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Economics of the Libertarian Right

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EconBabe

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Hi,

Am I correct in that the Libertarian Right is metaphysically dependent on the impossibility of solving certain classic problems in economic science, e.g. the Vienna Problem? Or: could the Libertarian outlook on social organization be sustained if a solution were ever accepted?

I ask these questions because I have become directly acquainted with a unique and general solution to the Vienna Problem, and have observed Libertarian economists responding to it like 15th Century Cardinals confronted with the Copernican System. Given that Libertarian thought has quite a grip on economics (e.g. the Hoover Institution’s control of National Science Foundation funding) I find this situation to be a barrier in pursuing my academic career.

As people who believe utterly in the arrival at truth through the free exchange of ideas, I am sure this circumstance – if you could conceive it to be true – would be something you would be anxious to address. So, if you have a mathematically competent champion of the Vienna Problem’s indissolubility, please step forward and lets have at it.

If this board is not the place to complete the argument, I can arrange for us to move elsewhere.

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A few points:

One: do you believe this is a forum for Libertarians? If so, you have a mistaken understanding of this site and the purpose it serves. You certainly will not get someone here defending a "libertarian" position on anything. You will only get an Objectivist position (ie the application of Objectivist principles to the issue). And I can assure you, Objectivism does not (unfortunately) have a 'grip" on any policy making body.

Two: Isn't the Vienna 'problem' an economic issue? If so, this topic properly belongs under the Politics and Political Philosophy heading, not Science, since economics is a component of politics.

Three: whenever discussing a new subject, especially if it contains specialized theories or knowledge, please provide a one sentence or one paragraph summary explaining the topic so others without that specialized knowledge may at least grasp what is being discussed.

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I presume that by “Vienna problem” (a term I’ve never heard) you are referring to Austrian economics, and that by “libertarian right” you are actually referring to laissez-faire capitalists – most “libertarians” and many Austrians are not.

First, the “Vienna problem” is only a problem if you believe that socialism (and dictatorship) is the natural state for man. If you believe that freedom is the norm, and slavery unnatural, the prospect of a free economy should neither be unnatural nor a “problem.”

Second, capitalism is NOT the dominant view in economics today. The dominant position economics today is a mixed economy that differs from a full out socialism only in degree. The rampant rationalism (in the form econometric models having nothing to do with reality) found in economics today is the reason I (as well as friends in Chicago, the most “libertarian” school in the country) got out of it.

Now, your “problem” has already been solved. This is from 1949’s “Socialism” by Harvard's Paul M. Sweezy, a popular economist and textbook writer representative of the dominant position in economics until recently:

First, each manager should be instructed to combine productive goods and services in such a way that average cost of production for any given output is a minimum...

This will guarantee that no factor of production is used in such a way that its relative effectiveness might be greater in some other employment. Second, each manager should choose that scale of output which equates marginal cost to price. It is not sufficient, however, to address this rule to plant mangers alone; it must also be addressed to the mangers of whole industries (for example, the National Coal Trust) so that they will know when to add new plants or to refrain from replacing old ones as they wear out. If these two rules are followed, the output of each industry and plant as well as the total demand for various factors of production are determined, as they are when all entrepreneurs attempt to maximize their profits.

The question now arises as to what means are open to the Central Planning Board to find the equilibrium market and accounting prices…. The answer is formally analogous to that given in the case of the competitive system. The Planning Board makes the best estimate it can of the correct prices—in practice it would undoubtedly start from the historically given price system—and instructs all mangers to act as though they were in fact the correct prices. Errors will then show up through the emergence of surpluses or shortages: price readjustments will be made; mistakes will again be observed; and so on until the equilibrium position has been reached." (p. 230-31)

The collapse of the Soviet Union put a slight dent in his arguments. The central issue Sweezy has simply brushed aside is how to determine which combination of goods is the lowest “cost.” Socialists like Sweezy operate on the basis that the resources of the world are fixed, and wealth is a constant generated by the mindless application of labor to those resources. In this view, prices (and costs) are simply the fraction of that wealth that a good (or resource) contributes to the “general welfare.”

The reality is that wealth is created, not distributed. The primary resource of any economy is the human mind, not physical goods. Resources (both labor and natural) are useless and value-less until a human mind applies them to benefit man’s life. Accordingly, prices (and wages) reflect individual value judgments of the potential benefit a particular good has to one’s life. It is this that central planning can never replace. A bureaucrat can never know how every single individual will value every single good, actual or potential, or how every individual will use every resource to create new wealth. No computer can ever replace individual value judgment, no matter how complex the econometric model. Force is the only tool that central planners posses. When force replaces individual judgment, the wealth-generating capacity of any nation will collapse – as socialist economies of all flavors have amply demonstrated.

