why not adopt a more causal-realist method? If there really isn’t that much difference, why talk about ‘maximizing someones spot within given constraints on the indifference curves’ when you can talk about ‘action for the highest psychic revenue’?
“Who admits that utilities can be calculated and compared?”
<= Well; Pigouvian taxes; for one.
I’m completely indifferent wether there are 800 people dying because of x, or 801. But because this doesn’t enter my actions or considerations - ‘indifference’, ey? - it’s not relevant for economics; the study of action, interaction, etc. So what’s the point? The strawman ‘nobody can be indifferent between two different bundles of goods’ is thus a lie. We aren’t saying that; just that it’s irrelevant for economics.
Again; does an indifference curve, in the neo classical sense, require cardinal utility?
The substitutability between goods is relevant; until the point of action, when it stops being relevant; cause I’m acting upon it.
No, I haven’t. And looking at the wikipedia page; I seriously doubt the relevance in economics, i.e. the science of human action.
Maybe another difference; some questions neo classicals ask and consider to be a part of economics are completely irrelevant for Austrians.
But why choose the unrealistic version of the 2 ‘models’? Why not adopt a more causal-realist method? If there really isn’t that much difference, why talk about ‘maximizing someones spot within given constraints on the indifference curves’ when you can talk about ‘action for the highest psychic revenue’?
Once again, the two mean almost the exact same thing, but the way Austrians state it imposes a lot of philosophical baggage as far as I can tell. More importantly, the way neoclassical state it means that it can be tested and potentially falsified. And, of course, to some extent it has been falsified, leading to new explanations for what may cause the divergence (e.g. behavioural econ). On the other hand Austrians are content to make do with a model that can’t be falsified and leads to relatively few new insights.
<= Well; Pigouvian taxes; for one.
Negative. Pigouvian taxes can make do with willingness to pay. Which, when expressed in monetary terms is perfectly apt for interpersonal comparisons.
So you’re saying ‘being correct’ is not as relevant for it has ‘philosophical baggage’?
Well; how can I test an ‘indifference curve’? How can I test ‘MC = MB’? ‘Perfect competition’? Why test? What’s there that needs testing?
So you’re saying that utility can be calculated and compared… by using ‘willingness to pay’ and using this ‘expressed in monetary terms is perfectly apt for interpersonal comparisons’. You are basically proving what you answered ‘negative’ too; so we must be talking past one another. Explain what you mean by ‘negative’. What’s the difference between me saying ‘well, Pigouvian taxes is based on utility calculated and compared’ and you arguing that it’s based on ‘willingness to pay and in monetary terms it can be used for interpersonal comparisons’?
No, I haven’t. And looking at the wikipedia page; I seriously doubt the relevance in economics, i.e. the science of human action.
Well then it takes some gall to chastise somebody for having never constructed an indifference curve. It relevant to economics because it shows that you can perform certain operations on a utility function that are still valid, since they preserve the ordering (sounds ordinal, not cardinal to me).
I’m completely indifferent wether there are 800 people dying because of x, or 801. But because this doesn’t enter my actions or considerations - ‘indifference’, ey? - it’s not relevant for economics; the study of action, interaction, etc. So what’s the point? The strawman ‘nobody can be indifferent between two different bundles of goods’ is thus a lie. We aren’t saying that; just that it’s irrelevant for economics.
Again; does an indifference curve, in the neo classical sense, require cardinal utility?
The substitutability between goods is relevant; until the point of action, when it stops being relevant; cause I’m acting upon it.
But the indifference is only relevant insofar as it allows us to explain action in the real world. As I said, the whole point of indifference curves is that people aren’t indifferent between outcomes on the different curves and that (usually) their budget constraint will allow only one outcome. The use of indifference is an analytical tool used to examine action in the real world and its implications.
Just without the philosophical baggage.
By the way, who defined economics to be the study of human action? That was Mises definition of praxeology (of which economics is a subcategory). Criticizing economists for not putting the same emphasis on human action as you seems to me to be a weak criticism.
