Posts Tagged ‘Austrian School’

A Matter of Interest

Sunday, 23 October 2016

Eugen Ritter von Böhm-Bawerk, an important economist of the second generation of the Austrian School, produced a theory of interest rates based upon the interplay of time-preference with the significance of time in production. (Previous theories had either looked towards just the one or towards just the other, or sought explanation in terms of social power.) This theory was adopted by Knut Wicksell and by Irving Fisher. Fisher translated most of the theory into neo-classical, mathematical terms. Hans Mayer provided one important element that Fisher had missed. I was exposed to this neo-classical translation by J[ames] Huston McCulloch in an undergraduate course on money and banking.

Years later, towards creäting a fuller explanation, I played with relaxing some of the assumptions. And some time after that, I wrote a paper for a graduate class in which I extended Fisher's two-period model to handle continuous time (by way of a space of ℵ1 dimensions). I've occasionally thought to write-up that aforementioned fuller explanation, but mostly been put-off by the task of generating the involved graphs to my satisfaction.

Recently, I was sufficiently moved to begin that project. I wasn't imagining doing anything much other than fleshing-out a translation previously effected by others, so I was considering publishing the exposition as a webpage, or as a .pdf.

But, as I've labored it, trying to be clear and correct and reasonably complete, I've seen how to talk about some old disagreements amongst economists that I don't know were ever properly settled — perhaps these quarrels were not even properly understood by any of the major disputants, who each may have been talking past the others. So I may steer towards producing something that I can submit to an academic journal. (The unhappy part of doing that would be identifying and reviewing the literature of the conflict, with which I currently have only second-hand familiarity.)

Perhaps I'll produce both something along the lines that I'd originally intended, and a paper for a journal.

It's the Water

Sunday, 5 June 2016

In the '70s or earlier, it was noticed that, in America, academic departments of economics that were located at or near the Atlantic or Pacific Ocean tended to have one set of attitudes about macrœconomics, while those away from the oceans and in particular near the Great Lakes tended to have another. From this, they were grouped as saltwater and as freshwater (or as sweetwater), respectively.

The distinction was most widely recognized in macrœconomics, with the freshwater departments arguing for founding macrœconomics in micrœconomics considerations (especially in the theory of individual decision-making under uncertainty), for using dynamic models, and for quantification. However, though (or perhaps because) they emphasized the importance of micrœconomic considerations for the development of macrœconomic theory, the freshwater schools seemed more content with standard micrœconomic theory than were the saltwater schools, where non-standard decision-theory was more investigated (while being regarded as less important to macrœconomics).

It has been claimed that the distinction between these groups has faded to irrelevancy, with younger economists having adopted insights from both, and with older disputants having departed. However, since the on-set of the most recent financial crisis, old-fashioned Keynesians have become more vociferous, if not actually much more numerous. (Paul Krugman no longer takes any water with his salt.)

It occurs to me that, for one group of heterodox economists, we might refer to the Wien, or … to the Danube. So … blue-water? (Blauewasser?) Indeed, as one branch of that school-of-thought tends to represent itself as definitive for the whole school, perhaps blue-water could be the more inclusive term.

Meanwhile, through Cambridge runs the River Cam. There's something in that water. Something bad.


Saturday, 21 May 2011

A previous entry quotes a foot-note from Austrian Marginalism and Mathematical Economics by Karl Menger; that foot-note is tied to a sentence that I found particularly striking.

(musings on the relationship of mathematics to economics)

Thoughts on Boolean Laws of Thought

Saturday, 13 February 2010

I first encountered symbolic logic when I was a teenager. Unfortunately, I had great trouble following the ostensible explanations that I encountered, and I didn't recognize that my perplexity was not because the underlying subject were intrinsically difficult for me, but because the explanations that I'd found simply weren't very well written. Symbolic logic remained mysterious, and hence became intimidating. And it wasn't clear what would be its peculiar virtue over logic expressed in natural language, with which I was quite able, so I didn't focus on it. I was perhaps 16 years old before I picked-up any real understanding of any of it, and it wasn't until years after that before I became comfortable not simply with Boolean expression but with processing it as an algebra.

