Wednesday, October 28, 2020

Overall remarks on von Mises

Written in 2009

Having read today chunks of his 2 books against  interventionism and against socialism (Gemeinwirtschaft) my general impression is that von Mises is basically an advocate of capitalism come hell or high water (essence of capitalism according to  von Mises is private property, not free competition), and uses every possible argument in favor of the capitalist  system, in a fairly opportunistic way, sometimes contradicting himself. He has no unified theory of why capitalism is good.

On the other hand von Mises admits that certain government interventions would be good if they could be carried out. But they can't!.[1] However his proof of why they can't is not very convincing. And in any case that leaves a door open for state intervention merely by saying that it's a new kind of intervention that really  is effective. And that can be said about many government interventions nowadays! So von Mises was basing his argument on the assumption that nobody had ever proved government intervention was effective. Now 80 years later things have changed.

Accordingly much of von Mises’s arguments are simply “We don't know enough about how economies really work to design effective economic policies.” 80 years later this argument is a dead duck.

But isn’t von Mises’s argument that government measures  are ineffective predicated on the assumption that competitive free market forces counteract them? If so, then ineffectiveness of government policy assertion is only correct when the capitalist system really is competitive!

It's amusing to compare the academic rigour with which von Mises counters critics of monopoly and of concentration[2] with his  sloppiness when marshalling evidence in favor of his own statements!. “First you have got to prove this, then you have got to prove that, you have got to distinguish between concentration of wealth and concentration of firms!” etc. His own assertions don't seem to be backed up by any such heavy-duty empirical evidence or theoretical reasoning. For example: expansive nature of government intervention that market forces assure quick adjustments, etc. Kinda quick on the trigger, old Ludwig.

 Consequently he cannot be taken seriously as a theorist. He is merely an ideologist, albeit a fairly competent one.  

On the other hand I was amazed to find that von Mises wrote his thesis on a subject of economic history! And diachronic at that! (history of serfdom’s final stages in Galitzia). Must read! This seems to contradict my thesis of the ahistoricity of the Austrian School. [I later found out that Mises started out as a disciple of the German Historical School.]

Conclusion: Von Mises’s critique of socialism is multiple. Some of his claims I found convincing from my historical standpoint (2009) (Kornai seems to have  proved von Mises's thesis of impossibility  of rational price determination without a market). On the other hand many of his objections to socialism & Co. are merely challenges, they claim nothing, merely deny cogency of other side’s arguments:

1)     Demands that the other side prove their case with scientific rigor,

2)     Claims that empirical evidence is lacking, inconclusive, etc.

Von Mises’ assertion that every government intervention is fatuous seems to be based only on price controls and suchlike. Nowadays government intervention takes other forms, like channeling finance to certain sectors of the economy, as in Japan. Most likely thanks in large part to von Mises’ critique, price controls have a bad reputation today (except for minimum wage levels). Accordingly nowadays critique of government intervention must be much more diverse, complex, etc. Von Mises simply does not cover the subject any more. He's old hat. Try Kornai instead. Planners have learned from von Mises’ critique! We’re at a new stage of the game.

Historical setting of von Mises. Germany in the  1920s & 30s was extremely radicalized between R and L. In that atmosphere of class struggle, it was inevitable that von Mises focus his arguments on whatever would be politically effective in the specific situation. That would tend to make him opportunistic, talk out of both sides of his mouth. 

When he says that no specific argument has been made against monopolies a such, I think he's ignoring the classical argument against  monopolies, namely excess profit for monopolist and a reduction in consumers’ welfare. That seems to me to be a pretty good general argument! 

Check what von Mises says about Bismarck (if anything).

Does he anywhere go into the conditions of a free market to exist & why a free market is good? He seems to assume that in a lot of places. But I have not found any actual support for this argument yet.

The issue central to my research of R-wing economists is what grounds they adduce for free enterprise’s superiority. More specifically whether they claim the advantages set forth by Adam Smith & followers, namely that capitalism is good because it (1) means a free market for goods and services; and because (2) free markets are capable of optimizing social welfare (Pareto-optima), but (3) only if they fulfill certain criteria that are logically required for the market to strive toward a Pareto optimum. (These criteria being no externalities, free competition, no increasing returns, perfect information, no public goods, etc.).

The crucial link is between 2 & 3. To what extent does the desirability of a market system depend on the fulfillment or otherwise of the criteria under (3)?

Intuitively & from experience, I find that the more right-wing an economist is, the fewer demands he places in order to class capitalism as beneficial, and vice versa.  This would seem to imply that it is a leftish position to allege any market imperfection. Although there's no obvious reason for it, R-wing economists seldom go into issues of whether market conditions fulfill or not the technical requirements to be considered Pareto-optimizing. They always assume that everything’s just dandy in that department.

