Nick Gillespie interviews Vernon Smith

by Russ Roberts on July 21, 2011

in Adam Smith, Prices

Be Sociable, Share!



52 comments    Share Share    Print    Email


noiselull July 21, 2011 at 9:02 pm

Towards the end, they goof and show a pic of Hume.

Austin B July 22, 2011 at 12:07 pm

Yep, and unsurprisingly, the Hume picture came from the Adam Smith wiki page.

DG Lesvic July 21, 2011 at 9:06 pm

From the frying pan into the fire, from :P ublic Choice to experimental fun and games, but still they’re relatively harmless vices compared to mathematical economics, just distractions rather than aggressive cancers.

Ken July 21, 2011 at 9:53 pm


Gary July 21, 2011 at 10:04 pm

DG–You have some interesting thoughts in your head, so why do keep beating this very dead horse?

DG Lesvic July 22, 2011 at 1:30 pm


That’s a good question. And I have one for you, too.

Why do you think my adversaaries focus on my character rather than ideas?

Answer, please.

morganovich July 22, 2011 at 2:49 pm

“Why do you think my adversaaries focus on my character ideas?”

because your ideas are so ridiculous an undefined as to be essentially unaddressable.

you never define your terms and spew repetitive nonsense that i have never once seen you back up with any actual evidence or logic.

i believe you have offered to leave if someone can show you working “mathematical economics”. i’m going to take a guess as to what you mean by that term and send you home.

i have a good friend who crunches pricing data for a major supermarket chain’s national strategy.

he looks at the price of ground beef and determines how to price it to maximize profit and to clear the supply in an acceptable timeframe. to do this, he tracks pounds sold and pricing, allowing him to predict with near perfect accuracy the price elasticity of demand for that and thousands of other products. drop the price from 3.99 to 3.79 and he can tell you just how much more will be sold.

it’s simple, straightforward mathematical economics. if they have a supply shortfall, they know just how much to increase price to avoid running out.

i’m sure you’ll try and find some sort of semantic dodge to claim this is not “mathematical economics”, but by any conventional definition, that’s precisely what it is, and it works VERY well.

either that or you’ll try the “it’s not perfect” dodge, which is just a parlor game. neither is the math that predicts lift from a wing. it cannot tell you what all the vortexes in the trailing turbulence will look like, but it’s plenty good to make a plane fly in a predictable fashion. nothing is perfect. ever. demanding is as a precondition for recognizing a science means there are no sciences at all.

your bias against experimental economics is equally ridiculous. can you possibly believe that studying the way people respond when faced with incentives tells us nothing about how people respond to incentives? that’s the height of stupidity. you are essentially arguing against a tautology. you might as well claim that watching how people play football teaches you nothing about football, nor people.

like any experimental discipline, it is only as good as its experimenters and their design, but the experiment/paper i wrote years ago on reputation formation in repeated agency relationships has extremely interesting implications for how investment banks should charge companies for taking them public. i know they were interesting because i got a bank to try it and it made them more money.

you never seem to have any real criticisms, just repeated vitriol and claims that most branches of economics are bunk. you never back up with any evidence.

you have your proof of the existence of mathematical economics.



Michael July 22, 2011 at 4:01 pm



vikingvista July 22, 2011 at 4:54 pm


“Mathematical economics” is a phrase he gets from Mises’ _Human Action_, particularly chapter 15. Unfortunately, the way Mises used it, and the way DG use it, bear almost no resemblance.

Greg Webb July 23, 2011 at 6:58 pm

DG, I noticed that you did not answer Gary’s question. Gary asked, “so why do keep beating this very dead horse?” That is a good question…do you have answer?

You said, “Why do you think my adversaaries focus on my character rather than ideas?” Because you have not kept your promises when people have complied with your requests in the past and because you have acted despicably in debating the topic. In addition, and most importantly, you have set the issue up so that you are the sole judge as to whether a response complies with your request so a discussion with you is meaningless.

Now, answer Gary’s question…

Greg Webb July 21, 2011 at 11:56 pm

Yes, Ken, the terms “schmuck,” “douche bag,” “ass,” “clown,” and “fool” all apply to DG. Now, he slanders James Buchanan and Public Choice economics. He is truly all those things.

DG Lesvic July 22, 2011 at 2:47 pm


You have been saying that Don gave me the example I asked for.

But his example of The Equation of Exchange was spurious.

