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Grant McDermott

Data. Economics. Environment.

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Economists are a tribal bunch. The endless list of denominations, schools and sub-schools would be enough to make a Christian theologian blush.

Unfortunately, and while certain irreconcilable differences cannot be denied, there are far too many manufactured controversies that serve only to perpetuate a false sense of "exceptionalism" among various schools of thought. I've written about this kind of thing before, but yesterday a number of blog posts brought the issue to the fore. For instance, here is the indispensable David Glasner arguing persuasively that \(-\) contrary to some dissenting opinions \(-\) Hayek was first and foremost an economist in the neoclassical tradition.

I'd like to briefly focus on a different post written by John Aziz, however, which has also received a fair bit of attention for critiquing the methodology of Ludwig von Mises and Murray Rothbard. I largely agree with what he writes, but was struck by the following introduction:
I am to some extent an Austrian, on three counts.

First, I subscribe to the notion that value is subjective; that goods’ and services’ values differ according to different individuals because they serve various uses to various users, and that value is entirely in the eye of the beholder.

Second, I subscribe to the notion that free markets succeed because of the sensitive price feedback mechanism that allocates resources according to the real underlying shape of supply and demand and conversely the successful long-term allocation of labour, capital and resources by a central planner is impossible (or extremely unlikely), because of the lack of a market feedback mechanism.

Third, I subscribe to the notion that human thought is neither linear nor rational, and the sphere of human behaviour is complicated and multi-dimensional, and that attempts to model it using linear, mechanistic methods will in the long run tend to fail.
This really puzzled me. I sincerely wonder how anyone could regard the first two points as uniquely \(-\) or even especially \(-\) Austrian.[*] Subjective valuation and role of the price mechanism are fundamental concepts to virtually every school of economic thought, and certainly those found within the mainstream corpus. It's true that matters are complicated by the consideration of (say) externalities, but if these qualities are characteristic of Austrians... well, then basically all of us would qualify.

In fact, subjective value didn't even originate as an "Austrian" concept. The idea can be formally traced back to Jules Dupuit at least, a French engineer from the early 19th century who also expressed a keen interest in economics. Ironically, he developed his ideas on subjective utility in response to Jean Baptiste Say \(-\) an otherwise revered figure in Austrian circles \(-\) who had described utility as the objective worth of a good. Similarly, the role of the price mechanism and the impossibility (quote unquote) of central planning was also not entirely original to Mises and Hayek, but a "reprise of earlier Pareto-Barone-Wieser-Taylor debates". Now of course if must be pointed out that, for example, Friedrich von Wieser was a founder of the eponymous Austrian school, but you could convincingly make the case that the key role of prices had been well established long before that...

At this point, I don't wish to be too unkind to John. I enjoyed his post and judging by his response to me in the comments section, he was mostly trying to strike a conciliatory tone before moving on to his criticisms. However, this sort of thing is far too prevalent in the economic debates that I find myself in, with heterodox schools being especially guilty... and I say that as someone with strong sympathies for a number of heterodox positions. Unfortunately, despite a number of valid criticisms against the mainstream, many supporters of heterodox economics continue to demonstrate a very poor understanding of the fact that many of “their” ideas are actively embraced and shared by the rest of the profession. (Nick Rowe is another person recently given to exasperation after dealing with one too many lazy jibes from armchair critics, although in this case I can think of at least one person who is holding firm.)

THOUGHT FOR THE DAY: Denying the impact that your favourite thinkers have had on other economists is a strange way to honour their legacy.
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[*] I'd say there's a case to be made for the third point as well, but it is a more complex topic requiring nuanced discussion so we'll leave it aside for the moment.