Types of market imperfection:

  1. Monopoly (Cambridge School, 1930s) countered by contestable markets theory
  2. Asymmetrical information (Akerlof, Stiglitz & Co., 1990s)
  3. Herd behavior
  4. Too many speculators (that is too many traders are not basing their decisions on fundamentals but either (1) on what they think will happen to the stock in a short while; or else on (2) what they think other traders are going to  do).
  5. Public goods
  6. Externalities
  7. Increasing returns to scale
  8. Non-convexities
  9. Is the economic decision one that may legitimately be undertaken by a single consumer? If it’s a collective decision, asking the individual opinions of the participants in the decision  making BEFORE they have even begun to discuss the question is extremely misleading (see Perelman).

Their unwillingness to compromise with social democrats is ideologically undergirded by their alleged belief in the absolutely incompatible nature of free market & planning. I think that Hayek’s wishy-washiness about government social welfare policy shows that the incompatibility doctrine is a crucial political dogma which they reaffirm once and again. In other words they don't really believe in the incompatibility. It's just a cover story to justify a hard line. In practice they’re willing to make small concessions.

The vigor with which von Mises stresses the incompatibility doctrine is almost zombie-like. It's not a scientific conclusion. It's obviously a political dogma. It reflects a certain strategy of the part of a segment of the bourgeoisie (financial bourgeoisie? Who knows?)

What link is there between Hayek & co and financial capital?

According to  Duménil & Levy, Hayek’s ideas represent the ideology of the financial capitalists, not the manufacturing capitalists. Was that also true in their time? What were the political activities of Hayek & co? Is financial capital less likely to desire cooperating with the  state than industrial capital? If so, why? Austrian School’s stress on the entrepreneur does not seem very finance-friendly. The concept of entrepreneur can be seen much more clearly in a manufacturer  than a banker. This is clearly not pro-finance capital.

Strangely enough it seems that it was Arrow who created (1954) the model that animates finance capital, namely homogenizing all assets in a "portfolio”. (check)

Austrian School’s ideas do not seem to have been in any way specifically related to finance capital. Read von Mises’s article about Austro-Hungarian financial system. Perhaps the only true link between Austrian School & finance capital is the intransigence toward government intervention (assuming that laissez-faire is intrinsically finance-oriented, see above).

Perhaps state-manufacturing capital link is the protective tariff proposed by F List, import-substituting industrialization.

Certain observations of von Mises show that he had a highly developed feel for history. Quite the opposite of Hayek. See quote of his I framed in notes on Die Gemeinwirtschaft 2009-05-29. That being so, why did he devote his attention exclusively thereafter to methodological  individualism? (Did he?)

 

Von Mises talks a lot about theoretical work needed to explain phenomena. Nowhere does he mention empirical work. Nonetheless he obviously values empirical work, since he lays so much stress on statistics. I suppose “empirical” didn't  have the cachet it has nowadays.

Die Gemeinwirtschaft, von Mises’s compendium of anti-socialist thought, obviously is a collection of separate brief (journalistic?) writings on various subjects, which he then joined together in a single work. However the fissures and gaps show through. He didn't give it a thorough theoretical elaboration & unification. All the better for me. Thus the various strains of thought will be easier to distinguish.  

I won’t reproach von Mises very harshly with opportunism & contradicting himself, since  Die Gemeinwirtschaft arose in a period of intense class struggle and von Mises necessarily had to address very diverse practical issues. Nonetheless some internal contradictions do show.


Taking the list of market imperfections,

Plot position of each theorist.

Types of market imperfection:

 

Discoverer

von Mises

Hayek

Milton Friedman

Monopoly  countered by contestable markets theory

Cambridge School

 

 

 

Asymmetrical information

Akerlof, Stiglitz

 

 

 

Herd behavior

 

 

 

 

Too many speculators [3]

 

 

 

 

Public goods

Musgrave?

 

 

 

Externalities

Pigou

 

 

 

Increasing returns to scale

 

 

 

 

Non-convexities

 

 

 

 

Is the economic decision one that may legitimately be undertaken by a single consumer? If it’s a collective decision, asking the individual opinions of the participants in the decision  making BEFORE they have even begun too discuss the question is extremely misleading.

Perelman

 

 

 

 

In which chronological order were market imperfections discovered?

How is managerial revolution   (Burnham, Gardiner & Means) related to market imperfections?

Market imperfection scorecard for any economist.



[1] It's like saying. “Hey, it would be great to shoot that zebra! But we don't have a gun!” Only to von Mises the idea of getting a gun to shoot the zebra seems pointless, or hopeless, or both. He does not seem to prove anywhere that government intervention is necessarily ineffective.

[2] Check to see whether the arguments he refutes were really the strong arguments available at the time – or instead they’re mere straw men von Mises invents just to decapitate them.

[3] That is too many traders are not basing their decisions on fundamentals but either (1) on what they think will happen to the stock in a short while; or else on (2) what they think other traders are going to  do. Is this the same as herd behavior?