So you’re saying ‘being correct’ is not as relevant for it has ‘philosophical baggage’?
No, I’m saying that the philosophical baggage is just that, baggage that really isn’t necessary to understand the subject matter of economics. Just like the hermeneutics crap that the GMU crowd examined was really a dead end, so too I think it’s a lot of the attempts to understand human action as the Austrian school does.
Well; how can I test an ‘indifference curve’? How can I test ‘MC = MB’? ‘Perfect competition’? Why test? What’s there that needs testing?
What do you mean, test an indifference curve? You don’t, perhaps you can test the implications of indifference analysis and see whether it’s a useful analytical tool. For example, do people consume more of one good relative to another when the price of the former falls? As for MC equals MB, they’ve tested that in lab settings and found that unless the difference is small people really to try to equalize the two. Now, this alone is a good approximation but then one must ask why do the differences persist? Questions like these can be interesting or can be relatively dull, in some cases behavioural economics tries to explain these differences.
So you’re saying that utility can be calculated and compared… by using ‘willingness to pay’ and using this ‘expressed in monetary terms is perfectly apt for interpersonal comparisons’. You are basically proving what you answered ‘negative’ too; so we must be talking past one another. Explain what you mean by ‘negative’. What’s the difference between me saying ‘well, Pigouvian taxes is based on utility calculated and compared’ and you arguing that it’s based on ‘willingness to pay and in monetary terms it can be used for interpersonal comparisons’?
Once again, this is where I think it’s a little hypocritical for you to chastise others about never having constructed an indifference curve. Look, willingness to pay is quite simple, determine how much one would be willing to pay for the marginal unit of some good and use that for comparison purposes. Monetary units are objective, unlike utility, and as such are apt for comparison between individuals.
There are multiple theories of the interest rate that are compatible with neoclasical theory (although the marginal product of capital must be a factor).
Some textbooks are guilty of this, but others are not. The “official” position taken by the most used graduate neoclassical texts is that cardinal measurements are impossible and unnecessary.
This is a simplifying assumption that can be relaxed in more advanced models.
Well defined ordinal preference is the only rationality required by neoclassical theory (Becker showed that downward sloping demand curves can be dervived from people acting randomly as long as scarcity exists).
Honestly, I’m not sure what you mean by this. Maybe you could elaborate.
The mainstream undergraduate texts are guilty as charged. Some of the graduate texts raise the possibility of non-neutrality of money, but don’t flesh out its full implications.
Multiple theories of competition are compatible with neoclassical theory (including Hayek’s theory).
Neoclassical economists usually claim to use a positivist-like methodology (or falsificationist), but they don’t actually use it in their own research.
Correct, game theory is now near the heart of standard neoclassical economics.
Solid_Choke,
Inconsistency seems to be the major underlying characteristic of the neoclassical school.
Maybe they misinterpreted Wiggenstein.
“Maybe they misinterpreted Wiggenstein.”
Bahahaha
Props to Solild_Choke and EconomistInTraining for outstanding clarifications.
well, i guess i missed most of the discussion here while i was studying. 
too bad. i don’t think i have much to add on top of solidchoke and economist in training.
i would note that it would be interesting if esuric could provide some examples to illustrate the conflicts between ae and neoclassicals that he presented. for example, maybe provide quotes of neoclassicals discussing competition or rationality and contrasting those with quotes from austrians on the same topics? i think that would be useful because i personally don’t see a conflict on those two issues in particular.
i also wonder if it might help for esuric to define some of his terms. for example, when esuric says that the “literal intepretation of the quantity theory of money” conflicts with AE, what does he mean? he certainly can’t mean that all austrians reject the theory whole sale. for example, here is hayek in prices and production on the quantity theory:
I do not propose to quarrel with the positive content of this theory: I am even ready to concede that so far as it goes it is true, and that, from a practical point of view, it would be one of the worst things which would befall us if the general public should ever again cease to believe in the elementary propositions of the quantity theory.
