Rereading Salerno’s old paper on dehomogenizing Mises from Hayek prompted me to think of shortly listing the most important insights and significant mistakes in economics and economic methodology (in both cases – those of which I am aware and in my own opinion) to show that there is no point in trying to doctrinally identify with any of those scholars. So here we go starting from Mises.
1.1 Major insights:
– first clear formulation of the essence of choice
– first formulation of the Austrian Business Cycle theory
– first rebuttal of the rationality of central planning
– the explanation of the role of actual prices as indispensable means allowing economic calculation
– the regression theorem of the emergence of the means of exchange.
– the neo-Kantian epistemology that construed praxeology as deduction from axioms known prior to any experience (it is IMO a mistake because there is no way to explain how this a priori knowledge relates to the actual world)
– the use of imaginary constructs like plain state of rest, final state of rest, the evenly rotating economy and the natural rate of interest and promotion of the use of ideal types in economic history. I think this approach is mistaken because there is no way to show that conclusions about some fantasy world somehow relate to the actual one. None of those constructs are, in my view, necessary for formulating any true insight of the Austrian school (see e.g. my draft paper on the Austrian Business Cycle Theory on the realistic formulation of the theory without using any such constructs).
– failure to realize that calculation argument per se is insufficient to seal the case against the rationality of central planning
– the use of a psychologistic construct of felt uneasiness to explain praxeological profit (the ex post evaluation of past choices)
– the almost complete explanation of which problem the economic calculation made possible by prices allows to solve (The Use of Knowledge in Society). In other words, the contributions of Mises and Hayek to the socialist calculation debate are, in my view, complementary, not mutually exclusive
– the exploration of the mechanism of the business cycle, in particular the role of profit signals in it.
– the pattern coordination concept of equilibrium
– treatment of choice as a black box that essentially does not really matter for the economic analysis. This led Hayek to a too narrow, in my view, formulation of the economic problem as the problem of aggregation and dissemination of existing knowledge.
– failure to completely eschew unrealistic equilibrium constructs (though the pattern coordination idea may be interpreted realistically)
– the first clear Austrian formulation of the principle of marginal utility which is actually distinct from the similarly called mainstream analogue
– the recognition that apriorism may be interpreted in the Aristotelian realist sense thus solving the problem of relation of general knowledge to experience. This view which I happen to share holds that the human mind is capable of abstracting the essences of things through interaction with them, including the essences of such phenomena as human being, choice, ends, means, money, goods, etc. This makes deductions from using the relevant concepts directly applicable to the economic reality (history). The role of a historian is to see whether the referents of the relevant concepts are present in the given historical episode.
– the demonstration that if cartel participants recognize all profit opportunities cartels are necessarily going to fail
– failure to realize that fractional-reserve banking without a central bank does not necessarily lead to inflation
– failure to realize the obsoleteness of Misesian imaginary constructs
– the explanation of the role of pure entrepreneur as an agent who increases the value of capital goods through inter-local or inter-temporal arbitrage and innovation
– the theory of competition as striving of entrepreneurs in all markets to find better ways to satisfy human wants, i.e. that from the economic standpoint every entrepreneur competes with all other entrepreneurs
– the use of the unnecessary and confusing language of equilibration to formulate the aforementioned insight
– the use of unnecessary, vague and psychologistic concept of alertness that does not add anything to the theory of market process.
If I am right in identifying the insights and errors I listed, the conclusion that follows is that there is a way of integrating all those insights into a unified doctrine while eschewing the unfortunate aspects of thought of the giants of the Austrian school.