Mises, Hayek, and Friedman | Hacker News Reader

Mises, Hayek, and Friedman

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11 pointsrevorad11 comments

I'll be honest and say I only got through about half of this because of the Author's tone. I'm sorry but if you're going to start your piece claiming one of the most respected economists of the last century "didn't quite understand banking" you're already treading on thin ice with me. Also it's hard to argue how deep Hayek was and then call Mises a crank given the tremendous respect both men had for each other (http://mises.org/daily/3511, http://mises.org/misestributes/misesonhayek.asp)

Beyond that I didn't see much insight in this piece. It's not that it's wrong it's just that it's essentially Keynesian talking points represented as facts. I don't mean that pejoratively I simply mean the reason the Austrian and Keynesian theories both exist to this day is because neither can be definitively proven or dis-proven. He presents some valid points against the other side but that's not exactly new insight

Austrian Economics uses praxeology, logically necessary insights in human action. Economics as a branch of logic.

All other schools (including Chicago) see economics as a branch of statistics.

This is a fundamental difference that almost nobody seems to realize.

Economics isn't a branch of logic (or, for that matter, statistics) any more than physics is a branch of mathematics. Rather, economists use logic, statistics, mathematics, observation, and in limited contexts experimentation as tools. It's a philosophical question of which tools to use that defines Austrian economics. Austrian economics is rationalist. Rationalism consists in choosing reasonable-sounding a priori assumptions and reasoning from them. Whether you're Descartes saying "I think, therefore I am" and deriving "God exists and is not an evil deceiver", or whether you're an Austrian economist saying "humans take conscious action toward chosen goals" and deriving "the gold standard is preferable to fiat currency", you're basically doing the same thing.

The ideal economic theory would be empirical, observing economic behavior and attempting to build models that fit to it. Both in philosophy and in the hard sciences, empiricism has won out over rationalism for reasons any decent philosopher or scientist could enumerate for you at length.

Behavioral economics is probably the best attempt at this ideal. You can view it either as a feature or as a bug that it doesn't tend to draw grand macroeconomic conclusions you can use to try and win political arguments.

Let's be a little more realistic about this: Austrian and Keynesian theories both exist to this day because they provide good enough rationalizations for the preconceived political agendas of different sets of people.

The idea that economics breaks down into a neat little disagreement between Keynes and Hayek, however, is anachronistic.

The author calls this statement by Rothbard "shocking and typically blind":

"In a developing free-market economy unhampered by government-induced increases in the money supply, prices will generally fall as the supply of goods and services expands. And falling prices and costs were indeed the welcome hallmark of industrial expansion during most of the nineteenth century." Planning for Freedom, p.247

The author explains that falling prices of this sort "exhibits an exponential process of sorts when it is rapid . . . . As the currency becomes more valuable, it gets horded, and less is used for economic activity or lent out. What is the point if just holding it gets you regular returns? Less exchange leads to more deflation, and the system seizes up with nothing happening, unemployment prevalent, and no easy way out."

So, to recap, the author seems to think that technological progress resulting in greater societal wealth and lower prices result in "nothing happening" and "unemployment prevalent."

You're being massively dishonest if you're going to conflate "technological progress resulting in greater societal wealth and lower prices" with "monetary deflation". In fact, looking at some historical inflation data (http://inflationdata.com/inflation/Inflation_Rate/Historical...), monetary inflation tends to correlate with technological process and economic growth, while monetary deflation tends to correlate with recessions and depressions.

A growing economy paired with a fixed monetary base, incidentally, will end up resulting in monetary deflation, which will more likely than not put an end to the growing economy. That was the author's point, and it's borne out by historical data as well as nearly all contemporary economic theories (including, perhaps to the author's surprise, the theories of Milton Friedman himself).

Here's the comment I left:

You need to learn about how free market law works.

Negative externalities are compensated for if people desire it and if it's technologically feasible.

Moreover, you are assuming the "oversight" will be rational, directly contradicting public choice theory.

Edit: tl;dr: Don't waste your time reading this Keynesian Econ 101

Midway through this wandering missive I was unsure as to what point the author was making. Although, quite obviously, a concerted effort to paint Mises and Ron Paul as cranks and weirdos would set the tone for the rest of the article. In the end it was just a call for more Keynes (or what passes for Keynes, these days) and to invent unnatural markets like a 'carbon' market to solve unproven and unprovable problems. It also talks about German hyperinflation like a problem that can't possibly happen again because we've somehow evolved past it. It's a fallacy to think that somehow, we're collectively smarter than our grandparents when we all share the same human traits.

My main problem with this (apart from the unnecessary smearing) is that it continues with the thought that current market failures (housing, derivatives et al) is from letting free markets go. When in reality it is because of excessive intervention in markets by the state. Which proves Hayeks point perfectly.

Aah, economy on HN… : ready, fight! More seriously, as Einstein put it quite briefly, economy is not a science because it is not testable. I would even add, following some philosopher's wisdom, that behind all those pretty theories you can sense their authors' fears and desires (plus some coherence and maybe even some stats…).

Economic theories cannot be tested, but there is definitely merit in historical evaluation of policies implemented.

Agreed, but precisely only through the mirror of our own desires and fears :)

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