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Thanks for the pointers.

If you think I should post under politics, I will give it a try. But, while I am here, lets try this: If the Vienna Problem is solved, then economics moves from being a matter of political contention over to being a science. It seems to me much more likely that a quantitative generalist will be persuaded by the evidence than an economist.

By ‘Vienna Problem’, I mean a mathematically determined economic state that is steady because it is 1) balanced with regard to its inputs and outputs, and 2) optimal in that all sectors perceive themselves as operating where marginal revenues equal marginal costs.

It seems that people constitutionally devoted to reason have a priori reasons for concluding that there can be no general and dynamic descriptions of such states. A formal statement of the problem involves so many degrees of curvature that the problem can never ‘be factored’ so as to yield a solution.

The point I wish to contend is that there exists exactly one exception to this otherwise perfectly reasonable conclusion.

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I suppose I owe David a separate reply.

With respect, no econometric model presumes to address the Vienna Problem. Now that I have stated the problem more formally, I hope that is clear.

I had hoped to avoid a deep philosophical discussion, but lets get some things out of the way. I think mankind would be foolish to abandon the free market; but this is not because free-market economics cannot be described. My problem is with people who think the free market is necessary because ignorance as to its workings is necessary. There is no Randian nobility in brute necessity.

Unlike Rand, I cannot agree that reason is absolute. In fact, I am trying to discuss a matter in which (what I am pleased to call) mere human reason has manifestly disallowed an objective algebraic fact. I am sure the economic planners at COMECOM were exceedingly rational beings.

I see no REASON for the objective universe to exhibit the laws that it does. I consider ‘valuation’ to be a natural process, like ‘gravitation’ because we can witness it at work in natural systems, e.g. ant colonies.

In having this debate elsewhere, I find the objection to a determined theory of materialism based on its presumed affront to human will and dignity. I ask you, is not economics a statement on how inputs might be combined with one another? Is not the Periodic Chart of chemical elements another such statement? Are you affronted by the limits imposed on your being by the Periodic Chart?

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Wow,

You guys are keeping me busy!

For Roland: Yes, SFEcon is my basis for presuming the Vienna Problem is solved. How did you find them?

I do not understand why (if?) you did not find an acceptable solution there. What are your thoughts?

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Let me first try to delineate economics and politics and how this relates to economic analysis, since this is an important and often misunderstood question:

Political philosophy deals with the proper system of social organization for man. The basic question of politics is “what sort of political framework should man live under?” Economics is scientific study of human action applied to production and trade. I fall somewhere with the Austrian school in my opinion that economics does not deal with normative questions of “how should man act?” but with the question of “what is the consequence of man’s actions?” or “how should man act to achieve his values?” (This does not mean that ethics and politics does not play a role in economics, but that they are an input, not an output of economics. It also does not mean that economics doesn’t lead to political conclusions – such as that freedom leads to wealth, and slavery to poverty.)

The question of what social, political, and economic system is proper for man is a question that belongs to political philosophy, not economics – though economics can provide evidence to validate our conclusions. Thus, the question of whether capitalism or socialism is the proper system for man is question that belongs to political philosophy, not economics. (That’s why I moved the thread here.) See www.capitalism.org for more on capitalism.

Having said that, because politicians have so forced their way into economics so deeply, the distinction between economics and politics is often confused. You say “If the Vienna Problem is solved, then economics moves from being a matter of political contention over to being a science.” However as I explained, economics is a scientific field by it’s very nature.

Edit: I got distracted by the time I finally submitted my reply, and didn’t see the above response. I’ll get back to those separately.

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EB

GC has already addressed and refuted your contention that a 'solution' to your perceived 'problem' makes economics a scientific and not political issue. A separation of economics from politics is simply impossible. To *judge* ANY economic premise as 'reasonable' or 'unreasonable' you MUST make reference to political premises (which, in turn, must be validated by reference to ethical premises, which is validated by epistemological premises, which is ultimately validated by metaphysical premises.)

By accepting, as you have done, a particular economic premise as 'reasonable' this is EXACTLY what you have done. Yet, in the same breath, you seek to deny that you have done so - and also seek to deny anyone else from making a reference to politics. The result of such a contradiction is to make YOUR political premises the DEFAULT political premises - ie UNQUESTIONABLE and thus UNASSAILABLE.

Assuming intellectual honesty on your part, this means you have committed an error in logic.

Ironically, your error is exactly the same as that committed by your supposed antagonists, the Libertarians. They, like you, consider economics to be separate from politics. By accepting such an erroneous position, these 'defenders of liberty' seek economics which ultimately violate an individual's liberty.

