The Misesian Case against Keynes
by Hans-Hermann Hoppe
Published by the Ludwig Von Mises Institute (c) 1992
I ? Classical Economic Theory
It is my goal to reconstruct some basic truths regarding the process of economic development and the role played in it by employment, money, and interest. These truths neither originated with the Austrian school of economics nor are an integral part of only this tradition of economic thinking.
In fact, most of them were part and parcel of what is now called classical economics, and it was the recognition of their validity that uniquely distinguished the economist from the crank. Yet the Austrian school, in particular Ludwig von Mises and later Murray N. Rothbard, has given the clearest and most complete presentation of these truths (Mises [1949] 1966; Rothbard [1962] 1970). Moreover, that school has presented them their most rigorous defense by showing them to be ultimately deducible from basic, incontestable propositions (such as that man acts and knows what it means to act) so as to establish them as truths whose denial would not only be factually incorrect but, much more decisively, would amount to logical contradictions and absurdities.[1]
I will first systematically reconstruct this Austrian theory of economic development. Then I will turn to the “new” theory of J.M. Keynes, which belongs, as he himself proudly acknowledged, to the tradition of “underworld” economics (like mercantilism) and of economic cranks like S. Gesell (Keynes 1936). I will show that Keynes’s new economics, like that “underworld” tradition, is nothing but a tissue of logical falsehoods reached by means of obscure jargon, shifting definitions, and logical inconsistencies intended to establish a statist, anti-free-market economic system…
Contestable? Good economic theory is nothing more than simple mathmatics and willingness to look just a bit deeper than immediate consequence of policy and action.
[quote]vroom wrote:
If you are stuck on an ideology that reduces life to simple black and white… then you are going to be wrong much of the time.[/quote]
I agree. Economics is not mathematics. It is even simpler than that. Your critique fails after that.
Economics does not attempt to “reduce life to simple black and white.” It attempts to deduce the effects of human action in real life – that is, with respect to the realness of scarcity. None have succeeded in describing this reality as well as the Austrians.
Keynes was a brilliant scholar in that he understood how best to give power to the state but we cannot call what he espoused economics.
[quote]vroom wrote:
Economics is not “simple” math. Economics deals with the capriciousness of people as the complex actors driving economic activity.
[/quote]
When it comes to economics, people are quite predictable. Economics if very simple. Logic and reason are required, but not much more than that.
ever heard of the business cycle?
[quote]
If you are stuck on an ideology that reduces life to simple black and white… then you are going to be wrong much of the time.[/quote]
Why don’t you try a book on economics? I can recommend a few if you would like.
Economics in One lesson - Henry Hazlit
Free to Chose - Milton Friedman
Basic Economics - Thomas Sowell
Applied Economics - Thomas Sowell
Economics 101 - Murray Rothbard
After this there are many more that are a bit more in depth.
[quote]LIFTICVSMAXIMVS wrote:
Economics does not attempt to “reduce life to simple black and white.” It attempts to deduce the effects of human action in real life – that is, with respect to the realness of scarcity. None have succeeded in describing this reality as well as the Austrians.
[/quote]
No, it attempts to describe what perfectly rational humans with perfect information would do if they always made the appropriate decisions as defined by math.
Fortunately, this is sometimes a good approximation. Unfortunately, at times people simply do not act in this manner at all.
Economics makes a lot of assumptions… and it is something we can rely on only as far as those assumptions hold true. When they don’t… we end up surprised.
Anyway, nobody is going to argue with the concepts of supply and demand, particularly not me.
[quote]LIFTICVSMAXIMVS wrote:
vroom wrote:
If you are stuck on an ideology that reduces life to simple black and white… then you are going to be wrong much of the time.
I agree. Economics is not mathematics. It is even simpler than that. Your critique fails after that.
Economics does not attempt to “reduce life to simple black and white.” It attempts to deduce the effects of human action in real life – that is, with respect to the realness of scarcity. None have succeeded in describing this reality as well as the Austrians.
