Archives for category: Economics

If libertarians had their way, would they pay entry level unskilled workers much less than today’s prevailing minimum wage?

 . . . as answered on Quora. . . .

If libertarians “had their way,” they wouldn’t allow you or anyone else to prohibit any adult from accepting a job from anyone else at any rate of remuneration mutually agreed upon. Further, libertarians would prevent you from bullying or threatening employers from offering lawful jobs at any rate to any adult.

“They pay” is a weasel phrase. Most libertarians are like most people, and do not hire anyone for wage contract work. They are themselves wage contractors, or else professional service contractors, or artisans who make things and sell them. When we discuss economic policy, we should not use weaselly phraseology. It is not a question of policy makers “would pay” anyone, it’s a question of allowing wage contracts to form or not.

The questions in policy pertain to when and why and on what terms the state and political actors employ threat of force to interfere in free contract of whom. Libertarians want merely to defend freedom of contract. Of everybody.

Libertarians would allow people to be paid what they are worth as determined by bids, asks and deals on the labor market. More people would be working. More people would indeed be working at lower wages. And thus more people would be rising in rates of remuneration as they develop more skills on the job. This scandalizes the easily scandalized, but people with some common sense should be able to see the relevant factors involved.

twv

Is Ludwig von Mises relevant to economists?

. . . as answered on Quora. . . .

He was relevant to many economists in his day, and at least two of his contributions to economics — his business cycle theory and his economic calculation argument about socialism — were well respected beyond even his circle of seminar attendees, which included Fritz Machlup, Gottfried Haberler, and F. A. Hayek. Among his admirers were Lionel Robbins.

For some reason he was never given much credit for clearly spelling out an ordinalist approach to marginal utility before big names like Hicks and Allen. I have read histories of marginal utility theory that ball up the Austrian School understanding of marginal utility, from which Mises emerged and to which he contributed. So the whole approach is definitely not well understood outside the actual Misesian readership.

Several economists of high fame, today — Nobel Laureates James Buchanan and Vernon Smith, prominent among them — wrote about and praised Mises’ contributions.

Mises engaged in a kind of formal theory that deprecated mathematical exposition, so his method ran counter to much of Anglo-American economics from World War II onward, and (rightly or wrongly) he would have regarded the bulk of the statistical work of contemporary economics as “history.” That being said, there is a whole school devoted to his general approach, and only ideologues of state-worship and scientism dismiss him out of anything other than ignorance. Still, let us be frank, most economists have never heard of him, much less studied The Theory of Money and Credit or Human Action.

twv

Why are libertarians against raising the minimum wage to $15.00? Do they expect the working poor to subsist on $7.25 forever and somehow not be a burden on taxpayers?

. . . as answered on Quora. . . .

  1. Because it is based on coercion, threat of force.
  2. Because a legal wage minimum does not raise wages, it prohibits employers from hiring workers at rates less than set, so it is de facto an unemployment technique — which some libertarian aficionados of history note was why many of the early minimum wage laws were in fact enacted, to harm the employment opportunities of “undesirables.”
  3. Because libertarians know that, ultimately, wages are paid to workers on the basis of productivity (marginal productivity, to be exact) and that regulations and prohibitions like minimum wage laws are attempts to get something for nothing, and never work out as billed. That is, such regulations have “unintended consequences” — though how “unintended” those consequences are is in doubt, because some folks malignly do promote these regulations knowing about their negative effects. (Many politicians advance bad ideas merely to appease the rubes.)
  4. Because libertarians believe that people should aim to be more productive, not seek for Salvation from the State.
  5. Because libertarians know that most people in the workforce who start out at the lowest wages in the marketplace do not stay at the low rates, but increase their remuneration rates as they develop skills.
  6. Because libertarians know that competition among employers for good workers do in fact reward workers with higher wage rates than the minimum.
  7. Because libertarians expect people to aspire to better themselves and the lives of their families, not depend on others for charitable or forced aid. People with low productivity shouldn’t start families, for instance, but wait until they have proven themselves capable of productive living before engaging in unprotected heterosexual intercourse and launching babies onto the world — babies that somebody’s got to take care of.
  8. Libertarians realize that if you make it easier to live without producing, you will get more non- and under-producers. So “burden on the taxpayer” is one of their concerns. And making some people unnecessarily unemployable, by minimum wage regulation and by unemployment subsidy, is no way to decrease this burden.
  9. Because libertarians generally prefer distributed responsibility to centralized and socialized responsibility, knowing that the latter turns people into dregs of society, economic leaches — and minimum wage laws set higher than the productivity of the potential workers does increase unemployment and prevents the lowest-skilled workers from developing working skills in the most effective manner: by actual labor.