To make this clear, let me ask you just a couple POLITICAL questions about this so-called 'solution'. According to the dictates of your 'mathematical equations':

- WHO decides what an individual should create to achieve the 'optimal' economic state?

- WHO decides how the effort of such individuals is be disposed of?

I believe the answers to these two questions alone should provide the evidence that you implicitly accept political premises where you explicitly reject their relevance or existence.

--

This post was written before a review of the last three posts.

To it, I can only add - if you don't consider reason to be "absolute" then by what standard do you seek to have a discussion with anyone - especially those here who reject ANYTHING but reason as a standard?

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On the philosophical point, I agree that reason constitutes much of what we have to use as a basis of discussion, but I also attach considerable importance to unreasonable things like judgment, manners, openness, etc. I cannot consider reason absolute because it is never complete.

I appreciate your concern that economics must be a subset of politics, but I do not start with that premise. It seems to me that we can observe economic principles at work in the animal kingdom, where the economic actors have no politics, and no ability to apply science toward re-creating the boundary conditions that determine their economic lives.

Maybe economics is not very interesting at that level, but there is still an implacable argument to had here about whether or not economic principles resolve to a determinant system even when the characteristically human element is provisionally removed. I find it interesting that a lot of people just know, based on their politics, that the math will never fit together.

If we can agree as to what is and is not naturally determined, then I think we humans go on to a reasonable discussion about what is to be done given a discreet range of options.

The questions ‘who decides’ what individuals do with their economic options does frame the issue properly. The antagonistic answer is that, from a certain distance of analysis, economic principles decide.

Let me illustrate with a parallel question: If you accept that you are witnessing mathematically describable order in the swirling pattern of a flock of birds, then which bird decides on the pattern? The answer is of course that all the individual birds want to do is 1) get to the center of the flock and 2) not bump into another bird. The overall pattern created by the group is a spontaneously generated consequence of the naive intentions of its members.

Interestingly enough, this sort of ‘complexity thinking’ might be said to have originated in Hayek’s efforts to understand the ‘spontaneous ordering’ of markets. SFEcon is a demonstration that the familiar patterns of overall economic adjustment can be attributed to individuals maximizing their own interests, as far as these might be defined in economic terms. The demonstration is fascinating in that it works for any number of individuals and comprehends every intersection of their interests.

Your apparent fear of what the ‘economic command’ mentality might do with this tool is probably well-placed. But refusing to accept the math, or asserting that it is subservient to politics, is only going to discredit your position. I suggest it would be wiser to let algebra be algebra, and assume that people of good judgment will arrive at a proper scope for its application.

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"Judgement" based on non-reason is, by definition, irrational. "Manners" based on non-reason are also irrational. "Openness" is undefined in your post, so I cannot comment on it.

By claiming the non-rational - ie the IRRATIONAL - is of "considerable importance" to you, you engage in a contradiction. You accept rationality AND irrationality. This is a logical fallacy. It violates both the laws of logic and the laws of REALITY (specifically the Law of Identity). Until that conflict is resolved, no one can carry on a rational conversation with you (here or anywhere). In other words, no one can comment on your post using the standard of logic, because you do not accept that as the standard for such a discussion. You will gladly substitute the irrational in its place.

That being the case, I suggest you look elsewhere for a discussion on this or any other topic. We will not sanction your irrationality. We will not treat it as interchangable with reason.

It is not.

While we can point out the logical errors in your grasp of the concept 'reason' - while we can prove your premise separating economics from politics is an error - while we can rationally differentiate man from the rest of the animals - while we can demonstrate math does not determine the content of one's mind or one's actions - while we can show you reject freedom in favor of slavery - while we can highlight the evasion of your answers - while we can point out any number of logical errors in your posts - any and all such attempts are POINTLESS, for they all depend UPON reason (which is another example of the philosophic heirarchy you reject).

Since you EXPLICITLY do not hold reason as your standard, there is simply no way to address you logically. Objectivism rejects the illogical and irrational. As such, we must reject your attempts to carry on a conversation based on illogical premises, or which uses anything but reason as the standard of judgment.

In fact, since you are aware Objectivism rejects the irrational as invalid, one must wonder about your reason for posting on this forum.