Here is why:

General Equilibrium Theory

Strictly speaking, the Austrian School opponents of General Equilibrium Theory are general equilibrium theorists themselves, assuming equilibrium throughout and not just within limited segments of the market. But while the so called General Equilibrium theorists treat equilibrium as a real state of affairs, to the Austrians it is merely a theoretical construct. Since a new equilibrium point is constantly being established before the previous one could be reached, the market never actually attains equilibrium. And while it approaches it, economics cannot tell us how fast and closely, for those are quantitative issues beyond the scope of economics, and matters of opinion, not economic law. All that economics can say is that the market tends toward equilibrium and interference with it toward disequilibrium.

Since the market never attains equilibrium, and is constantly in disequilibrium, it is imperfect. But since the cause of its imperfection is change, perfection implies the cessation of action and change, and the graveyard, and General Equilibrium economics graveyard economics. In Austrian economics, there are no equations, for, if you and I exchange my A for your B, it is because I value your B more than my A, and you value my A more than your B. If we both valued A and B equally, there could be no exchange, for nothing could be gained by it. It would be a waste of time and effort. With the notion of equilibrium, but no actual equations, there can be no mathematical operations and mathematical economics. The notion of equilibrium is a starting point for logical and not mathematical analysis.

The “equation of exchange” and mathematical economics imply that the final state of rest and equilibrium is not merely an imaginary but a real state of affairs in which supply/demand relations are unchanging and constant, like those between inert mechanical elements, and from which you could calculate the change in one that a change in another would bring about. And with a socialist dictator deciding what the future should be and technocrats planning for it with mathematical precision, there’d no more need for the judgment nor profits and losses of entre-preneurs, and Marx, booted out of the house, slips back in through the back door of this Keynesian, New Welfare, Neo-Classical, or General Equilibrium Theory.

The New Theorists have never told us where action ended and rest began, and they got the data for their calculations, the constant relations between the magnitudes of supply and demand upon which they based their equations.

They have simply leaped from the premise that the market was imperfect to the conclusion that their dictatorship would be perfect, a leap of faith, not economics.

Now, Greg, we know you can attack my character.

Let’s see if you can attack my economics.

tdp July 22, 2011 at 6:08 pm

You are comparing quantities indirectly through use of equilibrium. You are describing forces that are variable. These variables can be mathematically expressed in the form of variables, used in algebra, trigonometry, and calculus.

tdp July 22, 2011 at 6:15 pm

Furthermore, your discussion of equilibrium points never being reached could be expressed in terms of calculus- limits and functions approaching infinity. Furthermore, the lack of specific formulas for how far the market tends toward equilibrium does not mean these trends cannot be mathematically expressed. There are plenty of algebraic and even calculus equations that involve no fixed coefficients. wzy=xzt, with t,w,x,y, and z all being variables of no fixed proportion. The relationships between these variables can be expressed algebraically, that is, mathematically, but there is no way to always predict, “perfectly”, what any one variable’s value will be since its value fluctuates.

Greg Webb July 23, 2011 at 7:00 pm

DG, your character is despicable and your economics are non-existent. Poor David Friedman was unsuccessful in teaching you anything.

indianajim July 23, 2011 at 9:52 pm


My readings have led me to have ever greater interest in your anti-math mania. While I still think it is an anti-math “mania”, I think there may be some method to your madness. This post may not be perfectly clear and I apologize for this, but I am contemplating writing something on this and do not wish to divulge my ideas more completely at present.

JBS July 21, 2011 at 9:20 pm

Fantastic interview!

Emerson July 21, 2011 at 9:45 pm

The man doesn’t look 84, does he?

Ken July 21, 2011 at 11:38 pm

I was thinking the same thing. When he said he remembered the 30′s like it was yesterday I thought WTF? Looked him up and sure enough he was born in 1927. I really thought he was in his 50′s or early 60′s.


Paul Andrews July 22, 2011 at 3:26 am


Everette Hamilton July 22, 2011 at 11:10 am

2 Dittos. Maybe 65.
The interivew was one of the best I’ve seen.

W.E. Heasley July 21, 2011 at 11:24 pm

“Self reinforcing expectations of rising prices“. – Vernon Smith

The phenomena occurred and continues to occur regarding politicos. That is, what tax revenue goes up, will continue to go up.

Scott G July 22, 2011 at 1:01 am

Watched it with my wife this evening. It was great. Thanks for posting it.

Yes, we were both amazed that he looks so young for his age.

Dan J July 22, 2011 at 3:41 am

I think I asked this before, but…… What particular product, commodity, etc.,… Has had a bubble and bust that did not have a govt interference involved, within last hundred years?

Everette Hamilton July 22, 2011 at 11:15 am

Dan, I cannot think of one. I believe Tom Sowell explained it best in “Conflict of Visions” where he talked about the unconstrained vision and their feeling that the elites must make the decisions because they have the specialized knowledge.

