The purpose of this article is to point out where my fellow rationalists are being dogmatic, in particular, with regard to Austrian Economics. Philosophers like Hans-Hermann Hoppe tend to drop the "ceteris paribus" condition, turning true-but-neutered claims into false-and-dogmatic ones.
I've found your dark ages thesis very interesting and close to observations I've made with regards to software engineering, physics and astrophysics.
The argument in this podcast is less solid since the economics discipline is built on incredibly bad foundations, which explains the economists' inability to make valid policy recommendations.
Some examples of bad foundations:
- debt plays no role in the economy, because banks are just intermediaries between lenders and borrowers. This statement is false because all lending results in "new" money, thus invalidating the 0-sum game assumption.
- since all actors have full access to all relevant information and try to maximize their profits / needs, the economy most of the time is in (optimal) equilibrium. Again false, as any person that has experienced reality knows so well.
- all actors must be "competitive" in the market. Since competition is again a 0-sum game, it is by default impossible for all actors to be competitive in some domain. Variation: "we need to export more than we import" or Ricardo's "every country should be competitive in something else".
Hi Andrei--I get the impression that you are vaguely familiar with some of the ways that the Neoclassicals frame things (e.g. the "perfect information" false theoretical construct), but that doesn't apply to the Austrian school, which is the subject of this article.
The Austrians don't make any of the claims you make. In fact, they make the opposite claims.
- Obviously debt plays a role in the economy.
- Not all lending results in "new" money. I don't even know what that means.
- There is no 0-sum game assumption. The opposite point is made everywhere.
- Not all actors have full access to relevant information, obviously.
- Economic competition is not a zero-sum game, which is absolutely elementary.
If you don't like the approach of the Neoclassicals or Keynesians, you might find yourself in agreement with the Austrians. They've been building on better foundations for more than a century.
- The Austrian school (Mises) advocated for a gold standard and for the actual implementation of a 0-sum approach to banking (edit: I'm not sure how much is still accepted). This is impractical, since it imposes an inelastic upper bound to available liquidity which is incompatible with the current growth-based economy. In a historical context, fractional reserve lending was the norm during the gold standard days.
- I see competition as zero-sum: there are winners and losers. Losers eventually go out of business or are taken over by the competition. In real life there are multiple dimensions on which some players rank differently and this allows for multiple players to coexist. There is an illusion of competition not being 0-sum as long as the supply is less than the demand. The entire subject is very complicated and political to a great extent.
I find the "Modern monetary theory" ideas a step in the right direction and the dynamic systems simulation approach of Prof. Steve Keen as the way of testing economic ideas and of comparing them to the empirical data.
Hello Mr. Patterson,
I've found your dark ages thesis very interesting and close to observations I've made with regards to software engineering, physics and astrophysics.
The argument in this podcast is less solid since the economics discipline is built on incredibly bad foundations, which explains the economists' inability to make valid policy recommendations.
Some examples of bad foundations:
- debt plays no role in the economy, because banks are just intermediaries between lenders and borrowers. This statement is false because all lending results in "new" money, thus invalidating the 0-sum game assumption.
- since all actors have full access to all relevant information and try to maximize their profits / needs, the economy most of the time is in (optimal) equilibrium. Again false, as any person that has experienced reality knows so well.
- all actors must be "competitive" in the market. Since competition is again a 0-sum game, it is by default impossible for all actors to be competitive in some domain. Variation: "we need to export more than we import" or Ricardo's "every country should be competitive in something else".
Thanks,
Andrei
Hi Andrei--I get the impression that you are vaguely familiar with some of the ways that the Neoclassicals frame things (e.g. the "perfect information" false theoretical construct), but that doesn't apply to the Austrian school, which is the subject of this article.
The Austrians don't make any of the claims you make. In fact, they make the opposite claims.
- Obviously debt plays a role in the economy.
- Not all lending results in "new" money. I don't even know what that means.
- There is no 0-sum game assumption. The opposite point is made everywhere.
- Not all actors have full access to relevant information, obviously.
- Economic competition is not a zero-sum game, which is absolutely elementary.
If you don't like the approach of the Neoclassicals or Keynesians, you might find yourself in agreement with the Austrians. They've been building on better foundations for more than a century.
- The Austrian school (Mises) advocated for a gold standard and for the actual implementation of a 0-sum approach to banking (edit: I'm not sure how much is still accepted). This is impractical, since it imposes an inelastic upper bound to available liquidity which is incompatible with the current growth-based economy. In a historical context, fractional reserve lending was the norm during the gold standard days.
- All credit results in "new" money (https://www.moneyland.ch/en/commercial-bank-money-definition or https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy).
- I see competition as zero-sum: there are winners and losers. Losers eventually go out of business or are taken over by the competition. In real life there are multiple dimensions on which some players rank differently and this allows for multiple players to coexist. There is an illusion of competition not being 0-sum as long as the supply is less than the demand. The entire subject is very complicated and political to a great extent.
I find the "Modern monetary theory" ideas a step in the right direction and the dynamic systems simulation approach of Prof. Steve Keen as the way of testing economic ideas and of comparing them to the empirical data.