Tuesday, January 15, 2008

A Note on the "Mises" Institute

Why does Tom Palmer get to have all the fun?

Since the NR article documenting the idiocies in the Ron Paul newsletter, the "Fever Swamp" is overflowing onto his blog again. It appears that the comments for which Paul is being attacked may have been written by founder of the Ludwig von Mises Institute, Lew Rockwell. For some time Palmer has documented that Rockwell and co. are associated with all kinds of irrational, anti-libertarian agendas, including racism, holocaust denial, homophobia, Christian Reconstructionism, apologetics for Putin- Lukashenka- and Kuchma, restoring the Confederacy, and other strange things. And each time he documents something, the hits and comments on Palmer’s blog skyrocket.

I’ve occasionally weighed in in the verbal fisticuffs, and in the latest fracas have posted on some incidents of Rockwellian racism . I got sick of the inaptly-named Ludwig von Mises Institute in the early 1990s, after attending three of their conferences. In 1989 and 1990 I attended their "Summer Universities," both held at Stanford University, and in, umm, about 1991?, I attended a joint conference of the LvMI & Rockford Institute held in Princeton NJ on "Egalitarianism." Palmer documents the predilection of many of the LvMI people for "fever swampish" ideas; racism, etc. I encountered this sort of thing myself; but I think these nasty predilections are really sidelines for them. First of all, they are economists. Unfortunately, they are really bad ones.

Why do I think this? A few examples...

Consider their late "dean," Murray Rothbard. I met him at each of the LvMI conferences I attended, and could see he was very intelligent and well read. I enjoyed his sense of humor. But it was also clear he often had no idea what he was talking about, and was, well, crazy. For example, at the 1989 conference he discussed graphical representations of demand curves, and pointed out that the textbook standard had once been the constant elasticity demand curve, until someone (Stigler, I believe) drew a linear demand curve, which became the new standard. As Rothbard correctly observed, it doesn’t really matter how they are drawn, since all are simply heuristic tools, rather than exact representations of reality. Good point.

However, at the 1990 conference, he was drawing "realistic" demand curves, and insisting that the only proper way to draw them was as an irregular step function, taking special care to be sure there was no perfectly elastic portion, which would be "impossible." I thought this was a bit mad. Never mind that the continuous demand curve he drew necessarily assumes an infinitely divisible good, in violation of his own strictures concerning utility theory. Who cares that it’s "more realistic?" This curve tells us nothing different than a constant-elasticity or linear curve does, and none of them are "realistic," nor can they be. And they are useful nevertheless. During one of our evening discussion groups, Roger Garrison incredulously asked if any of us students really thought anything was gained by drawing the demand curve Rothbard-style. None of us did, nor did Garrison. Rothbard’s insistence on it made no sense, but is typical of the strange and unthinking economic "realism" sometimes seen with the Mises Institute.

On this note, consider the lengthy exchange between Block and Hulsmann of LvMI, and Bryan Caplan of George Mason. Caplan argued that Austrians are guilty of a false realism that is really quite unrealistic. Block and Hulsmann responded, and in the course of the debate began attacking neoclassical utility maximization for dividing and multiplying "incommensurate quantities." A condition for utility maximization is that MUX/PX = MUY/PY, but MU is measured in some sort of utility units (utils) and P is price, measured in monetary units. Since the units of measure are different, the units cannot be divided, argued our intrepid Mises Institute scholars. Hulsmann went on to give the example of a rabbit divided by a piano concerto, a supposed reductio ad absurdum.

Very funny, particularly since it illustrates that Block and Hulsmann failed to understand 3rd grade math. Caplan was incredulous. Miles per hour, anyone? (That’s 1.61Km/hr for my European readers, NV.) I kind of like the rabbits per concerto idea myself, although it’s unclear whether we’re taking the rabbits to the concertos as guests or as food. But how to account for the blindness of B & H?