http://mises.org/books/pricesproduction.pdf
i am guessing he is referring to the complaint that a “mechanistic” interpretation of the quantity theory can lead one to overlook the real costs of inflation. here is pb:
But inflation is socially destructive on several levels. First, even anticipated inflation breaches a basic trust between the government and its citizens because government is using inflation to confiscate people’s wealth. Second, unanticipated inflation is redistributive as debtors gain at the expense of creditors. Third, because people cannot perfectly anticipate inflation and because the money is added somewhere in the system—say, through government purchase of bonds—some prices (the price of bonds, for example) adjust before other prices, which means that inflation distorts the pattern of exchange and production.
http://www.econlib.org/library/Enc/AustrianSchoolofEconomics.html
if thats the case that is very good advice. but i would hardly call it a uniquely austrian insight or even one that conflicts with “neoclassical” economics. mainstream economists are well aware that unanticipated inflation can lead to distortions in “the pattern of exchange and production”. i am sure that austrians might argue about what those distortions actually are and how long they will last, but that takes us into a different discussion. the bottom line is that i think hayek and pb agree with mainstream economists on the central lesson of the quantity theory → you can’t print your way to prosperity.
but maybe esuric has something else in mind and hayek and pb are not “really” austrians by his definition? esuric certainly seems to exclude folks like leeson, carlli, dempster, and others when he says that austrians don’t use game theory (as i think may already have been mentioned).
maybe the real lesson to take from this discussion is that it is hard to nail down what it means to be “austrian” just as its hard to nail down what it means to be “neoclassical”? and if thats the case, maybe we shouldn’t spend too much time worrying about it? thats certainly the point i was making earlier. just a thought.
Where and when does this awareness occur? In the cafeteria when they mingle? Or perhaps during their sleep? Because it sure ain’t to be found when they submit those papers full of mathematical equations.
Show us please a mainstream model (emphasis on mainstream and not some obscure whatever), Keynesian or Monetarist, new or old, that addresses the fact that money in NOT neutral in the long run, as well as in the short run, and how it addresses this non-neutrality and describe its economic ramifications on the structure of production.
Austrians don’t believe money is neutral in the long run?
Money might, but inflation definitely is not.
I don’t think money ‘is’ necessarily neutral in the short run, though. Fluttering veil and all.
Money might, but inflation definitely is not.
I don’t think money ‘is’ necessarily neutral in the short run, though. Fluttering veil and all.
DD5,
well, that is a much stronger claim than the one pb was making. but i am glad to see we are narrowing things down. do mainstream economists believe money is not neutral in the long run? in other words, do mainstream economists believe that changes in the money supply today can lead to changes in output in the longrun? yes.
lets consider inflationary policies specifically for a second. i think brad delong and larry summers (1992) sum up the mainstream stance pretty thorougly.
It is now generally accepted that while inflationary policies can impact levels of output in the short run, they cannot raise and run the risk of reducing long run levels of output. It is now generally accepted that while inflationary policies can impact levels of output in the short run, they cannot raise and run the risk of reducing long run levels of output.
http://www.j-bradford-delong.net/pdf_files/Jackson_Hole.pdf
they present their own evidence for why long-run output may be harmed by inflation, but there is also this interesting National Bureau of Economic Research (NBER) paper from a few years later on the harm of inflation on economic growth. http://papers.nber.org/papers/w6062
i particularly like the way the NBER Digest describes the papers conclusions.
As the authors point out, their analysis leaves little room for interpretation. Inflation is not neutral, and in no case does it favor rapid economic growth.
http://www.nber.org/digest/dec97/w6062.html
of course, the authors of the paper are not famous (andres and hernando), but harvard ecomomist martin feldstein did include their paper in his book “the costs and benefits of price stability”, which was published by the university of chicago press.
now lets see, i’ve mentioned a nobel laureate, a john bates clark winner, harvard, u chicago, nber. not to mention martin feldstein and larry summers are probably poles apart with regards to politics. so hopefully this is mainstream enough.
Are you being sarcastic?
I think I sprung intellectual wood from reading EconomistInTraining, Solid_Choke, and especially Student.