Tag Archives: praxeology

“Mathiness” vs. the Logic of Action

Mathematical economics is fraying at both ends. Critics of the over-mathematization of economics keep chipping away at the spurious correlations and the theoretical equations that are either too simple or too complicated. At the other end, notable mainstream economists like Paul Romer see fundamental problems in the way economics is done today.

His paper on “Mathiness” was picked up by the Wall Street Journal. “Mathiness” is “the use of mathematics to persuade or mislead rather than to clarify,” and is ubiquitous in the economics profession these days.

Unfortunately, Romer’s conclusion in his paper offers a non-solution:

[back in the good ol’ days] Not universally, but much more so than today, when economic theorists used math to explore abstractions, it was a point of pride to do so with clarity, precision, and rigor. Then too, a faction like Robinson’s [politically motivated] that risked losing a battle might resort to mathiness as a last-ditch defense, but doing so carried a risk. Reputations suffered.

So all the profession needs to do to get over this destructive love affair with mathiness is a fresh injection of “clarity, precision, and rigor.” This is like telling a group of criminal graffiti artists to use stencils when they’re defacing buildings.

The real problem is much deeper than Romer realizes. Economics is the science of human action. It deals with motivated human choice. As such, there are no strict quantitative relationships like the ones in the hard sciences. Objects don’t choose to fall at a certain speed, or choose to react to other objects in certain ways. Humans choose. Our choices are based on preferences which change unpredictably in an infinite number of ways over equally unpredictable and infinite varieties of circumstances.

The details of human action are unpredictable and not conducive to strict quantitative rules, but the logic of action provides a rich framework for doing economics.

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A Praxeological Proof of Political Opportunism – Jakub Bożydar Wiśniewski

Today’s post is by Jakub Wiśniewski a fellow Fellow at the Mises Institute, going back to the Summer of 2012. He’s brilliant. Check out his blog here.

I especially enjoy being his friend on Facebook, where I get to see his famous aphorisms on liberty, markets, property, politics, and more. Here are just two examples:

The message of politics is that scarcity can be legislated out of existence. The message of economics is that scarcity can be legislated into existence.

Social progress is the process of substituting commerce for conquest.

Below, Jakub uncovers some praxeological foundations of Public Choice, a field in economics that deals with the actions and incentives of supposed public servants. The standard approach uses mainstream methods to arrive at conclusions involving moral hazard, misaligned incentives, costs outweighing benefits, etc. Jakub goes back to square one and shows how these fundamental results may be deduced and derived without the dubious help of mathematical utility maximization problems or empirical verification.

According to the Ricardian Law of Association, specialization and division of labor increase productivity. From this it follows that any given field of professional activity will be dominated by specialists.

Franz Oppenheimer’s distinction between the economic means and the political means, combined with the insights provided by the Ricardian Law of Association and the Austrian theory of entrepreneurship, suggests that whereas the economic means will be utilized most successfully by those capable of combining heterogeneous capital goods so as to produce the final goods that will harmonize with the uncertain future wants of the consuming public, the political means will be utilized most successfully by those capable of creating and wielding institutionalized violence, aggression, and coercion.

Now, let us assume for the sake of the argument that there is nothing inherently contradictory in the notion that one’s liberty can be violated to one’s own prudential or moral advantage, and, thus, that there is nothing inherently contradictory in the concept of a benevolent despot.

However, in view of all of the observations made in the previous paragraphs, the concept in question, even if logically coherent, at the same time seems logically constrained to denote an empty set. After all, just as someone who can operate profitably both on the gold market and on the silver market should be thought of as a better precious metals specialist than someone who can operate profitably only on the gold market, someone who can wield coercion both for the supposed good of his subjects and for his own private advantage is more specialized in using the political means than someone who can use them only for the former purpose.

In addition, even in our scenario of relaxed moral assumptions, achieving good results does not require initiatory violence – persuasion and charity are equally effective in this context, if not more so. In order to achieve opportunistic gains, however, a politician needs to resort to some form of initiatory violence, be it naked coercion or fraud. In other words, the political means are particularly well suited to advancing opportunistic, not benevolent behaviour.

In sum, in view of the praxeological nature of the political means and the praxeologically necessary consequences of the Ricardian Law of Association, for every would-be politician who sincerely believes that he is well suited for the role of a benevolent despot, there will be a far more effective politician concerned exclusively with his private gain, and the latter will always outcompete the former in the realm of power-seeking. Thus we get a purely logical proof of the conclusions of the Public Choice literature.

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Time and Action

Humans act in every conscious, perceptible moment. As we proceed through time, always forward, we are constantly selecting and employing means at our disposal toward the satisfaction of some end. This means that every action is costly: the means we used for our satisfaction could have been used in a different way to satisfy a different end, or we could have used a different set of means entirely to satisfy some different end. The next highest ranked alternative is the opportunity cost of any action. Because action always takes place in the present, but is forward-looking, and because we cannot revisit or retry an action in the past, there is a time cost for every action as well. Given a set of means suitable for want-satisfaction, we can mentally distribute, allocate, or plan the use of those means for a certain time or in a certain order based on our current expectations of future valuations/preference rankings. This type of action may be called a temporal allocation of means.

In production or lending or borrowing, however, we do not simply temporally allocate a given set of means toward want-satisfaction at various times, we substitute, or trade, a satisfaction of one time for a satisfaction of a different time. I may give up a present satisfaction so that I may have a future satisfaction, or I may forego a future satisfaction by presently employing some means to satisfy an end. This type of action may be called an intertemporal exchange of satisfactions. All present consumption reveals a systematic preference for present consumption over future consumption because all present consumption has the opportunity cost of delaying or postponing the consumption of the same means for later. An intertemporal exchange of present satisfaction for a future satisfaction can only happen if the future satisfaction is (presently considered) more highly ranked than the present one foregone. As such, all future satisfactions carry a present discount in relation to present satisfactions. This feature of human action is called time preference.

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