Another example: at the 1989 conference, Hans Herman Hoppe had just published his paper on the "argumentation ethic," an argument that allegedly proves the existence of natural rights, and he gave us a lecture on it. It’s interesting but I raised an objection. Hoppe argues that if one argues against natural rights, one implicitly accepts them because one accepts that the person to whom one speaks has the right to make up his own mind. I objected that this is not the case - after all, arguing might simply be a lower cost way of controlling a being that should be subject to one’s will. "Do what I say, don’t make me force you" doesn’t involve a contradiction.

Hoppe, who was new to the LvMI at this point, agreed that this might be a problem for his thesis, and quite reasonably said he would have to mull it over. I was favorably impressed by his intellectually honest response.

Next year, at the 1990 conference, he again lectured on the argumentation ethic, and I again raised the same objection. Only this time, he dismissed it as entirely irrelevant. Why? No answer, just a dismissal. I kept after him, and we went back and forth until I was hoarse. He had no answer other than argument from his own authority. I can only think that by then he’d been fully indoctrinated into the Rockwell-Rothbard cult, and was beyond reason. But what kind of "economic analysis" is beyond reason? Mises, when talking about a priori knowledge and apodictic certainty, said it was always appropriate go back and re-check the arguments, that one should never rule out that a mistake had been made.

To return to Rothbard again, at the Princeton "Egalitarianism" conference, Rothbard gave an address in which he said that if egalitarianism were true, if humans really were identically equal, trade, cooperation, and specialization would be impossible. It’s only our differences, in preferences, skills, and endowments that make trade possible.

What? Such nonsense ignores one of the first lessons of Econ 101: economies of scale. Even if people were utterly identical, they could still cooperate to reap gains from trade. Imagine 10 identical farmers, each with an identical field, each field containing an immense identical boulder than restricts farming. Suppose also that each boulder is too big for one man to move, but ten men, working together could move it. Mutual gains from trade don’t require heterogeneity, and it’s hard to see how anyone with a Ph.D. in economics could miss this, unless they’d blinded themselves with ideology, and simply had to achieve a certain result. Of course, Adam Smith argued that basically identical people could also reap gains from trade by differentiating themselves through on-the-job learning, in his pin factory example. But Rothbard was so possessed with the idea that Smith was, well, evil (for failing to solve the problem of value) that he couldn’t see anything of value in Smith.

I could go on and on with the patent nonsense I encountered from LvMI "scholars." A final example: in 1992 I attended the Mont Pelerin meetings in Vancouver B.C. During some free time there was a private dinner at which a number of libertarians gathered. At the dinner, Walter Block announced that Charles Murray's "Bell Curve" was coming out (it hadn't been made public to that point). Block then expressed delight that it would prove blacks were inferior and that this would mean the government would stop wasting money trying to educate "those people." His hatred for blacks was quite obvious. I recounted this in my post on LvMI racism on Palmer’s blog, but omitted subsequent events.

After the dinner, a number of us, including Block, took a van to private residence where a meeting of the local Libertarian Party chapter was being held. There were perhaps twenty locals in attendance, a nice enough bunch, and they welcomed us as guests. Since Block was known for his "Defending the Undefendable," they had him give a little talk. During the talk he argued that a numerical utility function necessarily implies that utility is cardinal, rather than ordinal, and therefore the use of utility functions is illegitimate. Unfortunately for Block, it is a standard point of neoclassical theory that the utility function is insensitive to any monotonic transformation, which is mathematese for "it’s ordinal." I raised my hand and said so, in the midst of Block’s talk.

Afterwards, while I was in the kitchen getting another cold drink from the refrigerator (good hosts, those Canadians) Block came in and told me, in words we simply don’t use at Unforeseen Contingencies that I was never to contradict him when he was speaking. He was smiling when he said this, but he didn’t seem very friendly. I just grinned back.