I could go on and on like this, but you get the idea: minimum wage laws don’t work as political activists pretend they do. Intent does not determine the utility of a law, outcomes do. Libertarians have wit enough to see the reality of such programs. And they are more than familiar with inconvenient facts about these de facto employment prohibitions. They understand that such regulations actually hurt the employability of the lowest skilled workers. And will likely regale you with statistics about how African-American teen unemployment, for example, increased over the decades with each effective increase in the minimum wage.

But most voters regard legislation and regulation as magic. So they simply deny truths repeatedly demonstrated. Economic policy is not a means to an end, for many voters, but rites in the cult of the omnipotent state, which they worship instead of a deity, and in defiance of reality. The state is not omnipotent. It has limitations. It does not work by magic, no matter how cultic its adherents prove themselves to be — as routinely revealed in the perennial nonsense over minimum wage laws.


Oh, and why not raise it higher than it is now, to $15/hour?

Well, a federal regulation of this nature would do more harm than a local regulation in a wealthy region, for some regions of the country can bear only very low wages: increasing the minimum would disemploy more people in Arkansas and Missouri than in New York or San Francisco.

The higher the minimum is raised, the greater the number of workers who would be negatively affected.

This is why no one in his right mind demands a $1000 per hour “raise” for “everybody” using this method.

Only fools make a bad policy worse.

twv

Why is western economics based on self-interest?

. . . as answered on Quora. . . .

It isn’t.

Self-interest is a moral concept, and economists are supposed to be Wertfrei (value-free) social scientists — if on track of value.

You might say, “but economics is all about the results of people choosing according to their own values, thus all about choices dependent upon a kind of perceived or self-constructed interest.” And I reply, “well, OK, if you must — but it is just as much a science exploring other-interest, for these selves doing their choosing also value others, and their interests in others figure into their demand and supply curves just as much as does their self regard.”

The truth is this: the logic of choice at the heart of subjective value and marginal utility and marginal rates of substitution and satisficing and all that is not egoistic . . . according to economists. When they say it is — as they sometimes do, in large part because they are not always good philosophers — they err.

The brilliant Jevonsian economist P. H. Wicksteed tried to make this clear when he argued that economists are not pushing a rationale of egoism when they develop their notion of a demand schedule, nor negating altruism, either. What they apply, he argued, is a concept of non-tuism, a coinage he offered to help explain that when a person economizes in his purchases and asks for the highest prices possible in his sales, he may do so for egoistic or altruistic reasons, but still works to maximize the interest of the transaction, either egoistic or altruistic, when he makes those trades. (Or when she makes her trades, for one of Wicksteed’s better examples was of a housewife deciding the basic economy of the household under her charge.) Non-tuistic interest is a worthwhile concept to try to understand: see Israel M. Kirzner’s The Economic Point of View: An Essay in the History of Economic Thought (1960), for a good treatment.

But even Wicksteed did not get it exactly right, for nearly all our choices involve demand schedules made up of both egoistic and altruistic ends.

It helps to focus not on “interest” — which, as I assert above, has too moral a component — and not on “utility” — which is unduly abstract, and gets students confused. Concentrate, instead, on the specific uses to which a good may be put. Under the theory of Grenznutzen (border use) of the Austrian School economists (from which English-language economists got their term of art marginal utility), the various uses to which a fungible good may be put, and against which value is to be understood (as dependent upon the importance of the specific use the last unit of a good decided upon has to the economic actor), can be almost any mix of self-regarding and other-regarding purposes.

