In 1898, Veblen wrote a paper entitled “Why Economics is Not an Evolutionary Science.” In that paper, he criticized all of economics, including the Austrians of the time. In the following, I will discuss two of his criticisms of the “new economics.”
1. Economists have classified “the ways and means of turning material objects and circumstances to account” under the heading of capital, “this capital being conceived as a mass of material objects serviceable for human use.” (387) This, he said, “is not an effective method for conceiving the matter for the purpose of a theory of the developmental process.” What we need to recognize, he maintained, is that the “human agent” is distinct from “physical properties of materials.” An evolutionary theory should focus on “human knowledge, skill, and predilection" – i.e., the properties of the "human agent.” “Economic action must be the subject matter of the science if the science is to fall in line as an evolutionary science.” (388)
To this, the modern Austrian has an easy reply. First, no one could read Ludwig Lachmann’s or Israel Kirzner’s books on capital and come away thinking that the human agent has somehow been disregarded. He is an integral part of their theories. Second, Mises entitled his book “human action” precisely because he placed the human agent at the center. Economics, or catallactics as he preferred to call it, is the study of economic action – human action under the conditions of the market economy.
2. “The reason for the Austrian failure,” argued Veblen, “seems to lie in a faulty conception o f human nature.” (389) “[T]he human material with which the inquiry is concerned is conceived in hedonistic terms...” “The hedonistic conception of man is that of a lightning calculator of pleasures and pains, who oscillates like a homogeneous globule of desire of happiness under the impulse of stimuli that shift him about the area, but leave him intact.” “He is an isolated, definitive human daturm...”
The reply is first that nobody could read Israel Kirzner’s “Competition and Entrepreneurship” without concluding that his criticism of mainstream economics is very similar to that of Veblen on this issue. Nor could one who understands Mises’s Human Action form this opinion.
I don’t want to go too far in defending the modern Austrians. They have not so far tried to incorporate what psychologists and epistemologists know about the nature of knowledge and how it develops into their images of the market economy. However, they are by no means guilty of the “sins” that Veblen, perhaps wrongly, attributed to their predecessors. Nor do I want to give the impression that everyone who attachers the label “Austrian economist” to himself adheres to the image I am painting here. There is a great deal of conflict within the Austrian ranks.
The "new economics" of which you speak has a great deal in common with my version of Austrian economics. Regarding financing of entrepreneurship, there are two distinct mechanisms. In the first, banks act as money creators and lend the new money to businesses. When they create money in unison, which they usually do not due to banking regulations, the result is inflation, malinvestment, and a trade cycle. Usually, one bank creates money while another destroys it. In the second they act as financial intermediaries, channeling savers' money to those entrepreneurs who offer the highest returns. Nothing else in what you call "the new economics," except the "abundant resources" assumption and the claim of labor displacement, is, as I see it, in conflict with the Austrian economics I use. Although, given the difference between us in the way that you use terms, I would not be surprised to find that I am mistaken.
Veblen, Thorstein. (1898) “Why Economics is Not an Evolutionary Science.” The Quarterly Journal of Economics. July.
Kirzner, Israel, An Essay on Capital, New York: Augustus M. Kelley, 1966, reprinted in Kirzner (1996) Essays on Capital and Interest: An Austrian Perspective. Brookfield: Edward Elgar.
Kirzner, Israel. (1973) Competition and Entrepreneurship. Chicago: University of Chicago Press.
Lachmann, Ludwig M.(1978) Capital and Its Structure. Mission, Kansas: Sheed Andrews and McMeel. (originally published in 1956)
von Mises, Ludwig. (1966 [1949]). Human Action: A Treatise on Economics. Chicago: Henry Regnery Company.
[EMAIL PROTECTED] wrote:
Sorry to say that these examples have little to do with Austrian economics as I understand it. I am not the strawman you are trying to attack. Indeed most of my work is on entrepreneurship, which is indeed facilitated by credit but which, far from displacing labor, is the element in the human character that finds employment for it. In addition, it creates resources, including ever-changing specializations for labor. But it does not function in a world of abundance. It is constrained by the alternatives it perceives. It translates the alternatives foregone in any choice into opportunity costs.<**>Well, if you want my opinion on this, you will have to define "standard marginalism" in your terms.<**> -------------------- How about intro Nordhaus or Samuelson, any edition? Or perhaps Heilbroner's micro? I am simply trying to establish you as a legitimate proxy for the mainstream position in regard to marginalism, so I can use you as a sounding board. I think in regard to marginalism that Austrians are very close to the mainstream. Am I not correct?
By the way, in his book on Socialism, Mises did not write about "state capitalism" in any obvious sense of that term. Mises is not the writer you seem to think he is.
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Old Economics
1. Resources are scarce. 2. Progress occurs through capitalist accumulation, 3. accomplished by parsimony, 4. resulting in the division of labor.
New Economics
1. Resources are abundant. 2. Progress occurs through entreprenueurial initiative, 3. facilitated by credit, 4. resulting in the displacement of labor.
The Process of the New Economics
[1] Loan credit arises from the private contract between banker and entrepreneur, [2] creating a generalized claim against the community as a whole, [3] enabling the entrepreneur to organize the factors of production into their most efficient combination, [4] as ultimately judged by consumers through the democracy of the market, [5] the informational feedback mechanism being profit and loss.
[6] Investment is the process of improving the quantity and quality of capital; [7] is facilitated by credit, [8[ driven by entrepreneurial initiative, [9] discovery of resources, and [10] invention of technology.
[11] Saving is the process of acquiring beneficial ownership claims against capital, which generate increasing [12] income in the form of dividends or their functional equivalent, as [13] capital accumulates. --
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Pat Gunning, Feng Chia University, Taiwan;
New book: UNDERSTANDING DEMOCRACY http://www.constitution.org/pd/gunning/votehtm/cove&buy.htm
Web pages on Praxeological Economics, Democracy, Taiwan, Ludwig von Mises, Austrian
Economics, and my University Classes; http://www.constitution.org/pd/gunning/welcome.htm
and
http://knight.fcu.edu.tw/~gunning/welcome.htm
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