Dan J July 22, 2011 at 3:56 pm

I think it takes much wisdom for an individual to exercise restraint when in a position of high authority. Obviously, many an arrogant man is drawn to elected office and with the level of vitriol put forth by opposition, a man not exuding high confidence will not succeed.
Whether it be the arrogant or the do-gooder, the consequences remain similar. They tilt the balance, sacrificing those who have earned their dreams for those who have not. Yet, the beneficiaries of the tilt are temporary as they succumb to the defeats of how they ended up there in the first place, poor choices.
Neither the arrogant elitist nor the do-gooder in a position to ‘help’, realize or care much for the consequences that arise from their abuse of authority.
But, I think I could imagine the enormous pressures one would be under to alleviate portions of the populace from some miseries, whether it be self-inflicted or not.
The worse of the groups are the individuals who intentionally create havoc, by use of intervention, to further an agenda.
Potential examples are lowered interest rates, pressured exclusion of lending standards, alleviation of moral hazard(easy money)…..a.k.a housing boom
The recent case of allowing gins to be run into Mexico, for purpose of (maybe) tracking followed by legislative calls for banning of weapons or increased regulations.

Everette Hamilton July 22, 2011 at 5:09 pm


Like the way you think.


kyle8 July 25, 2011 at 4:39 pm

I would say that there is a natural business cycle and there is a boom and bust that occurs without the Government. However, a Bubble, not a boom, is indeed almost always caused by some problem with government. Either with loose money and loose credit policies, or as in the current situation with actually promoting bad lending practices.

Daniel Kuehn July 22, 2011 at 6:38 am

This was a good interview. Vernon Smith is great – I met him one summer when I was at GMU for an experimental economics workshop, just after having read Buchanan the year before in class. That was the GMU high-point for me. I was enthusiastic about applying there one day.

When I saw this yesterday, two parts of the interview were very strange to me:

1. Around 5:15 Nick’s claim that economists have resisted being empirical. What could he be talking about here? I’m really not sure – that didn’t make sense.

2. Later at about 7:00 Vernon Smith claims that marginalism only helps you understand a static economy. This seems quite wrong too.

DG Lesvic July 22, 2011 at 3:59 pm


Glad to see you back. When you didn’t respond to my challenge of the other day, I was afraid we’d lost you.

Please don’t frighten us like that. Just tell us that you’re alright, but simply can’t meet the challenge.

Michael July 22, 2011 at 4:04 pm

It took 9 hours and 20 minutes before some one attacked you…

I think that might be a record here.

Daniel Kuehn July 23, 2011 at 8:31 am

I think of these comments from DG Lesvic less as “attacks” than as stumbling, drunken swipes at whatever blurred figure is within a few feet of him. It’s hard to get too offended by that.

Daniel Kuehn July 23, 2011 at 8:32 am

That fact that I don’t understand half of what he says makes it easy to ignore too.

Observer_Guy1 July 22, 2011 at 1:21 pm

Vernon’s mother was right. She was the one who deserved the Nobel. It always amazes me when someone with an 8th grade education, instinctively knows more than an elite, Nobel prize-winning economist who’s on his last legs physically and intellectually. Remember, Yasir Arafat also won a Nobel prize.

vikingvista July 22, 2011 at 2:19 pm

The best part started about 21:30 where he talked about “not asking the fundamental questions…how could it be that specialization, exchange, and property rights could come about…[coming from the state] couldn’t be how they originated”. And then he proceeded to refer to Smith’s TToMS with a fascinating quote.

I have to hand it to the quality of ReasonTV. It’s what public television should’ve been.

DG Lesvic July 22, 2011 at 3:57 pm


Is there no difference between your supermarket manager and Adam Smith? Are they both economists?

DG Lesvic July 23, 2011 at 2:11 pm


Still waiting for your answer.

As Tom Joad said,

Hold on, buddy, you’ve just done some jackassin’, so you can’t just shut up now.

So either defend your position or be man enough to admit that you can’t.

DG Lesvic July 22, 2011 at 6:23 pm

VikingVista wrote,

“’Mathematical economics’ is a phrase he gets from Mises’ _Human Action_, particularly chapter 15. Unfortunately, the way Mises used it, and the way DG use it, bear almost no resemblance.”

Viking has gone further than that. He has joined the chorus of vilification, saying that I was so blatantly and willfully dishonest that no one should pay any attention to me, and certainly not to my critiques of him, but afford him immunity from them.

In economics it is not imitation but suppression that is the sincerest form of flattery.

