Thursday, August 2, 2012

Some of my feelings on Austrian Economics

Brad DeLong took another look at Austrian Economics last month.

I like his first reaction best:

And, of course, this is wrong--so so so so so so so so so unbelievably wrong.

I hope to write a detailed critique of the Austrian Confusion when I have time.  I think it is very useful to really, really, break this down and show how the whole thing is a sham.   When I have time I hope to do just that, soon.  My impressionistic version is this: prince von Mises (wealthy family elevated to nobility long before) puts on common clothes, comes down from his castle, and tells us what we poor working stiffs really want and need.  He is not to be believed!  Not at all!  No matter how intuitively reasonable and  he sounds.  What he is really describing as "freedom" is really the way for us to double up on our serfdom, so more gold in his store room, and those of his fellows, but not more bread on our fact many of us will starve if his ideas are actually followed, and to the same degree that they are.  Is this because the von is dishonest and greedy?  Certainly not, he is very upright.  But his very mind was formed from such a place that he cannot feel the interests of those very much unlike himself.  (In his later years, unfortunately, he became an actual political hack who must have known better, but was clinging on to what he knew because that was his thing.)

Anyway, I promise an actual detailed analysis will follow later.

Meanwhile, here is another impressionistic version I wrote to Brad's comments (I wrote this rather hastily, just like the above):
Thanks, and very timely for me. I discovered recently that one of my best friends has strong Austrian thinking, so I've been thinking about it a lot.
I suspect there are fundamentally different models of ethics at work here. Hard money, not surprisingly, appeals to people with the strict-father kind of philosophy. The end game of this pattern of behaviors is replication, essentially, making the world in one's own image, rooting out those who are different (sinners). For of course, one's own image is the only correct one. Only through great toil and suffering is happiness achieved. That hard work and suffering, of course, is the work whose byproduct is the replication of one's own self, and also endless accumulation of wealth for enabling the power that replication requires. Other people may see this as tyranny, fascism, imperialism, etc, and would just as soon be left to their own vices.
The other model is something like utilitarianism. The goal here is the greatest sum of human happiness, aka utility. Within the realm of economics, this appears as greatest amount of income, which follows the greatest amount of spending, since one person's income is by necessity another person's spending. Things that arbitrarily slow down spending, like hard money, are counterproductive. In this model, it is saving just for it's own sake (rather than for the purpose of funding future consumption, or managing future risk) which is the greatest vice. The ethics of economic acts might well be computed by determining their effect on the velocity of money, or more generally, value. Giving has the highest virtue in this regards, followed by spending, followed by financial investments, followed by bank deposits, to ultimately the greatest vice of all: hoarding assets that someone else might have a better use for. Why, that's goldbuggery--not surprisingly it's totally anti-social. By hoarding gold, and therefore keeping the price of gold high, we are inhibiting those who actually make useful things from gold. But stuffing bank notes into a mattress is also a way of destroying demand, which is also bad when demand is in shortage.
Demand, by the way, is constantly reduced by profit. Capitalist supply does not produce its own demand, it produces it's own demand less the saved part of profit, as Marx correctly pointed out. Therefore it only follows that as long as there is profit, and some of it is saved rather than spent, there are going to be problems keeping demand high enough.

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