What would Mises have thought of all this? He was a brilliant economist. He was uncompromising in his opposition to all irrationality and violations of individual rights. He was particularly hard on racism. Yet here we have an "Institute," and an associated "Lew Rockwell.Com," promoting idiotic economic analysis and reprehensible anti-libertarian agendas in his name. Thy do great damage to Austrian economics, and to libertarianism, with their crankiness. Well, with the Paul newsletter scandal, they are finally getting some long deserved critical scrutiny. Here’s hoping these intellectual miscreants also get the comeuppance they so richly deserve.

Someone should found "The REAL Mises Institute" and build up an organization in the name of Mises which is not filled with wackos and racists.

This is the only way to protect the name of Von Mises from the paleo-cultists.
But there already is such a thing as the "real Mises Institute." It's the George Mason University economics department, where Austrian economics in general and Mises in particular are studied and taken seriously but not taken for holy writ and if at all possible integrated with other kinds of economics.

In my humble opinion, Mises' writings about methodology are misguided, but he wrote a lot that is worth reading. The discussion in Liberalism of issues of national identity, individual versus group self-determination, the connection between public education and nationalism, etc., are all very interesting. And, ironically, deeply cosmopolitan.
"Block came in and told me, in words we simply don’t use at Unforeseen Contingencies that I was never to contradict him when he was speaking."

That by itself, sir, is enough of an indictment for me. That is not the way an honest and responsible intellectual should ever behave, period. Dr Block should sit down with a copy of On Liberty and read it, and read it again, and read it again, and not come back until he understands it.

Such a prick.
Dear Mr. Steele,

I've been fallowing a little bit the Paul-newsletters-Mises Institute scandal and I understand that your post is a meant to be a funny polemic. I agree there are probably many personal idiosyncrasies liked to people at the Mises Institute, but given the fact that you praise Mises as a scholar can you at least be fair to his arguments and the ideas of the Austrian School of economics ? Mises, building on Menger's theory of value, considers utility to be ordinal. Consequently, and nevermind the realism or unrealism of demand curves and so on, from a subjective perspective how can you make mathematical calculations with heterogeneous, ordinal, ranked units of goods ? Why is it such a mad idea the fact that ordinal subjective utility cannot be divided, subtracted and so on because we do not have a measure of value, of utility ? - May I also suggest that a great mathematician like Henri Poincare raised this point very clearly to Walras and he was unable to respond ? Here's some "mad" reading on the matter : http://links.jstor.org/sici?sici=0008-4085(197705)10%3A2%3C300%3ATWCOTC%3E2.0.CO%3B2-I

P.S. I have never been to a Mises Institute event, or to the US for that matter.
Thank you to all of you for your comments.

Anonymous 2: I think Mises arguments on method are generally misunderstood -- at least those in Human Action. I think he formally advocates what most economists actually do, even while they claim to be doing something else. Maybe I'll post on this sometime.

Bogdan: Thanks for the Jaffe article. I'll probably use it in teaching this term.

I consider myself an Austrian. Mises was the dissertation advisor to my dissertation advisor, and I take his thought seriously, he's one of the giants on whose shoulders I try to stand.

A neoclassical utility function is an ordinal ranking, and neoclassical economics is entirely clear on this. The paper you reference clearly argues the point (see p.305). Assuming a "well-behaved" ordinal utility function, the equilibrium condition MUx/Px = MUy/Py gives the same solution (x*, y*) regardless of what transformation of the utility function we use. Units of measurement aren't relevant, because there's no such thing as total utility. Pareto made this point.