But, by the time that I was pursuing a master's degree, it was often how I generated my work in economics or in mathematics, and at the core of how I presented the vast majority of that work, unless I were directed otherwise. My notion of an ideal paper was and remains one with relatively little natural language.

Partly I have that notion because I like the idea that people who know mathematics shouldn't have to learn or apply much more than minimal English to read a technical paper. I have plenty of praise for English, but there are an awful lot of clever people who don't much know it.

Partly I have that notion because it is easier to demonstrate logical rigor by using symbolic logic. I want to emphasize that word demonstrate because it is possible to be just as logically rigorous while expressing oneself in natural language. Natural language is just a notation; thinking that it is intrinsically less rigorous than one of the symbolic notations is like thinking that Łukasiewicz Polish notation is less rigorous than infixing notation or vice versa. I'll admit that some people may be less inclined to various sorts of errors using one notation as opposed to another, but which notation will vary amongst these people. However, other people don't necessarily see that rigor when natural language is used, and those who are inclined to be obstinate are more likely to exploit the lack of simplicity in natural language.

But, while it may be more practicable to lay doubts to rest when an argument is presented in symbolic form, that doesn't mean that it will be easy for readers to follow whatever argument is being presented. Conventional academic economists use a considerable amount of fairly high-level mathematics, but they tend to use natural language for the purely logical work.[1] And it seems that most of them are distinctly uncomfortable with extensive use of symbolic logic. It's fairly rare to find it heavily used in a paper. I've had baffled professors ask me to explain elementary logical transformations. And, at least once, a fellow graduate student didn't come to me for help, for fear that I'd immediately start writing symbolic logic on the chalk-board. (And perhaps I would have done so, if not asked otherwise.)

The stuff truly isn't that hard, at least when it comes to the sort of application that I make of it. There is a tool-kit of a relatively few simple rules, some of them beautiful, which are used for the lion's share of the work. And, mostly, I want to use this entry to high-light some of those tools, and some heuristics for their use.

First, though, I want to mention a rule that I don't use. (A = A) for all A This proposition, normally expressed in natural language as A is A and called the Law of Identity, is declared by various philosophers to be one of the three Principles of logic. But I have no g_dd_mn'd idea what to do with it. It's not that I would ever want to violate it; it's just that I literally don't see anything useful to it. Ayn Rand and many of those for whom she is preceptrix treat it as an essential insight, but I think that it's just a dummy proposition, telling me that any thing can stand where that thing can stand.[2]

[1] There's an idiotic notion amongst a great many mainstream economists that the Austrian School tradition is somehow less rigorous simply because some of its most significant members eschew overt mathematics in favor of logical deduction expressed in natural language. But most of the mainstream is likewise not using symbolic logic; neither is necessarily being less rigorous than otherwise. The meaning of variables with names such as qt can be every bit as muddled as those called something such as the quantity exchanged at this time. There are good reasons to object to the rather wholesale rejection of overt mathematics by many Austrian School economists, but rigor is not amongst the good reasons.

[2] [Read more.]

An Economics Forecast

Saturday, 7 March 2009

A minor prediction: Over the next few weeks, news stories about the economy are going to make increasing reference to Joseph Alois Schumpeter.

Schumpeter was an economist from the Austrian School. His theory of the business cycle was, however, distinct from that which has come to be seen as the Austrian School theory of business cycles (which theory I will not labor here). Schumpeter believed that economic crises were processes of creative destruction, whereby economies restructured in consequences of accepting pent-up innovations (typically technological) incompatible with the existing order, but ultimately beneficial.

Unless this theory is in some way trivialized, it does not explain the present crisis; but I none-the-less expect various journalists and alleged economists to pitch exactly the idea that it does. And I would actually not be surprised for the economy to emerge significantly restructured, but that would be more a matter of a sort of economic gerrymandering by the Democratic Party, taking advantage of the crisis.