In my personal economy, my first gallon of clear water goes to drink, the second and third to food preparation, the fourth to cleaning myself, the fifth to my neighbor, the sixth to my dog, the seventh to washing the dog, the eighth to washing the house, the ninth to letting the neighbor’s cow to drink, and so forth.* All of these uses satisfy me, but several also satisfy others. Do you see how useless quibbling about whose interests are being served?

The economist does not usually inquire deeply about the egoism and altruism of the goals, or uses, that are the foci of the border use (Grenznutzen) that goes into explaining the formation of prices and the rates of exchange. Because such concerns are irrelevant to what economists are usually trying to explain.

Similarly, economists rarely fret about how a person forms the value scales which place the various uses to which goods are put into order. Not because they cannot be analyzed, but because they are mostly irrelevant to what economists do.

Who is concerned? Moralists, whose traditional and self-appointed job it is to get people to change their values.

But when moralists get worked up over whether choices on the market are “too egoistic” or “not altruistic enough,” they go too far if they also castigate all economic choice as selfish. And usually they descend into a very deep error.

The error was identified clearly by Austrian philosopher Alexius Meinong in his Ethische Bausteine (see Marie-Luise Schubert Kalsi, Alexius Meinong’s Elements of Ethics, 1996), where he explores the difference between subject and object, egoand alter. Of egoism and altruism, Meinong argued that, before any deep inquiry, one might think that “a value is egoistic if the subject is egoistic, altruistic if the alter is the subject. However, that this is not so can be seen in the fact that I myself have altruistic desires and valuations besides egoistic desires and valuations. Thus, no objection should be raised that there are altruistic and egoistic values for me. Then, the ego is subject of even altruistic values. But the altruistic nature of these values must be grounded on something other than the valu[ing] subject.”

The notion that economics is “based on self-interest” is actually a misguided philosophical complaint, and though I recommend Wicksteed and Kirzner and other economists to clear this up, it really is a philosophical error, and should be dealt with philosophically.


N.B. In addition to the texts explicitly cited, above, one should consult

And the reader may note that I deliberately ignored another possible meaning of “western economics” that the questioner may in fact have intended: the system of private property “capitalism.” I simply won’t get caught up in the habit of calling a practiced economic order “economics.”

The well-known George Mason University economist plies his tool to a current issue:

I’m deeply puzzled by the idea that mandatory vaccination is more morally objectionable than mask mandates. The benefits of vaccination are clearly much larger. The costs also seem much lower — 2 pinpricks versus a constant dehumanizing burden.

Bryan Caplan @bryan_caplan

I responded, helpfully:

“I’m deeply puzzled by the idea that rape is more morally objectionable than unwanted hugging and kissing. The cost of rape seems so much lower — one insertion and a few thrusts and it’s over . . . versus constant dehumanizing burden.”

Timothy Wirkman Virkkala @wirkman

Early reactions have not been uniformly positive.

twv

(1790–1864)

Why are marginalist ideas and economists mainly antagonistic towards their classical predecessors?

. . . as answered on Quora. . . .

Is this true? Are they? Were they? Of the marginalists I have read, they acknowledge the great successes of their predecessors.

Indeed, after writing the Grundsätse — which provided a more coherent foundation for value and price — Carl Menger went on to tutor Crown Prince Rudolf of Austria, and spent most of his economic teaching effort emphasizing, not disputing, classical doctrines.

W.F. Lloyd, a brilliant precursor, built off of Say’s Law of Markets, sparing us the invective.