I am not suggesting, BTW, that we should adopt the neoclassical theory. I simply insist that if we criticize it, we criticize it based on a correctly understanding of it, and not a misrepresentation such as Block's, or Hulsmann's.
It occurs to me that you might be interested in my (very short) critique of Hoppe's argument, from an old Liberty

a short note, probably off topic: Mister Hoppe has launched his own Mont Pelerin Society meeting. Now I was wondering...is it meant as "Besitz und Freiheit" / or as "Eigentum und Freiheit"?...:)
Mr. Steele,

Thank you for the answer and I agree with the explanation. But as far as I know, Rothabard's claim (which I guess is what Block and Huelsmann also tried to restate) is that there is no way to measure not only the intensity of the personal utility rankings but there is also no way to measure the space, the interval between this rankings (between the 1st, the 2nd, the 3rd and so on) and this is why the marginal equilibrium, the marginal mathematically equality between MUX/Px and MUy/Py is economically irrelevant. It's another way of stating the Austrian rejection of indifference analysis and of underlying their exchange approach to value. I think you can disagree with this but its a bit harsh, to say the least, to call it madness. But maybe your assertion was only about the exposition of Huelsmann and Block.
Why is racism unlibertarian? A belief in the existence of human races is an ontological question, libertarianism is a political philosophy. Those two never overlap. The only thing libertarianism can say about racism is that it's unlibertarian to use politics to discriminate. Other vice I do think you have some good points regarding the Mises institute.
David: I buy your argument -- I think all of the arguments I've seen against Hoppe's position are part of this general form. Certainly recognizing that an individual has a measure of control over her/his own actions (and hence persuasion might be a good method of getting cooperation) doesn't entail recognizing that s/he *should* have such control.

Anon: thanks, I wasn't aware of this. I suppose they aren't going to invite me.

Bogdan: Actually, I didn't characterize the position as madness. Block's argument that utility functions imply cardinal utility is simply wrong & a mischaracterization of neoclassical thought. I am happy with attacking Neoclassical theory, but not with attacking a straw man. In order to successfully attack an orthodoxy, one must understand it very well, better than its adherents; Block instead showed he didn't understand.

If I were to state the neoclassical equilibrium conditions verbally, I think it would be very difficult to find any alleged internal inconsistency in them ("When Smith allots his income between beer and sausage, the last fraction of income spent on beer ought to yield the same satisfaction as the last fraction spent on sausage...otherwise he's allocated too much to the one that yields less.") We might not like the NC utility theory, but it's internally consistent.

The "division by incommensurate units" argument was silly.

Finally, I have to point out that the interval between the rankings isn't relevant to neoclassical analysis; that's why the indifference curves are all we need. A monotonic transformation doesn't change the projection of the level curves, even though it changes the (irrelevant) levels.

Thanks to all of you for these comments.
Anon 5: I strongly disagree that there's no overlap between political philosophy & racism.

First, racism isn't simply "belief in the existence of human races."

Second, there are many variants of racism; most explicitly hold that different races have different logics, or should be valued differently, or have different inherent abilities to function in society. Think of Nazi racial theory, or the theory that "justified" enslavement of blacks in the U.S. or apartheid in South Africa. Or arguments that melanin creates morals, so that whiteness is correlated with evil. These racist doctrines have direct political consequences.

Libertarianism is the political philosophy that holds individual rights above all other political concerns. I'm sure it's technically possible to be both racist and libertarian, but if one judges people on the basis of race, the group membership generally trumps their individuality, and creates a strong tendency to unlibertarian political discrimination.
Note in the margin re:

"Admittedly I was denounced primarily for allegedly identifying myself as "someone who "lives" in three states plus "the former Soviet Union." He sounds like he lives in his car and lists no place of employment)." Still, it's a start...maybe LvMI will eventually get around to addressing (or dressing me down for) my ideas & arguments."

You evil, cosmopolitan and well traveled creature...don't tell me there is a world outside of...Alabama, yerk! shame on you Charles. NV
I fear I will get no work done today; after reading DiLorenzo's LRC post I can't stop laughing.
After reading an old blog post on "A note on the "Mises" Institute", I would like to point out some problems with your criticisms.