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GC has already addressed and refuted your contention that a 'solution' to your perceived 'problem' makes economics a scientific and not political issue.  A separation of economics from politics is simply impossible.  To *judge* ANY economic premise as 'reasonable' or 'unreasonable' you MUST make reference to political premises (which, in turn, must be validated by reference to ethical premises, which is validated by epistemological premises, which is ultimately validated by metaphysical premises.)

while we can prove your premise separating economics from politics is an error

I disagree. Yes, the judgement of an economic system is purely political/ethical, but it does not follow that economcis is intrinsically intertwined with politics. There's no reason why any value judgements (let alone value judgements of a political nature) are necessary when carrying out economic analysis. We could possibly-theoretically carry out all of our current economics on a computer, provided we could find one powerful enough to accept and process all of the input data. The question "What are the likely economics results of adopting policy X" isnt intrinsically related with "Should we adopt policy X?". The former question would be one for economics and would be independent of the latter, whereas the latter would be one for politics (and the answer should obviously be based on the former).

As another example, politics may play a role in the final evaluation of what action to take regarding scientific theories (such as global warming issues for instance), it doesnt mean that science itself is political (although some scientists may obviously be politically motivated). The science of global warming is seperable from the politics concerning it, and likewise the science of economics (in as much as economics can be called a science) is seperable from political judgement.

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Yes, SFEcon is my basis for presuming the Vienna Problem is solved. How did you find them?

Clue 1: A Google seach for ["Vienna Problem" economics] yields only four results, the first two of which are to SFEcon.  (Although I'm not sure what specifically CF's clue 1 was.)

It was Google. (The other two results are not pertinent, so SFEcon is the only place in the World Wide Web where the "Vienna Problem" is discussed, at least visibly.)

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I do not understand why (if?) you did not find an acceptable solution there.  What are your thoughts?

I tried to make sense of the site's content, but their language has (to put it politely) much less clarity than the Objectivist literature I am used to. I couldn't determine what the purpose of the SFEcon site is, nor why they think there is a Vienna Problem, nor what solution they claim to have found for it. The most meaningful hint I've come across is a link from Sustainable Development Online to SFEcon, which I don't consider a good sign...

I am reminded of the Ayn Rand quote: "Don’t bother to examine a folly – ask yourself only what it accomplishes."

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Since the subject here is JUDGMENT of economic systems and theories (ie that they are good or bad, reasonable or unreasonable, they produce acceptable or unacceptable results etc), poohat's entire post is irrelevant in that it goes OUTSIDE that context. (And tries to invalidate my statements by removing them from context). They are valid exactly as they stand.

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Since the subject here is JUDGMENT of economic systems and theories (ie that they are good or bad, reasonable or unreasonable, they produce acceptable or unacceptable results etc)

No it isnt, its to do with a specific problem in economic science.

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Poohat is mistaken:

" If the Vienna Problem is solved, then economics moves from being a matter of political contention over to being a science."

This statement contains two premises:

1. That the 'solution' to x 'problem' is good or bad for man (ie that the solution is preferable than no 'solution') .

2. That such a 'solution' moves economic AS A WHOLE from the political realm and into the scientific realm - ie there are no longer political considerations.

Furthermore, in my statements I made EXPLICIT the fact that they were related to judgment. As such, there is no possibility to disagree with me, because I never made reference outside of that context.

However, in relation to that outside context, the notion that 'numbers crunching' in a judgment free zone is false. Poohat accepts that the mathematics is valid - ie corresponds to reality. He accepts the equations are valid - ie correspond to reality as well. Additionally, to even pursue an analysis, he must have judged the analysis worthy of being pursued - that it is of value. (If not, he is acting irrationally). And to make such a judgment, he must refer back to his political premises, which must be validated by his ethics and his epistemology and ultimately his metaphysics. If he does NOT do this, then he is acting on arbitrary whim.

By claiming that economic analysis can be devoid of political judgment, poohat is to engage in what econbabe and the libertarians try to do - divorce economics from the rest of reality.

Sorry guys - it can't be done. At least not RATIONALLY.

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"If the Vienna Problem is solved, then economics moves from being a matter of political contention over to being a science."
I admit that particular statement of his seems to be meaningless, but that wasnt really my point of contention.

However, in relation to that outside context, the notion that 'numbers crunching' in a judgment free zone is false.  Poohat accepts that the mathematics is valid - ie corresponds to reality.  He accepts the equations are valid - ie correspond to reality as well.  Additionally, to even pursue an analysis, he must have judged the analysis worthy of being pursued - that it is of value.  (If not, he is acting irrationally).  And to make such a judgment, he must refer back to his political premises, which must be validated by his ethics and his epistemology and ultimately his metaphysics.  If he does NOT do this, then he is acting on arbitrary whim.

Thats absolutely ridiculous - the entirity of science reduces to politics/ethics by that criteria. "You think that Fermat's Last Theorem is worth devoting your time to solve? Aha! There I have caught you, moralist!"

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