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Thursday, April 23, 2015

Libertarians versus Henry George and Marx

Recently, Fred E. Foldvary, a guy I respect, wrote an essay in which he tried to find points of commonality between the Libertarian movement and those Georgists he leads. In his article "Austrian Economics Explained" [http://www.progress.org/views/2015-04-12/austrian-economics-explained] The top caption states:

"Why It Matters, The Austrian School of economic thought is often misunderstood." [http://www.progress.org/views/2015-04-12/austrian-economics-explained]

...which kind of is either an understatement, or some kind of twisted humor in my mind, because to me the Austrian School has been a source of evil second only to the evil created by that other progeny of Austria...He's got a nice graphic (I'm using a link because it's too nice to merely copy:

Poor misunderstood Austrian School. I've blogged a number of times about Hayek and Von Mises. But I've pretty much left the others alone, though I've read about them and read as much of their writings, or at least summaries of their work, as I could. As usual I'm not totally done. Fred tries to explain the common threads of the Austrian School, but myself, I found that they were no more alike than any other collection of college professors or theoreticians. Still he explains their points of comparison. Rather than reprising them I'm listing and summarizing Fred's points in my own words:

  1. Praxeology; They, or at least Von Mises, claimed that through "Axiomatic-deductive reasoning" they could establish "a pure universal economic theory". Von Mises called this "praxeology", I suppose to differentiate his version of the term from the one used by the Marxists (Praxis). Like Marxism the Austrian School, or at least Von Mises' subschool and it's disciples, is highly deductive. The Austrian thinkers deduced principles from elements of action and derived their theory from these.
  2. "Marginal Analysis". Carl Menger developed the theory of Marginal Utility which has proven useful in price theory.
  3. "Methodological individualism" is the notion that one should focus on individuals, and ignores or deprecates the collective behavior of markets as "holism"
  4. Austrians argue that "capital investment does not simply add to production in a general way but rather is embodied in concrete capital items." [Hayek]
  5. "Interpretive understanding:" Human behavior is too complex in their view to be subjected to social science.
  6. "Subjective values: all values are subjective, based on individual beliefs, interests, and preferences."
  7. Source: [http://www.progress.org/views/2015-04-12/austrian-economics-explained]

Fred then goes on to summarize the subjects that are most common among Austrian School Teachers:

a) entrepreneurship;
b) money and banking;
c) the time structure of capital goods;
d) the business cycle;
e) the dynamics of markets and spontaneous orders;
f) critiques of governmental intervention and planning;
g) knowledge as decentralized and unknowable to central planners.

Looking at the list one can see that the Austrian School is the anti Marxism school. If the Marxists make one set of erroneous structures and focus on the collective. The Austrian School focuses on the individual and rejects social science. Looking at their history they've been preoccupied with "refuting" Marxism for more than a century. This shows in their assumptions:

"Austrian economists tend to believe that markets work well. Austrian theory concludes that interventions as taxes, subsidies, mandates, and prohibitions, which interfere with peaceful and honest human action, reduce the productivity of economies and human well-being." [http://www.progress.org/views/2015-04-12/austrian-economics-explained]

Two sets of faulty assumptions, both erroneous, both leading to diametrically opposite conclusions. Where Marxism sees grand movements of "history" the Austrians see the efficiency of markets and the virtue of self interest. Where Keynesians, Georgists and Marxists see flaws in human virtue, they praise it. In hindsight both Marxism and the Austrians have too rosy a view of human virtue. "Honest human action" in the jaded reporting of Marx is a joke. The notion that Collective behavior can be predicted in the selfish ideology of the Austrians is equally a joke. Both are using deductive methods to try to understand the world. And both seem to ignore the test results of their theories. Later he Fred notes:

"Austrian economists have been the leading theorists of “free banking,” the replacement of central-banking controls with a free-market setting of interest rates and the money supply, an application of the Austrian critique of central planning." [http://www.progress.org/views/2015-04-12/austrian-economics-explained]

My friend Rick DeMare shares

"there are some similarities between the two systems, but so-called "free banking" should be an absolute deal-breaker for Georgists, and Georgists should not get hung up on trying to reconcile Austrian free banking with Georgism." [https://www.facebook.com/groups/CommonWealthTax/ April 13 at 7:27am]

I agree. And Rick quotes del Mar's "The Science of Money":

"When money shall be recognized in the law, when it is defined, when its volume, magnitude, dimensions, limits are set forth as precisely, fixed as unchangeably, and protected as securely from alteration, as are now the dimensions of the yard-stick, the pint-pot, and the pound-weight, then, and only then, will money perfectly resemble other measures; for then only will it become a concrete thing of known dimensions. When this comes to pass, Aristotle's definition of its function will resume its original correctness, and money will be as fit in fact, as it is now only in theory, to measure the relation called value." pg. 58" [https://www.facebook.com/groups/CommonWealthTax/ April 13 at 7:27am]

I may have more to say. But that's enough for this post. I've already talked about Faulty Assumptions.

Previous entries on Hayek and Von Mises:
Starve the Beast, Destroy Democracy: [http://holtesthoughts.blogspot.com/2012/07/starve-beast-destroy-democracy.html]
Mt. Pelarin and Milton Friedman -- fighting to make the world safe for Oligarchy since the 1940's [http://holtesthoughts.blogspot.com/2014/04/mt-pelarin-and-milton-friedman-fighting.htm]
Reading David Stockman's Deformations [http://holtesthoughts.blogspot.com/2014/09/reading-david-stockmans-deformations.html]
Holte's law applied to Rothbard [http://holtesthoughts.blogspot.com/2015/04/holtes-law-applied-to-rothbard-on-lvt.html]
Faulty Assumptions and Verification [http://holtesthoughts.blogspot.com/2013/10/faulty-assumptions-and-verification.html]
Examining Bad Economic Theories (Von Mises) [http://fraughtwithperil.com/cholte/2011/02/22/examining-bad-economic-theories/]
Sources:
http://www.progress.org/views/2015-04-12/austrian-economics-explained
More on Hayek's view: http://fee.org/freeman/detail/austrian-capital-theory-why-it-matters
The Science of Money [https://archive.org/details/sciencemoney00margoog]

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