I noticed a problem in your post, where you dismiss rothbard's argument that egalitarianism would lead to no trade. The problem with your dismissal is that you don't take into account that completely identical humans will have identical preferences, and any exchange requires asymmetry of preferences. The rebuttal based on "economies of scale" is a strawman, as you only prove that trade can happen when people have identical skills. For the moving the boulder example to happen, in order for one boulder to be moved, one person must value moving the boulder on his farm more than any other action at that moment, and the other 9 farmers must value moving the boulder on the other farm more than anything else. This is a difference in preferences, even if ultimately, an identical thing happens in each farm as a result of this trade.

In your apparent observation of Rothbard contradicting himself on demand curves, I think he is speaking in different contexts. There are some applications of supply and demand curves, such as showing how shifts in the curves affect prices, where it doesn't matter how the curves are drawn. The effect is merely to illustrate how supply and demand shifts affect prices. However, there are other contexts, in which knowing the shape of supply and/or demand curves is important. With Rothbard's step demand curve function, he was trying to illustrate a fact about how preferences actually work, that a demand curve is not a function. It also shows how demand curves and the simplified analysis necessarily results from praxeology.

In your argument against dividing and multiplying different units, you again form a strawman. While you correctly note that it is possible to do the multiplication and division, the problem is the meaning of the new units that are created. They didn't argue that it was impossible to do this, just that the results would be meaningless.
I just noticed purplearcanist's comment, probably years after it was posted. But I'll respond anyway (after all, I do write first of all for myself, and I'll enjoy it, at least).

1. Exchange does not require "asymmetry" of preferences in the sense in which you speak. Here's a simple example. Farmers A and B have identical boulders in identical fields. Each would prefer his boulder be moved first, the other's second; both prefer these to any option that involves moving only one or no boulders. What to do? They agree to flip a coin to see which boulder is moved first. The exchange occurs.

Given your counterexample, I'm surprised you don't argue that if each person has identical preferences they must be in agreement on which boulder they most want removed. But either way, my point is correct, and Rothbard's is entirely wrong.

2. Rothbard's 1989 point was that demand curves are simply heuristic tools and it doesn't matter how they are drawn (so long as they have negative slope) was correct.

His 1990 point was inane. I watched him draw "realistic" demand curves that showed infinitely divisible quantities and prices, as well as constant preferences, all contradictions of his own carefully stated "apodictically true" positions. Furthermore, actual attempts to estimate demand curves from data don't generally find the oddly shaped continuous step functions he drew. He was just making stuff up.

3. "[T]he problem is the meaning of the new units created..." Did you bother to read my argument? The units are irrelevant. These are are ratios. Consider "commensurate units." Divide $5 by $10. What units result? (None.)

Or consider "incommensurate units." Suppose PX = $5, PY = $10, Given these prices and his income, Smith's optimal basket has MUX = 1 and MUY = 2. How would this be any different from calling it MUX = 75 and MUY = 150? (Answer: it wouldn't be; we've just done a monotonic transformation of his utility function which is perfectly legitimate becausethe units don't matter!.)
Much of the conversation here flies right over my head, but I have a question/observation:
The farmers are identical in every respect, down to the agreement to use a coin flip to determine order of events. Doesn't the coin flip represent the instututiting of an inequality? Since the farmers can't be "equal" I. Order of events they must agree to an inequality of timing determined by the random flip of a coin. Both farmers agree to terms which ultimately allow one farmer's need to be met ahead of the other's, thus they are not equal in the exchange. Am I being naïf?
DebB_AK: The farmers are identical. Once the coin flip occurs, one will have his/her boulder moved first, so in that sense they are no longer identical, I guess. But Rothbard's point was that being identical precluded trade in the first place. Rothbard was wrong.

And the point you raise is quite different from Rothbard's, and doesn't strike me as any sort of refutation of my criticism of him.

What's most important in all this is that we are using analytic models -- thought experiments -- to isolate the various things that could lead to mutually beneficial trade. Differing endowments is one, differing preferences another. Rothbard missed a crucial third one: economies of scale.

Thanks for your comment.
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