W.S. Jevons, the most anti-Ricardian of the bunch — and it was against David Ricardo whom he directed most of his ire, if memory serves — was filled with admiration for predecessors in the French Liberal School, and his never-finished Principles of Economics contains this reverential preamble:

An excellent way to begin a treatise on economics is to notice and analyse the manner in which [Nassau] Senior treats the subject in his work on Political Economy. It would be difficult, indeed, to find anything more logical and accurate than the few first pages of this excellent introduction to the science. As we shall afterwards see, Senior may not have followed his own ideas to their ultimate result; but, so far as they go, they form the best exposition of the basis of economics.

Now, I read Senior before Jevons, and I heartily concur. What a mind Senior had! He is my favorite classical-era economist. But he was also part of the Oxford catallactic trend, which was mostly uncomfortable with Ricardian economics and labor theories of value and cost. It was filled with proto-marginalists, like Lloyd. And, as H. Dunning Macleod later indicated, it might best be regarded as part of what he called “the Third School of Political Economy,” which dominated French and even American discussion. That is, it was a separate thing.

The marginalists of the last third of the 19th century were plying a new, more precise and even revolutionary theoretical toolkit. But it fit within much of classical theory, and the marginalists on the whole were not too proud. If Jevons seems cantankerous on occasion, remember, it took a long time to get the new ideas accepted, and not a few of those that did accept the ideas, like Alfred Marshall, did so by trying to incorporate the new with the old as half-measures. Austrians and Walrasians, for example, came to hone their ideas over time, making them more sui generis, inevitably finding the Marshallian/Clarkian mainstream antagonistic to them. So some of the later antagonisms to the classicals we cannot help but note — especially among some of Ludwig von Mises’ students, like Murray N. Rothbard — are no doubt the result of long-festering disputes in which the dominant school was more dismissive than anything else . . . in the manner dominant schools tend to be. And those dominant schools (which went through a Walrasian phase, to make this more complicated) tend to carry on old mistakes while scoffing at the objections of the economists they, in effect, “marginalize.”

twv

It took me long enough. A Bitcoin episode, finally!

Or catch it via podcast, using your podcatcher or SoundCloud:

LocoFoco Netcast, Season 2, Episode 8: Bitcoin Background (Late April, 2021).

Professor James R. Otteson, the author of the terrific book Actual Ethics (2006), has a new book coming out at the end of the month, The Seven Deadly Economic Sins:

So he joined Lee Waaks and me for an interesting conversation on the topic of his book:

Frédéric Basiat (1801-1850)

What is the third school of political economy, and how is it distinct from the French liberal school?

…as answered on Quora. . . .

The term “Third School of Political Economy” was coined by Scottish economist H. Dunning Macleod (1821–1902). Whereas the designation “French Liberal School” focuses on the nationality of its members and on their general laissez faire policy positions, Macleod focused on the catallactic point of view of Condillac’s Le Commerce et le gouvernement, considérés relativement l’un a l’autre (1776) as it spread among dissident economists all over Britain, Europe and America. While most historians refer to J.-B. Say as the fountainhead of French Liberal Political Economy, Macleod placed Say squarely in the “Second School of Political Economy,” which Adam Smith famously launched and most of us know as Classical Political Economy.

The train of thought Macleod identified as “Third” is indeed distinct from Smith, Say, Ricardo and the Mills, as well as from the Physiocrats (the “First School”) before them. In Elements of Economics, and other works, Macleod discussed a handful of economists as the school’s exemplars: Étienne Bonnot de Condillac (French); Archbishop Whately (British, first in a long line of heretical Oxford economists); and Arthur Latham Perry (American). He made much of the science as all about exchange, though he came to prefer the name “economics” for the science over Whately “catallactics.” But Macleod was a quirky fellow, and used the Physiocrats’ term, “Economical Philosophy,” in the title of one of his better treatises.

Macleod is generally considered an “also-ran” in the history of economics. His own contributions never really gained much ground, though he had a rather surprising influence on American institutionalism. But one thing you glean from reading his work, as well as that of Perry: Frédéric Bastiat was the most-admired (or at least most inspiring) of the writers in this school. And since Bastiat was French, and a radically individualistic laissez faire proponent, “French Liberal” is hard to argue with.