So what Viking has really done is join the very large chorus of those admitting that DG is way ahead of them.

As Viking would have it, Mises condemned the analytical function of mathematics in economics but approved of its expository function.

Can you really imagine Mises doing such a thing?

How did Viking come to that conclusion?

He focused on one particular passage among all of Mises’ writings on the subject, and, because in that one passage, Mises happened to focus on the analytical function, and said nothing of the expository, he must have approved of the expository. For had he disapproved of it, he would have said so. Apart from the fact that it would be as logical to say that, had he approved of it, he would have said so, the fact is that he did say that he disapproved of it, just not in that particular passage.

Elsewhere he said that the equations of mathematical economics were “useless…mental gymnastics,” and that the mathematical economists were simply “playing with mathematical symbols, a pastime not suited to convey any useful knowledge.”

That was too mild a condemnation of it, but clearly a condemnation, and not just of the analytical but the expository function of mathematics in economics.

Those man enough to tender their apologies to me may line up at the right.

DG Lesvic July 22, 2011 at 7:39 pm


Thank you for offering a courteous and reasoned rebuttal rather than the usual feverish calumnies.

You wrote,

“You are comparing quantities indirectly through use of equilibrium. You are describing forces that are variable. These variables can be mathematically expressed in the form of variables, used in algebra, trigonometry, and calculus.”

I assume that by “you are comparing quantities indirectly…” you mean the general “you,” and not me, for I do no such thing.

As Mises stated, “in the field of economics…no measurement is possible.” For there is nothing to measure, no magnitudes, no quantities. There are concepts of quantities, but no actual quantities, the concept of prices, but no actual prices. The elements of economics are all logical, not quantitative. So what could you gain by expressing them in quantitative rather than logical terms, other than confusion?

DG Lesvic July 23, 2011 at 2:32 am


There was another error in your argument that I overlooked.
You wrote,

“You are describing forces that are variable.”

To the contrary, the method of economics is like that of any other science, to exclude the variables.

SheetWise July 22, 2011 at 7:53 pm

Great interview. I was interested in his comments on reverse migration between urban/rural settings in times of crisis. Does anyone here have any further reading on that?

DG Lesvic July 23, 2011 at 3:26 am

So, where are we now? There still have been no genuine examples of mathematical economics, but in Cafe Bizarro, that hasn’t mattered. The false have been as valid as the genuine would have been, and DG, not acknowledging the validity of the false, has weaseled out of his promise.

But while false examples may be sufficient to drive him out of your bizarro world, they will not enable you to drag mathematics into real economics.

There will always be a place for it in the false but never the real, as ought to be apparent now, after years of nothing but false examples..

DG Lesvic July 23, 2011 at 3:33 am

Let me rephrase that slightly.

So, where are we now? There still have been no genuine examples of mathematical economics, but in Cafe Bizarro, that hasn’t mattered. The false have been as valid as the genuine would have been, and DG, not acknowledging the validity of the false, has weaseled out of his promise.

But while you may drive him off the face of the Earth, you cannot drag mathematics into economics. As ought to be apparent by now, whatever the place for it in false economics, there is none in the real thing.

DG Lesvic July 23, 2011 at 3:37 am

And that goes for Vernon Smith’s experimental fun and games as well.

Or do I need to rub your faces in the mud over that one too?

vikingvista July 23, 2011 at 11:27 am

Of course, like you misunderstand everything else, you will never understand that Vernon Smith’s controlled experiments are nothing like the historical economic “experiments” that macroeconomists think are so useful.

DG Lesvic July 23, 2011 at 11:52 am

You owe me an apology.

DG Lesvic July 23, 2011 at 11:57 am

The mathematical method in economics is “vicious.”


Yes, I misunderstood that. I understood Mises to mean what he said when Viking and all the honest people understand that he never meant anything he said.

DG Lesvic July 23, 2011 at 12:04 pm

Question for those of you who care about Cafe Hayek and haave something to say about everything else:

Are you just going to stand by idly and say nothing about those turning it into Cafe Bizarro? Has your hatred of DG, and by extension, anyone else throwing a monkey wrench into your merry-go-round, completely warped your sense of fair play?

DG Lesvic July 23, 2011 at 12:06 pm

Shame on you, the lot of you.

And whatever you say, you know it.

DG Lesvic July 23, 2011 at 3:37 am

I really don’t know why everyone doesn’t just love me.

SheetWise July 23, 2011 at 5:07 pm

We know you don’t.

vikingvista July 23, 2011 at 6:13 pm

I’d love for you to keep your blog-polluting tantrums to a minimum.

Previous post:

Next post: