Quotation of the Day…

by Don Boudreaux on July 15, 2011

in Beautiful, Curious Task, Economics, Hayek, Hubris and humility

… is from page 19 of Hayek’s 1933 essay “The Trend of Economic Thinking,” reprinted in F.A. Hayek, The Trend of Economic Thinking: Essays on Political Economists and Economic History (Chicago: University of Chicago Press, 1991), pp. 17-34:

Indeed, it is probably no exaggeration to say that economics developed mainly as the outcome of the investigation and refutation of successive Utopian proposals – if by “Utopian” we mean proposals for the improvement of undesirable effects of the existing system, based upon a complete disregard of those forces which actually enabled it to work.

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{ 49 comments }

W.E. Heasley July 15, 2011 at 6:15 pm

“….if by “Utopian” we mean proposals for the improvement of undesirable effects of the existing system, based upon a complete disregard of those forces which actually enabled it to work”. – F.A. Hayek

Utopia gets the headlines, however an arguably important item is Dystopia. Yes, that nice landscape of social control and coercion. A repressive and controlling authoritarian state, disguised as Utopia, and the logical offspring of collectivism.

The bad news is, we are headed in the direction of Dystopia; the good news is, we’re making great time.

vidyohs July 15, 2011 at 6:19 pm

Like. :-)

auravie July 15, 2011 at 10:26 pm

Double likey!

vikingvista July 15, 2011 at 11:19 pm

Hollywood makes wonderful dystopian films (Logan’s Run, Brazil, Demolition Man, Equilibrium, Fahrenheit 451, Minority Report, Gattaca, etc.) And yet, Hollywood is dominated by statist utopians. Why?

Richard Stands July 16, 2011 at 1:40 am

Don’t you see? It’s not forceful collective action that sours Utopia into Dystopia, it’s having the wrong people in charge of the collective. Dystopian films all have the bad people in charge. Films like Dave, The American President, Independence Day, and television series like The West Wing all have the good people in charge. That’s the ticket! (so to speak)

“Concentrated power is not rendered harmless by the good intentions of those who create it.”

– Milton Friedman

vikingvista July 16, 2011 at 1:54 am

Ahhhhhhh. I see. Good point.

vidyohs July 16, 2011 at 10:10 am

Dead on analysis! Like :-)

Greg Webb July 16, 2011 at 12:18 am

Excellent!

Richard W. Fulmer July 15, 2011 at 6:24 pm

Clearly, economics has not made much headway against utopian thinking over the centuries. To some extent, utopians have eveb taken over whole schools of economic thought.

One of the problems is that economists and utopians tend to talk past each other. As Hazlitt pointed out, good economics involves looking beyond the short-term, primary impacts of a policy to the long-run, secondary and tertiary effects. Utopians, by contrast, cannot see beyond direct effects. They see, for example, that giving money to the poor provides immediate help and that is as far as their thinking takes them.

Any attempt by an economist to point out long term consequences (e.g., moral hazard, dependency, decreased production, increased poverty) will be met with the charge that the economist must hate the poor. Anyone who hates poor people must be evil, therefore the economist is evil. Evil people cannot be reasoned with, they can only be eliminated. Meaningful discussion becomes impossible and, possibly, dangerous.

DG Lesvic July 15, 2011 at 7:59 pm

Richard,

You wrote,

“Any attempt by an economist to point out long term consequences (of “giving money to the poor”)…will be met with the charge that the economist must hate the poor.”

And anyone who attempts to point out the immediate as well as long term consequences of it will be met, right here, at good old Cafe Hayek, with the charge that he is a moron.

And you furthermore wrote:

“Meaningful discussion becomes impossible.”

And even right here at meaningful Cafe Hayek.

How about with you? Would like to rush in where the wise men here fear to tread, and have that meaningful discussion with me, one moron to another?

Richard W. Fulmer July 16, 2011 at 12:41 pm

Sure, I’m ready to rumble. Clearly, there are trade-offs between the short and long-term. If I eat all of my seed corn now, I’m better fed this moment than I would be had I saved some. On the other hand, I’ll have less to plant and will be hungrier in the future. Yet if I don’t eat any corn now, I don’t make it to the future. Life is full of trade-offs bewteen the near and long term. That’s why we charge interest on loans and perform present value calculations.

Giving to the poor is good and praiseworthy, but only if I give what is my own. Taking from someone else to give to the poor does not make me generous, it makes me a thief. The moral problem with forced charity is attended by a host of practical problems, including decreasing the incentives for people to produce and, therefore, increasing poverty.

Rewarding need yields more of it, adding those who will not produce to those who cannot. And taxing demonstrated ability yields less ability demonstrated. The old Soviet joke, “They pretend to pay us, we pretend to work,” neatly summarized this dynamic. Need, which socialism claims to address, can only grow under socialism. By contrast, under the free market, need does not pay, production does, so need declines and production grows. The choice between socialism and the free market is the choice between government coercively combating growing need amid growing poverty and individuals voluntarily combatting shrinking need amid growing wealth.

DG Lesvic July 16, 2011 at 3:23 pm

Richard,

Here is the beginning of my essay, The Forbidden Theory of Redistribution. If you want to see the whole ugly miss, go to

http://econotrashtalk.org/#The Forbidden Theory of Redistribution-New

If this link doesn’t take you directly to the site, but only to the start of my book, scroll down to Book Two, in blue, then to the Table of Contents, and click on The Forbidden Theory.

The increasing inequality deplored by the Left is, at least in part, a consequence of its own policies, and the very ones meant to reduce it. For in accordance with The First Law of Economics, that for every action against the market there is an opposite and more than equal reaction, taking from the rich to give to the poor could not reduce but only increase income inequality and “social injustice.”

Put simply: it doesn’t just draw money but manpower downward upon the hierarchy of production, and the manpower faster than the money. For manpower doesn’t merely follow money but anticipates it. And, with manpower and competition among the poor increasing faster than the redistributed money, they’ll be poorer than they would have been without it.

And since the Left depends entirely on the assumption that taking from the rich to give to the poor reduces inequality, it would be utterly demolished by the opposite-most conclusion, that it didn’t reduce but increased it.

But, being a new idea, at least when first presented decades ago, and an affront to anyone who hadn’t thought of it first, it has been resented and shunned by the Right as much as the Left. Without it, all that the Right can ever say about inequality is that it isn’t really getting any worse. But that is to concede that there’s something wrong with it, and with capitalism, which depends on it.

The fact that there can be work without reward or reward without work doesn’t change the fact that any reduction of the one will result in a reduction of the other, less work in less reward, and less reward in less work, and that “No system of the social division of labor can do without a method that makes individuals responsible for their contributions to the joint effort. If this responsibility is not brought about by…inequality of wealth and income…it must be enforced by…direct compulsion…by the police.”

Ludwig von Mises

So our alternatives are either a Communist police state or at least some inequality. If the inequality, how much? All that an economist can say about it is that the market, always tending toward equilibrium, always tends toward the inequalities that would bring it about, and that forcible reduction of them, like any intervention in the market, would be counterproductive, that it wouldn’t reduce but increase inequality, and be unjust and immoral by the redistributionist’s own standard.

At the line between rich and poor, but one penny of income separates them. So, when it is taken from the rich and given to the poor, their stations are reversed. The rich become poor and the poor rich, which attracts manpower from the occupations of the one to those of the other. To restore the manpower allocations it preferred, the market must bid the net wages of the formerly higher paid occupations back up and of the formerly lower paid back down. But, anticipating increasing rates of redistribution, and compensating not just for the current but for the greater anticipated rates, the market must bid the net wages of the formerly higher paid to even higher levels and of the formerly lower paid to even lower levels than before, for differentials even greater than before.

Mises never got that far in his analysis, and, failing to see the solution, believed that there was none, that the greatest issue of economics was beyond it. As he saw it: while redistribution interfered with production and reduced society’s total net income, it increased the poor’s proportion of it. Would they be better off, then, with the larger share of the smaller cake or smaller share of the larger cake? While he agreed with the conclusion that the size of the cake would go down more than their proportions of it would go up, he contended that it couldn’t be proven, that “it is not based on praxeological considerations and therefore lacks the apodictic and incontestable argumentative power inherent in a praxeological demonstration. It is based on a judgment of relevance, the quantitative appraisal of the difference between” society’s total net incomes with and without redistribution. “In the field of human action such quantitative cognition is obtained by understanding with regard to which full agreement between men cannot be reached. Praxeology, economics and catallactics are of no use for the settlement of such dissentions concerning quantitative issues.”

Human Action, P 678

Greg Webb July 16, 2011 at 12:42 pm

DG, I would be pleased to have a meaningful discussion with you. What resolution shall we debate?

DG Lesvic July 16, 2011 at 3:12 pm

Greg,

Based on what I’ve seen of you so far, I don’t think a meaningful discussion between us is possible. It may be my fault. I may do you an injustice by my low opinion of you. But I can’t help it. That’s how I feel, so I don’t think I’ll be having much to say to you.

Greg Webb July 16, 2011 at 8:02 pm

DG, it does not surprise me. You seem to be the typical statist coward.

Greg Webb July 16, 2011 at 12:40 pm

Richard, excellent post! Utopians do not live in the real world, which is why they keep advocating for greater government power designed to forcibly perfect human beings. Since utopians cannot reason logically or put together a coherent argument supported by objective, verifiable evidence, they have to resort to personal attacks and, eventually, if they come to power, eliminate anyone who disagrees.

Scott G July 15, 2011 at 7:41 pm

I think libertarians should be more utopian in their teaching of the potential of private markets.

If Don and other libertarians wrote letters to movie producers and directors with fascinating and persuasive visions of voluntarist worlds, and convinced a few of them to create movies depicting such voluntarist worlds, I think those movies could do much to persuade people to move toward greater privatization.

Alternatively, rather than persuade movie producers to create movies depicting volutarist worlds, the Mercatus Center and IHS could teach its students how to make movies.

I hold steady to my beliefs that liberty (both positive and negative) can be sold; by selling products (like movies, short videos, books and songs) that teach about liberty and by physically creating and selling free-zone land which provides greater capabilities for people to have more liberty.

“I suspect that one reason for the enormous success of the socialist ideas of fifty and hundred years ago – ideas which in many cases are the orthodoxy of today – was the willingness of socialists to be utopian. Their politics were Fabian, but their polemic was not. Their vision of an ultimate perfection was one of the most effective weapons in the practical struggle.” David Friedman, pg. 203, The Machinery of Freedom

vikingvista July 15, 2011 at 11:12 pm

Ironic how statism promises a solution to every problem and a fulfillment of every dream, while libertarians who say “better to let those problems be than compound them with tyranny” are the ones accused of being utopian.

But David Friedman was right, and Ayn Rand’s novels are popular. People’s are suckers for beautiful fantasy.

Mesa Econoguy July 16, 2011 at 12:30 am

Abracadabra, thus we learn
The more you create, the less you earn.
The less you earn, the more you’re given,
The less you lead, the more you’re driven,
The more destroyed, the more they feed,
The more you pay, the more they need,
The more you earn, the less you keep,
And now I lay me down to sleep.
I pray the Lord my soul to take
If the tax-collector hasn’t got it before I wake.

Mesa Econoguy July 16, 2011 at 12:36 am

One From One Leaves Two
by Ogden Nash

vikingvista July 16, 2011 at 1:56 am

Nice. Worth committing that one to memory.

Mesa Econoguy July 16, 2011 at 12:45 pm

I do have to h/t Amity Shlaes for this one, since she quoted a stanza in The Forgotten Man, which jogged my memory.

DG Lesvic July 16, 2011 at 1:03 am

By the way, have you noticed something very strange about Don’s presentation here?

No math.

Does that make him an idiot and a moron, too?

Greg Webb July 16, 2011 at 12:43 pm

No, DG, it means you are rude.

DG Lesvic July 16, 2011 at 1:04 am

Oh, pardon me, it was really Hayek’s presentation.

OK, so he’s the moron.

Mesa Econoguy July 16, 2011 at 1:20 am

DG, let me see,

your posts have not been the

best quality of late, so

please vacate , like muirgeo who

can’t stop drooling on his

DG Lesvic July 16, 2011 at 2:16 am

Messy,

I’m ready to take you up on that.

You guys really want to get rid of me, don’t you.

Alright, here’s your chance.

Give me that example of mathematical economics I’ve been asking for, and I’ll do just that. I’ll leave Cafe Hayek, never to return.

Now, if you don’t take me up on that, we’ll see you for the phonies you are.

Greg Webb July 16, 2011 at 2:28 am

DG, I don’t care what you do. But, what do you mean by “an example of mathematic economics you have been asking for”?

vikingvista July 16, 2011 at 2:55 am

God be with you, my friend. We’ll talk when you return from Purgatory.

DG Lesvic July 16, 2011 at 4:09 am

Greg,

Our friends have been contending that the mathematical is superior to the logical and literary method as a means of analyzing the problems of economics and of expressing even its non-mathematical concepts. I have tried to explain why that was not so. But my explanations have been abstract. To bring them more “down to earth,” we need some more concrete examples to apply them to. And it is rather for the proponents than the opponents of the method to furnish the best examples of that. That is what I have been asking for, for years, and without ever getting a single one. My adversaries will insist that they have furnished me with what I asked for, but that I willfully and disingenuously passed over them. But I assure you that if they venture any here and now for all of us to see, we shall see their inadequacy for the purpose.

And they know that to be the case, which is why with all their fulminations and slanders against me they will never meet the challenge.

Watch, and you shall see, if you haven’t already.

And while the abstract argument would be sufficient for some,

DG Lesvic July 16, 2011 at 6:07 am

And, Greg, don’t you think that, if the mathematical method really were superior, they ought to be able to furnish us with an example of it, an example of a problem of economics solved by mathematical procedures and a non-mathematical concept explained by mathematical means, and all of this better than anything that could have been accomplished through the conventional methods of economics?

DG Lesvic July 16, 2011 at 6:12 am

And, at some point, doesn’t the failure to furnish us with any examples of it indicate that there just aren’t any, that the whole thing is a fraud.

I don’t know whether you’ve seen the discussions of this before. My adversaries never responded in a logical way to any of my logical arguments. For the most part they just ignored them. But this is the acid test for them, presenting us with an example. I guarantee you that they will never do so, because they can’t, that all we will ever get from them will be red herrings and outrage at being asked to back up their claims.

DG Lesvic July 16, 2011 at 6:16 am

And what do the personal attacks upon me mean/

What do they ever mean?

Aren’t they always an admission of defeat?

Don Boudreaux July 16, 2011 at 7:44 am

I confess that I’ve not read this entire thread, but DG asks for an example of mathematics that is helpful in economics. Here’s one:

MV=PQ — the equation of exchange.

I mention this fact not to suggest that the equation of exchange alone boasts this distinction (it certainly is not), or to give credence to DG’s misguided arguments about methodology, but to make a substantive point:

Suppose some imaginary economist – say, one Ludwig van Muses – would write that the total dollar value of expenditures in an economy in a year necessarily equals the number of dollars in that economy multiplied by the average number of times a dollar is spent during that year. In this case, Prof. Muses would be using all words and no dreaded symbols. I gather that, according to DG, Prof. Muses here would be doing real economics.

But let Prof. Muses instead write “MV=PQ” – and define each term as it is conventionally defined in economics – then suddenly Prof. Muses is no longer doing economics but is a practitioner of some dark art resorted to only by those who either can’t or refuse to appreciate what economics ‘really’ is.

Of course, in the second case Prof. Muses says exactly what he says in the first case.

DG Lesvic July 16, 2011 at 11:00 am

Prof Boudreaux offers “MV=PQ — the equation of exchange” as “an example of mathematics that is helpful in economics.”

Here’s a bit of what Mises had to say about it:

“In every chapter of catallactics the devastating consequences of the mathematical treatment of economics can be tested. It is enough to refer to two instances only. One is provided by the so-called equation of exchange, the mathematical economists’ futile and misleading attempt to deal with changes in the purchasing power of money. The second can be best expressed in referring to Professor Schumpeter’s dictum according to which consumers in evaluating consumers’ goods ‘ipso facto also evaluate the means of production which enter into the production of these goods.’ It is hardly possible to construe the market process in a more erroneous way.

Economics is not about goods and services, it is about the actions of living men. Its goal is not to dwell upon imaginary constructions such as equilibrium. These constructions are only tools of reasoning. The sole task of economics is analysis of the actions of men, is the analysis of processes.”

Human Agony, 3rd ed., P 357

There are no equations in economics, for, if you and I exchange my A for your B, it is only 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 would be no exchange, for nothing could be gained by it.

The use of symbols in place of words is not by itself mathematics. It is just shorthand. Here is what Rothbard had to say about it:

“…it is the great quality of verbal propositions that each one is meaningful. On the other hand, algebraic and logical symbols, as used in logistics, are not in themselves meaningful…to develop economics verbally, then to translate into logistic symbols, and finally…back into English, makes no sense and violates the fundamental scientific principle of Occam’s razor; which calls for the greatest possible simplicity in science and the avoidance of unnecessary multiplication of entities or processes.”

Man, Economy, and Barf, P 65

The question is two-fold: is the mathematical superior to the logical and literary method as a means of analyzing the problems of economics and of expressing even its non-mathematical concepts? Since English is our first, native language, and we could not evaluate your translations of it into the foreign language of mathematics without knowing what you were translating from, you must start out with English, stating your objective, and explaining why and at what point you would switch to math, before actually making the switch, for starting out with it was not to prove but assume its superiority, and not answer but beg the question.

Prof. Boudreaux didn’t explain the “equation of exchange.” He didn’t tell us what its objective was. He didn’t even bother to tell us what his symbols stood for. He certainly didn’t tell us how any of this was helpful in economics.

He just begged the question.

Greg Webb July 16, 2011 at 12:24 pm

DG, you said, “Give me that example of mathematical economics I’ve been asking for, and I’ll do just that. I’ll leave Cafe Hayek, never to return.” Don Boudreaux provided your requested example with his post, “MV=PQ — the equation of exchange.” But, I see that you are trying to weasel out on your promise with your responses to Don’s post. I knew that your promise was too good to be true because I have heard such promises before by statists who then reneged on the deal.

Greg Webb July 16, 2011 at 1:07 pm

Thanks, Vik. I’m not sure its purgatory, though one could call it that. It is more of an exploration of the illogical and incoherent world of the overly-emotional and adulation-craving statist. A few years ago, I saw the film Grizzly Man, which was about the life of “eco-warrior” Timothy Treadwell, who became a hot lunch for a bear. In the film, you can see the highly emotional and illogical persona of Timothy Treadwell, and his obsessive need to create and sell to others the fiction that he, and only he, could “save” the grizzlies from “evil” corporations and men. And, I see similar emotional disorders in many political activists, university professors, journalists, politicians, etc. who advocate greater governmental power. I also see similar emotional disorders in a few regular posters to this blog.

vikingvista July 16, 2011 at 2:02 pm

Dear Prof. B,

Great example as usual. But fixed false beliefs that are impervious to evidence to the contrary cannot be cured by reason. The only known cure, effective only sometimes, are antipsychotic medications.

Greg Webb July 16, 2011 at 1:28 pm

DG, you said, “The question is two-fold: is the mathematical superior to the logical and literary method as a means of analyzing the problems of economics and of expressing even its non-mathematical concepts?” I do not believe that anyone has said that the mathematical is superior to the logical and literary method as a means of analyzing the problems of economics and of expressing even its non-mathematical concepts. But, I might has missed some post along the way.

Or, you may just be creating the typical statist straw man argument where you “prove” your genius by knocking it down. Let me assure you that you do not achieve your objective with this silly debate tactic.

I use both in explaining risk and return of various options to the boards of directors and executive management of clients that I represent. And, I find that using mathematical formulas and concepts are useful in properly explaining risk and return. In addition, I have to explain, via logic and reason, the assumptions used as well as the advantages and disadvantages of each option. Consequently, the issue is not math or logic, but rather math and logic. And, I find the same holds true in economics.

vikingvista July 16, 2011 at 2:52 am

his…knee? Tea? Brie? Wii? Ch’i?

Mesa Econoguy July 16, 2011 at 12:43 pm

Oui.

Greg Webb July 16, 2011 at 12:47 pm

Si.

Greg Webb July 16, 2011 at 12:46 pm

Again no, DG, Hayek was a brilliant and accomplished man. You, however, are neither. It is easy to make illogical and incoherent personal attacks, but do you ever have a comment that will expand the knowledge base rather than cause it to retract?

Randy July 16, 2011 at 5:59 am

Speaking of forces which actually work, here’s my proposed solution to the debt ceiling issue (okay, its not a great tie-in, but I need to get this thought down).

Eliminate the debt ceiling – because it doesn’t really work anyway. Further, the political organization should borrow every last penny that others are willing to lend them – because the point at which no one is willing to lend to them is the real debt ceiling.

The thing is, its not our debt ceiling. Its their debt ceiling, and eventually they will hit it, and when they hit it, it will be no ones fault but their own. So, no tax increases. Period. If they want more money, make them borrow it.

DG Lesvic July 16, 2011 at 1:54 pm

With a real economist in the discussion now, Prof Boudreaux, I don’t really think that I have to bother any more with the Twisted Vistas, Tangled Webbs, and EconoWiseguys.

DG Lesvic July 16, 2011 at 7:46 pm

And I guarantee you that Don Boudreaux, who surely understands the difference between action in the market and the analysis of it, will not second Mr Webb’s comments just above.

Greg Webb July 16, 2011 at 8:08 pm

DG, you asked for a “meaningful discussion,” then you run away when your silly challenge is accepted. You are the typical statist coward.

DG Lesvic July 16, 2011 at 11:46 pm

I ran away? The last time I looked, I had the last word with Don. It may not have been the best, but it was the last. So, whether I was right or wrong, I can hardly be accused of running away.

You’re awfully close to Viking, playing fast and loose with the facts.

Be careful!

DG Lesvic July 16, 2011 at 11:48 pm

I just tried to post a response to Greg, and it was rejecte as being a duplicate. And since there is much lag time here between posting and appearance, we’ll have to wait a while and see what happens.

But you will be seeing a response from me.

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