Other “members” of this school include Destutt de Tracy (French, but translated into English by Thomas Jefferson), Henry Charles Carey (American), Amasa Walker (but not his eclectic son, Gen. Francis Amasa Walker, both Americans), Gustave de Molinari (Belgian), Jean Gustave Courcelle-Seneuil and Yves Guyot (both French). But taking a hint from W.S. Jevons, I include not only Leon Walras’ father, but Leon himself, and especially Jevons, Menger, and their followers. Vilfredo Pareto, an admirer of Molinari, probably also qualifies.

But that is argumentation, a thesis to be established. Or maybe a mere waste of time.

That being said, the distinguishing feature of the school is the idea that in trade both parties [expect to] gain. This is a bedrock notion of today’s neoclassical economists, who sometimes sniff and snort that this idea is “obvious.” Or “just an assumption.” A presupposition. But what the Third School did with it does differ from modern economics in important ways. But that, I think, is another story.

twv

Yves Guyot (1843-1928)

Why is capitalism not liberalism?

…as answered on Quora….

Which capitalism? Which liberalism?

What came to be known as “capitalism” grew out of mercantilism and the freeing up of such systems in part by liberals — “classical liberals” — who sought to limit government interference in the workings of markets. Arguing for a generally ‘laissez faire’ approach, and persuaded by economic reasoning that most of the goals and methods of mercantilists achieved socially negative results — often the opposite of the promised results of the traditional advocates of private-public partnerships — these liberals helped spur the astounding economic advances of the agricultural and industrial revolutions.

But almost no country has ever sported pure laissez faire — such a policy seems austere to folks in government, whose power is limited under such a policy — and Actually Existing Capitalism has always been to some degree mercantilist, filled with goofy and exploitative favoritism, transfer payments, deceptive and slippery regulations, tragedies of the commons, vast public work projects, and persistent rent-seeking manias. Self-proclaimed liberals fought this for many decades of the 19th century, but the popularity of socialist ideas infected the class of people who called themselves liberals, and this class of people reverted to a kind of neo-mercantilism, dubbed ‘progressivism’ in America and ‘social democracy’ in Europe, often pushing to dirigisme — sometimes called fascism and other times called national socialism and often pitched with eulogistic, sloganeering brand names, like The New Freedom and The New Deal.

It is time to take back the term ‘liberalism’ from the advocates of some jury-rigged ‘third way’ between laissez faire and state socialism. But we may have to stick with alternatives, like ‘libertarianism’ or Benedetto Croce’s ‘liberism.’

It would be easy to argue that ‘capitalism’ has almost always been used as a pejorative, and should be dropped like a scorched spud. Worse yet, naming a system of private property, free production, free trade, free labor, and free banking by only one of the three traditional factors of production — ‘capital’ (instead of by land and labor as well) — makes capitalism unsuitable for those who wish for any sort of precision. But we are probably stuck with it, too. In my nitpickier moments I sometimes talk up The Catallaxy — the emergent order of all voluntary exchanges (Richard Whately defined economics as ‘catallactics,’ or the Science of Exchanges, nearly two centuries ago, and F.A. Hayek coined the above term for the liberal system sometime in the 1960s or 70s) — but that isn’t going to fly.

When someone says they are for or against ‘capitalism,’ we must ask for clarification. When folks call themselves a ‘liberal’ but are only liberal in spending other people’s money, laugh in their faces.

Today’s critics of capitalism must not be allowed to get away with their most characteristic legerdemain, pretending that every problem in our mixed economy is caused only by the ‘free market’ aspect of the system, and not the government part. And conservative defenders of capitalism have got to stop calling the current system ‘free enterprise.’ Wake up and throw out the coffee grounds.

In my opinion, liberals are those who advocate laissez faire capitalism. They oppose the neo-mercantilists of all varieties, and socialists even stronger.

So, back to the question. Why is capitalism not liberalism? Capitalism is an economic order; liberalism is an ideology.

Alas, we are almost always stuck with the tedious job of disambiguating both terms.

twv, October 24, 2019