Keynes was a brilliant scholar in that he understood how best to give power to the state but we cannot call what he espoused economics.[/quote]
It certainly is economics. Just at Karl Marx was an economist, so is Keynes. With both, calculation and logic is flawed, but is still economics.
[quote]dhickey wrote:
When it comes to economics, people are quite predictable. Economics if very simple. Logic and reason are required, but not much more than that.[/quote]
As said above, I won’t argue with supply and demand, but if you don’t realize that there are a lot of assumptions in place already, you’ll be in for a surprise.
The fact we observe it doesn’t mean it’s a well defined equation.
[quote]Why don’t you try a book on economics? I can recommend a few if you would like.
Economics in One lesson - Henry Hazlit
Free to Chose - Milton Friedman
Basic Economics - Thomas Sowell
Applied Economics - Thomas Sowell
Economics 101 - Murray Rothbard
After this there are many more that are a bit more in depth.
[/quote]
You need to get well beyond the introductory textbooks to get back into the complexities of economics. Introductory stuff makes everything appear simple so that it’s easy for students to grasp.
The question you need to answer is whether there are ever policy objectives that should be attempted. Is it appropriate for the government to declare war, build roads, advance research or do other tasks? Should there be rules of society that prevent businesses from releasing poisons into drinking water? Should there be police?
Strangely, there are actors on the stage that are not simple participants in the concepts of supply and demand. That markets are efficient, when all the players follow the same rules, cannot be argued. Markets are like an engine… and they are more efficient if they aren’t being fucked with, but there is much more going on.
Money and efficiency is damned near a religion. We need to demote it from the status of ideology and understand that there are other issues to consider too.
[quote]vroom wrote:
LIFTICVSMAXIMVS wrote:
Economics does not attempt to “reduce life to simple black and white.” It attempts to deduce the effects of human action in real life – that is, with respect to the realness of scarcity. None have succeeded in describing this reality as well as the Austrians.
No, it attempts to describe what perfectly rational humans with perfect information would do if they always made the appropriate decisions as defined by math.
[/quote]
100% wrong. If this were the case there would be no business cycle.
only those not familiar with economics are surprised.
[quote]
Anyway, nobody is going to argue with the concepts of supply and demand, particularly not me.[/quote]
Supply and deman is a start. Next would be understanding the business cycle. After this, it all falls into place.
[quote]vroom wrote:
Economics makes a lot of assumptions.[/quote]
What assumptions does it make? Why are they incorrect and where do they fail at describing reality? The Austrians understand this point and therefore can offer a refutation of economics as it is describe by Keynes and the rest of the mathematical and historical schools.
I think if you actually read some literature by a few Austrian proponents you would see the simplicity of it all. Though, do not confuse simplicity with easy to understand.
Vroom, I am not asking you to drink the Kool-aid but I am challenging you to read the first three chapters of the PDF I am posting below – it’s only about 30 pages and reads quickly. It is one of the best introductions to the Austrian method I have read and it is written in very clear and concise language.
[quote]dhickey wrote:
Supply and deman is a start. Next would be understanding the business cycle. After this, it all falls into place.
[/quote]
The business cycle is a well known process.
I don’t see why you think economics should be simple when people are very complex.
Economics is affected by the interactions of people, their conflicts, and the ways they choose to resolve those conflicts. We get regulations, wars, policy decisions, courts and so on to help us unravel conflicts in resource utilization.
Good luck fitting human endeavors into a neat little equation.
[quote]LIFTICVSMAXIMVS wrote:
Vroom, I am not asking you to drink the Kool-aid but I am challenging you to read the first three chapters of the PDF I am posting below – it’s only about 30 pages and reads quickly. It is one of the best introductions to the Austrian method I have read and it is written in very clear and concise language.
I’m not trying to say that there is no value to this material. I’m generally trying to suggest that each point of view has some genuine merit to add to the issues.
People are always arguing for the one true ideology, the current silver bullet that has all the answers, and it never works.
Anyway, it’s not game time, so I’ll load this thing up and give it a gander…
[quote]vroom wrote:
ever heard of the business cycle?
The fact we observe it doesn’t mean it’s a well defined equation.
[/quote]
Compared to what? It is the best we have. Politicians chosing to ignore economics does not help us.
Arbitrary policy or policy to buy political favor? Policy that doesn’t even attemp to weigh cost benefit? I would say no.
not relavent to Keynes. Lifty may argue the need for the above, but we are a long way from this even being relavent. Let’s start with arbitrary regulation, protectionism, and price fixing.
Efficiency is relative. What would be more efficient than a free market?
[quote]
Money and efficiency is damned near a religion. We need to demote it from the status of ideology and understand that there are other issues to consider too.[/quote]
That is precisely what economics provides. Economics does not define the best solution. It only weighs the cost and benefit of various solutions.
Economics tells us that saving Joe’s job will cost Mike and Bill their jobs. It is up to us to decide if Joe’s job is more important than Bill and Mike’s.
What’s unfortunate is that this has become irrelivant when concidering economic policy. It seems intent is more important than results these days. Trajically unfortunate.
[quote]vroom wrote:
People are always arguing for the one true ideology, the current silver bullet that has all the answers, and it never works.
[/quote]
I very much agree with this outlook but even you must agree there are certain ideas that cannot be refuted:
The Human Action axiom is one of those ideas I believe very strongly in; it leads to some very profound judgments when rigorously analyzed.
[quote]vroom wrote:
dhickey wrote:
Supply and deman is a start. Next would be understanding the business cycle. After this, it all falls into place.
The business cycle is a well known process.
I don’t see why you think economics should be simple when people are very complex.
[/quote]
Complex but very predictable when it comes to economics. What events do you think cannot be explained by economics?
[quote]
Economics is affected by the interactions of people, their conflicts, and the ways they choose to resolve those conflicts. We get regulations, wars, policy decisions, courts and so on to help us unravel conflicts in resource utilization.
Good luck fitting human endeavors into a neat little equation.[/quote]
If it is too complex for economics to define, what do we use? Why would we make policy with no cost benefit analysis? Are we just taking a shot in dark?
Maybe you just don’t have the capacity or desire to sort through this. It’s not complex. People almost always act rationally when you consider the information they have and chose to use. You just need to understand the information or lack there of.
If you are really interested in economics and like to comment on economic threads, why would’t you read a book or two on it? It’s incredibly interesting and you will get much more out of one of the books I recommended that this thread.
[quote]vroom wrote:
Economics is affected by the interactions of people… [/quote]
Economics is not affected. Rather it is the market that is affected. To make an analogy we would not say that physics is affected by interaction but rather the field of influence is affected by interaction; for example, the gravitational field is affected my mass and the EM field is affected by charged particles.
Economics is to the “market” what physics is to the “field”. These are the laws that describe how things are affected by interaction.
[quote]
Good luck fitting human endeavors into a neat little equation.[/quote]
Economic inquiry has no reference to mathematics. Unlike charged particles and massive objects, human beings have a free will and are capable of choosing their own path. Economics is not a physical science and cannot refer to the tools of the physical sciences to relay truth.
[quote]dhickey wrote: vroom wrote:
The question you need to answer is whether there are ever policy objectives that should be attempted.
Arbitrary policy or policy to buy political favor? Policy that doesn’t even attemp to weigh cost benefit? I would say no.[/quote]
Fuck off. If you want to pretend to discuss the issue at least answer a reasonable question.
This is a silly question. If I lived in a country that provided very little freedoms, but provided an efficient market, I would not be happy. There is more to life than a free market… that’s why it should not be an ideology unto itself.
[quote]LIFTICVSMAXIMVS wrote:
The Human Action axiom is one of those ideas I believe very strongly in; it leads to some very profound judgments when rigorously analyzed.[/quote]
Did you guys find a new religion recently?
The idea that people act to maximize their “utility” in some way is not new.